Consolidated Statement of Financial Position Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
(USD in thousands)
|
|
2020
|
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
Cash, cash equivalents and available-for-sale financial assets
|
|
|
79,087
|
|
|
77,598
|
|
|
82,542
|
|
|
109,554
|
|
|
138,723
|
|
Working capital (2)
|
|
|
78,641
|
|
|
77,567
|
|
|
82,212
|
|
|
89,706
|
|
|
132,465
|
|
Total assets
|
|
|
79,714
|
|
|
78,165
|
|
|
83,332
|
|
|
111,008
|
|
|
163,143
|
|
Accumulated deficit
|
|
|
(14,825
|
)
|
|
(8,432
|
)
|
|
(5,686
|
)
|
|
(2,373
|
)
|
|
(147,400
|
)
|
Total shareholders' equity
|
|
|
78,644
|
|
|
77,569
|
|
|
82,214
|
|
|
89,680
|
|
|
155,802
|
|
-
(2)
-
Working
capital is defined as total current assets less total current liabilities.
Exchange Rate Information
Our business is primarily conducted in Denmark. The functional currency of Forward Pharma A/S is the Danish Kroner, or DKK, the functional
currency of FA is the DKK, the functional currency of Operations is the DKK, the functional currency of FP GmbH is the Euro and the functional currency of FP USA is the United States, or U.S.,
Dollar. Forward Pharma A/S reports its consolidated financial statements in U.S. Dollars.
B. Capitalization
Not applicable.
C. Reason for the Offering
Not applicable.
D. Risk Factors
Our business faces significant risks and uncertainties. You should carefully consider all of the information set forth in this Annual
Report on Form 20-F and other documents we file with or furnish to the SEC, including the following risk factors, before deciding to invest or making any decision with respect to your
investment in any of our securities. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs. This Annual Report also
contains forward-looking statements that involve risks and uncertainties. See "Cautionary Note 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.
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Risks Related to Our Business and Industry
There can be no assurance that we will prevail in the opposition proceeding involving our EP2801355 patent
after any appeals or, if we do prevail, that the resulting claims of our EP2801355 patent will be royalty bearing under the Settlement and License Agreement with Biogen.
We are involved in an opposition proceeding regarding EP2801355, or EP'355 patent, with several opponents including a subsidiary of
Biogen Inc. (all subsidiaries of Biogen Inc., together with Biogen Inc., hereafter collectively referred to as "Biogen"), or the Opposition Proceeding. On January 29, 2018,
the European Patent Office, or EPO, revoked the EP'355 patent following the oral hearing in the Opposition Proceeding. On March 22, 2018, the Opposition Division issued its written decision
with detailed reasons for the decision. On May 7, 2018, the Company submitted its notice of appeal, and on August 1, 2018, the Company submitted the detailed grounds for the appeal. On
July 8, 2019, we received notice from the EPO that the appeal was scheduled to be heard by the Technical Board of Appeal, or TBA, of the EPO on June 18, 2020, or the 2020 Hearing. The
2020 Hearing has subsequently been postponed twice as the result of the ongoing COVID-19 pandemic. The 2020 Hearing was initially rescheduled to be heard on February 2, 2021 and on
January 12, 2021, the EPO informed the Company that the appeal hearing would be postponed a second time to September 6, 2021, or the 2021 Hearing. The 2021 Hearing may be further delayed
as a result of the COVID-19 pandemic. Management expects the TBA to issue a ruling on the same day as the hearing with a fully-argued decision to follow approximately two months after the 2021
Hearing.
If
we receive a favorable ruling following the 2021 Hearing, it is expected that the TBA will remit the case to the Opposition Division, in order for the Opposition Division to resolve
the remaining elements of the original opposition. Management estimates that the Opposition Division would take approximately two to three years to resolve the remaining elements of the original
opposition in the event of a remittal. However, delays can occur that would extend the time needed for the Opposition Division to reach a conclusion on the remaining elements of the original
opposition. We are not entitled to any royalty payments from our Settlement and License Agreement, dated as of January 17, 2017, or the License Agreement, with two subsidiaries of Biogen that
became effective on February 1, 2017, until and unless all remaining elements of the original opposition are resolved in our favor. As such, the earliest time we may expect to receive any
revenues from the License Agreement, if at all, is 2024.
