fpf_1040714.htm
 
Confidential draft no. 1 submitted to the Securities and Exchange Commission on April 8, 2014. This draft registration statement has not been filed publicly with the Securities and Exchange Commission and all information herein remains
strictly confidential.
 
 
As filed with the Securities and Exchange Commission on                 , 2014
 
Registration No.
333-
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
 
FORM F-1
 
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
_________________________
 
FORWARD PHARMA A/S
 
(Exact Name of Registrant as Specified in its Charter)
_________________________
 
Denmark
2834
Not Applicable
(State or Other Jurisdiction of
(Primary Standard Industrial
(I.R.S. Employer
Incorporation or Organization)
Classification Code Number)
Identification No.)


Forward Pharma A/S
Østergade 24A, 1
1100 Copenhagen K, Denmark
+45 33 44 42 42
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
CT Corp.
111 Eight Avenue, #13
New York, NY 10011
Tel: (212) 894-8940
 
_________________________
 
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
Copies of all correspondence to:
 
Kristopher D. Brown
 
David B. Allen
Wayne J. Rapozo
 
David C. Lee
Dechert LLP
 
K&L Gates LLP
1095 Avenue of the Americas
 
1 Park Plaza
New York, NY 10036
 
Twelfth Floor
Tel: (212) 698-3500
 
Irvine, CA 92614
   
Tel: (949) 253-0900
     
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after effectiveness of this registration statement.


 
 

 
 
 
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.  

CALCULATION OF REGISTRATION FEE

Title of each class of securities to be registered
Proposed maximum aggregate offering price(1)(2)
Amount of registration fee
     
Ordinary shares, par value DKK 1.00 per share
$        
$        
 
 
   (1) Includes ordinary shares that may be purchased by the underwriters pursuant to an option to purchase additional ordinary shares to cover over-allotments.
   
   (2) Estimated solely for the purpose of calculating the registration fee pursuant to rule 457(c) of the Securities Act.  

 
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 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.

 
 

 
 
 

The information in this 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 effective. This Prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

Subject to completion, dated April 8, 2014

Prospectus
 
                 ordinary shares
 
Forward Pharma A/S
 

 
This is an initial public offering of ordinary shares by Forward Pharma A/S. We are selling                  of our ordinary shares. We currently expect the initial public offering price to be between $         and $         per ordinary share. Currently, no public market exists for our ordinary shares.
 
We intend to apply to have our ordinary shares listed on the NASDAQ Global Market under the symbol “FWP.”
 
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements.
 
 
Per
share
 
 
Total
Initial public offering price
$       
 
$        
       
Underwriting discounts and commissions
$       
 
$        
       
Proceeds to us, before expenses
$       
 
$        
       
We have granted the underwriters an option for a period of 30 days to purchase up to an additional             of our ordinary shares to cover over-allotments.
 
Delivery of the ordinary shares will be made on or about                 , 2014.
 
Investing in our ordinary shares involves a high degree of risk. See “Risk Factors” beginning on page 10.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.
 

 
 
Leerink Partners
 
 
 
 
                , 2014
 



 
 

 

TABLE OF CONTENTS

 
Page
   
Prospectus Summary
1
The Offering
7
Summary Financial Information
9
Risk Factors
10
Cautionary Statements Regarding Forward-Looking Statements
38
Presentation of Financial and Other Information
39
Use of Proceeds
40
Dividend Policy
41
Capitalization
42
Dilution
43
Selected Financial Information
44
Exchange Rate Information
45
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
Business
57
Management
82
Principal Shareholders
88
Related Party Transactions
89
Description of Share Capital and Articles of Association
91
Shares Eligible for Future Sale
99
Taxation
101
Underwriting
108
Expenses of the Offering
113
Legal Matters
114
Experts
114
Enforcement of Civil Liabilities
115
Where You Can Find More Information
116


 
Unless otherwise indicated or the context otherwise requires, all references in this Prospectus to “Forward Pharma A/S” refer to Forward Pharma A/S, and all references to “Forward Pharma,” the “Company,” “we,” “our,” “ours,” “us” or similar terms refer to Forward Pharma A/S and its subsidiary.



 
i

 

We have not authorized anyone to provide any information or to make any representations other than that contained in this Prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor the underwriters (i) have authorized any other person to provide you with different or additional information, or (ii) are making an offer to sell the ordinary shares in any state or other jurisdiction where the offer or sale is not permitted. This offering is being made in the United States and elsewhere solely on the basis of the information contained in this Prospectus. You should assume that the information appearing in this Prospectus is accurate only as of the date on the front cover of this Prospectus, regardless of the time of delivery of this Prospectus or any sale of the ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this Prospectus.


 
ii

 

PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this Prospectus. This summary may not contain all the information that may be important to you, and we urge you to read this entire Prospectus carefully, including the “Risk Factors,” “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our consolidated financial statements, including the notes thereto, included in this Prospectus, before deciding to invest in our ordinary shares.
 
Our company
 
Forward Pharma is a Danish biopharmaceutical company preparing to initiate a Phase 3 clinical trial using FP187, a proprietary formulation of dimethyl fumarate, or DMF, for the treatment of multiple sclerosis, or MS, patients. Since our founding in 2005, we have worked to advance unique formulations of DMF, an immune modulator, as a therapeutic to improve the health and well-being of patients with immune disorders including MS. FP187, our clinical candidate, is a DMF formulation in an oral dose that employs both matrix and delayed release technologies to control drug release which we plan to advance for the treatment of relapsing remitting MS, or RRMS, and other immune disorders, such as psoriasis.
 
Our focus on Dimethyl Fumarate, or DMF
 
Oral drugs employing DMF as an active pharmaceutical ingredient, or API, have been in use for over half a century.  Today, DMF is the API found in Tecfidera®, which Biogen Idec Inc., or Biogen, began selling for the treatment of RRMS following approval by the U.S. Food and Drug Administration, or FDA, in March 2013 (and approval by the European Commission, or EC, in February 2014). Tecfidera®, which is an oral dose of 480 mg of DMF daily (240 mg twice daily), generated global sales from launch in April 2013 through the end of 2013 of $876 million. DMF is also an API found in Fumaderm®, which has been sold for the treatment of psoriasis since 1994.
 
In 2004, a private Swedish company Aditech Pharma AB (collectively with its successor-in-interest, a Swiss company Aditech Pharma AG, or Aditech), controlled by Nordic Biotech General Partners ApS (an affiliate of one of our largest shareholders), assessed the potential for DMF to become a significant global product. Aditech specifically focused on the development of an innovative delayed and controlled release formulation of DMF, with the goal of limiting side effects typically associated with DMF treatment.
 
We were founded in 2005 for the purpose of exploiting a patent family Aditech filed relating to, among other things, its delayed and controlled release formulation for DMF, and in 2010 we acquired this patent family from Aditech. Under our agreements with Aditech, we obtained, among other things, Aditech’s patents and associated know-how related to DMF formulations.  For more, see “Related Party Transactions – Aditech Agreement.”
 
The patent family that we acquired from Aditech included an international patent application filed in 2005, disclosing, among other things, formulations of DMF that provide for its controlled release in the small intestine, where we believe that DMF has its immunomodulatory impact. This international application became the basis for a family of national patent applications which subsequently were filed relating to DMF. Two European patents, one from the original Aditech patent family and one from a patent family of ours (involving erosion matrix formulations of DMF with a thin enteric coating) have been granted and both are now the subject of opposition proceedings. In the U.S., two of our patent applications have been found allowable.  One of those applications claims particular up-titration schedules of using DMF to treat MS, while the other claims to treat MS using particular compositions containing DMF and that also specify levels of a DMF metabolite called mono methyl fumarate, or MMF, in the bloodstream.  In a third application, the Examiner has found our claims directed to methods of treating MS using a 480 mg dose of DMF to be allowable and has recommended that an interference be declared against Biogen’s U.S. Patent No. 8,399,514.
 
In order to assess FP187’s safety profile for human use, we have performed 28 pre-clinical studies on DMF since 2006, gathering data through animal testing (and in certain cases in vitro testing of DMF in cells) on its pharmacological activity, toxicity profile, and on dosing level effects.  Beginning in 2007, we commenced a set of Phase 1 clinical trials followed by a Phase 2 clinical trial to investigate, among other things, safety and dosing tolerability of FP187.  We have successfully completed all of these clinical studies, collectively involving over 300 psoriasis patients and healthy volunteers, and gathering substantial positive safety and dosing data.
 
 
 
1

 
 
To advance FP187 for use as a drug to treat RRMS in the U.S., in August 2013 we held a pre-Investigational New Drug, or IND, Application meeting with the FDA. Prior to this pre-IND meeting, we submitted a briefing book to the FDA, which included our high-level description of a proposed 48-week Phase 3 trial, which we expect will include up to 2,000 subjects. The primary and key secondary efficacy endpoints, respectively, for the proposed Phase 3 trial will be annual relapse rate, or ARR, and a favorable change in the sustained accumulation of disability, or SAD, in each case for RRMS patients.  Our pre-IND meeting submission noted that we intend to compare FP187 to an active beta interferon, or IFNβ, comparator drug. We expect to file our IND for RRMS by the end of April 2014 and to submit the protocol for our Phase 3 study in the third quarter of 2014.
 
Following completion of our planned Phase 3 trial, we intend to submit to the FDA our New Drug Application, or NDA, for FP187 to treat RRMS. Approval by the FDA of an NDA is dependent on a number of factors.  A final decision as to whether the program we shared with the FDA in advance of our pre-IND meeting is sufficient to support approval (including the sufficiency of our proposed single Phase 3 trial and whether a favorable change in SAD will need to be demonstrated by us at the time of our NDA submission) can only be made by the FDA once it has reviewed our full NDA, including the data from our Phase 3 study.  We expect that patient enrollment for the Phase 3 trial we are contemplating will take at least 18 months, with completion of the final patient’s initial 48-week treatment period after a total of 30 months. When the last patient dosed has completed the 48-week treatment period, we expect that we will have a substantial number of patients with two years of data, which we believe will allow us to complete an analysis of the effects of FP187 on SAD which can be provided to the FDA when we submit our NDA. As a result, we believe that any requirement by the FDA for data on SAD will not delay a decision on whether to approve FP187 for the treatment of RRMS.
 
We intend to submit our NDA for FP187 to treat RRMS under Section 505(b)(1) of the U.S. Federal Food, Drug, and Cosmetic Act, or FDC Act, based on pre-clinical and clinical data we have and will have developed and independently own.  Section 505(b)(1) of the FDC Act prescribes how a product may be submitted for approval by the FDA as a new drug based on clinical trial data and other information independently developed and owned by the party making the NDA submission, or obtained from a third-party with a right of reference.
 
In Europe, we have held preliminary discussions concerning marketing authorization for FP187 with the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte, or BfArM) in Germany, and more recently in November 2013 held a scientific consultation with the European Medicines Agency, or EMA. We expect to apply for a European Union, or EU, marketing authorization for FP187 to treat RRMS.
 
We also intend to pursue the development of FP187 for the treatment of psoriasis, and expect to commence a Phase 3 clinical trial program for psoriasis beginning in 2014.
 
History of DMF
 
A German pharmacist discovered in the late 1950s that fumaric acid derivatives were useful for the treatment of psoriasis. Over the following years, various blends of fumaric acid derivatives, including DMF, were tested and used in different doses throughout Germany and, later, in other parts of Europe. Pharmacies in Germany often made their own compounded versions for the treatment of psoriasis.
 
In 1994, Fumapharm AG (acquired by Biogen in 2006) received approval in Germany to market Fumaderm®, which contains DMF and three ethyl fumaric ester salts, for the treatment of psoriasis. DMF is also the sole API in Biogen’s Tecfidera®. Fumaderm® has not been approved outside of Germany, but it is nonetheless available throughout Europe as a prescription drug sourced from German pharmacies. Tecfidera® is sold in both the U.S. and Europe. We estimate that there have been well over 150,000 patient years of exposure to drugs containing DMF.
 
Our intellectual property
 
We divide our intellectual property portfolios primarily into two basic patent families, which we refer to as our “Core Composition Patent” family and our “Erosion Matrix Patent” family.  Our Core Composition Patent family, based on international application PCT/DK2005/000648, filed by Aditech in 2005, discloses a broad range of controlled release pharmaceutical compositions of DMF as well as the use of a dose of about 480 mg of DMF per day to treat MS.  Our Erosion Matrix Patent family, based on international application PCT/EP2010/050172, filed in 2010, discloses our delayed and controlled release formulations of DMF in FP187.
 
 
 
2

 
 
Core Composition Patent Family
 
In the EU, a patent from our Core Composition Patent family, EP2316430, has been granted.  EP2316430 covers DMF formulations with certain in vitro dissolution profiles.  In the U.S., U.S. Application Nos. 13/957,117 and 13/957,220 have been allowed.
 
U.S. Application No. 13/957,117 claims the use of delayed release formulations of DMF to treat MS according to an up-titration schedule that reaches a total daily dose of about 480 mg. U.S. Application No. 13/957,220 claims a method of treating an MS subject with about 480 mg of DMF per day, using delayed release formulations containing from about 120 mg to 240 mg of DMF which, following administration, result in certain levels of MMF in the bloodstream.
 
Two third-party pre-issuance submissions have recently been filed with the USPTO, questioning the patentability of the claims in each of the two U.S. patent applications from our Core Composition Patent family that have been allowed.  We have filed a response to the third-party pre-issuance submission in Application No. 13/957,117 and are prepared to do so in Application No. 13/957,220.  We believe the third-party submissions are defective and, even if they are considered by the USPTO, expect both of our patent applications to be issued as patents.
 
We were recently informed by the USPTO Examiner that she believes the claims in another of our patent applications in the Core Composition Patent family, U.S. Application No. 11/576,871, to be allowable and in consultation with her supervisor and a patent interference specialist, has recommended both that an interference be declared against Biogen’s U.S. Patent No. 8,399,514, whose claims also cover a method of treating MS using about a 480 mg daily dose of DMF, and that we be designated as the so-called senior party.
 
The USPTO website indicates that the Examiner has prepared a memorandum in support of an interference, which will be reviewed by an administrative patent judge.  Such interference, if declared, will give us the opportunity to prove to the USPTO that we were the first to invent the method of treating MS using about a 480 mg daily dose of DMF.
 
Multiple third parties, including Biogen, are opposing our patent EP2316430 (covering DMF formulations) before the European Patent Office, or EPO.  In view of the publication of WO2006/037342, the international application in the Core Composition Patent Family, on April 13, 2006, prior to Biogen’s February 8, 2007 filing on the use of the 480 mg daily dose to treat MS, we (along with multiple other parties) have filed an opposition against Biogen’s EP2137537 B1 patent which has claims that cover this dosing regimen.
 
Erosion Matrix Patent family
 
In the EU, a patent from our Erosion Matrix Patent family, EP2379063 (covering matrix formulations with a thin enteric coating), has been granted.  Multiple third parties, including Biogen, are opposing this patent before the EPO.  The U.S. counterpart, U.S. Application No. 13/143,498, was allowed by the USPTO but withdrawn from allowance to permit the USPTO Examiner to consider the opposition papers in EP2379063.
 
Other patent families
 
Beyond our Core Composition Patent and Erosion Matrix Patent families, our other patent families include pending applications in the EU and the U.S., mainly directed to new dosing regimens of DMF. We believe that our overall patent portfolio, when mature, will position FP187 competitively in the key markets of the U.S. and the EU.
 
Our business strategy
 
We have focused on DMF’s potential as an immune-modulating drug to improve the health and well-being of patients with immune disorders for approximately the past 10 years, during which time we have assembled and continue to develop our intellectual property portfolio and regulatory strategy.  We believe our intellectual property portfolio, combined with the clinical data we have and will have independently obtained and the discussions we have had with the FDA, BfArM and EMA, provide us with the opportunity to pursue the development of FP187 for the treatment of RRMS in the U.S. and the EU. We intend to use the net proceeds from this offering to, among other things, pursue a Phase 3 clinical trial of FP187 for the treatment of RRMS which we believe, if successful, would (in combination with other data on FP187 we have and are obtaining) allow us to submit an NDA in the U.S. and a separate marketing authorization application in the EU for FP187 to treat RRMS.  We intend to also pursue the development of FP187 for the treatment of psoriasis, including commencing a Phase 3 clinical trial program beginning in 2014.
 
 
 
3

 
 
Components of our business strategy include:
 
 
·
Successfully develop FP187 for the treatment of Relapsing Remitting Multiple Sclerosis. We plan to pursue approval from the FDA and the EC of FP187 for the treatment of RRMS. We believe that, if approved, FP187 could become an important therapeutic in the multi-billion dollar MS drug market.
 
 
·
Develop FP187 for the treatment of psoriasis. We plan to pursue FP187 for the treatment of psoriasis. We believe that, if approved, FP187 could become a compelling treatment option for patients with psoriasis.

 
·
Exploit and defend our intellectual property rights. We believe our patents and patent applications related to, among other things, our proprietary formulation technology, combined with our patents and patent applications claiming dosing levels of DMF, are critical assets of our company. We intend to exploit our intellectual property by continuing to pursue our patent applications, and to defend our patent rights as we deem necessary for our business.
 
 
·
Obtain marketing exclusivity in the U.S. and the EU for FP187. In addition to patent protection, if and when an NDA is approved, we will be entitled to up to three and one-half years of marketing exclusivity against generic versions of FP187 in the U.S. In the EU, we will be entitled to up to 11 years of exclusivity from the first date of authorization in the EU.
 
 
·
Potentially partner FP187 with third parties. We may opportunistically seek commercial partners for FP187 to offset risk and preserve capital, if appropriate, although we intend to retain key development and commercialization rights. We believe retaining this strategic flexibility will help us to maximize shareholder value.
 
 
·
Continue to explore, and potentially develop, FP187 and other DMF-related formulations for the treatment of other immune disorders. We intend to continue to explore and potentially develop FP187 and other DMF-related formulations for the treatment of other immune disorder indications, if we determine that such development could be commercially viable.
 
Mode of Action of DMF and our proprietary formulation
 
Mode of action
 
While the exact mode of action of DMF is not fully understood, we believe that some of its therapeutic effects are mediated via modulation of the immune system.  From studying immune cells in vitro we believe that DMF can rapidly form adducts by combining with the antioxidant molecule glutathione, or GSH, leading to the functional depletion of GSH, followed by the modulation of various cellular pathways. We believe that one important downstream event of intracellular GSH depletion is the increased expression of the anti-inflammatory stress protein HO-1, with subsequent induction of type II dendritic cells leading to a reduction of inflammatory responses. We also believe that the depletion of GSH can induce apoptosis or cell death in different cell types including activated T cells, reducing inflammatory responses. Other pre-clinical data, we believe, have indicated that DMF can also protect cells, including neuronal cells, against oxidative stress.
 
In animal models, GSH/DMF adducts have been found in the gastrointestinal mucosa and in the portal vein blood, but not in organs like the heart, brain and liver, which suggests to us that the clinical effects of DMF may be mediated at least in part by DMF exerting its action within the tissues in the intestine or pre-systemic circulation. Such a mode of action of DMF is also supported, we believe, by the fact that DMF has not been directly detected in the bloodstream.
 
 
 
4

 
 
Some proportion of DMF is thought by us to be metabolized by esterases (enzymes ubiquitous in the gastrointestinal, or GI, tract) to produce MMF.  In contrast to DMF, MMF can be measured in the bloodstream, but the extent to which it may contribute to clinical efficacy is currently unclear to us. However, recent pre-clinical research suggests to us that sudden plasma peaks of MMF may contribute to the side effect of flushing via interaction with nicotinic acid receptors.
 
Formulation and clinical profile of FP187
 
Our proprietary DMF formulation, FP187, employs two strategies which we believe improve the release of DMF by reducing the peaks of MMF in the bloodstream while maintaining overall DMF exposure levels, which, in turn, may control DMF’s side effects.  FP187 uses an enteric coating material, which forms a polymeric barrier around each DMF-containing core tablet for the purpose of inhibiting the release of DMF in the stomach and allowing for release in the small intestine. In addition, the DMF in FP187 is formulated as an erosion matrix, resulting in what we believe to be a controlled release of DMF in the small intestine after the enteric coating has dissolved.  The enteric coating employed by FP187 is thinner than the coating used by the other DMF products, which we believe results in earlier release of DMF in the small intestine.
 
We think that products containing DMF that lack an erosion matrix formulation (such as Tecfidera® and Fumaderm®) may result in DMF being released in a more concentrated and immediate burst.  We believe that the slow rate of release of DMF permitted by FP187’s erosion matrix formulation greatly reduces, or even eliminates, the peaks of MMF in the bloodstream observed with formulations in which the DMF is not incorporated into a controlled release matrix, while ensuring that a therapeutically effective dose of DMF is administered, potentially producing fewer and less severe flushing episodes.  In addition, we believe that the controlled release of DMF from the erosion matrix formulation, together with the earlier start of release in the small intestine, may allow absorption of DMF over a larger area of GI mucosa, potentially leading to lower local GI concentrations and therefore, we believe, less GI specific side effects.
 
Risks associated with our business
 
We are a late clinical-stage biopharmaceutical company, and our business is subject to a number of risks of which you should be aware before making an investment decision. These risks, which are discussed more fully in the “Risk Factors” section of this Prospectus, include:
 
·
We have no products approved for commercial sale, and we have not received regulatory approval for, nor have we generated commercial revenue from, our sole clinical candidate, FP187.
 
·
FP187 is in pre-clinical and clinical development, and clinical trials of FP187 and other studies required for marketing approvals may not be successful. Our planned clinical trials may not be considered sufficient to support marketing authorization appropriately. If we are unable to obtain marketing approvals for, or successfully commercialize, FP187, our ability to generate revenue will be materially impaired.
 
·
Completion of required clinical trials may take longer than we anticipate, which could result in increased costs, limit our access to funding and delay or limit our ability to obtain regulatory approval for FP187. FP187 may not receive the regulatory approvals we plan to seek in a timely manner, or at all.
 
·
We may be unable to obtain, maintain, and exploit the protection of our intellectual property assets, which could harm our ability to compete and impair our business.
 
·
We could be involved in costly litigation or other legal proceedings with respect to our intellectual property.
 
·
Third-party patents, including those of Biogen, may have an adverse effect on our business.
 
·
Our ability to continue as a going concern is dependent on our ability to raise additional capital to fund the advancement of FP187, and if we are unable to successfully raise sufficient additional capital, through future equity or debt financings or through strategic and collaborative ventures with third parties, we will not have sufficient cash flows and liquidity to fund our planned business operations.
 
 
 
 
5

 
 
 
·
We may require substantial additional funding beyond the net proceeds from this offering to continue and complete the development and commercialization of FP187 and/or exploit or defend our intellectual property.
 
·
We have a history of operating losses and anticipate that we will continue to incur losses for the foreseeable future. As of December 31, 2013, we had an accumulated deficit of $53.1 million.
 
·
Should we raise additional funds through the sale of equity or convertible debt securities, such funding may cause substantial dilution to our shareholders.
 
·
We have not commercialized FP187 and, even if approved, it may not be reimbursed by governmental authorities, health insurers and other third-party payors at acceptable levels.
 
Implications of being an emerging growth company
 
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 requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:
 
·
the ability to include only two years of audited financial statements and only two years of related management’s discussion and analysis of financial condition and results of operations disclosure;
 
·
an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; and
 
·
the ability to provide less disclosure on compensation than is required otherwise under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
 
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 if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our ordinary shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.
 
Corporate information
 
We are a Danish public limited liability company. Our principal executive offices are located at Østergade 24A, 1, 1100 Copenhagen K, Denmark. Our telephone number at this address is +45 33 44 42 42.
 
Our website address is www.forward-pharma.com. We do not incorporate the information on, or accessible through, our website into this Prospectus, and any information on, or accessible through, our website is not part of this Prospectus.
 
Investors should contact us for any inquiries at the address and telephone number of our principal executive offices.
 

 
6

 

THE OFFERING
 
Ordinary shares offered by us
                 ordinary shares.
   
Ordinary shares to be outstanding immediately after this offering
                 ordinary shares.
   
Over-allotment option
We have granted the underwriters the right to purchase up to an additional             ordinary shares from us within 30 days of the date of this Prospectus, to cover over-allotments, if any, in connection with the offering.
   
Use of proceeds
We estimate that the net proceeds to us from the offering will be approximately $        , or approximately $         million if the underwriters’ over-allotment option is exercised in full, based on an assumed initial public offering price of $         per ordinary share, 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. We currently expect that we will use the net proceeds from this offering, together with a bridge financing we expect to enter into which may be convertible into or exchangeable for our equity securities, and our cash and cash equivalents on hand, as follows:
   
    approximately $90.0 million for the clinical development of FP187 for the treatment of RRMS;
     
    approximately $30.0 million for the clinical development of FP187 for the treatment of psoriasis;
   
    approximately $25.0 million to fund the exploitation and protection of our intellectual property rights
(including in connection with oppositions and interference cases); and
   
   ● the remainder for working capital and other general corporate purposes, including execution of our pre-clinical program. See “Use of Proceeds.”
   
Dividend policy
We have never paid or declared any cash dividends on our shares, and we do not anticipate paying any cash dividends on our shares in the foreseeable future.
   
Risk factors
See “Risk Factors” and the other information included in this Prospectus for a discussion of factors you should carefully consider before deciding to invest in our ordinary shares.
   
Listing
We intend to apply to have our ordinary shares listed on the NASDAQ Global Market, or NASDAQ, under the symbol “FWP.”
   
 
 
 
7

 
 
The number of our ordinary shares to be outstanding immediately after this offering is based on 1,736,540 of our Class A shares and 56,851 Class B shares outstanding as of March 31, 2014 and assumes:
 
·
the automatic conversion of all of our Class A and Class B shares into an aggregate of                 ordinary shares prior to the consummation of this offering pursuant to our framework agreement as described under “Related Party Transactions – Framework Agreement,” which we refer to as the Share Conversion (after which we will only have one class of shares, termed ordinary shares);
 
·
no exercise of the option granted to the underwriters to purchase up to             additional ordinary shares to cover over-allotments, if any, in connection with this offering; and
 
·
no exercise of warrants held by warrant holders allowing for the purchase of an aggregate of 136,773 Class A shares, which will be converted into a right to purchase an aggregate of             ordinary shares in connection with the Share Conversion.
 

