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FORM F-1 (Amendment No. 2)
Table of Contents

As filed with the Securities and Exchange Commission on August 24, 2015

Registration No. 333-205073

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

NABRIVA THERAPEUTICS AG

(Exact Name of Registrant as Specified in Its Charter)

 

 

N/A

(Translation of Registrant’s Name into English)

 

 

 

Republic of Austria   2834   Not applicable
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Colin Broom, Chief Executive Officer

Leberstrasse 20

1110 Vienna, Austria; Tel: +43 (0)1 740 930

(Address, Including ZIP Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

CT Corporation System

111 Eighth Avenue

New York, NY 10011

Tel: (212) 894 8440

(Name, Address, Including ZIP Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

 

Copies to:

Brian A. Johnson, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
7 World Trade Center

250 Greenwich Street

New York, NY 10007

(212) 230 8800

  Eric W. Blanchard, Esq.
Brian K. Rosenzweig, Esq.
Covington & Burling LLP
The New York Times Building
620 Eighth Avenue
New York, NY 10018
(212) 841 1100

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

The information contained in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

 

Subject to completion, dated August 24, 2015

PRELIMINARY PROSPECTUS

                     American Depositary Shares

 

LOGO

Nabriva Therapeutics AG

Representing                      Common Shares

 

 

This is an initial public offering of American Depositary Shares, or ADSs, representing common shares of Nabriva Therapeutics AG. We are offering                      ADSs. Each ADS will represent                      of a common share, nominal value €1.00 per share. Prior to this offering, there has been no public market for our ADSs. We expect the initial public offering price to be between $             and $             per ADS.

We have applied to list our ADSs on The NASDAQ Global Market under the symbol “NBRV.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, we have elected to comply with certain reduced public company reporting requirements for this prospectus and may elect to comply with certain reduced public company reporting requirements for future filings.

 

 

Investing in the ADSs involves a high degree of risk. See “Risk Factors” beginning on page 14.

 

     Per
ADS
     Total  

Initial Public Offering Price

   $                    $                

Underwriting Discounts and Commissions(1)

   $         $     

Proceeds to Us, Before Expenses

   $         $     

 

(1) We have agreed to reimburse the underwriters for certain expenses incurred in connection with this offering. See “Underwriting.”

We have granted the underwriters an option for a period of 30 days to purchase an additional                      ADSs to cover over-allotments, if any. If the underwriters exercise their option in full, the total underwriting discounts and commissions payable by us will be $            , and the total proceeds to us, before expenses, will be $            .

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Delivery of the ADSs is expected to be made on or about                     , 2015.

 

 

 

Leerink Partners   RBC Capital Markets

 

 

 

Needham & Company   Wedbush PacGrow

Prospectus dated                     , 2015


Table of Contents

TABLE OF CONTENTS

 

Prospectus Summary

     1   

Risk Factors

     14   

Special Note Regarding Forward-Looking Statements and Industry Data

     50   

Use of Proceeds

     52   

Dividend Policy

     53   

Capitalization

     54   

Dilution

     56   

Selected Consolidated Financial Data

     59   

Exchange Rate Information

     61   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     62   

Business

     86   

Management

     135   

Related-Party Transactions

     150   

Principal Shareholders

     153   

Description of Share Capital

     158   

Description of American Depositary Shares

     178   

Shares and ADSs Eligible for Future Sale

     185   

Taxation

     187   

Underwriting

     198   

Expenses of the Offering

     206   

Legal Matters

     207   

Experts

     207   

Enforceability of Civil Liabilities

     208   

Where You Can Find Additional Information

     209   

Index to Consolidated Financial Statements

     F-1   

 

 

Neither we nor the underwriters have authorized anyone to provide you with any information other than that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our shares. Our business, financial condition, results of operations and prospects may have changed since that date. This prospectus may only be used where it is legal to offer and sell our shares. Neither we nor the underwriters are making an offer of these securities in any jurisdiction where such offer is not permitted.

Through and including                     , 2015 (25 days after the date of this prospectus), all dealers that buy, sell or trade these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Neither we nor the underwriters have done anything that would permit this public offering of the ADSs outside the United States, or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, this offering of the ADSs and the distribution of this prospectus outside the United States.

 

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Unless the context specifically indicates otherwise, references in this prospectus to “Nabriva Therapeutics AG,” “Nabriva,” “we,” “our,” “ours,” “us,” “our company” or similar terms refer to Nabriva Therapeutics AG together with its subsidiaries. The trademarks, trade names and service marks appearing in this prospectus are the property of their respective owners.

Exchange Rate

We present our consolidated financial statements in euros. All references in this prospectus to “$” are to U.S. dollars and all references to “€” are to euros. Solely for convenience and unless otherwise indicated, certain euro amounts have been translated into U.S. dollars at the rate of €1.00 to $1.1154, the noon buying rate of the Federal Reserve Bank of New York on June 30, 2015. These translations should not be considered representations that any such amounts have been, could have been or could be converted into U.S. dollars at that or any other exchange rate as of that or any other date. See “Exchange Rate Information” elsewhere in this prospectus.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in the ADSs. You should read the entire prospectus carefully, especially the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes appearing elsewhere in this prospectus, before deciding to invest in the ADSs.

Overview

We are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-infective agents to treat serious infections, with a focus on the pleuromutilin class of antibiotics. We are developing our lead product candidate, lefamulin, to be the first pleuromutilin antibiotic available for systemic administration in humans. We are developing both intravenous, or IV, and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia, or CABP, and intend to develop lefamulin for additional indications other than pneumonia. We have completed a Phase 2 clinical trial of lefamulin for acute bacterial skin and skin structure infections, or ABSSSI. Based on the clinical results of lefamulin for ABSSSI, as well as its rapid tissue distribution, including substantial penetration into lung tissue and fluids, we are preparing to initiate two international, pivotal Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. These will be the first clinical trials we have conducted with lefamulin for the treatment of CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. Based on our expectations regarding initiation of these trials and our estimates regarding patient enrollment, we expect to have top-line data available for both trials in late 2017. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018.

The U.S. Food and Drug Administration, or FDA, has designated the IV formulation of lefamulin as a qualified infectious disease product, or QIDP, which provides for the extension of statutory exclusivity periods in the United States for an additional five years upon FDA approval of the product for the treatment of CABP, and granted fast track designation to this formulation of lefamulin. Fast track designation is granted by the FDA to facilitate the development and expedite the review of drugs that treat serious conditions and fill an unmet medical need. The fast track designation for the IV formulation of lefamulin will allow for more frequent interactions with the FDA, the opportunity for a rolling review of any new drug application, or NDA, we submit and eligibility for priority review and a shortening of the FDA’s goal for taking action on a marketing application from ten months to six months.

We believe that lefamulin is well suited for use as a first-line empiric monotherapy for the treatment of CABP because of its:

 

    novel mechanism of action, with potential for slow development of bacterial resistance over time;

 

    spectrum of activity against CABP pathogens, including against multi-drug resistant strains;

 

    achievement of substantial drug concentrations in lung tissue and fluids;

 

    availability as both an IV and oral formulation; and

 

    favorable safety and tolerability profile.

We plan to pursue the continued development of lefamulin for indications in addition to CABP. We intend to further pursue the development of lefamulin for the treatment of ABSSSI and develop a formulation of lefamulin appropriate for pediatric use. In preclinical studies, lefamulin showed activity against a variety of Gram-positive bacteria, Gram-negative bacteria and atypical bacteria, including multi-drug resistant strains.

 



 

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Therefore, in addition to CABP, we plan to conduct a Phase 1 clinical trial of lefamulin in patients with ventilator-associated bacterial pneumonia, or VABP. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with hospital-acquired bacterial pneumonia, or HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against methicillin-resistant Staphylococcus aureus, or MRSA. We also plan to explore development of lefamulin in other indications, including sexually transmitted infections, or STIs, osteomyelitis and prosthetic joint infections. Through our research and development efforts, we have identified a topical pleuromutilin product candidate, BC-7013, which has completed a Phase 1 clinical trial. We also have an ongoing research program focused on evaluating pleuromutilin compounds with enhanced activity against Gram-negative bacteria, which we call extended-spectrum pleuromutilins, or ESPs.

We own exclusive, worldwide rights to lefamulin. Lefamulin is protected by issued patents in the United States, Europe and Japan covering composition of matter, which are scheduled to expire no earlier than 2028. We also have pending patent applications for lefamulin relating to process and pharmaceutical crystalline salt forms, which if issued would be scheduled to expire no earlier than 2031.

 



 

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The following table summarizes the indications for which we are developing our product candidates and the status of development.

 

LOGO

* We are preparing to initiate two international Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. However, we have not conducted any clinical trials of lefamulin specifically for CABP. We have evaluated lefamulin in more than 400 patients and subjects in 16 Phase 1 clinical trials and a Phase 2 clinical trial in ABSSSI. We have obtained input from the FDA and select European authorities and have submitted a request for Special Protocol Assessment, or SPA, to the FDA regarding the study design of our first Phase 3 clinical trial in anticipation of submitting applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018. We have not reached agreement with the FDA regarding our request for an SPA. We do not expect the planned timing of initiation of our Phase 3 clinical trials to depend on reaching agreement with the FDA regarding an SPA.

 



 

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Community-Acquired Bacterial Pneumonia (CABP)

CABP refers to bacterial pneumonia that is acquired outside of a hospital setting. Signs and symptoms of CABP include cough, fever, sputum production and chest pain. The World Health Organization, or WHO, estimated in 2002 that there were approximately 450 million pneumonia cases reported per year worldwide, causing approximately 4.0 million deaths in 2002. According to an article published in 2011 in the peer-reviewed medical journal Therapeutic Advances in Respiratory Disease, the annual incidence of community-acquired pneumonia is between five and 11 cases per 1,000 people, with the incidence rate rising in elderly patients. The U.S. National Center for Health Statistics estimated that between 1988 and 1994 there were approximately 5.6 million cases of pneumonia per year in the United States. According to the U.S. Centers for Disease Control and Prevention, approximately 1.1 million pneumonia patients in the United States required hospitalization in 2010 and approximately 53,000 patients died from pneumonia in 2013.

Based on the most likely bacteria to cause CABP, the Infectious Diseases Society of America, or IDSA, and the American Thoracic Society, or ATS, recommend empiric treatment of hospitalized patients with CABP who do not require treatment in an intensive care unit. To address all likely bacterial pathogens in a patient with a more serious illness, IDSA guidelines recommend using a combination of antibiotics. However, currently available antibiotic therapies for first-line empiric treatment of CABP suffer from limitations related to:

 

    limited spectrum of activity and bacterial resistance;

 

    difficult, inconvenient and costly regimens; and

 

    adverse effects.

Our Approach

We believe that pleuromutilin antibiotics can help address the major public health threat posed by bacterial resistance, which the WHO characterized in 2010 as one of the three greatest threats to human health. Increasing resistance to antibiotics used to treat CABP is a growing concern and has become an issue in selecting the appropriate initial antibiotic treatment prior to determining the specific microbiological cause of the infection, referred to as empiric treatment. Pleuromutilins are semi-synthetic compounds derived from a naturally occurring antibiotic, originally identified from a fungus called Pleurotus mutilis. Pleuromutilins inhibit bacterial growth by binding to a specific site on the bacterial ribosome that is responsible for bacterial protein synthesis. We have developed an understanding of how to optimize characteristics of the pleuromutilin class, such as antimicrobial spectrum, potency, absorption following oral administration and tolerability, which in turn led to our selection and development of lefamulin, our lead product candidate.

Lefamulin

We are developing lefamulin to be the first pleuromutilin antibiotic available for systemic administration in humans. Lefamulin is a semi-synthetic compound that inhibits the synthesis of bacterial protein, which is required for bacteria to grow. Lefamulin acts by binding to the peptidyl transferase center, or PTC, on the bacterial ribosome in such a way that it interferes with the interaction of protein production at two key sites known as the “A” site and the “P” site, resulting in the inhibition of bacterial proteins and the cessation of bacterial growth. Lefamulin’s binding occurs with high affinity, high specificity and at molecular sites that are different than other antibiotic classes.

We have completed a Phase 2 clinical trial for ABSSSI in which IV lefamulin achieved a high cure rate against multi-drug resistant Gram-positive bacteria, including MRSA. In addition, in preclinical studies, lefamulin showed activity against a variety of Gram-positive bacteria, Gram-negative bacteria and atypical bacteria, including multi-drug resistant strains. We believe the preclinical studies and clinical trials we have

 



 

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conducted to date suggest that lefamulin’s novel mechanism of action is responsible for the lack of cross resistance observed with other antibiotic classes and may result in slow development of bacterial resistance to lefamulin over time. As a result of the favorable safety and tolerability profile we have observed in our clinical trials to date, we believe lefamulin will present fewer potential complications relative to the use of current therapies. Based on our research, we also believe that the availability of both IV and oral formulations of lefamulin, and an option to switch to oral treatment, could reduce the length of a patient’s hospital stay and the overall cost of care.

Based on the clinical results of lefamulin for ABSSSI, as well as its rapid tissue distribution, including substantial penetration into lung tissue and fluids, we are preparing to evaluate lefamulin for the treatment of moderate to severe CABP in two international Phase 3 clinical trials. We are initially pursuing the development of lefamulin for CABP because of the limited development of new antibiotic classes for this indication over the past 15 years, our belief that there exists a significant unmet medical need for a first-line empiric monotherapy that addresses the growing development and spread of bacterial resistance, as well as recently clarified FDA guidance regarding the approval pathway. We are designing our planned Phase 3 clinical trials to comply with the guidelines of The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, which are currently used as guidance by the FDA, and good clinical practices. The first Phase 3 clinical trial is designed to assess the non-inferiority of lefamulin compared to the antibiotic moxifloxacin, with or without the addition of the antibiotic linezolid. Therapy in the first trial will be administered by IV dosing with an option to switch patients to oral dosing based on pre-defined criteria. We expect that our second Phase 3 clinical trial will be designed to assess the non-inferiority of oral lefamulin compared to a widely used oral antibiotic comparator, such as moxifloxacin or another fluoroquinolone antibiotic. We are proceeding with the regulatory steps necessary to initiate and conduct these trials, including submission of the trial protocol and relevant information about lefamulin to local regulatory authorities and ethics review committees. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. In addition, we plan to initiate a Phase 1 clinical trial of lefamulin in patients with VABP in late 2015. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against MRSA. We submitted to the FDA an investigational new drug application, or IND, for the IV formulation of lefamulin in September 2009 and an IND for the oral formulation of lefamulin in January 2015. We have also submitted a request for an SPA to the FDA regarding the study design of our first Phase 3 clinical trial of lefamulin for the treatment of CABP.

The FDA responded to our request for an SPA in June 2015. The FDA agreed to certain fundamental elements of our Phase 3 clinical trial, including the proposed duration of therapy, and did not provide any comments disagreeing with our choice of comparator, proposed sample size or primary and secondary endpoints. However, absence of disagreement or comments from the FDA does not represent agreement by the FDA as to these matters. The FDA also informed us that, consistent with our development plans, we will need to conduct two adequate and well-controlled clinical trials of lefamulin for the treatment of CABP if we are only interested in seeking the CABP indication. However, the FDA also provided comments regarding specific prohibited concomitant medications and how we intend to manage and evaluate specific subpopulations within the trial and requested additional information. We are engaging in dialogue with the FDA to seek to address the FDA’s comments. We have provided additional requested information to the FDA and resubmitted our SPA request with the goal of obtaining agreement with the FDA regarding the SPA. Agreement from the FDA regarding an SPA is not a prerequisite to initiating our Phase 3 clinical trials. If we experience any delays in reaching agreement regarding the SPA, and in light of the feedback we have received to date, we would likely withdraw the SPA request and proceed on our current timeline for initiation of our first Phase 3 clinical trial. We do not expect the planned timing of initiation of our Phase 3 clinical trials to depend on reaching agreement with the FDA regarding an SPA.

 



 

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Our Strategy

Our goal is to become a fully integrated biopharmaceutical company focused on the research, development and commercialization of novel anti-infective products. The key elements of our strategy to achieve this goal are:

 

    Complete Phase 3 clinical development of lefamulin for CABP. We are devoting a significant portion of our financial resources and business efforts to completing the clinical development of lefamulin for the treatment of CABP. We are preparing to initiate two international Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018.

 

    Maximize the commercial potential of lefamulin for CABP. We own exclusive, worldwide rights to lefamulin. If lefamulin receives marketing approval from the FDA for the treatment of CABP, we plan to commercialize it in the United States with our own targeted hospital sales and marketing organization that we plan to establish. If lefamulin receives marketing approval outside the United States for the treatment of CABP, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize lefamulin in such markets.

 

    Pursue the continued development of lefamulin in additional indications. We plan to pursue the continued development of lefamulin for indications in addition to CABP. For example, we plan to further pursue the development of lefamulin for the treatment of ABSSSI. In addition, we plan to conduct a Phase 1 clinical trial of lefamulin in patients with VABP and, depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with HABP. We believe that lefamulin’s product profile also provides the opportunity to expand to other indications beyond pneumonia. For example, investigation of the tolerability of higher single doses of lefamulin could also support use of lefamulin for the treatment of STIs. In addition, we plan to explore longer duration of treatment with lefamulin to support development of a treatment for osteomyelitis and prosthetic joint infections.

 

    Advance the development of other pleuromutilin product candidates and possibly compounds in other classes. Our product candidate BC-7013 has completed a Phase 1 clinical trial. We believe that this pleuromutilin compound is well suited for the topical treatment of a variety of Gram-positive infections, including uncomplicated skin and skin structure infections, or uSSSIs. We also are actively pursuing an in-house discovery program to sustain and expand our pipeline with additional product candidates. We believe that ESPs with broadened Gram-negative coverage, representing a new generation of pleuromutilin antibiotics, can help overcome important mechanisms of Gram-negative resistance.

 

    Evaluate business development opportunities and potential collaborations. We plan to evaluate the merits of entering into collaboration agreements with other pharmaceutical or biotechnology companies that may contribute to our ability to efficiently advance our product candidates, build our product pipeline and concurrently advance a range of research and development programs.

Our Corporate Information

We were incorporated in October 2005 in Austria under the name Nabriva Therapeutics Forschungs GmbH, a limited liability company organized under Austrian law, as a spin-off from Sandoz GmbH and commenced operations in February 2006. In 2007, we transformed into a stock corporation under the name Nabriva Therapeutics AG. We are incorporated under the laws of the Republic of Austria and registered at the Commercial Register of the Commercial Court of Vienna. Our executive offices are located at Leberstrasse 20,

 



 

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1110 Vienna, Austria, and our telephone number is +43 (0)1 740 930. Our website address is www.nabriva.com. The information contained on, or accessible through, our website is not a part of this prospectus. Our agent for service of process in the United States is CT Corporation System.

Risks Associated with our Business

Our business is subject to a number of risks of which you should be aware before making an investment decision. These risks are discussed more fully in the “Risk Factors” section of this prospectus. These risks include the following:

 

    We depend heavily on the success of lefamulin. Our ability to generate product revenues, which may not occur for several years, if ever, will depend heavily on our obtaining marketing approval for and commercializing lefamulin.

 

    Our Phase 3 clinical trials of lefamulin for CABP, and other clinical trials we conduct, may not be successful. We have not yet conducted any clinical trials of lefamulin for CABP. Our completed Phase 2 clinical trial evaluated lefamulin for ABSSSI. The results of our completed clinical trials may not predict success in our Phase 3 clinical trials of lefamulin for CABP.

 

    We have a limited operating history. We have not yet demonstrated our ability to successfully complete development of any product candidates, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization.

 

    If we are unable to obtain required marketing approvals for, commercialize, obtain and maintain patent protection for or gain market acceptance by physicians, patients and third-party payors of lefamulin or any of our other product candidates, or experience significant delays in doing so, our business will be materially harmed and our ability to generate revenue will be materially impaired.

 

    We have incurred significant operating losses since inception and will need substantial additional funding. If we are unable to raise capital when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts. As of June 30, 2015, we had accumulated losses of €111.0 million. We expect to incur significant expenses and increasing operating losses for at least the next several years.

 

    If we are classified as a passive foreign investment company in any taxable year, it may result in adverse U.S. federal income tax consequences to U.S. holders of the ADSs.

 

    As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and NASDAQ Stock Market corporate governance rules and are permitted to file less information with the Securities and Exchange Commission, or the SEC, than U.S. companies. This may limit the information available to holders of the ADSs.

Implications of Being an Emerging Growth Company

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

    a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis in this prospectus;

 

    an exemption from compliance with the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 on the design and effectiveness of our internal controls over financial reporting;

 



 

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    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about the company’s executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of: the last day of the fiscal year in which we have more than $1 billion in annual revenues; the date we qualify as a “large accelerated filer,” with more than $700 million in market value of our share capital held by non-affiliates; or the issuance by us of more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. Since we currently report and expect to continue to report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB, we have irrevocably elected not to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.

Implications of Being a Foreign Private Issuer

Our status as a foreign private issuer also exempts us from compliance with certain laws and regulations of the SEC and certain regulations of The NASDAQ Stock Market. Consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our senior management and supervisory board members are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information.

We may take advantage of these exemptions until such time as we no longer qualify as a foreign private issuer. In order to maintain our current status as a foreign private issuer, either a majority of our shares must be either directly or indirectly owned of record by non-residents of the United States, or a majority of our executive officers or directors may not be United States citizens or residents, more than 50% of our assets cannot be located in the United States and our business must be administered principally outside the United States.

 



 

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THE OFFERING

 

ADSs offered by us:

                     ADSs

 

ADSs to be outstanding immediately following this offering:

                     ADSs

 

Common shares to be outstanding immediately following this offering:


                     common shares

 

Option to purchase additional ADSs

We have granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase an aggregate of up to                      additional ADSs to cover over-allotments, if any.

 

The ADSs

Each ADS represents                      of a common share, nominal value €1.00 per share.

 

  The depositary will hold the common shares underlying your ADSs. You will have rights as provided in the deposit agreement. You may surrender your ADSs and withdraw the underlying common shares. The depositary will charge you fees for, among other acts, any surrender of ADSs for the purpose of withdrawal. We and the depositary may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the terms of the deposit agreement then in effect.

 

  To better understand the terms of the ADSs, you should carefully read “Description of American Depositary Shares” in this prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement of which this prospectus forms a part.

 

Depositary

The Bank of New York Mellon

 

Use of proceeds

We currently estimate that we will use the net proceeds from this offering, together with our existing cash and cash equivalents, to complete the clinical development of lefamulin for CABP, to pursue the clinical development of lefamulin for additional indications and for earlier stage research and development activities and for working capital and other general corporate purposes.

 

  See “Use of Proceeds” for additional information.

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

 

Directed shares

At our request, the underwriters have reserved for sale, at the initial public offering price, up to     % of the ADSs offered hereby for employees, members of our supervisory board and other persons

 

 

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associated with us who have expressed an interest in purchasing ADSs in the offering. The number of ADSs available for sale to the general public will be reduced to the extent that these individuals purchase all or a portion of these reserved ADSs. Any reserved ADSs not so purchased will be offered by the underwriters to the general public on the same basis as the other ADSs offered by this prospectus. See “Underwriting” for more information.

 

Listing

We have applied to list the ADSs on The NASDAQ Global Market under the symbol “NBRV.”

The total number of common shares to be outstanding after this offering is based on 1,063,972 common shares outstanding as of July 31, 2015 and an additional 9,912 common shares issuable for nominal value to certain existing shareholders upon the closing of this offering in satisfaction of the preferred dividend rights under a shareholders agreement providing for contractual preference rights, assuming the closing of this offering occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share from our financing in April 2015 in which we issued an aggregate of 730,162 common shares with contractual preference rights under the shareholders agreement for cash consideration and certain contributions in-kind, which we refer to as our April 2015 financing. The actual number of additional common shares issuable for nominal value upon the closing of this offering in satisfaction of the preferred dividend rights will be determined by dividing the value of the preferred dividend amounts calculated in accordance with the shareholders agreement as of the closing date of this offering by the actual initial public offering price of the common shares underlying the ADSs and reflecting the euro-for-U.S. dollar exchange rate as of the date of the final prospectus for this offering. See “Description of Share Capital” for more information.

The number of common shares to be outstanding after this offering excludes:

 

    116,038 common shares issuable upon the exercise of options outstanding as of July 31, 2015 at a weighted average exercise price of €53.81 per share;

 

    85,594 additional common shares reserved for future issuance as of the closing of this offering under our Stock Option Plan 2015; and

 

    2,819 common shares held in treasury as of July 31, 2015.

Unless otherwise indicated, all information in this prospectus assumes:

 

    no exercise of the outstanding options described above;

 

    no exercise by the underwriters of their option to purchase an aggregate of up to an additional                      ADSs to cover over-allotments, if any; and

 

    the termination, upon the closing of this offering and issuance of the shares described above for nominal value, of the contractual preference rights provided for by the shareholders agreement.

 



 

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SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data as of and for the years ended December 31, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data as of and for the six months ended June 30, 2014 and 2015 have been derived from our unaudited condensed consolidated interim financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of June 30, 2015 and our results of operations for the six months ended June 30, 2014 and 2015. We present our consolidated financial statements in euros and in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

The summary consolidated financial data below should be read together with those consolidated financial statements and related notes included elsewhere in this prospectus as well as the “Selected Consolidated Financial Data” and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

Consolidated Statement of Comprehensive Income (Loss) Data:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
(in thousands, except share and per share data)    2013     2014     2014     2015  

Other income

   26,182      1,805      951      1,348   

Research and development expenses

     (7,324     (7,065     (3,459     (6,802

General and administrative expenses

     (2,869     (2,876     (1,051     (2,298

Other gains (losses), net

     171        105        35        (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating result

  16,160      (8,031   (3,524   (7,753
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

  4,026      1,086      2,075      6,154   

Financial expenses

  (8,200   (6,363   (2,668   (12,474
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial result

  (4,174   (5,277   (593   (6,320

Profit (loss) before taxes

  11,986      (13,308   (4,117   (14,073
  

 

 

   

 

 

   

 

 

   

 

 

 

Taxes on income

  (776   (72   (2   (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

  11,210      (13,380   (4,119   (14,085
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) for the period

  —        (21   —        14   

Total comprehensive income (loss) for the period

11,210    (13,401 (4,119 (14,071
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share(1)

Basic

34.53    (41.21 (12.68 (28.75
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

27.89    (41.21 (12.68 (28.75
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

Basic

  324,703      324,703      324,703      489,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  369,993      324,703      324,703      489,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma earnings (loss) per share, basic and diluted (unaudited)(2)

(8.49 (7.70
    

 

 

     

 

 

 

Shares used to compute pro forma earnings (loss) per share,
basic and diluted (unaudited)(2)

  1,073,884      1,073,884   
    

 

 

     

 

 

 

 

 

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(1) Basic and diluted loss per share are the same for the year ended December 31, 2014 and for the six months ended June 30, 2014 and 2015 because the assumed exercise of outstanding options and the assumed exercise of the conversion feature in our convertible loans would be anti-dilutive due to our net loss in these periods.
(2) The unaudited pro forma earnings (loss) per share data gives effect to (i) the issuance in April 2015 of 730,162 common shares with contractual preference rights under a shareholders agreement, which includes (a) the sale of 511,188 common shares for cash consideration of €42.1 million, (b) the exchange of the amounts outstanding under convertible loans into 203,750 common shares and (c) the exchange of silent partnership interests into 15,224 common shares, (ii) the issuance of 9,107 common shares with contractual preference rights to Kreos Capital IV (Expert Fund) Limited, (iii) the issuance of an aggregate of 9,912 common shares to certain existing shareholders upon the closing of this offering for nominal value in satisfaction of the preferred dividend rights under the shareholders agreement providing for contractual preference rights, assuming the closing occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share for our April 2015 financing and (iv) the repayment in full of approximately €1.7 million in principal and interest under a loan from the Austrian Research Promotion Agency, as if each had occurred on January 1, 2014.

Consolidated Statement of Financial Position Data:

The following table summarizes our consolidated statement of financial position data as of June 30, 2015:

 

    on an actual basis;

 

    on a pro forma basis to give effect to:

 

    the issuance of 9,107 common shares with contractual preference rights under a shareholders agreement to Kreos Capital IV (Expert Fund) Limited in July 2015 at a price of €1.00 per share pursuant to the exercise of a warrant; and

 

    the issuance of an aggregate of 9,912 common shares upon the closing of this offering for nominal value to certain existing shareholders in satisfaction of the liability associated with the preferred dividend rights under the shareholders agreement providing for contractual preference rights, assuming the closing occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share for our April 2015 financing; and

 

    on a pro forma as adjusted basis to give further effect to:

 

    the sale of                      ADSs by us in this offering, assuming an initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us; and

 

    the one-time payment of a profit share fee of €0.3 million to the Austria Wirtschaftsservice GmbH, which we are required to pay upon the completion of this offering.

 

     As of June 30, 2015  
(in thousands)    Actual          Pro Forma          Pro Forma
As Adjusted(1)
 

Cash and cash equivalents

   34,860       34,879                          

Total assets

     38,086         38,105      

Total debt

     3,410         3,410      

Preferred dividend rights(2)

     3,789         —        

Total liabilities

     14,253         9,169      

Accumulated losses

     (110,990      (110,990   

Total equity (deficit)

     23,833         28,936      

 



 

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(1) Each $1.00 increase or decrease in the assumed initial public offering price of $             per ADS would increase or decrease, as applicable, the amount of cash and cash equivalents, total assets and total equity by $         million (€         million), assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ADSs we are offering. An increase or decrease of                      in the number of ADSs we are offering would increase or decrease, as applicable, the amount of cash and cash equivalents, total assets and total equity by approximately $         million (€         million), assuming the assumed initial public offering price per ADS remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
(2) All contractual preference rights under the shareholders agreement, including the preferred dividend rights, will terminate upon the closing of this offering and issuance of the shares for nominal value in satisfaction of the preferred dividend rights.

 



 

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RISK FACTORS

Investing in the ADSs involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in the ADSs. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially. In such event, the trading price of the ADSs could decline and you could lose part or all of your investment.

Risks Related to Our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never generate profits from operations or maintain profitability.

Since inception, we have incurred significant operating losses. Our net loss was €14.1 million for the six months ended June 30, 2015 and €13.4 million for the year ended December 31, 2014. We generated a net profit of €11.2 million for the year ended December 31, 2013, primarily from the recognition of non-recurring income of €20.9 million as a result of the repurchase of a $25.0 million loan for €1.00 in connection with the termination by Forest Laboratories Inc., or Forest, of a stock purchase agreement and a decision by Forest not to exercise a related right to acquire us. As of June 30, 2015, we had accumulated losses of €111.0 million. To date, we have financed our operations primarily through private placements of our common shares, convertible loans and research and development support from governmental grants and loans. We have devoted substantially all of our efforts to research and development, including clinical trials. We have not completed development of any drugs. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year.

We anticipate that our expenses will increase substantially in connection with initiating and completing the planned international Phase 3 clinical trials of our lead product candidate, lefamulin, for the treatment of community-acquired bacterial pneumonia, or CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. If the results of these two trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018. In addition, we plan to conduct a Phase 1 clinical trial of lefamulin in patients with ventilator-associated bacterial pneumonia, or VABP. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with hospital-acquired bacterial pneumonia, or HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against methicillin-resistant Staphylococcus aureus, or MRSA. We also plan to further characterize the clinical pharmacology of lefamulin. If we obtain marketing approval of lefamulin for CABP or another indication, we also expect to incur significant sales, marketing, distribution and manufacturing expenses.

In addition, our expenses will increase if and as we:

 

    initiate or continue the research and development of lefamulin for additional indications and of our other product candidates;

 

    seek to discover and develop additional product candidates;

 

    seek marketing approval for any product candidates that successfully complete clinical development;

 

    ultimately establish a sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we receive marketing approval;

 

    in-license or acquire other products, product candidates or technologies;

 

    maintain, expand and protect our intellectual property portfolio;

 

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    expand our physical presence in the United States; and

 

    add operational, financial and management information systems and personnel, including personnel to support our product development, our operations as a public company and our planned future commercialization efforts.

Our ability to generate profits from operations and remain profitable depends on our ability to successfully develop and commercialize drugs that generate significant revenue. Based on our current plans, we do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, lefamulin. We do not expect to obtain marketing approval before 2018, if at all. This will require us to be successful in a range of challenging activities, including:

 

    initiating and obtaining favorable results from our Phase 3 clinical trials of lefamulin for the treatment of CABP;

 

    subject to obtaining favorable results from our Phase 3 clinical trials, applying for and obtaining marketing approval for lefamulin;

 

    establishing sales, marketing and distribution capabilities to effectively market and sell lefamulin in the United States;

 

    establishing collaboration, distribution or other marketing arrangements with third parties to commercialize lefamulin in markets outside the United States;

 

    protecting our rights to our intellectual property portfolio related to lefamulin;

 

    contracting for the manufacture of commercial quantities of lefamulin; and

 

    negotiating and securing adequate reimbursement from third-party payors for lefamulin.