If
we receive an unfavorable ruling in the 2021 Hearing, it would, for all practical purposes, represent an unsuccessful outcome of the Opposition Proceeding, resulting in no royalties
being due to us from Biogen based on Biogen's future net sales outside the United States, as defined in the License Agreement. We may request a rehearing of the 2021 Hearing with the Enlarged Board of
Appeal of the EPO in an effort to overturn the unfavorable outcome, but the likelihood of getting a rehearing is low. The denial of a request to rehear would end the Opposition Proceeding in favor of
the opponents.
There
can be no assurance that we will be successful in the Opposition Proceeding after any appeals. Even if we receive a favorable ruling following the 2021 Hearing, the Opposition
Division may not resolve the remaining elements of the original opposition in our favor. If we are not ultimately successful in the Opposition Proceeding, we would not be entitled to any future
revenues resulting from the License Agreement.
Even if we prevail, after any appeals, in the Opposition Proceeding, there can be no assurance that we will
receive additional payments under the License Agreement with Biogen.
Even if we prevail, after any appeals, in the Opposition Proceeding, there can be no assurance that any of the conditions for payment of a
royalty under the License Agreement will be satisfied or that we will receive any additional payments. For example, we could prevail in the Opposition Proceeding, after any appeals, but fail as a
result of that proceeding to obtain issuance of a patent with a claim that
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covers
treatment for multiple sclerosis, or MS, by orally administering 480 mg per day of dimethyl fumarate, or DMF, in which case we would not be entitled to any royalties from Biogen with respect to
sales outside of the United States. Moreover, even if we prevail, after any appeals, in the Opposition Proceeding, we will only be eligible to receive royalties outside of the United States if one or
more of our patent(s) remains valid and would (but for the License Agreement) be infringed, at relevant times and on a country-by-country basis, by Biogen's sales outside the United States of
DMF-containing products indicated for treating MS and other conditions of the License Agreement are satisfied.
In
addition, we may be required in any arbitration or suit brought in the County of New York in the State of New York according to the dispute resolution provisions of the License
Agreement, to incur significant expense to prove, on a country-by-country basis, that any DMF-containing products indicated for treating MS sold by Biogen would (but for the License Agreement)
infringe our patent(s) existing at that time. Additionally, among the conditions that need to be satisfied for any royalty to be payable by Biogen to the Company in a particular country is the absence
of generic entry in that country having a particular impact as defined in the License Agreement. Even if our royalty-eligible patents were to remain valid, there can be no assurance that we would
obtain royalties beyond 20 years from their effective filing date. In particular, there can be no assurance that we will receive or maintain Supplementary Protection Certificates, or SPCs, for
any of our European patents.
We are likely to derive all or a significant portion of our future revenues, if any, from Biogen and our
future success depends on continued market acceptance of Tecfidera® as well as continued performance by Biogen of its obligations under the License Agreement.
We anticipate that all or a significant portion of our future revenues, if any, may consist of royalties from Biogen from sales of
Tecfidera® outside of the United States. We have no control over the sales efforts of Biogen, and its future marketing of Tecfidera® might not be successful. Reductions in the
sales volume or average selling price of Tecfidera® for any reason could have a material adverse effect on our business. We also depend on Biogen to perform all of its non-royalty payment
obligations under the License Agreement.
Failure to materially comply with the terms and conditions of the License Agreement could result in a loss of
future royalty revenues.
Under the terms of the License Agreement, we are required to perform certain obligations, including maintaining sufficient capital to continue
the Company's operations as a going concern and solvent entity. Failure by the Company to materially comply with its obligations under the License Agreement could cause the Company to lose its
potential right to royalties from Biogen under the License Agreement.
We may face business disruption and related risks resulting from the ongoing COVID-19 pandemic, which could
have an adverse effect on our business.