 
8

 

SUMMARY FINANCIAL INFORMATION
 
The summary statement of profit or loss and statement of financial position for the years ended and as of December 31, 2013 and 2012 of Forward Pharma A/S are derived from the audited consolidated financial statements as of December 31, 2013 and 2012 and January 1, 2012 and for each of the two years in the period ended December 31, 2013 (the Consolidated Financial Statements) included in this Prospectus. We have prepared our consolidated financial statements in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. The historical results set forth below are not necessarily indicative of the results expected in future periods.
 
This summary financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included in this Prospectus.
 
Consolidated statement of profit or loss data
 
   
 
Year ended December 31,
 
(USD in thousands,
except share and per share data)
 
2013
   
2012
 
Research and development costs
    (8,018)       (4,445)  
General and administrative costs
    (1,014)       (928)  
Operating loss
    (9,032)       (5,373)  
Fair value adjustment to net settlement obligations to shareholder warrants
    (6,676)       (17,071)  
Other finance costs
    (84)       (35)  
Net loss before tax
    (15,792)       (22,479)  
Income tax
    96       0  
Net losses for the year
    (15,696)       (22,479)  
Net loss per share
               
    Basic and diluted
    (9.53)       (14.25)  
Weighted-average shares outstanding used to calculate net loss per share
               
    Basic
    1,598,530       1,577,261  
    Diluted
    1,598,530       1,577,261  

Consolidated statement of financial position data
 
   
As of December 31,
 
(USD in thousands)
 
2013
   
2012
 
Cash and cash equivalents
    2,955       828  
Adjusted working capital (1)
    2,317       213  
Total assets
    3,599       970  
Long-term debt, including current portion
    2,613       2,100  
Accumulated (deficit)
    (51,913)       (36,796)  
Total shareholders’ equity
    (26,415)       (20,250)  
 
(1)
We define adjusted working capital as current assets minus trade and other payables. We use adjusted working capital to, among other things, evaluate our short-term liquidity requirements. We find adjusted working capital a useful metric in evaluating our short-term liquidity requirements because it eliminates the impact of shareholder warrants.
 
Adjusted working capital is not a U.S. GAAP or IFRS measure, and our definition may vary from that used by others in our industry. Accordingly, our use of adjusted working capital has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our financial position as reported under IFRS.
 

 
9

 

RISK FACTORS
 
You should carefully consider the risks and uncertainties described below and the other information in this Prospectus before making an investment in our ordinary shares. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our ordinary shares could decline and you could lose all or part of your investment. This Prospectus also contains forward-looking statements that involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors.
 
Risks Related to Our Business and Industry
 
We are a clinical-stage company with no approved products and no historical product revenues, which makes it difficult to assess our future prospects and financial results.
 
We are a biopharmaceutical company with a limited operating history upon which you can evaluate our business and prospects. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. Our operations to date have been limited to developing our formulation technology and undertaking pre-clinical studies and clinical trials of our proposed drug candidate FP187. As an early stage company, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. Consequently, the ability to accurately assess our future operating results or business prospects is more limited than if we had a longer operating history or approved products on the market. Accordingly, the likelihood of our success must be evaluated in light of many potential challenges and variables associated with an early-stage drug development company, many of which are outside our control, and the occurrence of any setbacks could adversely affect our business and prospects.

We depend entirely on the success of our only clinical candidate, FP187.  We cannot give any assurance that this clinical candidate will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized.
 
We have invested almost all of our efforts and financial resources in the development of FP187.  As a result, our business and future success is almost entirely dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize FP187, which has completed Phase 1 testing in healthy volunteers for release characteristics and tolerability, as well as a Phase 2 trial in moderate to severe psoriasis patients, and is being prepared for Phase 3 trials for RRMS and psoriasis.  FP187 will require additional pre-clinical and clinical development, management of clinical and manufacturing activities, regulatory approval in multiple jurisdictions (if regulatory approval can be obtained at all), securing sources of commercial manufacturing supply, building of or partnering with a commercial organization, and substantial investment and significant marketing efforts before any revenues can be generated from product sales. We are not permitted to market or promote FP187 before we receive regulatory approval from the FDA, the EC or other foreign regulatory authorities, and we may never receive such regulatory approval for FP187.  We cannot assure you that our clinical trials for FP187 will be completed in a timely manner, or at all, or that we will be able to obtain marketing approvals or labeling from the FDA, the EC or other foreign regulatory authorities necessary or desirable for the successful commercialization of FP187.  If FP187 or any future product candidate is not approved and commercialized, we will not be able to generate any product revenues, which would materially affect our business, financial condition and result of operations.  Moreover, any delay or setback in the development of any product candidate could adversely affect our business and prospects.
 
Our future growth and ability to compete depends on retaining our key personnel and recruiting additional qualified personnel, including a Chief Financial Officer.
 
Our success depends upon the continued contributions of our management, scientific and technical personnel, many of whom have substantial experience with or been instrumental for us and our development of FP187.  These individuals currently include the members of our board of directors consisting of our Chairman, Florian Schönharting, as well as J. Kevin Buchi and Torsten Goesch, and our Chief Executive Officer and Chief Operating Officer, Peder Møller Andersen. Our senior scientific advisors include Dr. Kristian Reich, Dr. Ulrich Mrowietz, Dr. Fred D. Lublin, Dr. Per Soelberg Soerensen and Dr. Jerry Wolinsky.
 
 
 
10

 
 
The loss of managers and senior scientific advisors could materially delay our research and development activities and could have a material adverse effect on our business.  In addition, the competition for qualified personnel in the biopharmaceutical field is intense, and our future success may depend upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees and consultants.  We do not currently have a full-time Chief Financial Officer, or CFO, although we are in the process of recruiting someone to fill the position. We face competition for personnel from other companies, universities, public and private research institutions and other organizations. If we are unable to recruit a qualified CFO, or if in the future, our recruitment and retention efforts are unsuccessful, it may be difficult for us to implement our business strategy, which could have a material adverse effect on our business.
 
We expect to expand our drug development, regulatory and business development 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 consultants and the scope of our operations, particularly in the areas of drug development, regulatory affairs and business development.  To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel.  Due to our limited financial resources and the limited experience of our management team in managing a company with such anticipated growth, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel.  The expansion of our operations may lead to significant costs and may divert our management and business development resources.  Any inability to manage growth could delay the execution of our business plans or disrupt our operations, and have a materially adverse effect on our business.
 
Risks Related to Intellectual Property
 
We rely on patents and other intellectual property rights to protect our rights with respect to the development and commercialization of FP187 and other product candidates, the attainment, defense and maintenance of which may be challenging and costly.  Failure to obtain, defend or maintain these rights adequately could materially adversely impact our ability to compete and impair our business.
 
Our commercial success depends in part on obtaining and maintaining patents and other forms of intellectual property rights for FP187, as well as on the defense and exploitation of such rights.  Failure to protect or to obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely impact our competitive advantage and impair our business.
 
Our patent portfolio consists primarily of two basic patent families, our “Core Composition Patent” family and our “Erosion Matrix Patent” family, along with three other patent families.  We do not have any issued patents in the U.S.  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 patents by developing similar or alternative technologies or products in a non-infringing manner.  We have two granted patents in Europe: EP2316430, which covers DMF formulations with certain in vitro dissolution profiles, and EP2379063, which covers erosion matrix formulations with a thin enteric coating.  Our other patent families include pending applications in Europe and the U.S. and are directed to new dosing regimens of DMF.
 
Both of our European patents have been opposed by third parties before the European Patent Office, or EPO.  Multiple parties, including Biogen, are opposing before the EPO our patents EP2316430 and EP2379063.  The EPO may determine that one or more of our claims are invalid and/or may require us to narrow the scope of the claims to avoid a finding of invalidity.
 
 
 
11

 
 
Moreover, our other pending applications may be subject to a third-party preissuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, and the EPO and/or any patents issuing thereon may become involved in opposition, derivation, reexamination, inter parties review, post grant review, interference proceedings or other patent office proceedings or litigation, in the United States or elsewhere, challenging our patent rights. Such third-party pre-issuance submissions have recently been filed with the USPTO, questioning each of the two U.S. patent applications from our Core Composition Patent family that have been allowed.  An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, and allow third parties to commercialize our technology or products and compete directly with us, without payment to us.  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 exploit our intellectual property or develop or commercialize current or future product candidates.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the U.S., the EU and elsewhere.  Such challenges may result in loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit the duration of the patent protection of our technology and products.  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, 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.  Such developments could enable other companies to circumvent our intellectual property rights and use our clinical trial data to obtain marketing authorizations in the EU 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.

Intellectual property rights of third parties could adversely affect our ability to commercialize FP187, such that we could be required to litigate or obtain licenses from third parties in order to develop or market FP187.  Such litigation or licenses could be costly or not available on commercially reasonable terms.

Our commercial success depends upon our ability and the ability of our potential collaborators to develop, manufacture, market and sell FP187 or other product candidates without infringing valid intellectual property rights of third parties.  If a third-party intellectual property right exists that covers the composition of FP187 or the uses and dosages that the regulatory authorities approve for FP187, we may not be in a position to commercialize FP187 unless we successfully pursue litigation or administrative proceedings to nullify or invalidate the third-party intellectual property right concerned, or enter into a license agreement with the intellectual property right holder, which may not be available on commercially reasonable terms, if at all.
 
It is possible that we are unaware of all patents or applications relevant to the manufacture, use or commercialization of FP187. For example, we have not conducted a recent freedom to operate search in connection with FP187 and its use to treat MS.  Any freedom to operate search 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 FP187.   For example, U.S. applications filed before November 29, 2000 and certain U.S. applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States (filed November 29, 2000 or later) and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering FP187 or its use to treat MS could have been filed by others without our knowledge. In addition, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover FP187 or the use of FP187. As a result, we do not know whether the manufacture, use, or commercialization of FP187 or any of our other product candidates will infringe any third-party patents with valid claims that have been or will in the future be issued.
 
Third-party intellectual property right holders, including our competitors, may actively bring infringement claims against us.  We may not be able to successfully settle or otherwise resolve such infringement claims.  If we are unable to successfully settle future claims or otherwise resolve such claims on terms acceptable to us, we may be required to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from, or experience substantial delays in, marketing our product candidates.
 
 
 
12

 
 
If we fail to settle or otherwise resolve any such dispute, in addition to being forced to pay damages, we or our potential collaborators may be prohibited from commercializing FP187 or other product candidates we may develop that are held to be infringing, for the duration of the patent term.  We might, if possible, also be forced to redesign our formulations so that we no longer infringe the third-party intellectual property rights.  Any of these events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
 
Biogen may initiate legal proceedings alleging that we are infringing its intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. 

Biogen has several issued patents and is also prosecuting a number of additional patent applications that could adversely impact our commercial efforts if FP187 were ultimately found to infringe any valid claim by Biogen, in particular if Biogen obtains patent term extensions for certain key patents in the U.S. and/or Supplemental Protection Certificates (which also extend the effective life of patents for drugs) in the EU.
 
We are aware of the six patents Biogen has listed in the FDA’s “Orange Book” (See “Business – Government Regulation – United States – Hatch-Waxman Act and Orange Book Listing.”) in connection with Tecfidera®, U.S. Patent Nos. 6,509,376, 7,320,999, 7,619,001, 7,803,840, 8,399,514, and 8,524,773. Our planned regulatory path does not require that we make patent certifications to the FDA in connection with Biogen’s Orange Book-listed patents, and at least three of the patents will expire before we anticipate receiving marketing approval for FP187.
 
We are also aware of U.S. Patent No. 8,399,514 and its European counterpart, EP2137537 B1. As discussed with respect to our “Core Composition” patent family, we have opposed EP2137537 B1 and are seeking to trigger an interference between one of our U.S. applications and Biogen’s U.S. Patent No. 8,399,514.
 
In the U.S., Biogen’s pending patent applications include U.S. Application no. 13/266,997, U.S. Application no. 14/119,373, U.S. Application no. 14/124,562, U.S. Application no. 13/760,916, and U.S. Application no. 13/827,228. In Europe, Biogen’s pending patent applications include EP10770066 and EP1278291.
 
We believe that if such Biogen patents or patent applications (if issued as currently pending) are asserted against us, we would have defenses against such claims, including defenses of non-infringement and/or invalidity.  The outcome of such potential proceedings would be unpredictable and if such patents were asserted against us and held to be valid, enforceable and infringed by the commercialization of FP187, we could be prevented from continuing to commercialize our product candidates, unless we obtain a license to such patents, which may not be available on commercially reasonable terms or at all.  If we market FP187 and are later found to infringe one or more of Biogen’s patents, we could also be required to pay substantial damages.
 
We may become involved in lawsuits to protect and defend our patents or other intellectual property, which could be expensive, time consuming and unsuccessful.
 
Competitors may infringe our patents or other intellectual property.  To counter infringement or unauthorized use, we may be required to file claims, and any related litigation and/or prosecution of such claims 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 in whole or in part, unenforceable, or construe the patent’s claims narrowly allowing the other party to commercialize competing products on the grounds that our patents do not cover such products.
 
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.  Such litigation or proceedings could substantially increase our operating losses and reduce our resources available for development 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 substantially greater financial resources.  The effects of patent litigation or other proceedings could therefore have a material adverse effect on our ability to compete in the marketplace.
 
 
 
13

 
 
 
We enjoy only limited geographical protection with respect to certain of our patents and may face difficulties in certain jurisdictions, which may diminish the value of our intellectual property rights in those jurisdictions.
 
Our two earliest and broadest patent filings, PCT/DK2005/000648 and PCT/EP2010/050172, have limited geographic reach beyond the U.S. and Europe.  PCT/DK2005/000648 has multiple pending U.S. counterparts, a granted European patent, a pending European patent application and a pending Japanese counterpart. PCT/EP2010/050172 has a U.S. counterpart pending, a European patent granted, a European application pending, has Australian, Canadian, Japanese, Eurasian, Indian, Chinese, Korean and Russian counterparts pending and a granted patent in the Ukraine.  We may decide to abandon national and regional patent applications outside Europe and the U.S. before they are granted, if at all.  Our later filed patent applications, disclosing new dosing regimens for FP187, have not yet been filed outside of the U.S. and the EU.  Finally, the grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications might in some jurisdictions be refused by the relevant registration authorities, while granted by others.  It is also quite common that depending on the country, the scope of patent protection may vary for the same product.  For example, in some jurisdictions, it is not possible to obtain patents on new dosing regimens.
 
The laws of some jurisdictions do not protect intellectual property rights to the same extent as the laws in the U.S. and the EU, and many companies have encountered significant difficulties in protecting and defending such rights in such jurisdictions.  If we or our collaboration partners encounter difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from others in those jurisdictions.
 
Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties.  In addition, many countries limit the enforceability of patents against government agencies or government contractors.  In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent.  If we or any of our licensors is forced to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired and our business and results of operations may be adversely affected.
 
Third parties may claim rights in our intellectual property.
 
None of the named inventors on our intellectual property were our employees at the time of the filing of the Core Compositions patent family, which we acquired from Aditech.  Two of the named inventors of the Core Compositions patent family were consultants of Aditech and, while obligated under their consulting agreements to assign their rights in the Core Compositions patent family to Aditech, were employed by other institutions at the time they made their inventions.  While such institutions have not made any ownership claims to the inventions disclosed in the Core Compositions patent family, there can be no assurance they will not do so in the future.
 
Later-filed patent families were filed by us, but some of the named inventors were acting only in a consultant capacity to us.  Some of these consultants, while obligated under their consulting agreements to assign their rights in such patent families to us, were employed by other institutions prior to or at the time they made their inventions.  While such institutions have not made any ownership claims to the inventions disclosed in the later-filed patent families, there can be no assurance they will not do so in the future.
 
Named inventors on our patent applications, whether filed by us or acquired from Aditech, could also challenge whether their property rights were properly assigned, if at all.  Further, other individuals (including persons not known to us) could make claims or assertions that they are inventors of our intellectual property.
 
Under mandatory Danish law, an employee having made a patentable invention (and products that may be subject to registration as an industrial designer right) through his service with an employer has the rights to such invention, provided however, that the rights to the patentable invention upon the employer’s request shall be transferred to the employer against the employer’s payment to the employee of a “reasonable compensation.” The fee shall be fixed considering the value of the invention and its consequences for the employer, the employee’s terms of employment and the impact that the employee’s service has had for the invention. In the event that the value of the invention does not exceed what the employee, taking his working conditions as a whole into account, reasonably could be expected to achieve, the employee is not entitled to any fee. The compensation payable by the employer is not subject to any maximum amount and may be paid either as a lump sum or as a continuing royalty payment based on e.g. per produced item based on the invention. An employee’s claim for compensation may become time-barred or forfeited due to the employee’s passive behavior. The general time-barring regulation under Danish law is five years with respect to claims based on employment matters.
 
 
 
14

 
 
Some of the named inventors on patent applications relating to dosing regiments of DMF are employees of our German subsidiary Forward Pharma GmbH and thus are subject to German employment law.  German employment law governs the transfer/assignment of any intellectual property rights generated by such employees.  In particular, any inventions eligible for patent protection  made by such employees are subject to the provisions of the German Act on Employees’ Inventions (Gesetz über Arbeitnehmererfindungen), which regulates the ownership of, and compensation for, inventions made by employees.  The law provides for a formal procedure for the transfer of employee’s rights to a patentable invention upon employer’s request within a certain period of time after notification by employee.
 
We believe that inventive contributions made by employees of Forward Pharma GmbH were made after the amended version of the German Act on Employees’ Inventions came into force on October 1, 2009 and thus the amended version of the law exclusively applies to such inventions.  The amendments to the law facilitate the transfer of rights in employees’ inventions to the employer by replacing the former opt-in approach by an opt-out approach.
 
Following the transfer of rights, an employee is entitled to a claim for “reasonable compensation” to be calculated on an individual basis (e.g., revenue achieved through exploitation of the patent).  In addition, the German Act on Employees’ Invention provides for certain obligations on the employer including the obligation to apply for patent protection in Germany, the obligation to release the invention for application in those countries where the employer does not want to apply for a patent and the obligation to offer to the employer granted patents or pending patent applications if the employer intends to abandon rights in any country.
 
We face the risk that disputes can occur between us and employees or ex-employees of Forward Pharma GmbH pertaining to alleged non-adherence to the provisions of this act.  Such disputes may be costly to defend and take up our management’s time and efforts whether we prevail or fail in such dispute.  If we are required to pay additional compensation or face other disputes under the German Act on Employees' Inventions, our results of operations could be adversely affected.
 
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
 
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage.  The following examples are illustrative:
 
·
Others may be able to make DMF-based products that are similar to FP187 but that are not covered by the claims of the patents that we own.
 
·
Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing our intellectual property rights.
 
·
We or any of our collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we own, license or will own or license.
 
·
We or any of our collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license.
 
·
It is possible that our pending patent applications will not lead to issued patents.
 
 
 
15

 
 
 
·
Issued patents that we own may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors.
 
·
Our competitors might conduct research and development activities in countries where we do not have patent rights, or in countries where research and development safe harbor laws exist, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets.
 
·
The patents of third parties may have an adverse effect on our business.
 
Changes in patent laws or patent jurisprudence could diminish the value of patents in general, thereby impairing our ability to protect our products or product candidates.
 
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.  Obtaining and exploiting patents in the biopharmaceutical industry involve both technological complexity and legal complexity.  Therefore, obtaining and exploiting biopharmaceutical patents is costly, time-consuming and inherently uncertain.  In addition, the America Invents Act, or AIA, has been recently enacted in the United States, resulting in significant changes to the U.S. patent system.  The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations.  In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained.  Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to exploit our existing patents and patents that we might obtain in the future.  Similarly, the complexity and uncertainty of European patent laws has also increased in recent years.  In addition, the EP patent system is relatively stringent in the type of amendments that are allowed during prosecution. Changes in patent law or patent jurisprudence could limit our ability to obtain new patents in the future that may be important for our business.
 
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and protect other proprietary information.
 
We consider proprietary trade secrets and/or confidential know-how and unpatented know-how to be important to our business.  We may rely on trade secrets and/or confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value.  However, trade secrets and/or confidential know-how can be difficult to maintain as confidential.
 
To protect this type of information against disclosure or appropriation by competitors, our policy is to require our employees, consultants, contractors and advisors to enter into confidentiality agreements with us.  However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.  Enforcing a claim that a third-party obtained illegally and is using trade secrets and/or confidential know-how is expensive, time consuming and unpredictable.  The enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.
 
Failure to obtain or maintain trade secrets and/or confidential know-how trade protection could adversely affect our competitive position.  Moreover, our competitors may independently develop substantially equivalent proprietary information and may even apply for patent protection in respect of the same.  If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets and/or confidential know-how.
 
Our information technology systems could face serious disruptions that could adversely affect our business.
 
Our information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our operations.  A significant disruption in the availability of our information technology and other internal infrastructure systems could cause interruptions in our collaborations with our partners and delays in our research and development work.
 
 
 
16

 
 
Risks Related to the Development, Clinical Testing, Regulatory Approval and Commercialization of FP187.
 
Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain outcomes.  If clinical trials of FP187 are prolonged or delayed, we may be unable to obtain required regulatory approvals, and therefore be unable to commercialize FP187 on a timely basis or at all.
 
To obtain the requisite regulatory approvals to market and sell FP187, we must demonstrate through extensive pre-clinical and clinical trials that it is safe and effective in humans for its intended use.  The process for obtaining governmental approval to market FP187 is rigorous, time-consuming and costly.  It is impossible to predict the extent to which this process may be affected by legislative and regulatory developments.  Due to these and other factors, FP187 or future product candidates could take a significantly longer time to gain regulatory approval than expected or may never gain regulatory approval.  This could delay or eliminate any potential product revenue by delaying or terminating the potential commercialization of FP187.
 
Clinical trials must be conducted in accordance with FDA, EMA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, including good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors.  Clinical trials are further subject to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical trials are conducted.  In addition, clinical trials must be conducted with supplies of FP187 produced under current good manufacturing practices, or cGMP, and other requirements.  Our clinical trials are conducted at multiple sites, including some sites in countries outside the U.S. and the EU, which may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. and non-EU clinical research organizations, as well as expose us to risks associated with clinical investigators who are unknown to the FDA or the European regulatory authorities, and with different standards of diagnosis, screening and medical care.
 
To date, we have not completed all clinical trials required for the approval of FP187, which is currently being prepared for Phase 3 testing.  The commencement and completion of clinical trials for FP187 may be delayed, suspended or terminated as a result of many factors, including but not limited to:
 
·
negative or inconclusive results, which may require us to conduct additional pre-clinical or clinical trials or to abandon projects that we expect to be promising;
 
·
safety or tolerability concerns could cause us to suspend or terminate a trial if we find that the participants are being exposed to unacceptable health risks;
 
·
the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes in regulatory requirements, policies and guidelines;
 
·
regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;
 
·
delays or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
 
·
delays in patient enrollment and variability in the number and types of patients available for clinical trials;
 
·
the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically significant treatment effects;
 
·
lower than anticipated retention rates of patients and volunteers in clinical trials;
 
·
our third-party research and manufacturing contractors failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;
 
 
 
 
17

 
 
 
·
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
 
·
delays in establishing the appropriate dosage levels;
 
·
the quality or stability of FP187 falling below acceptable standards;
 
·
the inability to produce or obtain sufficient quantities of FP187 to complete clinical trials; and
 
·
exceeding budgeted costs due to difficulty in predicting accurately costs associated with clinical trials.
 
Positive or timely results from pre-clinical studies and early stage clinical trials do not ensure positive or timely results in late stage clinical trials or product approval by the FDA, the EMA or other regulatory authorities.
 
Products that show positive pre-clinical or early clinical results may not show sufficient safety or efficacy to obtain regulatory approvals and therefore fail in later stage clinical trials.  The FDA, the EMA and other regulatory authorities have substantial discretion in the approval process, and determining when or whether regulatory approval will be obtained for FP187.  Even if we believe the data collected from clinical trials of FP187 are promising, such data may not be sufficient to support approval by the FDA, the EMA or any other regulatory authority.
 
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted, by the Data Monitoring Committee, or DMC, for such trial or by the FDA, the EMA or other regulatory authorities.  We or such authorities may impose a suspension or termination due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA, the EMA or other regulatory authorities resulting in the imposition of a clinical hold, safety issues or adverse side effects, failure to demonstrate a benefit from using the drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.  If we experience delays in the completion of, or termination of, any clinical trial of FP187, the commercial prospects of FP187 will be harmed, and our ability to generate product revenues from this product will be delayed.  In addition, any delays in completing our clinical trials will increase our costs, slow the FP187 development and approval process and jeopardize our ability to commence product sales and generate revenues.
 
Any of these occurrences could materially adversely affect our business, financial condition and prospects.  In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of FP187.  Significant clinical trial delays could also allow our competitors to bring products to market before we do or shorten any periods during which we have the exclusive right to commercialize FP187 and impair our ability to commercialize FP187 and may harm our business and results of operations.
 
The FDA and/or the EMA/ EC may determine that our proposed single Phase 3 trial for the use of FP187 for the treatment of RRMS, including any SAD data generated through the date of our NDA submission, is insufficient for approval of FP187, which would delay or could prevent the approval of FP187 and adversely affect our prospects.
 