We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to generate profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

We will need substantial additional funding. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We expect our research and development and other expenses to increase substantially in connection with our ongoing activities, particularly as we continue the development of and potentially seek marketing approval for lefamulin and, possibly, other product candidates and continue our research activities. Our expenses will increase if we suffer any delays in our Phase 3 clinical program for lefamulin for CABP, including delays in receipt of regulatory clearance to begin our Phase 3 clinical trials or delays in enrollment of patients. If we obtain marketing approval for lefamulin or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

We expect that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least until                     . We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support or through collaboration agreements.

 

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Our future capital requirements will depend on many factors, including:

 

    the progress, costs and results of our Phase 3 clinical trials of lefamulin;

 

    the costs and timing of process development and manufacturing scale-up activities associated with lefamulin;

 

    the costs, timing and outcome of regulatory review of lefamulin;

 

    the costs of commercialization activities for lefamulin if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities;

 

    subject to receipt of marketing approval, revenue received from commercial sales of lefamulin;

 

    the costs of developing lefamulin for the treatment of additional indications;

 

    our ability to establish collaborations on favorable terms, if at all;

 

    the scope, progress, results and costs of product development of BC-7013 and any other product candidates that we may develop;

 

    the extent to which we in-license or acquire rights to other products, product candidates or technologies;

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

    the rate of the expansion of our physical presence in the United States; and

 

    the costs of operating as a public company in the United States.

Conducting clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. Our commercial revenues, if any, will be derived from sales of lefamulin or any other products that we successfully develop, none of which we expect to be commercially available for several years, if at all. In addition, if approved, lefamulin or any other product candidate that we develop, in-license or acquire may not achieve commercial success. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

Raising additional capital may cause dilution to our securityholders, including purchasers of ADSs in this offering, restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and funding from local and international government entities and non-government organizations in the disease areas addressed by our product candidates and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a securityholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

 

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Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Our operations to date have been limited to organizing and staffing our company, developing and securing our technology, raising capital and undertaking preclinical studies and clinical trials of our product candidates. We have not yet demonstrated our ability to successfully complete development of any product candidates, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

Risks Related to Product Development and Commercialization

We depend heavily on the success of our lead product candidate, lefamulin, which we are developing for CABP and other indications. If we are unable to complete our Phase 3 clinical program for lefamulin for CABP and obtain marketing approvals for lefamulin, or if thereafter we fail to commercialize lefamulin or experience significant delays in doing so, our business will be materially harmed.

We have invested a significant portion of our efforts and financial resources in the development of lefamulin. There remains a significant risk that we will fail to successfully develop lefamulin for CABP or any other indication. We do not expect to have top-line data from our Phase 3 clinical program for lefamulin for the treatment of CABP available until late 2017. The timing of the availability of such top-line data and the completion of our Phase 3 clinical program is dependent, in part, on our ability to locate and enroll a sufficient number of eligible patients in our Phase 3 clinical program on a timely basis. If we ultimately obtain favorable results from our Phase 3 clinical program for lefamulin for CABP, we do not expect to submit applications for marketing approval for lefamulin for this indication until 2018.

Our ability to generate product revenues, which may not occur for several years, if ever, will depend heavily on our obtaining marketing approval for and commercializing lefamulin. The success of lefamulin will depend on a number of factors, including the following:

 

    obtaining favorable results from clinical trials;

 

    making arrangements with third-party manufacturers for commercial supply and receiving regulatory approval of our manufacturing processes and our third-party manufacturers’ facilities from applicable regulatory authorities;

 

    receipt of marketing approvals from applicable regulatory authorities for lefamulin for the treatment of CABP;

 

    launching commercial sales of lefamulin, if and when approved, whether alone or in collaboration with third parties;

 

    acceptance of lefamulin, if and when approved, by patients, the medical community and third-party payors;

 

    effectively competing with other therapies;

 

    maintaining a continued acceptable safety profile of lefamulin following approval;

 

    obtaining and maintaining patent and trade secret protection and regulatory exclusivity; and

 

    protecting our rights in our intellectual property portfolio.

Successful development of lefamulin for the treatment of additional indications, if any, or for use in other patient populations and our ability, if it is approved, to broaden the label for lefamulin will depend on similar factors.

 

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If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize lefamulin for CABP or for any additional indications, which would materially harm our business.

If clinical trials of lefamulin or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the U.S. Food and Drug Administration, or FDA, regulatory authorities in the European Union, or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of lefamulin or any other product candidate.

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We have not conducted any clinical trials of lefamulin specifically for CABP. Our completed Phase 2 clinical trial evaluated lefamulin in patients with acute bacterial skin and skin structure infections, or ABSSSI. Our Phase 1 clinical trials evaluated lefamulin in healthy subjects to obtain tolerance data and to understand the absorption and distribution of lefamulin in the blood and target tissues, evaluate the metabolism and elimination route of lefamulin and obtain safety and tolerability data to help predict safe and effective doses of lefamulin for the treatment of patients. In addition, we plan to use a different intravenous, or IV, formulation of lefamulin for our Phase 3 clinical trials for CABP than we used in our Phase 2 clinical trial for ABSSSI. We have only evaluated this new IV formulation of lefamulin, a sterile saline solution buffered by a citrate salt, in Phase 1 clinical trials. Because of these and other factors, the results of our completed clinical trials may not predict success in our Phase 3 clinical trials of lefamulin for CABP. Although we believe that the collective data from prior trials and our preclinical studies provide support for concluding that lefamulin is well suited for treatment of CABP, we may fail to obtain favorable results in our Phase 3 clinical trials of lefamulin for CABP. If the results of our Phase 3 clinical trials are not favorable, including failure to achieve the primary efficacy endpoints of the trials, we may need to conduct additional clinical trials at significant cost or altogether abandon development of lefamulin for CABP and potentially other indications.

If we are required to conduct additional clinical trials or other testing of lefamulin or any other product candidate that we develop beyond those that we contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

 

    be delayed in obtaining marketing approval for our product candidates;

 

    not obtain marketing approval at all;

 

    obtain approval for indications or patient populations that are not as broad as intended or desired;

 

    obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

    be subject to additional post-marketing testing requirements or restrictions; or

 

    have the product removed from the market after obtaining marketing approval.

 

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The occurrence of any of the developments listed above could materially harm our business, financial condition, results of operations and prospects.

If we experience any of a number of possible unforeseen events in connection with our planned Phase 3 clinical trials of lefamulin for CABP or other clinical trials, the potential marketing approval or commercialization of lefamulin or other product candidates could be delayed or prevented.

We may experience numerous unforeseen events during, or as a result of, our planned Phase 3 clinical trials of lefamulin for CABP or other clinical trials we conduct that could delay or prevent our ability to receive marketing approval or commercialize lefamulin or our other product candidates, including:

 

    clinical trials of lefamulin or our other product candidates may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

    the number of patients required for clinical trials of lefamulin for CABP, lefamulin for other indications or our other product candidates may be larger than we anticipate, enrollment in these clinical trials may be slower than we anticipate or participants may drop out of these clinical trials at a higher rate than we anticipate;

 

    we may be unable to enroll a sufficient number of patients in our planned Phase 3 clinical trials of lefamulin for CABP or other clinical trials we conduct to ensure adequate statistical power to detect any statistically significant treatment effects;

 

    our third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;

 

    regulators, institutional review boards or independent ethics committees may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site or may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;

 

    we may experience delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;

 

    we may have to suspend or terminate our planned Phase 3 clinical trials of lefamulin for CABP or other clinical trials of our product candidates for various reasons, including a finding that the participants are being exposed to unacceptable health risks;

 

    the cost of clinical trials of our product candidates may be greater than we anticipate;

 

    the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate; and

 

    our product candidates may have undesirable side effects or other unexpected characteristics, causing us or our investigators, regulators, institutional review boards or independent ethics committees to suspend or terminate the trials.

For example, we may need to enroll more patients in our Phase 3 clinical trials of lefamulin for CABP than we currently anticipate if, among other reasons, an interim analysis indicates that a larger number of patients is required to generate additional data. We expect that we will need to conduct an interim analysis of 60% of the blinded enrolled patients for each of our two Phase 3 clinical trials of lefamulin for CABP to determine if an increase in the number of patients in either trial is required based on whether the observed clinical response is consistent with the point estimate used in determining the trial sample size. An increase in the number of patients in either of these trials could delay our expected development and approval timelines for lefamulin for CABP.

 

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Our product development costs will increase if we experience delays in testing or marketing approvals. We do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully commercialize our product candidates and may harm our business and results of operations.

If we experience delays or difficulties in the enrollment of patients in our clinical trials, our receipt of necessary marketing approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials of lefamulin or any other product candidate that we develop if we are unable to locate and enroll a sufficient number of eligible patients to participate in these clinical trials. In particular, we may experience enrollment challenges at trial sites in the United States, where it is a common practice to place patients with potential moderate to severe CABP on antibiotics very shortly after examination. This practice could prevent potential U.S. trial patients from being enrolled in our clinical trials based on our eligibility criteria. In addition, some of our competitors have ongoing clinical trials for product candidates that could be competitive with lefamulin, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates.

Patient enrollment is affected by other factors including:

 

    severity of the disease under investigation;

 

    eligibility criteria for the clinical trial in question;

 

    perceived risks and benefits of the product candidate under study;

 

    approval of other therapies to treat the disease under investigation;

 

    efforts to facilitate timely enrollment in clinical trials;

 

    patient referral practices of physicians;

 

    the time of year in which the trial is initiated or conducted, geographic distribution of trial sites given the timing of pneumonia season globally and seasonal variability in the number of patients affected by the disease under investigation, including a general decline in the number of patients with CABP during the summer months;

 

    the ability to monitor patients adequately during and after treatment; and

 

    proximity and availability of clinical trial sites for prospective patients.

Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of the company to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients in our Phase 3 clinical trials of lefamulin for CABP or any of our other clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

If serious adverse or undesirable side effects are identified during the development of lefamulin or any other product candidate that we develop, we may need to abandon or limit our development of that product candidate.

All of our product candidates are in clinical or preclinical development and their risk of failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in clinical or earlier stage testing have later been found to cause side effects or other safety issues that prevented further development of the compound.

 

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Lefamulin was well tolerated in our Phase 2 trial. No patient in the trial suffered any serious adverse events that were found to be related to lefamulin, and no patient in the trial died. Some patients experienced adverse events that were assessed by the investigator as possibly or probably related to study medication. The majority of their symptoms were mild in severity. Four patients discontinued study medication following a drug-related event, three of whom were in a lefamulin treatment group: one patient experienced events of hyperhidrosis, vomiting and headache; one patient experienced infusion site pain; and one patient experienced dyspnea.

Because the potential for mild effect on electrocardiogram, or ECG, measurements was observed in preclinical studies, we have continued to assess this potential in all human clinical trials we have conducted. In the Phase 2 clinical trial, no change in ECG measurements was considered to be of clinical significance, and no drug-related cardiovascular adverse event was reported. Both lefamulin and vancomycin treatment were associated with a small increase in the QT interval. The QT interval is a measure of the heart’s electrical cycle, with a lengthened QT interval representing a marker for potential ventricular arrhythmia. We plan to continue to evaluate the effect of lefamulin on the QT interval in future clinical trials, including our Phase 3 clinical trials of lefamulin for CABP.

There were no systemic adverse events of clinical concern and no drug-related serious adverse events observed in any of our Phase 1 clinical trials of lefamulin. In these trials, the most commonly observed adverse effects with oral administration of lefamulin were related to the gastrointestinal tract, including nausea and abdominal discomfort, while the most commonly observed adverse effects related to IV administration were related to irritation at the infusion site. In addition, lefamulin produced a transient, predictable and reproducible prolongation of the QT interval based on the maximum concentration of the drug in the blood plasma. At therapeutic doses, we expect that the drug will not produce large effects on the QT interval that would be of clinical relevance. We did not observe any drug-related cardiac adverse events, such as increase in ectopic ventricular activity or other cardiac arrhythmia, or clinically relevant ECG findings during the conduct of any of our Phase 1 clinical trials. None of the ECG stopping criteria defined in the trial protocols was reached in any clinical trial. However, if we observe clinically relevant effects on the QT interval in our Phase 3 clinical trials of lefamulin for CABP or in any other clinical trial of lefamulin, our ability to successfully develop lefamulin for CABP or any other indication may be significantly delayed or prevented.

If we elect or are forced to suspend or terminate any clinical trial of lefamulin or any other product candidates that we are developing, the commercial prospects of lefamulin or such other product candidates will be harmed and our ability to generate product revenues, if at all, from lefamulin or any of these other product candidates will be delayed or eliminated. Any of these occurrences could materially harm our business, financial condition, results of operations and prospects.

Even if lefamulin or any other product candidate receives marketing approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for lefamulin may be smaller than we estimate.

If lefamulin or any of our other product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. For example, current treatments for pneumonia, including generic options, are well established in the medical community, and doctors may continue to rely on these treatments without lefamulin. In addition, our efforts to effectively communicate lefamulin’s differentiating characteristics and key attributes to clinicians and hospital pharmacies with the goal of establishing favorable formulary status for lefamulin may fail or may be less successful than we expect. If lefamulin does not achieve an adequate level of acceptance, we may not generate significant product revenues or any profits from operations. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

    the efficacy and potential advantages compared to alternative treatments;

 

    lefamulin’s ability to limit the development of bacterial resistance in the pathogens it targets;

 

    the prevalence and severity of any side effects;

 

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    the ability to offer our product candidates for sale at competitive prices, including in comparison to generic competition;

 

    convenience and ease of administration compared to alternative treatments;

 

    the willingness of the target patient population to try new therapies, physicians to prescribe these therapies and hospitals to approve the cost and use by its physicians of these therapies;

 

    the strength of marketing and distribution support;

 

    the availability of third-party coverage and adequate reimbursement; and

 

    the timing of any marketing approval in relation to other product approvals.

Although we believe that the mechanism of action for pleuromutilin antibiotics may result in slow development of bacterial resistance to lefamulin or our other pleuromutilin product candidates over time, bacteria might nevertheless develop resistance to lefamulin or our other pleuromutilin product candidates more rapidly or to a greater degree than we anticipate. If bacteria develop such resistance, or if lefamulin is not effective against drug-resistant bacteria, the efficacy of these product candidates would decline, which would negatively affect our potential to generate revenues from these product candidates.

Our ability to negotiate, secure and maintain third-party coverage and reimbursement may be affected by political, economic and regulatory developments in the United States, the European Union and other jurisdictions. Governments continue to impose cost containment measures, and third-party payors are increasingly challenging prices charged for medicines and examining their cost effectiveness, in addition to their safety and efficacy. If the level of reimbursement is below our expectations, our revenue and gross margins would be adversely affected. Obtaining formulary approval from third-party payors can be an expensive and time-consuming process. We cannot be certain if and when we will obtain formulary approval to allow us to sell lefamulin or any future product candidates into our target markets. Even if we do obtain formulary approval, third-party payors, such as government or private health care insurers, carefully review and increasingly question the coverage of, and challenge the prices charged for, drugs. These and other similar developments could significantly limit the degree of market acceptance of lefamulin or any of our other product candidates that receive marketing approval.

If we are unable to establish sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, we may not be successful in commercializing lefamulin or any other product candidate if and when they are approved.

We do not have a sales, marketing or distribution infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product, we must either develop a sales, marketing and distribution organization or outsource these functions to third parties. If lefamulin receives marketing approval, we plan to commercialize it in the United States with our own targeted hospital sales and marketing organization that we plan to establish. In addition, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize lefamulin in markets outside the United States.

There are risks involved with establishing our own sales, marketing and distribution capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing and distribution capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our products on our own include:

 

    our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;

 

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    the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe any future products;

 

    the lack of complementary products to be offered by sales personnel, which may put our sales representatives at a competitive disadvantage relative to sales representatives from companies with more extensive product lines; and

 

    unforeseen costs and expenses associated with creating an independent sales, marketing and distribution organization.

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market, sell and distribute ourselves any products that we develop. In addition, we may not be successful in entering into arrangements with third parties to sell, market and distribute our product candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to lefamulin and any other products we may seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

There are a variety of available therapies marketed for the treatment of CABP. Currently the treatment of CABP is dominated by generic products. For hospitalized patients, combination therapy is frequently used. Many currently approved drugs are well-established therapies and are widely accepted by physicians, patients and third-party payors. We also are aware of various drugs under development for the treatment of CABP, including solithromycin, (under Phase 3 clinical development by Cempra Inc.), dalbavancin (under Phase 3 clinical development by Actavis plc.), omadacycline (under Phase 3 clinical development by Paratek Pharmaceuticals Inc.) and delafloxacin (under Phase 3 clinical development by Melinta Therapeutics Inc.).

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are approved for broader indications or patient populations, are more convenient or are less expensive than any products that we may develop. Our competitors may also obtain marketing approvals for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected because in some cases insurers or other third-party payors seek to encourage the use of generic products. This may have the effect of making branded products less attractive, from a cost perspective, to buyers. We expect that if lefamulin is approved for CABP, it will be priced at a significant premium over competitive generic products. This may make it difficult for us to replace existing therapies with lefamulin. The key competitive factors affecting the success of our product candidates are likely to be their efficacy, safety, convenience, price and the availability of coverage and reimbursement from government and other third-party payors.

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining approvals from regulatory authorities and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our

 

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competitors. Smaller and other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to or necessary for our programs.

Even if we are able to commercialize lefamulin or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.

The regulations that govern marketing approvals, pricing, coverage and reimbursement for new drug products vary widely from country to country. Current and future legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if our product candidates obtain marketing approval.

Our ability to commercialize lefamulin or any other product candidate successfully also will depend in part on the extent to which coverage and adequate reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and other third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A major trend in the E.U. and U.S. healthcare industries and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for lefamulin or any other product that we commercialize and, if coverage and reimbursement are available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. Obtaining and maintaining adequate reimbursement for lefamulin may be particularly difficult because of the number of generic drugs, which are typically available at lower prices, that are available to treat CABP. In addition, third-party payors are likely to impose strict requirements for reimbursement of a higher priced drug, such as lefamulin. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize lefamulin or other product candidates for which we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the applicable regulatory authority. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs, and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. In the United States, third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. In the European Union, reference pricing systems and other measures may lead to cost containment and reduced prices. Our inability to promptly obtain coverage and

 

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adequate reimbursement rates from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

Product liability lawsuits against us could divert our resources, cause us to incur substantial liabilities and to limit commercialization of any products that we may develop or in-license.

We face an inherent risk of product liability exposure related to the testing of lefamulin and any other product candidate that we develop in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop or in-license. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

    reduced resources of our management to pursue our business strategy;

 

    decreased demand for any product candidates or products that we may develop;

 

    injury to our reputation and significant negative media attention;

 

    withdrawal of clinical trial participants;

 

    significant costs to defend the related litigation;

 

    substantial monetary awards to trial participants or patients;

 

    loss of revenue; and

 

    the inability to commercialize any products that we may develop.

Prior to the commencement of the first of our planned Phase 3 clinical trials, we plan to obtain product liability insurance that covers our clinical trials up to at least a $10 million annual aggregate limit and subject to a per claim deductible. This amount of insurance may not be adequate to cover all liabilities that we may incur. We will need to increase our insurance coverage when and if we begin commercializing lefamulin or any other product candidate that receives marketing approval. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or 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 and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations currently, and may in the future, involve the use of hazardous and flammable materials, including chemicals and medical and biological materials, and produce hazardous waste products. Even if we contract with third parties for the disposal of these materials and wastes, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials or disposal of hazardous wastes, we could be held liable for any resulting damages, and any liability could exceed our resources.

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, this insurance may not provide adequate coverage against potential liabilities. We also maintain liability insurance for some of these risks, but our policy excludes pollution and has a coverage limit of $1.0 million.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

 

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Risks Related to Our Dependence on Third Parties

Use of third parties to manufacture our product candidates may increase the risk that we will not have sufficient quantities of our product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

We do not own or operate manufacturing facilities for the production of clinical or commercial supplies of lefamulin, or any other compound that we are developing or evaluating in our research program. We have limited personnel with experience in drug manufacturing and lack the resources and the capabilities to manufacture any of our product candidates on a clinical or commercial scale. We currently rely on third parties for supply of lefamulin, and our strategy is to outsource all manufacturing of our product candidates and products to third parties.

We do not currently have any agreements with third-party manufacturers for the long-term commercial supply of any of our product candidates. We obtain the pleuromutilin starting material for lefamulin from a single-third party manufacturer. Sandoz GmbH, or Sandoz, a division of Novartis AG, or Novartis, currently manufacturers our supply of pleuromutilin, which Sandoz uses internally to manufacture veterinary products. Another third-party manufacturer synthesizes lefamulin from the pleuromutilin starting material and provides our supply of the active pharmaceutical ingredient. We engage separate manufacturers to provide fill and finish services for the finished product that we are using in our clinical trials of lefamulin. We may be unable to conclude agreements for commercial supply with third-party manufacturers, or may be unable to do so on acceptable terms.

Even if we are able to establish and maintain arrangements with third-party manufacturers, reliance on third-party manufacturers entails risks, including:

 

    reliance on the third party for regulatory compliance and quality assurance;

 

    the possible breach of the manufacturing agreement by the third party;

 

    the possible misappropriation of our proprietary information, including our trade secrets and know-how; and

 

    the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us.

Third-party manufacturers may not be able to comply with current good manufacturing practice, or cGMP, regulations or similar regulatory requirements outside the United States. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.

Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us.

If the third parties that we engage to supply any materials or manufacture product for our preclinical tests and clinical trials should cease to continue to do so for any reason, we likely would experience delays in advancing these trials while we identify and qualify replacement suppliers and we may be unable to obtain replacement supplies on terms that are favorable to us. For example, there are only a limited number of known manufacturers that produce pleuromutilin. In early 2015, Novartis announced the sale of its animal health division, including its veterinary products, to a third party. As a result, it is possible that we will need to arrange for a new third-party supplier of pleuromutilin. In addition, if we are not able to obtain adequate supplies of our product candidates or the drug substances used to manufacture them, it will be more difficult for us to develop our product candidates and compete effectively.

 

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Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any products that receive marketing approval on a timely and competitive basis.

We rely on third parties to conduct our clinical trials and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.

We do not independently conduct clinical trials for our product candidates. We rely on third parties, such as contract research organizations, clinical data management organizations, medical institutions and clinical investigators, to perform this function. We expect to continue to rely on such third parties in conducting our clinical trials of lefamulin, and expect to rely on these third parties to conduct clinical trials of any other product candidate that we develop. Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it would delay our product development activities.

Our reliance on these third parties for clinical development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA requires us to comply with standards, commonly referred to as Good Clinical Practices, or GCP, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. We also are required to register ongoing clinical trials and post the results of completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. Similar GCP and transparency requirements apply in the European Union. Failure to comply with such requirements, including with respect to clinical trials conducted outside the European Union, can also lead regulatory authorities to refuse to take into account clinical trial data submitted as part of a marketing authorization application, or MAA.

Furthermore, third parties that we rely on for our clinical development activities may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Our product development costs will increase if we experience delays in testing or obtaining marketing approvals.

We also rely on other third parties to store and distribute drug supplies for our clinical trials. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of our products, producing additional losses and depriving us of potential product revenue.

We may enter into collaborations with third parties for the development or commercialization of lefamulin and our other product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of these product candidates.

If lefamulin receives marketing approval, we plan to commercialize it in the United States with our own targeted hospital sales and marketing organization. Outside the United States, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize lefamulin. We also may seek third-party collaborators for development and commercialization of other product candidates or for lefamulin for indications other than CABP. Our likely collaborators for any sales, marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies and biotechnology companies. We are not currently party to any such arrangement. However, if we do enter into any such arrangements with any third parties in the future, we will likely have limited control over the amount and timing of resources that our

 

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collaborators dedicate to the development or commercialization of our product candidates. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities and efforts to successfully perform the functions assigned to them in these arrangements.

Collaborations involving our product candidates would pose numerous risks to us, including the following:

 

    collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations and may not perform their obligations as expected;

 

    collaborators may deemphasize or not pursue development and commercialization of our product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus, product and product candidate priorities, available funding, or external factors such as an acquisition that diverts resources or creates competing priorities;

 

    collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;

 

    collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our products or product candidates if the collaborators believe that competitive products are more likely to be successfully developed or can be commercialized under terms that are more economically attractive than ours;

 

    a collaborator with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products;

 

    collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;

 

    collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability;

 

    disputes may arise between the collaborator and us as to the ownership of intellectual property arising during the collaboration;

 

    we may grant exclusive rights to our collaborators, which would prevent us from collaborating with others;

 

    disputes may arise between the collaborators and us that result in the delay or termination of the research, development or commercialization of our products or product candidates or that result in costly litigation or arbitration that diverts management attention and resources; and

 

    collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates.

For example, in 2012, we entered into a stock purchase agreement with Forest pursuant to which Forest reimbursed us for certain external research and development costs and provided us with a $25.0 million loan in exchange for an exclusive right to acquire 100% of our outstanding shares for a one-year period. However, in 2013, Forest decided not to exercise its right to acquire us and terminated the stock purchase agreement. In connection with this termination, we repurchased the $25.0 million loan for €1.00. We no longer have a commercial relationship with Forest, and no rights or obligations remain outstanding under the stock purchase agreement.

Collaboration agreements may not lead to development or commercialization of product candidates in the most efficient manner or at all. If a collaborator of ours were to be involved in a business combination, the continued pursuit and emphasis on our product development or commercialization program could be delayed, diminished or terminated.

 

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If we are not able to establish collaborations, we may have to alter our development and commercialization plans.

The potential commercialization of lefamulin and the development and potential commercialization of other product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates. For example, we intend to seek to commercialize lefamulin through a variety of types of collaboration arrangements outside the United States.

We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidate. We may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.

If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, we may have to curtail the development of a product candidate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to fund and undertake development or commercialization activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into collaborations and do not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we may not be able to further develop our product candidates or bring them to market and generate product revenue.

Risks Related to Our Intellectual Property

If we are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully commercialize our technology and products may be adversely affected.

Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries with respect to our proprietary technology and products. We seek to protect our proprietary position by filing patent applications in the United States, Europe and in certain additional foreign jurisdictions related to our novel technologies and product candidates that are important to our business. This process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, if we license technology or product candidates from third parties in the future, these license agreements may not permit us to control the preparation, filing and prosecution of patent applications, or to maintain or enforce the patents, covering this intellectual property. These agreements could also give our licensors the right to enforce the licensed patents without our involvement, or to decide not to enforce the patents at all. Therefore, in these circumstances, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business.

 

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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.

The laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. In addition, we may not pursue or obtain patent protection in all major markets or may not obtain protection that enables us to prevent the entry of third parties onto the market. Assuming the other requirements for patentability are met, currently, the first to file a patent application is generally entitled to the patent. However, prior to March 16, 2013, in the United States, the first to invent was entitled to the patent. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our U.S. patents or pending U.S. patent applications, or that we were the first to file for patent protection of such inventions.

Moreover, we may be subject to a third party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in opposition, derivation, reexamination, inter partes review, post grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates.

Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. In addition, other companies may attempt to circumvent any regulatory data protection or market exclusivity that we obtain under applicable legislation, which may require us to allocate significant resources to preventing such circumvention. Legal and regulatory developments in the European Union and elsewhere may also result in clinical trial data submitted as part of an MAA becoming publicly available. Such developments could enable other companies to circumvent our intellectual property rights and use our clinical trial data to obtain marketing authorizations in the European Union and in other jurisdictions. Such developments may also require us to allocate significant resources to prevent other companies from circumventing or violating our intellectual property rights. Our attempts to prevent third parties from circumventing our intellectual property and other rights may ultimately be unsuccessful. We may also fail to take the required actions or pay the necessary fees to maintain our patents.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. Given the amount of time required for the development, testing and regulatory review

 

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of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

In addition, we have pledged all of our intellectual property as collateral under our loan agreement with Kreos Capital IV (UK) Limited. In July 2015, Kreos Capital IV (UK) Limited agreed to release us from the pledge of our intellectual property upon the closing of this offering. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Kreos Loan.”

We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.

Competitors may infringe our patents, trademarks, copyrights or other intellectual property. To counter infringement or unauthorized use, we may be required to file claims, which can be expensive and time consuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our commercial success depends upon our ability and the ability of our collaborators to develop, manufacture, market and sell our product candidates and use our proprietary technologies without infringing the intellectual property and other proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries, and we may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products and technology, including interference, derivation, inter partes review or post-grant review proceedings before the USPTO. The risks of being involved in such litigation and proceedings may also increase as our product candidates approach commercialization, and as we gain greater visibility as a public company. Third parties may assert infringement claims against us based on existing or future intellectual property rights. We may not be aware of all such intellectual property rights potentially relating to our product candidates. Any freedom-to-operate search or analysis previously conducted may not have uncovered all relevant patents and patent applications, and there may be pending or future patent applications that, if issued, would block us from commercializing lefamulin. Thus, we do not know with certainty whether lefamulin, any other product candidate, or our commercialization thereof, does not and will not infringe any third party’s intellectual property.

If we are found to infringe a third party’s intellectual property rights, or in order to avoid or settle litigation, we could be required to obtain a license to continue developing and marketing our products and technology. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us, and could require us to make substantial payments. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent or other intellectual property right. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business.

We may be subject to claims by third parties asserting that we or our employees have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do

 

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not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. Litigation may be necessary to defend against these claims.

In addition, while we typically require our employees and contractors who may be involved in the 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 develops intellectual property that we regard as our own. Our business was founded as a spin-off from Sandoz. Although all patent applications are fully owned by us and were either filed by Sandoz with all rights fully transferred to us, or filed in our sole name, because we acquired certain of our patents from Sandoz, we must rely on their prior practices, with regard to the assignment of such intellectual property. Our and their assignment agreements may not be self-executing or may be breached, and we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property.

If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property litigation could cause us to spend substantial resources and could distract our personnel from their normal responsibilities.

Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses, and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development, sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. 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.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

In addition to seeking patents for some of our technology and products, we also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants. However, we cannot guarantee that we have executed these agreements with each party that may have or have had access to our trade secrets or that the agreements we have executed will provide adequate protection. Any party with whom we have executed such an agreement may breach that agreement and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or information to compete with us. If any of our trade secrets were to be obtained or independently developed by a competitor, our competitive position would be harmed.

 

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We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.

Our trademark applications may not be allowed for registration, and our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.

Risks Related to Regulatory Approval and Marketing of Our Product Candidates and Legal Compliance

If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, in particular in the United States or the European Union, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.

Our product candidates, including lefamulin, and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and by comparable authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. We have not received approval to market lefamulin or any of our other product candidates from regulatory authorities in any jurisdiction.

We have no experience in filing and supporting the applications necessary to obtain marketing approvals for product candidates and expect to rely on third-party contract research organizations to assist us in this process. Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing marketing approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the regulatory authorities. Regulatory authorities may determine that lefamulin or any of our other product candidates are not effective or only moderately effective, or have undesirable or unintended side effects, toxicities, safety profiles or other characteristics that preclude us from obtaining marketing approval or that prevent or limit commercial use.

The process of obtaining marketing approvals is expensive, may take many years, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.

Our failure to obtain marketing approval in jurisdictions other than the United States and Europe would prevent our product candidates from being marketed in these other jurisdictions, and any approval we are granted for our product candidates in the United States and Europe would not assure approval of product candidates in other jurisdictions.

In order to market and sell lefamulin and our other product candidates in jurisdictions other than the United States and Europe, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The

 

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time required to obtain approval may differ from that required to obtain FDA approval or approvals from regulatory authorities in the European Union. The regulatory approval process outside the United States and Europe generally includes all of the risks associated with obtaining FDA approval or approvals from regulatory authorities in the European Union. In addition, some countries outside the United States and Europe require approval of the sales price of a drug before it can be marketed. In many countries, separate procedures must be followed to obtain reimbursement. We may not obtain marketing, pricing or reimbursement approvals outside the United States and Europe on a timely basis, if at all. Approval by the FDA or regulatory authorities in the European Union does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States and Europe does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA or regulatory authorities in the European Union. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. Marketing approvals in countries outside the United States and Europe do not ensure pricing approvals in those countries or in any other countries, and marketing approvals and pricing approvals do not ensure that reimbursement will be obtained.

Even if we obtain marketing approval for our product candidates, the terms of approvals and ongoing regulation of our products may limit how we manufacture and market our products and compliance with such requirements may involve substantial resources, which could materially impair our ability to generate revenue.

Even if marketing approval of a product candidate is granted, an approved product and its manufacturer and marketer are subject to ongoing review and extensive regulation, including the requirement to implement a risk evaluation and mitigation strategy or to conduct costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. We must also comply with requirements concerning advertising and promotion for any of our product candidates for which we obtain marketing approval. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved labeling. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved. In addition, manufacturers of approved products and those manufacturers’ facilities are required to ensure that quality control and manufacturing procedures conform to cGMP, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation and reporting requirements. We and our contract manufacturers could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMP.

Accordingly, assuming we receive marketing approval for one or more of our product candidates, we and our contract manufacturers will continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance and quality control. If we are not able to comply with post-approval regulatory requirements, we could have the marketing approvals for our products withdrawn by regulatory authorities and our ability to market any future products could be limited, which could adversely affect our ability to achieve or sustain profitability. Thus, the cost of compliance with post-approval regulations may have a negative effect on our operating results and financial condition.