Our business and its operations have been and may continue to be disrupted and adversely affected by the ongoing COVID-19 pandemic. As a result
of measures imposed by the governments in affected regions, including throughout Europe, businesses and government agencies have been suspended due to quarantines intended to contain this outbreak.
Such measures have negatively impacted and may in the future negatively impact certain of our business operations, including the expected timelines for the resolutions of our ongoing tax audits and
the Opposition Proceeding, each described elsewhere in this Annual Report. Additionally, as a result of the COVID-19 pandemic, we have been required to limit our operations and implement limitations,
including work-from-home policies.
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In
addition, international stock markets have been volatile as a result of the uncertainty associated with the impact of the COVID-19 pandemic on the global economy. If such volatility
continues, our stock price may be negatively affected as a result.
The
ultimate impact of the ongoing COVID-19 pandemic is highly uncertain and subject to rapid changes. We do not yet know the full extent of potential disruptions or impacts on our
business, our ongoing tax audits, the Opposition Proceeding, or the global economy as a whole, and any such disruptions could have a material adverse effect on our operating results and financial
condition.
Our future growth and ability to compete depend on retaining our key personnel and recruiting additional
qualified personnel.
Our success depends upon the continued contributions of our management. These individuals currently include the members of our board of
directors, consisting of our Chairman, Florian Schönharting, as well as Torsten Goesch, Grant Hellier Lawrence, Jakob Mosegaard Larsen, and Duncan Moore. Additionally, our Chief
Executive Officer, Claus Bo Svendsen, and our Vice President, Finance and Controller, FP USA, Thomas Carbone.
The
loss of directors or key executives 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 managerial employees and consultants. We face competition for personnel from other companies, universities,
public and private research institutions and other organizations. If 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.
Changes in privacy laws could have an adverse effect on our business.
The regulatory framework for privacy and cybersecurity issues worldwide is rapidly evolving and is likely to remain uncertain for the
foreseeable future. In May 2016, the European Union
adopted the General Data Protection Regulation, or GDPR, which imposes more stringent data protection requirements and will provide for greater penalties for noncompliance. Additionally, following the
United Kingdom's withdrawal from the European Union and the European Economic Area, companies also have to comply with the United Kingdom's data protection laws (including the GDPR as incorporated
into UK national law), the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. We may be required to incur significant
costs to comply with privacy and data security laws, rules and regulations, including the GDPR and UK national law. Any inability to adequately address privacy and security concerns or comply with
applicable privacy and data security laws, rules and regulations could have an adverse effect on our business prospects, results of operations and/or financial position.
Our business and operations may be materially adversely affected in the event of computer system failures or
security breaches.
Despite the implementation of security measures, our internal computer systems, and those of any third-party vendor on which we rely from time
to time, are vulnerable to damage from computer viruses, unauthorized access, cyber-attacks, natural disasters, fire, terrorism, war and telecommunication and electrical failures. If such an event
were to occur and interrupt our operations, it could result in a material disruption to our operations. To the extent that any disruption or security breach results in a loss of or damage to our data
or applications, loss of trade secrets or inappropriate disclosure of confidential or proprietary information, including protected health information or personal data of employees or former employees,
we could incur liability. We may also be vulnerable to cyber-attacks by hackers or other malfeasance. This type of breach of our cybersecurity may compromise our
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confidential
information or our financial information and adversely affect our business or result in legal proceedings.
Risks Related to Intellectual Property
We no longer have full control over the licensed intellectual property associated with the Company.