To advance FP187 for use as a drug to treat RRMS in the U.S., in August 2013 we held a pre-Investigational New Drug, or IND, Application meeting with the FDA, prior to which we submitted a briefing book including a proposal for a large, single Phase 3 trial.  Approval by the FDA of a New Drug Application, or NDA, is dependent on a number of factors.  A final decision as to whether the program we shared with the FDA at a high level in advance of our pre-IND meeting will be sufficient for approval (including the sufficiency of our proposed single Phase 3 trial and whether a favorable change in SAD will need to be demonstrated by us at the time of our NDA submission) can only be made by the FDA once it has reviewed our full NDA, including the data from our Phase 3 trial.  In addition, since we intend to rely on a single Phase 3 trial to demonstrate the effectiveness of FP187, the usual demonstration of the statistical significance of the superiority of FP187 to the active comparator drug in the primary efficacy endpoint (p=0.05) is unlikely to be sufficient to obtain approval of FP-187, and so we are likely to be required to demonstrate robust statistical significance of the superiority of FP187 to the active comparator drug.
 
There can, however, be no assurances that the FDA will ultimately accept the data from our single Phase 3 trial (or what SAD data we have generated at the time of submission or at a later date) as sufficient for approval when we file our NDA or at all, or that we will be able to timely file such an NDA.  Similarly, in the EU, we may experience a delay in submitting our market authorization application to the EMA and can have no assurances that the EC ultimately will approve FP187 as a drug for the treatment of RRMS.
 
 
 
18

 
 
If serious adverse, undesirable or unacceptable side effects are identified during the development or commercialization of FP187, we or our collaboration partners may need to abandon or limit development or commercialization of FP187.
 
If FP187 or any other product candidate we develop is associated with serious adverse, undesirable or unacceptable side effects, we may need to abandon such candidate’s development or limit development to certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit perspective.  Many compounds that initially showed promise in early-stage or clinical testing have later been found to cause side effects that prevented further development of the compound.
 
Undesirable side effects caused by FP187 or another product candidate we develop could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA, the EC or other comparable foreign authorities.  Results of our trials could reveal a high and unacceptable severity and prevalence of these or other side effects.  In such an event, our trials could be suspended or terminated and the FDA, EMA or comparable foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications.  The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.  Any of these occurrences could materially adversely affect our business, financial condition and prospects.
 
It is documented in the Tecfidera® labeling and through experience using Fumaderm® that the use of products containing DMF, the sole API in FP187, may cause a decrease in lymphocytes (white blood cells) in humans, thereby possibly increasing the potential for infection. To date, we are not aware of instances in which this side effect has prevented the FDA or the EC from approving RRMS drugs such as Tecfidera®, although it is expected that each of the FDA and the EMA will require us to monitor the incidence of this condition, known as lymphopenia and will evaluate whether FP187 increases the potential for infections during the review of our NDA in the U.S. and market authorization application in the EU.
 
If FP187 or another product candidate we develop receives marketing approval, and we or others later identify undesirable side effects caused by such product, a number of potentially significant negative consequences could result, including:
 
·
regulatory authorities may withdraw approvals of such product;
 
·
regulatory authorities may require additional warnings on the labeling;
 
·
we or our collaboration partners may be required to create a medication guide or risk evaluation and mitigation strategies, or REMS, addressing the risks of such side effect;
 
·
we or our collaboration partners could be sued and held liable for harm caused to patients; and
 
·
our reputation may suffer.
 
Any of these events could prevent us from achieving or maintaining market acceptance of FP187 or any other product candidate, if approved, and could materially adversely affect our business, financial condition and prospects.
 
Positive results in previous clinical trials of FP187 may not be replicated in future clinical trials of FP187, which could result in development delays or a failure to obtain marketing approval.
 
Positive results in previous clinical trials of FP187 may not be predictive of similar results in future clinical trials.  In addition, interim results during a clinical trial do not necessarily predict final results.  A number of companies in the biopharmaceutical industry have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development.  Accordingly, the results from the completed pre-clinical studies and clinical trials for FP187 may not be predictive of the results we may obtain in later stage trials.  Our clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials.  Moreover, clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials have nonetheless failed to obtain FDA or EMA/EC approval for their products.
 
 
 
19

 
 
We depend on enrollment of patients in our clinical trials for FP187.  If we are unable to enroll patients in our clinical trials, our research and development efforts and business, financial condition and results of operations could be materially adversely affected.
 
Successful and timely completion of clinical trials will require that we enroll a sufficient number of patient candidates.  Trials may be subject to delays as a result of patient enrollment taking longer than anticipated or patient withdrawal.  Patient enrollment depends on many factors, including the size of the patient population, eligibility criteria for the trial, the proximity of patients to clinical sites, the nature of the trial protocol, competing clinical trials and the availability of new drugs approved for the indication the clinical trial is investigating.
 
With respect to our clinical development of FP187 in RRMS, our proposed Phase 3 trial is particularly ambitious, requiring the recruitment of up to 2,000 patients worldwide.  We have no experience in managing a clinical trial of this scope, in centers throughout the world, and we will need to significantly increase our clinical development resources in order to successfully manage and oversee this process.
 
Enrollment of a sufficient number of patients in the Phase 3 trial for RRMS, the size of which is, to our knowledge, unprecedented for drugs intended for the treatment of RRMS, will depend on our ability to convince physicians and patients at the trial sites of the clinical meaningfulness of our study, and the recent availability of oral therapies such as Gilenya® (fingolimod), Aubagio® (teriflunomide) and Tecfidera® (another DMF formulation) may cause patients to be less willing to participate in our clinical trial for an oral therapy in regions in which one of these alternative oral therapies has been approved.  Since RRMS is a competitive market in certain regions, such as the U.S. and the EU, with a number of drug candidates in development, patients may have other choices with respect to potential clinical trial participation and we may have difficulty reaching our enrollment targets.  In addition, the relatively limited number of RRMS patients worldwide (estimated at 2 – 2.5 million) may make enrollment more challenging.
 
Instability in Russia and the CIS could adversely affect our planned European Phase 3 clinical trial for FP187 for the treatment of psoriasis.
 
We are continuing advanced preparatory work for an active comparator and placebo controlled confirmative non-inferiority Phase 3 trial of FP187 for the treatment of psoriasis in Europe, as well as an additional placebo controlled Phase 3 trial of FP187 for the treatment of psoriasis in the United States.  Our planned Phase 3 trial in Europe would consist of approximately 60 clinical sites, of which 23 are in Russia and the Ukraine. The implementation of sanctions in Russia and/or the Ukraine, or the exacerbation of or continued political instability in the region could adversely impact our ability to perform studies in the region, or could increase the costs to us and our clinical research organizations, or CROs, in performing such studies. As a result, our ability to proceed or continue with sites in these countries could be adversely impacted.
 
We may become exposed to costly and damaging liability claims, either when testing FP187 or any other product candidates we develop in the clinic or at the commercial stage; and our product liability insurance may not cover all damages from such claims.
 
We are exposed to potential product liability and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of pharmaceutical products.  Currently we have no products that have been approved for commercial sale; however, the current and future use of FP187 or other product candidates by us and our collaboration partners in clinical trials, and the sale of any approved products in the future, may expose us to liability claims.  These claims might be made by patients that use the product, healthcare providers, pharmaceutical companies, our collaboration partners or others selling such products.  Any claims against us, regardless of their merit, could be difficult and costly to defend and could materially adversely affect the market for FP187 or any prospects for commercialization of FP187.
 
 
 
20

 
 
 
Although the clinical trial process is designed to identify and assess potential side effects, it is always possible that a drug, even after regulatory approval, may exhibit unforeseen side effects.  If FP187 were to cause adverse side effects during clinical trials or after approval of the product candidate, we may be exposed to substantial liabilities.  Physicians and patients may not comply with any warnings that identify known potential adverse effects and patients who should not use FP187.
 
Although we maintain limited product liability insurance for FP187, it is possible that our liabilities could exceed our insurance coverage. We intend to expand our insurance coverage to include the sale of commercial products if we obtain marketing approval for FP187.  However, we may be unable to obtain any insurance covering the sale of FP187, once commercialized, or may be unable to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.
 
Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.
 
Our product candidate FP187 is subject to extensive regulation, compliance with which is costly and time consuming, may cause unanticipated delays, or prevent the receipt of the required approvals to commercialize our product candidate.
 
We and our collaboration partners are not permitted to market our product candidate FP187 until we receive regulatory approval from regulatory authorities. The process of obtaining regulatory approval is expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the products involved, as well as the target indications. Approval policies or regulations may change and regulatory authorities have substantial discretion in the drug approval process, including the ability to delay, limit, or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed.
 
The FDA, the EMA or other comparable foreign regulatory authorities can delay, limit, or deny approval of a product candidate for many reasons, including:
 
·
such authorities may disagree with the design or implementation of our clinical trials or the adequacy of our pre-clinical studies;
 
·
we may be unable to demonstrate to the satisfaction of the FDA, the EMA or other regulatory authorities that a product candidate is safe and effective for any indication;
 
·
such authorities may not accept clinical data from trials which are conducted at clinical facilities or in countries where the standard of care is potentially different from the United States;
 
·
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; and
 
·
such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
 
In addition, competitors could attempt to use the regulatory process to attempt to delay or prevent approval of FP187. For example, a competitor could file a citizen petition with the FDA seeking a ruling from the FDA that the use of a single Phase 3 trial as a basis for approving FP187 is not appropriate. We believe that, if our proposed Phase 3 trial for FP187 is successful and the results meet our expectations, the FDA will have a proper basis for approving our NDA for FP187. However, the filing of a citizen petition could delay any approval of FP187 by the FDA, which would adversely affect our prospects.  Should any of the events described above occur, this could have a material adverse effect on our business, financial condition and results of operations.
 
 
 
21

 
 
Even if FP187 obtains regulatory approval, it will be subject to continual regulatory review.
 
If marketing authorization is obtained for FP187, it will remain subject to continual review and therefore authorization could be subsequently withdrawn or restricted.  We and our collaboration partners will be subject to ongoing obligations and oversight by regulatory authorities, including adverse event reporting requirements, marketing restrictions and, potentially, other post-marketing obligations, all of which may result in significant expense and limit our ability to commercialize FP187. We and our collaboration partners will also be subject to regulatory requirements covering the manufacturing of FP187, including maintaining compliance with cGMP, and our contract manufacturers will be subject to periodic inspections by regulatory authorities.
 
If there are changes in the application of legislation or regulatory policies, or if problems are discovered with a product or our manufacture of a product, or if we or one of our collaboration partners fails to comply with regulatory requirements, the regulators could take various actions.  These include issuing warning and/or untitled letters to us, imposing fines on us, imposing restrictions on FP187 or its manufacture, requiring us to recall or remove the product from the market, entering an injunction against us, requiring us to enter into a consent decree, and pursuing criminal prosecution against us.  The regulators could also suspend or withdraw our marketing authorizations or require us to conduct additional clinical trials, change our product labeling or submit additional applications for marketing authorization.  If any of these events occurs, our ability to sell such product may be impaired, and we may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect our business, financial condition and results of operations.
 
The FDA, the EMA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of uses not consistent with approved product labeling. If we are found to have improperly promoted such uses, we may become subject to significant liability.
 
The FDA, the EMA and other regulatory authorities strictly regulate the promotional claims that may be made about prescription products, such as FP187, if approved.  In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or such other regulatory agencies as reflected in the product’s approved labeling.  For example, the FDA requires substantial evidence, which generally consists of two adequate and well controlled head-to-head clinical trials, for a company to make a claim that its product is superior to another product. Unless we perform clinical trials comparing FP187 to Tecfidera®, we will not be able promote FP187 by making comparative claims to Tecfidera®.  If we are found to have made such claims we may become subject to significant liability. In the U.S., the federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in improper promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
 
Due to our limited resources and access to capital, we must decide to prioritize development of FP187 for certain indications and at certain doses; these decisions may prove to have been wrong and may materially adversely affect our business, financial condition, results of operations and prospects.
 
Because we have limited resources and access to capital to fund our operations, we must decide which dosages and indications to pursue for the clinical development of FP187 and the amount of resources to allocate to each.  Our decisions concerning the allocation of research, collaboration, management and financial resources toward dosages or therapeutic areas may not lead to the development of viable commercial products and may divert resources away from better opportunities.  If we make incorrect determinations regarding the market potential of FP187 or misread trends in the biopharmaceutical industry, our business, financial condition, results of operations and prospects could be materially adversely affected.
 
Because we are subject to environmental, health and safety laws and regulations, we may become exposed to liability and substantial expenses in connection with environmental compliance or remediation activities which may disrupt or delay our production and development efforts and materially adversely affect our business, financial condition and results of operations.
 
Our operations, including our research, development, testing and manufacturing activities, are subject to numerous environmental, health and safety laws and regulations.  These laws and regulations govern, among other things, the controlled use, handling, release and disposal of, and the maintenance of a registry for, hazardous materials and biological materials, such as chemical solvents, human cells, carcinogenic compounds, mutagenic compounds and compounds that have a toxic effect on reproduction, laboratory procedures and exposure to blood-borne pathogens.  If we fail to comply with such laws and regulations, we could be subject to fines or other sanctions.
 
 
 
22

 
 
 
As with other companies engaged in activities similar to ours, we face a risk of environmental liability inherent in our current and historical activities, including liability relating to releases of or exposure to hazardous or biological materials.  Environmental, health and safety laws and regulations are becoming more stringent.  We may be required to incur substantial expenses in connection with future environmental compliance or remediation activities, in which case our production and development efforts may be interrupted or delayed and our financial condition and results of operations may be materially adversely affected.
 
Our research and development activities could be affected or delayed as a result of possible restrictions on animal testing.
 
Certain laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted, delayed or become more expensive.
 
Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize FP187 and may affect the prices we may set.
 
In the U.S., the EU and some other foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system.  These changes could prevent or delay marketing approval of FP187, restrict or regulate post-approval activities and affect our ability to profitably sell any products for which we obtain marketing approval.
 
In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the Medicare Modernization Act, changed the way Medicare covers and pays for pharmaceutical products.  The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sale prices for physician-administered drugs.  In addition, this legislation provided authority for limiting the number of drugs that will be covered in any therapeutic class.  Cost-reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products.  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 Patient Protection and Affordable Care Act, or ACA, 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 ACA 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 imposed 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 ACA until applicable federal and state agencies issue regulations or guidance under the new law.  Although it is too early to determine the effect of the ACA, 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.
 
Both in the U.S. and in the EU, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.  We are not sure whether additional legislative changes will be enacted, or whether the regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of FP187, if any, may be.
 
 
 
23

 
 
Our relationships with customers and 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 others play a primary role in the recommendation and prescription of any products for which we obtain marketing approval.  Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations 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 healthcare laws and regulations include the following:
 
·
the U.S. healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under U.S. healthcare programs such as Medicare and Medicaid;
 
·
the U.S. False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the U.S. government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;
 
·
the U.S. Health Insurance Portability and Accountability Act of 1996, 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;
 
·
the U.S. false statements statute prohibits 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 transparency requirements under the ACA require manufacturers of drugs, devices, biologics and medical supplies to report to the U.S. Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests; and
 
·
analogous 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 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 U.S. government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations.  If any of the physicians or other providers or entities with whom we expect to do business with is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
 
We operate in highly competitive and rapidly changing industries, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.
 
The biopharmaceutical industry is highly competitive and subject to significant and rapid technological change.  Our success is highly dependent on our ability to discover, develop and obtain marketing approval for new and innovative products on a cost-effective basis and to market them successfully.  In doing so, we face and will continue to face intense competition from a variety of businesses, including large, fully integrated pharmaceutical companies, specialty pharmaceutical companies and biopharmaceutical companies, academic institutions, government agencies and other private and public research institutions in the U.S., the EU and other jurisdictions.  These organizations may have significantly greater resources than we do and conduct similar research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and marketing of products that compete with FP187.
 
 
 
24

 
 
We believe that our key competitor in the commercialization of DMF for RRMS is Biogen, which has developed Tecfidera®, an oral treatment with RRMS. Tecfidera® has been approved in the U.S., Canada, Australia and the EU.  The fact that Tecfidera® has been commercialized and is being marketed in the U.S. may render our development and discovery efforts in the area of DMF for the treatment of RRMS uncompetitive.  Other companies are also developing alternative therapeutic approaches to the treatment of RRMS.  These alternative therapeutic approaches may be used as complementary to the use of FP187 for the treatment of RRMS, but they could also be competitive.
 
The highly competitive nature of and rapid technological changes in the pharmaceutical and biotechnological industries could render FP187 or our technology obsolete or non-competitive.  Our competitors may, among other things:
 
·
develop and commercialize products that are safer, more effective, less expensive, or more convenient or easier to administer;
 
·
obtain quicker regulatory approval;
 
·
establish superior proprietary positions;
 
·
have access to more manufacturing capacity;
 
·
implement more effective approaches to sales and marketing; or
 
·
form more advantageous strategic alliances.
 
Should any of these factors occur, our business, financial condition and results of operations could be materially adversely affected.
 
The successful commercialization of FP187 and any other products we develop will depend, in part, on the extent to which governmental authorities, health insurers and other third-party payors establish adequate reimbursement levels and pricing policies.
 
The successful commercialization of FP187 and any other products we develop will depend, in part, on the extent to which third-party coverage and reimbursement for our product will be available from government and health administration authorities, private health insurers and other third-party payors.
 
These bodies may deny or revoke the reimbursement status of a given drug product or establish prices for new or existing marketed products at levels that are too low to enable us to realize an appropriate return on our investment in product development.  Obtaining and maintaining reimbursement status is time-consuming and costly.  Significant uncertainty exists as to the reimbursement status of newly approved medical products.  Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and we believe that changes in these rules and regulations are likely.  In addition, many governments and health insurers are increasingly attempting to manage healthcare costs by limiting both coverage and the level of reimbursement of new products.  As a result, they may not cover or provide adequate payment for our future products.
 
These concerns are particularly present for drugs like FP187 that use an API that is already available in other, approved drugs.  Public and private payors may only be willing to provide coverage for FP187 if we can demonstrate a significant clinical advantage, or offer the drug at a price resulting in a treatment cost lower than other available drugs.  Public and private payors may not be willing to grant reimbursement prices in line with our expectations if they do not share our views concerning the advantages of our proprietary formulation technology, in particular if they do not give as much weight as we do to, for example, what we expect will be reductions in flushing as a side effect.
 
 
 
25

 
 
The unavailability or inadequacy of third-party coverage and reimbursement could have a material adverse effect on the market acceptance of FP187 and the future revenues we may expect to receive from it. In addition, we are unable to predict what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect such legislation or regulation would have on our business.
 
FP187 and any other products we develop may not gain market acceptance, in which case we may not be able to generate product revenues, which will materially adversely affect our business, financial condition and results of operations.
 
Even if the FDA, the EMA or any other regulatory authority approves the marketing of any products that we develop on our own or with a collaboration partner, physicians, healthcare providers, patients or the medical community may not accept or use them.  If these products do 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 FP187 will depend on a variety of factors, including:
 
·
the timing of market introduction;
 
·
the number and clinical profile of competing products;
 
·
our ability to provide acceptable evidence of safety and efficacy;
 
·
the prevalence and severity of any side effects;
 
·
relative convenience and ease of administration;
 
·
cost-effectiveness;
 
·
patient diagnostics and screening infrastructure in each market;
 
·
marketing and distribution support;
 
·
availability of coverage, reimbursement and adequate payment from health maintenance organizations and other insurers, both public and private; and
 
·
other potential advantages over alternative treatment methods.
 
If FP187 or any other product we develop fails to gain market acceptance, this will have a material adverse impact on our ability to generate revenues to provide a satisfactory, or any, return on our investments.  Even if some products achieve market acceptance, the market may not prove to be large enough to allow us to generate significant revenues.
 
We have never commercialized a product candidate, and we currently have no marketing and sales organization.  To the extent our product candidate FP187 is approved for marketing, if we are unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell FP187 or generate product revenue.
 
We have never commercialized a product candidate, and we currently do not have a marketing or sales organization for the marketing, sales and distribution of FP187 and do not intend to create one.  In order to commercialize any of our products that receive marketing approval, we would have to build marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so.  In the event of successful development of FP187, if we elect to build a targeted specialty sales force, such an effort would be expensive and time consuming.  Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products.  With respect to FP187, we may choose to partner with third parties that have their own sales forces and established distribution systems, in lieu of or to augment any sales force and distribution systems we may create.  If we are unable to enter into collaborations with third parties for the commercialization of approved products, if any, on acceptable terms or at all, or if any such partner does not devote sufficient resources to the commercialization of our product or otherwise fails in commercialization efforts, we may not be able to successfully commercialize FP187 if it receives regulatory approval.  If we are not successful in commercializing FP187, either on our own or through collaborations with one or more third parties, our future revenue will be materially and adversely impacted.
 
 
 
26

 
 
Risks Related to our Financial Position and Capital Needs
 
We have a history of operating losses, and we may not achieve or sustain profitability.  We anticipate that we will continue to incur losses for the foreseeable future.  If we fail to obtain additional funding to conduct our planned research and development effort, we could be forced to delay, reduce or eliminate our product development programs or commercial development efforts.
 
We incurred net losses of $15.7 million and $22.5 million for the years ended December 31, 2013 and 2012, respectively.  As of December 31, 2013, we had an accumulated deficit of $51.9 million. Our losses have resulted principally from expenses incurred in research and development of FP187, from general and administrative expenses that we have incurred while building our business infrastructure, and from fair value adjustments to net settlement obligations to shareholder warrants.  We expect to continue to incur significant operating losses in the future as we continue our research and development efforts and seek to obtain regulatory approval and commercialization of FP187.  In our fiscal year ending December 31, 2014, we expect to incur approximately $32.0 million of costs associated with research and development.
 
To date, we have financed our operations through private placements of equity securities, grants from governmental bodies, and debt financing arrangements.  We have never generated any revenues from product sales.  Based on our current plans, we do not expect to generate significant royalty or product revenues unless and until we obtain marketing approval for, and commercialize, FP187. We believe that the net proceeds of this offering, together with the bridge financing we expect to enter into prior to consummation of this offering and our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months. 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.
 
We may have to seek additional funding beyond the expected net proceeds from this offering.  Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy.  In addition, we may not be able to obtain further funding from governmental bodies.
 
Even if we do generate product royalties or product sales, we may never achieve or sustain profitability on a consistent basis or at all.  Our failure to sustain profitability could depress the market price of our ordinary shares and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.  A decline in the market price of our ordinary shares also could cause you to lose all or a part of your investment.
 
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited consolidated financial statements included in this Prospectus.
 
Our audited consolidated financial statements were prepared assuming that we will continue as a going concern. However, the report of our independent registered public accounting firm included elsewhere in this Prospectus contains an explanatory paragraph on our consolidated financial statements stating there is substantial doubt about our ability to continue as a going concern, meaning that we may not be able to continue in operation for the foreseeable future or be able to realize assets and discharge liabilities in the ordinary course of operations. Such an opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may also make it more difficult to raise additional funds or operate our business due to concerns about our ability to meet our contractual obligations.
 
 
 
27

 
 
Based on current operating plans, our most recent forecasts show that we have resources to fund our operations until April 2014, but will require further funds to finance our activities from April until December 2014. We currently expect to enter into a bridge financing prior to consummation of this offering. Should neither the bridge financing nor this offering be consummated as expected we will need to consider alternative arrangements and such arrangements could have a potentially significant negative impact on our ability to continue our operations.
 
Raising additional capital may causes dilution to our shareholders, including purchasers of ordinary shares in this offering, restrict our operations or require us to relinquish rights to our technologies or products.
 
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of the net proceeds of this offering, together with our existing cash and cash equivalents. We also anticipate entering into a bridge financing which we anticipate will be convertible into or exchangeable for certain of our equity securities. In the event we need to seek additional funds, we may raise additional capital through the sale of equity or convertible debt securities.  In such an event, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a holder of our ordinary shares.  In addition, the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our ordinary shares to decline. 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 be required to relinquish valuable rights to our technologies, future revenue streams or products or to grant licenses on terms that may not be favorable to us.  If we are unable to raise additional funds 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 FP187 or other product candidates that we would otherwise prefer to develop and market ourselves.
 
Exchange rate fluctuations or abandonment of the Euro currency may materially affect our results of operations and financial condition.
 
Due to the international scope of our operations, fluctuations in exchange rates, particularly between the DKK and the U.S. dollar, may adversely affect us.  Although we are based in Denmark, we source research and development, manufacturing, consulting and other services from several countries.  Further, potential future revenue may be derived from abroad, particularly from the United States.  As a result, our business and our ordinary share price may be affected by fluctuations in foreign exchange rates between the Danish Kroner and the U.S. dollar or such other currencies, which may also have a significant impact on our reported results of operations and cash flows from period to period.  Currently, we do not have any exchange rate hedging arrangements in place and do not currently have plans to implement any hedging arrangements.
 
In addition, the possible abandonment of the Euro by one or more members of the EU could materially affect our business in the future.  Despite measures taken by the EU to provide funding to certain EU member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the Euro could be abandoned in the future as a currency by countries that have adopted its use.  This could lead to the re-introduction of individual currencies in one or more EU member states, or in more extreme circumstances, the dissolution of the EU.  The effects on our business of a potential dissolution of the EU, the exit of one or more EU member states from the EU or the abandonment of the Euro as a currency, are impossible to predict with certainty, and any such events could have a material adverse effect on our business, financial condition and results of operations.
 
Related party transactions may be challenged by tax authorities.
 
Many of the jurisdictions in which we conduct or will conduct business, and in particular Denmark and Germany, have detailed transfer pricing rules which require that all transactions with related parties be priced using arm's length pricing principles. Contemporaneous documentation must exist to support this pricing. The taxation authorities in these jurisdictions could challenge our arm's length related party transfer pricing policies. International transfer pricing is an area of taxation that depends heavily on the underlying facts and circumstances and generally involves a significant degree of judgment. Although we believe that our related-party transactions satisfy the substantive requirements of these transfer pricing rules, if any of these taxation authorities are successful in challenging our transfer pricing policies, our income tax expense may be adversely affected and we could also be subjected to interest and penalty charges. Any increase in our income tax expense and related interest and penalties could have a significant impact on our future earnings and future cash flows.
 
 
 
28

 
 
Risks Related to Our Dependence on Third Parties
 
If we fail to enter into strategic relationships or collaborations our business, financial condition, commercialization prospects and results of operations may be materially adversely affected.
 