Any product candidate for which we obtain marketing approval will be subject to strict enforcement of post-marketing requirements and we could be subject to substantial penalties, including withdrawal of our product from the market, if we fail to comply with all regulatory requirements or if we experience unanticipated problems with our products, when and if any of them are approved.

Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for such product, will be subject to continual requirements of and review by the FDA and other regulatory authorities. These requirements include, but are not limited to, restrictions governing promotion of an approved product, submissions of safety and other post-marketing information and reports, registration and listing requirements, cGMP requirements relating to

 

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manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, and requirements regarding the distribution of samples to physicians and recordkeeping.

The FDA and other federal and state agencies, including the U.S. Department of Justice, closely regulate compliance with all requirements governing prescription drug products, including requirements pertaining to marketing and promotion of drugs in accordance with the provisions of the approved labeling and manufacturing of products in accordance with cGMP requirements. Violations of such requirements may lead to investigations alleging violations of the Food, Drug and Cosmetic Act and other statutes, including the False Claims Act and other federal and state health care fraud and abuse laws as well as state consumer protection laws. Our failure to comply with all regulatory requirements, and later discovery of previously unknown adverse events or other problems with our products, manufacturers or manufacturing processes, may yield various results, including:

 

    litigation involving patients taking our products;

 

    restrictions on such products, manufacturers or manufacturing processes;

 

    restrictions on the labeling or marketing of a product;

 

    restrictions on product distribution or use;

 

    requirements to conduct post-marketing studies or clinical trials;

 

    warning or untitled letters;

 

    withdrawal of the products from the market;

 

    refusal to approve pending applications or supplements to approved applications that we submit;

 

    recall of products;

 

    fines, restitution or disgorgement of profits or revenues;

 

    suspension or withdrawal of marketing approvals;

 

    damage to relationships with any potential collaborators;

 

    unfavorable press coverage and damage to our reputation;

 

    refusal to permit the import or export of our products;

 

    product seizure; or

 

    injunctions or the imposition of civil or criminal penalties.

Non-compliance by us or any future collaborator with regulatory requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with regulatory requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

Non-compliance with E.U. requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties. Similarly, failure to comply with the European Union’s requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.

In some countries, particularly the member states of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including

 

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as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various E.U. member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidate to other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party payors or authorities may lead to further pressure on prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

We have not reached agreement with the FDA regarding our request for a Special Protocol Assessment, or SPA, with respect to the study design of our first Phase 3 clinical trial for CABP.

We are designing our Phase 3 clinical trials to follow the draft guidance published by the FDA for the development of drugs for CABP and have submitted a request for an SPA with the FDA regarding the study design of our first Phase 3 clinical trial. The SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed design and size of Phase 3 clinical trials that are intended to form the primary basis for determining a product candidate’s efficacy and safety. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to the effectiveness in the indication studied.

The FDA responded to our request for an SPA in June 2015. The FDA agreed to certain fundamental elements of our Phase 3 clinical trial, including the proposed duration of therapy, and did not provide any comments disagreeing with our choice of comparator, proposed sample size or primary and secondary endpoints. However, absence of disagreement or comments from the FDA does not represent agreement by the FDA as to these matters. The FDA also provided comments regarding specific prohibited concomitant medications and how we intend to manage and evaluate specific subpopulations within the trial and requested additional information. We are engaging in dialogue with the FDA to seek to address the FDA’s comments.We have provided additional requested information to the FDA and resubmitted our SPA request with the goal of obtaining agreement with the FDA regarding the SPA. Agreement from the FDA regarding an SPA is not a prerequisite to initiating our Phase 3 clinical trials. If we experience any delays in reaching agreement regarding the SPA, and in light of the feedback we have received to date, we would likely withdraw the SPA request and proceed on our current timeline for initiation of our first Phase 3 clinical trial. Without an agreement regarding the SPA, we will not have the benefit of an advance written agreement from the FDA on the design and size of our Phase 3 clinical trial and the adequacy of the Phase 3 study design would only be determined by the FDA following completion of the trial during the regulatory review process for our application for marketing approval.

Even if we were to reach agreement with the FDA regarding our request for an SPA, an SPA may not lead to faster development, regulatory review or approval for lefamulin.

Even if we were to reach agreement with the FDA regarding our SPA, such agreement may not lead to faster development, regulatory review or approval for lefamulin. Once the FDA and an applicant reach an agreement under the special protocol assessment process regarding the design and size of a clinical trial, the agreement generally cannot be changed after the clinical trial begins. However, the FDA may revoke or alter an SPA under defined circumstances, such as changes in the relevant data or assumptions provided by the sponsor or the emergence of new public health concerns. A revocation or alteration in the SPA, if granted, could significantly delay or prevent approval of any marketing applications we submit. In addition, any significant change to the protocols for a clinical trial subject to an SPA would require prior FDA approval, which could delay implementation of such a change and the conduct of the related clinical trial.

 

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Fast track designation by the FDA may not actually lead to a faster development or regulatory review or approval process.

If a drug is intended for the treatment of a serious or life threatening condition and the drug demonstrates the potential to address unmet medical need for this condition, the drug sponsor may apply for FDA fast track designation. The FDA has designated the IV formulation of lefamulin as a qualified infectious disease product, or QIDP, and granted fast track designation to this formulation of lefamulin. However, neither the QIDP nor the fast track designation ensures that lefamulin will receive marketing approval or that approval will be granted within any particular timeframe. We may also seek fast track designation for our other product candidates. We may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from our clinical development program. Fast track designation alone does not guarantee qualification for the FDA’s priority review procedures.

Priority review designation by the FDA may not lead to a faster regulatory review or approval process and, in any event, does not assure FDA approval.

If the FDA determines that a product candidate offers major advances in treatment or provides a treatment where no adequate therapy exists, the FDA may designate the product candidate for priority review. A priority review designation means that the goal for the FDA to review an application is six months, rather than the standard review period of ten months. Because the FDA designated the IV formulation of lefamulin as a QIDP, lefamulin also will receive priority review. We may also request priority review for other product candidates. The FDA has broad discretion with respect to whether or not to grant priority review status to a product candidate, so even if we believe a particular product candidate is eligible for such designation or status, the FDA may decide not to grant it. Moreover, a priority review designation does not necessarily mean a faster regulatory review process or necessarily confer any advantage with respect to approval compared to conventional FDA procedures. Receiving priority review from the FDA does not guarantee approval within the six-month review cycle or thereafter.

Our relationships with customers, healthcare providers and professionals and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates, including lefamulin, for which we obtain marketing approval. Our future arrangements with customers, healthcare providers and professionals and third-party payors may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that 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 federal and state healthcare laws and regulations, include, and are not limited to, the following:

 

    The federal 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 federally funded healthcare programs such as Medicare and Medicaid. This statute has been broadly interpreted to apply to manufacturer arrangements with prescribers, purchasers and formulary managers, among others. Several other countries, including the United Kingdom, have enacted similar anti-kickback, fraud and abuse, and healthcare laws and regulations.

 

   

The federal False Claims Act imposes civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid,

 

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decrease or conceal an obligation to pay money to the federal government. The government and qui tam relators have brought False Claims Act actions against pharmaceutical companies on the theory that their practices have caused false claims to be submitted to the government. There is also a separate false claims provision imposing criminal penalties.

 

    The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.

 

    HIPAA also imposes criminal liability for knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.

 

    The federal Physician Sunshine Act requirements under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, referred to together as the Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers. Payments made to physicians and research institutions for clinical trials are included within the ambit of this law.

 

    Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures.

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 government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. Exclusion, suspension and debarment from government funded healthcare programs would significantly impact our ability to commercialize, sell or distribute any drug. If any of the physicians or other providers or entities with whom we expect to do business are 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.

Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our product candidates and affect the prices we may obtain.

In the United States and a number of foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of lefamulin or any of our other product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidates, including lefamulin, for which we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement

 

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methodology based on average sales 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. While the Medicare Modernization Act applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the Medicare Modernization Act may result in a similar reduction in payments from private payors.

More recently, in March 2010, President Obama signed into law the Affordable Care Act, 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. Effective October 1, 2010, the Affordable Care Act revised the definition of “average manufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates to states. Further, the new law imposes a significant annual fee on companies that manufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also been enacted, which may affect our business practices with health care practitioners. We will not know the full effects of the Affordable Care Act until applicable federal and state agencies issue regulations or guidance under the new law. Although it is too early to determine the full effect of the Affordable Care Act, the new law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA 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. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

In the European Union, similar political, economic and regulatory developments may affect our ability to profitably commercialize our products. In addition to continuing pressure on prices and cost containment measures, legislative developments at the European Union or E.U. member state level may result in significant additional requirements or obstacles that may increase our operating costs.

We are subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business and may do business in the future. The FCPA and these other laws generally prohibit us, our officers, and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We may in the future operate in jurisdictions that pose a high risk of potential FCPA violations, and we may participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States, and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the trade control laws.

 

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There is no assurance that we will be effective in ensuring our compliance with all applicable anti-corruption laws, including the FCPA or other legal requirements, including trade control laws. If we are not in compliance with the FCPA and other anti-corruption laws or trade control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or trade control laws by U.S. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

Our employees may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, which could cause significant liability for us and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct, including intentional failures to comply with FDA regulations or similar regulations of comparable non-U.S. regulatory authorities, provide accurate information to the FDA or comparable non-U.S. regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and regulations established and enforced by comparable non-U.S. regulatory authorities, report financial information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. 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 be in compliance with such laws, standards 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 and results of operations, including the imposition of significant fines or other sanctions.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our product research, development and commercialization efforts could be delayed.

Risks Related to Employee Matters and Managing Growth

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Dr. Colin Broom, our Chief Executive Officer, and the other principal members of our management and scientific teams. Although we have formal employment agreements with each of our executive officers, these agreements do not prevent our executives from terminating their employment with us at any time. We do not maintain “key person” insurance on any of our executive officers. The unplanned loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives.

 

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Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel, including in the United States where we plan to expand our physical presence, will also be critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We expect to expand our development, regulatory and sales and marketing capabilities, and as a result, we may encounter difficulties in managing our growth, which could disrupt our operations.

We expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas of drug development, regulatory affairs and sales and marketing. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The physical expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability to manage growth could delay the execution of our business plans or disrupt our operations.

Risks Related to this Offering and Ownership of the ADSs

There has been no public market for the ADSs or our common shares prior to this offering, and you may not be able to resell the ADSs at or above the price you paid, or at all.

Prior to this offering, there has been no public market for the ADSs or our common shares. The initial public offering price for the ADSs will be determined through negotiations with the underwriters. Although we applied to have the ADSs approved for listing on The NASDAQ Global Market, an active trading market for the ADSs may never develop or be sustained following this offering. If an active market for the ADSs does not develop, it may be difficult for you to sell the ADSs you purchase in this offering without depressing the market price for the ADSs or at all.

The price of the ADSs may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of ADSs in this offering.

The price of our ADSs is likely to be volatile. The stock market in general and the market for smaller biopharmaceutical companies in particular have experienced significant volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your ADSs at or above the initial public offering price. The market price for the ADSs may be influenced by many factors, including:

 

    the success of competitive products or technologies;

 

    results of clinical trials of our product candidates or those of our competitors;

 

    regulatory delays and greater government regulation of potential products due to adverse events;

 

    regulatory or legal developments in the United States, the European Union and other countries;

 

    developments or disputes concerning patent applications, issued patents or other proprietary rights;

 

    the recruitment or departure of key scientific or management personnel;

 

    the level of expenses related to any of our product candidates or clinical development programs;

 

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    the results of our efforts to discover, develop, acquire or in-license additional product candidates or products;

 

    actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

    variations in our financial results or those of companies that are perceived to be similar to us;

 

    changes in the structure of healthcare payment systems;

 

    market conditions in the pharmaceutical and biotechnology sectors;

 

    general economic, industry and market conditions; and

 

    the other factors described in this “Risk Factors” section.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted against that company. We also may face securities class-action litigation if we cannot obtain regulatory approvals for or if we otherwise fail to commercialize lefamulin or any of our other product candidates. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management’s attention and resources.

After this offering, our senior managers, supervisory board members and principal shareholders, if they choose to act together, will continue to have the ability to control most matters submitted to shareholders for approval.

Upon the closing of this offering, our senior managers and supervisory board members, combined with our shareholders who owned more than 5% of our outstanding shares before this offering, will, in the aggregate, beneficially own approximately         % of our share capital. As a result, if these shareholders were to choose to act together, they would be able to control most matters submitted to our shareholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, would control the election of supervisory board members and approval of any merger, consolidation or sale of all or substantially all of our assets.

We do not expect to pay dividends in the foreseeable future.

We have not paid any dividends on our common shares since our incorporation. Even if future operations lead to significant levels of distributable profits, we currently intend that earnings, if any, will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends. Payment of future dividends to securityholders will be at the discretion of the management board, subject to the approval of the supervisory board after taking into account various factors including our business prospects, cash requirements, financial performance, debt covenant limitations and new product development. In addition, Austrian law imposes limitations on our ability to pay dividends. Under Austrian law, a company may only pay dividends if the distribution of dividends is proposed by the management board and the supervisory board and resolved by the company’s shareholders at a general meeting. Our ability to pay dividends is assessed by our management board based primarily on our unconsolidated financial statements prepared in accordance with the Austrian Commercial Code (Unternehmensgesetzbuch). Dividends may be paid only after the relevant balance sheet date from the net profit (Bilanzgewinn) recorded in our unconsolidated annual financial statements as approved by our supervisory board or by our shareholders at a general meeting. In determining the amount available for distribution, the annual net income must be adjusted to account for any accumulated undistributed net profit or loss from previous years as well as for withdrawals from or allocations to reserves. Certain reserves must be established by law, and allocation to such reserves must therefore be deducted from the annual net income in order to calculate the annual net profit.

 

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We expect that ADSs representing only a relatively small percentage of our common shares will be publicly traded following this offering, which may limit the liquidity of your investment and may have a material adverse effect on the price of the ADSs.

After this offering, only         % of our common shares will be beneficially owned by parties other than our supervisory board members, senior management, existing shareholders holding 5% or more of our common shares, and their respective affiliates. As a result, we expect that ADSs representing only a relatively small number of our common shares will be actively traded in the public market following this offering. Reduced liquidity may have a material adverse effect on the price of the ADSs.

You will not be able to trade the ADSs or our common shares on any exchange outside of the United States.

The ADSs will be listed only in the United States on The NASDAQ Global Market and we have no plans to list the ADSs or our common shares in any other jurisdiction. As a result, a holder of ADSs outside of the United States may not be able to effect transactions in the ADSs as readily as the holder may if our securities were listed on an exchange in that holder’s home jurisdiction.

The sale of a substantial number of our common shares or the ADSs following this offering may cause the market price of the ADSs to decline.

Sales of a substantial number of our common shares or ADS, or the perception in the market that these sales could occur, could reduce the market price of the ADSs. After this offering, we will have                      common shares outstanding based on the number of shares outstanding as of July 31, 2015 and including 9,912 common shares issuable for nominal value to certain existing shareholders upon the closing of this offering in satisfaction of the preferred dividend rights under a shareholders agreement providing for certain contractual preference rights, assuming the closing of this offering occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share from our financing in April 2015 in which we issued an aggregate of 730,162 common shares with contractual preference rights under the shareholders agreement for cash consideration and certain contributions in-kind. This includes the common shares representing the ADSs that we are selling in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing shareholders. The remaining              common shares are currently restricted as a result of securities laws or lock-up agreements but will become eligible to be sold at various times after this offering. Moreover, after this offering, holders of an aggregate of              common shares will have rights, subject to specified conditions beginning 180 days after the date of this prospectus, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. We also intend to register all common shares that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates and the lock-up agreements described in the “Underwriting” section of this prospectus.

We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our ADSs less attractive to investors.

We are an “emerging growth company,” as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

    a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis in this prospectus;

 

    an exemption from compliance with the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, on the design and effectiveness of our internal controls over financial reporting;

 

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    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about the company’s executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

We may choose to take advantage of some, but not all, of the available exemptions. We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of: the last day of the fiscal year in which we have more than $1 billion in annual revenues; the date we qualify as a “large accelerated filer,” with more than $700 million in market value of our share capital held by non-affiliates; or the issuance by us of more than $1 billion of non-convertible debt over a three-year period.

We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements. We cannot predict whether investors will find the ADSs less attractive if we rely on these exemptions. If some investors find the ADSs less attractive as a result, there may be a less active trading market for the ADSs and the market price of the ADSs may be more volatile.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the International Accounting Standards Board.

As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the Securities and Exchange Commission than U.S. companies. This may limit the information available to holders of the ADSs.

We are a “foreign private issuer,” as defined in the rules and regulations of the Securities and Exchange Commission, or the SEC, and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the United States. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our senior management and supervisory board members are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

 

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We intend to rely on NASDAQ Stock Market rules that permit us to comply with applicable Austrian corporate governance practices, rather than the corresponding domestic U.S. corporate governance practices, and therefore your rights as a shareholder will differ from the rights you would have as a shareholder of a domestic U.S. issuer.

As a foreign private issuer whose ADSs are listed on The NASDAQ Global Market, we are permitted in certain cases to follow Austrian corporate governance practices instead of the corresponding requirements of the NASDAQ Stock Market rules. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements must submit to NASDAQ in advance a written statement from an independent counsel in such issuer’s home country certifying that the issuer’s practices are not prohibited by the home country’s laws. In addition, a foreign private issuer must disclose in its annual reports filed with the SEC each such requirement that it does not follow and describe the home country practice followed instead of any such requirement. We do not intend to follow NASDAQ’s requirements to seek shareholder approval for the implementation of certain equity compensation plans and issuances of our common shares under such plans. In accordance with Austrian law, we are not required to seek shareholder approval in connection with the implementation of employee equity compensation plans unless such plans provide for the issuance of common shares to supervisory board members or the management board does not hold a valid authorization to issue common shares for such purpose. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.

We may lose our foreign private issuer status which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.

We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either:

 

    a majority of our shares must be either directly or indirectly owned of record by non-residents of the United States; or

 

    a majority of our executive officers or directors may not be United States citizens or residents, more than 50% of our assets cannot be located in the United States and our business must be administered principally outside the United States.

If we lost this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which would include the requirement to file additional periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the requirements for foreign private issuers. We would also be required under current SEC regulations to prepare our financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, rather than IFRS.

We may also be required to make changes in our corporate governance practices in accordance with various SEC and NASDAQ rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer would be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our supervisory board.

 

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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the value of the ADSs. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of the ADSs to decline and delay the development of our product candidates. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Global Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our supervisory board.

For as long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies as described elsewhere in this “Risk Factors” section. We may remain an emerging growth company until the end of the fiscal year in which the fifth anniversary of this offering occurs, although if the market value of our share capital that is held by non-affiliates exceeds $700 million as of any June 30 before that time or if we have annual gross revenues of $1 billion or more in any fiscal year, we would cease to be an emerging growth company as of December 31 of the applicable year. We also would cease to be an emerging growth company if we issue more than $1 billion of non-convertible debt over a three-year period.

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, securityholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of the ADSs.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, is designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us, as and when required, conducted in connection with Section 404 of the Sarbanes-Oxley Act, or Section 404, or any subsequent testing by our independent registered public accounting firm, as and when required, may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs.

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting. However, as an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm until we are no longer an emerging growth company. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over

 

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financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able to conclude within the prescribed timeframe that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

If you purchase ADSs in this offering, you will suffer immediate dilution of your investment.

The initial public offering price of the ADSs will be substantially higher than the pro forma net tangible book value per ADS. Therefore, if you purchase ADSs in this offering, you will pay a price per ADS that substantially exceeds our pro forma net tangible book value per ADS after this offering. To the extent outstanding options are exercised, you will incur further dilution. Based on an assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, you will experience immediate dilution of approximately $             per ADS, representing the difference between our pro forma net tangible book value per ADS, after giving effect to this offering, and the assumed initial public offering price. For more information, see the “Dilution” section of this prospectus.

U.S. investors may have difficulty enforcing civil liabilities against us, our supervisory board members or senior management and the experts named in this prospectus.

We are incorporated under the laws of Austria, and our registered offices and a substantial portion of our assets are located outside of the United States. In addition, many of the members of our management board and our supervisory board and our senior management are residents of Austria and jurisdictions other than the United States. As a result, it may not be possible to effect service of process on such persons or us in the United States or to enforce judgments obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. In addition, it is questionable whether a court in Austria would accept jurisdiction and impose civil liability if proceedings were commenced in such court predicated solely upon U.S. federal securities laws. As the United States and Austria do not currently have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters (other than arbitration awards in such matters), a final judgment for payment of money rendered by a federal or state court in the United States based on civil liability, whether or not predicated solely upon U.S. federal securities laws, will not be enforceable, either in whole or in part, in Austria. However, if the party in whose favor such final judgment is rendered brings a new suit in a competent court in Austria, such party may submit to the Austrian court the final judgment rendered in the United States. Under such circumstances, a judgment by a federal or state court of the United States against the company will be regarded by an Austrian court only as evidence of the outcome of the dispute to which such judgment relates, and an Austrian court may choose to re-hear the dispute. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in Austria. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. For more information, see the “Enforceability of Civil Liabilities” section of this prospectus.

Holders of ADSs may not have the same voting rights as the holders of our common shares and may not receive voting materials in time to be able to exercise their right to vote.

Except as described in this prospectus, holders of the ADSs will not be able to exercise voting rights attaching to the common shares evidenced by the ADSs. Holders of the ADSs will have the right to instruct the depositary with respect to the voting of the common shares represented by the ADSs. If we tell the depositary to solicit your voting instructions, the depositary is required to endeavor to carry out your instructions. If we do not tell the depositary to solicit your voting instructions (and we are not required to do so), you can still send

 

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instructions, and, in that case, the depositary may, but is not required to, carry out those instructions. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

You may not receive distributions on our common shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs.

We expect that the depositary for the ADSs will agree to pay to you or distribute the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our common shares your ADSs represent. However, in accordance with the limitations that we expect will be set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit the distribution of the ADSs, common shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our common shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

We are exposed to risks related to currency exchange rates.

A significant portion of our expenses are denominated in currencies other than euros, while our financing has historically been in euros. In addition, the initial public offering price of the ADSs will be in U.S. dollars. Because our financial statements are presented in euros, changes in currency exchange rates have had and could have a significant effect on our operating results when our operating results are translated into U.S. dollars. Exchange rate fluctuations between local currencies and the euro create risk in several ways, including the following:

 

    weakening of the euro may increase the euro cost of overseas research and development expenses and the cost of sourced product components outside of the euro zone;

 

    strengthening of the euro may decrease the value of our revenues denominated in other currencies;

 

    the exchange rates on non-euro transactions and cash deposits can distort our financial results; and

 

    commercial pricing and profit margins are affected by currency fluctuations.

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are organized as a stock corporation (Aktiengesellschaft) and incorporated under Austrian law. The rights of holders of our common shares and, therefore, certain of the rights of holders of the ADSs, are governed by Austrian law, including the provisions of the Austrian Stock Corporation Act, and by our articles of association. These rights differ in important respects from the rights of shareholders in typical U.S. corporations. These differences include, in particular:

 

    Under Austrian law, certain important resolutions, including, for example, capital decreases, mergers, conversions and spin-offs, the issuance of convertible bonds or bonds with warrants attached and the dissolution of the stock corporation (apart from insolvency and certain other proceedings), require the vote of a 75% majority (and, in some cases, as high as a 90% majority) of the capital present or represented at the relevant general meeting of shareholders. Therefore, the holder or holders of a blocking minority of 25% or, depending on the attendance level at the general meeting, the holder or holders of a smaller percentage of the shares in an Austrian stock corporation may be able to block any such votes, possibly to our detriment or the detriment of our other shareholders.

 

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    As a general rule under Austrian law, a shareholder has no direct recourse against the members of the management board or supervisory board of an Austrian stock corporation in the event that it is alleged that any of them have breached their duty of loyalty or duty of care to the Austrian stock corporation. Apart from insolvency or other special circumstances, only the Austrian stock corporation itself has the right to claim damages from members of the management or supervisory board. An Austrian stock corporation may waive or settle these damages claims only after five years, if the shareholders approve the waiver or settlement at the general meeting with a simple majority of the votes cast and no group of shareholders holding, in the aggregate, at least 20% (and in some cases, 5%) of the Austrian stock corporation’s share capital objects to such waiver or settlement and has its opposition formally noted in the minutes of the general meeting. However, Austrian courts acknowledge a waiver or settlement of claims for damages earlier if all shareholders consent to such waiver.

See “Description of Share Capital—Differences in Corporate Law” in this prospectus for a description of the principal differences between the provisions of the Austrian Stock Corporation Act and, for example, the Delaware General Corporation Law relating to shareholders’ rights and protections.

We cannot assure you that we will not be classified as a passive foreign investment company for any taxable year, which may result in adverse U.S. federal income tax consequence to U.S. holders.

Based on our estimated gross income and average value of our gross assets, taking into account the initial public offering price of the ADSs in this offering and the expected price of the ADSs following this offering, and the nature of our business, we do not believe that we were a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our tax year ended December 31, 2014 and do not expect to be a PFIC during our tax year ending December 31, 2015. A corporation organized outside the United States generally will be classified as a PFIC for U.S. federal income tax purposes in any taxable year in which at least 75% of its gross income is passive income or on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and securities transactions. Our status in any taxable year will depend on our assets and activities in each year, and because this is a factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable year. The market value of our assets may be determined in large part by reference to the market price of the ADSs, which is likely to fluctuate after the offering, and may fluctuate considerably given that market prices of biotechnology companies have been especially volatile. If we were to be treated as a PFIC for any taxable year during which a U.S. holder held the ADSs, however, certain adverse U.S. federal income tax consequences could apply to the U.S. holder. See “Taxation—Taxation in the United States—Passive Foreign Investment Company Considerations” in this prospectus.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this prospectus, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this prospectus include, among other things, statements about:

 

    the timing and conduct of our clinical trials of lefamulin, including statements regarding the timing of initiation and completion of the trials, the period during which the results of the trials will become available and the expected design of planned trials;

 

    the timing of and our ability to submit applications for, obtain and maintain marketing approval of lefamulin;

 

    the potential receipt of revenues from future sales of lefamulin;

 

    our plans to pursue development of lefamulin for additional indications other than CABP;

 

    our plans to pursue research and development of other product candidates;

 

    our ability to establish and maintain arrangements for manufacture of our product candidates;

 

    our sales, marketing and distribution capabilities and strategy;

 

    our ability to successfully commercialize lefamulin and our other product candidates;

 

    the potential advantages of lefamulin and our other product candidates;

 

    our estimates regarding the market opportunities for lefamulin and our other product candidates;

 

    the rate and degree of market acceptance and clinical benefit of lefamulin and our other product candidates;

 

    our ability to establish and maintain collaborations;

 

    our ability to acquire or in-license additional products, product candidates and technologies;

 

    our anticipated PFIC status;

 

    our future intellectual property position;

 

    our estimates regarding future expenses, capital requirements and needs for additional financing;

 

    our ability to effectively manage our anticipated growth;

 

    our ability to attract and retain qualified employees and key personnel;

 

    our expected use of proceeds from this offering; and

 

    other risks and uncertainties, including those described in the “Risk Factors” section of this prospectus.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section in this prospectus, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

 

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You should read this prospectus and the documents that we have filed as exhibits to the registration statement of which this prospectus forms a part completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $         million (€         million), based upon an assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise in full their option to purchase additional ADSs to cover over-allotments, we estimate that the net proceeds of the offering will be approximately $         million (€         million) after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

Each $1.00 increase or decrease in the assumed initial public offering price of $             per ADS would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $         million (€         million), assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase or decrease of                      in the number of ADSs offered by us would increase or decrease, as applicable, the net proceeds to us from this offering by approximately $         million (€         million), assuming the assumed initial public offering price remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

As of June 30, 2015, we had cash and cash equivalents of approximately €34.9 million ($38.9 million). As of June 30, 2015, there was approximately €3.9 million ($4.3 million) principal amount of debt outstanding under our loan agreement with Kreos Capital IV (UK) Limited, or Kreos. The loan bears an annual interest rate of 11.9% and provides for equal monthly installment payments of €0.2 million, including interest payments, through maturity in July 2017. We expect to use approximately €0.3 million of the net proceeds from this offering to make a one-time payment of a profit share fee to the Austria Wirtschaftsservice GmbH. We currently estimate that we will use the remaining net proceeds from this offering, together with our existing cash and cash equivalents, as follows:

 

    approximately $         million (€         million) to complete the clinical development of lefamulin for CABP;

 

    approximately $         million (€         million) to pursue the clinical development of lefamulin for additional indications and for earlier stage research and development activities;

 

    approximately $         million (€         million) for the scheduled payments of principal and interest under our loan agreement with Kreos through July 2017; and

 

    the remainder for working capital and other general corporate purposes.

The expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of and results from clinical trials, as well as any collaborations that we may enter into with third parties for our product candidates, and any unforeseen cash needs. As a result, our management retains broad discretion over the allocation of the net proceeds from this offering. We have no current agreements, commitments or understandings for any material acquisitions or licenses of any products, businesses or technologies.

Based on our planned use of the net proceeds from this offering, we estimate that such funds, together with our existing cash and cash equivalents, will be sufficient to enable us to                     . We have based this estimate on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. While we anticipate that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to allow us to                      , the net proceeds may not be sufficient to allow us to                     . We also do not expect the net proceeds from this offering to be sufficient to                 .

Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including term deposits, short-term, investment-grade, interest-bearing instruments and U.S. government securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our common shares. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. We do not plan to declare or pay cash dividends on our common shares in the foreseeable future.

In addition, Austrian law imposes limitations on our ability to pay dividends. Under Austrian law, a company may only pay dividends if the distribution of dividends is proposed by the management board and the supervisory board and resolved by the company’s shareholders at a general meeting. Our ability to pay dividends is assessed by our management board based primarily on our unconsolidated financial statements prepared in accordance with the Austrian Commercial Code (Unternehmensgesetzbuch). Dividends may be paid only after the relevant balance sheet date from the net profit (Bilanzgewinn) recorded in our unconsolidated annual financial statements as approved by our supervisory board or by our shareholders at a general meeting. In determining the amount available for distribution, the annual net income must be adjusted to account for any accumulated undistributed net profit or loss from previous years as well as for withdrawals from or allocations to reserves. Certain reserves must be established by law, and allocation to such reserves must therefore be deducted from the annual net income in order to calculate the annual net profit. Dividends paid by us may be subject to Austrian withholding tax as further described in “Taxation—Income Taxation of Shareholders Tax Resident in Austria (Residents)—Taxation of Dividends.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2015:

 

    on an actual basis;

 

    on a pro forma basis to give effect to:

 

    the issuance of 9,107 common shares with contractual preference rights under a shareholders agreement to Kreos Capital IV (Expert Fund) Limited in July 2015 at a price of €1.00 per share pursuant to the exercise of a warrant; and

 

    the issuance of an aggregate of 9,912 common shares upon the closing of this offering for nominal value to certain existing shareholders in satisfaction of the preferred dividend rights under the shareholders agreement providing for contractual preference rights, assuming the closing occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share from our financing in April 2015 in which we issued an aggregate of 730,162 common shares with contractual preference rights under the shareholders agreement for cash consideration and certain contributions in-kind; and

 

    on a pro forma as adjusted basis to give further effect to:

 

    the issuance and the sale of                      ADSs by us in this offering, assuming an initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us; and

 

    the one-time payment of a profit share fee of €0.3 million to the Austria Wirtschaftsservice GmbH, which we are required to pay upon the completion of this offering.

This table should be read with our consolidated financial statements and the related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.

 

     As of June 30, 2015  
(in thousands, except share and per share data)    Actual      Pro Forma      Pro Forma
As Adjusted(1)
 

Cash and cash equivalents

   34,860       34,879                      
  

 

 

    

 

 

    

 

 

 

Total debt

     3,410         3,410      

Equity

        

Share capital

     1,058         1,077      

Capital reserves

     135,546         140,630      

Other reserves

     (1,781)         (1,781)      

Accumulated losses

     (110,990)         (110,990)      
  

 

 

    

 

 

    

 

 

 

Total equity

     23,833         28,936      
  

 

 

    

 

 

    

 

 

 

Total capitalization

   27,243       32,346           
  

 

 

    

 

 

    

 

 

 

 

(1) Each $1.00 increase or decrease in the assumed initial public offering price of $             per ADS would increase or decrease, as applicable, the amount of cash and cash equivalents, capital reserves, total equity and total capitalization by $         million (€         million), assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of ADSs we are offering. An increase or decrease of                      in the number of ADSs we are offering would increase or decrease, as applicable, the amount of cash and cash equivalents, capital reserves, total equity and total capitalization by approximately $         million (€         million), assuming the assumed initial public offering price per ADS remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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The table above excludes:

 

    24,133 common shares issuable upon the exercise of options outstanding as of June 30, 2015 at a weighted average exercise price of €6.72 per share;

 

    174 additional common shares reserved for future issuance as of June 30, 2015 under our Stock Option Plan 2007; and

 

    2,819 common shares held in treasury as of June 30, 2015.

 

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DILUTION

If you invest in the ADSs in this offering, your ownership interest will be diluted immediately to the extent of the difference between the initial public offering price per ADS and our pro forma as adjusted net tangible book value per ADS after this offering.