Pursuant to the License Agreement, in 2017 we effected a corporate restructuring whereby we transferred our intellectual property to FWP IP ApS,
or FWP IP, a Danish limited liability company. The capital stock of FWP IP was subsequently transferred to and is now held by FWP HoldCo ApS, or HoldCo, a Danish limited liability company, which is
owned and controlled by FWP Fonden, or the Foundation, an independent Danish foundation. The boards of directors of the Foundation, HoldCo and FWP IP are identical and each consist of three members,
comprised of one independent member and one member appointed by each of Forward Pharma and Biogen. All actions of the Foundation, HoldCo and FWP IP require the unanimous approval of their respective
boards of directors. As a result, we no longer have full control over the licensed intellectual property associated with the Company. Even though we have agreed with Biogen and FWP IP that FWP IP will
be required to take actions with respect to the transferred intellectual property, which now consists only of the non-U.S. intellectual property associated with the Company, in accordance with the
provisions of the License Agreement, there can be no assurance that it will do so or that the prosecution of the intellectual property will be pursued in a manner that maximizes the value of the
intellectual property over time. Further, in the event that FWP IP, which holds the transferred intellectual property, would materially breach its obligations under the License Agreement, Biogen would
have a right to purchase all of the issued and outstanding shares of FWP IP at a price corresponding to its intrinsic value at the time of exercise. Finally, in the event the Foundation were to file
for bankruptcy, a bankruptcy trustee would have substantial discretion to transfer or sell the assets of the foundation. In either such event, we could lose any right to control the transferred
intellectual property, which could have a material adverse effect on our business.
There can be no assurance that even if we are successful in the opposition and appeal proceedings involving
the patents associated with the Company currently pending before the EPO, we will not be subject to subsequent or parallel invalidity proceedings involving these same or other patents associated with
the Company before a national court in any of the European Patent Convention member states where the patents were validated, which subsequent or parallel proceedings could result in the challenged
patents being subject to continued uncertainty as to their validity until such proceedings have been fully concluded. We cannot at this time anticipate how long any such proceedings may last or when,
if at all, the patents currently under challenge will finally be declared to be valid or not.
The possibility of parallel validity proceedings in national courts and in the EPO is inherent in the legal arrangements under the European
Patent Convention under which the EPO was established. If a third party files an opposition to a European patent with the EPO and also, in parallel, initiates a revocation action (also called a
"nullity action" or "validity proceeding") against the same patent before a national court, certain national courts may exercise their discretion to either (i) stay the national proceedings, in
order to await the outcome of the EPO opposition proceedings, or (ii) allow the revocation proceedings to go ahead, without awaiting the outcome of the EPO proceedings. The rules and practices
differ from country to country within the member states of the European Patent Convention. For example, certain countries will stay the main proceeding until a final decision has been reached by the
EPO whereas in other countries a stay is not automatic, and in such cases the courts may continue the proceedings notwithstanding the opposition. In Germany, for example, national
nullity proceedings cannot be started before the German Federal Patent Court until the EPO opposition proceedings have been concluded or the opposition period has expired. As a result, it is possible
that certain of the patents now subject to opposition proceedings before the EPO will, even if
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we
are ultimately successful before the EPO, again become subject to a revocation action in a country like Germany, which means the challenged patents could be subject to continued uncertainty in the
EU as to their validity until such proceedings have been fully concluded. We cannot at this time anticipate how long any such proceedings may last or when, if at all, the patents currently under
challenge will finally be declared to be valid or not. Furthermore, even if we are successful in the Opposition Proceeding, we will only be eligible to receive royalties outside of the United States
if the patent(s) remain valid at relevant times on a country-by-country basis, provided that other conditions of the License Agreement are satisfied.
We rely on Biogen for the filing, prosecution and maintenance of certain of the non-U.S. licensed
intellectual property and if Biogen fails to adequately protect such intellectual property, our rights to the intellectual property associated with the Company and our ability to receive future
royalties from Biogen may be harmed.
Under the License Agreement, Biogen has assumed the filing, prosecution and maintenance of all of the non-U.S. licensed intellectual property
associated with the Company, except for the EP'355 patent. While Biogen is obligated to take all reasonable measures to diligently file, prosecute and maintain the non-U.S. licensed intellectual
property for which it is responsible, there can be no assurances that Biogen will protect the intellectual property to the same degree as the Company. If Biogen fails to adequately protect the
non-U.S. licensed intellectual property, the Company could lose such intellectual property rights. Additionally, if the non-U.S. licensed intellectual property is harmed, any future royalty payments
from Biogen on the non-U.S. licensed intellectual property may be negatively impacted.