Our product development programs and the potential commercialization of FP187 or any other product candidates we develop will require substantial additional cash to fund expenses.  Therefore, in addition to financing the developments of FP187 or any other product candidates we develop through additional equity financings or through debt financings, we may decide to enter into collaborations with pharmaceutical or biopharmaceutical companies for the development and potential commercialization of such products or product candidates.
 
We face significant competition in seeking appropriate collaborators.  Collaborations are complex and time-consuming to negotiate and document.  We may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators.  We may not be able to negotiate collaborations on acceptable terms, or at all.  If that were to occur, we may have to curtail the development of a particular product, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of our sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense.  If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all.  If we do not have sufficient funds, we will not be able to bring FP187 to market and generate product revenue.  If we do enter into a new collaboration agreement, we could be subject to the following risks, each of which may materially harm our business, commercialization prospects and financial condition:
 
·
we may not be able to control the amount and timing of resources that the collaboration partner devotes to the product development program;
 
·
the collaboration partner may experience financial difficulties and thus not commit sufficient financial resources to the product development program;
 
·
we may be required to relinquish important rights such as marketing, distribution and intellectual property rights;
 
·
a collaboration partner could move forward with a competing product developed either independently or in collaboration with third parties, including our competitors; or
 
·
business combinations or significant changes in a collaboration partner’s business strategy may adversely affect our willingness to complete our obligations under any arrangement.
 
We currently rely on third-party suppliers and other third parties for production of FP187 and our dependence on these third parties may impair the advancement of our research and development programs and the development of FP187.
 
We currently rely on and expect to continue to rely on third parties for the supply of raw materials and manufacture of drug supplies necessary.  We have a single contractual relationship with a manufacturer (a so-called contract manufacturing organization, or CMO) to purchase, develop and manufacture our DMF.  We also have a single contractual relationship with another CMO for the formulation, development, manufacture, analysis, packaging and supply of our DMF tablets.  For the foreseeable future, we expect to continue to rely on only these two third parties.
 
 
 
29

 
 
Reliance on just one CMO for each of the manufacturing of DMF and our delivery formulation may expose us to more risk than if we were to manufacture FP187 or other products ourselves, or if we were to have relationships with multiple or back-up third parties.  Delays in production by either of these third parties could delay our clinical trials or have an adverse impact on any commercial activities.  In addition, the fact that we are dependent on these two third parties for the manufacture of DMF and formulation of FP187, respectively, means that we are subject to the risk that the products may have manufacturing defects that we have limited ability to prevent or control.  Although we oversee these activities to ensure compliance with our quality standards, budgets and timelines, we have had and will continue to have less control over the manufacturing of DMF than potentially would be the case if we were to manufacture FP187 ourselves, or have alternative CMOs to turn to in instances where batches of our FP187 did not meet required standards.  Further, the CMOs we deal with could have staffing difficulties, might undergo changes in priorities or may become financially distressed, which would adversely affect the manufacturing of DMF and the production of our FP187 tablets.
 
We are obliged to work with CMOs and third-party suppliers that comply with EMA, FDA or other regulatory authorities’ laws and regulations, including cGMPs, on an ongoing basis.  Although we are ultimately responsible for ensuring compliance with these regulatory requirements, we do not have day-to-day control over a CMO or other third-party manufacturer’s compliance with these laws, regulations and applicable cGMPs and other laws and regulations, such as those related to environmental health and safety matters.  Any failure to achieve and maintain compliance with these laws, regulations and standards could subject us to the risk that we may have to suspend the manufacturing of FP187 or that obtained approvals could be revoked, which would adversely affect our business and reputation.  Furthermore, third-party providers, such as our CMOs, may breach existing agreements they have with us because of factors beyond our control.  They may also terminate or refuse to renew their agreement because of their own financial difficulties, business priorities or other reasons, at a time that is costly or otherwise inconvenient for us.  If we were unable to find adequate replacement or another acceptable solution in time, our clinical trials could be delayed or our commercial activities could be harmed.
 
The manufacture of DMF requires highly specialized safety procedures and equipment and is therefore carried out by a limited number of CMOs.  Our Phase 3 trial for FP187 and commercialization of FP187, when and if initiated, will greatly increase our requirements for DMF.  While we are currently searching for alternative and/or supplementary sources of production, there can be no assurance that we will be able to locate such alternatives or that we will be able to agree on the commercial terms of any supply agreements with such CMOs, which could impact negatively on our programs. The inability of our single third-party source of DMF to meet our requirements for DMF would have a material adverse impact on our business and prospects.
 
Problems with the quality of the work of third parties, such as CMOs, may lead us to seek to terminate our relationships and use alternative service providers.  However, making this change may be costly and may delay the trials, and contractual restrictions may make such a change difficult or even impossible.  In addition, it may be very challenging, and in some cases impossible, to find replacement service providers that can develop and manufacture the necessary DMF or tablets in an acceptable manner and at an acceptable cost and on a timely basis.  The sale of products containing any defects or any delays in the supply of necessary services could adversely affect our business, financial condition and results of operations.
 
Growth in the costs and expenses of components or raw materials may also adversely affect our business, financial condition and results of operations.  Supply sources could be interrupted from time to time and, if interrupted, supplies may not be resumed (whether in part or in whole) within a reasonable timeframe and at an acceptable cost or at all.
 
If we fail to retain accounting and financial staff with appropriate experience, our ability to maintain the financial controls required of a public company may adversely affect our business.
 
We currently rely on third-party accounting professionals to assist us with our financial accounting and compliance obligations.  We are seeking financial professionals with appropriate experience to maintain our financial control and reporting obligations as a public company.  If we are unable to identify and retain such qualified and experienced personnel, our business may be adversely impacted.
 
 
 
30

 

 
Risks Related to the Offering and Our Ordinary Shares
 
The price of our ordinary shares may be volatile and may fluctuate due to factors beyond our control.
 
The share price of publicly traded emerging biopharmaceutical and drug discovery and development companies has been highly volatile and is likely to remain highly volatile in the future.  The market price of our ordinary shares may fluctuate significantly due to a variety of factors, including:
 
·
developments concerning proprietary rights, including patents and litigation matters;
 
·
positive or negative results of testing and clinical trials by us, strategic partners, or competitors;
 
·
delays in entering into strategic relationships with respect to development and/or commercialization of FP187 or entry into strategic relationships on terms that are not deemed to be favorable to us;
 
·
technological innovations or commercial product introductions by us or competitors;
 
·
changes in government regulations;
 
·
public concern relating to the commercial value or safety of FP187;
 
·
financing or other corporate transactions;
 
·
publication of research reports or comments by securities or industry analysts;
 
·
general market conditions in the pharmaceutical industry or in the economy as a whole; or
 
·
other events and factors beyond our control.
 
In addition, the stock market in general has recently experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies.  Broad market and industry factors may materially affect the market price of companies’ shares, including ours, regardless of actual operating performance.
 
There was no public market for our ordinary shares prior to this offering, and an active market in the shares may not develop in which investors can resell our ordinary shares.
 
Prior to this offering there was no public market for our Class A shares or our Class B shares, each of which will be converted into ordinary shares prior to consummation of this offering. We cannot predict the extent to which an active market for our ordinary shares will develop or be sustained after this offering, or how the development of such a market might affect the market price for our ordinary shares.  The initial public offering price of our ordinary shares in this offering was agreed between us and the underwriters based on a number of factors, including market conditions in effect at the time of this offering, which may not be indicative of the price at which our shares will trade following completion of this offering. Investors may not be able to sell their shares at or above the initial public offering price.
 
Our principal shareholders currently own, in the aggregate, all of our outstanding Class A shares and Class B shares and will own approximately     % of our ordinary shares upon the closing of this offering. They will therefore be able to exert significant control over matters submitted to our shareholders for approval.
 
After this offering, our shareholders who own more than 5% of our Class A shares and Class B shares before this offering will, in the aggregate, beneficially own approximately     % of our ordinary shares (assuming no exercise of the underwriters’ over-allotment option).  These shareholders will be able to significantly influence or even unilaterally approve matters requiring approval by our shareholders, including the election of directors, certain decisions relating to our capital structure, amendments to our Articles of Association, and the approval of mergers or other business combination transactions.  The interests of these shareholders may not always coincide with our interests or the interests of our other shareholders.
 
 
 
31

 
 
Our ordinary shares will be controlled by insiders, who could have significant influence over the outcome of corporate actions requiring board and shareholder approval.
 
Our Chairman, Florian Schönharting, beneficially owns shares comprising approximately 99% of our voting power, and after the offering, will beneficially own approximately     % of our ordinary shares. With such concentrated control, Mr. Schönharting will have influence over the outcome of corporate actions requiring board and shareholder approval, including the election of directors or any other significant corporate transaction. As a result, investors who acquire ordinary shares in the offering may have no effective voice in the management of our company.
 
Future sales, or the perception of future sales, of a substantial number of our ordinary shares could adversely affect the price of the shares, and actual sales will dilute shareholders.
 
Future sales of a substantial number of our ordinary shares, or the perception that such sales will occur, could cause a decline in the market price of our ordinary shares.  Following the completion of this offering, we will have                 ordinary shares outstanding (assuming no exercise of the underwriters’ over-allotment option) based on                 ordinary shares being offered in the offering and                 ordinary shares which will be issued upon the conversion of our Class A shares and Class B shares into ordinary shares. This includes the shares in this offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates.  Approximately                 of the shares outstanding immediately after this offering are expected to be held by existing shareholders.  Assuming the purchase in this offering of                 of our ordinary shares by certain of our existing shareholders or their affiliates, the number of our ordinary shares beneficially owned by our existing shareholders will, in the aggregate, increase to                     of our ordinary shares.  A significant portion of these shares will be subject to the lock-up agreements described in the “Underwriting” section of this Prospectus.  If, after the end of such lock-up agreements, these shareholders sell substantial amounts of shares in the public market, or the market perceives that such sales may occur, the market price of our ordinary shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.  We also intend to enter into a registration rights agreement upon consummation of this offering pursuant to which we will agree under certain circumstances to file a registration statement to register the resale of the shares held by certain of our existing shareholders, as well as to cooperate in certain public offerings of such shares.  In addition, we intend to register all ordinary shares that we may issue under our equity compensation plans.  Once we register these ordinary 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.
 
If you purchase ordinary shares in this offering, you will suffer immediate dilution of your investment.
 
The initial public offering price of our ordinary shares is substantially higher than the pro forma net tangible book value per Class A share and Class B share.  Therefore, if you purchase ordinary shares in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per ordinary share after this offering.  To the extent outstanding warrants are exercised, you will incur further dilution.  Assuming a public offering price of the midpoint of the price range set forth on the cover page of this Prospectus of  $         per share, you will experience immediate dilution, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the assumed initial public offering price.  In addition, purchasers of ordinary shares in this offering will have contributed approximately $         of the aggregate price paid by all purchasers of our ordinary shares but will own only approximately     % of our ordinary shares outstanding after this offering.  See “Dilution.”
 
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 ultimately do not improve our results of operations or enhance the value of our ordinary shares.  The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our ordinary shares to decline and delay the development of FP187.  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 do not expect to pay dividends in the foreseeable future.
 
We have not paid any dividends since our incorporation.  Even if future operations lead to significant levels of distributable profits, we currently intend that any earnings will be reinvested in our business and that dividends will not be paid until we have an established revenue stream to support continuing dividends.  Payment of future dividends to shareholders will effectively be at the discretion of our board of directors, subject to the approval of a majority of our voting shares after taking into account various factors including our business prospects, cash requirements, financial performance and new product development.  In addition, payment of future dividends may be made only if our shareholders’ equity exceeds the sum of our paid-in and called-up share capital plus the reserves required to be maintained by Danish law or by our Articles of Association.  Accordingly, investors cannot rely on dividend income from our ordinary shares and any returns on an investment in our ordinary shares will likely depend entirely upon any future appreciation in the price of our ordinary shares.
 
 
 
32

 
 
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our ordinary shares less attractive to investors.
 
We are an “emerging growth company,” as defined in the JOBS Act.  For as long as we continue to be an “emerging growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.  As an “emerging growth company” we are required to report only two years of financial results and selected financial data compared to three and five years, respectively, for comparable data reported by other public companies.  We may take advantage of these exemptions until we are no longer an “emerging growth company.”  We could be an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our ordinary shares held by non-affiliates exceeds $700 million as of any June 30 date (the end of our second fiscal quarter) before that time, in which case we would no longer be an “emerging growth company” as of the following December 31 (our fiscal year end).  We cannot predict if investors will find our ordinary shares less attractive because we may rely on these exemptions.  If some investors find our ordinary shares less attractive as a result, there may be a less active trading market for our ordinary shares and the price of our ordinary shares may be more volatile.
 
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
 
As a foreign private issuer, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. Accordingly, we will next make a determination with respect to our foreign private issuer status on June 30, 2014. There is a risk that we will lose our foreign private issuer status in the future.
 
We would lose our foreign private issuer status if, for example, more than 50% of our assets are located in the United States and we continue to fail to meet additional requirements necessary to maintain our foreign private issuer status. As of December 31, 2013, an immaterial amount of our assets were located in the United States, although this may change if we expand our operations in the United States. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly greater than the costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion and modifications would involve additional costs. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers, which could also increase our costs.
 
If we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.  As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ordinary shares.
 
Effective internal control over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud.  Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.  In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, 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 our ordinary shares.
 
 
 
33

 
 
We will be required to disclose changes made in our internal control over financial reporting and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually.  However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404.  We could be an “emerging growth company” for up to five years.  An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not.  Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation.
 
If we are unable to successfully remediate material weaknesses in our internal control over financial reporting relating to inadequate financial statement preparation and review procedures, the accuracy and timing of our financial statements may be adversely affected.  Further, these material weaknesses could impair our ability to comply with the accounting and reporting requirements within the International Financial Reporting Standards (IFRS) as issued by the IASB.
 
In connection with the audits of our  financial statements, our independent registered public accounting firm identified a material weakness related to our financial statement closing process, primarily related to the lack of sufficient skilled personnel with IFRS and SEC reporting knowledge for the purposes of timely and reliable financial reporting. Specifically, our independent registered public accounting firm determined that we lacked sufficient accounting and finance resources to and did not design and operate procedures and controls over the preparation of our financial statements, including insufficient financial statement close process and procedures including account reconciliations, the resolution of complex accounting issues involving significant judgment and estimates and overall review of the financial statements.
 
Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
 
We concurred with the findings of our independent registered public accounting firm. We are working to remediate the material weakness and are taking numerous steps and plan to take additional steps to remediate the underlying causes of the material weakness. We are currently in the process of recruiting a full-time Chief Financial Officer, and plan to further develop and implement formal policies, processes and documentation procedures relating to the financial reporting of the company. The actions that we are taking are subject to ongoing executive management review, and will also be subject to audit committee oversight. Although we plan to complete this remediation process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in remediating the material weakness. If we are unable to successfully remediate the material weakness, and if we are unable to produce accurate and timely financial statements, our share price may be adversely affected and we may be unable to comply with applicable stock exchange listing requirements.
 
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, the price of our ordinary shares and our trading volume could decline.
 
The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business.  Securities and industry analysts do not currently, and may never, publish research on our company.  If no or too few securities or industry analysts commence coverage of our company, the trading price for our ordinary shares would likely be negatively affected.  In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our ordinary shares or publish inaccurate or unfavorable research about our business, the price of our ordinary shares would likely decline.  If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our ordinary shares could decrease, which might cause the price of our ordinary shares and trading volume to decline.
 
 
 
34

 
 
We may be classified as a passive foreign investment company, or a PFIC, in 2014 or any future year. If we are a PFIC for any taxable year, this could result in adverse U.S. federal income tax consequences to U.S. Holders.
 
Under the U.S. Internal Revenue Code of 1986, as amended, or Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of, “passive income.”  Passive income generally includes interest, dividends, rents, certain non-active royalties and capital gains.  Whether we will be a PFIC in any year depends on the composition of our income and assets, and the relative fair market value of our assets from time to time, which we expect may vary substantially over time.  Because (i) we currently own, and will own after the completion of this offering, a substantial amount of passive assets, including cash, and (ii) the values of our assets, including our intangible assets, that generate non-passive income for PFIC purposes, is uncertain and may vary substantially over time, it is uncertain whether we will be or will not be a PFIC in 2014 or any future year.
 
If we are a PFIC for any taxable year during which a U.S. Holder (as defined below) holds ordinary shares, a U.S. Holder may be subject to adverse tax consequences, including (i) the treatment of all or a portion of any gain on disposition or dividends as ordinary income, (ii) the application of a deferred interest charge on such income, and (iii) compliance with certain reporting requirements.
 
For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC, see “Taxation – U.S. federal income tax considerations for U.S. holders.”
 
Risks Related to Danish Law and Our Operations in Denmark
 
Preemptive rights may not be available to non-Danish shareholders, and any inability of non-Danish shareholders to exercise preemptive rights in respect of shares issued in any offering by us will cause their proportionate interests to be diluted.
 
Under Danish law, existing shareholders will have preemptive rights to participate on the basis of their existing share ownership in the issuance of any new shares for cash consideration, unless those rights are waived by a resolution of the shareholders or the shares are issued pursuant to an authorization granted to the board of directors including a waiver of preemptive rights. The preemptive rights of the shareholders may be waived by a majority comprising at least two-thirds of the votes cast and of the share capital represented at the general meeting provided the capital increase is made at market price. Certain non-Danish shareholders may not be able to exercise preemptive rights for their shares due to restrictions included in securities laws of certain countries, including those applicable in the United States. To the extent that shareholders are not able to exercise their preemptive rights in respect of the shares in any offering by us, such shareholders proportional interests will be diluted.
 
Upon the consummation of this offering, we will be a Danish public company with limited liability.  The rights of our shareholders may be different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions.
 
We are, and will upon the consummation of this offering be, a Danish public company with limited liability.  Our corporate affairs are governed by our Articles of Association and by the laws governing companies incorporated in Denmark.  The rights of shareholders and the responsibilities of members of our board of directors may be different from the rights and obligations of shareholders and boards of directors in companies governed by the laws of U.S. jurisdictions.  In the performance of its duties, our board is required by Danish law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness.  It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.  See “Description of Share Capital and Articles of Association – Corporate Governance.”
 
 
 
35

 
 
We are, as a foreign private issuer, not obligated to and do not comply with the all the corporate governance requirements of NASDAQ. This may affect your rights as a shareholder.
 
We will be a foreign private issuer for purposes of U.S. federal securities laws.  As a result, in accordance with the listing requirements of NASDAQ, we will rely on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of NASDAQ.  In accordance with Danish law and generally accepted business practices, our Articles of Association do not provide quorum requirements generally applicable to general meetings of shareholders.  To this extent, our practice varies from the requirement of NASDAQ Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting shares.  Although we must provide shareholders with an agenda and other relevant documents in advance of a general meeting of shareholders, Danish law does not have a regulatory regime for the solicitation of proxies, thus our practice will vary from the requirement of NASDAQ Listing Rule 5620(b).  For an overview of our corporate governance principles, see “Description of Share Capital and Articles of Association – Corporate Governance.”  Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to these NASDAQ requirements.
 
As a Danish company we must comply with the Danish Companies Act, or DCA.  The DCA contains binding provisions for the board of directors, shareholders and general meetings of shareholders; and financial reporting, auditors, disclosure, compliance and enforcement standards.  Certain provisions apply to our board of directors (e.g., in relation to role, composition, conflicts of interest and independency requirements and remuneration), shareholders and the general meeting of shareholders (e.g., regarding our obligations to provide information to our shareholders).  Further, certain sections of the DCA only apply to Danish companies listed on a regulated market with the EEA, and accordingly would not apply to us.  See “Description of Share Capital and Articles of Association – Danish Corporate Governance.”  This may affect your rights as a shareholder.
 
We have historically filed our Danish tax returns on a standalone basis; however, due to certain changes to the ownership structure of the company made at the start of 2013, as of January 2013, we must file our Danish tax returns as part of a Danish tax group controlled by Tech Growth Invest ApS, a Danish corporation (“Tech Growth”).
 
As of January 19, 2013, we became part of the tax group of Tech Growth for purposes of Danish law as a result of certain acquisitions made (see the table set forth in the section entitled “Principal Shareholders”). The relative responsibilities of Forward Pharma and the other members of the tax group are set forth in our Shareholders’ Agreement. Danish law provides for joint income taxation for all Danish entities in the same tax group, with the result that losses by one entity would be offset by gains by another.  However, Danish law requires entities in the same tax group to pay each other for the use of each other’s tax losses. Therefore, any use of Forward Pharma’s losses by other members of the Tech Growth tax group will result in compensation to Forward Pharma.
 
All members of a Danish tax group are jointly and severally liable for the group’s Danish tax liabilities. However, Danish law requires taxing authorities to look primarily to Tech Growth and its wholly owned entities to satisfy Danish tax liabilities and to look to partially owned entities (such as Forward Pharma) only on a secondary basis. While we do not believe Tech Growth to have any material Danish tax liabilities, there can be no assurance that they do not have any such material liabilities, that they will not incur such material liabilities in the future, or that they will fulfill any such obligations. If Tech Growth has material Danish tax liabilities that are not satisfied by Tech Growth and its wholly owned subsidiaries or if Tech Growth incurs any such liabilities in the future, we may be responsible for the payment of such taxes, which could have an adverse effect on our results of operations.
 
We are adjusting our Danish tax returns to account for certain intangibles from the Aditech Patent Transfer Agreement we completed in 2010.
 
In 2010, we acquired intellectual property rights related to the development of our product candidate FP187 from Aditech. Danish law requires us to calculate the net present value of the future payments to be made to Aditech as remuneration for the rights acquired. The net present value is the basis for the amortization of such intangibles, which may be amortized over a period of seven years beginning with the year of purchase.  We did not calculate the net present value of the future payments in connection with the acquisition of the rights related to FP187 and we have not taken any such amortization deductions as of this date. We are currently working with our Danish tax advisors to adjust our Danish tax returns as required. Although we do not anticipate any material tax liabilities will result from any such adjustments, there can be no assurances there will be no additional tax liabilities or that any additional liabilities will not be material.
 
 
 
36

 
 
Claims of U.S. civil liabilities may not be enforceable against us.
 
We are incorporated under the laws of Denmark.  Substantially all of our assets are located outside the United States.  The majority of our directors immediately following consummation of the offering reside outside the United States.  As a result, it may not be possible for investors to effect service of process within the United States upon such persons or to enforce against them or us in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.
 
The United States and Denmark do not have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Accordingly, a final judgment for the payment of money rendered by a United States court based on civil liability will not be directly enforceable in Denmark. However, if the party in whose favor such final judgment is rendered brings a new lawsuit in a competent court in Denmark, that party may submit to the Danish court the final judgment that has been rendered in the United States. A judgment by a federal or state court in the United States will neither be recognized nor enforced by a Danish court, but such judgment may serve as evidence in a similar action in a Danish court.
 
Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or members of our board of directors, officers or certain experts named herein who are residents of Denmark or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
 
We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
 
Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status.  Because we qualify as a foreign private issuer under the Exchange Act and although we intend to furnish quarterly financial information to the SEC, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until 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 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.
 
 
 
37

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
 
This Prospectus contains statements that constitute forward-looking statements.  Many of the forward-looking statements contained in this Prospectus can be identified by the use of forward-looking words such as “anticipate,” “believe,” “could,” “expect,” “may,” “should,” “plan,” “intend,” “estimate,” “will,” “would,” and “potential,” among others.
 
Forward-looking statements appear in a number of places in this Prospectus and include, but are not limited to, statements regarding our intent, belief or current expectations.  Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management.  Such statements are subject to risks and uncertainties, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under the section entitled “Risk Factors” in this Prospectus.  These risks and uncertainties include factors relating to:
 
·
statements regarding the timing of initiation and completion of the trials and when results of the trials will be made public;
 
·
the clinical utility of FP187;
 
·
the timing or likelihood of regulatory filings and approvals;
 
·
our expectations regarding our planned path for approval of FP187 to treat RRMS, including the possibility that the FDA may determine that a single Phase 3 trial is insufficient for the approval of FP187 for RRMS;
 
·
our estimates regarding the market opportunity for other indications for FP187;
 
·
our ability to establish sales, marketing and distribution capabilities;
 
·
our ability to establish and maintain manufacturing arrangements for FP187;
 
·
our ability to enter into strategic relationships or collaborations with respect to FP187;
 
·
our intellectual property position;
 
·
our expectations regarding the use of proceeds from this offering;
 
·
our estimates regarding expenses, future revenues, capital requirements and the need for additional financing;
 
·
the impact of government laws and regulations;
 
·
our competitive position;
 
·
our ability to continue as a going concern; and
 
·
other risk factors discussed under “Risk Factors.”
 
Forward-looking statements speak only as of the date they are made, and except as required by law, we do not undertake any obligation to update them in light of new information or future developments or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence of unanticipated events.
 

 
38

 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION
 
We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB.  None of the financial statements included in this Prospectus were prepared in accordance with generally accepted accounting principles in the United States.
 
The audited consolidated financial statements as of December 31, 2013 and 2012 and January 1, 2012 and for each of the two years in the period then ended are the audited consolidated financial statements for Forward Pharma A/S.
 
The terms “$” and “USD” refer to U.S. dollars, the terms “DKK” and “Danish Kroner” refer to the legal currency of Denmark and the terms “€”, “EUR” and “Euro” refer to the legal currency of the euro area.
 

 
39

 

USE OF PROCEEDS
 
We expect to receive total estimated net proceeds of approximately $        , based on the midpoint of the estimated price range set forth on the cover of this Prospectus, after deducting estimated underwriting discounts and commissions and expenses of this offering that are payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $        , after deducting estimated underwriting discounts and commissions and expenses of this offering that are payable by us. Each $1.00 increase (decrease) in the public offering price per ordinary share would increase (decrease) our net proceeds, after deducting estimated underwriting discounts and commissions and expenses of this offering that are payable by us, by $        , assuming that the number of shares offered by us, as set forth on the cover of this Prospectus, remains the same.
 
