Genfit(GNFT) - 2021 Q4 - Annual Report

PART I Key Information This section outlines significant business, operational, and financial risks, including dependency on elafibranor's PBC trial success and PFIC classification - The company's primary focus is on the development of elafibranor for PBC, following the clinical failure of its Phase 3 RESOLVE-IT trial for elafibranor in NASH in 2020[16][25][32] - GENFIT has licensed the worldwide rights for elafibranor (excluding Greater China) to Ipsen, and rights for Greater China to Terns Pharmaceuticals, remaining responsible for the Phase 3 ELATIVE study for PBC until the end of the double-blind period[25] - The company is developing NIS4 technology for the non-invasive diagnosis of NASH, with its commercialization partner Labcorp launching NASHnext, a Laboratory Developed Test (LDT) powered by NIS4, though its success is uncertain without an approved NASH treatment[60][64] - The company has a history of net losses and only achieved profitability in 2021 due to a one-time upfront payment from Ipsen, with future profitability uncertain and dependent on clinical programs and collaborations[17][202] - Based on income and asset analysis, the company believes it was classified as a Passive Foreign Investment Company (PFIC) for the taxable year ended December 31, 2021, which can lead to adverse U.S. federal income tax consequences for U.S. holders[263][844] Information on the Company GENFIT, a late-stage biopharmaceutical company, refocused R&D on Cholestatic Diseases, ACLF, and Diagnostics, leveraging partnerships and third-party manufacturing - GENFIT has shifted its strategic focus to three main franchises: Cholestatic Diseases, Acute on Chronic Liver Failure (ACLF), and Diagnostics[285] GENFIT's R&D Pipeline Franchises | Cholestatic Diseases Franchise | ACLF Franchise | Diagnostic Franchise | | :--- | :--- | :--- | | Primary Biliary Cholangitis (PBC): elafibranor - Phase 3 ELATIVE | ACLF: nitazoxanide (NTZ) - Phase 1 | NASH: NIS4 Technology | - A long-term strategic partnership was signed with Ipsen in December 2021 for the global development and commercialization of elafibranor, with Ipsen also acquiring an 8% equity stake in GENFIT[298][333][335] - The company has no manufacturing facilities and relies entirely on third-party Contract Manufacturing Organizations (CMOs) for its drug candidates, including a single supplier for the active ingredient in elafibranor[425][426] - As of March 31, 2022, GENFIT's intellectual property portfolio includes 43 issued U.S. patents and over 440 issued foreign patents across 60 patent families, with 22 families related to elafibranor[432] Operating and Financial Review and Prospects 2021 financial performance saw a €67.3 million net profit driven by a €120 million Ipsen upfront payment, reduced R&D, and strengthened cash to €258.8 million Consolidated Statement of Operations Highlights (in € thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenue | 80,069 | 765 | 30,839 | | R&D Expenses | (35,166) | (59,097) | (66,170) | | Operating Income (Loss) | 31,816 | (82,897) | (57,832) | | Net Profit (Loss) | 67,259 | (101,221) | (65,144) | - The significant increase in 2021 revenue and net profit was primarily driven by the recognition of €80 million from the €120 million upfront payment received from the licensing agreement with Ipsen[541][559] Cash Flow Summary (in € thousands) | Cash Flow | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Activities | 99,915 | (96,371) | (47,680) | | Investing Activities | (3,377) | (966) | 327 | | Financing Activities | (8,916) | (8,256) | 116,860 | - In January 2021, the company renegotiated its convertible bonds (OCEANEs), extending maturity to October 2025, increasing the conversion ratio, and completing a partial buyback of 2,895,260 bonds for €47.48 million[637][638][899] - Cash and cash equivalents increased to €258.8 million as of December 31, 2021, from €171.0 million at the end of 2020, bolstered by the Ipsen upfront payment and equity investment[610] Directors, Senior Management and Employees This section details GENFIT's board and senior management, including 2021 appointments, CEO compensation, equity incentive plans, and 122 employees - As of December 31, 2021, GENFIT had 122 employees, with 73 engaged in R&D and related activities[753] - In 2021, key management changes included the appointment of Thomas Baetz as Chief Financial Officer and Stefanie Magner as Chief Compliance Officer[650] 2021 CEO Compensation - Pascal Prigent | Component | Amount (€) | | :--- | :--- | | Fixed Compensation | 325,008 | | Variable Compensation | 162,504 | | Equity Awards | 58,400 | | All Other Compensation | 16,229 | | Total | 562,141 | - The company utilizes several equity incentive plans, including Share Warrants (BSA), Free Shares (AGA), and Stock Options (SO), to compensate and retain directors, management, and employees[697] - The Board of Directors consists of nine members and one board observer, and as a foreign private issuer, GENFIT follows French corporate governance practices in lieu of Nasdaq standards regarding board independence and committee composition[725][739] Major Shareholders and Related Party Transactions This section identifies major shareholders, including Ipsen Pharma SAS with an 8% stake and Biotech Avenir SAS with 3.79%, and details key related party transactions - In December 2021, Ipsen Pharma SAS became a major shareholder, acquiring an 8% equity stake in GENFIT through a €28 million investment[764][800] - As of April 1, 2022, Biotech Avenir SAS, a holding company associated with the company's founders, beneficially owned 3.79% of the ordinary shares[760][769] - The collaboration and license agreement with Ipsen, a new major shareholder, is a significant