Our historical net tangible book value (deficit) as of June 30, 2015 was €23.8 million ($26.6 million), or €22.59 ($25.19) per share and $             per ADS. Each ADS represents                      of a common share. Historical net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities. Historical net tangible book value per share represents historical net tangible book value (deficit) divided by 1,054,865 shares of our outstanding share capital as of June 30, 2015.

Our pro forma net tangible book value (deficit) as of June 30, 2015 was €         million ($         million), or €         ($        ) per share and $         per ADS. Pro forma net tangible book value (deficit) per share represents the amount of our total tangible assets less our total liabilities divided by 1,073,884 common shares outstanding after giving effect to the issuance of 9,107 common shares with contractual preference rights under a shareholders agreement to Kreos Capital IV (Expert Fund) Limited in July 2015 at a price of €1.00 per share pursuant to the exercise of a warrant and the issuance of an aggregate of 9,912 common shares upon the closing of this offering for nominal value in satisfaction of the preferred dividend rights under a shareholders agreement providing for contractual preference rights, assuming the closing occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share from our financing in April 2015 in which we issued an aggregate of 730,162 common shares with contractual preference rights under the shareholders agreement for cash consideration and certain contributions in-kind, which we refer to as our April 2015 financing.

After giving further effect to our issuance and sale of                      ADSs in this offering at an assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the one-time payment of a profit share fee of €0.3 million to the Austria Wirtschaftsservice GmbH, which we are required to pay upon the completion of this offering, our pro forma as adjusted net tangible book value as of June 30, 2015, would have been €         million ($         million), or €             ($            ) per share and $             per ADS. This represents an immediate increase in the pro forma as adjusted net tangible book value of €             ($            ) per share and $         per ADS to our existing shareholders and an immediate dilution of pro forma as adjusted net tangible book value of €             ($            ) per share and $         per ADS to new investors purchasing ADSs in this offering at the assumed initial public offering price. Dilution per ADS to new investors is determined by subtracting the pro forma as adjusted net tangible book value per ADS after this offering from the assumed initial public offering price per ADS paid by new investors. The following table illustrates this dilution to new investors purchasing ADSs in this offering:

 

Assumed initial public offering price per ADS

$                

Historical net tangible book value (deficit) per ADS as of June 30, 2015

$                

Increase in net tangible book value per ADS attributable to the issuance of common shares with contractual preference rights under the shareholders agreement to Kreos Capital IV (Expert Fund) Limited in July 2015; and the issuance of additional common shares in satisfaction of the preferred dividend rights under the shareholders agreement providing for contractual preference rights upon the closing of this offering

  

 

 

    

Pro forma net tangible book value per ADS as of June 30, 2015

Increase in pro forma as adjusted net tangible book value per ADS attributable to new investors in this offering

  

 

 

    

Pro forma as adjusted net tangible book value per ADS after giving effect to this offering

     

 

 

 

Dilution per ADS to new investors in this offering

$     
     

 

 

 

 

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A $1.00 increase or decrease in the assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the pro forma as adjusted net tangible book value by $         per ADS and increase or decrease, as applicable, the dilution to new investors by $         per ADS, assuming the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated expenses payable by us. An increase or decrease of                      in the number of ADSs we are offering would increase or decrease, as applicable, the pro forma as adjusted net tangible book value by $             per ADS and increase or decrease, as applicable, the dilution to new investors by $             per ADS, assuming the assumed initial public offering price per ADS remains the same.

The following table summarizes on a pro forma as adjusted basis as of June 30, 2015, as described above, the total number of shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing shareholders and by new investors in this offering at an assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

    Common
Shares/ADSs
Purchased
    Total
Consideration
    Average Price
Per Common
Share
    Average Price
Per ADS
 
    Number   Percent     Amount     Percent      

Existing shareholders

                 $                                                  $                                     $                          

New investors

                 
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  100.0 $             100.0 $           $          
 

 

 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

A $1.00 increase or decrease in the assumed initial public offering price of $             per ADS, which is the midpoint of the price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the total consideration paid by new investors by $         million and increase or decrease, as applicable, the percentage of total consideration paid by new investors, on an absolute basis, by approximately         %, assuming that the number of ADSs offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of                      in the number of ADSs we are offering would increase or decrease, as applicable, the total consideration paid by new investors by $         million and increase or decrease, as applicable, the percentage of total consideration paid by new investors, on an absolute basis, by approximately         %, assuming the assumed initial public offering price per ADS remains the same.

The table above is based on 1,054,865 common shares outstanding as of June 30, 2015 and after giving effect to the issuance of 9,107 common shares with contractual preference rights under the shareholders agreement to Kreos Capital IV (Expert Fund) Limited in July 2015 at a price of €1.00 per share pursuant to the exercise of a warrant and the issuance of an aggregate of 9,912 common shares to certain existing shareholders upon the closing of this offering for nominal value in satisfaction of the preferred dividend rights under the shareholders agreement providing for contractual preference rights, assuming the closing occurred on July 31, 2015 and assuming the number of common shares issuable in satisfaction of the preferred dividend rights was based on the sale price per share for our April 2015 financing.

The table above excludes:

 

    24,133 common shares issuable upon the exercise of options outstanding as of June 30, 2015 at a weighted average exercise price of €6.72 per share;

 

    174 additional common shares reserved for future issuance as of June 30, 2015 under our Stock Option Plan 2007; and

 

 

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    2,819 common shares held in treasury as of June 30, 2015.

The table above assumes no exercise of the underwriters’ option to purchase additional ADSs. If the underwriters exercise their option to purchase additional ADSs to cover over-allotments in full, the following will occur:

 

    the percentage of common shares held by existing shareholders would decrease to         % of the total number of common shares outstanding after this offering; and

 

    the percentage of common shares held by new investors would increase to         % of the total number of common shares outstanding after this offering.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data as of and for the years ended December 31, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The following summary consolidated financial data as of and for the six months ended June 30, 2014 and 2015 have been derived from our unaudited condensed consolidated interim financial statements included elsewhere in this prospectus. The unaudited financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly our financial position as of June 30, 2015 and our results of operations for the six months ended June 30, 2014 and 2015. We present our consolidated financial statements in euros and in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

The information set forth below should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and with our consolidated financial statements and related notes thereto included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period, and our interim period results are not necessarily indicative of results to be expected for a full year or any other interim period.

Consolidated Statements of Comprehensive Income (Loss) Data:

 

     Year Ended
December 31,
    Six Months Ended
June 30,
 
(in thousands, except share and per share data)    2013     2014     2014     2015  

Other income

   26,182      1,805      951      1,348   

Research and development expenses

     (7,324     (7,065     (3,459     (6,802

General and administrative expenses

     (2,869     (2,876     (1,051     (2,298

Other gains (losses), net

     171        105        35        (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating result

     16,160        (8,031 )      (3,524 )      (7,753 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial income

     4,026        1,086        2,075        6,154   

Financial expenses

     (8,200     (6,363     (2,668     (12,474
  

 

 

   

 

 

   

 

 

   

 

 

 

Financial result

     (4,174     (5,277     (593 )      (6,320

Profit (loss) before taxes

     11,986        (13,308     (4,117     (14,073
  

 

 

   

 

 

   

 

 

   

 

 

 

Taxes on income

     (776     (72     (2     (12
  

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

     11,210        (13,380 )      (4,119 )      (14,085 ) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) for the period

     —          (21     —          14   

Total comprehensive income (loss) for the period

   11,210      (13,401   (4,119   (14,071
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share(1)

        

Basic

   34.53      (41.21   (12.68   (28.75
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   27.89      (41.21   (12.68   (28.75
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares outstanding

        

Basic

     324,703        324,703        324,703        489,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     369,993        324,703        324,703        489,876   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Basic and diluted loss per share are the same for the year ended December 31, 2014 and for the six months ended June 30, 2014 and 2015 because the assumed exercise of outstanding options and the assumed exercise of the conversion feature in our convertible loans would be anti-dilutive due to our net loss in these periods.

 

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Consolidated Statement of Financial Position Data:

The following table sets forth selected statement of financial position data as of the dates indicated:

 

     As of December 31,      As of
June 30, 2015
 
(in thousands)    2013      2014     

Cash and cash equivalents

   3,291       1,770       34,860   

Total assets

     5,324         3,963         38,086   

Total debt(1)

     11,880         22,572         3,410   

Preferred dividend rights

     —           —           3,789   

Total liabilities

     22,154         34,122         14,253   

Accumulated losses

     (83,525      (96,905      (110,990

Total equity (deficit)

     (16,830      (30,159      23,833   

 

(1) Comprised of Borrowings, Investment from silent partnership and Convertible loans.

 

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EXCHANGE RATE INFORMATION

Our business to date has been conducted primarily in the European Union, and we prepare our consolidated financial statements in euros. In this prospectus, unless otherwise indicated, translations from euros to U.S. dollars were made at the noon buying rate of the Federal Reserve Bank of New York on June 30, 2015 at the rate of €1.00 to $1.1154. On August 14, 2015, the exchange rate was €1.00 to $1.1110. The following tables present information on the exchange rates between the euro and the U.S. dollar for the periods indicated. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of euros at the dates indicated.

 

(U.S. dollar per euro)    Period
End(1)
     Average(2)  

Year Ended December 31:

     

2010

     1.3131         1.3204   

2011

     1.2973         1.3999   

2012

     1.3186         1.2909   

2013

     1.3779         1.3303   

2014

     1.2101         1.3184   

 

     Low      High  

Month:

     

February 2015

     1.1197         1.1462   

March 2015

     1.0524         1.1212   

April 2015

     1.0582         1.1008   

May 2015

     1.0876         1.1428   

June 2015

     1.0913         1.1404   

July 2015

     1.0848         1.1150   

August 2015 (through August 14)

     1.0868         1.1198   

 

(1) In the event that the period end fell on a day for which data is not available, the exchange rate on the prior most recent business day is given.
(2) Calculated using the average of the exchange rates on the last day of each month during the period.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under the “Risk Factors” and “Special Note Regarding Forward-Looking Statements and Industry Data” sections.

All amounts included herein with respect to the years ended December 31, 2013 and 2014 are derived from our audited consolidated financial statements included elsewhere in this prospectus. All amounts included herein with respect to the six months ended June 30, 2014 and 2015 are derived from our unaudited condensed consolidated interim financial statements included elsewhere in this prospectus. The unaudited condensed consolidated interim financial statements for the six months ended June 30, 2014 and 2015 and the audited consolidated financial statements for the years ended December 31, 2013 and 2014 have been prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. As permitted by the rules of the U.S. Securities and Exchange Commission for foreign private issuers, we do not reconcile our financial statements to U.S. generally accepted accounting principles.

Overview

We are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-infective agents to treat serious infections, with a focus on the pleuromutilin class of antibiotics. We are developing our lead product candidate, lefamulin, to be the first pleuromutilin antibiotic available for systemic administration in humans. We are developing both intravenous, or IV, and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia, or CABP, and intend to develop lefamulin for additional indications other than pneumonia. We are preparing to initiate two pivotal, international Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. These will be the first clinical trials we have conducted with lefamulin for the treatment of CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. Based on our expectations regarding initiation of these trials and our estimates regarding patient enrollment, we expect to have top-line data available for both trials in late 2017. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018.

We have completed a Phase 2 clinical trial of lefamulin for acute bacterial skin and skin structure infections, or ABSSSI, and 16 Phase 1 clinical trials of lefamulin in which we exposed healthy subjects to single or multiple doses of IV or oral lefamulin. We plan to conduct a Phase 1 clinical trial of lefamulin in patients with ventilator-associated bacterial pneumonia, or VABP. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with hospital-acquired bacterial pneumonia, or HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against methicillin-resistant Staphylococcus aureus, or MRSA. We plan to pursue a number of additional opportunities for lefamulin, including a development program for use in pediatric patients and potentially for the treatment of ABSSSI. In addition, as an antibiotic with potent activity against a wide variety of multi-drug resistant pathogens, including MRSA, we plan to explore development of lefamulin in further indications, including sexually transmitted infections, or STIs, osteomyelitis and prosthetic joint infections. Through our research and development efforts, we have also identified a topical pleuromutilin product candidate, BC-7013, which has completed a Phase 1 clinical trial. We also have an ongoing research program focused on evaluating pleuromutilin compounds with enhanced activity against Gram-negative bacteria, which we call extended-spectrum pleuromutilins, or ESPs.

 

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We were incorporated in October 2005 in Austria as a spin-off from Sandoz GmbH and commenced operations in February 2006. In 2014, we established our wholly owned U.S. subsidiary, which began operations in August 2014. We are a development stage company and have not generated any revenue from the sale of products. Since inception, we have incurred significant operating losses. As of June 30, 2015, we had an accumulated deficit of €111.0 million. To date, we have financed our operations primarily through private placements of our common shares, convertible loans and research and development support from governmental grants and loans. We have devoted substantially all of our efforts to research and development, including clinical trials. Our ability to generate profits from operations and remain profitable depends on our ability to successfully develop and commercialize drugs that generate significant revenue.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we continue the development of and potentially seek marketing approval for lefamulin and, possibly, other product candidates and continue our research activities. Our expenses will increase if we suffer any delays in our Phase 3 clinical program for lefamulin for CABP, including delays in receipt of regulatory clearance to begin our Phase 3 clinical trials or delays in enrollment of patients. If we obtain marketing approval for lefamulin or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

Based on our current plans, we do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, lefamulin. We do not expect to obtain marketing approval before 2018, if at all. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization effort.

April 2015 Financing

In March 2015, we entered into an agreement with existing and new investors to issue and sell common shares with contractual preference rights under a shareholders agreement. We refer to this transaction as our April 2015 financing. In connection with our April 2015 financing, we agreed to sell common shares with contractual preference rights under the shareholders agreement in two tranches. In April 2015, we closed the sale of the first tranche of 730,162 common shares, including the sale of 511,188 common shares at a price per share of €82.35 for €42.1 million in cash consideration and the sale of 218,974 common shares in exchange for certain contributions in-kind consisting of the conversion of outstanding convertible loans and silent partnership interests. See “—Critical Accounting Policies” for more information regarding the April 2015 financing. We also agreed to sell a second tranche of common shares with contractual preference rights under the shareholders agreement to these investors at their option for an aggregate purchase price of $70.0 million if we do not complete a public offering in the United States within specified parameters or by a specified date.

Forest Stock Purchase Agreement

In 2012, we entered into a stock purchase agreement with Forest Laboratories Inc., or Forest, pursuant to which Forest agreed to reimburse us for certain external research and development costs and provide us with a $25.0 million loan in exchange for an exclusive right to acquire 100% of our outstanding shares during a one year option period. We and Forest also agreed on a joint development plan for lefamulin during the option period as part of our preparations for the start of our Phase 3 clinical trials and established a joint development committee to oversee the activities and approve any amendments to the joint development plan. Each party had a single vote and decisions had to be made unanimously. Each party was responsible for its own internal costs associated with the joint development plan. As part of this arrangement, Forest reimbursed us for €2.9 million in out-of-pocket third-party research and development costs incurred in connection with the joint development plan in 2013. In 2013, Forest decided not to exercise its right to acquire us and terminated the stock purchase

 

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agreement. In connection with this termination, we exercised our contractual right to repurchase the $25.0 million loan for €1.00. We no longer have a commercial relationship with Forest, and no rights or obligations remain outstanding under the stock purchase agreement.

Financial Operations Overview

Revenue

To date we have not generated any revenues from product sales and we do not expect to generate any revenue from the sale of products in the near future. Our success depends primarily on the successful development and regulatory approval of our product candidates and our ability to finance operations. If our development efforts result in clinical success and regulatory approval or we enter into collaboration agreements with third parties for our product candidates, we may generate revenue from those product candidates.

Other Income

Our other income consists principally of non-refundable government grants. Grant income comprises:

 

    €0.8 million of grants received from the Vienna Center for Innovation and Technology (Zentrum für Innovation und Technologie, or ZIT) and €0.8 million of grants from the Vienna Business Promotion Fund (Wiener Wirtschafsförderungsfonds, or WWFF);

 

    a research premium from the Austrian government equal to 10% of a specified research and development cost base; and

 

    the benefits from government loans at below-market rates of interest granted by the European Recovery Plan, or ERP, Fund and the Österreichische Forschungsförderungsgesellschaft, or FFG.

Our grants from ZIT and WWFF are non-refundable except in limited circumstances. We currently are and expect to remain in compliance with all of the obligations under the grants.

In 2013, other income also included non-recurring income of €20.9 million from the repurchase of the loan from Forest. Additionally, we received cost reimbursements amounting to €2.9 million in 2013 related to the collaboration provisions of our agreement with Forest.

Research and Development Expenses

Research and development expenses represented 71.9% and 71.1% of our total operating expenses for the years ended December 31, 2013 and 2014, respectively, and 76.7% and 74.7% of our total operating expenses for the six months ended June 30, 2014 and 2015, respectively.

For each of our research and development programs, we incur both direct and indirect expenses. Direct expenses include third party expenses related to these programs such as expenses for manufacturing services, non-clinical and clinical studies and other third party development services. Indirect expenses include salaries and related costs, including stock-based compensation, for personnel in research and development functions, infrastructure costs allocated to research and development operations, costs associated with obtaining and maintaining intellectual property associated with our research and development operations, regulatory filings, laboratory consumables, consulting fees related to research and development activities, depreciation of tangible fixed assets allocated to research and development operations and other overhead costs. We utilize our research and development staff and infrastructure resources across several programs, and many of our indirect costs historically have not been specifically attributable to a single program. Accordingly, we cannot state precisely our total indirect costs incurred on a program-by-program basis.

We have expensed all research and development costs incurred to date. We may review this policy in the future depending on the outcome of our current development programs.

 

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The following table summarizes our direct research and development expenses by program and our indirect costs.

 

     Year Ended
December 31,
     Six Months
Ended June 30,
 

(in thousands)

   2013      2014      2014      2015  

Direct costs

           

Lefamulin

   2,352       779         309       3,744   

Other initiatives (incl. ESP program and BC-7013)

     129         239         156         9   

Indirect costs

     4,843         6,047         2,994         3,049   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   7,324       7,065       3,459       6,802   
  

 

 

    

 

 

    

 

 

    

 

 

 

We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we initiate and conduct our Phase 3 clinical trials of lefamulin for the treatment of CABP, pursue the clinical development of lefamulin for additional indications and engage in earlier stage research and development activities. We expect our total future direct research and development costs to complete the clinical development of lefamulin for CABP and to submit applications for marketing approval in both the United States and Europe to be in the range of approximately $65 million to $75 million. We do not expect to incur significant expenses in the near future for the further development of BC-7013. It is difficult to estimate the duration and completion costs of our other research and development programs.

The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

 

    the scope, progress, costs and results of clinical trials and other research and development activities;

 

    the costs, timing and outcome of regulatory review of our product candidates;

 

    the efficacy and potential advantages of our product candidates compared to alternative treatments, including any standard of care, and our ability to achieve market acceptance for any of our product candidates that receive marketing approval;

 

    the costs and timing of commercialization activities, including product sales, marketing, distribution and manufacturing, for any of our product candidates that receive marketing approval; and

 

    the costs and timing of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights and defending against any intellectual property-related claims.

A change in the outcome of any of these variables with respect to the development of our product candidates could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we currently contemplate will be required for the completion of clinical development of any product candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses represented 28.1% and 28.9% of our total operating expenses for the years ended December 31, 2013 and 2014, respectively, and 23.3% and 25.3% of our total operating expenses for the six months ended June 30, 2014 and 2015, respectively.

 

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General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation not related to research and development activities for personnel in our finance, information technology and administrative functions. General and administrative expenses also include costs related to professional fees for auditors, lawyers and tax advisors and consulting fees not related to research and development operations, as well as functions that are partly or fully outsourced by us, such as accounting, payroll processing and information technology.

We expect general and administrative expenses to increase in the near future with the expansion of our staff and management team to include new personnel responsible for finance, legal, information technology and later, sales and business development functions. We also expect increased infrastructure, consulting, legal, accounting, auditing and investor relations expenses associated with being a public company in the United States.

Financial Income and Expenses

In the year ended December 31, 2013, financial income consisted of the adjustment of the carrying amount of our outstanding convertible loans due to an extension of the maturities of these loans to 2014. In the year ended December 31, 2014, financial income consisted of the changes in the fair values of the conversion rights related to our outstanding convertible loans. In the six months ended June 30, 2014, financial income consisted primarily of the effects from the change in the fair value of the conversion rights related to our outstanding convertible loans. In the six months ended June 30, 2015, financial income consisted primarily of the adjustment of the carrying amount of our outstanding convertible loans due to an extension of the maturities of these loans in January 2015 to December 31, 2015 and to gains resulting from the waiver of the accrued interest and call option rights by the lenders of our outstanding convertible loans in connection with our April 2015 financing.

We have historically deposited our cash and cash equivalents primarily in savings and deposit accounts that have original maturities of three months or less and that generate minimal interest income. Due to the low interest rates currently available, we do not expect material interest income in the near future. Due to the conversion of all outstanding convertible loans in connection with the April 2015 financing, we do not expect any further interest income from the change of fair value of a financial instrument.

Financial expenses consist of interest expense and amortization of other financing fees for the Forest loan in 2013, a €5.0 million loan we entered into with Kreos Capital IV (UK) Limited, or Kreos, in July 2014 and the research and development support loans from the ERP Fund granted in 2010 and the Österreichische Forschungsförderungsgesellschaft, or FFG, granted in 2008, interest expense on our convertible loans, the preferred dividend rights of the shares issued in the April 2015 financing, as well as effects from changes in the fair values of the silent partnership investments, the convertible loans and the related call option and conversion rights.

 

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Results of Operations

Comparison of the Six Months Ended June 30, 2014 and 2015

 

     Six Months Ended June 30,  
(in thousands)    2014      2015      Change %  

Other income

   951       1,348         41.7

Research and development expenses

     (3,459      (6,802      96.6   

General and administrative expenses

     (1,051      (2,298      118.6   

Other gains (losses), net

     35         (1      (102.9
  

 

 

    

 

 

    

 

 

 

Operating result

     (3,524      (7,753      (120.0
  

 

 

    

 

 

    

 

 

 

Financial income

     2,075         6,154         *   

Financial expenses

     (2,668      (12,474      *   
  

 

 

    

 

 

    

 

 

 

Financial result

     (593      (6,320      *   
  

 

 

    

 

 

    

 

 

 

Loss before taxes

     (4,117 )       (14,073 )       241.8   
  

 

 

    

 

 

    

 

 

 

Taxes on income

     (2      (12      *   
  

 

 

    

 

 

    

 

 

 

Loss for the period

     (4,119      (14,085      242.0   
  

 

 

    

 

 

    

 

 

 

Other comprehensive income for the period

     —           14         *   
  

 

 

    

 

 

    

 

 

 

Total comprehensive loss for the period

   (4,119    (14,071      241.6
  

 

 

    

 

 

    

 

 

 

 

  * Not meaningful.

Other Income

 

     Six Months Ended June 30,  
(in thousands)    2014        2015        Change %  

Research premium

   419         1,240           195.9

Grants from WWFF and ZIT

     221           48           (78.3

Government grants (IAS 20)

     311           60           (80.7
  

 

 

      

 

 

      

 

 

 

Total

   951         1,348           41.7
  

 

 

      

 

 

      

 

 

 

Other income increased by €0.4 million from €0.9 million for the six months ended June 30, 2014 to €1.3 million for the six months ended June 30, 2015. The increase was primarily due to a €0.8 million increase in research premiums as a result of a higher applicable research and development cost base in the six months ended June 30, 2015, which was partly offset by a €0.2 million decrease in grant income, due to the end of the ESP project supported by the ZIT grant in December 2014, and a €0.2 million decrease in the benefits from government loans at below-market rates of interest due to our repayment of the ERP loan in July 2014.

Research and Development Expenses

 

     Six Months Ended June 30,  
(in thousands)    2014      2015      Change %  

Direct Costs

        

Lefamulin

   309       3,744         1,111.7

Other initiatives (including ESP program and BC-7013)

     156         9         (94.2

Indirect Costs

     2,994         3,049         1.8   
  

 

 

    

 

 

    

 

 

 

Total

   3,459       6,802         96.6
  

 

 

    

 

 

    

 

 

 

 

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Research and development expenses increased by €3.3 million from €3.5 million for the six months ended June 30, 2014 to €6.8 million for the six months ended June 30, 2015. The increase was primarily due to higher costs in the first half of 2015 related to preparation for our planned Phase 3 clinical trials for lefamulin. Direct costs for our other initiatives, including BC-7013, were relatively limited during both periods. The €0.1 million increase in indirect costs from €3.0 million for the six months ended June 30, 2014 to €3.1 million for the six months ended June 30, 2015 was primarily due to a €0.3 million increase in staff costs related to the addition of employees in the United States and a €0.2 million increase in consulting expenses related to the preparation for our planned Phase 3 clinical trials for lefamulin, partly offset by the release of liabilities in the amount of €0.4 million for social security and taxes in connection with the Stock Option Plan 2007, which resulted from a change in the valuation of the stock options from the Stock Option Plan 2007 in the first half of 2015 mainly due to the impact of the April 2015 financing.

General and Administrative Expenses

General and administrative expenses increased by €1.2 million from €1.1 million for the six months ended June 30, 2014 to €2.3 million for the six months ended June 30, 2015. The increase was primarily due to a €0.6 million increase in professional service fees related to preparation for this offering, and a €0.4 million increase in staff costs related to the addition of employees in the United States.

Financial Income and Expenses

Financial result increased by €5.7 million from €0.6 million in net financial expenses in the six months ended June 30, 2014 to €6.3 million in net financial expenses in the six months ended June 30, 2015. In the six months ended June 30, 2015, interest and similar expenses increased by €1.0 million primarily due to higher effective interest expenses on the €5.0 million loan from Kreos entered into on July 4, 2014 and the €5.1 million incremental borrowing under our convertible loan agreements entered into on July 4, 2014 and January 8, 2015.

The change in other financial income and expenses resulted primarily from a €9.6 million increase in net expense from fair value adjustments of the conversion rights related to our outstanding convertible loans, from income of €2.0 million for the six months ended June 30, 2014 to an expense of €7.6 million for the six months ended June 30, 2015, related to the valuation impact of the April 2015 financing. This was partly offset by benefits of €3.3 million due to the waiver of interest on our outstanding convertible loans, €1.5 million due to the termination of call options held by the lender of our outstanding convertible loans, and €0.3 million due to fair value adjustments of the call options related to our outstanding convertible loans, all in connection with our April 2015 financing. This was further offset by a €1.1 million increase in income from adjustments of the carrying amounts of financial liabilities in accordance with IAS 39 “Financial Instruments: Recognition and Measurement,” or IAS 39, due to the extension of payment terms on certain of our outstanding convertible loans in January 2015. The expense for the six months ended June 30, 2015 also included a €0.3 million expense due to the acceleration of payment terms on one outstanding convertible loan in accordance with IAS 39 and a €0.5 million expense from fair value adjustments of the warrant related to the Kreos loan in connection with our April 2015 financing. No such adjustments occurred in the six months ended June 30, 2014.

Adjustments to the amortized cost of the silent partnership investments resulted in a €0.8 million expense in the six months ended June 30, 2015, compared with income of €0.1 million in the six months ended June 30, 2014.

 

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Comparison of the Years Ended December 31, 2013 and 2014

 

     Year Ended December 31,  
(in thousands)    2013      2014      Change %  

Other income

   26,182       1,805         (93.1 )% 

Research and development expenses

     (7,324      (7,065      (3.5

General and administrative expenses

     (2,869      (2,876      0.2   

Other gains, net

     171         105         (38.6
  

 

 

    

 

 

    

 

 

 

Operating result

     16,160         (8,031      (149.7
  

 

 

    

 

 

    

 

 

 

Financial income

     4,026         1,086         (73.0

Financial expenses

     (8,200      (6,363      (22.4
  

 

 

    

 

 

    

 

 

 

Financial result

     (4,174      (5,277      (26.4
  

 

 

    

 

 

    

 

 

 

Profit (loss) before taxes

     11,986         (13,308      (211.0
  

 

 

    

 

 

    

 

 

 

Taxes on income

     (776      (72      (90.7
  

 

 

    

 

 

    

 

 

 

Profit (loss) for the period

     11,210         (13,380      (219.4
  

 

 

    

 

 

    

 

 

 

Other comprehensive loss for the year

     —           (21      *   
  

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss) for the year

   11,210       (13,401      (219.5 )% 
  

 

 

    

 

 

    

 

 

 

 

  * Not meaningful.

Other Income

 

     Year Ended December 31,  
(in thousands)    2013      2014      Change %  

Income from repurchase of Forest Laboratories loan

   20,871       —           (100.0 )% 

Research premium

     1,449         1,028         (29.1

Cost reimbursements

     2,906         —           (100.0

Government grants (IAS 20)

     659         422         (36.0

Grants from WWFF and ZIT

     297         355         19.5   
  

 

 

    

 

 

    

 

 

 

Total

   26,182       1,805         *   
  

 

 

    

 

 

    

 

 

 

 

  * Not meaningful.

Other income decreased by €24.4 million from €26.2 million for the year ended December 31, 2013 to €1.8 million for the year ended December 31, 2014. The decrease was primarily due to our recognition of €20.9 million in other income from our 2013 repurchase of the Forest loan. Additionally, during 2013 we received cost reimbursements of €2.9 million from Forest related to the collaboration provisions of our agreement with Forest.

Other income comprised of grants and research premiums decreased by €0.6 million, or 25.0%, from €2.4 million for the year ended December 31, 2013 to €1.8 million for the year ended December 31, 2014. The decrease is primarily due to a €0.4 million decrease in research premiums as a result of a lower applicable research and development cost base in 2014.

 

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Research and Development Expenses

 

     Year Ended December 31,  
(in thousands)    2013      2014      Change %  

Direct costs

        

Lefamulin

   2,352       779         (66.9 )% 

Other initiatives (including ESP program and BC-7013)

     129         239         85.3   

Indirect costs

     4,843         6,047         24.9   
  

 

 

    

 

 

    

 

 

 

Total

   7,324       7,065         (3.5 )% 
  

 

 

    

 

 

    

 

 

 

Research and development expenses were €7.3 million for the year ended December 31, 2013 and €7.1 million for the year ended December 31, 2014. The decrease of €0.2 million was primarily due to the following:

 

    a decrease of €1.6 million in direct costs for our lefamulin program after the termination of the Forest agreement. During the joint development program with Forest in 2013, sufficient active pharmaceutical ingredient, or API, was produced for the entire Phase 3 clinical development program of lefamulin for CABP. As a result, expenses for API manufacturing decreased by €0.5 million to €0.2 million in 2014. Also, costs related to clinical trials decreased by €0.8 million to zero in 2014 after the termination of the Forest agreement. Direct costs for our other initiatives, including BC-7013, were immaterial in both 2013 and 2014.

 

    an increase in indirect costs of €1.2 million, consisting primarily of an increase in staff costs of €1.0 million, or 41.7%, from €2.4 million in 2013 to €3.4 million in 2014, primarily due to an increase of €0.4 million resulting from an increase in research and development headcount in 2014, and the effect in 2013 from the reversal of cash bonus provisions of €0.5 million due to the termination of the Forest agreement. Expenses for research and development consulting increased by €0.2 million, or 100.0%, from €0.2 million in 2013 to €0.4 million in 2014.

General and Administrative Expenses

General and administrative expenses were €2.9 million in both the year ended December 31, 2013 and the year ended December 31, 2014. In 2014, there was an increase of €0.5 million to €1.0 million in expenses for accounting, auditing, legal and other consultancy services related to the April 2015 financing as well as the exploration of other financing opportunities. Offsetting this increase was a decrease in employee compensation costs of €0.5 million from €1.6 million in 2013 to €1.1 million in 2014, due to the mutual termination of rights we granted to members of our management board to receive certain payments in the event of a sale of 50% or more of our shares, a merger, or certain other specified events, which we refer to as substance participation rights.

Financial Income and Expenses

Financial result decreased by €1.1 million from €4.2 million in net financial expenses in the year ended December 31, 2013 to €5.3 million in net financial expenses in the year ended December 31, 2014. In 2014, interest and similar expenses increased by €1.8 million primarily due to interest paid on the €5.0 million loan from Kreos and €3.6 million in incremental borrowings under our convertible loan agreements, offset by decreases in such expenses due to our repurchase of the Forest loan in 2013.

The change in other financial income and expenses resulted primarily from a €5.0 million change in income (expense) from fair value adjustments of the conversion rights related to the convertible loans, from an expense of €3.9 million in 2013 to income of €1.1 million in 2014. Adjustments of the carrying amounts of financial liabilities according to IAS 39, due to the extension of payment terms of the convertible loans, resulted in other financial income of €3.8 million in 2013. No such adjustment occurred in 2014.

 

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Taxes on Income

Taxes on income decreased by €0.7 million, or 87.5%, from €0.8 million in the year ended December 31, 2013 to €0.1 million in the year ended December 31, 2014. The higher tax expense in 2013 resulted from €12.0 million in profit before taxes for the period due to €20.9 million of non-recurring income related to our repurchase of the Forest loan in 2013.