As of December 31, 2013, we had cash and cash equivalents of $3.0 million. We currently expect that we will use the net proceeds from this offering, together with a bridge financing we expect to enter into prior to the completion of this offering, and cash and cash equivalents on hand, as follows:
 
·
approximately $90.0 million for the clinical development of FP187 for the treatment of RRMS;
 
·
approximately $30.0 million for the clinical development of FP187 for the treatment of psoriasis;
 
·
approximately $25.0 million to fund the exploitation and protection of our intellectual property rights (including in connection with oppositions and interference cases); and
 
·
the remainder for working capital and other general corporate purposes, including execution of our pre-clinical program.
 
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition.  As of the date of this Prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above.  The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the relative success and cost of our research, pre-clinical and clinical development programs and whether we enter into collaborations with third parties in the future.  As a result, management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering.  In addition, we might decide to postpone or not pursue other clinical trials or pre-clinical activities if the net proceeds from this offering and our other sources of cash are less than expected.
 
Based on our planned use of the net proceeds of this offering, our expectations that we will enter into a bridge financing, which may be convertible into or exchangeable for a class of equity securities, and our current cash and cash equivalents described above, we estimate that such funds will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.  We have based this estimate on assumptions that may prove to be incorrect, and we could exhaust our available capital resources sooner than we currently expect.
 
Pending their use, we plan to invest the net proceeds from this offering in short- and intermediate-term interest-bearing obligations and certificates of deposit.
 

 
40

 

DIVIDEND POLICY
 
We have never paid or declared any cash dividends on our Class A shares or Class B shares, and we do not anticipate paying any cash dividends on our Class A shares or Class B shares or, following the Share Conversion, our ordinary shares, in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business.  Any future determination to pay dividends will be at the discretion of our board of directors (subject to shareholder approval) and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
 

 
41

 

CAPITALIZATION
 
The table below sets forth our capitalization (defined as total debt and shareholders’ equity) as of December 31, 2013 derived from our consolidated financial statements included in this Prospectus:
 
·
on an actual basis;
 
·
on a pro forma basis reflecting the (a) issuance of 8,841 Class B shares on March 13, 2014 at a subscription price of DKK 1,177.35 per share; (b) issuance of 137,750 Class A shares on March 17, 2014 upon the cancellation of a convertible shareholder loan, the principal amount outstanding of which was used to offset the exercise price for 137,750 warrants to purchase Class A shares at a subscription price of DKK 100 per share; and (c) issuance of 260 additional Class A shares by way of exercise of 260 warrants at a subscription price of DKK 100 per share; and
 
·
on a pro forma as adjusted basis, further reflecting (a) the automatic conversion of all of our Class A shares and Class B shares into ordinary shares pursuant to a Framework Agreement prior to consummation of this offering, and (b) the issuance and sale by us of                 ordinary shares in this offering, at an assumed initial public offering price of $         per share, 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.
 
The pro forma as adjusted column below is illustrative only, and our capitalization following completion of this offering will be adjusted based on the actual initial public offering price and other terms of our initial public offering determined at pricing.
 
Investors should read this table in conjunction with our audited consolidated financial statements included in this Prospectus as well as “Use of Proceeds,” “Selected Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

   
December 31, 2013
 
(USD in thousands)
 
Actual
(audited)
 
Pro Forma
Pro Forma
(as adjusted)(1)
Cash and cash equivalents
    2,955  
 
 
Short-term convertible debt
    2,613  
 
 
Long-term convertible debt, excluding current portion
    0  
 
 
Total debt
    2,613  
 
 
Share capital
    287  
 
 
Share premium
    26,697  
 
 
Total shareholders’ equity
    (26,415 )
 
 
Total capitalization(2)
    (23,802 )
 
 

(1)
Each $1.00 increase (decrease) in the offering price of our ordinary shares would increase (decrease) our cash and cash equivalents, total shareholders’ equity and total capitalization by $        .
 
(2)
Total capitalization consists of total debt plus total shareholders’ equity.
 

 
42

 

DILUTION
 
If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share after this offering.
 
At December 31, 2013, we had a net tangible book value of $(26.4 million), corresponding to a net tangible book value of $         per ordinary share, after giving pro forma effect to the Share Conversion. Net tangible book value per share represents the amount of our total assets less our total liabilities, excluding goodwill and other intangible assets, divided by           , the total number of ordinary shares that would have been outstanding as of December 31, 2013 had the Share Conversion been effected on such date.
 
After giving effect to the sale by us of the                  ordinary shares offered by us in this offering, and given an assumed  initial public offering price of $         per share (which is the midpoint of the price range set forth on the cover of this Prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value estimated at December 31, 2013 would have been approximately $        , representing $         per share.  This represents an immediate increase in net tangible book value of $         per share to existing shareholders and an immediate dilution in net tangible book value of $         per share to new investors purchasing shares in this offering. Dilution for this purpose represents the difference between the price per share paid by these purchasers and net tangible book value per share immediately after the completion of this offering.
 
The following table illustrates this dilution to new investors purchasing shares in this offering.
 
 
USD
Net tangible book value per share at December 31, 2013
        
    Increase in net tangible book value per share attributable to new investors
        
Pro forma net tangible book value per share after the offering
        
Dilution per ordinary share to new investors
        
Percentage of dilution in net tangible book value per ordinary share for new investors
    %

 
Each $1.00 increase (decrease) in the offering price per share would increase (decrease) the pro forma net tangible book value after this offering by $         per share and the dilution to investors in the offering by $         per share.
 
The following table sets forth, on a pro forma basis as of December 31, 2013, after giving effect to this offering, the total number of shares owned by existing shareholders and to be owned by new investors, the total consideration paid and the average price per share paid by our existing shareholders and to be paid by new investors purchasing shares in this offering.  The calculation below is based on an assumed initial public offering price of $         per share (which is the midpoint of the price range set forth on the cover of this Prospectus), before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us:
 
 
Shares purchased
 
Total consideration
      Average price  
 
Number
 
Percent
 
Amount
 
Percent
   
per share
 
Existing shareholders
        
  %       $            
New investors
        
   %       $     %        
Total
        
    100%                        

Each $1.00 increase (decrease) in the offering price per share, respectively, would increase (decrease) the total consideration paid by new investors by $         million and increase (decrease) the percentage of total consideration paid by new investors by approximately     %, assuming that the number of shares offered by us, as set forth on the cover page of this Prospectus, remains the same.
 
The table above is based on our Class A shares and Class B shares outstanding as of December 31, 2013, assuming the conversion of all such shares into ordinary shares pursuant to the Share Conversion. The table above does not include:
 
·
139,733 of our Class A shares issuable upon the exercise of warrants outstanding as of December 31, 2013 at a weighted average exercise price of DKK 151.05 per share; and
 
·
Exercise by the underwriters of their over-allotment option; if the over-allotment option is exercised in full, the following will occur:
 
 
·
the percentage of our ordinary shares held by existing shareholders will decrease to approximately         % of the total number of our ordinary shares outstanding after this offering; and
 
 
·
the percentage of our ordinary shares held by new investors will increase to approximately     % of the total number of our ordinary shares outstanding after this offering.
 

 
43

 

SELECTED FINANCIAL INFORMATION
 
The summary statement of profit or loss and statement of financial position for the years ended and as of December 31, 2013 and 2012 of Forward Pharma A/S are derived from the consolidated financial statements included in this Prospectus.  We prepare our consolidated financial statements in accordance with IFRS as issued by the IASB.
 
This financial information should be read in conjunction with “Presentation of Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included in this Prospectus.
 
Consolidated statement of profit or loss data

 
 
 
Year ended December 31,
(USD in thousands,
except share and per share data)
2013
2012
Research and development costs
(8,018)
(4,445)
 
General and administrative costs
(1,014)
(928)
 
Operating loss
(9,032)
(5,373)
 
Fair value adjustment to net settlement obligations to shareholder warrants
(6,676)
(17,071)
 
Other finance costs
(84)
(35)
 
Net losses before tax
(15,792)
(22,479)
 
Income tax
      96
       0
 
Net losses for the year
       (15,696)
       (22,479)
 
Net loss per share
     
    Basic and diluted
(9.53)
(14.25)
 
Weighted-average shares outstanding used to calculate net loss per share
     
    Basic
1,598,530
1,577,261
 
    Diluted
1,598,530
1,577,261
 

Consolidated statement of financial position data
 
 
   As of December 31,
(USD in thousands)
2013
 
2012
Cash and cash equivalents
2,955
 
828
Adjusted working capital (1)
2,317
 
213
Total assets
3,599
 
970
Long-term debt, including current portion
2,613
 
2,100
Accumulated deficit
(51,913)
 
(36,796)
Total shareholders’ equity
(26,415)
 
(20,250)
 
(1)
We define adjusted working capital as current assets minus trade and other payables. We use adjusted working capital to, among other things, evaluate our short-term liquidity requirements. We find adjusted working capital a useful metric in evaluating our short-term liquidity requirements because it eliminates the impact of shareholder warrants.
 
Adjusted working capital is not a U.S. GAAP or IFRS measure, and our definition may vary from that used by others in our industry. Accordingly, our use of adjusted working capital has limitations as an analytical tool and you should not consider it in isolation or as a substitute for analysis of our financial position as reported under IFRS.
 

 
44

 

EXCHANGE RATE INFORMATION
 
Our business is primarily conducted in Denmark and Germany. The functional currency of Forward Pharma A/S is the Danish Kroner and the functional currency of Forward Pharma GmbH is the Euro, although Forward Pharma A/S reports its consolidated financial statements in U.S. dollars. Certain information in this Prospectus is presented in Danish Kroner. On March 31, 2014, the exchange rate was DKK 5.417 to $1.00.
 
The following table presents information on the exchange rates between the Danish Kroner and the U.S. dollar for the periods indicated, as published by the Danish Central Bank.

 
 
Period-
end
Average for
Period
Low
High
(DKK per USD)
Year Ended December 31:
       
2009
5.186
5.355
4.931
5.946
2010
5.555
5.625
5.115
6.234
2011
5.725
5.357
5.008
5.760
2012
5.659
5.794
5.523
6.156
2013
5.414
5.618
5.400
5.833
Month Ended:
       
November 2013
5.478
5.530
5.478
5.587
    December  2013
5.414
5.444
5.400
5.503
January 2014
5.533
5.477
5.414
5.533
February 2014
5.486
5.468
5.404
5.529
March 2014
5.417
5.398
5.434
5.359

 
The following table presents information on the exchange rates between the Euro and the U.S. dollar for the periods indicated, as published by WM/Reuters.
 
         
 
Period-
end
Average for
Period
Low
High
 
(EUR per USD)
Year Ended December 31:
       
2009
0.697
0.719
 0.798
0.663
2010
0.745
0.755
0.838
0.687
2011
0.770
0.719
0.774
0.672
2012
0.758
0.778
0.827
0.743
2013
0.726
0.753
0.782
0.724
Month Ended:
       
November 2013
0.734
0.741
0.749
0.734
December 2013
0.726
0.730
0.738
0.724
January 2014
0.742
0.734
0.742
0.726
February 2014
0.724
0.732
0.740
0.724
March 2014
0.726
0.723
0.728
0.718



 
45

 

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 the information under “Selected Financial Information” and our consolidated audited financial statements, including the notes thereto, included in this Prospectus.  The following discussion is based on our consolidated financial information prepared in accordance with IFRS as issued by the IASB, which might differ in material respects from generally accepted accounting principles in other jurisdictions.  The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under “Risk Factors” and elsewhere in this Prospectus.
 
Overview
 
Forward Pharma is a Danish biopharmaceutical company preparing to initiate a Phase 3 clinical trial using FP187, a proprietary formulation of dimethyl fumarate, or DMF, for the treatment of multiple sclerosis, or MS, patients. Since our founding in 2005, we have worked to advance unique formulations of DMF, an immune modulator, as a therapeutic to improve the health and well-being of patients with immune disorders including MS. FP187, our clinical candidate, is a DMF formulation in an oral dose that employs both matrix and delayed release technologies to control drug release which we plan to advance for the treatment of relapsing remitting MS, or RRMS, and other immune disorders, such as psoriasis.
 
We are a company with a limited number of employees and outsource the majority of our activities to external consultants and suppliers. We are comprised of a Danish incorporated parent company, Forward Pharma A/S, and a wholly-owned subsidiary incorporated in Germany, Forward Pharma GmbH.
 
Trend Information
 
We do not currently have any commercialized products on the market. Accordingly, any trends within the markets in which we operate are expected to have more direct impact on our business in the event that we are successful in commercializing our clinical candidate FP187.
 
Over the past few years, there has been increasing pressure to reduce drug prices in the developed markets as a consequence of political initiatives and regulations aiming to curb continuous increases in healthcare spending. Any revenue we earn in the future may be negatively affected by such political initiatives and regulations. The financial recent crisis and the increased burden of healthcare costs have led to an increased focus on reducing costs and, therefore, have further increased the pressure to lower drug prices. We expect this trend to continue in the years ahead. However, we believe spending in the healthcare industry, as compared to many other industries, is less linked to economic trends. Furthermore, while falling drug prices in the mature drug markets such as the U.S. and the EU are having a negative impact on general sales growth levels for the biopharmaceutical industry as a whole in those markets, we expect such sales growth to continue at higher levels in emerging markets. We also expect that demographic developments, increased treatment penetration, especially in newly established drug markets, and better diagnostic tools to enable the tailoring of drugs to specific needs, will result in continuing growth in overall global drug sales.
 
There are unmet medical needs both in the RRMS and psoriasis areas. In particular, products with positive long-term safety profiles are needed. Controlling side effects associated with many such drugs is also important.  Improvements have been seen in biological treatments for both RRMS and psoriasis, but there remains a need for safe oral treatments for both indications for long-term chronic administration. We believe that DMF has the potential to fulfill such unmet needs.
 
Financial Operations Overview
 
Revenue
 
To date, we have not generated any operating revenue as we do not have any commercialized products and we have not out-licensed our clinical candidate FP187 to any third-party.
 
 
 
46

 
 
Research and development costs
 
Research and development costs consist primarily of:
 
·
salaries for research and development staff and fees to consultants, as well as expenses incurred by all such personnel; expenses related to share-based compensation to employees and others; the costs of our  extensive use of external third-party expert and advisory firms and personnel for our product development efforts; and the outsourcing of specific development tasks to contract manufacturing organizations, or CMOs;
 
·
costs for formulation, development and production of  FP187 tablets in new doses for use in clinical trials; and production of DMF by our current external single-source CMO, including the costs of testing related to increasing the batch sizes and manufacturing capability of this CMO in order for us to be able to scale to anticipated commercial production levels;
 
·
fees and other costs paid to clinical research organizations, or CROs, in connection with additional pre-clinical testing, formulation and product testing of FP187; and  the fees and costs associated with the performance of clinical trials in RRMS and psoriasis, which will be outsourced as full service projects to CROs, which will plan and run the clinical trials for us, and help us to gather and maintain all required clinical data for regulatory purposes; and
 
·
filing, prosecuting, and defending patent claims and other intellectual property rights (including patent opposition and interference proceedings).
 
All of our operational activities are initiated, conducted and overseen by staff at our German subsidiary in Leipzig and, as a result, the majority of our development costs are incurred by our German subsidiary.
 
We expect that our total research and development costs in 2014 will be approximately $32.0 million, assuming completion of the anticipated bridge financing and successful consummation of this offering. Our research and development costs relate primarily to the following key programs:
 
·
development of our FP187 program for RRMS, including the preparation of a Phase 3 clinical trial protocol, establishment of related databases and data capturing systems, and preparation of regulatory submissions, all of which is being coordinated for us by a CRO and is planned for the second half of 2014;
 
·
the launch of a Phase 3 clinical trial program for FP187 in psoriasis, with the expected initiation of patient dosing in Europe in 2014 and preparation for the U.S. Phase 3 clinical trial, along with further related Phase 1 clinical trials;
 
·
continuation of a pre-clinical test program for FP187 including short reproduction studies and long term carcinogenicity tests;
 
·
development of new tablet strengths and formulations of FP187 for RRMS and psoriasis, and working with our CMOs to increase DMF production processes and FP187 batch size levels and related manufacturing capability in order for us to be able to scale to anticipated commercial production levels;
 
·
technology transfer in connection with our efforts to secure secondary CMO partners for DMF and FP187 production;
 
·
follow up on our IND submission for RRMS and any FDA-related requests involving such IND;
 
·
Phase 3 clinical trial protocol development and discussions with CROs and clinical advisers for the RRMS indication, and submission of the protocol following our IND filing with the FDA; and
 
·
filing, prosecuting, and defending patent claims and other intellectual property rights (including patent opposition and interference proceedings).
 
 
 
 
47

 
 
In 2013 and 2012, we spent an aggregate of $8.0 million and $4.4 million, respectively, on research and development. Our research and development costs may vary substantially from period to period based on the timing of our research and development activities, including timing of regulatory approvals and enrollment of patients in clinical trials, and the preparation and submission of new patent claims in the U.S.  Research and development costs are expected to increase as we advance the clinical development of FP187 into Phase 3 for RRMS and psoriasis. The successful development of FP187 is highly uncertain. At this time we cannot reasonably estimate the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, or the period, if any, in which we may begin to recognize revenues from FP187. This is due to numerous risks and uncertainties associated with developing drugs, including the uncertainty of the scope, rate of progress and expense of:
 
·
our research and development activities;
 
·
clinical trial approvals, securing sufficient clinical trial sites, recruitment of subjects for our clinical trials in a timely manner, and completion of the clinical trials;
 
·
regulatory activities, including agency meetings, dossier preparations and submissions;
 
·
any further pre-clinical or clinical studies that we may initiate; and
 
·
prosecuting and defending patent claims and other intellectual property rights (including patent opposition and interference proceedings).
 
A change in the outcome of any of these factors with respect to the development of FP187or any other product that we may develop could result in a significant change in the costs and timing associated with the development of FP187 or such other products.
 
Similarly the preparation of the Phase 3 trial of FP187 for the treatment of RRMS is a major effort and will require substantial internal resources and cooperation with a global CRO. We are in the early stages of such planning and further development depends on the positive outcome of this offering.
 
If litigation with respect to our intellectual property rights were to commence, or if we were to become subject to other type of litigation, the magnitude and timing of our estimated costs could materially change.
 
General and administrative costs
 
Our general and administrative costs consist primarily of:
 
·
salaries and expenses for employees other than research and development staff, as well as expenses related to share-based compensation awards granted to certain employees;
 
·
professional fees for auditors and other consulting expenses not related to research and development activities;
 
·
cost of facilities, communication and office expenses; and
 
·
information technology, or IT, related expenses.
 
We expect that our general and administrative costs will increase in the future as our business expands and we incur additional costs associated with operating as a public company.  This will include costs related to retaining personnel to establish a finance department and upgrading our financial and financial reporting processes in Germany and Denmark, as well as engaging investor relations firms for both the U.S. and the EU. The impact of us becoming a public company will also include increased costs related to new personnel we will need to retain in connection with both administrative and operational activities, legal compliance fees, accounting and audit fees, board of directors and board of managers’ liability insurance premiums, and costs related to general investor relations.  In addition, we may incur costs associated with granting share-based compensation awards to key management personnel and other employees after this offering.
 
 
 
48

 
 
Finance cost (net)
 
Components of our finance cost (net) during 2013 and 2012 consisted primarily of:
 
·
fair value of gains / losses on net settlement obligations related to shareholder warrants; and
 
·
interest expenses on debt obligations (consisting of a convertible debt instrument, which has now converted into equity).
 
Results of Operations
 
Comparison of the years ended December 31, 2013 and 2012
 
     Year ended December 31,  
2013
2012
 Change
 
 
(USD in thousands)
 %  
Total revenue
0
0
0
 
Research and development costs
(8,018)
(4,445)
80.4
 
General and administrative costs
(1,014)
(928)
9.3
 
Operating loss
(9,032)
(5,373)
68.1
 
Fair value adjustment to net settlement obligations to shareholder warrants
(6,676)
(17,071)
(60.9)
 
Other finance costs
(84)
(35)
140.0
 
Finance cost (net)
(6,760)
(17,106)
(60.5)
 
Net loss before tax
(15,792)
(22,479)
(29.7)
 

Research and development costs for the years ended December 31, 2013 and 2012
 
Research and development costs increased 80.4% to $8.0 million in the year ended December 31, 2013, from $4.4 million in the year ended December 31, 2012. Our research and development costs are highly dependent on the development phases of our projects and therefore fluctuate significantly from year to year.
 
The increase in research and development costs from 2012 to 2013 related to the re-initiation in 2013 of a number of development activities within both pharmaceutical and clinical development.  This included production of new batches of DMF and validation of the production, development activities related to the production of FP187 tablets, the purchase of comparator and placebo tablet production for the Phase 3 clinical program in psoriasis, and the submission of materials in connection with, and preparation for, our planned Phase 3 psoriasis clinical trial program. We expect that our total research and development costs in 2014 will be approximately $32.0 million, assuming completion of the anticipated bridge financing and successful consummation of this offering. The increase in such costs is expected to be primarily the result of pursuing the Phase 3 trial for FP187 for the treatment of RRMS, but also includes significant costs related to the Phase 3 trial program for FP187 for the treatment of psoriasis.

General and administrative costs for the years ended December 31, 2013 and 2012
 
General and administrative costs increased to $1.0 million in the year ended December 31, 2013 from $928,000 in the year ended December 31, 2012, due to business development initiatives and costs related to managing and maintaining our intellectual property, as well as increased travel by our employees. We anticipate that our general and administrative costs will increase in the future as we continue to pursue our clinical development program and we incur additional costs associated with operating as a public company, including the addition of an expanded finance team. We also anticipate our administrative costs will increase due to significant upgrades in our IT systems and IT security associated with our becoming a public company.
 
 
 
49

 
 
 
Finance costs for the years ended December 31, 2013 and 2012
 
Finance costs related to the fair value adjustment to net settlement obligations of our shareholder warrants decreased to $6.7 million in 2013, from $17.1 million in 2012. This decrease was due primarily to the fact that the underlying share price increased substantially more in 2012 than it did in 2013. Finance costs associated with the shareholder warrants are calculated by multiplying the number of shares underlying the outstanding shareholder warrants by the fair value of such shares, and subtracting the applicable exercise price.
 
Other finance costs consisted of interest on convertible debt (which has now converted to equity) and other financial expenses, and amounted to $84,000 in 2013 and $35,000 in 2012.
 
Liquidity and Capital Resources
 
To date, we have financed our operations through shareholder investments in the form of and equity and convertible debt financings. Discussions with certain of our existing shareholders with respect to a possible bridge financing are ongoing and, if successful, we believe will secure the company as a going concern, although, absent the success of the proposed offering, requiring a lower overall business activity level.  For more, see “Cash and funding sources.”
 
Cash flows
 
Comparison of the years ended December 31, 2013 and 2012
 
Our cash and cash equivalents as of December 31, 2013 were $3.0 million. The table below summarizes our consolidated statement of cash flows for each of the years ended December 31, 2013 and 2012:
 
 
Year ended December 31,
   2013    2012
   (USD in thousands)
Net cash flows used in operating activities
(8,373)
 
(3,494)
Net cash flows used in investing activities
0
 
(5)
Net cash flows from financing activities
10,397
 
3,885
Net increase in cash and cash equivalents
2,024
 
386
Cash and cash equivalents at December 31
2,955
 
828

Net cash flows used in operating activities increased to $8.4 million in the year ended December 31, 2013, from $3.5 million in the year ended December 31, 2012, primarily due to an increase in research and development costs as described in the section above entitled “Research and development costs for the years ended December 31, 2013 and 2012.”
 
The net cash flows used in investing activities decreased to zero in the year ended December 31, 2013, from $5,000 in the year ended December 31, 2012.
 
Net cash flows from financing activities increased by 167.6% to $10.4 million in the year ended December 31, 2013, from $3.9 million in the year ended December 31, 2012. This increase was due primarily to our issuance of 37,874 Class B shares in 2013 for net proceeds of $8.0 million in cash.
 
Cash and funding sources
 
The table below summarizes our sources of financing and related cash proceeds for the years ended December 31, 2013 and 2012.
 
 
Year ended December 31,
   2013    2012
   (USD in thousands)
Equity capital
7,951
 
1,864
Shareholder loans
2,456
 
2,030
Net settlement obligations to shareholder warrants
26,124
 
18,370
 
In 2013, we issued a convertible loan to one of our shareholders with a principal value of $2.5 million, which was converted into shares in March 2014.  In 2012, we also issued a convertible loan to one of our shareholders, which was converted into equity in January 2013.
 
In 2013, we issued to one of our existing shareholders 37,874 Class B shares for $8.0 million in cash. In 2012, we issued to one of our shareholders 71,618 Class A shares for $1.9 million in cash.
 
Net settlement obligation to shareholder warrants reflect the fair value of the warrants outstanding as of the respective balance sheet dates and will, on exercise or lapse, result in a reclassification from liabilities to equity.
 
We are currently involved in discussions related to a potential bridge financing. While we anticipated entering into such facility, we have not received a commitment or entered into a term sheet in respect of the bridge financing, and therefore there can be no assurance we will be able to secure such financing.
 
Please refer to the sections below on “Funding requirements” and “Borrowings” for a discussion of the significant assumptions underlying our going concern assumption.
 
 
50

 
 
Funding requirements
 
We believe that the net proceeds from this offering, together with the proposed bridge financing and our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.  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. We have no ongoing material financial commitments, such as lines of credit or guarantees, which are expected to affect our liquidity over the next five years, other than office rental leases, which we consider immaterial.
 
Our present and future funding requirements will depend on many factors, including, among other things:
 
·
our product development and increasing production capacity to commercial scale;
 
·
technology transfer in connection with our efforts to identify additional CMOs;
 
·
the scope and timing of our pre-clinical and clinical testing programs;
 
·
successful planning and implementation of the required clinical development programs for FP187, particularly for the RRMS indication, but also for the planned psoriasis indication;
 
·
our establishment of an internal organization and structure needed for a public company, including the hiring of additional personnel and developing appropriate policies and procedures; and
 
·
our ability to continue as a going concern.
 
