Abivax(US:ABVX)2024-04-05 20:03PART I Key Information The company faces significant financial, operational, and regulatory risks as a clinical-stage entity Risk Factors Key risks include a history of losses, reliance on its lead drug candidate, and material weaknesses in internal controls - The company is a clinical-stage biopharmaceutical firm with a limited operating history, no approved products, and no revenue, making future prospects difficult to assess19 Historical Net Losses | Year Ended December 31 | Net Loss (in millions of €) | | :--- | :--- | | 2023 | €147.7 | | 2022 | €60.7 | | 2021 | €42.5 | - The company anticipates needing substantial additional funding to complete clinical development, with existing cash expected to fund operations into the fourth quarter of 20252729 - Material weaknesses in internal controls over financial reporting have been identified, related to a lack of formal processes and sufficient experienced professionals3638 - The company is heavily dependent on the success of its lead drug candidate, obefazimod, as other candidates are in much earlier stages of development5880 - The company relies on a small number of third-party suppliers and manufacturers, including single-source suppliers, creating potential dependencies and risks115 - The company may be classified as a Passive Foreign Investment Company (PFIC), which could result in adverse U.S. federal income tax consequences for U.S. investors247248 Information on the Company The company is a clinical-stage biotech developing obefazimod for chronic inflammatory diseases like UC and CD History and Development of the Company The company was founded in 2013, listed on Euronext in 2015, and completed its Nasdaq IPO in October 2023 - The company was incorporated in France in 2013 and is listed on both Euronext Paris (since 2015) and the Nasdaq Global Market (since October 2023)290 - In October 2023, the company raised approximately $235.8 million in gross proceeds from its initial public offering of ADSs on Nasdaq290 Business Overview The business centers on advancing obefazimod through Phase 3 trials for UC, leveraging its novel mechanism of action - The company's lead drug candidate, obefazimod, is being evaluated in Phase 3 trials for ulcerative colitis (UC) and a Phase 2b trial is planned for Crohn's disease (CD)292 - Obefazimod has a novel mechanism of action, enhancing the expression of a single micro-RNA, miR-124, a natural regulator of inflammation295329 Obefazimod Development Pipeline | Indication | Preclinical | Phase 1 | Phase 2 | Phase 3 | | :--- | :--- | :--- | :--- | :--- | | Obefazimod | | | | | | Ulcerative Colitis | ✓ | ✓ | ✓ | Ongoing | | Crohn's Disease | ✓ | ✓ | Planned | | - Top-line data from the two Phase 3 induction trials in UC are expected in the first quarter of 2025, with maintenance trial data expected in the first quarter of 2026301327 - In the Phase 2b maintenance trial for UC, 53% of patients achieved clinical remission and 73% achieved clinical response after two years of treatment298322 - The company outsources all manufacturing operations to third-party CMOs and is scaling up its supply chain for potential commercial supply413414 - Key competitors in the chronic inflammatory disease field include major pharmaceutical companies such as AbbVie, Eli Lilly, Johnson & Johnson, Pfizer, and Takeda416 Operating and Financial Review and Prospects The company's net loss widened significantly due to increased R&D spending on Phase 3 trials for obefazimod Operating Results Net loss grew to €147.7 million in 2023, driven by a 114% rise in R&D and a 199% rise in G&A expenses Consolidated Results of Operations (in thousands of €) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Total operating income | 4,621 | 4,583 | 11,961 | | Research and development expenses | (103,176) | (48,295) | (47,781) | | General and administrative expenses | (22,390) | (7,492) | (5,580) | | Goodwill impairment loss | — | (13,632) | — | | Operating loss | (127,376) | (64,836) | (41,400) | | Financial income (loss) | (20,364) | 4,096 | (1,052) | | Net loss for the period | (147,740) | (60,740) | (42,452) | - Research and development expenses increased by 114% in 2023 to €103.2 million, primarily due to the progression of the Phase 3 clinical trials for obefazimod in UC548 - General and administrative expenses increased by 199% in 2023 to €22.4 million, driven by higher personnel costs and costs of being a dual-listed public company550 - In 2022, the company recorded a goodwill impairment loss of €13.6 million related to the ABX196 cash-generating unit after freezing its development553 Liquidity and Capital Resources Operations are funded by equity and debt, with cash expected to last into Q4 2025 following a 2023 IPO - As of December 31, 2023, the company had cash and cash equivalents of €251.9 million and other short-term investments of €9.0 million560 - The company expects its current cash position to fund its forecasted cash flow requirements into the fourth quarter of 2025561 Major Capital Increases (2021-2023) | Date | Type | Gross Proceeds (in thousands of €) | | :--- | :--- | :--- | | July 30, 2021 | Issuance of ordinary shares | 60,001 | | September 2, 2022 | Issuance of ordinary shares | 46,231 | | February 23, 2023 | Issuance of ordinary shares | 130,000 | | October 24, 2023 | Initial Public Offering (Nasdaq) | 223,300 | Historical Cash Flows (in thousands of €) | | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash flows (used in) operating activities | (97,130) | (53,936) | (45,048) | | Net cash flows from (used in) investing activities | (8,095) | (12,026) | (6,232) | | Net cash flows provided by (used in) financing activities | 335,290 | 32,211 | 82,679 | Directors, Senior Management and Employees The section details company leadership, board structure, compensation, and employee demographics - The company is led by CEO and Chairman Marc de Garidel, who has over 40 years of