Biophytis(BPTS) - 2021 Q4 - Annual Report

PART I Key Information The company faces significant risks due to its limited operating history, financial needs, and reliance on successful drug development and regulatory approvals Risk Factors - The company is a clinical-stage biotechnology firm with no approved products, a history of significant losses, and requires substantial additional financing[28][64] - Business operations and clinical trials face material adverse effects from health pandemics like COVID-19, potentially causing supply chain disruptions, clinical program delays, and increased costs[57][58] - The company's business is highly dependent on the successful development, regulatory approval, and commercialization of its drug candidates, primarily Sarconeos (BIO101)[97][98][99] - A material weakness in internal control over financial reporting was identified as of December 31, 2021, due to incorrect IFRS 9 application for convertible notes' fair value assessment[390][391] Historical Financial Losses | Year Ended December 31 | Net Loss (€ million) | Net Loss ($ million) | | :--- | :--- | :--- | | 2019 | 18.9 | N/A | | 2020 | 25.5 | N/A | | 2021 | 31.2 | 35.4 | Information on the Company Biophytis is a clinical-stage biotech developing therapeutics for age-related diseases, with lead candidates Sarconeos (BIO101) and Macuneos (BIO201), relying on outsourcing and partnerships History and Development of the Company Capital and R&D Expenditures (€ thousands) | Expense Type | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Capital Expenditures | 642 | 484 | 844 | | R&D Costs | 9,089 | 9,921 | 19,213 | - Capital expenditures primarily involved acquiring patent rights from the CEO and rights of use for the company's French headquarters[401] - The company anticipates significant capital expenditures and R&D costs as it advances clinical development of Sarconeos (BIO101) and Macuneos (BIO201)[401] Business Overview - Biophytis develops therapeutics to slow age-related degenerative processes, targeting sarcopenia, AMD, DMD, and severe COVID-19 respiratory failure[405] - The lead drug candidate, Sarconeos (BIO101), is an orally administered small molecule for neuromuscular diseases, while Macuneos (BIO201) targets retinopathies[410][414] - The company's strategy involves demonstrating drug efficacy through clinical trials, obtaining regulatory authorizations, and seeking licensing or partnership opportunities for commercialization[421] - Biophytis outsources drug candidate manufacturing for preclinical and clinical trials to third-party CDMOs, such as Patheon/ThermoFisher Scientific[578][581] - The company's patent portfolio comprises 15 patent families, with 48 co-owned issued patents and 48 co-owned pending applications, jointly held with academic institutions like Sorbonne University[594][597] Operating and Financial Review and Prospects The company reports no revenue, continued losses, significant R&D expense increases, and a material weakness in internal controls, but has sufficient cash and credit for the next 12 months Operating Results Consolidated Operations Summary (€ thousands) | Metric | 2020 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Research and Development Expenses, Net | (9,921) | (19,665) | 98.2% | | General and Administrative Expenses | (4,021) | (7,150) | 77.8% | | Operating Loss | (13,942) | (26,815) | 92.3% | | Net Financial Expense | (11,575) | (4,432) | -61.7% | | Net Loss | (25,517) | (31,247) | 22.4% | - The 98.2% increase in R&D expenses in 2021 was primarily due to the COVA Phase 2-3 study and the SARA-INT Phase 2 study finalization[775] - General and administrative expenses rose in 2021 due to staff reinforcement for Business Development and SOX compliance, and costs from being a U.S. public company since February 2021[778][779] - Net financial expense decreased significantly in 2021, primarily due to a smaller negative change in the fair value of convertible notes[782] Liquidity and Capital Resources - As of December 31, 2021, the company held €23.9 million in cash and cash equivalents[843][851] - Operations have been primarily financed through capital increases, convertible debt instruments (ATLAS and Kreos), non-convertible bonds, and proceeds from its Euronext Growth and U.S. IPOs[844] - The company expects existing capital resources, including a €32 million credit facility with ATLAS, will fund operations for at least the next 12 months[852] Consolidated Cash Flows (€ thousands) | Cash Flow Activity | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Operating