Our ability to operate is dependent upon raising additional funds to finance our ongoing activities. According to our estimates, based on our budget, if we are unsuccessful in obtaining additional capital resources to maintain our operational activities, there is substantial doubt that we will be able to continue our ongoing activities until December 31, 2014. In addition to pursuing this offering, we anticipate entering into a bridge financing.
 
 
In the event that we are unable to secure the potential bridge financing that we currently are pursuing, or in the event we are unable to consummate this offering on the terms we currently anticipate or at all, we will have to limit our research and development activities until we are able to obtain alternative funding sources.
 
Capital Expenditures
 
Our capital expenditures were zero for the year ended December 31, 2013, and $5,000 for the year ended December 31, 2012.
 
Contractual obligations and commitments
 
The table below sets forth our contractual obligations and commercial commitments as of December 31, 2013.
 
 
Payments due by period
 
Less than
1 year
 
Between 1
and 2 years
 
Between 2
and 5 years
 
More than
5 years
 
Total
 
(USD in thousands)
Debt obligations(1)
$2,613
 
$0
 
$0
 
$0
 
$2,613
Operating lease obligations(2)
$21
 
$0
 
$0
 
$0
 
$21
Total
$2,634
 
$0
 
$0
 
$0
 
$2,634
                   
(1)
Debt obligations as of December 31, 2013 consisted of a convertible loan note dated October 1, 2013, by and between Forward Pharma, as debtor, and Nordic Biotech Opportunities Fund K/S, as creditor, for a principal amount of $2.5 million, which was cancelled in March 2014 (in connection with which the principal amount was used to offset the exercise price of warrants to purchase an aggregate of 137,500 Class A shares at an exercise price of DKK per share). The loan was to mature on October 31, 2018 and had an annual interest rate of 20% as of December 31, 2013.
 
(2)
Operating lease obligations consist of a rental property agreement.
 
 
Off-Balance Sheet Arrangements
 
In 2004, a private Swedish company Aditech Pharma AB (collectively with its successor-in-interest, a Swiss company Aditech Pharma AG, or Aditech), controlled by Nordic Biotech Advisors (an affiliate of one of our largest shareholders), began developing and filing patents for an innovative formulation and delivery system for DMF.  In 2005 Forward Pharma A/S entered into a patent license agreement with Aditech to license this patent family from Aditech, and in 2010 we acquired this patent family from Aditech pursuant to a patent transfer agreement.  Under the agreements with Aditech, we obtained, among other things, Aditech’s patents and associated know-how related to DMF formulations and delivery systems, subject to both diligence and minimum annual expenditure of €1.0 million (approximately $1.4 million) obligations on our part (with an option for Aditech to receive back, for no consideration, all of the DMF related assets should we fail to satisfy such obligations), as well as a payment by us to Aditech of up to 2% of net sales generated from our DMF products and processes. Further, the agreement with Aditech gives Aditech a 90-day right of first offer to acquire non-DMF related intellectual property assets that we might choose to sell.
 
A German government grant of approximately $5.2 million received by us as compensation for development costs we incurred must be repaid by us should SAB determine that the grant was not, or not entirely, used for the specific purpose of the project for which it was given.  In June 2012, SAB concluded the proceedings of proof of correct use, retaining, however a right to initiate further proceedings. Further, if a production site has not been established by us in Saxony by May 31, 2017, this grant shall be repaid with a share in the income generated by us from the exploitation of the results, pro rata, up to a maximum of the grant amount, plus interest, if applicable. Should we not comply with this obligation, we will be required to grant SAB rights of use regarding the results of the funded research.  As of December 31, 2013, we had not decided whether to establish production facilities in Saxony. Further, we believe that as of December 31, 2013, there is uncertainty in respect of both future revenue from the development project and the possible proceeds from a sale of all or certain of our intellectual property rights if we were to cease development. On this basis, we have determined that it is currently appropriate not to recognize as a contingent liability the repayment of this German government grant.
 
Quantitative and Qualitative Disclosures about Market Risk
 
We are exposed to a variety of financial risks: market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk.  See note 4.2 to the Consolidated Financial Statements included in this Prospectus.
 
 
 
51

 
 
Market risk
 
We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar, British pound sterling, or GBP, and the Euro.
 
Forward Pharma A/S’ functional currency is the Danish Kroner, or DKK, and our subsidiary Forward Pharma GmbH’s functional currency is the Euro. We anticipate that a substantial portion of any revenue earned as sales of goods or royalty payments following the commercialization of FP187 will be denominated in either U.S. dollars or Euro. Our expenses to date have been largely been denominated in GBP, USD, DKK, and in Euro.
 
In accordance with IFRS, at period end all of Forward Pharma A/S’ and Forward Pharma GmbH’s assets and liabilities denominated in foreign currencies are recorded in the financial statements in DKK and Euro respectively, using exchange rates in effect at the applicable balance sheet date.  During the year, transactions in foreign currencies are recorded in DKK and Euro respectively at the applicable exchange rates on the date of the relevant transactions.
 
We do not believe there is currently a need to enter into specific contracts to reduce the exposure to changes in foreign exchange rates, such as by entering into options or forward contracts.  We may in the future consider using options or forward contracts to manage currency transaction exposures.  To date, we have had no material financial impact as a result of foreign currency changes.
 
During 2013 and 2012, our borrowings were denominated in DKK. Because our borrowings were at fixed interest rates and we maintain only limited cash balances, a change in interest rates would not have had a material effect on our results of operations.
 
Credit Risk
 
We manage credit risk on a group basis.
 
Our cash and cash equivalents are invested primarily in saving and deposit accounts with original maturities of three months or less.  Saving and deposit accounts generate a small amount of interest income.  For banks and financial institutions, only independently rated parties with a minimum rating of ‘A’ are used by us.
 
Government, Economic, Fiscal, Monetary or Political Initiatives That May Materially Affect Our Operations
 
We have not identified any current government, economic, fiscal, monetary or political initiatives that would be expected to materially affect our operations.
 
Critical Accounting Policies
 
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with IFRS as issued by the International Accounting Standards Board.  The preparation of these 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 date of the financial statements, as well as the 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 the notes to our audited consolidated financial statements appearing elsewhere in this Prospectus, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.
 
Research and development costs
 
Research expenses are recognized when expenses are incurred.  Costs incurred on development projects will be recognized as intangible assets as of the date that it can be established that it is probable that we will recognize future economic benefits attributable to the relevant project, considering factors including the technological and commercial feasibility of the project.  Specifically, intangible assets arising from our development projects will be recognized on our balance sheet if all of the following criteria are met:
 
 
 
52

 
 
 
·
the development project is clearly defined and identifiable,
 
 
·
the attributable costs can be measured reliably during the development period;
 
 
·
the technological feasibility, adequate resources to complete and a market for the product or an internal use of the product can be demonstrated; and
 
 
·
management has the intent to produce and market the product or otherwise utilize it.
 
Development costs incurred are capitalized as of the date when these criteria are met. In other words, until such criteria are met, development costs incurred are recognized as an expense.
 
A development project involves a single product candidate undergoing a high number of tests to illustrate its safety profile and the effect on humans prior to obtaining the necessary final approval of the product from the appropriate authorities. The future economic benefits associated with our individual development projects are dependent on obtaining such approval. Considering the significant risk and duration of the development period related to the development of biological products, management has concluded that the future economic benefits associated with FP187 in late-stage clinical development in RRMS and psoriasis individual projects cannot be estimated with sufficient certainty until the projects have been finalized and the necessary regulatory final approvals have been obtained.  Accordingly, given the current stage of the development of FP187, no development expenditures have yet been capitalized.
 
Intellectual property-related costs for patents are included in expenses for our research and development projects.  Therefore, associated registration costs for patents are expensed when incurred as long as the research and development project concerned does not meet the criteria for capitalization.
 
Share-based compensation

The fair value of warrants (the share-based compensation arrangement we have historically used) issued to our employees and consultants in connection with their services provided to us is recognized by us as compensation expenses over the applicable warrant vesting periods.

Determination of the initial fair value and subsequent compensation expenses for our warrants are subject to significant estimation uncertainty.  For publicly traded entities, such fair value determinations are often calculated using an option valuation model, which relies on the publicly traded price of such public entity’s shares and its expected volatility based in part on historical share price volatility.  As a private company, this is not a valuation model that is easy for us to employ.  Historically, we have been governed by a shareholders’ agreement, which provided different liquidation preferences rights among our share classes and restricted the trading of our shares, resulting in no observable share volatility.

To enable us to use the option valuation model to determine fair value, for warrants granted through December 30, 2012 we established our share price at the date of each grant by assuming that we might be sold at a specified price per share, which was equivalent to the price per share paid in a financing round prior to the warrant grant date.  Beginning on December 31, 2012, because a short time after that date we we issued Class B shares with preferential rights, accompanied by warrants given to the purchasers of such Class B shares providing a right to subscribe for Class A shares, it was no longer possible to establish a price at which the Class A shares underlying our employee and consultant warrants would have been issued had we granted them on the same or near date as the Class B shares. Accordingly, starting on December 31, 2012, we determined our price per share using an estimation methodology.  See “Valuation of shares” below.

Volatility of share price for a non-public company, like ours, was difficult to estimate.  As a result, we opted to employ a Black-Scholes formula model, in which we assessed the volatility of the share prices of what we identified as a peer group of currently public biopharmaceutical companies.

Valuation of net settlement obligations to shareholder warrants

In 2011 we granted one of our shareholders warrants to acquire our Class A shares in connection with a capital increase made by such shareholder.  This warrant provides that the holder can elect to exercise the warrant by net share settlement (also commonly referred to as a “cashless” exercise method) in which certain of the underlying Class A shares are used, based on their fair value, to pay the exercise price. This warrant is classified by us as a derivative financial instrument due to the fact that the holder can elect to employ the net share settlement means to pay the exercise price and, as a result, is recorded by us within our current liabilities on our statement of financial position.

Determination of fair value of our net settlement obligations to shareholder warrants is subject to significant estimation uncertainty.  As discussed earlier, for publicly listed companies, fair value is generally calculated using option valuation models based on the trading price of the shares and expected volatility based in part on historical volatility of share prices. Because our shares are not traded in an active market, there is no observable market data to support our valuation. We applied the valuation approach describe dunder "Share-based compensation" above. As of December 31, 2013 and 2012, respectively, the exercise price of our shareholder warrants is significantly lower than the underlying share price as of each such date and, consequently, fair value of the warrants is most sensitive to changes in the underlying share price.
 
Valuation of shares

As of December 31, 2012, we have calculated our valuation based on an internal model we developed that considered each of what we believe to be our key value drivers, including intellectual property advancement, development stage of FP187 both in terms of manufacturing and regulatory advances, and commercialization prospects for FP187. More specifically, we considered numerous objective and subjective factors to determine our best estimate of the fair value of our shares as of each grant date, including the following:

·
status of our intellectual property;
 
·
progress of our research and development programs;
 
·
costs necessary to complete Phase 3 programs for both RRMS and psoriasis;
 
·
likelihood of successful completion of our Phase 3 programs for RRMS and psoriasis;
 
·
likelihood of obtaining regulatory approvals for FP187 to treat each of RRMS and psoriasis;
 
·
potential of commercial success taking into account the risk of competition from other market participants;
 
·
market penetration and price structure in the markets where we expect to sell FP187;
 
·
costs to establish a production site for FP187;
 
·
the relative rights and preferences of our capital shares; and
 
·
external market and economic conditions impacting our industry sector.
 
 
 
53

 
 
Our fair value as of December 31, 2012 has been determined by us through employing a discounted cash flow, or DCF, model.  DCF 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 flow that the business is expected to generate. This cash flow is 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, calculated at each valuation date. The WACC is a method that market participants commonly use to price securities and 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. For our valuation as of December 31, 2013, a discount rate (WACC) of 12% has been applied, and for the valuation as of December 31, 2012, a rate of 10.9% has been applied.
 
The cash flow projections were based on probability-weighted scenarios which considered estimates of time to market of our products, market share and pricing. The estimated underlying cash flows were unchanged from 2012 to 2013.
 
We applied the following probabilities (%) for 2013 and 2012, respectively:
 
     
2013
2012
         
 
likelihood of exploiting our intellectual property
30
25
         
 
likelihood of obtaining regulatory approval
50
50
         
 
likelihood of commercial success
40
35
         
A discount for lack of marketability, or DLOM, of 25% and 25%, as of December 31, 2012 and December 31, 2013, respectively, was applied to reflect the increased risk arising from the inability to readily sell our shares.
 
Through December 30, 2012, we had only issued Class A shares, and the value of one share was determined with reference to the above described fair value of the Company divided by the number of outstanding shares, taking into account the dilutive effect of outstanding warrants, resulting in a price per share amount of $150.

On January 19, 2013, we issued shares with liquidation preference. Our fair value calculated as of this point in time is allocated to the preferred shares and ordinary shares using the current value method, or CVM, and taking into account the dilutive effect of outstanding warrants. The CVM assumes an immediate exit of the company and allocates value to our preferred shares based on the liquidation preferences and the residual value to the remaining shares. Due to a limited absolute liquidation preference compared to the total value of the Company as of the respective valuation dates subsequent to issuance of preference shares, we did not apply an OPM. The OPM treats ordinary shares and preferred shares as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes.

Equity was allocated using the CVM, resulting in a value per share of $137 as of January 19, 2013, and $208 as of  December 31, 2013. We determined that there had been no events intervening between the respective valuation dates and therefore the analysis and inputs remained the same.

IPO price versus last valuation

On                 , we and our underwriters determined the estimated price range for this offering, as set forth on the cover page of this prospectus. The midpoint of the price range is $        per share. In comparison, our estimate of the fair value of our ordinary shares was $208 per share as of December 31, 2013. We note that, as is typical in initial public offerings, the estimated price range for this offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this range were our prospects and the history of and prospects for our industry, the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded shares of generally comparable companies. Specifically, we believe that the difference between the fair value of our ordinary shares as of December 31, 2013 and the midpoint of the estimated price range for this offering is primarily due to advances we have made in connection with our intellectual property, manufacturing and regulatory development, and commercialization prospects.
 
Income taxes
 
We are subject to income taxes in Denmark and Germany. Significant judgment is required in determining the use of net operating loss carry forwards and, were it to be applicable in our case, taxation of upfront and milestone payments (related to possible out-licensing transactions we might consider) for income tax purposes.  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.
 
We recognize deferred tax assets, including the tax base of tax loss carry forwards, if our management assesses that these taxes can be offset against positive taxable income within a foreseeable future.  Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies.  Such a judgment will be made on an ongoing basis and is based on budgets and business plans for the coming years, including planned commercial initiatives.
 
The creation and development of therapeutic products, such as our product candidate FP187, is subject to considerable risks and uncertainties.  Since our inception, we have reported significant losses and as a consequence, we have unused tax losses.
 
Our management has concluded that deferred tax assets should not be recognized as of December 31, 2013 or as of December 31, 2012 in accordance with IAS 12, “Income Taxes.”  Our tax assets are currently not deemed to meet the criteria for recognition as our management is not able to provide any convincing positive evidence that deferred tax assets should be recognized.
 
We had unused tax loss carry forwards of $10.5 million in Denmark and $17.8 million in Germany as of December 31, 2013. The unused tax carry forward losses in Denmark and Germany do not have an expiry date.
 
We are currently subject to group taxation in Denmark. For more, see “Risk Factors – Risks Related to Danish Law and Our Operations in Denmark – We have historically filed our Danish tax returns on a standalone basis; however, due to certain acquisitions made at the start of 2013, as of January 2013, we must file our Danish tax returns as part of a Danish tax group controlled by Tech Growth Invest ApS, a Danish corporation (“Tech Growth”).
 
 
 
54

 
 
Borrowings
 
As of December 31, 2013, our borrowings consisted of a convertible shareholder loan with a principal value of DKK 13.8 million ($2.5 million), which was scheduled to mature on October 31, 2018. The loan was cancelled in March 2014 in connection with which the principal amount outstanding was used to offset the exercise price of warrants to purchase an aggregate of 137,500 Class A shares at an exercise price of DKK per share.
 
We are currently involved in discussions related to a possible bridge financing, which we anticipate entering into prior to consummation of this offering.  We have not received a commitment or entered into a term sheet in respect of such financing. We note that the expected bridge financing mentioned above is not linked to whether or not this offering is completed. Together with the assumptions disclosed in the section above entitled “Funding requirements”, the expected bridge financing forms a part of the basis for the going concern assumption reflected in this Prospectus.
 
Recent Accounting Pronouncements
 
There are no IFRS standards as issued by the IASB or interpretations issued by the IFRS interpretations committee that are effective for the first time for the financial year beginning on or after January 1, 2014 that would be expected to have a material impact on our financial position.
 
Internal control over financial reporting
 
In connection with the audits of our 2013 and 2012 financial statements which were completed concurrently, our independent registered public accounting firm identified a material weakness related to our financial statement close process, primarily related to the lack of sufficient skilled personnel with IFRS and SEC reporting knowledge for the purposes of timely and reliable financial reporting. Specifically, our independent registered public accounting firm determined that we did not have adequate procedures and controls to ensure that accurate financial statements could have been prepared and reviewed on a timely basis for annual and interim reporting purposes, including insufficient financial statement close process and procedures including account reconciliations, the resolution of complex accounting issues involving significant judgment and estimates and overall review of the financial statements.
 
Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
 
We are working to remediate the material weakness and are taking numerous steps and plan to take additional steps to remediate the underlying causes of the material weakness. We are currently in the process of recruiting a full-time Chief Financial Officer, and plan to recruit additional finance support personnel and further develop and implement formal policies, processes and documentation procedures relating to our financial reporting. The actions that we are taking are subject to ongoing executive management review, and will also be subject to audit committee oversight. Although we plan to complete this process as quickly as possible, we cannot at this time estimate how long it will take, and our initiatives may not prove to be successful in addressing the material weakness. If we are unable to successfully address the material weakness, and if we are unable to produce accurate and timely financial statements, our share price may be adversely affected and we may be unable to comply with applicable stock exchange listing requirements.

JOBS Act Exemptions
 
On April 5, 2012, the JOBS Act was signed into law.  The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.”  As an emerging growth company, we are electing to take advantage of the following exemptions:
 
·
including two years of audited financial statements as opposed to three years;
 
·
not providing an auditor attestation report on our internal control over financial reporting; and
 
 
 
55

 
 
·
not providing all of the compensation disclosure that is required of non-emerging growth public companies under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
 
The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.  We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.  This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
 
These exemptions will apply for a period of five years following the completion of our initial public offering or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.  We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our ordinary shares held by non-affiliates or issue more than $1.0 billion of non-convertible debt over a three-year period.
 

 
56

 

BUSINESS
 
Our Company
 
Forward Pharma is a Danish biopharmaceutical company preparing to initiate a Phase 3 clinical trial using FP187, a proprietary formulation of dimethyl fumarate, or DMF, for the treatment of multiple sclerosis, or MS, patients. Since our founding in 2005, we have worked to advance unique formulations of DMF, an immune modulator, as a therapeutic to improve the health and well-being of patients with immune disorders including MS. FP187, our clinical candidate, is a DMF formulation in an oral dose that employs both matrix and delayed release technologies to control drug release which we plan to advance for the treatment of relapsing remitting MS, or RRMS, and other immune disorders, such as psoriasis.
 
Our Focus on DMF
 
Oral drugs employing DMF as an active pharmaceutical ingredient, or API, have been in use for over half a century.  Today, DMF is the API found in Tecfidera®, which Biogen Idec Inc., or Biogen, began selling for the treatment of RRMS following approval by the U.S. Food and Drug Administration, or FDA, in March 2013 (and approval by the European Commission, or EC, in February 2014). Tecfidera®, which is an oral dose of 480 mg of DMF daily (240 mg twice daily), generated global sales from launch in April 2013 through the end of 2013 of $876 million. DMF is also an API found in Fumaderm®, which has been sold for the treatment of psoriasis since 1994.
 
In 2004, a private Swedish company Aditech Pharma AB (collectively with its successor-in-interest, a Swiss company Aditech Pharma AG, or Aditech), controlled by Nordic Biotech General Partners ApS (an affiliate of one of our largest shareholders), assessed the potential for DMF to become a significant global product. Aditech specifically focused on the development of an innovative delayed and controlled release formulation of DMF, with the goal of limiting side effects typically associated with DMF treatment.
 
We were founded in 2005 for the purpose of exploiting a patent family Aditech filed relating to, among other things, its delayed and controlled release formulation for DMF, and in 2010 we acquired this patent family from Aditech. Under our agreements with Aditech, we obtained, among other things, Aditech’s patents and associated know-how related to DMF formulations.  See “Related Party Transactions – Aditech Agreement.”
 
The patent family that we acquired from Aditech included an international patent application filed in 2005, disclosing, among other things, formulations of DMF that provide for its controlled release in the small intestine, where we believe that DMF has its immunomodulatory impact. This international application became the basis for a family of national patent applications which subsequently were filed relating to DMF. Two European patents, one from the original Aditech patent family and one from a patent family of ours (involving erosion matrix formulations of DMF with a thin enteric coating) have been granted and both are now the subject of opposition proceedings. In the U.S., two of our patent applications have been found allowable.  One of those applications claims particular up-titration schedules of using DMF to treat MS, while the other claims to treat MS using particular compositions containing DMF and that also specify levels of a DMF metabolite called mono methyl fumarate, or MMF, in the bloodstream.  In a third application, the Examiner has found our claims directed to methods of treating MS using a 480 mg dose of DMF to be allowable and has recommended that an interference be declared against Biogen’s U.S. Patent No. 8,399,514.
 
In order to assess FP187’s safety profile for human use, we have performed 28 pre-clinical studies on DMF since 2006, gathering data through animal testing (and in certain cases in vitro testing of DMF in cells) on its pharmacological activity, toxicity profile, and on dosing level effects.  Beginning in 2007, we commenced a set of Phase 1 clinical trials followed by a Phase 2 clinical trial to investigate, among other things, safety and dosing tolerability of FP187.  We have successfully completed all of these clinical studies, collectively involving over 300 psoriasis patients and healthy volunteers, and gathering substantial positive safety and dosing data.
 
To advance FP187 for use as a drug to treat RRMS in the U.S., in August 2013 we held a pre-Investigational New Drug, or IND, Application meeting with the FDA. Prior to this pre-IND meeting, we submitted a briefing book to the FDA, which included our high-level description of a proposed 48-week Phase 3 trial, which we expect will include up to 2,000 subjects. The primary and key secondary efficacy endpoints, respectively, for the proposed Phase 3 trial will be annual relapse rate, or ARR, and a favorable change in the sustained accumulation of disability, or SAD, in each case for RRMS patients.  Our pre-IND meeting submission noted that we intend to compare FP187 to an active beta interferon, or IFNβ, comparator drug. We expect to file our IND for RRMS by the end of April 2014 and to submit the protocol for our Phase 3 study in the third quarter of 2014.
 
 
 
57

 
 
Following completion of our planned Phase 3 trial, we intend to submit to the FDA our New Drug Application, or NDA, for FP187 to treat RRMS. Approval by the FDA of an NDA is dependent on a number of factors.  A final decision as to whether the program we shared with the FDA in advance of our pre-IND meeting is sufficient to support approval (including the sufficiency of our proposed single Phase 3 trial and whether a favorable change in SAD will need to be demonstrated by us at the time of our NDA submission) can only be made by the FDA once it has reviewed our full NDA, including the data from our Phase 3 study.  We expect that patient enrollment for the Phase 3 trial we are contemplating will take at least 18 months, with completion of the final patient’s initial 48-week treatment period after a total of 30 months. When the last patient dosed has completed the 48-week treatment period, we expect that we will have a substantial number of patients with two years of data, which we believe will allow us to complete an analysis of the effects of FP187 on SAD which can be provided to the FDA when we submit our NDA. As a result, we believe that any requirement by the FDA for data on SAD will not delay a decision on whether to approve FP187 for the treatment of RRMS.
 
We intend to submit our NDA for FP187 to treat RRMS under Section 505(b)(1) of the U.S. Federal Food, Drug, and Cosmetic Act, or FDC Act, based on pre-clinical and clinical data we have and will have developed and independently own.  Section 505(b)(1) of the FDC Act prescribes how a product may be submitted for approval by the FDA as a new drug based on clinical trial data and other information independently developed and owned by the party making the NDA submission, or obtained from a third-party with a right of reference.
 
In Europe, we have held preliminary discussions concerning marketing authorization for FP187 with the Federal Institute for Drugs and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte, or BfArM) in Germany, and more recently in November 2013 held a scientific consultation with the European Medicines Agency, or EMA. We expect to apply for a European Union, or EU, marketing authorization for FP187 to treat RRMS.
 
We also intend to pursue the development of FP187 for the treatment of psoriasis, and expect to commence a Phase 3 clinical trial program for psoriasis beginning in 2014.
 
History of DMF
 
A German pharmacist discovered in the late 1950s that fumaric acid derivatives were useful for the treatment of psoriasis. Over the following years, various blends of fumaric acid derivatives, including DMF, were tested and used in different doses throughout Germany and, later, in other parts of Europe. Pharmacies in Germany often made their own compounded versions for the treatment of psoriasis.
 
In 1994, Fumapharm AG (acquired by Biogen in 2006) received approval in Germany to market Fumaderm®, which contains DMF and three ethyl fumaric ester salts, for the treatment of psoriasis.  DMF is also the sole API in Biogen’s Tecfidera®.  Fumaderm® has not been approved outside of Germany, but it is nonetheless available throughout Europe as a prescription drug sourced from German pharmacies.  Tecfidera® is sold in both the U.S. and Europe.  We estimate that there have been well over 150,000 patient years of exposure to drugs containing DMF.
 