We may be required to pay significant fees to the EPO and our attorneys to file, prosecute, maintain and
defend certain of the licensed intellectual property with no assurance of receiving future royalties from Biogen.
In certain circumstances under the License Agreement, the Company may assume the filing, prosecution and maintenance of certain of the Company's
non-U.S. licensed intellectual property in order to protect its interests in such intellectual property, including participating in European opposition proceedings, unless and until Biogen either
re-assumes the filing, prosecution and
maintenance of such non-U.S. licensed intellectual property or exercises its option to purchase all of the Company's non-U.S. licensed intellectual property. To do so, the Company would have to incur
significant fees, including attorneys' fees, to file, prosecute and maintain such non-U.S. licensed intellectual property and may not be entitled to receive any royalties from Biogen.
We may become involved in lawsuits to protect, defend and enforce the patents or other intellectual property
associated with the Company, which could be expensive, time-consuming and, if unsuccessful, could result in issued patents covering our product candidate being found invalid or unenforceable.
Competitors may infringe the patents or other intellectual property associated with the Company. To counter such infringement, we may file
claims or be required to join or assist claims filed by Biogen, and any related litigation and/or prosecution of such claims may be expensive and time-consuming. Any claims asserted against perceived
infringers could provoke these parties to assert claims alleging that we infringe their intellectual property. In addition, in a patent infringement proceeding, or a parallel opposition, nullity or
cancellation proceeding, it may be decided that a patent associated with the Company is invalid in whole or in part, unenforceable, or construes the patent's claims narrowly allowing the other party
to commercialize competing products on the grounds that the patents associated with the Company 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 personnel
from their normal responsibilities. Such litigation or proceedings could substantially increase our operating expenses. We may not have sufficient financial or other resources to adequately conduct
such litigation or
11
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proceedings.
Some 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.
Third parties may claim rights including ownership rights in the intellectual property associated with the
Company.
None of the named inventors on the patent and patent applications associated with the Company were our employees at the time of the filing of
the Core Composition Patent family that we acquired from Aditech Pharma AB (together with its successor-in-interest, Swiss company Aditech Pharma AG, or Aditech). Two of the named inventors of the
priority applications in the Core Composition Patent family were consultants of Aditech and, while obligated under their consulting agreements to assign their rights in the Core Composition Patent
family to Aditech, were employed by other institutions at the time they were named as inventors. While such institutions have not made any claims to ownership, 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. Further, other
individuals (including persons not known to us or their employers) could make claims or assertions that they are inventors and/or owners of the intellectual property associated with the Company.
Under
mandatory Danish law, a salaried employee having made a patentable invention (and products that may be registered as utility models) 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 must be transferred to the employer, to the extent not otherwise agreed, provided
that the use of such patentable invention falls within the "working area" of the employer or it is a result of a specific assignment given by the employer to the employee. Following notification from
the employee of the invention, the employer has four months to decide whether to acquire the rights to the invention. Such a transfer of the invention to the employer entitles the employee to a
"reasonable compensation." The fee will 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, for example, the number of items produced 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 relative time-barring deadline under Danish law is five years with respect to claims based on employment matters, whereas the general absolute deadline for such claims is 10 years.
Some
of the named inventors on the newer applications associated with the Company (not the Core Composition Patent family) are or were employees of our German subsidiary, FP 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
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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 an employee's rights to patentable inventions which result from performance of the tasks the employee is charged with at the employer or which are based to a significant
extent on the experiences or works of the employer, upon the employer's request within a certain period of time after notification by the employee.
We
believe that all inventive contributions made by employees of FP 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. Prior to October 1, 2009, such formal procedure had been susceptible to faults. The
amendments to the law facilitate the transfer of rights in employees' inventions to the employer by replacing the former opt-in approach with 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
protection 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 employee 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 FP 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, in particular in case of a failed transfer of rights, our results of operations could be adversely affected.
Intellectual property rights have limitations and may not adequately protect our business.