related party transaction, with future service and supply agreements anticipated[773][774] Financial Information This section confirms appended financial statements and discloses a significant shareholder class action lawsuit, currently under appeal - The company is defending against a purported shareholder class action lawsuit filed after the announcement of the negative RESOLVE-IT trial results, with the initial case dismissed in August 2021, but the plaintiff's appeal was perfected in March 2022[785][786] - The company has never declared or paid dividends and does not anticipate doing so in the foreseeable future, intending to retain all earnings for business operations and expansion[782] Additional Information This section details material contracts, including exclusive license agreements with Ipsen and Terns, and significant tax considerations, notably PFIC classification for 2021 - A key material contract is the December 2021 exclusive collaboration and license agreement with Ipsen, granting them worldwide rights (ex-Greater China) to develop and commercialize elafibranor, with GENFIT receiving a €120 million upfront payment and eligible for up to €360 million in milestones plus royalties[797][798] - The company has a collaboration and license agreement with Terns Pharmaceuticals, granting them exclusive rights to develop and commercialize elafibranor in Greater China for NASH and PBC, with GENFIT receiving a $35 million upfront payment and eligible for up to $193 million in milestones[803][804] - The company believes it was classified as a Passive Foreign Investment Company (PFIC) for the taxable year ended December 31, 2021, which has potentially adverse U.S. federal income tax consequences for U.S. holders of its securities[844] Quantitative and Qualitative Disclosures About Market Risk The primary market risk is foreign currency exchange due to $81.7 million in USD cash, with a 10% adverse change potentially causing a €6.6 million loss, mitigated by natural hedging - The main market risk is foreign currency exchange risk due to holding substantial cash reserves in U.S. dollars ($81.7 million at year-end 2021) while operating primarily in euros[868][870] - A hypothetical adverse 10% change in the USD/EUR exchange rate would have resulted in a foreign exchange loss of approximately €6.6 million on the company's cash position as of December 31, 2021[870] - The company does not use foreign exchange rate hedging tools, instead maintaining a balance of euros and U.S. dollars to naturally cover projected outflows in each currency[872] - Interest rate risk is considered low as most financial liabilities are at fixed rates, and liquidity risk is also deemed low, with cash and equivalents of €258.8 million at year-end 2021 sufficient to fund operations for at least the next 12 months[875][879][880] PART II Material Modifications to the Rights of Security Holders and Use of Proceeds In January 2021, the company renegotiated its OCEANE convertible bonds, including a partial buyback for €47.48 million, extending maturity to October 2025, and increasing the conversion ratio - The company successfully renegotiated its OCEANE convertible bonds in January 2021[899][900] - The renegotiation included a partial buyback of outstanding bonds for €47.48 million and amending the terms for the remainder[900] - Key amendments for the remaining bonds were an extension of maturity to October 2025 and an increase in the conversion ratio to 5.5 shares per bond[899] Disclosure Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes reported - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[904] - Management assessed internal control over financial reporting based on the 2013 COSO framework and concluded it was effective as of December 31, 2021[906] - As an emerging growth company, this annual report does not include an attestation report from the registered public accounting firm on internal control over financial reporting[907] Corporate Governance As a French foreign private issuer, GENFIT follows home country corporate governance, differing from Nasdaq rules on board independence, committee composition, auditor appointment, and quorum - GENFIT, as a foreign private issuer, follows French corporate governance practices instead of certain Nasdaq listing standards[921] - Key differences from Nasdaq rules include not requiring a majority-independent board of directors and not requiring the remuneration committee to be composed solely of independent directors[921] - Under French law, the audit committee's role in appointing statutory auditors is advisory, with the final decision made by shareholders at the annual meeting[922] - Quorum requirements for shareholder meetings are governed by French law (e.g., 20% or 25% of shares entitled to vote for a first call), which is different from the Nasdaq standard of 33 1/3%[923] PART III Financial Statements This section presents the company's consolidated financial statements for 2019-2021, prepared under IFRS, including key financial statements and detailed notes Consolidated Statement of Financial Position (in € thousands) | | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | 281,720 | 198,119 | | Total Liabilities | 162,623 | 214,549 | | Total Shareholders' Equity | 119,097 | (16,430) | Consolidated Statement of Operations (in € thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Revenues and other income | 85,579 | 7,758 | | Operating income (loss) | 31,816 | (82,897) | | Net profit (loss) | 67,259 | (101,221) | Consolidated Statement of Cash Flows (in € thousands) | | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :--- | :--- | :--- | | Cash flows from operating activities | 99,915 | (96,371) | | Cash and cash equivalents at end of period | 258,756 | 171,029 |