Liquidity and Capital Resources

Sources of Liquidity

To date, we have financed our operations primarily through private placements of our common shares, convertible debt financings and research and development support from governmental grants and loans. As of June 30, 2015, we had cash and cash equivalents of €34.9 million.

In connection with our April 2015 financing, we sold 730,162 common shares with contractual preference rights under a shareholders agreement, including the sale of 511,188 common shares at a price per share of €82.35 for €42.1 million in cash consideration and the sale of 218,974 common shares in exchange for certain contributions in-kind consisting of the conversion of outstanding convertible loans and silent partnership interests. We have also agreed to sell a second tranche of common shares with contractual preference rights under the shareholders agreement to the investors in our April 2015 financing at their option for an aggregate purchase price of $70.0 million if we do not complete a public offering in the United States within specified parameters or by a specified date.

Between 2011 and 2015 we entered into five convertible loan agreements with certain of our shareholders for proceeds in the aggregate amount of €16.8 million. As described above, all outstanding convertible loans converted into common shares with contractual preference rights under the shareholders agreement in connection with our April 2015 financing.

We entered into silent partnership agreements with certain of our shareholders for aggregate proceeds of €0.5 million in the second quarter of 2014 and €1.0 million in the first quarter of 2015. As described above, both of these agreements have terminated and the related claims for repayment were converted into common shares with contractual preference rights under the shareholders agreement in connection with our April 2015 financing.

Also during the second quarter of 2014, we entered into a €5.0 million loan agreement with Kreos that resulted in net proceeds of €4.6 million after deduction of the initial interest and principal payments and transaction costs at closing. In connection with the loan agreement, we granted Kreos Capital IV (Expert Fund) Limited a warrant to purchase our common shares with contractual preference rights under the shareholders agreement, which Kreos Capital IV (Expert Fund) Limited has exercised in full. As collateral for the loan, we pledged our intellectual property, fixed assets exceeding a book value of €1,000, the receivables related to the research premium and our bank accounts. In July 2015, Kreos Capital IV (UK) Limited agreed to release us from the pledge of our intellectual property upon the closing of this offering. We may sell or otherwise disburse of any of the pledged fixed asset in the ordinary course of business, and may also withdraw any amounts from the pledged bank accounts, as long as we are not in default of the provisions in the loan agreement. For more information on the Kreos loan, see “—Contractual Obligations—Kreos Loan.”

In 2012, we entered into a stock purchase agreement with Forest. Pursuant to the agreement, Forest reimbursed us for certain external research and development costs incurred in connection with the joint development plan and granted us a $25.0 million loan in exchange for an exclusive one-year option to purchase 100% of our outstanding shares. In the second quarter of 2013, Forest decided not to exercise its option and we repurchased the loan for €1.00.

Other financing sources included proceeds from the release of restricted cash in the amount of €0.3 million in 2014 and €0.1 million in 2013.

 

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Cash Flows

Comparison of the Six Months Ended June 30, 2014 and 2015

The table below summarizes our unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2014 and 2015.

 

     Six Months Ended
June 30,
 
     2014      2015  

Cash flow utilized by operating activities

   (4,266    (9,057

Cash flow utilized by investing activities

     (9      (52

Cash flow generated from financing activities

     1,785         42,183   
  

 

 

    

 

 

 

Net cash flow

   (2,490    33,074   
  

 

 

    

 

 

 

Cash flow utilized by operating activities increased by €4.8 million from €4.3 million for the six months ended June 30, 2014 to €9.1 million for the six months ended June 30, 2015 due to a higher net loss of €4.0 million during the six months ended June 30, 2015, after adjustments for non-cash amounts included in financial results and other income, along with higher cash interest expense of €0.3 million and higher tax payments of €0.8 million, partly offset by improved working capital of €0.3 million primarily from higher trade and other liabilities.

Cash flow utilized by investing activities was not significant in the six months ended June 30, 2014 and 2015 and related primarily to the acquisition of equipment in support of our research and development activities.

Cash flow generated from financing activities increased by €40.4 million from €1.8 million for the six months ended June 30, 2014 to €42.2 million for the six months ended June 30, 2015 primarily due to cash proceeds of €42.1 million from our April 2015 financing, €3.1 million from the issuance of an additional convertible loan in January 2015 and proceeds of €1.0 million from a new silent partnership agreement in January 2015, compared with proceeds of €1.6 million from convertible loans for the six months ended June 30, 2014. The increase was partially offset by aggregate repayments of long-term borrowings amounting to €2.6 million in the six months ended June 30, 2015. These repayments were comprised of the full repayment of the outstanding FFG loan of €1.7 million and the repayment of principal of the Kreos loan in the amount of €0.9 million. Additionally, the increase was offset by equity transaction costs of €1.4 million. Repayment of long-term borrowings amounted to €0.3 million in the six months ended June 30, 2014.

Comparison of the Years Ended December 31, 2013 and 2014

The table below summarizes our consolidated audited statement of cash flows for the years ended December 31, 2013 and 2014.

 

     Year Ended
December 31,
 
(in thousands)    2013      2014  

Cash flow utilized by operating activities

   (3,749    (8,660

Cash flow generated from (utilized by) investing activities

     2,477         (66

Cash flow generated from financing activities

     1,018         7,223   
  

 

 

    

 

 

 

Net cash flow

   (254    (1,503
  

 

 

    

 

 

 

Cash flow utilized by operating activities increased by €5.0 million from €3.7 million in 2013 to €8.7 million in 2014 due to cost reimbursements from Forest of €2.9 million received in 2013. Changes in working capital, resulting in a decrease in cash flow of €1.4 million were primarily due to the receipt in 2013 of €1.2 million in research premiums for both 2011 and 2012. Interest payments increased by €0.3 million from €0.1 million in 2013 to €0.4 million in 2014, due to our loan from Kreos.

Cash flow generated from (utilized by) investing activities decreased from €2.5 million in 2013 to approximately zero in 2014 due to our sale of marketable securities in 2013 resulting in proceeds of €2.5 million.

 

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Cash flow generated from financing activities increased by €6.2 million from €1.0 million in 2013 to €7.2 million in 2014 primarily due to net proceeds from our loan from Kreos of €4.6 million and additional convertible loans in the aggregate principal amount of €3.6 million, partly offset by the early repayment of the loan from the ERP Fund in the amount of €1.7 million in 2014.

Funding Requirements

We anticipate that our expenses will increase substantially as we continue the development of and potentially seek marketing approval for lefamulin and, possibly, other product candidates and continue our research activities. Our expenses will increase if we suffer any delays in our Phase 3 clinical program for lefamulin for the treatment of CABP, including delays in receipt of regulatory clearance to begin our Phase 3 clinical trials or delays in enrollment of patients. If we obtain marketing approval for lefamulin or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, upon the closing of this offering, we expect to incur additional costs associated with operating as a public company.

In addition, our expenses will increase if and as we:

 

    initiate or continue the research and development of lefamulin for additional indications and of our other product candidates;

 

    seek to discover and develop additional product candidates;

 

    seek marketing approval for any product candidates that successfully complete clinical development;

 

    ultimately establish a sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we receive marketing approval;

 

    in-license or acquire other products, product candidates or technologies;

 

    maintain, expand and protect our intellectual property portfolio;

 

    expand our physical presence in the United States; and

 

    add operational, financial and management information systems and personnel, including personnel to support our product development, our operations as a public company and our planned future commercialization efforts.

We expect that the net proceeds from this offering, together with our existing cash and cash equivalents, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements at least until                     . We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support or through collaboration agreements.

Our future capital requirements will depend on many factors, including:

 

    the progress, costs and results of our Phase 3 clinical trials for lefamulin;

 

    the costs and timing of process development and manufacturing scale-up activities associated with lefamulin;

 

    the costs, timing and outcome of regulatory review of lefamulin;

 

    the costs of commercialization activities for lefamulin if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities;

 

    subject to receipt of marketing approval, revenue received from commercial sales of lefamulin;

 

    the costs of developing lefamulin for the treatment of additional indications;

 

    our ability to establish collaborations on favorable terms, if at all;

 

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    the scope, progress, results and costs of product development of BC-7013 and any other product candidates that we may develop;

 

    the extent to which we in-license or acquire rights to other products, product candidates or technologies;

 

    the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

    the rate of the expansion of our physical presence in the United States; and

 

    the costs of operating as a public company in the United States.

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. Our commercial revenues, if any, will be derived from sales of lefamulin or any other products that we successfully develop, none of which we expect to be commercially available for several years, if at all. In addition, if approved, lefamulin or any other product candidate that we develop, in-license or acquire may not achieve commercial success. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and funding from local and international government entities and non-government organizations in the disease areas addressed by our product candidates and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a securityholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations

The table below sets forth our contractual obligations and commercial commitments as of December 31, 2014 that are expected to have an impact on liquidity and cash flow in future periods. The amounts disclosed are the contractual undiscounted cash flow values.

 

     Payments Due by Period  
(in thousands)    Less than
1 year
     Between 1
and 3 years
     Between 3
and 5 years
     More than 5
years
     Total  

Borrowings

   3,847       3,474       —         —         7,321   

Convertible loans

     16,253         —           —           —           16,253   

Operating lease obligations

     1,025         1,932         —           —           2,957   

Other contractual commitments

     867         80         —           —           947   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   21,992       5,486       —         —         27,478   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Borrowings include the research and development support loans from FFG in the amount of €1.7 million and total future payments for the loan from Kreos in the amount of €5.6 million, which includes interest payable in the amount of €0.8 million. We repaid the FFG loan in full in June 2015 with proceeds from our April 2015 financing. We expect to repay our loan from Kreos in equal monthly installments of €0.2 million, including interest payments, until July 2017.

The maturity date of the convertible loans issued prior to December 2014 was December 31, 2014. In conjunction with the execution of a new convertible loan agreement in January 2015, the repayment dates of the prior convertible loans were extended to December 31, 2015. In connection with our April 2015 financing, all of our outstanding convertible loans were converted to common shares with contractual preference rights in April 2015.

Operating lease obligations include rental agreements for our facilities in Austria and the United States.

In July 2015, we entered into an eight-year lease agreement, with an option to terminate after four years, to lease approximately 15,000 square feet of additional office space at our facility in the United States. Annualized lease payments of approximately $500,000 per year over the term of this agreement are not reflected in the table above.

Other contractual commitments relate to contracts entered into with contract research organizations and contract manufacturing organizations in connection with the conduct of clinical trials and other research and development activities. Some of these commitments include early termination clauses exercisable at our discretion. The amounts shown above are estimated based on the assumptions that all remaining services will be performed as agreed and all milestones and other conditions of the respective contracts are met.

Under our ERP loan, following the completion of this offering, we will be obligated to pay a one-time profit share fee of €297,500 to the Austria Wirtschaftsservice GmbH in connection with its guarantee of the ERP loan.

Kreos Loan

In July 2014, we entered into a €5.0 million loan agreement with Kreos. Net proceeds from the loan were €4.6 million after deducting €0.4 million for the initial interest and principal payment and transaction costs at closing. The loan bears an annual interest rate of 11.9% on the full €5.0 million notional amount. The loan term is 36 months and matures on July 1, 2017. The repayment amount for the first six months comprised interest only; for the remaining thirty months the monthly repayment amount consists of equal installments of interest and principal of €0.2 million. In connection with the loan agreement, we granted Kreos Capital IV (Expert Fund) Limited a warrant to purchase our common shares with contractual preference rights under a shareholders agreement, which Kreos Capital IV (Expert Fund) Limited exercised and pursuant to which we issued to Kreos Capital IV (Expert Fund) Limited 9,107 common shares with contractual preference rights under the shareholders agreement in July 2015 at a price of €1.00 per share. Our intellectual property, fixed assets exceeding a value of €1,000, the receivables related to the research premium and bank accounts were pledged as collaterals for the loan. We may sell or otherwise disburse of any of the pledged fixed assets in the ordinary course of business and may also withdraw any amounts from the pledged bank accounts as long as we are not in default of the provisions of the loan agreement. In July 2015, Kreos agreed to release us from the pledge of our intellectual property upon the closing of this offering. We are entitled to prepay the loan in accordance with the terms of the loan agreement.

Capital Expenditures

Our total purchases related to capital expenditures were €24,000 for the year ended December 31, 2013, €68,000 for the year ended December 31, 2014, €9,000 for the six months ended June 30, 2014 and €52,000 for the six months ended June 30, 2015. We made no significant investments in intangible assets during the years

 

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ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015. There are no material capital projects planned in 2015. However, we expect capital expenditures to increase over the next 12 to 18 months due to the expansion of our U.S. presence, the commencement of our two Phase 3 clinical trials for lefamulin and the continued enhancements of our information technology infrastructure.

Recent Accounting Pronouncements

There are no IFRS standards as issued by the IASB or interpretations issued by the IFRS interpretations that are effective for the first time for the financial year beginning on or after January 1, 2015 that had or that we expect to have a material impact on our financial position.

At the time of authorization for issuance of our consolidated financial statements included elsewhere in this prospectus, a number of revisions, amendments and interpretations had already been published by the IASB, but their application was not yet mandatory. None of these are expected to have a significant effect on our consolidated financial statements, except the following set out below:

 

    In July 2014 the IASB issued the complete version of IFRS 9 “Financial instruments,” applicable to financial years beginning on or after January 1, 2018, which replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. We are in the process of assessing IFRS 9’s impact on us.

 

    In May 2014 the IASB issued the IFRS 15 “Revenue from contracts with customers,” applicable to financial years beginning on or after January 1, 2017, which deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. We are in the process of assessing IFRS 15’s impact on us.

Off-balance Sheet Arrangements

As of the date of this prospectus, we do not have any, and during the periods presented we did not have any, off-balance sheet arrangements.

Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with IFRS as issued by the IASB. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the end of the reporting period, as well as the reported revenues and expenses during the reporting periods. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical to understanding and evaluating the estimates and judgments important to the presentation of our financial condition and results of operations and require us to make judgments and estimates on matters that are inherently uncertain and may change in future periods.

Grant Income

Grant income comprises grants received from ZIT and WWFF, the research premium from the Austrian government and the interest advantage of government loans.

The WWFF grant is paid out through our landlord as a monthly rent subsidy and is recognized over the remaining term of the lease agreement until December 2017. The ZIT grants were provided to support specific

 

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research projects and are recognized according to the progress of the respective project. The research premium is calculated as a percentage of research and development expenses. It is recognized to the extent the research and development expenses have been incurred. All grants are non-refundable, except in limited circumstances. We are and have been in full compliance with the conditions of the grants and all related regulations. If, in the future, compliance with all obligations cannot be fully assured, any related contingent liability will be recognized in accordance with IAS 37 “Provisions, Contingent Liabilities and Contingent Assets.”

The benefit of a government loan at a below-market rate of interest is treated as a government grant. The benefit due to the difference between the market rate of interest and the rate of interest charged by the governmental organization is measured as the difference between the initial carrying value of the loan and the proceeds received. This benefit is deferred, and recognized through profit and loss over the term of the corresponding financial liabilities.

Convertible Loans

Between 2011 and 2015, we entered into five convertible loans with certain of our shareholders. Under the loans, the lenders had the right to convert their entire claim for repayment of the loans into common shares with contractual preference rights under a shareholders agreement. Depending on whether the loans were converted prior to or following the execution of an external equity financing agreement in the amount of at least €5.0 million, the shares to be delivered upon conversion would have either had the same rights as the latest common shares with contractual preference rights under the shareholders agreement issued or the common shares with contractual preference rights under the shareholders agreement issued in the course of the new equity financing. If a loan would not have been converted, it would have been redeemed on the respective repayment date. In conjunction with the convertible loan agreements we entered into in 2011 and 2012, we also granted the lenders additional call options to acquire common shares with contractual preference rights under the shareholders agreement. No transaction costs were incurred in conjunction with our entry into the convertible loan agreements.

In connection with our April 2015 financing, all of the lenders under our convertible loan agreements waived all rights and claims they had in connection with the convertible loan agreements. In particular, all call option rights as well as claims on payments of accrued interest were waived. All claims for repayment, excluding accrued interest, under all convertible loan agreements, were converted into common shares with contractual preference rights under the shareholders agreement. Any accrued interest, as well as the additional call option rights were forfeited.

The convertible loans represented two financial instruments: an interest bearing loan and an option in the form of an equity conversion right for the holders of these instruments. The loan feature of the contract represented a host debt contract that was accounted for at fair value at inception and subsequently at amortized cost following the effective interest method. The fair value upon initial recognition was determined as the difference between the fair value of the compound financial instrument as a whole and the fair value of the equity conversion right and additional call options, if any.

Due to the fact that the conversion price was not yet fixed but was dependent on future developments, the equity conversion right was considered a financial liability. The conversion right was separated from the host contract and fair valued by use of an option pricing model at inception and in subsequent periods with changes in fair value being recognized as profit or loss in the financial result line item in the consolidated statement of comprehensive income (loss).

The additional call options represented embedded derivatives to the respective loan agreements and were separated from the main contract. The call options were fair valued by use of an option pricing model at inception and in subsequent periods with changes in fair value being recognized as profit or loss in the financial result line item in the consolidated statement of comprehensive income (loss).

 

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Silent Partnership

In June 2014 and January 2015, we entered into silent partnership agreements with certain of our shareholders which entitled each of the silent partners to a proportionate share in the fair value of our company, similar to a shareholder, including a share in profit or loss, according to an agreed participation rate.

In connection with our April 2015 financing, all of the claims for repayment of the silent partnership interests, including interest accrued thereon, converted into common shares with contractual preference rights under a shareholders agreement.

Apart from an ordinary termination of the silent partnership agreements, we or the silent partners could have terminated the silent partnership agreements early for material cause. Depending on the cause of termination of the silent partnership agreements, the compensation for the silent partner would have been in cash or in common shares with contractual preference rights under the shareholders agreement. To settle our obligations upon termination of the silent partnership, we could not unilaterally decide to avoid a cash payment, and we would have been obliged to deliver a variable number of our own equity instruments. Therefore, the silent partnership agreement was classified as financial liability according to IAS 32 “Financial Instruments: Presentation.” According to IAS 39, contributions of the silent partner had initially been measured at fair value and subsequently at amortized cost, representing the silent partner’s share in the proceeds resulting from an exit event (trade sale or initial public offering), which was calculated by use of an option pricing model.

April 2015 Financing

In March and April 2015, we entered into agreements with our existing shareholders and certain new investors to issue and sell common shares with contractual preference rights under a shareholders agreement.

The April 2015 financing agreements resulted in the following effects with respect to our existing financial instruments:

 

    all existing convertible loan agreements and silent partnership interests were converted to common shares with contractual reference rights under a shareholders agreement;

 

    the lenders under our convertible loan agreements irrevocably waived their claims for payment of interest accrued on the loan amounts, which was treated as a significant modification according to IAS 39.40;

 

    the lenders under our convertible loan agreements irrevocably waived the call option rights granted under our convertible loan agreements; and

 

    the silent partners irrevocably agreed to the forfeiture of their claims for payment of interest accrued on their silent partnership investments.

Pursuant to our shareholders agreement, signed on April 2, 2015, the holders of the shares issued in our April 2015 financing were granted certain preferential rights. These rights include the right of certain shareholders to acquire additional common shares against payment of the nominal amount of €1.00 per share following an appropriate resolution of all of our shareholders, which we refer to as the preferred dividend. The preferred dividend accrues at a rate per annum of 8%, based on the number of days that have elapsed from the issuance of such shares until the occurrence of certain triggering events, including an initial public offering, a sale of the company and a liquidation. The preferred dividend is cumulative and perpetual. Upon the closing of an initial public offering and issuance of the shares for nominal value in satisfaction of the preferred dividends, all contractual preference rights will terminate.

The shares from the April 2015 financing were recorded upon registration of the capital increase in the Austrian commercial register in May 2015. As a result of the preferred dividend rights, we are deemed to have

 

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issued a compound instrument consisting of common shares accompanied by the preferred dividends. The proceeds from the April 2015 financing, including the conversion of our convertible loan agreements and the contribution of silent partnership interests, have been allocated between the liability and equity components of the compound instrument in accordance with IAS 32 “Financial Instruments: Presentation”. The liability portion arises as a result of a provision in the shareholders agreement executed in connection with the April 2015 financing under which our shareholders have covenanted to vote in favor of the requisite shareholder resolutions to allow us to satisfy the preferred dividend rights. As a result, we cannot avoid fulfilling the preferred dividend rights if a triggering event occurs, and thus, the obligation to satisfy the preferred dividend rights upon the occurrence of a triggering event is outside of our control.

The April 2015 financing and the related conversion of our outstanding convertible loan agreements and silent partnership interests resulted in total consideration of €74.7 million which has been allocated between the liability and the equity components of the compound instrument in accordance with IAS 32. We have measured the liability component by discounting the contractual stream of future cash flows to present value, adjusting for the likelihood and potential timing of the different triggering events specified in the shareholders agreement. The value of the liability was €3.7 million when the shares were issued on May 30, 2015, and amounted to €3.8 million as of June 30, 2015, with the increase in value being recorded as financial expense. The equity component of €71.0 million is the residual amount of the consideration from the April 2015 financing after deducting the liability component.

Share-based Payments

Our shareholders adopted our Stock Option Plan 2007 on September 12, 2007 and subsequently approved amendments to the Stock Option Plan 2007 on September, 17, 2009, May 9, 2010 and June 30, 2015. References to our Stock Option Plan 2007 in this prospectus refer to the plan as amended. No awards will be granted under the Stock Option Plan 2007 on or after the closing of this offering. All employees (including members of the management board), selected members of the supervisory board and further participants are eligible to participate in the Stock Option Plan 2007. Options granted under the Stock Option Plan 2007 give beneficiaries the right to acquire our shares. Options granted under the Stock Option Plan 2007 generally vest over four years from the date of participation. Typically, 25% of the options subject to a particular grant vest on the last day of the last calendar month of the first year of the vesting period, a further 25% of the options vests on the last day of the last calendar month of the second year of the vesting period, and the remaining 50% vests on a monthly pro-rata basis over the third and fourth years of the vesting period (i.e., 2.083% per month). However, alternative vesting schedules applied for beneficiaries who had worked for us prior to the date of the adoption of our Stock Option Plan 2007. All options granted under such alternative vesting schedules have fully vested.

The Stock Option Plan 2007 provides that 50% of any then-unvested options shall automatically vest upon a liquidity event, which refers to an exclusive license of or the sale or other disposal of 50% or more of our assets, a sale or other disposal (but not a pledge) of 50% or more of the our shares, a merger of ours with any third party, or a consolidation, liquidation, winding up or other form of dissolution). If a beneficiary has an unjustified termination or a justified premature termination (as such terms are used in the Stock Option Plan 2007) within one year of the liquidity event, all remaining unvested options held by the beneficiary shall automatically vest in full.

Unless otherwise specifically permitted in an option agreement or resolved upon by the management board with the approval of the supervisory board, the exercise of vested options is permitted under the Stock Option Plan 2007 only during specified periods and on specified terms in the case of a liquidity event or following an initial public offering of our shares occurring during the term of the option, regardless of whether or not the beneficiary is then providing services to us. In the case of a liquidity event occurring prior to our initial public offering, a beneficiary is entitled to exercise vested options (taking any acceleration described above into account) during the six-week period commencing the day after notification of all beneficiaries of the upcoming liquidity event. If the acquiring or succeeding corporation (or an affiliate of the acquiring or succeeding corporation) assumes any outstanding options at the time of the liquidity event, a beneficiary whose options were assumed may exercise those options (to the extent vested) at any time during the remaining term of the option

 

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while the beneficiary is providing services to such corporation and within the three-month period following a termination of the beneficiary’s services to such corporation due to a good leaver event (within the meaning of the Stock Option Plan 2007). Following our initial public offering, a beneficiary is entitled to exercise vested options at any time during the remaining term of the option. No options may be exercised under the Stock Option Plan 2007 after September 27, 2017. Any options not exercised by September 27, 2017 automatically terminate and are forfeited.

Beneficiaries are not entitled to transfer vested options, except to individuals by way of inheritance or bequest. Options do not entitle beneficiaries to exercise any shareholder rights. Beneficiaries may exercise shareholder rights only with respect to any shares they hold.

Our shareholders, management board and supervisory board adopted our Stock Option Plan 2015 on April 2, 2015 and our shareholders approved an amended and restated version of the Stock Option Plan 2015 on June 30, 2015. An amendment to the amended and restated Stock Option Plan 2015 was approved by our shareholders on July 22, 2015. References to our Stock Option Plan 2015 in this prospectus refer to the amended and restated version of the Stock Option Plan 2015, as amended. The Stock Option Plan 2015 became effective on July 3, 2015 upon the registration with the commercial register in Austria of our conditional capital increase approved by our shareholders on June 30, 2015. The Stock Option Plan 2015 provides for the grant of options for up to 95,000 common shares to our employees, including members of our management board, and to members of our supervisory board. Following the closing of this offering, the number of shares available for issuance under the Stock Option Plan 2015 will be increased to 177,499 common shares. Grants of stock options for 91,905 common shares under this plan to members of the management board, selected members of the supervisory board and certain employees were made as of July 6, 2015. Options granted under the Stock Option Plan 2015 generally have a term of 10 years and vest over four years. Typically 25% of the options subject to a particular grant vest on the last day of the of the last calendar month of the first year of the vesting period, and the remaining 75% vests on a monthly pro-rata basis over the second, third and fourth years of the vesting period (i.e., 2.083% per month). Any alternative vesting period determined by us is subject to approval by our management board, supervisory board or shareholders, in accordance with applicable voting requirements.

The Stock Option Plan 2015 provides that, if a liquidity event (as defined below) occurs, all options outstanding under the Stock Option Plan 2015 will be assumed (or substantially equivalent awards will be substituted by an acquiring or succeeding corporation (or an affiliate of the acquiring or succeeding corporation)), and any then-unvested options shall continue to vest in accordance with the beneficiary’s original vesting schedule. If a beneficiary is terminated due to a good leaver event (within the meaning of the Stock Option Plan 2015), on or prior to the first anniversary of the date of the liquidity event, the beneficiary’s options will be immediately exercisable in full as of the date of such termination. If the acquiring or succeeding corporation (or an affiliate of the acquiring or succeeding corporation) refuses to assume the options outstanding under the Stock Option Plan 2015 or to substitute substantially equivalent options therefor, all then-unvested options under the Stock Option Plan 2015 will automatically vest in full upon the liquidity event. For purposes of the Stock Option Plan 2015, a liquidity event generally refers to an exclusive license of or the sale, lease or other disposal of all or substantially all of our assets, a sale or other disposal (but not a pledge) of 50% or more of the our shares, a merger or consolidation of us with or into any third party, or our liquidation, winding up or other form of dissolution of us.

Unless otherwise specifically permitted in an option agreement or resolved upon by the management board with the approval of the supervisory board, the exercise of vested options is permitted under the Stock Option Plan 2015 only during specified periods and on specified terms in the case of a liquidity event or following an initial public offering occurring during the term of the option. In the case of a liquidity event occurring prior to our initial public offering, a beneficiary is entitled to exercise vested options (taking any acceleration described above into account) within the six-week period commencing the day after notification of the upcoming liquidity event. If the acquiring or succeeding corporation (or an affiliate of the acquiring or succeeding corporation) assumes any options in the liquidity event, a beneficiary whose options were assumed may exercise those options

 

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(to the extent vested) at any time during the remaining term of the option while the beneficiary is providing services to such corporation, and within the three-month period following a termination of the beneficiary’s services to such corporation due to a good leaver event. Following our initial public offering, a beneficiary is entitled to exercise vested options at any time during the remaining term of the option while the beneficiary is providing services to us, and within the three-month period following a termination of the beneficiary’s services due to a good leaver event. Options granted under the Stock Option Plan 2015 will have a term of no more than ten years from the beneficiary’s date of participation.

Beneficiaries of options granted under the Stock Option Plan 2015 are not entitled to transfer vested options, except to individuals by way of inheritance or bequest. Options do not entitle beneficiaries to exercise any shareholder rights. Beneficiaries may exercise shareholder rights only with respect to any shares they hold.

We measure the options under our equity incentive plans at fair value at their grant date in accordance with IFRS 2, “Stock-based Payment,” using the Black-Scholes model. All options under the Stock Option Plan 2007 have an exercise price of €6.72 per share and a maturity of September 27, 2017. See “—Fair Value Estimation” for further detail on valuation parameters. The fair value of such share-based compensation is recognized as an expense over the respective vesting period. Share-based compensation expense under the Stock Option Plan 2007 was €124,000 and €72,000 for the years ended December 31, 2013 and 2014, respectively. No options were granted in 2013 or the six months ended June 30, 2015. The weighted average fair value of the 1,088 options granted in 2014 was €192.07 per share. Each option granted as of July 6, 2015 under the Stock Option Plan 2015 has an exercise price of €66.18 and a grant date fair value of €70.98. We estimate that we will recognize non-cash compensation expense of approximately €1,136,000 during the year ending December 31, 2015 related to the options granted under the Stock Option Plan 2015 on July 6, 2015.

We account for related social security contributions as cash-settled share based payment transactions. We recognize a liability over the vesting period in respect of options to be exercised. As of the end of each reporting period we adjust the liability by reference to the current market value of the options.

We expect to grant additional stock options that will result in additional share-based compensation expense. Following the consummation of this offering, we intend to determine stock option values based on the market price of our common shares.

Fair Value Estimation

We use various valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain types of financial instruments, including stock options under our equity incentive plans.

The fair value of the total equity is determined by management and takes into account the most recently available valuation of the company and the assessment of additional objective and subjective factors we believe are relevant. We consider numerous objective and subjective factors to determine the best estimate of the fair value of the equity and certain financial instruments that represent potential interests in the equity, including the following:

 

    the progress of research and development programs;

 

    achievement of enterprise milestones, including the entering into of collaboration and licensing agreements;

 

    contemporaneous third-party valuations of our common shares;

 

    our forecasted performance and operating results;

 

    the cost of capital to fund operations;

 

    the rights and preferences of the financial instruments, such as the liquidation preference of common shares with contractual preference rights under a shareholders agreement relative to other common shares and conversion rights of the convertible loan agreements;

 

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    the likelihood of achieving a discrete liquidity event, such as a sale of the company or an initial public offering given prevailing market conditions; and

 

    external market and economic conditions impacting our industry sector.

In determining the fair values of the equity, we considered three generally accepted approaches: the income approach, market approach and cost approach. Based on our stage of development and information available to us, we have determined that the income approach is the most appropriate method.

Discounted cash flow, or DCF, a form of the income approach, is an estimate of the present value of the future monetary benefits expected to flow to the owners of a business. It requires a projection of the cash flows that the business is expected to generate. These cash flows are converted to present value by means of discounting, using a rate of return that accounts for the time value of money and the appropriate degree of risks inherent in the business. The discount rate in the DCF analysis is based upon a weighted average cost of capital, or WACC. The WACC is derived by using the Capital Asset Pricing Model and inputs such as the risk-free rate, beta coefficient, equity risk premiums and the size of the company.

After determining the fair value of total equity for each valuation date, the option pricing method, or OPM, was used to estimate the fair value for all financial instruments that represent claims on our assets, including the different share classes as well as the following instruments:

 

    options under our equity incentive plans;

 

    the investment from silent partnerships;

 

    warrants related to our loan from Kreos; and

 

    options and conversion rights related to the convertible loans agreements.

Under this approach, each class of securities is modeled as a combination of call options with a unique claim on our assets. The characteristics of each security’s class define these claims. This reflects differences in value allocation at different company value levels that result from differences in security classes, for example from liquidation preference rights and dividend accrual. The OPM uses the Black-Scholes option-pricing model to price the call options. This model defines the fair values of securities as functions of the current fair value of the company and uses assumptions such as the anticipated timing of a potential liquidity event and the estimated volatility of the entire equity. Volatility has been estimated based on the observed daily share price returns of peer companies over a historic period closely matching the period for which expected volatility is estimated. Volatility is defined as the annualized standard deviation of share price returns. In the allocation of equity, we have also considered valuation outcomes through a sale of the company compared to an initial public offering and considered the probabilities of each at each valuation date, since the treatment of the liquidation rights is different for these two events. The aggregate value per security class is then divided by the number of securities outstanding to arrive at the value per security.

Our valuations relied on DCF models to derive the total enterprise value. The cash flow projections were based on probability-weighted scenarios which considered estimates of time to market, market share and pricing of lefamulin in the target indications. The cash flow projections were estimated over a period equal to the expected patent life, and a terminal value period was not applied. The expected sales were estimated using a detailed market model that comprises historical and expected number of therapies as well as prices of relevant drugs per indication and region, based on market reports, surveys and estimates by management. Production and research and development costs were estimated at the indication level with general and administrative costs and selling and marketing costs estimated at the overall company level. A WACC of 16.0% was applied for each valuation date. The OPM relies on the anticipated timing and probability of a liquidity event based on then current plans and estimates of our management board as per each valuation date. As of June 30, 2014, December 31, 2014 and June 30, 2015, the probability of an initial public offering was estimated at 60% (December 31, 2013 and earlier: 10%) and of a sale at 40% (December 31, 2013 and earlier: 90%). As per December 31, 2014 the estimated

 

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volatility was 65% (2013: 80%) based on historical trading volatility for the publicly traded peer companies and a time to liquidity of 0.5 years (2013: 1.2 years) for the initial public offering scenario and 2.5 years (2013: 4.4 years) for the trade sales scenario. As of June 30, 2015, the time to liquidity was estimated at 0.6 years (June 30, 2014: 1.0 years) for the initial public offering scenario and 2.3 years (June 30, 2014: 3.0 years) for the trade sale scenario, resulting in an estimated volatility as of June 30, 2015 of 55% (June 30, 2014: 65%).