experience in the pharmaceutical and biotechnology sector601 - The aggregate compensation paid to all current executive officers and directors for the year ended December 31, 2023, was €9.8 million622 - The Board of Directors consists of eight members and has established an audit committee and an appointments and compensation committee670 - As of December 31, 2023, the company had 61 full-time employees, with 40 in research and development694 - The company uses various equity incentive instruments, including founder's share warrants (BCE), share warrants (BSA), and free shares (AGA), as compensation tools644 Major Shareholders and Related Party Transactions The company's ownership is concentrated among several investment funds, with related party transactions disclosed Major Shareholders (as of February 29, 2024) | Shareholder | Percentage of Ordinary Shares Beneficially Owned | | :--- | :--- | | TCG Crossover | 9.63% | | Invus | 8.85% | | Sofinnova Crossover | 8.37% | | Entities managed by Truffle Capital | 7.73% | | Deep Track Capital | 6.83% | | Entities affiliated with Venrock | 5.74% | | All directors and officers as a group | 18.18% | - As of December 31, 2023, an estimated 10,589,234 outstanding ordinary shares (including ADSs) were held by eight shareholders of record in the United States704 - Related party transactions in 2023 included significant participation from major shareholders in the company's private placement and U.S. Initial Public Offering706708 Financial Information The company has no history of paying dividends and reports no material legal proceedings - The company has never declared or paid cash dividends and does not intend to in the foreseeable future, planning to retain all available funds for business operations718 - The company is not currently a party to any material legal proceedings that are expected to have a material adverse effect on its business717 Additional Information Material contracts include significant debt facilities, with key tax risks related to its PFIC status - In August 2023, the company secured up to €150 million in structured debt financing through two separate agreements with Kreos/Claret and Heights Capital Management724726 - The company has a Royalty Agreement with CNRS, the University of Montpellier, and the Institut Curie, entitling them to milestone payments and low single-digit royalties737 - For U.S. Holders, dividends are generally subject to a French withholding tax, typically reduced to 15% under the U.S.-France tax treaty757758 - The company does not believe it was a Passive Foreign Investment Company (PFIC) for the 2023 tax year, but notes there is no assurance it will not be treated as a PFIC in the future780 Quantitative and Qualitative Disclosures About Market Risk Primary market risks include liquidity, foreign currency, and credit risk, with liquidity being most significant - The company's principal financial risks are identified as liquidity risk, interest rate risk, foreign currency exchange risk, and credit risk794 - Liquidity risk is a key concern, as operations have required substantial cash and will continue to require significant additional capital for clinical development795796 - The company is exposed to foreign currency risk, with operating expenses in U.S. dollars totaling €10.1 million in 2023; an adverse 10% change in the USD/EUR exchange rate would have resulted in a loss of approximately €0.4 million for 2023800 PART II Material Modifications to the Rights of Security Holders and Use of Proceeds The company raised net proceeds of $212.2 million from its 2023 global offering with no change in planned use - The company raised approximately $212.2 million in net proceeds from its Global Offering, which closed on October 24, 2023814815 - There has been no material change in the planned use of proceeds from the offering as described in the final prospectus816 Controls and Procedures Disclosure controls were deemed ineffective as of year-end 2023 due to identified material weaknesses - Management concluded that as of December 31, 2023, the company's disclosure controls and procedures were not effective817 - The ineffectiveness is due to material weaknesses related to a lack of risk assessment, formal processes, and a sufficient number of experienced professionals818 - Remediation efforts are underway, including hiring an SVP of Finance and initiating a SOX documentation project, but were not complete as of year-end818819 Other Information This section covers governance topics, including the audit committee, accountant fees, and cybersecurity - The Board has determined that Troy Ignelzi is an "audit committee financial expert"823 Principal Accountant Fees (in thousands of €) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | 1,714 | 100 | | All other fees | 492 | 740 | | Total | 2,206 | 840 | - As a foreign private issuer, the company relies on exemptions from certain Nasdaq corporate governance standards, following home country practices829 - The company has a cybersecurity risk management program overseen by the Board of Directors and managed by the CFO, an external IT Director, and a Data Protection Officer833837838 PART III Financial Statements The report includes audited IFRS financial statements with an unqualified opinion from the independent auditor - The independent auditor, PricewaterhouseCoopers Audit, issued an unqualified opinion on the consolidated financial statements, stating they present fairly in conformity with IFRS851 Consolidated Statement of Financial Position (in thousands of €) | | As of Dec 31, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | 327,062 | 75,544 | | Cash and cash equivalents | 251,942 | 26,950 | | Total Liabilities | 131,050 | 68,355 | | Total Shareholders' Equity | 196,010 | 7,189 | - The financial statements have been prepared on a going concern basis, with management concluding that existing cash is sufficient to fund operations into Q4 2025871874