Our Intellectual Property
 
We divide our intellectual property portfolios primarily into two basic patent families, which we refer to as our “Core Composition Patent” family and our “Erosion Matrix Patent” family.  Our Core Composition Patent family, based on international application PCT/DK2005/000648, filed by Aditech in 2005, discloses a broad range of controlled release pharmaceutical compositions of DMF as well as the use of a dose of about 480 mg of DMF per day to treat MS.  Our Erosion Matrix Patent family, based on international application PCT/EP2010/050172, filed in 2010, discloses our delayed and controlled release formulations of DMF in FP187.
 
Core Composition Patent family
 
In the EU, a patent from our Core Composition Patent family, EP2316430, has been granted.  EP2316430 covers DMF formulations with certain in vitro dissolution profiles.  In the U.S., U.S. Application Nos. 13/957,117 and 13/957,220 have been allowed.
 
 
 
58

 
 
U.S. Application No. 13/957,117 claims the use of delayed release formulations of DMF to treat MS according to an up-titration schedule that reaches a total daily dose of about 480 mg. U.S. Application No. 13/957,220 claims a method of treating an MS subject with about 480 mg of DMF per day, using delayed release formulations containing from about 120 mg to 240 mg of DMF which, following administration, result in certain levels of MMF in the bloodstream.
 
Two third-party pre-issuance submissions have recently been filed with the USPTO, questioning the patentability of the claims in each of the two U.S. patent applications from our Core Composition Patent family that have been allowed.  We have filed a response to the third-party pre-issuance submission in Application No. 13/957,117 and are prepared to do so in Application No. 13/957,220.  We believe the third-party submissions are defective and, even if they are considered by the USPTO, expect both of our patent applications to be issued as patents.
 
We were recently informed by the USPTO Examiner that she believes the claims in another of our patent applications in the Core Composition Patent family, U.S. Application No. 11/576,871, to be allowable and in consultation with her supervisor and a patent interference specialist, has recommended both that an interference be declared against Biogen’s U.S. Patent No. 8,399,514, whose claims also cover a method of treating MS using about a 480 mg daily dose of DMF, and that we be designated as the so-called senior party.
 
The USPTO website indicates that the Examiner has prepared a memorandum in support of an interference, which will be reviewed by an administrative patent judge.  Such interference, if declared, will give us the opportunity to prove to the USPTO that we were the first to invent the method of treating MS using about a 480 mg daily dose of DMF.
 
Multiple third parties, including Biogen, are opposing our patent EP2316430 (covering DMF formulations) before the European Patent Office, or EPO.  In view of the publication of WO2006/037342, the international application in the Core Composition Patent Family, on April 13, 2006, prior to Biogen’s February 8, 2007 filing on the use of the 480 mg daily dose to treat MS, we (along with multiple other parties) have filed an opposition against Biogen’s EP2137537 B1 patent which has claims that cover this dosing regimen.
 
Erosion Matrix Patent family
 
In the EU, a patent from our Erosion Matrix Patent family, EP2379063 (covering matrix formulations with a thin enteric coating), has been granted.  Multiple third parties, including Biogen, are opposing this patent before the EPO.  The U.S. counterpart, U.S. Application No. 13/143,498, was allowed by the USPTO but withdrawn from allowance to permit the USPTO Examiner to consider the opposition papers in EP2379063.
 
Other patent families
 
Beyond our Core Composition Patent and Erosion Matrix Patent families, our other patent families include pending applications in the EU and the U.S., mainly directed to new dosing regimens of DMF. We believe that our overall patent portfolio, when mature, will position FP187 competitively in the key markets of the U.S. and the EU.
 
Our Business Strategy
 
We have focused on DMF’s potential as an immune-modulating drug to improve the health and well-being of patients with immune disorders for approximately the past 10 years, during which time we have assembled and continue to develop our intellectual property portfolio and regulatory strategy.  We believe our intellectual property portfolio, combined with the clinical data we have and will have independently obtained and the discussions we have had with the FDA, BfArM and EMA, provide us with the opportunity to pursue the development of FP187 for the treatment of RRMS in the U.S. and the EU. We intend to use the net proceeds from this offering to, among other things, pursue a Phase 3 clinical trial of FP187 for the treatment of RRMS which we believe, if successful, would (in combination with other data on FP187 we have and are obtaining) allow us to submit an NDA in the U.S. and a separate marketing authorization application in the EU for FP187 to treat RRMS. We intend to also pursue the development of FP187 for the treatment of psoriasis, including commencing a Phase 3 clinical trial program beginning in 2014.
 
 
 
59

 
 
Components of our business strategy include:
 
 
·
Successfully develop FP187 for the treatment of Relapsing Remitting Multiple Sclerosis. We plan to pursue approval from the FDA and the EC of FP187 for the treatment of RRMS. We believe that, if approved, FP187 could become an important therapeutic in the multi-billion dollar MS drug market.
 
 
·
Develop FP187 for the treatment of psoriasis. We plan to pursue FP187 for the treatment of psoriasis. We believe that, if approved, FP187 could become a compelling treatment option for patients with psoriasis.

 
·
Exploit and defend our intellectual property rights. We believe our patents and patent applications related to, among other things, our proprietary formulation technology, combined with our patents and patent applications claiming dosing levels of DMF, are critical assets of our company. We intend to exploit our intellectual property by continuing to pursue our patent applications, and to defend our patent rights as we deem necessary for our business.
 
 
·
Obtain marketing exclusivity in the U.S. and the EU for FP187. In addition to patent protection, if and when an NDA is approved, we will be entitled to up to three and one-half years of marketing exclusivity against generic versions of FP187 in the U.S. In the EU, we will be entitled to up to 11 years of exclusivity from the first date of authorization in the EU.
 
 
·
Potentially partner FP187 with third parties. We may opportunistically seek commercial partners for FP187 to offset risk and preserve capital, if appropriate, although we intend to retain key development and commercialization rights. We believe retaining this strategic flexibility will help us to maximize shareholder value.
 
 
·
Continue to explore, and potentially develop, FP187 and other DMF-related formulations for the treatment of other immune disorders. We intend to continue to explore and potentially develop FP187 and other DMF-related formulations for the treatment of other immune disorder indications, if we determine that such development could be commercially viable.
 
 Mode of Action of DMF and our Proprietary Formulation
 
Mode of action
 
While the exact mode of action of DMF is not fully understood, we believe that some of its therapeutic effects are mediated via modulation of the immune system.  From studying immune cells in vitro we believe that DMF can rapidly form adducts by combining with the antioxidant molecule glutathione, or GSH, leading to the functional depletion of GSH, followed by the modulation of various cellular pathways. We believe that one important downstream event of intracellular GSH depletion is the increased expression of the anti-inflammatory stress protein HO-1, with subsequent induction of type II dendritic cells leading to a reduction of inflammatory responses. We also believe that the depletion of GSH can induce apoptosis or cell death in different cell types including activated T cells, reducing inflammatory responses. Other pre-clinical data, we believe, have indicated that DMF can also protect cells, including neuronal cells, against oxidative stress.
 
In animal models, GSH/DMF adducts have been found in the gastrointestinal mucosa and in the portal vein blood, but not in organs like the heart, brain and liver, which suggests to us that the clinical effects of DMF may be mediated at least in part by DMF exerting its action within the tissues in the intestine or pre-systemic circulation. Such a mode of action of DMF is also supported, we believe, by the fact that DMF has not been directly detected in the bloodstream.
 
Some proportion of DMF is thought by us to be metabolized by esterases (enzymes ubiquitous in the gastrointestinal, or GI, tract) to produce MMF.  In contrast to DMF, MMF can be measured in the bloodstream, but the extent to which it may contribute to clinical efficacy is currently unclear to us. However, recent pre-clinical research suggests to us that sudden plasma peaks of MMF may contribute to the side effect of flushing via interaction with nicotinic acid receptors.
 
 
 
60

 
 
Formulation and clinical profile of FP187
 
Our proprietary DMF formulation, FP187, employs two strategies which we believe improve the release of DMF by reducing the peaks of MMF in the bloodstream while maintaining overall DMF exposure levels, which, in turn, may control DMF’s side effects.  FP187 uses an enteric coating material, which forms a polymeric barrier around each DMF-containing core tablet for the purpose of inhibiting the release of DMF in the stomach and allowing for release in the small intestine. In addition, the DMF in FP187 is formulated as an erosion matrix, resulting in what we believe to be a controlled release of DMF in the small intestine after the enteric coating has dissolved.  The enteric coating employed by FP187 is thinner than the coating used by the other DMF products, which we believe results in earlier release of DMF in the small intestine.
 
We think that products containing DMF that lack an erosion matrix formulation (such as Tecfidera® and Fumaderm®) may result in DMF being released in a more concentrated and immediate burst.  We believe that the slow rate of release of DMF permitted by FP187’s erosion matrix formulation greatly reduces, or even eliminates, the peaks of MMF in the bloodstream observed with formulations in which the DMF is not incorporated into a controlled release matrix, while ensuring that a therapeutically effective dose of DMF is administered, potentially producing fewer and less severe flushing episodes.  In addition, we believe that the controlled release of DMF from the erosion matrix formulation, together with the earlier start of release in the small intestine, may allow absorption of DMF over a larger area of GI mucosa, potentially leading to lower local GI concentrations and therefore, we believe, less GI specific side effects.
 
Overview of MS
 
MS is a chronic disorder of the central nervous system, or CNS, involving brain, spinal cord and optic nerves, and is characterized clinically by recurring episodes of neurological dysfunction.  MS is immune-mediated, driven by autoreactive lymphocytes that attack the covering surrounding nerve cells, or myelin sheath.  This autoimmune response results in destruction of the myelin sheath, termed demyelination, and nerve damage.  The CNS destruction caused by autoreactive lymphocytes can lead to debilitating clinical symptoms such as numbness, difficulty walking, visual loss, loss of coordination and muscle weakness.
 
The majority of patients are diagnosed with MS between the ages of 20 and 40, with a peak at age 29 to 30.  At onset, approximately 85% of such patients have what is referred to as relapsing remitting multiple sclerosis, or RRMS, characterized by recurrent acute exacerbations  of neurological dysfunction followed by variable degrees of recovery with clinical stability between relapses.  Almost half of such relapses result in incomplete recovery of neurological function and leave permanent disability and impairment that accumulates over time.  Owing to the complications of chronic disability, life span for patients with MS is typically shortened by approximately ten years.
 
The early onset and progressive nature of RRMS highlights the need for treatment options that are effective, convenient and tolerable.  This unmet need is particularly important for sufferers in the workforce or those raising families.  The inevitability of both relapse and disease progression also results in the prescription of the newest medications that offer increased levels of efficacy and differing risk/benefit profiles.  As new efficacious and safe treatments are approved, RRMS patients will have more options for treatment in earlier stages of the disease.
 
Clinical Development Summary
 
Our clinical development strategy has been designed with a view towards satisfying marketing approval requirements in both the United States and the EU, while allowing us to create an electronic common technical document that we can use for marketing authorization applications in other jurisdictions. We have conducted an extensive pre-clinical program and have completed several Phase 1 and Phase 2 clinical trials. We further plan to conduct additional Phase 1 clinical trials and a Phase 2 clinical trial in psoriatic arthritis, and are in the process of planning Phase 3 clinical trials of FP187 in RRMS and in psoriasis. Our planned Phase 3 clinical trial of FP187 in RRMS is particularly large, with up to 2,000 patients to be enrolled.
 
 
 
61

 

Completed clinical trials

The following table sets forth information regarding completed clinical trials involving FP187:
 
 
 
Study
 
 
Phase
Total Patients Enrolled
 
 
Trial Design
 
 
Status
 
 
Dates
           
FP187-101
Phase 1
24
Randomized, single dose (240 mg) three way crossover PK study in healthy volunteers
Completed
January 15, 2007 – April 28, 2008
           
FP187-102
Phase 1
20
Randomized, single dose (240 mg) four way crossover PK study in healthy volunteers
Completed
November 11, 2008 – April 17, 2009
           
FP187-103
Phase 1
18
Randomized, single dose (240 mg) three way crossover PK study in healthy volunteers
Completed
February 4, 2009 – July 28, 2009
           
FP187-201
Phase 2
(Psoriasis)
252
Randomized, double-blind, placebo controlled, 20 week treatment period study with three FP187 dose groups with two dosage levels and an open, flexible up-titration group.
Completed
September 7, 2010 – January 9, 2012
           
Our extensive pre-clinical data, combined with our positive Phase 1 and 2 clinical trial results, has enabled us to now consider developing DMF for RRMS, psoriasis and potentially other immune disorders.
 
Pre-clinical studies
 
To assess FP187’s safety profile for human use, we have performed 28 pre-clinical studies on DMF since 2006, gathering data on its pharmacological activity, toxicity profile, and on dosing level effects through animal testing and in vitro testing of DMF in cells. This pre-clinical program included, among other tests, seven safety pharmacology studies, three single and multiple dose toxicokinetic studies, four studies on metabolism and drug interaction, two distribution studies, four acute toxicity studies, three dose-range repeat studies, two 28 day repeat dose toxicity studies, two 13 week repeat dose toxicity studies, and a four-part genotoxicity study.
 
In Europe, the EMA and BfArM do not require further pre-clinical testing other than short-term reproductive toxicology studies that we plan to perform. No additional long-term toxicology or carcinogenicity studies will be required for our marketing authorization application in Europe.
 
 
 
62

 
 
In the U.S., carcinogenicity studies will be required and such studies are included in our development plan. We have recently received recommendations on our plans to perform pre-clinical carcinogenicity studies on DMF from the FDA’s Executive Carcinogenicity Assessment Committee, or CAC, and we have taken these recommendations into account in the design of our planned studies.
 
Initial Phase 1 and 2 clinical trials
 
In 2007, we commenced our clinical trial program in Germany in coordination with BfArM. We conducted a set of Phase 1 clinical trials, followed by a Phase 2 clinical trial. These trials included over 300 subjects consisting of psoriasis patients and healthy volunteers, and investigated, among other things, safety and dosing tolerability of FP187. We have successfully completed all of these clinical trials, gathering substantial positive safety and dosing data.
 
Phase 1 trials
 
We conducted three Phase 1 clinical trials of FP187, which tested seven delayed and controlled release formulations and dosing regimens of DMF.  In two of these clinical trials, we compared a 240 mg dose of FP187 with Fumaderm®, which includes 240 mg of DMF in an enteric-coated tablet. Since DMF is not quantifiable in the bloodstream after oral administration, we measured level of MMF, the main metabolite of DMF. The primary objectives of these trials were:
 
 
·
the determination of the pharmacokinetic, or PK, properties of MMF, with a secondary objective of the evaluation of safety and tolerability (FP187-101 involving 24 healthy male volunteers);
 
 
·
the determination of the PK properties of MMF, with secondary objectives of comparing bioavailability of the formulations with Fumaderm® and evaluating the safety and tolerability of FP187 (FP187-102 involving 20 healthy male volunteers); and
 
 
·
the determination of PK properties of MMF with secondary objectives of comparing bioavailability of the formulations with Fumaderm® and to evaluate the safety and tolerability of FP-187 (FP187-103 involving 18 healthy male volunteers).
 
Phase 2 trial
 
After completion of our Phase 1 trials, we continued the clinical development of  FP187 with a randomized, placebo-controlled, double-blind, parallel-group Phase 2 trial in patients with psoriasis (FP187-201, clinicaltrials.gov identifier: NCT01230138). The trial was conducted in 17 centers in Germany.
 
Trial design
 
The primary endpoint was to analyze the effect of FP187 daily doses of 500 mg (given as 250 mg twice daily, or BID) and 750 mg (given as 375 mg BID or 250 mg thrice daily, or TID) and of placebo on the proportion of patients achieving a PASI75 response (reduction in Psoriasis Area and Severity Index, or PASI, of at least 75% from baseline) after 20 weeks of treatment.
 
Secondary endpoints were to evaluate the efficacy and safety as assessed by PASI, static Physician’s Global Assessment, or sPGA, patient global assessment, or PaGA, patients’ disease-related quality of life score, patient assessed pruritus, Adverse Events, or AE, and Serious Adverse Events, or SAEs.
 
Included were male and female patients at least 18 years of age, with a clinical diagnosis of psoriasis with a body surface area of no less than 10% and at least a PASI of 10, and with stable disease for at least 6 months prior to study start.  Exclusion criteria included prior discontinuation of treatment with other DMF containing products.
 
The trial design included an up-titration schedule of two weeks to the 500 mg dose and three weeks to the 750 mg dose. A separate open-label flexible up-titration treatment arm (target dose 750 mg) was added to the study to investigate impact on tolerability of a more flexible and longer up-titration period.
 
 
 
63

 
 
Statistical analysis
 
The primary efficacy analysis was performed based on the full analysis (FA) set (randomized patients receiving at least one dose of trial drug) and the per protocol (PP) set (patients of the FA set without major protocol violations and a PASI evaluated at week 8 or later). For the primary endpoint to be met, both the PP and FA analysis sets individually needed to be significant, and the two 750 mg dose groups were pooled, as per the prospectively defined analysis strategy.
 
Patient disposition
 
In the blinded patient arms, 199 patients were randomized. Out of these, 192 patients received study medication at least once, and 92 patients discontinued prematurely. The discontinuation rate was higher in the placebo group (56%) than in the active treatment groups (40% and 48% for 500 mg and pooled 750 mg, respectively).
 
Efficacy
 
The primary endpoint was met for the 500 mg dose group at week 20 and was statistically significantly higher compared to placebo in both the FA set (PASI75 responder rate 31.3% vs. 10.4%; p=0.01) and the PP set (PASI75 responder rate 45.5% vs. 13.5%; p<0.01).
 
For the pooled 750 mg dose group, the responder rate at week 20 was statistically significantly higher compared to placebo for the PP set (PASI75 responder rate 35.1% vs. 13.5%; p=0.01) but not for the FA set (PASI75 responder rate 20.8% vs. 10.4%; p=0.12).
 
The efficacy results from the blinded study were supported by those of the open flexible up-titration arm, with PASI75 responder rates for FP187 vs. placebo of 41.5% vs. 10.4% in the FA population (p<0.01) and of 57.9% vs. 13.5% in the PP population (p<0.01).
 
Safety
 
Seven SAE’s were reported in the FP187 treatment groups, of which two were considered possibly related to the study drug. No deaths were reported in the trial. No notable difference between active and placebo arms was seen for the frequency of infections, change in pulse, blood pressure or weight, change in triglycerides, cholesterol, HDL-C or LDL-C, change in liver enzymes, creatinine, or creatinine clearance (Cockcroft-Gault-Formula). A mild eosinophilia was observed in all treatment groups, including the placebo group, whereas moderate and severe eosinophilia occurred only in FP187 treatment groups.  Similarly, a mild lymphopenia was observed in all treatment groups, including the placebo group, whereas moderate and severe lymphopenia occurred only in FP187 treatment groups.  Most returned to pre-treatment values during the course of the study or were considered by the investigator to be not clinically relevant at the end of the study. Both eosinophilia and lymphopenia are well documented AEs of fumaric acid ester therapy.  No increased rate of infection among patients with lymphopenia was seen.
 
Tolerability
 
Gastro-intestinal, or GI, AE and flushing are well-known side effects for fumaric acid ester treatment.
 
While the majority of patients treated with FP187 reported at least one GI tolerability event, such as diarrhea or abdominal pain, the median number of GI events per patient in the 500 mg and 750 mg groups was only two, and 92% of events were mild or moderate. Flushing was reported by 4%, 17% and 13%, for the placebo, 500 mg, and 750 mg groups, respectively. The median number of flushing events per patient in the 500 mg and 750 mg groups was 1, and 100% of events were mild or moderate. GI-related events and flushing mainly occurred within the first four weeks of the study, as has been reported for other fumaric acid ester therapies. The overall discontinuation rate in our trial was lower in all active therapy arms than in the placebo arm. Flushing events appeared be to be recorded at a lower rate in the 500 mg and 750 mg doses of FP187 than the rate seen in most clinical trials with DMF-containing products, but this has not been confirmed by a head-to-head study.
 
 
 
64

 
 
Planned clinical trials and market authorization application strategy
 
To advance FP187 for use as a drug to treat RRMS in the U.S., we held a pre-Investigational New Drug, or IND, application meeting with the FDA in August 2013. Prior to this pre-IND meeting, we submitted a briefing book to the FDA, which included our high-level description of a proposed 48-week Phase 3 trial, which we expect will include up to 2,000 RRMS patients.  The primary and key secondary efficacy endpoints, respectively, for the Phase 3 trial will be ARR and a favorable change in the sustained accumulation of disability, or SAD, in each case for RRMS patients.  Our pre-IND meeting submission noted that we intend to compare FP187 to an active beta interferon, or IFNβ, drug.  We expect to file our IND for RRMS in April 2014 and to submit the protocol for our Phase 3 study by August 2014.
 
Following completion of our planned Phase 3 trial, we intend to submit our NDA for FP187 to treat RRMS. Approval by the FDA of a New Drug Application, or NDA, is dependent on a number of factors.  A final decision as to whether the program we shared with the FDA in advance of our pre-IND meeting is sufficient for approval (including the sufficiency of our proposed single Phase 3 trial and whether a favorable change in SAD will need to be demonstrated by us at the time of our NDA submission) can only be made by the FDA once it has reviewed our full NDA package, including the data from our Phase 3 study.  We will also be required to provide information in our NDA on adequate dose exploration of FP187 in patients with MS.
 
We intend to submit the same pre-clinical and clinical data package to the EMA following our RRMS NDA submission to the FDA.
 
We also intend to pursue the development of FP187 for the treatment of psoriasis, and expect to commence a Phase 3 clinical trial program for psoriasis beginning in 2014.
 
Phase 1 and Phase 2 trial(s)
 
We intend to conduct the following additional Phase 1 trials to further investigate the safety profile of FP187 for human use:
 
 
·
PK fasting/fed trial:  This will be a 3-way randomized cross over trial investigating the effect of food on the pharmacokinetics of MMF.  The study will include 21 healthy volunteers (males and females) and include kinetic blood sampling over 12 hours after each administration of FP187 (250 mg as a single dose), or the comparator (Tecfidera® 240 mg as a single dose) with standard laboratory evaluations and AE and tolerability reporting.
 
 
·
QT/QTc study:  This is a standard study to be carried out for FP187 and overseen by a specialized clinical research organization.
 
 
·
We may be required to conduct bridging studies in order to reference data from previous pharmacokinetic investigations. These will be standard Phase 1 trials.
 
In addition, a human mass-balance/metabolic profile study and an alcohol dumping study may need to be performed.
 
We are in advanced planning for a proof of concept Phase 2 clinical trial of FP187 in psoriatic arthritis. This clinical trial, if it is conducted, would be a randomized, double-blind and placebo controlled trial, with 30 patients initially, in a 1:1 randomization. The primary endpoint would be the proportion of patients with an improvement of ACR 20 (American College of Rheumatology 20% improvement response criteria) and a secondary set of endpoints evaluating ACR 50 and ACR 70, as well as LEI (Leeds enthesitis index) and standard safety and tolerability. The planned treatment dose is 500 mg/day (250 mg BID) and the planned treatment time is 24 weeks. Patients who respond to ACR 20 will be offered an opportunity to continue on an open-label 500 mg daily dose, and be followed for an additional 28 weeks to obtain long term efficacy and safety results. There will be an initial tolerability testing period and patients who do not tolerate the DMF treatment after four weeks will be excluded from the trial.
 
 
 
65

 
 
Phase 3 trials
 
Phase 3 clinical trial of FP187 in RRMS
 
We currently intend to conduct a single double-blind, double-dummy 48-week active comparator Phase 3 trial of FP187 in RRMS.  We intend to compare two dosing levels of FP187 (400 mg daily (200 mg BID), and 480 mg daily (240 mg BID)) to an IFNβ RRMS drug.  The 480 mg/day dose is the labeled DMF dose for Tecfidera®, and the lower dose is being tested to explore its safety and efficacy.
 
The primary efficacy endpoint of this trial will be ARR at week 48.  The secondary endpoints consist of: new and total Gadolinium- enhanced, or GdE, lesions on magnetic resource imaging, or MRI, scans at week 24, 36 and 48; new or enlarging T2-hyperintensive lesions at week 24, 36 and 48; new T1-hyperintense lesions at week 24, 36, and 48; proportion of relapse-free patients at week 48; brain volume at week 48; and proportion of patients with confirmed progression of Expanded Disability Status Score, or EDSS, a measure of SAD (a key secondary endpoint).  While the primary efficacy data will be based on 48-week data, patients will continue treatment for 96 weeks, after which patients can continue on FP187 until the product is available for commercial use.
 
We plan to design this trial to detect a 30% reduction in ARR compared to the IFNβ comparator drug with 90% power, which we estimate will require up to approximately 600 patients in each of the two FP187 dosing regimen arms and up to approximately 800 patients in the comparator drug arm; a combined total of up to 2,000 patients.  We intend to design the trial to include an interim look at the data to assess, among other things, futility, sample size and probability of achieving a two-sided p-value of less than 0.01.  We expect patient recruitment to take up to 18 months, with the last patient completing his or her 48-week study period approximately 30 months after the first patient is enrolled.
 
The safety and tolerability assessment will be based on full laboratory evaluation at every visit, and detailed collection of AE information including GI, flushing and infection AEs.
 
Phase 3 clinical trial of FP187 in psoriasis
 
We are continuing advanced preparatory work for an active comparator and placebo controlled confirmative non-inferiority Phase 3 trial of FP187 for the treatment of psoriasis in Europe, which we expect to include approximately 650 psoriasis patients, as well as an additional placebo controlled Phase 3 trial of FP187 for the treatment of psoriasis in the United States, which we expect to include approximately 700 psoriasis patients. We anticipate that, in 2014, the first patient dosing in the European Phase 3 trial will occur and we will continue preparation for the U.S. Phase 3 clinical trial. We believe that Phase 3 trials of FP187 for the treatment of psoriasis could provide important long-term (3 – 4 year) safety data concerning the use of FP187 in a large population at doses similar to those we plan to test for use in RRMS.
 