Research and Development Expenses

Research expenses are defined as costs incurred for current or planned investigations undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Development expenses are defined as costs incurred for the application of research findings or specialist knowledge to production, production methods, services or goods prior to the commencement of commercial production or use. We expense all research costs as incurred. Research costs are prohibited from being capitalized. However, development costs must be capitalized when the following criteria have been fulfilled:

 

    it is technically feasible to complete the intangible asset so that it will be available for use or sale;

 

    management intends to complete the intangible asset and to utilize or sell it;

 

    there is an ability to utilize or sell the intangible asset;

 

    it can be demonstrated how the intangible asset will generate probable future economic benefits;

 

    adequate technical, financial and/or other resources to complete the development and to utilize or sell the intangible asset are available; and

 

    the expenditure attributable to the intangible asset during its development can be reliably measured.

The following costs, in particular by their nature, constitute research and development expenses: the appropriate proportions of direct personnel and material costs, related overhead for internal or external technology, engineering and other departments that provide services; costs for experimental and pilot facilities (including depreciation of buildings or parts of buildings used for research or development purposes); costs for clinical research; regular costs for the utilization of third parties’ patents for research and development purposes; other taxes related to research facilities; and fees for the filing and registration of self-generated patents that are not capitalized.

Our projects are currently in the research and development phase and marketing approval by U.S., European and other foreign regulatory authorities is not, nor will be, available for any product in the near future. Therefore, we do not capitalize expenditure on research and development as an intangible asset, but recognize it as an expense in the period in which it is incurred.

Taxes

We are subject to income tax in Austria and the United States. Significant judgments and estimates are required in determining the consolidated income tax expense, including a determination of whether and how much of a tax benefit taken by us in our tax filings or positions is more likely than not to be realized. Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. We are not aware of any such changes that would be expected to have a material effect on our results of operations, cash flows or financial position. There are many transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred income tax assets and liabilities in the period in which such determination is made.

Our U.S. subsidiary is subject to income taxes due to the fact that it provides to us certain management and other services related to research and development activities. These services are rendered on terms that were negotiated at arm’s length pursuant to a services agreement with us.

 

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Deferred taxes have only been recognized to the extent it is likely that in the following period a taxable profit will be available against which the temporary difference can be utilized. As of December 31, 2014, we had unrecognized deferred tax assets of €26.7 million (2013: €23.1 million). These amounts consisted of €26.5 million (2013: €21.7 million) related to cumulative tax loss carry-forwards, and €0.2 million (2013: €1.4 million) related to other temporary differences. Since we are in a loss-making position in Austria and have a history of losses, no deferred tax asset has been recognized. The tax loss carry-forwards will not expire in Austria.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to a variety of financial risks in the ordinary course of our business: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. Our overall risk management program focuses on preservation of capital given the unpredictability of financial markets. These market risks are principally limited to interest rate and foreign currency fluctuations.

Market Risk

We do not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds (bank accounts, cash balances and securities) is limited because the counterparties are banks with high credit ratings from international credit rating agencies. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes.

We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar and the British pound. Our functional currency is the euro, but we receive payments from several of our collaborators, and acquire materials, in each of these other currencies. In addition, we plan to convert a substantial portion of the proceeds from this offering in U.S. dollars to euro. We have not established any formal practice to manage the foreign exchange risk against our functional currency. Foreign exchange rate movements had no material effect on our results for the years ended December 31, 2013 and 2014 and the six months ended June 30, 2014 and 2015.

Interest rate risk may arise from short-term or long-term borrowings. As of June 30, 2015, we had no borrowings that exposed us to interest rate risk. As of June 30, 2015, we had neither significant long-term interest-bearing assets nor significant long-term interest-bearing liabilities, other than the fixed rate loan from Kreos and the fixed rate convertible loans. Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

Liquidity Risk

Based on our current operating plans, we believe that the anticipated net proceeds of this offering, together with our existing cash and cash equivalents, will be sufficient to fund our operations at least until                     .

Implications of Being an Emerging Growth Company

As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

    a requirement to have only two years of audited financial statements and only two years of related management’s discussion and analysis in this prospectus;

 

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    an exemption from compliance with the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act of 2002 on the design and effectiveness of our internal controls over financial reporting;

 

    an exemption from compliance with any requirement that the Public Company Accounting Oversight Board may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure about the company’s executive compensation arrangements; and

 

    exemptions from the requirements to obtain a non-binding advisory vote on executive compensation or a shareholder approval of any golden parachute arrangements.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company upon the earlier to occur of: the last day of the fiscal year in which we have more than $1 billion in annual revenues; the date we qualify as a “large accelerated filer,” with at least more than $700 million in market value of our share capital held by nonaffiliates; or the issuance by us of more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, but not all, of the available benefits under the JOBS Act. We have taken advantage of some reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. Since we currently report and expect to continue to report under IFRS as issued by the IASB, we have irrevocably elected not to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB.

 

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BUSINESS

Overview

We are a clinical stage biopharmaceutical company engaged in the research and development of novel anti-infective agents to treat serious infections, with a focus on the pleuromutilin class of antibiotics. We are developing our lead product candidate, lefamulin, to be the first pleuromutilin antibiotic available for systemic administration in humans. We are developing both intravenous, or IV, and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia, or CABP and intend to develop lefamulin for additional indications other than pneumonia. We have completed a Phase 2 clinical trial of lefamulin for acute bacterial skin and skin structure infections, or ABSSSI. Based on the clinical results of lefamulin for ABSSSI, as well as its rapid tissue distribution, including substantial penetration into lung tissue and fluids, we are preparing to initiate two pivotal, international Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. These will be the first clinical trials we have conducted with lefamulin for the treatment of CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. Both trials are designed to follow draft guidance published by the FDA for the development of drugs for CABP and guidance from the European Medicines Agency, or EMA, for the development of antibacterial agents. Based on our expectations regarding initiation of these trials and our estimates regarding patient enrollment, we expect to have top-line data available for both trials in late 2017. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018. We believe that lefamulin is well suited for use as a first-line empiric monotherapy for the treatment of CABP because of its novel mechanism of action, spectrum of activity, including against multi-drug resistant pathogens, achievement of substantial drug concentrations in lung tissue and fluids, availability as both an IV and oral formulation and favorable safety and tolerability profile.

The U.S. Food and Drug Administration, or FDA, has designated the IV formulation of lefamulin as a qualified infectious disease product, or QIDP, which provides for the extension of statutory exclusivity periods in the United States for an additional five years upon FDA approval of the product for the treatment of CABP, and granted fast track designation to this formulation of lefamulin. Fast track designation is granted by the FDA to facilitate the development and expedite the review of drugs that treat serious conditions and fill an unmet medical need. The fast track designation for the IV formulation of lefamulin will allow for more frequent interactions with the FDA, the opportunity for a rolling review of any new drug application, or NDA, we submit and eligibility for priority review and a shortening of the FDA’s goal for taking action on a marketing application from ten months to six months.

We believe that pleuromutilin antibiotics can help address the major public health threat posed by bacterial resistance, which the World Health Organization, or WHO, characterized in 2010 as one of the three greatest threats to human health. Increasing resistance to antibiotics used to treat CABP is a growing concern and has become an issue in selecting the appropriate initial antibiotic treatment prior to determining the specific microbiological cause of the infection, referred to as empiric treatment. For example, the U.S. Centers for Disease Control and Prevention, or CDC, has classified Streptococcus pneumoniae, the most common respiratory pathogen, as a serious threat to human health as a result of increasing resistance to currently available antibiotics. In addition, the CDC recently reported on the growing evidence of widespread resistance to macrolides, widely used antibiotics that disrupt bacterial protein synthesis, in Mycoplasma pneumoniae, a common cause of CABP that is associated with significant morbidity and mortality. Furthermore, Staphylococcus aureus, including methicillin-resistant S. aureus, or MRSA, has emerged as a more common cause of CABP in some regions of the world, and a possible pathogen to be covered with empiric therapy. In recognition of the growing need for the development of new antibiotics, recent regulatory changes, including priority review and regulatory guidance enabling smaller clinical trials, have led to renewed interest from the pharmaceutical industry in anti-infective development. For example, the Food and Drug Administration Safety and Innovation Act became law in 2012 and included the Generating Antibiotic Incentives Now Act, or the GAIN Act, which provides incentives,

 

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including access to expedited FDA review for approval, fast track designation and five years of potential data exclusivity extension for the development of new QIDPs.

As a result of increasing resistance to antibiotics and the wide array of potential pathogens that cause CABP, the current standard of care for hospitalized patients with CABP usually involves first-line empiric treatment with a combination of antibiotics to address all likely bacterial pathogens or monotherapy with a fluoroquinolone antibiotic. Combination therapy presents the logistical challenge of administering multiple drugs with different dosing regimens and increases the risk of drug-drug interactions and the potential for serious side effects. Fluoroquinolones are associated with safety and tolerability concerns and are typically administered in combination with other antibiotics if community-acquired MRSA is suspected. In addition, many currently available antibiotic therapies are only available for IV administration and are prescribed for seven to 14 days, meaning continued treatment requires prolonged hospitalization or a switch to a different antibiotic administered orally, with the attendant risk that the patient might respond differently.

Pleuromutilins are semi-synthetic compounds derived from a naturally occurring antibiotic and inhibit bacterial growth by binding to a specific site on the bacterial ribosome that is responsible for bacterial protein synthesis. We have developed an understanding of how to optimize characteristics of the pleuromutilin class, such as antimicrobial spectrum, potency, absorption following oral administration and tolerability, which in turn led to our selection and development of lefamulin, our lead product candidate. We have completed a Phase 2 clinical trial for acute bacterial skin and skin structure infections, or ABSSSI, in which IV lefamulin achieved a high cure rate against multi-drug resistant Gram-positive bacteria, including MRSA. In addition, in preclinical studies, lefamulin showed potent antibacterial activity against a variety of Gram-positive bacteria, Gram-negative bacteria and atypical bacteria, including multi-drug resistant strains. The preclinical studies and clinical trials we have conducted to date suggest that lefamulin’s novel mechanism of action is responsible for the lack of cross resistance observed with other antibiotic classes and may result in slow development of bacterial resistance to lefamulin over time. As a result of the favorable safety and tolerability profile we have observed in our clinical trials to date, we believe lefamulin will present fewer potential complications relative to the use of current therapies. Based on our research, we also believe that the availability of both IV and oral formulations of lefamulin, and an option to switch to oral treatment, could reduce the length of a patient’s hospital stay and the overall cost of care.

We have evaluated lefamulin in more than 400 patients and subjects in 16 Phase 1 clinical trials and a Phase 2 clinical trial in ABSSSI. In our Phase 1 clinical trials, we have characterized the clinical pharmacology of the IV formulation of lefamulin and shown oral bioavailability of a tablet formulation of lefamulin with rapid tissue distribution, including substantial penetration into lung tissue and fluids. In our Phase 2 clinical trial evaluating the safety and efficacy of two different doses of the IV formulation of lefamulin administered over five to 14 days compared to the antibiotic vancomycin in patients with ABSSSI, the clinical success rate at test of cure, or TOC, for lefamulin was similar to that of vancomycin. Lefamulin has been well tolerated in all our clinical trials to date when administered by IV and oral routes. The frequency of adverse events that we observed in our Phase 2 clinical trial in ABSSSI was similar for patients treated with IV lefamulin and patients treated with vancomycin.

Based on the clinical results of lefamulin for the treatment of ABSSSI, as well as its rapid tissue distribution, including substantial penetration into the lung, we are preparing to evaluate lefamulin for the treatment of moderate to severe CABP in two international Phase 3 clinical trials. We are initially pursuing the development of lefamulin for CABP because of the limited development of new antibiotic classes for this indication over the past 15 years, our belief that there exists a significant unmet medical need for a first-line empiric monotherapy that addresses the growing development and spread of bacterial resistance, as well as recently clarified FDA guidance regarding the approval pathway. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. In addition, we plan to conduct a Phase 1 clinical trial of lefamulin in patients with ventilator-associated bacterial pneumonia, or VABP. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of

 

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lefamulin in patients with hospital-acquired bacterial pneumonia, or HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against MRSA. We also plan to further characterize the clinical pharmacology of lefamulin.

We plan to pursue a number of additional opportunities for lefamulin, including a development program for use in pediatric patients and potentially for the treatment of ABSSSI. In addition, as an antibiotic with potent activity against a wide variety of multi-drug resistant pathogens, including MRSA, we plan to explore development of lefamulin in other indications, including sexually transmitted infections, or STIs, osteomyelitis and prosthetic joint infections. Through our research and development efforts, we have also identified a topical pleuromutilin product candidate, BC-7013, which has completed a Phase 1 clinical trial. We also have an ongoing research program focused on evaluating pleuromutilin compounds with enhanced activity against Gram-negative bacteria, which we call extended-spectrum pleuromutilins, or ESPs.

We own exclusive, worldwide rights to lefamulin. Lefamulin is protected by issued patents in the United States, Europe and Japan covering composition of matter, which are scheduled to expire no earlier than 2028. We also have pending patent applications for lefamulin relating to process and pharmaceutical crystalline salt forms, which if issued would be scheduled to expire no earlier than 2031.

Our Strategy

Our goal is to become a fully integrated biopharmaceutical company focused on the research, development and commercialization of novel anti-infective products. The key elements of our strategy to achieve this goal are:

 

    Complete Phase 3 clinical development of lefamulin for CABP. We are devoting a significant portion of our financial resources and business efforts to completing the clinical development of lefamulin for the treatment of CABP. We are preparing to initiate two international Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. Based on our expectations regarding initiation of these trials and our estimates regarding patient enrollment, we expect to have top-line data available for both trials in late 2017. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018.

 

    Maximize the commercial potential of lefamulin for CABP. We own exclusive, worldwide rights to lefamulin. We expect that our initial target patient population for lefamulin will consist of patients with moderate to severe CABP. If lefamulin receives marketing approval from the FDA for the treatment of CABP, we plan to commercialize it in the United States with our own targeted hospital sales and marketing organization that we plan to establish. We believe that we will be able to effectively communicate lefamulin’s differentiating characteristics and key attributes to clinicians and hospital pharmacies with the goal of establishing favorable formulary status for lefamulin. If lefamulin receives marketing approval outside the United States for the treatment of CABP, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize lefamulin in such markets. We also plan to develop a formulation of lefamulin appropriate for pediatric use for CABP.

 

   

Pursue the continued development of lefamulin in additional indications. We plan to pursue the continued development of lefamulin for indications in addition to CABP. For example, we intend to further pursue the development of lefamulin for the treatment of ABSSSI. In addition, we plan to conduct a Phase 1 clinical trial of lefamulin in patients with VABP. We expect to complete this trial in the first half of 2017. Depending on the results of this trial, we may then conduct a Phase 2 clinical trial of lefamulin in patients with HABP. We plan to conduct these trials for VABP and HABP to obtain additional safety and pharmacokinetic data, in particular regarding the activity of lefamulin against MRSA. We believe that lefamulin’s product profile also provides the opportunity to expand to other

 

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indications beyond pneumonia. For example, investigation of the tolerability of higher single doses of lefamulin could also support use of lefamulin for the treatment of STIs. In addition, we plan to explore longer duration of treatment with lefamulin to support development of a treatment for osteomyelitis and prosthetic joint infections. We believe that lefamulin would be differentiated from other treatment options for each of these potential uses because of lefamulin’s novel mechanism of action, spectrum of activity, including activity against multi-drug resistant pathogens, achievement of substantial concentrations in relevant tissues, availability as both an IV and oral formulation and favorable safety and tolerability profile.

 

    Advance the development of other pleuromutilin product candidates and possibly compounds in other classes. We are currently focused on developing additional pleuromutilin product candidates through our deep understanding of this class of antibiotics. Our product candidate BC-7013 has completed a Phase 1 clinical trial. We believe that this pleuromutilin compound is well suited for the topical treatment of a variety of Gram-positive infections, including uncomplicated skin and skin structure infections, or uSSSIs. In addition, other topical pleuromutilins from our research program have shown potent in vitro activity against Clostridium difficile and Helicobacter pylori. We also are actively pursuing an in-house discovery program to sustain and expand our pipeline with additional product candidates. We believe that ESPs with broadened Gram-negative coverage, representing a new generation of pleuromutilin antibiotics, can help overcome important mechanisms of Gram-negative resistance. Furthermore, we own diverse libraries of compounds in other antibacterial classes, such as ß-lactams and acremonic acids, which are a potential basis for the discovery and development of novel antibacterial agents.

 

    Evaluate business development opportunities and potential collaborations. We plan to evaluate the merits of entering into collaboration agreements with other pharmaceutical or biotechnology companies that may contribute to our ability to efficiently advance our product candidates, build our product pipeline and concurrently advance a range of research and development programs. Potential collaborations may provide us with funding and access to the scientific, development, regulatory and commercial capabilities of the collaborators. We also plan to encourage local and international government entities and non-government organizations to provide additional funding and support for our development programs. We may expand our product pipeline through opportunistically in-licensing or acquiring the rights to complementary products, product candidates and technologies for the treatment of a range of infectious diseases.

 

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Our Product Development Pipeline

The following table summarizes the indications for which we are developing our product candidates and the status of development.

 

LOGO

 

* We are preparing to initiate two international Phase 3 clinical trials with lefamulin for the treatment of moderate to severe CABP. However, we have not conducted any clinical trials of lefamulin specifically for CABP. Our completed Phase 2 clinical trial evaluated lefamulin in patients with ABSSSI. We have obtained input from the FDA and select European authorities and have submitted a request for Special Protocol Assessment, or SPA, to the FDA regarding the study design of our first Phase 3 clinical trial in anticipation of submitting applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018. We have not reached agreement with the FDA regarding our request for an SPA. We do not expect the planned timing of initiation of our Phase 3 clinical trials to depend on reaching agreement with the FDA regarding an SPA.

 

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Background

Anti-Bacterial Market and Scientific Overview

Bacteria are broadly classified as Gram-positive or Gram-negative. Gram-positive bacteria possess a single membrane and a thick cell wall and turn dark-blue or violet when subjected to a laboratory staining method known as Gram’s method. Gram-negative bacteria have a thin cell wall layered between an inner cytoplasmic cell membrane and a bacterial outer membrane and, as a result, do not retain the violet stain used in Gram’s method. Antibiotics that are active against both Gram-positive and Gram-negative bacteria are referred to as broad spectrum, while those that are active only against a select subset of Gram-positive or Gram-negative bacteria are referred to as narrow spectrum. Bacteria that cause infections are often referred to as bacterial pathogens. Because it often takes from 24 to 48 hours to definitively diagnose the particular bacterial pathogen causing an infection, narrow spectrum antibiotics are not generally used as empiric monotherapy for first-line treatment of hospitalized patients with serious infections.

Since the introduction of antibiotics in the 1940s, numerous new antibiotic classes have been discovered and developed for therapeutic use. The development of new antibiotic classes and new antibiotics within a class is important because of the ability of bacteria to develop resistance to existing mechanisms of action of currently approved antibiotics. However, the pace of discovery and development of new antibiotic classes slowed considerably in the past few decades. The CDC estimates that the pathogens responsible for more than 70% of U.S. hospital infections are resistant to at least one of the antibiotics most commonly used to treat them. The CDC also estimated in 2013, based on data collected from evaluations performed between 2006 and 2011, that annually in the United States at least two million people become infected with bacteria that are resistant to antibiotics and at least 23,000 people die as a direct result of these infections.

Antibiotic resistance is primarily caused by genetic mutations in bacteria selected by exposure to antibiotics that do not kill all of the bacteria. In addition to mutated bacteria being resistant to the drug used for treatment, many bacterial strains can also become cross-resistant, meaning that they become resistant to multiple classes of antibiotics. As a result, the effectiveness of many antibiotics has declined, limiting physicians’ options to treat serious infections and exacerbating a global health issue. For example, the WHO estimated in 2014 that people with infections caused by MRSA, a highly resistant form of bacteria, are 64% more likely to die than people with a non-resistant form of the infection. Resistance can increase the cost of healthcare because of the potential for lengthier hospital stays and more intensive care. Growing antibiotic resistance globally, together with the low level of investment in research and development, is considered one of the biggest global health threats. In 2010, the WHO stated that antibiotic resistance is one of the three greatest threats to human health. Partially in response to this threat, the U.S. Congress passed the GAIN Act in 2012, which provides incentives, including access to expedited FDA review for approval, fast track designation and five years of potential data exclusivity extension for the development of new QIDPs. Additional legislation is also being considered in the United States, including the Antibiotic Development to Advance Patient Treatment Act of 2013, which is intended to accelerate the development of anti-infective products, and the Developing an Innovative Strategy for Antimicrobial Resistant Microorganisms Act of 2014, which is intended to establish a new reimbursement framework to enable premium pricing of anti-infective products.

In 2009, sales of antibiotics totaled approximately $42 billion globally. Although judicious use of antibiotics is important to reduce the rate of antibiotic resistance, this approach alone cannot fully address the threat from increasing antibiotic resistance. New antibiotics, and particularly new antibiotic classes, are needed to ensure the availability of effective antibiotic therapy in the future.

Community-Acquired Bacterial Pneumonia (CABP)

Market Overview

The WHO estimated in 2002 that there were approximately 450 million pneumonia cases reported per year worldwide, causing approximately 4.0 million deaths in 2002. According to an article published in 2011 in the

 

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peer-reviewed medical journal Therapeutic Advances in Respiratory Disease, the annual incidence of community-acquired pneumonia is between five and 11 cases per 1,000 people, with the incidence rate rising in elderly patients. In a study published in 2004 in the peer-reviewed medical journal Clinical Infectious Diseases in which more than 46,000 people in the state of Washington were monitored over three years, the incidence of CABP among those 65 to 69 years of age was 18.2 cases per 1,000 people per year and increased to 52.3 cases per 1,000 people per year in those over 85 years of age.

The U.S. National Center for Health Statistics estimated that between 1988 and 1994 there were approximately 5.6 million cases of pneumonia per year in the United States. According to the CDC, approximately 1.1 million pneumonia patients in the United States required hospitalization in 2010 and approximately 53,000 patients died from pneumonia in 2013.

Based on data from Arlington Medical Resources, or AMR, a leading provider of medical data from hospitals and other healthcare facilities, who reported that there were approximately 3.4 million treatment courses for CABP in U.S. hospitals during the second half of 2013, we estimate that the number of treatment courses for CABP in hospitals in the United States exceeded 7.0 million for full-year 2013.

Causes of CABP

Pneumonia can be caused by a variety of micro-organisms, with bacteria being the most common identifiable cause. CABP refers to bacterial pneumonia that is acquired outside of a hospital setting. Signs and symptoms of CABP include cough, fever, sputum production and chest pain. A number of different types of bacteria can cause CABP, including both Gram-positive and Gram-negative bacteria. Pneumonia that is caused by atypical bacterial pathogens often has different symptoms and responds to different antibiotics than pneumonia caused by pathogens referred to as typical bacteria. However, atypical bacteria are not uncommon. The most common bacterial pathogens noted in current treatment guidelines from the Infectious Diseases Society of America, or IDSA, for hospitalized CABP patients who are not in the intensive care unit are Streptococcus pneumoniae, Mycoplasma pneumoniae, Haemophilus influenzae, Chlamydophila pneumoniae, and Legionella species. In addition, IDSA notes the emergence of resistance to commonly utilized antibiotics for CABP, specifically drug-resistant S. pneumoniae and community-acquired MRSA, or CA-MRSA, as a major consideration in choosing empiric therapy. However, approximately 50% of patients may not have a pathogen identified using routine diagnostic tests available to physicians.

Currently Available Treatment Options

Based on the most likely bacteria to cause CABP, IDSA and the American Thoracic Society, or ATS, recommend empiric treatment of hospitalized patients with CABP who do not require treatment in an intensive care unit with either:

 

    a combination of a cephalosporin, an antibiotic that disrupts the cell wall of bacteria, plus a macrolide, an antibiotic that disrupts bacterial protein synthesis; or

 

    monotherapy with a respiratory fluoroquinolone, an antibiotic that disrupts bacterial protein synthesis.

In the event that CA-MRSA is suspected, these guidelines recommend that vancomycin, an antibiotic that disrupts the cell wall of bacteria, or linezolid, an antibiotic that disrupts bacterial protein synthesis, be used or added to the current regimen.

In addition, physicians need to be aware of the local susceptibility profiles of the common bacterial pathogens associated with CABP because of increasing resistance to first-line antibiotics. For example, rates of pneumococcal resistance to recommended first-line macrolides exceed 40% in some areas, while resistance in M. pneumoniae associated with severe disease has been recently reported by the CDC in the United States.

 

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Limitations of Currently Available Treatment Options

When confronted with a new patient suffering from a serious infection caused by an unknown pathogen, a physician may be required to quickly initiate first-line empiric antibiotic treatment, often with a combination of antibiotics, to stabilize the patient prior to definitively diagnosing the particular bacterial infection. However, currently available antibiotic therapies for first-line empiric treatment of CABP suffer from significant limitations.

Bacterial Resistance and Limited Spectrum of Activity

As a result of bacterial resistance, the effectiveness of many antibiotics has declined. For example, the CDC estimates that in 30% of severe S. pneumoniae cases the bacterial pathogen is fully resistant to one or more clinically relevant antibiotics, with 44% of strains resistant to a macrolide in the United States. In addition, fluoroquinolone resistance in S. pneumoniae has increased from less than 0.5% to more than 3% of cases in some regions of North America, which parallels increased total fluoroquinolone prescriptions. Antibiotic resistance has a significant impact on mortality and contributes heavily to healthcare system costs worldwide. According to the CDC, cases of resistant pneumococcal pneumonia result in 32,000 additional doctor visits, approximately 19,000 additional hospitalizations and 7,000 deaths each year. These cases are associated with $96 million in excess medical cost per year in the United States. IDSA/ATS guidelines recommend empiric treatment that provides broad spectrum antimicrobial coverage. None of the currently available treatment options provides a spectrum of antibacterial coverage as a monotherapy that sufficiently covers all of the most common bacterial causes of CABP, including multi-drug resistant strains.

Difficult, Inconvenient and Costly Regimens

Currently available antibiotics used to treat CABP and other serious infections can be difficult, inconvenient and costly to administer. Physicians typically prefer IV administration for patients hospitalized with more serious illness to ensure adequate delivery of the drug rapidly. Many IV antibiotics are prescribed for seven to 14 days or more and patients can be hospitalized for much or all of this period or require in-home IV therapy. The diagnosis related group, or DRG, reimbursement system often used in the U.S. hospital setting pays a fixed fee for an episode of CABP that may not fully compensate hospitals for the duration of hospitalized care. Prolonged IV treatment that extends the period of hospitalization may cause hospital costs to increase in excess of the fixed reimbursement fee, resulting in significant negative impact on healthcare institutions. In addition, to address all likely bacterial pathogens in a patient with a more serious illness, IDSA guidelines recommend using a combination of antibiotics. Combination therapy presents the logistical challenge of administering multiple drugs with different dosing regimens and increases the risk of drug-drug interactions. While IV treatment delivers the drug more rapidly than is possible orally, once a patient is stabilized, oral treatment with the same drug would allow for more convenient and cost-effective out-patient treatment. Because many commonly used antibiotics are only available in IV form, a switch to an oral therapy requires changing to a different antibiotic, which may be less effective for the patient.

Adverse Effects

Currently available antibiotic therapies can have serious side effects. These side effects may include severe allergic reaction, decreased blood pressure, nausea and vomiting, suppression of platelets, pain and inflammation at the site of injection, muscle, renal and oto-toxicities, optic and peripheral neuropathies and headaches. At times, these side effects may be significant and require discontinuation of therapy. As a result, some treatments require clinicians to closely monitor patients’ blood levels and other parameters, increasing the expense and inconvenience of treatment. This risk may be increased with combination therapy, which exposes patients to potential adverse effects from each of the antibiotics used in treatment. For example, fluoroquinolones are associated with tendon rupture and peripheral neuropathy. In addition, fluoroquinolones have been associated with an increased frequency of C. difficile colitis, an overgrowth of a bacteria in the colon that produces a toxin that results in inflammation of the colon and repeated bouts of watery diarrhea. This has resulted in cessation of the use of fluoroquinolones in several countries.

 

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Lefamulin

Overview

We are developing lefamulin to be the first pleuromutilin antibiotic available for systemic administration in humans. Lefamulin is a semi-synthetic derivative of the naturally occurring antibiotic, pleuromutilin, which was originally identified from a fungus called Pleurotus mutilis. Lefamulin inhibits the synthesis of bacterial protein, which is required for bacteria to grow. Lefamulin acts by binding to the peptidyl transferase center, or PTC, on the bacterial ribosome in such a way that it interferes with the interaction of protein production at two key sites known as the “A” site and the “P” site, resulting in the inhibition of bacterial proteins and the cessation of bacterial growth. Lefamulin’s binding occurs with high affinity, high specificity and at molecular sites that are different than other antibiotic classes. We believe that lefamulin’s novel mechanism of action is responsible for the lack of cross-resistance with other antibiotic classes that we have observed in our preclinical studies and clinical trials and may result in slow development of bacterial resistance to lefamulin over time. The binding of lefamulin to the PTC on the bacterial ribosome is depicted in the graphic below.

 

LOGO

We are developing both IV and oral formulations of lefamulin. We believe that lefamulin is well suited to be used empirically as monotherapy for the treatment of respiratory tract infections, such as CABP, because of its spectrum of antibacterial activity against both the typical and atypical pathogens causing CABP, including multi-drug resistant pathogens such as MRSA that we have observed in preclinical studies. In preclinical studies and our Phase 1 clinical trials, lefamulin achieved substantial concentrations in the epithelial lining fluid, or ELF, of the lung, the site infected during pneumonia. Lefamulin also provides the ability to switch from IV to oral therapy with the same active ingredient, which we believe will result in a high degree of confidence that clinical response seen early in therapy is likely to be maintained. Furthermore, based on the safety and tolerability data that we have obtained in our preclinical studies and clinical trials completed to date, monotherapy with lefamulin for the treatment of CABP may avoid the adverse effects and cumulative toxicities associated with the use of combination antibiotic therapy.

We have completed a Phase 2 clinical trial of lefamulin for ABSSSI. Based on the clinical results of lefamulin for ABSSSI, as well as its rapid tissue distribution, including substantial penetration into lung tissue and fluids, we are preparing to initiate two international, pivotal Phase 3 clinical trials of lefamulin for the treatment of moderate to severe CABP. These will be the first clinical trials we have conducted with lefamulin for the treatment of CABP. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. We are designing these trials to follow draft guidance published by the FDA for the development of drugs for CABP and guidelines from the EMA for the development of antibacterial agents and have submitted a request for an SPA with the FDA regarding the study design of our first Phase 3 clinical trial. According to the draft FDA guidance, either a Phase 3 clinical trial for CABP, supported by evidence of antibacterial activity accrued during a clinical development program for another indication, such as ABSSSI, or two Phase 3 clinical trials for CABP, may provide evidence of effectiveness in CABP.

 

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The FDA responded to our request for an SPA in June 2015. The FDA agreed to certain fundamental elements of our Phase 3 clinical trial, including the proposed duration of therapy, and did not provide any comments disagreeing with our choice of comparator, proposed sample size or primary and secondary endpoints. However, absence of disagreement or comments from the FDA does not represent agreement by the FDA as to these matters. The FDA also informed us that, consistent with our development plans, we will need to conduct two adequate and well-controlled clinical trials of lefamulin for the treatment of CABP if we are only interested in seeking the CABP indication. However, the FDA also provided comments regarding specific prohibited concomitant medications and how we intend to manage and evaluate specific subpopulations within the trial and requested additional information. We are engaging in dialogue with the FDA to seek to address the FDA’s comments. We have provided additional requested information to the FDA and resubmitted our SPA request with the goal of obtaining agreement with the FDA regarding the SPA. Agreement from the FDA regarding an SPA is not a prerequisite to initiating our Phase 3 clinical trials. If we experience any delays in reaching agreement regarding the SPA, and in light of the feedback we have received to date, we would likely withdraw the SPA request and proceed on our current timeline for initiation of our first Phase 3 clinical trial. We do not expect the planned timing of initiation of our Phase 3 clinical trials to depend on reaching agreement with the FDA regarding an SPA.

Based on our expectations regarding initiation of our planned Phase 3 clinical trials and our estimates regarding patient enrollment, we expect to have top-line data available for both trials in late 2017. If the results of these trials are favorable, including achievement of the primary efficacy endpoints of the trials, we expect to submit applications for marketing approval for lefamulin for the treatment of CABP in both the United States and Europe in 2018. We submitted to the FDA an investigational new drug application, or IND, for the IV formulation of lefamulin in September 2009 and an IND for the oral formulation of lefamulin in January 2015. The FDA has designated the IV formulation of lefamulin as a QIDP and granted fast track designation to this formulation of lefamulin.