Activities | (15,051) | (9,743) | (23,795) | | Investing Activities | (278) | (12,713) | 12,160 | | Financing Activities | 7,278 | 21,953 | 29,715 | | Net Change in Cash | (8,069) | (490) | 18,079 | Directors, Senior Management and Employees This section details the company's leadership, including executive officers and directors, their compensation, board structure, and the 26-person workforce primarily in R&D Directors and Senior Management - The company's leadership includes Stanislas Veillet as Chairman and CEO, Philippe Rousseau as CFO, and other key officers across business, science, clinical operations, and medical affairs[931] - The Board of Directors comprises five members, including the Chairman & CEO[944] Compensation - Aggregate compensation paid to executive officers and directors for the year ended December 31, 2021, totaled €5.0 million[947] CEO Compensation for FY 2021 (€) | Nature of Compensation | Amount Paid or Earned | | :--- | :--- | | Fixed remuneration | 250,000 | | Variable annual remuneration | 75,000 | | Benefits in kind | 25,329 | | Total | 350,329 | - As of February 28, 2022, the company had outstanding founders' and share warrants for 6,832,358 ordinary shares at a weighted average exercise price of €0.59 per share[968] Board Practices - The board of directors currently consists of five members, each elected for three-year terms[980][981] - All directors, except CEO Stanislas Veillet and Jean Mariani, are deemed independent under Nasdaq rules[986] - The board has established an Audit Committee and a Compensation and Governance Committee, both serving advisory roles under French law[988][989] Employees - As of December 31, 2021, the company had 26 full-time employees, with 20 in research and development and 6 in general and administrative roles[1003] Major Shareholders and Related Party Transactions This section details ownership structure, with directors and executive officers holding 3.7% of shares, and outlines key related party transactions including an IP agreement with the CEO and intercompany agreements Major Shareholders Beneficial Ownership as of February 28, 2022 | Owner | Number of Ordinary Shares | Percentage | | :--- | :--- | :--- | | Stanislas Veillet (CEO) | 3,142,534 | 2.2% | | All directors and executive officers as a group (10 persons) | 5,134,152 | 3.7% | - As of February 28, 2022, no beneficial owners held more than 5% of the company's outstanding ordinary shares[1005] Related Party Transactions - The company has an IP agreement with CEO Stanislas Veillet, entitling him to lump sum payments and a 6.5% royalty on related product income, capped at €2.1 million per platform[1020][1021] - In 2021, €270 thousand was paid to the CEO under the intellectual property agreement[1024] - The company maintains intercompany agreements for cash advances and services with its U.S. and Brazilian subsidiaries[1025][1029] Financial Information This section presents consolidated financial statements and details legal proceedings, including an AMF fine for disclosure delays and a contractual dispute with NEGMA - The company was involved in a legal dispute with NEGMA, resulting in a March 2021 court order to pay €910 thousand and deliver 7 million shares, which the company complied with but has appealed[1045][1047] - The French securities regulator (AMF) fined the company €100,000 and its CEO €20,000 for delayed disclosure of clinical trial timelines, a decision confirmed in December 2020[1044] - The company has never paid cash dividends and does not anticipate doing so, intending to retain all earnings for business operations and expansion[1051] Additional Information This section provides supplementary information on securities, contracts, and tax considerations, including French foreign exchange regulations and U.S. and French income tax implications for ADS holders - The company believes it was likely not a Passive Foreign Investment Company (PFIC) for 2021, but offers no assurance for current or future years[383][1088] - Under the U.S.