The European Phase 3 trial is planned for five countries with a total of approximately 60 sites, of which approximately 23 sites are in Russia and the Ukraine. If political instability in Russia and the Ukraine worsens or if sanctions are implemented, our ability to proceed or continue with sites in these countries could be adversely impacted. See “Risk Factors – Risks Related to the Development, Clinical Testing, Regulatory Approval and Commercialization of FP187 – Instability in Russia and the CIS could adversely affect our planned Phase 3 clinical trials for FP187 for the treatment of psoriasis.”
 
Exclusivity
 
Exclusivity in the U.S
 
We intend to submit our NDA for FP187 to treat RRMS under Section 505(b)(1) of the FDC Act, based on pre-clinical and clinical data we have and will have developed and independently own.   Approval of an NDA submitted under Section 505(b)(1) of the FDC Act for a single active ingredient product that does not include a new chemical entity, but which contains reports of new clinical investigations that were essential for approval, should entitle us to three years of marketing exclusivity against generic versions of FP187, with the potential to extend the exclusivity by six months if we perform a pediatric clinical trial that meets the study requirements provided for in an FDA-issued written request.  If we perform additional clinical trials essential for approval of other indications, we could also obtain three years of marketing exclusivity for those new indications.
 
 
 
66

 
 
European approach and exclusivity
 
We have discussed our European regulatory strategy for the approval of FP187 for the treatment of subjects with RRMS with the BfArM in Germany and more recently in a scientific consultation we had in November 2013 with the European Medicines Agency, or EMA.  We expect to apply for an EU-wide marketing authorization to be granted by the European Commission under the so-called “centralized” procedure (Regulation EC 726/2004).  See “Government Regulation – European Union – Marketing authorization applicable and available authorization procedures.”  We plan to be able to file a full clinical package, on the basis of our planned Phase 3 clinical trial, our planned/completed pre-clinical studies, and materials to be prepared for the NDA submission in the U.S.
 
For a psoriasis indication, we may use a “full-mixed” application in Europe, allowing use of bibliographical references that include, among other things, references pertaining to public clinical and pre-clinical trial papers and the clinical use of Fumaderm® in Germany and other European countries.
 
In Europe, the marketing authorizations we receive for the RRMS indication will entitle us to receive eight years of data exclusivity and an additional two years of marketing exclusivity from FP187’s first date of authorization in the EU for RRMS. For more, see “Government Regulation – European Union – Regulatory data protection”. Should we advance a further indication for FP187 (for example, as we are planning to do with psoriasis), one more year could be added to the exclusivity period, leading to a total market exclusivity of 11 years from the first date of authorization.
 
Intellectual Property Summary
 
We seek to protect the intellectual property and proprietary technology that we believe is important to our business, including pursuing and maintaining patents intended to cover FP187, and any other inventions that are commercially important to the development of our business.
 
Our success will depend on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, to exploit and defend our patents, to preserve the confidentiality of our trade secrets and operate without infringing the valid and enforceable patents and proprietary rights of third parties.  For more information, please see “Risk Factors – Risks Related to Our Intellectual Property and Information Technology.”
 
As of the date of this Prospectus, we owned 18 U.S. utility patent applications, and two U.S. provisional patent applications relating to our DMF program.
 
We divide our intellectual property portfolios primarily into two basic patent families, which we refer to as our “Core Composition Patent” family and our “Erosion Matrix Patent” family. The following table highlights key aspects of the current status of our Core Composition and Erosion Matrix Patent families:
 
Patent / Application
Patent Family
Status
     
EP2316430
Core Composition
Granted in Europe. Subject of EPO opposition by Biogen and others
     
U.S. App. 13/957,117
Core Composition
USPTO indicates is allowed in the U.S. Third-party pre-issuance submission filed
     
U.S. App. 13/957,220
Core Composition
USPTO indicates will be allowed in the U.S. Third-party pre-issuance submission filed
     
U.S. App. 11/576,871
Core Composition
Interference recommended by Patent Examiner. Decision by the USPTO Administrative Law Judge to proceed with interference is pending
     
EP2379063
 
Erosion Matrix
 
Granted in Europe. Subject of EPO opposition by Biogen and others
 
     
U.S. App. 13/143,498
Erosion Matrix
Allowed in the U.S. Request for continued examination to be filed to permit the USPTO Examiner to consider the opposition papers in EP2379063
     

 
 
 
67

 
 
 
As we have described above, Biogen has patents and is also prosecuting a number of additional patent families that could adversely impact our commercial efforts if our marketing of FP187 for treatment of RRMS were ultimately found to infringe any valid claim.  Two of Biogen’s patent families, the first in the U.S. concerning the use of an amount of a pharmaceutical preparation of DMF effective for treating MS, and the second in both Europe and the U.S. claiming the use of a dose of about 480 mg of DMF per day to treat MS, are the patents most likely to impact our business adversely if Biogen were to successfully show that our activities infringe any valid claim.  This is particularly true if Biogen obtains patent term extensions for certain key patents in the U.S. and/or Supplemental Protection Certificates (which also extend the effective life of patents for drugs) in Europe.  As referenced in the “Risk Factors” section of this Prospectus, while there can be no assurances we would prevail against Biogen in any infringement suit, we believe that a combination of underlying weaknesses with these patent families and the earlier priority date of our own patent claiming the use of a dose of about 480 mg of DMF per day to treat MS will enable us to successfully implement our business plan.
 
We have analyzed the use of DMF to treat immune-modulated disorders, including RRMS, and we have concluded in good faith that our business plan will not lead us to infringe any valid claim of Biogen’s intellectual property rights. As our formulation of DMF is proprietary, and the regulatory pathway we have planned for FP187 should not require that we refer to findings made by the FDA with regard to Biogen’s NDA or marketing authorizations, we do not expect that regulatory exclusivity granted to Biogen for approval of DMF as a new chemical entity will negatively affect the implementation of our business plan.
 
Any patents issued from patent applications based on PCT/DK2005/00648 will expire on October 7, 2025, subject to patent term adjustments in the U.S. Any patents issued from patent applications based on PCT/EP2010/050172 will expire on January 8, 2030, subject to patent term adjustments in the U.S.
 
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained.  In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application.  In the United States, a patent’s term may be shortened if a patent is terminally disclaimed over another patent, and a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent.  The patent term of a European patent is 20 years from its filing date, which, unlike in the U.S., is not subject to adjustment.
 
Other Opportunities for FP187
 
We have explored performing clinical studies in other indication areas, including psoriatic arthritis (an immune disorder characterized by inflammation of the joints alone or in both skin and joints which occurs in about 15% of psoriasis patients) and other immune mediated diseases, including for many disease indication that we believe would entitle us to submit for Orphan Drug status.

Manufacturing
 
FP187 is a small 8 x 5 mm tablet that contains DMF in an erosion matrix; each erosion matrix tablet core is covered by a thin enteric coating.
 
Currently, a single manufacturer provides us with our DMF, which is our API for FP187.  Production procedures and facilities operated by this manufacturer have been validated for the current batch size in 2013, and we are planning to validate an increased batch size during 2014.

Formulation and finishing for our FP187 tablets is completed by another single manufacturer currently.  Production procedures and facilities for this manufacturer have been validated by us for the current batch size, and we are planning to validate an increased batch size in 2014. Currently 16 batches have consistently been produced under GMP conditions for use in our Phase 3 trial for psoriasis.
 
 
 
68

 

We are actively reviewing alternative secondary suppliers of both DMF and our formulated and finished FP187 tablets.

Material Agreements

Aditech agreements
 
In 2004, a private Swedish company Aditech Pharma AB (collectively with its successor-in-interest, a Swiss company Aditech Pharma AG, or Aditech), controlled by Nordic Biotech Advisors (an affiliate of one of our largest shareholders), began developing and filing patents for, among other things, an innovative delayed and controlled release formulation for DMF.  In 2005 we entered into a patent license agreement with Aditech to license this patent family from Aditech, and in 2010 we acquired this patent family from Aditech pursuant to a patent transfer agreement.  Under our agreements with Aditech, we obtained, among other things, Aditech’s patents and associated know-how related to DMF formulations and delivery systems, subject to both diligence and minimum annual expenditure (€1.0 million per year) obligations on our part (with an option for Aditech to receive back, for no consideration, all of our DMF related assets should we fail to satisfy these obligations), as well as a payment by us to Aditech of up to 2% of net sales generated from our DMF products and processes.  Further, our agreement with Aditech gives Aditech a 90-day right of first offer to acquire non-DMF related intellectual property assets we might choose to sell.
 
Framework agreement
 
Our principal shareholders, Nordic Biotech K/S, Nordic Biotech Opportunity Fund K/S, or NBOF, BML Healthcare, I, L.P. and NB FP Investment K/S, or NBFPI, intend to enter into a framework agreement prior to consummation of this offering and to which we may also become a party.  Among other things, each of the corporate actions described below shall occur prior to (or in connection with) the consummation of this offering:
 
·
We shall hold an extraordinary general meeting pursuant to which our shareholders will authorize our board of directors to issue new shares without pre-emption rights for our existing shareholders, which shares shall be subscribed for at the initial public offering; and
 
·
Prior to our board’s approval of the offer price and the allocation of ordinary shares offered by this Prospectus to eligible investors, we shall hold an extraordinary general meeting at which the Share Conversion will be authorized, pursuant to which all of our outstanding Class A shares and Class B shares shall be converted into ordinary shares. The Share Conversion will be effectuated prior to consummation of this offering.
 
Competition
 
We are engaged in segments of the pharmaceutical and biotechnological industries that are highly competitive and rapidly changing. Large pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target immune disorders, including the same diseases we are targeting.  If FP187 is approved for the treatment of RRMS, we expect it will face intense and increasing competition as new products enter the RRMS markets and advanced technologies become available. FP187 will face competition based on its safety and effectiveness, the timing and scope of regulatory approvals, the availability and cost of supply, marketing and sales capabilities, reimbursement coverage, price, patent position and other factors.  Our competitors may succeed in developing competing products before we do, obtaining regulatory approval for products or gaining broader acceptance in the MS market we are targeting.
 
We believe that our key competitor in the DMF space is Biogen. Biogen’s Tecfidera® was approved by the FDA for the treatment of RRMS on March 27, 2103. Tecfidera® generated global sales of $876 million in 2013.
 
 
 
69

 
 
Other companies have also developed alternative therapeutic approaches for the treatment of RRMS.  These include Novartis AG whose Gilenya® is a once daily oral dose drug to treat RRMS approved in September 2010, and  Genzyme Corporation (a subsidiary of Sanofi S.A.), which developed Aubagio®, a RRMS drug approved in September 2012.
 
We also face competition from potential new entrants into the RRMS market.  For example, Receptos Inc. has a product candidate, RPC1063, in Phase 2/3 testing which, if successfully approved and launched would be a once daily oral treatment for RRMS.
 
As we pursue the development of and FP187 is approved for the treatment of psoriasis, we will similarly face intense competition in the psoriasis market. This will include competition from products which have already been commercialized and have gained market acceptance, as well as from products based on new and advanced technologies.

Government Regulation
 
Our business is subject to extensive government regulation.  Regulation by governmental authorities in the U.S., the EU and other jurisdictions is a significant factor in the development, manufacture and marketing of any drugs and in ongoing research and development activities.  All of our products are subject to rigorous pre-clinical and clinical trials and other pre-marketing approval requirements by the FDA, the EMA and other regulatory authorities in the U.S., the EU and in other jurisdictions.
 
United States
 
In the U.S., the FDA regulates drugs under the FDC Act, and regulations implemented by the agency.  If we fail to comply with the applicable United States requirements at any time during the product development process, including non-clinical testing, clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions.  These sanctions could include, but are not limited to, the FDA’s refusal to allow us to proceed with clinical testing, refusal to approve pending applications, withdrawal of an approval, warning or untitled letters, adverse publicity, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
 
Approval of drugs
 
The process required by the FDA before a drug may be marketed in the United States generally involves satisfactorily completing each of the following:
 
·
pre-clinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good Laboratory Practice, or GLP, and current Good Manufacturing Practice, or cGMP, regulations, as applicable;
 
·
submission to the FDA of an investigational new drug, or IND, application for human clinical testing, which must become effective before human clinical trials involving testing on U.S. patients may begin;
 
·
performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;
 
·
submission of data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labeling;
 
·
submission to the FDA of an NDA;
 
·
satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced cGMPs;
 
·
potential FDA audit of the non-clinical and clinical trial sites that generated the data in support of the NDA; and
 
 
 
70

 
 
 
·
FDA review and approval of the NDA before any commercial marketing, sale or shipment of the product.
 
Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based on the type, complexity and novelty of the product or disease.
 
Pre-clinical studies and Investigational New Drug application
 
Pre-clinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product.  The conduct of the pre-clinical tests and formulation of the compounds for testing must comply with federal regulations and requirements.  The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, application.  The IND becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the proposed clinical trial, including concerns that human research subjects will be exposed to unreasonable health risks.  In that case, the IND sponsor and the FDA must resolve any outstanding FDA concerns before the clinical trials can begin.  Submission of the IND may result in the FDA not allowing the trials to commence, either on the terms originally specified in the IND, or at all.  If the FDA raises concerns or questions either during this initial 30 day period or at any time during the IND process, they may choose to impose a partial or complete clinical hold.  This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study, until all outstanding concerns have been adequately addressed and the FDA have notified the company that investigations may proceed.  This could cause significant delays or difficulties in completing planned clinical studies in a timely manner.
 
Clinical trials
 
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators.  Clinical trials are conducted in accordance with federal regulations and under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated.  Each protocol involving U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.  An independent Institutional Review Board, or IRB, must also review and approve the clinical trial before it can begin and monitor the study until it is completed.  The IRB will consider, among other things, clinical trial design, patient informed consent, ethical factors, and the safety of human subjects. The FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time or impose sanctions for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or the subjects are being exposed to an unacceptable health risk.  Clinical testing also must satisfy extensive Good Clinical Practice rules, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors, including the requirements for informed consent.
 
Clinical trials typically are conducted in three sequential phases, but the phases may overlap.  Additional studies may be required after approval.
 
Phase 1 clinical trials are initially conducted in a limited population to test the product for safety, dose tolerance, absorption, metabolism, distribution and excretion in healthy humans or, on occasion, in patients, such as cancer patients.
 
Phase 2 clinical trials are generally conducted in a limited patient population to identify possible adverse effects and safety risks, determine the efficacy of the product for specific targeted indications and determine dose tolerance and optimal dosage.  Multiple Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trial.
 
Phase 3 clinical trials proceed if the Phase 2 clinical trials provide evidence that a dose range of the product is effective and has an acceptable safety profile.  Phase 3 clinical trials are undertaken in large patient populations to further evaluate dosage, provide substantial evidence of clinical efficacy and further test for safety in an expanded and diverse patient population at multiple, geographically dispersed clinical trial sites.  A well-controlled, statistically relevant Phase 3 trial may be designed to deliver the data that the regulatory authorities will use to decide whether or not to approve a drug: such Phase 3 studies are referred to as “pivotal.” In most cases FDA requires two adequate and well controlled Phase 3 clinical trials to demonstrate the efficacy of the drug.  A single Phase 3 trial with other confirmatory evidence may be sufficient in instances where the study is a large multicenter trial demonstrating internal consistency and a statistically persuasive finding of a clinically meaningful effect.
 
 
 
71

 
 
 
In some cases, the FDA may approve an NDA for a product with the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after NDA approval.  Such post-approval trials are typically referred to as Phase 4 clinical trials.  These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase 4 clinical trial requirement.  Failure to promptly conduct Phase 4 clinical trials could result in withdrawal of approval for products.
 
New Drug Application
 
The results of product development, pre-clinical testing and clinical trials are submitted to the FDA as part of an NDA, submitted under Sections 505(b)(1) or 505(b)(2) of  the FDC Act.  The NDA also must contain extensive manufacturing information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee.  The application fee currently exceeds $2,169,000, and the manufacturer and/or sponsor under an approved new drug application are also subject to annual product and establishment user fees, currently exceeding $104,000 per product and $554,000 per establishment.  These fees are typically increased annually. Once the submission has been accepted for filing, the FDA begins an in-depth review of the NDA.  Under the goals and policies agreed to by the FDA under the most recent iteration of the Prescription Drug User Fee Act, or the PDUFA, the FDA has ten to twelve months in which to review a standard NDA and respond to the applicant, and six to eight months for a priority NDA.  The FDA does not always meet its PDUFA goal dates for standard and priority NDAs.  The review process is often significantly extended by FDA requests for additional information or clarification.  The review process and the PDUFA goal date may be extended by three months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. The FDA may also refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved.  The FDA is not bound by the recommendation of the advisory committee, but it generally follows such recommendations.  The FDA may deny approval of an NDA if the applicable regulatory criteria are not satisfied, or it may require additional clinical data or an additional pivotal Phase 3 clinical trial.  Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.
 
Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.  Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured.  FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
 
At the conclusion of the FDA’s review it will issue an action letter.  If the FDA’s evaluations of the NDA and the clinical and manufacturing procedures and facilities are favorable and there are no outstanding issues, the FDA will issue an approval letter.  If the application is not approved, the FDA will issue a complete response letter, which will contain the conditions that must be met in order to secure final approval of the NDA, and when possible will outline recommended actions the sponsor might take to obtain approval of the application.  Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues identified by the FDA. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.  FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included..Once issued, the FDA may withdraw a drug approval if ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market.  In addition, the FDA may require further testing, including Phase 4 clinical trials, and surveillance programs to monitor the effect of approved drugs which have been commercialized.
 
As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU.  ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries.  The requirement for a REMS can materially affect the potential market and profitability of the drug.
 
 
 
72

 
 
The FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs.  Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved label.  Further, if there are any modifications to a drug, including changes in indications, labeling or manufacturing processes or facilities, we may be required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require us to develop additional data or conduct additional pre-clinical studies and clinical trials.  We cannot be sure that any additional approval for new indications for any product will be approved on a timely basis, if at all.
 
The FDA has several programs that are intended to facilitate and expedite development and review of new drugs to address unmet medical need in the treatment of serious or life-threatening conditions.  These programs are intended to help ensure that therapies for serous conditions are available as soon as it can be concluded that the therapies benefits justify their risks.  These programs include breakthrough therapy designation, fast track designation, priority review and accelerated approval.
 
Hatch-Waxman Act and Orange Book listing
 
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product.  Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book.  Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA.  An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be therapeutically equivalent to the listed drug.  Other than the requirement for bioequivalence testing, ANDA applicants ordinarily are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product.  For drugs like FP187, which appears to act at least in part locally in the small intestine and pre-circulatory system and which has not been directly detectable in the bloodstream, a demonstration of bioequivalence in the context of an ANDA may require more extensive testing or even clinical trials to be conducted. Drugs approved via an ANDA are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
 
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book.  Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product.  The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA label does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent.    If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
 
A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification.  If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA.  The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification.  The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the lawsuit that is favorable to the ANDA applicant.
 
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
 
 
 
73

 
 
Section 505(b)(2) New Drug Applications
 

Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA.  A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on FDA’s previous approval of a similar product, or published literature, in support of its application.

Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products.  Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference.  If the Section 505(b)(2) applicant can establish that reliance on FDA’s previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product.  The FDA may also require companies to perform additional studies or measurements to support the change from the approved product.  The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.

To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would.  Thus approval of a Section 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Exclusivity
 
Upon NDA approval of a new chemical entity, or NCE, which is a drug that contains no active moiety that has been approved by FDA in any other NDA, that drug receives five years of marketing exclusivity during which FDA cannot receive any ANDA seeking approval of a generic version of that drug, or a Section 505(b)(2) NDA that references the drug. Certain changes to a drug that require a clinical trial to support FDA approval, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which FDA cannot approve an ANDA or Section 505(b)(2) NDA for a drug that includes the change.
 
An ANDA or Section 505(b)(2) NDA may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed.  If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification, and, thus, no ANDA may be filed before the expiration of the NCE exclusivity period.
 
Post-approval regulation
 
If regulatory approval for marketing of a product or new indication for an existing product is obtained, we will be required to comply with all regular post-approval regulatory requirements as well as any post-approval requirements that the FDA have imposed as part of the approval process.
 
For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet.  Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
 
We will be required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information and comply with requirements concerning advertising and promotional labeling requirements.  Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP regulations, which impose certain procedural and documentation requirements upon drug manufacturers.  Accordingly, we and our third-party manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with cGMP regulations and other regulatory requirements.  Discovery of problems with a product after approval for marketing may result in restrictions on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.
 
 
 
74

 
 
Pediatric information
 
Under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective.  The FDA may grant full or partial waivers, or deferrals, for submission of data.  Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted.
 
Orphan drugs
 
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition—generally a disease or condition that affects fewer than 200,000 individuals in the U.S.  Orphan drug designation must be requested before submitting an NDA.  After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA.  Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.  The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication.  During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity.  Orphan drug exclusivity does not prevent FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.  Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
 
Disclosure of clinical trial information
 
Sponsors of clinical trials of FDA regulated products, including drugs, are required to register and disclose certain clinical trial information.  Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration.  Sponsors are also obligated to discuss the results of their clinical trials after completion.  Disclosure of the results of these trials can be delayed until the new product or new indication being studied has been approved.  Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
 
European Union
 
The process regarding approval of medicinal products in the EU follows roughly the same lines as in the United States and likewise generally involves satisfactorily completing each of the following:
 
·
pre-clinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good Laboratory Practice regulations;
 
·
submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved before human clinical trials may begin;
 
·
performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed indication;
 
·
submission to the relevant competent authorities of a marketing authorization application, or MAA, which includes the data supporting safety and efficacy as well as detailed information on the manufacture and composition of the product in clinical development and proposed labeling;
 
·
satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities, including those of third parties, at which the product is produced to assess compliance with strictly enforced cGMPs;
 
 
 
75

 
 
 
·
potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and
 
·
review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the product.
 
Pre-clinical studies
 
Pre-clinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product.  The conduct of the pre-clinical tests and formulation of the compounds for testing must comply with the relevant EU regulations and requirements.  The results of the pre-clinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.
 
Clinical trial approval
 
Pursuant to the Clinical Trials Directive 2001/20/EC, as amended, a system for the approval of clinical trials in the EU has been implemented through national legislation of the member states.  Under this system, approval must be obtained from the competent national authority of an EU member state in which a study is planned to be conducted.  To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by the Clinical Trials Directive and other applicable guidance documents.  Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.
 
Clinical drug development is often described as consisting of four temporal phases (Phase 1-4), see for example EMA’s note for guidance on general considerations for clinical trials (CPMP/ICH/291/95).
 
·
Phase 1 (Most typical kind of study: Human Pharmacology);
 
·
Phase 2 (Most typical kind of study: Therapeutic Exploratory);
 
·
Phase 3 (Most typical kind of study: Therapeutic Confirmatory); and
 
·
Phase 4 (Variety of studies: Therapeutic Use).
 
Studies in Phase 4 are all studies (other than routine surveillance) performed after drug approval and related to the approved indication.
 
The phase of development provides an inadequate basis for classification of clinical trials because one type of trial may occur in several phases.  The phase concept is a description, not a set of requirements.  The temporal phases do not imply a fixed order of studies since for some drugs in a development plan the typical sequence will not be appropriate or necessary.
 
Manufacturing of investigational products is subject to the holding of authorization and must be carried out in accordance with cGMPs.
 
Paediatric Investigation Plans
 
Regulation (EC) 1901/2006, which came into force on January 26, 2007, has as its primary purpose the improvement of the health of children without subjecting children to unnecessary trials, or delaying the authorization of medicinal products for use in adults.
 
The regulation established the Paediatric Committee, or PDCO, which is responsible for coordinating the EMA’s activities regarding medicines for children.  The PDCO’s main role is to determine all the studies that applicants need to do in the pediatric population as part of the so-called Paediatric Investigation Plans, or PIPs.
 
All applications for marketing authorization for new medicines that were not authorized in the EU before January 26, 2007 have to include the results of studies carried out in children of different ages.  As indicated, the PDCO determines what these studies entail and describes them in a PIP.  This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized.  The PDCO can grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults, and can also grant waivers when development of a medicine in children is not needed or appropriate, such as for diseases that only effect the elderly population.
 
 
 
76

 
 
Regulation (EC) 1901/2006, which is also available in the EU, also provides for several incentives the development of medicines for children:
 
·
medicines that have been authorized across the EU with the results of PIP studies included in the product information are eligible for an extension of their patent protection by six months.  This is the case even when the studies’ results are negative;
 
·
scientific advice and protocol assistance at the EMA are free of charge for questions relating to the development of medicines for children; and
 
·
medicines developed specifically for children that are already authorized but are not protected by a patent or supplementary protection certificate, can apply for a paediatric use marketing authorization, or PUMA.  If a PUMA is granted, the product will benefit from 10 years of market protection as an incentive.
 
Marketing authorization application and available authorization procedures
 
Authorization to market a product in the EU member states proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.
 
 
·
Centralized authorization procedure.   A marketing authorization for certain drugs must be obtained through the centralized authorization procedure for marketing authorization, which, if granted, is automatically valid in all EU member states.  The EMA and the EC administer the centralized authorization procedure.
 
Pursuant to Regulation 726/2004, this procedure is mandatory for:
 
 
a)
medicinal products developed by means of one of the following biotechnological processes:
 
 
·
recombinant DNA technology;
 
 
·
controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes, including transformed mammalian cells; and
 
 
·
hybridoma and monoclonal antibody methods;
 
 
b)
advanced therapy medicinal products as defined in Article 2 of Regulation 1394/2007 on advanced therapy medicinal products;
 
 
c)
medicinal products for human use containing a new active substance which, on the date of entry into force of this Regulation, was not authorized in the EU, for which the therapeutic indication is the treatment of any of the following diseases:
 
 
·
acquired immune deficiency syndrome;
 
 
·
cancer;
 
 
·
neurodegenerative disorder;
 
 
·
diabetes;
 
 
·
auto-immune diseases and other immune dysfunctions; and
 
 
 
77

 
 
 
·
viral diseases; and
 
 
d)