The degree of future protection afforded by the intellectual property rights associated with the Company is uncertain because intellectual
property rights have limitations and may not adequately protect our business. The following examples are illustrative:
-
-
Others may be able to commercialize DMF-containing products that are not covered by the claims of the patents or patent applications associated
with the Company.
-
-
Others may independently develop similar or alternative technologies or otherwise circumvent any of our technologies without infringing the
patents or patent applications that we own, license or will own or license.
-
-
We 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 might not have been the first to file patent applications on the inventions disclosed in those applications.
-
-
It is possible that the pending patent applications associated with the Company will not lead to issued patents.
-
-
Issued patents that we own, license or will own or license may not provide us with any competitive advantage, or may be held invalid or
unenforceable, as a result of legal challenges by our competitors.
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-
-
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.
-
-
Ownership of the patents or patent applications associated with the Company may be challenged by third parties.
-
-
The patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.
Risks Related to Our Financial Position and Capital Needs
With the exception of 2017, we have a history of operating losses and we may not achieve or sustain
profitability.
Since the Company's inception, with the exception of 2017 when we received a nonrecurring cash fee of $1.25 billion, or the
Non-refundable Fee, from Biogen in connection with the License Agreement, we have incurred net losses and negative cash flows from operations. We expect to incur net losses and negative cash flows
from operations for the foreseeable future, subject to the resolution of the Opposition Proceeding. There is no assurance that we will ever have operating revenues, net income or positive cash flows
from operations in the future. The Group's ability to generate future operating revenue is currently limited to royalties that are contingently due to the Company under the License Agreement only if
we prevail, including all appeals, in the Opposition Proceeding. If we fail to prevail in the Opposition Proceeding, it is highly unlikely we will have operating revenues and our ability to continue
as a going concern long-term would be uncertain.
Historically,
we have financed our operations through our initial public offering completed in October 2014, private placements of equity securities, a government grant, and debt
financing arrangements. We have never generated and do not anticipate generating any revenues from our own product sales. We believe that our existing cash and cash equivalents will enable us to fund
our operating expenses and capital expenditure requirements beyond the next twelve months. Should the Company experience unforeseen expenses or other usages of cash, the effect would negatively impact
management's ability to fund operations and continue as a going concern. In addition, the Danish and German tax authorities have commenced tax audits of the Group's Danish and German tax returns
covering multiple years through the year ended December 31, 2017. Management has determined, based on consultations with the Group's tax advisors, that it is not probable (i.e., more
likely than not) that the Group will be required to pay additional taxes to the German tax authorities upon the ultimate resolution of the joint tax audit. However, such determination is inherently
subjective and, if it is incorrect, then the Group may be subject to significant additional tax levies. The imposition of additional taxes, interest and/or penalties by the taxing authorities could
have a material adverse effect on the Group. If the Company were to need to raise capital to fund ongoing operations, there can be no assurances that such funding would be available on acceptable
terms, if at all. The long-term success of the Company will be based on successfully defending the intellectual property associated with the Company in the Opposition Proceeding. There can be no
assurance that the Company will successfully defend the intellectual property, achieve or sustain positive cash flows from operations or become profitable.
Even
if we do generate revenue, including from future royalties on 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 American Depositary Shares, or ADSs, and could impair our ability to raise capital or continue our operations. A decline in the
market price of our ordinary shares and ADSs also could cause you to lose all or a part of your investment.
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Negative results from ongoing tax audits could result in additional taxes, interest and penalties becoming
due that could negatively impact our financial position, results of operations and cash holdings.
The Company's Danish, German and United States tax returns are subject to periodic audit by the local tax authorities and are subject to ongoing
audits in Germany and Denmark. Such audits could result in the tax authorities disagreeing with the tax filing positions taken by the Group. If the Group is unable to defend the tax filing positions
taken, additional taxes, interest and penalties would be assessed against the Group and such amounts could have a material adverse effect on our financial position, results of operations and cash
holdings.