-France Tax Treaty, dividends to eligible U.S. holders are generally subject to a reduced French withholding tax rate of 15% (or 5% for certain corporate holders)[1118][1120] - Capital gains from ADS sales by U.S. holders are generally not subject to French tax, provided the holder has not held more than 25% of dividend rights in the preceding five years[1115] Quantitative and Qualitative Disclosures About Market Risk The company faces market, credit, and significant liquidity risks, with equity risk from convertible notes and a need for substantial future funding due to negative operating cash flows - The company's primary financial risks include market, credit, and liquidity risk, with an overall risk management program focused on capital preservation[1135] - Liquidity risk is a key concern due to significant R&D expenses and negative operating cash flows of €23.8 million in 2021, necessitating substantial future funding for drug development[1144][1145] - Equity risk arises from financing agreements involving convertible notes (with Atlas and Kreos) whose value is linked to the company's share price[1141] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds The company completed its U.S. IPO in February 2021, issuing 1,200,000 ADSs for €16.58 million gross proceeds, with all net proceeds used as described in the prospectus U.S. Initial Public Offering (February 2021) | Metric | Amount (€ million) | Amount ($ million) | | :--- | :--- | :--- | | Gross Proceeds | 16.58 | 20.1 | | Underwriting Discounts & Expenses | 3.1 | 3.8 | | Net Proceeds | 13.49 | 16.35 | - All net proceeds from the U.S. IPO were used as described in the final prospectus, with no payments to directors, officers, or affiliates[1168] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2021, due to a material weakness in IFRS 9 application for convertible notes, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021[1169] - A material weakness in internal control over financial reporting was identified due to incorrect IFRS 9 application for convertible notes' fair value assessment, stemming from a lack of formalized policies and technical expertise[1174][1175] - Management is implementing a remediation plan including policy updates, improved documentation review, systematic accounting treatment reviews, and additional staff training[1177][1178][1179] - As an emerging growth company, the annual report does not include an attestation report from the independent registered public accounting firm regarding internal control over financial reporting[1183] Other Information This section covers governance, identifying Nadine Coulm as the audit committee financial expert, detailing the Code of Conduct, Ernst & Young fees, and the company's adherence to French corporate governance practices as a foreign private issuer - The Board of Directors has determined that Nadine Coulm is an "audit committee financial expert"[1186] - The company has adopted a Code of Business Conduct and Ethics, available on its website[1187] Principal Accountant Fees (€ thousands) | Fee Type | 2020 | 2021 | | :--- | :--- | :--- | | Audit Fees | 428 | 332 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | Other Fees | — | — | | Total | 428 | 332 | - As a foreign private issuer, the company follows French corporate governance practices instead of Nasdaq standards, including different requirements for board independence and shareholder meeting quorums[1199][1201] PART III Financial Statements The IFRS consolidated financial statements for 2019-2021, audited by Ernst & Young, show a net loss of €31.2 million in 2021 and increased assets and equity, prepared on a going concern basis Statements of Consolidated Financial Position Consolidated Financial Position (€ thousands) | Metric | Dec 31, 2020 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | 27,210 | 36,262 | | Total Non-Current Assets | 3,200 | 4,571 | | Total Current Assets | 24,010 | 31,691 | | Total Liabilities | 24,942 | 30,557 | | Total Non-Current Liabilities | 2,021 | 7,414 | | Total Current Liabilities | 22,921 | 23,143 | | Total Shareholders' Equity | 2,268 | 5,705 | Statements of Consolidated Operations Consolidated Operations (€ thousands) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Research and Development Expenses, Net | (9,089) | (9,921) | (19,665) | | General and Administrative Expenses | (6,593) | (4,021) | (7,150) | | Operating Loss | (15,682) | (13,942) | (26,815) | | Net Financial Expense | (3,344) | (11,575) | (4,432) | | Net Loss | (18,946) | (25,517) | (31,247) | Loss Per Share (€/share) | Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Basic Loss Per Share | (1.12) | (0.43) | (0.26) | | Diluted Loss Per Share | (1.12) | (0.43) | (0.26) | Statements of Consolidated Cash Flows Consolidated Cash Flows (€ thousands) | Cash Flow Activity | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (15,051) | (9,743) | (23,795) | | Net Cash (Used in) Provided by Investing Activities | (278) | (12,713) | 12,160 | | Net Cash Provided by Financing Activities | 7,278 | 21,953 | 29,715 | | Net Increase (Decrease) in Cash | (8,069) | (490) | 18,079 |