Key Attributes of Lefamulin

We believe that the combination of the following key attributes of lefamulin, observed in clinical trials and preclinical studies, differentiates lefamulin from currently available antibiotics and make lefamulin well suited for use as a first-line empiric monotherapy for the treatment of CABP.

Broad Spectrum of Activity and Potential for Slow Development of Bacterial Resistance Over Time

We expect lefamulin’s spectrum of antibacterial activity against typical and atypical pathogens could eliminate the need to use a combination of antibiotics for the treatment of CABP. In our completed Phase 2 clinical trial, IV lefamulin achieved a high cure rate against multi-drug resistant Gram-positive bacteria, including MRSA. In addition, in preclinical studies, lefamulin showed activity against a variety of Gram-positive bacteria, including S. pneumoniae and S. aureus, that are resistant to other classes of antibiotics, Gram-negative bacteria, including H. influenzae and M. catarrhalis, and atypical bacteria, including C. pneumoniae, M. pneumoniae and L. pneumophila. Included in lefamulin’s spectrum of activity are all bacterial pathogens identified by IDSA as the most common causes of CABP for hospitalized patients who are not in the intensive care unit, as well as strains of the above listed bacteria that are resistant to other classes of antibiotics, including penicillins, cephalosporins, fluoroquinolones and macrolides.

In our preclinical studies and clinical trials of lefamulin, we have observed little decrease in susceptibility to lefamulin, suggesting a low potential for rapid emergence of increased resistance. Based on observations from our preclinical studies and clinical trials of lefamulin, as well as industry experience with pleuromutilins used in veterinarian medicine over the last 30 years, we believe that lefamulin’s novel mechanism of action is responsible for the lack of cross-resistance observed with other antibiotic classes and may result in slow development of bacterial resistance to lefamulin over time.

Convenient Dosing Regimen; Potential for Switching from IV to Oral Treatment

We have developed both an IV and oral formulation of lefamulin, which we plan to utilize in our Phase 3 clinical trials of lefamulin for the treatment of CABP. The administration of lefamulin as a monotherapy avoids

 

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the need for the complicated dosing regimens typical of multi-drug cocktails and affords the potential to avoid the safety and efficacy concerns that can accompany switching from an IV agent to a different class of oral antibiotic. We believe the availability of both IV and oral administration, and an option to switch to oral treatment, would be more convenient for patients and could reduce the length of a patient’s hospital stay and the overall cost of care. The potential reduction in the overall cost of care could be particularly meaningful to healthcare institutions, as the DRG reimbursement system pays a fixed fee for the treatment of CABP regardless of the length of hospital stay. We believe that our Phase 3 trial design will permit us to submit for approval of both IV and oral formulations of lefamulin, subject to obtaining favorable results, including achievement of the primary efficacy endpoints of the trials.

Favorable Safety and Tolerability Profile

We have evaluated lefamulin in 442 subjects and patients in our Phase 1 and Phase 2 clinical trials. In these trials, lefamulin has exhibited a favorable safety and tolerability profile. In our Phase 2 clinical trial of lefamulin, no patient suffered any serious adverse events that were determined to be related to lefamulin, and safety and tolerability were comparable to vancomycin, the control therapy in the trial. In addition, no clinically significant change in electrocardiogram, or ECG, was measured, and no drug-related cardiovascular adverse events were reported. Furthermore, we believe the use of lefamulin as a monotherapy would present fewer potential complications relative to the use of multiple antibiotics as combination therapy. We will further evaluate the safety and tolerability of lefamulin in our Phase 3 clinical trials.

Planned Phase 3 Clinical Trials

We plan to conduct a pivotal clinical trial program of lefamulin for the treatment of CABP consisting of two international Phase 3 clinical trials. We plan to initiate the first of these trials in the fall of 2015 and the second trial in the first half of 2016. We are designing these trials to comply with the guidelines of The International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, which are currently used as guidance by the FDA, and good clinical practices. We plan to conduct these trials at centers in the United States, Europe, Asia and selected countries in the southern hemisphere. We are proceeding with the regulatory steps necessary to initiate and conduct these trials, including submission of the trial protocol and relevant information about lefamulin to local regulatory authorities and ethics review committees.

We are designing our Phase 3 clinical trials to follow the draft guidance published by the FDA for the development of drugs for CABP and guidance from the EMA for the development of antibacterial agents with the goal of positioning lefamulin as a first-line empiric monotherapy for the treatment of CABP. We have obtained input from the FDA and select European authorities and have submitted a request for an SPA with the FDA regarding the study design for our first Phase 3 clinical trial in anticipation of submitting a new drug application with the FDA and a marketing authorization application, or MAA, with the EMA, in each case, for the treatment of CABP. We do not expect the planned timing of initiation of our Phase 3 clinical trials to depend on reaching agreement with the FDA regarding an SPA. In addition, we are currently conducting a Phase 1 clinical trial assessing the relative bioavailability of a tablet formulation of lefamulin that we expect to complete in the third quarter of 2015. We also plan to conduct a number of studies to support FDA approval of lefamulin, including studies in patients with hepatic insufficiency and renal impairment. If we complete the two planned Phase 3 clinical trials of lefamulin when we anticipate and obtain favorable results, we expect to submit an NDA to the FDA and an MAA to the EMA in 2018.

We are designing our first Phase 3 clinical trial of lefamulin for the treatment of CABP as a multi-center, randomized, controlled, double-blind study comparing lefamulin to moxifloxacin, a fluoroquinolone antibiotic. Linezolid, or matching placebo, can be added to treatment if an investigator suspects that a patient is infected with MRSA prior to randomization, as moxifloxacin is not approved to treat MRSA. This trial is designed to assess the non-inferiority of lefamulin compared to moxifloxacin, with or without linezolid. We expect the study population will include male and female patients of at least 18 years of age. We are targeting the enrollment of approximately 740 patients in this trial, of which we expect a small proportion will require linezolid to be added.

 

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Lefamulin will be dosed at 150 mg IV every 12 hours. The comparator drugs will be dosed according to their approved labeling, with moxifloxacin dosed at 400 mg IV daily and linezolid at 600 mg IV every 12 hours. Based on pre-defined criteria, investigators will have the option to switch patients to oral therapy. Lefamulin will be administered orally as one 600 mg tablet every 12 hours, moxifloxacin at 400 mg daily and linezolid at 600 mg every 12 hours. Based on the pharmacokinetic data for lefamulin, we expect oral dosing of one 600 mg tablet every 12 hours to have a similar therapeutic benefit as IV dosing of 150 mg every 12 hours. All medications will be administered according to a double-blind and double-dummy design.

All patients enrolled in this trial will be classified as Pneumonia Outcomes Research Team, or PORT, severity of at least 3 on a scale of 1 to 5, which corresponds to moderate to severe clinical disease. Patients who have previously taken no more than one dose of a short acting, potentially effective antibiotic for the treatment of the current CABP episode within 24 hours of receiving the first dose of study medication will be allowed to participate in the trial but will comprise only up to 25% of the total intent to treat, or ITT, population. Investigators will obtain baseline Gram’s stain and culture of suitable specimens from the site of infection. Patients will be treated for a minimum of five days and a maximum of ten days. We will assess patients on day 4, at the end of treatment, or EOT, within 48 hours of administration of the final dose of study medication, at a TOC visit between five and ten days after administration of the final dose of study medication and at a telephone follow-up 30 days after administration of the first dose of study medication.

We will evaluate the following patient subsets:

 

    an ITT population consisting of all randomized patients regardless of whether they have received study medication;

 

    a modified intent to treat, or MITT, population consisting of all randomized subjects who receive any amount of study drug;

 

    a microbiological intent to treat, or microITT, population consisting of all subjects in the ITT population who have at least one baseline bacterial pathogen known to cause CABP, Legionella pneumophila from an appropriate microbiological specimen, or CABP caused by Mycoplasma pneumoniae or Chlamydophila pneumoniae;

 

    a clinically evaluable, or CE, population which is a subset of the ITT population that will include subjects who meet the criteria for CABP and who have received at least the pre-specified minimal amount of the intended dose of study drug and duration of treatment, do not have an indeterminate response based on the investigator’s assessment of clinical response at EOT for the CE-EOT population and at TOC for the CE-TOC population, did not receive concomitant antibacterial therapy, other than adjunctive linezolid, that is potentially effective against CABP pathogens (except in the case of clinical failure) from the first dose of study drug through the EOT visit for the CE-EOT population and through the TOC visit for the CE-TOC population, and for whom there are no other confounding factors that interfere with the assessment of the outcome; and

 

    a microbiologically evaluable, or ME, population consisting of all subjects who meet the criteria for inclusion in both the microITT, CE-EOT and ME-EOT populations or the CE-TOC and ME-TOC populations.

The primary efficacy endpoint for the trial for the FDA is the proportion of patients in the ITT population for each of the lefamulin treatment group and the moxifloxacin treatment group who are alive, have improvement in at least two of the four cardinal symptoms of CABP as outlined in the current FDA guidance, have no worsening in any of the four cardinal symptoms of CABP and have not received a concomitant antibiotic (other than linezolid) for the treatment of CABP up through 120 hours after the first dose of lefamulin. This endpoint is also referred to as early clinical response. The four cardinal symptoms of CABP, as outlined in the current FDA guidance, are difficulty breathing, cough, production of purulent sputum and chest pain.

 

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The primary efficacy endpoint for the EMA is the clinical success rate at the TOC visit for lefamulin in both the CE and MITT populations compared to moxifloxacin. Clinical success is based on the investigator’s assessment that a patient has clinically responded to lefamulin, which means that the patient has complete resolution or significant improvement of all local and systemic signs and symptoms of infection such that no additional antibiotic treatment is administered for the treatment of the current episode of CABP.

Key secondary efficacy and exploratory endpoints for our first Phase 3 clinical trial include the following:

 

    assessment of response for the primary efficacy outcome of early clinical response (the FDA primary endpoint) in the microITT population;

 

    assessment of response in each treatment group with an investigator assessment of clinical response at TOC (the EMA primary endpoint) in the microITT and ME-TOC populations;

 

    assessment of the microbiological response by pathogen for the microITT and ME-TOC populations at TOC; and

 

    assessment of all-cause mortality through day 28 in the ITT population.

We expect that our second Phase 3 clinical trial will be designed to assess the non-inferiority of oral lefamulin compared to a widely used oral antibiotic comparator, such as moxifloxacin or another fluoroquinolone. We expect that all patients enrolled in our second Phase 3 clinical trial will be classified as PORT severity of 2 to 4 on a scale of 1 to 5, which corresponds to moderate clinical disease. Patients who have previously taken no more than one dose of a short acting, potentially effective antibiotic for the treatment of an infection within 72 hours of receiving the first dose of study medication will be allowed to participate in the trial, but will comprise only up to 25% of the total ITT population. Investigators will obtain baseline Gram’s stain and culture of suitable specimens from the site of infection. We will assess patients on day 4, at the end of treatment within 24 hours of administration of the final dose of study medication, at a TOC visit between five and ten days after administration of the final dose of study medication and at a telephone follow-up 30 days after administration of the last dose of study medication. We expect that the primary and secondary efficacy endpoints, as well as the analysis populations for our second Phase 3 clinical trial, will be the same as our first Phase 3 clinical trial.

Completed Phase 2 Clinical Trial in ABSSSI

In 2011, we completed a multi-center, randomized, double-blind Phase 2 clinical trial in the United States evaluating the efficacy, safety and pharmacokinetics of the IV formulation of lefamulin compared to vancomycin in patients with ABSSSI. We selected ABSSSI as the indication for the trial to ensure that there would be a significant population of patients with multi-drug resistant Gram-positive bacteria. Gram-positive bacteria are the prevalent pathogens in ABSSSI. We selected vancomycin as the comparison therapy because vancomcyin is one of the antibiotics recommended by IDSA guidelines for the treatment of ABSSSI.

Trial Design

We enrolled 210 hospitalized patients with ABSSSI in the trial. The study population included male and female patients of at least 18 years of age and documented ABSSSI known or suspected to have been caused by a Gram-positive pathogen. Patients must have exhibited two signs of systemic inflammation or evidence of a significant underlying systemic or local medical condition at the time of enrollment and have required IV antibiotic therapy for the treatment of the ABSSSI.

We randomized patients on a 1:1:1 basis to three treatment groups to receive:

 

    100 mg of IV lefamulin every 12 hours;

 

    150 mg of IV lefamulin every 12 hours; or

 

    1,000 mg of IV vancomycin every 12 hours or otherwise dosed as local practice dictated based upon a patient’s kidney function.

 

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Investigators obtained baseline Gram’s stain and culture of suitable specimens from the site of infection. We treated patients for a minimum of five days and a maximum of 14 days. We assessed patients on day 3, at the end of treatment within 24 hours of administration of the final dose of study medication, at a TOC visit between seven and 14 days after administration of the final dose of study medication and at telephone follow-up at 30 days after the last dose of study medication was administered.

The trial protocol specified the following four patient subsets for evaluation:

 

    an ITT population consisting of all randomized patients who received at least one dose of study medication;

 

    an MITT population consisting of all patients in the ITT population who had a documented Gram-positive pathogen culture at baseline;

 

    a CE population consisting of patients who had a confirmed diagnosis of ABSSSI, received study medication as randomized, received at least 80% of expected study medication, did not receive any potentially concomitant antibiotics, were not unblinded and had a response assessment at the TOC visit; and

 

    an ME population consisting of patients in the CE population who had a documented Gram-positive pathogen culture at baseline.

The primary efficacy endpoint of the trial was the clinical success rate at the TOC visit for the 100 mg and 150 mg dosage forms of IV lefamulin in both the CE and MITT populations compared to vancomycin. Clinical success was defined as complete resolution or significant improvement of all local and systemic signs and symptoms of infection with no further systemic antibiotic treatment required.

Key secondary efficacy and exploratory endpoints of the trial included the following:

 

    assessment of clinical response in the ITT and ME populations;

 

    comparison of clinical response by pathogen and microbiological response by pathogen;

 

    change in lesion size and resolution of fever; and

 

    clinical response at day 3.

Evaluation of pharmacokinetic parameters in the trial included analysis of plasma concentrations of lefamulin in blood samples after the first dose on day 1, on day 5 and on the final treatment day.

Three of the 210 patients enrolled in the trial did not receive study medication, resulting in 207 patients in the ITT population. Of the patients in the ITT population, 105 patients had cellulitis (50.7%), 64 patients had abscess with cellulitis (30.9%), 37 patients had wound infections (17.9%) and one patient had burns (0.5%). At least one pathogen responsible for ABSSSI was identified in 155 patients. Of these patients, 152 patients (97.4%) had at least one Gram-positive pathogen, comprising the MITT population. The most frequent Gram-positive pathogen was S. aureus, with the majority, 69.1% of patients in the MITT population, being methicillin-resistant strains. The CE population included 165 patients. The ME population included 129 patients.

Patient demographics were similar across all three treatment groups, except for the presence of diabetes at baseline. The 150 mg lefamulin dose group included a slightly greater proportion of patients with diabetes than the other treatment groups.

Efficacy

In the trial, the patients in the lefamulin treatment groups experienced a similar clinical success rate at the TOC visit as patients in the vancomycin treatment group, in each of the ITT, MITT, CE and ME patient subsets. These results are summarized in the table below. In addition, the clinical success rate in the trial was high for

 

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important subgroups of patients based on factors such as primary infection type and diabetes mellitus status. The table below also shows the 95% confidence interval, a statistical determination that demonstrates the range of possible differences in the point estimate of success that will arise 95% of the time that the endpoint is measured. However, this trial was not statistically powered to determine differences between treatment groups. The sample size chosen was to provide clinically meaningful information on efficacy, safety and tolerability. In this table and other tables appearing below, the abbreviation “N” refers to the number of patients or subjects in each group or subgroup.

Clinical Success Rate at the TOC Visit (ITT, MITT, CE and ME Populations)

 

Population

   Clinical Response    Lefamulin
100 mg
   Lefamulin
150 mg
   Vancomycin
1,000 mg

ITT

      N=70    N=71    N=66
   Success N (%)    60 (85.7)    59 (83.1)    54 (81.8)
   Failure N (%)    9 (12.9)    8 (11.3)    9 (13.6)
   Not determined N (%)    1 (1.4)    4 (5.6)    3 (4.5)
   95% CI    (75.3, 92.9)    (72.3, 91.0)    (70.4, 90.2)

MITT

      N=50    N=51    N=51
   Success N (%)    41 (82.0)    42 (82.4)    42 (82.4)
   Failure N (%)    8 (16.0)    6 (11.8)    6 (11.8)
   Not determined N (%)    1 (2.0)    3 (5.9)    3 (5.9)
   95% CI    (68.6, 91.4)    (69.1, 91.6)    (69.1, 91.6)

CE

      N=60    N=54    N=51
   Success N (%)    54 (90.0)    48 (88.9)    47 (92.2)
   Failure N (%)    6 (10.0)    6 (11.1)    4 (7.8)
   95% CI    (79.5, 96.2)    (77.4, 95.8)    (81.1, 97.8)

ME

      N=46    N=43    N=40
   Success N (%)    40 (87.0)    38 (88.4)    38 (95.0)
   Failure N (%)    6 (13.0)    5 (11.6)    2 (5.0)
   95% CI    (73.7, 95.1)    (74.9, 96.1)    (83.1, 99.4)

In the trial, the patients in the lefamulin treatment groups also experienced a similar clinical response at the day 3 visit as patients in the vancomycin treatment group in each of the ITT, MITT, CE and ME patient subsets. The clinical response results for the ITT patient subset are presented in the table below. Importantly, the assessment at day 3 included evaluation of a new primary endpoint recommended by the FDA of at least a 20% reduction in area of erythema, or redness.

Clinical Response at Day 3 (ITT Population)

 

Definition of Responder Used

   Lefamulin
100 mg

(N=70)
N (%)
   Lefamulin
150 mg

(N=71)
N (%)
   Vancomycin
1,000 mg
(N=66)

N (%)

Overall clinical response

   53 (88.3)    48 (88.9)    44 (86.3)

Absence of fever at Day 3

   67 (95.7)    67 (94.4)    61 (92.4)

No increase in area of erythema plus absence of fever

   60 (85.7)    59 (83.1)    53 (80.3)

No increase in area of erythema and swelling and absence of fever

   53 (75.7)    53 (74.6)    49 (74.2)

³20% reduction in area of erythema

   52 (74.3)    50 (70.4)    47 (71.2)

 

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A list of all pathogens identified at baseline along with the corresponding eradication rate by treatment group in the MITT patient subset is presented in the table below. Microbiological eradication rate was defined as the proportion of patients with a microbiological outcome of eradication or presumed eradication based on cultures from both the primary infection site and blood cultures. Patients with indeterminate or missing clinical responses were considered non-eradication. Overall, in the MITT population, microbiological success was achieved in 40 of 50 patients (80.0%) in the lefamulin 100 mg group, 43 of 51 patients (84.3%) in the lefamulin 150 mg group, and 42 of 51 patients (82.4%) in the vancomycin group. We did not observe development of decreased susceptibility to lefamulin or vancomycin during the trial. In this table, the abbreviation “n” refers to the number of patients who had a microbiological outcome of eradication or presumed eradication for each specified pathogen.

Sponsor-Assessed Microbiological Eradication Rate at the TOC Visit by Baseline Target Pathogen (MITT Population)

 

Baseline Pathogen

   Lefamulin
100mg
(N=50)
n/N (%)
   Lefamulin
150mg
(N=51)
n/N (%)
   Vancomycin
1,000mg
(N=51)
n/N (%)

Staphylococcus aureus

   35/44 (79.5)    41/47 (87.2)    40/47 (85.1)

MRSA

   28/34 (82.4)    28/32 (87.5)    32/39 (82.1)

MSSA

   8/11 (72.7)    13/15 (86.7)    8/8 (100.0)

Streptococcus species

   6/7 (85.7)    3/5 (60.0)    4/7 (57.1)

Streptococcus pyogenes

   2/3 (66.7)    1/2 (50.0)    1/4 (25.0)

Streptococcus agalactiae

   2/2 (100.0)    2/3 (66.7)    0/0 (0.0)

Streptococcus Group C

   0/0 (0.0)    0/0 (0.0)    1/1 (100.0)

Streptococcus Group F

   1/1 (100.0)    0/0 (0.0)    0/0 (0.0)

Streptococcus Group G

   0/0 (0.0)    0/1 (0.0)    1/1 (100.0)

Streptococcus constellatus

   1/1 (100.0)    0/0 (0.0)    0/0 (0.0)

Streptococcus intermedius

   1/1 (100.0)    0/0 (0.0)    2/2 (100.0)

We evaluated the clinical success of lefamulin against S. aureus, which is the most commonly identified cause of ABSSSI. The clinical success rate against a variety of subsets of S. aureus based on in vitro antibiotic susceptibility (methicillin-resistance), as well as the presence or absence of the virulence factors PVL-positivity or USA300, are clinically important, as limited therapeutic options exist to treat such infection. A summary of the clinical success rate against S. aureus is presented in the table below. The clinical success rates for lefamulin against PVL-positive MRSA and USA300 MRSA strains were similar to, or numerically higher than, the corresponding clinical success rates for vancomycin. In this table, the abbrevation “n” refers to the number of patients with clinical success for each specified pathogen.

Clinical Success Rate at the TOC Visit by Baseline Target Pathogens (S. aureus) (MITT Population)

 

Baseline Pathogen

PVL/PFGE Type

   Lefamulin
100 mg

(N=50)
n/N (%)
   Lefamulin
150 mg

(N=51)
n/N (%)
   Vancomycin
1,000 mg
(N=51)

n/N (%)

Staphylococcus aureus

   36/44 (81.8)    41/47 (87.2)    40/47 (85.1)

MRSA

   29/34 (85.3)    28/32 (87.5)    32/39 (82.1)

PVL positive

   27/32 (84.4)    27/31 (87.1)    30/37 (81.1)

PFGE USA300

   21/25 (84.0)    18/19 (94.7)    21/27 (77.8)

MSSA

   8/11 (72.7)    13/15 (86.7)    8/8 (100.0)

PVL positive

   4/6 (66.7)    7/8 (87.5)    4/4 (100.0)

The mean duration of exposure to study medication treatment was approximately seven days for all groups, and almost 70% of patients completed therapy within that time.

 

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Safety and tolerability

Lefamulin was well tolerated in this trial. No patient in the trial suffered any serious adverse events that were found to be related to lefamulin, and no patient in the trial died. The percentage of patients in the trial arms that experienced any treatment emergent adverse event were similar across treatment groups: 71.4% in the lefamulin 100 mg group, 69.0% in the lefamulin 150 mg group and 74.2% in the vancomycin group. Most of the treatment emergent adverse events were mild to moderate in severity. The table below shows the adverse events experienced by patients in the trial that were assessed by the investigator as possibly or probably related to study medication.

Drug-Related Treatment-Emergent Adverse Events by Preferred Term Reported by More Than 2% of Patients in the ITT Population

 

Adverse Event

   Lefamulin
100 mg

(N=70)
N (%)
   Lefamulin
150 mg

(N=71)
N (%)
   Vancomycin
1,000 mg
(N=66)

N (%)

Headache

   5 (7.1)    9 (12.7)    10 (15.2)

Nausea

   5 (7.1)    6 (8.5)    10 (15.2)

Infusion site phlebitis

   4 (5.7)    2 (2.8)    0 (0.0)

Diarrhea

   3 (4.3)    4 (5.6)    4 (6.1)

Vomiting

   3 (4.3)    2 (2.8)    3 (4.5)

Alanine aminotransferase increased

   2 (2.9)    2 (2.8)    3 (4.5)

Pruritus generalized

   2 (2.9)    1 (1.4)    4 (6.1)

Creatine phosphokinase increased

   2 (2.9)    1 (1.4)    0 (0.0)

Phlebitis

   2 (2.9)    0 (0.0)    0 (0.0)

Vulvovaginal mycotic infection

   2 (2.9)    0 (0.0)    0 (0.0)

Abdominal pain

   1 (1.4)    2 (2.8)    0 (0.0)

Aspartate aminotransferase increased

   1 (1.4)    1 (1.4)    2 (3.0)

Pruritus

   0 (0.0)    2 (2.8)    8 (12.1)

Infusion site pain

   0 (0.0)    2 (2.8)    0 (0.0)

Tinnitus

   0 (0.0)    2 (2.8)    0 (0.0)

Infusion site reaction

   0 (0.0)    2 (2.8)    0 (0.0)

Constipation

   0 (0.0)    1 (1.4)    3 (4.5)

Insomnia

   0 (0.0)    0 (0.0)    2 (3.0)

The incidences of pain, tenderness, itching, erythema, swelling and thrombosis at the infusion site were higher for the lefamulin 100 mg group and the lefamulin 150 mg group than for the vancomycin group. The majority of these local tolerability symptoms were mild in severity. No patient had a severe local tolerability issue of erythema or swelling. No patient had a local tolerability issue of necrosis. When summarized on an infusion basis, the proportions of infusions with local tolerability events were similar for the treatment groups.

Four patients discontinued study medication following a drug-related adverse event: one patient (1.4%) in the lefamulin 100 mg group (events of hyperhidrosis, vomiting and headache), two patients (2.8%) in the lefamulin 150 mg group (infusion site pain in one patient and dyspnea in the other), and one patient (1.5%) in the vancomycin group (drug eruption).

Because the potential for mild effect on ECG measurements was observed in preclinical studies, we have continued to assess this potential in all human clinical trials we have conducted. In the Phase 2 clinical trial, no change in ECG measurements was considered to be of clinical significance, and no drug-related cardiovascular adverse event was reported. Both lefamulin and vancomycin treatment were associated with a small increase in the QT interval. The QT interval is a measure of the heart’s electrical cycle, with a lengthened QT interval representing a marker for potential ventricular arrhythmia. We plan to continue to evaluate the effect of lefamulin on the QT interval in future clinical trials, including our Phase 3 clinical trials of lefamulin for CABP.

 

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Pharmacokinetics

The table below summarizes selected pharmacokinetic parameters we obtained from pharmacokinetic sampling in the trial. Cmax refers to the maximum observed peak blood plasma concentration of study medication. AUC refers to the area under the curve in a plot of concentration of study medication in blood plasma over time, representing total drug exposure over time. In this table, the abbreviation “SD” refers to the standard deviation of the results. Standard deviation is a statistical measure used to quantify the amount of variation within a set of data values. A standard deviation close to zero indicates that the data points do not vary greatly from the mean, while a high standard deviation indicates that the data points are spread over a wider range of values.

Summary Statistics for PK Exposure and Secondary PK Parameters

 

     Dose (mg)      Mean (SD)

Cmax (Day 1)

     100       1.57 (0.974)

(µg/mL)

     150       1.90 (0.705)

Cmax (Day 5)

     100       1.67 (0.974)

(µg/mL)

     150       2.06 (0.737)

AUC0-12hr (Day 1)

     100       5.14 (2.95)

(µg•hr/mL)

     150       6.59 (2.69)

AUC0-12hr (Day 5)

     100       6.23 (3.02)

(µg•hr/mL)

     150       8.27 (3.11)

Half-life

     100       11.0 (5.18)

(hour)

     150       13.2 (5.79)

Efficacy for the pleuromutilin class of antibiotics is related to the ratio of total drug exposure over time, measured by the AUC, to minimum inhibitory concentration, or MIC. MIC is the minimum concentration of an antibiotic needed to inhibit growth of an organism. The plasma concentration data obtained from the Phase 2 clinical trial are the first data that describe how lefamulin is absorbed, distributed around the body, metabolized and eliminated in patients suffering from an infection.

Phase 1 Clinical Development

We conducted sixteen Phase 1 clinical trials of lefamulin in Austria, Germany, the United States and the United Kingdom between 2009 and 2015. In these trials, we exposed 301 healthy subjects, including elderly subjects 65 years of age or older, to single or multiple doses of IV or oral lefamulin. The objectives of our Phase 1 clinical trial program have been to understand the absorption and distribution of lefamulin in the blood and target tissues, evaluate the metabolism and elimination route of lefamulin and obtain safety and tolerability data to help predict safe and effective doses of lefamulin for the treatment of patients.

Pharmacokinetic Overview

Our key observations from our Phase 1 clinical trials include the following:

 

    lefamulin is rapidly absorbed and distributed throughout the body after either IV or oral administration;

 

    lefamulin achieves therapeutic concentrations in a variety of target tissues, including the lung, skin and soft tissue;

 

    lefamulin has a half-life between 8.6 and 11.8 hours, which enables a twice daily regimen, and is eliminated primarily through non-renal pathways;

 

    lefamulin is a weak inhibitor of some liver enzymes, but we do not expect to need to adjust the dose of lefamulin when it is co-administered with other drugs; and

 

    no statistically significant effects of age, gender, body weight or height, body mass index or other demographics on the pharmacokinetic parameters of lefamulin.

 

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Absorption

Lefamulin is absorbed rapidly after oral dosing with or without food. In our Phase 1 clinical trials, steady state blood levels were achieved after two days of dosing every 12 hours, irrespective of the route of administration, and the variability after oral dosing was similar to the variability after IV infusion. Because the ability of pleuromutilin antibiotics to kill bacteria is dependent on the AUC, or total lefamulin exposure over time, to MIC ratio, and IV doses of 150 mg every 12 hours and oral doses of 600 mg every 12 hours achieve similar AUCs, we believe that both regimens are capable of providing a similar therapeutic benefit.

Distribution

Following IV infusion, lefamulin is rapidly distributed throughout the body over approximately 30 minutes. We have observed rapid distribution of lefamulin into tissues, including the skin and ELF of the lung. In CABP, the lung is the target organ where pathogens replicate and cause inflammation that results in mucous production, cough and shortness of breath. Therefore, in 2010, we conducted a Phase 1 clinical trial to assess the pharmacokinetics of lefamulin in 12 healthy subjects. After a single IV administration of 150 mg of lefamulin over 60 minutes, we performed a bronchoalveolar lavage, or BAL, a medical procedure to collect fluid from the lung. We performed BAL analyses in groups of three subjects at 1, 2, 4 and 8 hours after the start of the lefamulin infusion and measured lefamulin concentrations in the ELF, the muscle tissue, soft tissue and blood plasma. In this trial, the exposure of free lefamulin, or the amount of lefamulin not bound to proteins and therefore available to inhibit bacterial growth, achieved in the ELF was approximately 5.7 times greater than free lefamulin exposure observed in blood plasma.

Metabolism

The average half-life, or the time it takes the body to eliminate one-half of the concentration of lefamulin present, is 8.6 to 11.8 hours. The major route lefamulin is eliminated from the body is the gastrointestinal tract, with limited metabolism of lefamulin occurring mainly through a liver enzyme called CYP3A, which is responsible for the metabolism of a wide variety of medication. We have identified only one metabolite, called BC-8041, as exceeding 10% of lefamulin concentrations in the plasma and only when lefamulin was given orally. None of the metabolites of lefamulin have any antibacterial properties.

Drug Interaction Potential

We have performed studies recommended by regulatory authorities to assess the drug-drug interaction potential of new drug products, such as lefamulin. To date, we have not identified any issues of clinical significance.

Safety and Tolerability

Lefamulin has been well tolerated in all Phase 1 trials completed to date. We did not observe any systemic adverse events of clinical concern or any drug-related serious adverse events in these trials. In addition, we did not observe any changes of clinical concern in laboratory safety parameters or vital signs in any subject in any of the trials. The most commonly observed adverse effects with oral administration of lefamulin were related to the gastrointestinal tract, including nausea and abdominal discomfort, while the most commonly observed adverse effects related to IV administration were related to irritation at the infusion site. In addition, lefamulin produced a transient, predictable and reproducible prolongation of the QT interval based on the maximum concentration of the drug in the blood plasma. At therapeutic doses, we expect that the drug will not produce large effects on the QT interval that would be of clinical relevance. We did not observe any drug-related cardiac adverse events, such as increase in ectopic ventricular activity or other cardiac arrhythmia, or clinically relevant ECG findings during the conduct of any of our Phase 1 or Phase 2 clinical trials.

 

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Intravenous Formulation

We have administered IV lefamulin as single and repeat doses every 12 hours for up to 14 days. The most frequently reported adverse events in our Phase 1 clinical trials were pain or erythema at the site of the IV infusion. To further assess local tolerability, we conducted a Phase 1 clinical trial in 2013 to evaluate the local tolerability of two different IV formulations of lefamulin dosed every twelve hours for 7.5 days. In this trial, we compared lefamulin infusions given in normal saline solution, a sterile sodium chloride solution commonly used to administer IV medications, with lefamulin infusions given in a sterile saline solution buffered by a citrate salt that adjusted the pH, or level of acidity, of the solution. We enrolled 60 healthy subjects in the trial, of which 25 received the normal saline solution, 25 received the citrate buffered solution and ten received a matching placebo solution. Although we did not observe any difference between treatment arms over the first three days of study infusions, over the entire treatment period, the incidence of local pain or redness of at least moderate severity was statistically higher with lefamulin in the saline solution (84%), as compared to the citrate buffered infusions (36%) or placebo (10%). There was no statistical difference between citrate buffered infusions and placebo at any time period during the trial. As a result, we plan to administer lefamulin IV infusions in a citrate buffered saline solution in our Phase 3 clinical trials for CABP.

Oral Formulation

Initially, we administered lefamulin orally in capsules as single and repeat doses for up to five days. Oral administration of lefamulin was generally well tolerated with infrequent reports of mild gastrointestinal findings, such as nausea, abdominal pain and diarrhea. We subsequently developed 600 mg tablets that we have investigated in single and repeat dose studies. These tablets have been well tolerated and shown favorable pharmacokinetics. We expect to utilize the 600 mg tablets in our planned Phase 3 clinical trials.

Electrocardiogram Measurements

In our Phase 1 clinical trials, lefamulin was associated with a Cmax-dependent, transient, predictable, reversible and reproducible prolongation of the QT interval. We have closely monitored ECG measurements in all our trials. We did not observe any drug-related cardiac adverse events, such as increase in ectopic ventricular activity or other cardiac arrhythmia, or clinically relevant ECG findings during the conduct of any of our Phase 1 clinical trials. None of the ECG stopping criteria defined in the trial protocols was reached in any clinical trial. We plan to continue to assess the effects of lefamulin on the QT interval in our planned clinical trials.

Preclinical Development

In our preclinical studies, administration of lefamulin was well tolerated in a variety of animal models. Lefamulin was active against a broad range of bacteria, suggesting possible use as monotherapy for CABP with a potential for slow development of bacterial resistance over time.

Nonclinical Safety

In several preclinical safety and toxicity studies, including repeat dose toxicity, local tolerance, genotoxicity, development and reproductive toxicity, and safety pharmacology testing in both rodent and non-rodent species, lefamulin was safe and well tolerated. When we treated rats or monkeys for up to four weeks with either oral or IV lefamulin, we did not identify any specific target organ toxicity. Lefamulin was not associated with genetic damage, effects on fertility or birth defects.

Antimicrobial Spectrum of Lefamulin

We have extensively studied the antimicrobial in vitro activity of lefamulin against a variety of respiratory, or aerobic, and non-respiratory, or anaerobic, bacterial pathogens representing more than 13,600 clinical isolates collected from patients worldwide. A summary of our observations is presented in the table below. MIC90 indicates the concentration of drug that inhibits 90% of the pathogens in vitro, while MIC50 indicates the concentration of drug that inhibits 50% of the pathogens in vitro.

 

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Antimicrobial Activity of Lefamulin Against Gram-Positive, Gram-Negative and Atypical Bacteria

 

Organism

   N    MIC [µg/mL]
      50%    90%

Aerobic and facultative anaerobic Gram-positive microorganisms

S. aureus

   6711    0.12    0.12

S. aureus, MSSA

   3494    0.12    0.12

S. aureus, MRSA

   3217    0.12    0.25

CA-MRSA (USA 300/400)

   50    0.12    0.12

VRSA, VISA, hVISA

   30    0.06    0.25

Coagulase-negative Staphylococcus species

   1133    0.06    0.12

S. epidermidis

   474    0.06    0.25

S. pneumoniae

   1735    0.12    0.25

S. pyogenes (Group A Streptococcus species)

   472    0.03    0.03

S. agalactiae (Group B Streptococcus species)

   503    0.03    0.06

Group C Streptococcus species

   116    0.03    0.06

Group G Streptococcus species

   160    0.03    0.06

Viridans Group Streptococcus species

   445    0.12    0.5

E. faecalis

   50    ³32    ³32

E. faecium

   850    0.12    8

E. faecium, VSE

   361    0.12    ³32

E. faecium, VRE

   389    0.06    0.5

Aerobic and facultative anaerobic Gram-negative microorganisms

H. influenzae

   542    1    2

L. pneumophila

   30    0.12    0.5

M. catarrhalis

   409    0.12    0.25

N. gonorrhoeae, resistant isolates

   58    0.12    0.5

E. coli

   40    16    32

Anaerobic microorganisms

        

C. difficile

   43    4    8

Clostridium species

   10    1    >16

Peptostreptococcus species

   10    0.06    1

Porphyromonas species

   10    0.03    0.03

B. fragilis and B. fragilis group

   22    ³32    ³32

Other microorganisms

        

C. pneumoniae

   50    0.02    0.04

C. trachomatis

   15    0.02    0.04

M. pneumoniae

   50    0.006    0.006

The tables below compare the in vitro activity of lefamulin and various antibiotics for CABP and ABSSSI pathogens against various strains of bacteria, including those resistant to current antibiotics. Unlike other CABP antibiotics, such as ß-lactam/ß-lactamase inhibitor combinations, glycopeptides and oxazolidinones, lefamulin was active against the vast majority of potential respiratory pathogens. When an alternative antibiotic from the same drug class was utilized, it is footnoted within the table and below.

Lefamulin in vitro Activity Against CABP Bacteria

 

Organism

(Number of Strains Tested)

   Lefamulin
MIC90
[µg/mL]
   Moxifloxacin
MIC90
[µg/mL]
  Azithromycin
MIC90
[µg/mL]
  Doxycycline
MIC90
[µg/mL]
   Cefuroxime
MIC90
[µg/mL]

Streptococcus pneumoniae (1473)

   0.25    £0.5   >4   8    8

Haemophilus influenzae (360)

   2    £0.5   2   0.5    2

Moraxella catarrhalis (253)

   0.25    £0.5   £0.25   0.25    2

Staphylococcus aureus incl. MRSA (5527)

   0.12    >4 a   >4 b   0.25    *

Legionella pneumophila (30)

   0.5    0.015   0.015   *    *

Mycoplasma pneumoniae (50) c

   0.006    0.2-0.8 d   £0.0003   0.04    *

Chlamydophila pneumoniae (50) e

   0.04    0.32-1.28   0.08-0.16   0.04    *

 

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a  Levofloxacin used instead of moxifloxacin against S. aureus.

 

b  Erythromycin used instead of azithromycin against S. aureus.

 

c  Only four strains tested for comparators.

 

d  Ciprofloxacin used instead of moxifloxacin against M. pneumoniae.

 

e  Only two strains tested for comparators.

 

* Not determined.

Lefamulin displayed potent antibacterial activity against bacterial pathogens predominantly causing skin and blood stream infections, such as S. aureus, coagulase-negative staphylococci, ß-hemolytic and viridans group streptococci, as well as E. faecium, including vancomycin-resistant strains, or VRE.

Lefamulin in vitro Activity Against ABSSSI Bacteria and Pathogens Causing Bacteremia

 

Organism

(Number of Strains Tested)

   Lefamulin
MIC90
[µg/mL]
   Erythromycin
MIC90
[µg/mL]
   Doxycycline
MIC90
[µg/mL]
   Vancomycin
MIC90
[µg/mL]

S. aureus (5527)

   0.12    >4    0.25    1

MSSA (3157)

   0.12    >4    0.25    1

MRSA (2370)

   0.25    >4    1    1

CoNS (878)

   0.12    >4    2    2

E. faecium (536)

   4    >4    >8    >16

VRE (304)

   0.25    >4    >8    >16

ß-hemolytic Streptococcus species (763)

   0.03    >4    8    0.5

S. pyogenes (267)

   0.03    £0.25    8    0.5

S. agalactiae (334)

   0.03    >4    8    0.5

Viridans group Streptococcus species (245)

   0.5    >4    >8    0.5

Activity Against Resistant Strains and Potential for Slow Development of Bacterial Resistance Over Time

When tested against bacterial organisms resistant to macrolides, tetracyclines, quinolones, trimethoprim/sulfamethoxazole, vancomycin, mupirocin or ß-lactams, we did not observe any cross-resistance with lefamulin. Lefamulin displayed activity in vitro against drug-resistant N. gonorrhoeae, VRE, MRSA, multi-drug resistant S. pneumoniae, VISA/hVISA, erythromycin-resistant group A Streptococcus species and clindamycin-resistant group B Streptococcus species, all of which are listed as urgent, serious or concerning threats by the CDC. We utilized the interpretative criteria of the Clinical and Laboratory Standards Institute, or CLSI, to categorize the in vitro activity of each comparator against the organisms listed in the table below as sensitive (%S), intermediate (%I) or resistant (%R). Bold and underlined data indicate resistance according to CLSI criteria.

 

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Lefamulin in vitro Activity Against Resistant Bacterial Pathogens Listed as Urgent, Serious or Concerning Threats According to CDC

 

Organism

   N    MIC [µg/mL]    CLSI
      50%    90%    %S /%I /%R

Urgent Threats

           

Drug-resistant Neisseria gonorrhoeae

           

Lefamulin

   58    0.12    0.5    —   / —   / —  

Azithromycin

   58    0.12    1    81.0 /6.9 / 12.1 b

Tetracycline

   58    0.5    2    19.0 / 56.9 / 24.1 c

Ciprofloxacin

   58    0.25    16    37.9 / 20.7 /41.4 c

Ceftriaxone

   54    0.015    0.06    100.0 / 0.0 /0.0 c

Serious Threats

           

Methicillin-resistant Staphylococcus aureus (MRSA)

           

Lefamulin

   2,370    0.12    0.25    —   / —   / —  

Clindamycin

   2,370    £0.25    >2    63.5 / —   / 36.4

Doxycycline

   2,370    0.12    1    96.2 / —   / 0.8

Erythromycin

   2,370    >4    >4    15.0 / —   / 84.1

Levofloxacin

   2,370    >4    >4    26.8 / —   / 71.2

Linezolid

   2,370    1    1    100.0 / —   / 0.0

Oxacillin

   2,370    >2    >2    0.0 / —   / 100.0

Trimethoprim/sulfamethoxazole

   2,370    £0.5    £0.5    95.8 / —   / 4.2

Vancomycin

   2,370    1    1    100.0 / —   / 0.0

Drug-resistant Streptococcus pneumoniae

           

Lefamulin

   312    0.12    0.25    —  / —   / —  

Azithromycin

   312    >4    >4    14.9 / —   / 84.8

Ceftriaxone

   312    1    2    59.0 / —   / 5.4

Doxycycline

   312    4    8    32.1 / —   66.7 d

Erythromycin

   312    >4    >4    15.1 / —   / 84.6

Levofloxacin

   312    1    1    98.1 / —   / 1.6

Penicillin (oral penicillin V)

   312    4    4    0.0 / —   / 100.0

Trimethoprim/sulfamethoxazole

   312    4    >4    21.2 / —   / 69.2

Vancomycin

   312    0.25    0.5    100.0 / —   / 0.0

Vancomycin-resistant Enterococcus faecium

           

Lefamulin

   304    0.06    0.25    —   / —   / —  

Ampicillin

   304    >8    >8    0.3 / —   / 99.7

Daptomycin

   304    2    2    100.0 / —   / —  

Linezolid

   304    1    1    98.7 / —   / 0.7

Vancomycin

   304    >16    >16    0.0 / 99.3

 

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Organism

   N    MIC [µg/mL]    CLSI
      50%    90%    %S /%I /%R

Concerning Threats

           

Vancomycin-resistant Staphylococcus aureus

           

Lefamulin

   10    0.06    0.12    —   / —   / —  

Ceftaroline

   10    1    1    100.0 / —   / —  

Daptomycin

   10    0.5    0.5    100.0 / —   / —  

Linezolid

   10    1    1    100.0 / —   / —  

Oxacillin

   10    >4    >4    —   / —   / 100.0

Quinupristin/dalfopristin

   10    0.25    0.5    100.0 /—   / —  

Tigecycline

   10    0.06    0.12    100.0 / —   / —  

Vancomycin

   10    >32    >32    —   / —   /100.0

Erythromycin-resistant Group A Streptococcus species

           

Lefamulin

   25    0.015    0.03    —   /—   /—  

Clindamycin

   25    £0.25    >2    56.0 / —   / 44.0

Doxycycline

   25    £0.05    >8    —   / —   /—  

Erythromycin

   25    >4    >4    —   / —   /100.0

Levofloxacin

   25    £0.5    1    96.0 / —   / 4.0

Penicillin

   25    £0.03    £0.03    100.0 /—   / —  

Vancomycin

   25    0.25    0.5    100.0 / —   / —  

Clindamycin-resistant Group B Streptococcus species

           

Lefamulin

   69    0.03    0.03    —   / —   /—  

Clindamycin

   69    >2    >2    —   / —   /100.0

Doxycycline

   69    8    >8    8.7 / 2.9 / 88.4 e

Erythromycin

   69    >4    >4    1.4 / 0.0 / 98.6

Levofloxacin

   69    £0.5    1    100.0 / —   / —  

Penicillin

   69    £0.03    0.06    100.0 / —   / —  

Vancomycin

   69    0.5    0.5    100.0 /—   / —  

 

  a  Criteria as published by CLSI (2011).

 

  b  No breakpoints by CLSI available; criteria as published by the European Committee on Antimicrobial Susceptibility Testing (2014).

 

  c  Criteria as published by CLSI (2014).

 

  b  No breakpoints by CLSI available; criteria as published by the European Committee on Antimicrobial Susceptibility Testing (2011).

 

  e  Breakpoints of tetracycline applied.

Lefamulin has shown low potential for resistance development in vitro, which we believe is the result of the specific interaction with a binding site on the ribosome. Repeated exposure to low levels of lefamulin in laboratory tests resulted in a slow and step-wise development of resistance in S. aureus, Streptococcus species, and E. faecium. We believe that lefamulin’s low potential for resistance is further supported by the fact that no resistant isolates were collected during our Phase 2 clinical trial in ABSSSI and that, despite the use of pleuromutilins in veterinary medicine for decades, the incidence of pleuromutilin-resistant isolates remains relatively low. Cross-resistance between lefamulin and other classes of antibiotics has also been rarely observed in our studies to date. Based on global surveillance studies conducted to date in more than 13,600 clinical isolates, fewer than 0.02% of isolates contain mutations responsible for methylating, or chemically modifying, the interaction between lefamulin and other protein synthesis inhibiting antibiotics. One example of this mutation is called cfr mutation, which when present has resulted in observed elevations in the MIC90 to lefamulin as well as other antibiotics, such as chloramphenicol and linezolid.

 

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Activity in Animals

We evaluated the activity of lefamulin in a number of murine, or mouse, infection models, including pneumonia, septicemia, and thigh infection models. In these models, lefamulin was efficacious against S. pneumoniae (penicillin- and macrolide-resistant) and S. aureus (methicillin-susceptible, or MSSA, and MRSA). Lefamulin was active against serious lung infections caused by clinically relevant strains of S. pneumoniae or S. aureus. Investigations of the exposure levels in the ELF in the lungs of mice showed rapid distribution of lefamulin into the lung compartment with penetration rates into the ELF of 12-fold compared to free plasma concentration measured in the same mice. We confirmed this result by whole-body imaging using radioactive labeled lefamulin.

Lefamulin also showed high intracellular activity and rapid accumulation in macrophages, or immune cells that are responsible for assisting in clearing bacterial infections from the lung and other body sites, (30- to 50-fold) dependent on the time of incubation and lefamulin concentration. Azithromycin showed a 15- to 20-fold accumulation in the same experiments. Furthermore, the activity of lefamulin was unaffected by lung surfactant, a naturally occurring substance found in the lung that has the ability to inactivate some antibiotics.

Concentrations of Lefamulin Predicted to be Effective in Treating Lung Infections

We believe that results from preclinical analyses of concentrations of lefamulin in lung tissue indicate the potential for favorable outcomes in CABP patients treated with lefamulin. We have provided and discussed with regulatory authorities, including the FDA, these preclinical results and the safety and efficacy of lefamulin observed in subjects and patients with ABSSSI. Based on these discussions, we intend to evaluate the efficacy and safety of lefamulin in Phase 3 clinical trials for CABP. We used results obtained from pharmacokinetic analyses of lefamulin concentrations over time and pharmacodynamic analyses of the relationship of concentrations of lefamulin and effect, also called PK-PD, to determine the predicted likelihood of achieving lefamulin concentrations in the lung that would be effective at inhibiting the growth of common bacterial causes of CABP. This assessment utilized a population pharmacokinetic model that describes the behavior of lefamulin in blood plasma in subjects and patients with infection, the ELF concentrations achieved in healthy volunteers, in vitro MIC targets for the most common causative pathogens associated with CABP accrued from a robust, global in vitro surveillance library, and mathematical simulations replicating thousands of scenarios that could represent the many possible combinations of lefamulin concentrations achieved and the MIC required to inhibit bacterial growth. Based on these assessments, we believe that a lefamulin regimen of either 150 mg administered by IV every 12 hours or 600 mg administered orally every 12 hours has a probability of 96% or more to achieve concentrations in the ELF that would inhibit the growth of both S. pneumoniae and S. aureus.

Based on all of the available evidence, including lefamulin’s in vitro activity, clinical pharmacokinetics and tissue penetration, and safety and efficacy observed in our Phase 2 clinical trial for ABSSSI, we plan to use a dose of 150 mg IV or 600 mg orally every 12 hours in our Phase 3 clinical trials of lefamulin for CABP.

Earlier Stage Product Pipeline

Additional Indications for Lefamulin

ABSSSI

Acute bacterial skin and skin structure infections are common and are characterized by a wide range of disease presentations. Gram-positive bacteria, in particular S. aureus, S. pyogenes and S. agalactiae, are the most common pathogens in ABSSSI. The rising frequency of ABSSSI caused by MRSA and the significant increase in the occurrence of CA-MRSA infections over the past 15 years is an increasing concern. According to IDSA Skin and Skin Structure Infection guidelines 2014, in most U.S. cities, CA-MRSA is now the most common pathogen cultured from patients with ABSSSI in emergency departments. While the current standard of care for MRSA infections is vancomycin, the efficacy of this treatment is being compromised because of decreased susceptibility, or even resistance, of S. aureus to vancomycin. In addition, although linezolid is approved for ABSSSI due to MRSA, its use has been limited because of potential adverse events and drug-drug interactions with commonly prescribed concomitant medications such as antidepressants.

 

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The emerging incidence of resistance to multiple antibiotics in pathogens makes ABSSSI increasingly difficult to treat and results in a need for alternate therapies. Based on our preclinical studies and clinical trials, we believe that lefamulin has potential to treat ABSSSI. In preclinical studies, lefamulin has shown in vitro antibacterial activity against the most relevant pathogens responsible for ABSSSI including S. aureus (MSSA, MRSA, and CA-MRSA), S. pyogenes, and S. agalactiae. In our Phase 2 clinical trial evaluating the safety and efficacy of two different doses of the IV formulation of lefamulin administered over five to 14 days compared to vancomycin in patients with ABSSSI, the clinical success rate at test of cure for lefamulin was similar to that of vancomycin. We have discussed the design of a proposed Phase 3 clinical trial to evaluate the efficacy and safety of lefamulin for the treatment of ABSSSI with the FDA and several E.U. regulatory authorities.

Pediatric Indications

Not unlike treatment of infectious diseases in adults, the management of pediatric infections has become more difficult due to the continuing rise in resistance in bacteria. Further complicating antimicrobial selection in the pediatric population is the need for agents to be very well tolerated and available in a final dosage form that can be easily administered to children. Based upon the in vitro antimicrobial spectrum of activity, along with the safety profile observed to date, we believe lefamulin is appropriate for evaluation for the treatment of a variety of pediatric infections, including those affecting the respiratory tract and skin and skin structure. We have begun pediatric formulation development activities to support clinical trials in the pediatric population.

HABP/VABP

One of the major causative organisms of hospital-acquired bacterial pneumonia and ventilator-associated bacterial pneumonia is S. aureus, including MRSA. We plan to investigate the utility of lefamulin in the treatment of HABP and VABP. We are planning to initiate a Phase 1 clinical trial to evaluate the safety, pharmacokinetics and lung penetration in subjects with VABP in late 2015. We expect to complete this trial in the first half of 2017. Based upon the results of this trial, we may conduct a Phase 2 clinical trial to further evaluate the utility of lefamulin in patients with HABP.

STIs

Urethritis and cervicitis caused by N. gonorrhoeae, C. trachomatis or M. genitalium are frequently occurring sexually transmitted infections in the United States and Europe. Left untreated, these infections can cause serious health problems, particularly in women, including chronic pelvic pain, life-threatening ectopic pregnancy and infertility. Resistance in these organisms to the most commonly prescribed antibacterial treatments poses a serious public health threat. For example, the CDC estimates that 30% of the clinical isolates of N. gonorrhoeae are resistant to at least one currently available antibiotic.

In preclinical studies, lefamulin has shown high potency against N. gonorrhoeae, C. trachomatis and M. genitalium, including strains resistant to currently available antibacterial agents. As a result, we are actively assessing a non-clinical and clinical development plan to support the development of lefamulin as a first-line treatment for urethritis, cervicitis and pelvic inflammatory disease.

Osteomyelitis

The incidence of osteomyelitis, which is an infection of the bone, is increasing. The most common causative organism is S. aureus. In the United States, the prevalence of MRSA in these cases ranges from 33% to 55%. Up to 90% of cases of hematogenous osteomyelitis, most frequently in children, are caused by S. aureus. We believe that lefamulin has the potential to be an effective treatment option for osteomyelitis. Lefamulin has shown substantial tissue penetration and activity against the most common causative organism in all forms of osteomyelitis. We believe that based on the safety profile observed to date, lefamulin will be well tolerated for the long term use necessary for the treatment of both adult and pediatric patients with osteomyelitis. The current standard of care for these infections is treatment with vancomycin. We believe the ability to administer lefamulin by either the IV or oral route would provide a significant advantage over agents, such as vancomycin, that can only be administered by IV.

 

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Prosthetic Joint Infections

Infection occurs in approximately 1% of joint replacement surgeries. Although the incidence of infection has been decreasing, the total number of replacement operations has been rising, such that, overall, there is increasing morbidity. The majority of these infections are caused by three organisms: coagulase negative staphylococci, S. aureus (including MRSA) and streptococci, all organisms that are sensitive to lefamulin. The preferred treatment for joint infections with MRSA is vancomycin, with daptomycin and linezolid as alternatives. Vancomycin and daptomycin are administered only by IV for this indication, and linezolid has side effect that affect long term use. We believe that lefamulin could provide an alternative for both IV and oral therapy for these infections cases.

BC-7013 (Topical)

BC-7013 is a semi-synthetic compound derived from pleuromutilin with the potential to be developed for the topical treatment of Gram-postivie infections, including uSSSIs.

BC-7013 is highly active against key bacterial pathogens causing skin and ocular infections, The MIC90 values for BC-7013 against MRSA are up to 20-fold lower than for mupirocin and 8-fold lower than for retapamulin, an FDA-approved topical pleuromutilin. Furthermore, BC-7013 has demonstrated potent activity against Chlamydia trachomatis, the leading cause of blindness in the world, and Propionibacterium acnes, the causative agent of acne.

We observed activity in a superficial skin infection model in mice infected with MRSA. BC-7013 was well tolerated following intranasal administration of an ointment formulation in a Phase 1 clinical trial.

Pleuromutilin Molecule Platform

Our pleuromutilin research program is based on our large and diverse proprietary compound library. We believe that our expertise in the areas of medicinal chemistry, pharmacology and toxicology have enabled targeted discovery of novel pleuromutilins through modification of side chains and core positions in the mutilin moiety. These modifications have resulted in alterations in microbial activity, ADME and toxicity of the semi-synthetic molecules.

We are actively pursuing an in-house discovery program to sustain our pipeline with future product candidates. The aim of this program is the development of novel pleuromutilins with the conventional pleuromutilin spectrum consisting of Gram-positive, fastidious Gram-negative and atypical pathogens, but also extended activity to the Gram-negative spectrum, primarily Enterobacteriaceae, addressing a significant unmet medical need. When tested against resistant bacterial pathogens, the activity of ESPs is thus far unaffected by the production of ß-lactamases, or by E. coli and K. pneumoniae or macrolide resistance in S. aureus or S. pneumoniae. Based on the extension of the antibacterial spectrum we believe that ESPs have potential for the treatment of urinary tract infections, complicated intra-abdominal infections, respiratory tract infections, acute/complicated bacterial skin and skin structure infections, sexually transmitted infections and biothreat organisms.

Compounds in Other Antibiotic Classes

In addition to the pleuromutilin research program, we own a ß-lactam library encompassing approximately 2,000 novel broad spectrum cephalosporins and approximately 150 novel ß-lactamase inhibitor molecules. We own all rights and hold one active patent application on file covering ß-lactamase inhibitors.

We also own a library of approximately 200 acremonic acid derivatives which inhibit bacterial protein translation and have an antibacterial profile that covers primarily Gram-positive bacteria, such as S. aureus, MRSA and mupirocin-resistant strains, as well as ß-hemolytic streptococci (Streptococci that are not S.

 

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pneumoniae or members of the Viridans family). The first molecules in this series also displayed improved activity against isolates showing resistance against fusidic acid and showed no cross-resistance with other classes of antibiotics tested.

The existing compound libraries of ß-lactam/ß-lactamase inhibitors and acremonic acid derivatives represent an unrecognized portion of our pipeline. The current allocation of our funds and staff are dedicated to advancing the pleuromutilin compounds. Assessment of the ß-lactam/ß-lactamase inhibitors and acremonic acid derivatives compound libraries will be dependent upon additional funding.

Commercialization Strategy

We own exclusive, worldwide rights to lefamulin. We expect that our initial target population for lefamulin will consist of patients with moderate to severe CABP. If lefamulin receives marketing approval from the FDA for the treatment of CABP, we plan to commercialize it in the United States with our own targeted hospital sales and marketing organization that we plan to establish. We believe that we will be able to effectively communicate lefamulin’s differentiating characteristics and key attributes to clinicians and hospital pharmacies with the goal of establishing favorable formulary status for lefamulin. If lefamulin receives marketing approval outside of the United States for the treatment of CABP, we expect to utilize a variety of types of collaboration, distribution and other marketing arrangements with one or more third parties to commercialize lefamulin in such markets.

With a targeted initial prescribing base, we believe that lefamulin will be promotionally insensitive. However, we believe that medical education will be a key component of our sales and marketing efforts. We believe that lefamulin’s novel mechanism of action and status as the only member of the class of systemically administered pleuromutilins support its potential inclusion on formularies and in treatment guidelines.

We plan to evaluate the merits of entering into collaboration agreements with other pharmaceutical or biotechnology companies that may contribute to our ability to efficiently advance our product candidates, build our product pipeline and concurrently advance a range of research and development programs for a variety of indications.

Manufacturing

We do not own or operate, and currently have no plans to establish, manufacturing facilities for the production of clinical or commercial quantities of lefamulin, or any of the other compounds that we are evaluating in our discovery program. We currently rely, and expect to continue to rely, on third parties for the manufacture of lefamulin and any further products that we may develop. We have significant in-house knowledge and experience in the relevant chemistry associated with our drug candidate and use these internal resources, alongside third-party consultants, to manage our manufacturing contractors.

We have engaged a limited number of third-party manufacturers to provide all of our raw materials, drug substance and finished product for use in clinical trials. The active pharmaceutical ingredients, or API, and drug products have been produced under master service contracts and specific work orders from these manufacturers pursuant to agreements that include specific supply timelines and volume and quality expectations. We choose the third-party manufacturers of the drug substance based on the volume required and the regulatory requirements at the relevant stage of development. All lots of drug substance and drug products used in clinical trials are manufactured under current good manufacturing practices. Separate third-party manufacturers have been responsible for fill and finish services, and for labeling and shipment of the final drug product to the clinical trial sites.

We do not currently have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of lefamulin if it receives marketing approval. If lefamulin receives marketing approval from any regulatory agency, we intend to enter into

 

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agreements with suitable third-party contract manufacturers for the commercial production of this product. We have not yet considered other third-party manufacturers to provide a second source for the supply of lefamulin API and drug product for use in future clinical trials.

Our product candidate is a semi-synthetic organic compound of low molecular weight. The pleuromutilin core of the molecule is produced by fermentation and is manufactured on a significant scale by various manufacturers. We have selected the compound based on efficacy and safety, although it is also associated with reasonable cost of goods, ready availability of starting materials and ease of synthesis. The production of lefamulin has been carried out at a significant scale and we believe the synthetic route to lefamulin is amenable to further scale-up. The synthetic route does not require unusual, or specialized, equipment in the manufacturing process. Therefore, if any of the future drug substance manufacturers were to become unavailable for any reason, we believe there are a number of potential replacements, although delays may be incurred in identifying and qualifying such replacements.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain marketing approvals for their products more rapidly than we obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected because in some cases insurers or other third-party payors seek to encourage the use of generic products. This may have the effect of making branded products less attractive, from a cost perspective, to buyers. We expect that if lefamulin is approved for CABP, it will be priced at a significant premium over competitive generic products. This may make it difficult for us to replace existing therapies with lefamulin.

The key competitive factors affecting the success of our product candidates are likely to be their efficacy, safety, convenience, price and the availability of coverage and reimbursement from government and other third-party payors.

Currently, the treatment of CABP is dominated by generic products. For hospitalized patients, combination therapy is frequently used. Many currently approved drugs are well established therapies and are widely used by physicians, patients and third-party payors. We also are aware of various drugs under development for the treatment of CABP, including solithromycin (under Phase 3 clinical development by Cempra Inc.), dalbavancin (under Phase 3 clinical development by Actavis plc.), omadacycline (under Phase 3 clinical development by Paratek Pharmaceuticals Inc.) and delafloxacin (under Phase 3 clinical development by Melinta Therapeutics Inc.).

 

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Intellectual Property

Our success depends in large part on our ability to obtain and maintain proprietary protection for our product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We strive to protect the proprietary technology that we believe is important to our business by, among other methods, seeking and maintaining patents, where available, that are intended to cover our product candidates, compositions and formulations, their methods of use and processes for their manufacture and any other inventions that are commercially important to the development of our business. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary and competitive position.

As of July 31, 2015, we owned 20 different families of patents and patent applications, including 19 families directed to the various pleuromutilin derivatives as compositions of matter, processes for their manufacture, and their use in pharmaceutical compositions and methods of treating disease. The remaining family is directed to ß-lactamase inhibitors. In addition, as of July 31, 2015, we owned one provisional patent application. Our patent portfolio includes 19 issued U.S. patents, 17 granted European patents and 14 granted Japanese patents, as well as patents in other jurisdictions. We also have pending patent applications in the United States, Europe, Japan and other countries and regions, including Asia, Australia, Eastern Europe, and South America, including notably Canada, Brazil, China, Israel, India and Taiwan among others.

All of these patents and patent applications are assigned solely to us and were either originally filed by us or originally filed by Sandoz and subsequently assigned to us.

As of July 31, 2015, our lead product candidate, lefamulin, was protected by the following five patent families and one provisional patent application:

 

    The first patent family includes patents and applications with claims directed to generic classes of compounds that include lefamulin and/or their use in the treatment of microbial infections. This family includes issued patents in the United States, Europe and Japan, as well as issued patents in 10 other jurisdictions, and one pending patent application in Brazil. The standard term for patents in this family expires in 2021.

 

    The second patent family includes patents and applications with claims that specifically recite lefamulin and/or its use in the treatment of microbial infections. This family includes two issued patents in the United States and one issued patent in each of Europe and Japan, as well as issued patents in 17 other jurisdictions and 14 pending patent applications in other jurisdictions, including one divisional application in the United States and Europe. The standard term for patents in this family expires in 2028. A patent term adjustment of 303 days has already been obtained in the United States for one patent.

 

    The third patent family includes patents and applications with claims directed to the processes for the manufacture of lefamulin, crystalline intermediates useful in the processes, and the resulting crystalline salts. This family includes four granted patents and pending patent applications in the United States, Europe and 21 other jurisdictions. The standard term for patents in this family expires in 2031.

 

    The fourth patent family includes patents and applications with claims directed to processes for the synthetic manufacture of crystalline intermediates useful in the manufacture of lefamulin. This family includes granted patents in Europe and the United States and pending patent applications and granted patents in other jurisdictions. The standard term for patents in this family expires in 2031.

 

    The fifth patent family includes patents and applications with claims directed to pharmaceuticals and treatments for Helicobacter infection, including pleuromutilins, such as lefamulin. This family includes issued patents in the United States, Europe and one other jurisdiction. The standard term for patents in this family expires in 2023. A patent term adjustment of 921 days has already been obtained for the U.S. patent.

 

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    The provisional patent application is directed to pharmaceutical compositions of lefamulin and was filed at the USPTO.

Our second most advanced product candidate, BC-7013, is covered specifically in one patent family with patents granted in the United States, Europe and Japan, as well as six other jurisdictions, and pending patent applications in other jurisdictions. The standard term for patents in this family expires in 2027.

We own an additional family of patent applications directed to certain ESPs and their use in the treatment of Gram-negative infections. The standard term for patents in this family expires in 2035.

The remaining 12 pleuromutilin patent families are directed to either molecules in the intellectual property landscape surrounding our product candidates in development or molecules which can be potentially further developed by us but have not yet been pursued. All patent applications in these families have been filed at least in the United States and Europe, and most have been filed in other countries. The majority of these patent applications have already resulted in granted patents.

Finally, we own one patent family directed to ß-lactamase inhibitor compounds. Patent applications in this family have been filed in the United States and Europe. The standard term for patents in this family, if granted, expires in 2030.

The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries, including the United States, the patent term is 20 years from the filing date of a non-provisional patent application. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office, or the USPTO, in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier filed patent. The term of a U.S. patent that covers a drug, biological product or medical device approved pursuant to a pre-market approval, or PMA, may also be eligible for patent term extension when FDA approval is granted, provided that certain statutory and regulatory requirements are met. The length of the patent term extension is related to the length of time the drug is under regulatory review while the patent is in force. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expir