Currently,
the Danish and German tax authorities are conducting a joint tax audit of our Danish and German tax returns covering multiple years through the year ended December 31,
2017. To date, the joint tax audit has focused on whether cross-border intercompany transactions were conducted at arm's length and in accordance with tax regulations. Management believes that the
intercompany transactions that are the focus of the joint tax audit were conducted at arm's length and are in accordance with tax
regulations; however, the Danish and German tax authorities may decide to allocate a greater portion of the Group's total 2017 taxable income to Germany. The corporate income tax rate is higher in
Germany than in Denmark and therefore any reallocation of the Group's 2017 taxable income from Denmark to Germany will have a negative effect on our financial position, results of operations and cash
holdings that could be material.
Management
has determined, based on consultations with the Group's tax advisors, that it is not probable (i.e., more likely than not) that the Group will be required to pay
additional taxes to the German tax authorities upon the ultimate resolution of the joint tax audit. However, such determination is inherently subjective and, if it is incorrect, then the Group may be
subject to significant additional tax levies. The ultimate resolution of the joint tax audit may require that the Group incur a material outflow of cash that would negatively affect the Group's
financial position, results of operations and cash holdings. The timing of the completion of the joint tax audit by the tax authorities is currently unknown.
The
Company made certain cash payments to equity award holders during the year ended December 31, 2017 that totaled 36.2 million EUR ($43.4 million based on the
December 31, 2017 exchange rate). Management believes these payments are tax deductible expenses; however, the tax authorities could disagree. Management believes that appropriate tax filing
provisions have been taken by the Company and its subsidiaries regarding these payments; however, if the Group is unable to defend the tax filing positions taken, additional taxes, interest and
penalties would be assessed against the Group and such amounts could have a material adverse effect on our financial position, results of operations and cash holdings.
There is no assurance that the joint tax audit being conducted by the Danish and German tax authorities will
not result in double taxation.
The Danish and German tax authorities may conclude their joint tax audit of the Group's Danish and German tax returns without reaching an
agreement as to whether intercompany transactions were conducted at arm's length and whether each tax jurisdiction was allocated an equitable portion of the Group's taxable income. In the event of
such a conclusion, we believe that one, or possibly both, tax jurisdictions would assess additional taxes on the Company and/or FP GmbH, which would result in double taxation of the Group's
taxable income. If double taxation were to occur, the Group would experience a higher effective tax rate, which could be material to and would negatively affect the Group's financial position,
operating results and cash holdings.
In
the event that the joint tax audit results in double taxation, the Group may choose to enter into a Mutual Agreement Procedure, or MAP, and/or commence litigation against the tax
authorities in order to avoid or mitigate the negative effect of double taxation. A MAP is a
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government-to-government
dispute resolution mechanism, which would enable the relevant authorities to resolve the tax dispute on a mutually agreeable basis. A MAP may also follow an independent
arbitration procedure to secure a successful resolution. If litigation were pursued, it would likely be time-consuming and costly and there remains a high uncertainty as to whether we would
successfully avoid or mitigate the double taxation. If a MAP were pursued, it would also be time-consuming and potentially costly and, while double taxation would be eliminated, there remains a high
uncertainty whether we would get relief from an increase to the Group's tax obligation, since the outcome of a MAP could be that a greater portion of the Group's total 2017 taxable income is allocated
to Germany. We currently estimate that litigation could take up to five years and a MAP could take up to three years to conclude and could be further prolonged by other factors, including in respect
of a MAP the addition of an arbitration procedure. The cost to pursue a MAP and/or litigation and any potential taxes, interest and penalties due at the conclusion of the MAP and/or litigation could
each have a material adverse effect on the Group's financial position, operating results and cash holdings.
We may be required to raise additional capital to fund our operations, and we may not be able to do so on
terms acceptable to us, or at all.
We are required under the terms of the License Agreement to maintain sufficient capital to continue the Company as a going concern and a solvent
entity, plus an additional $5.0 million until such time as the Company has complied with certain obligations under the License Agreement. While we currently believe we have sufficient resources
to enable us to comply with our obligations under the License Agreement and continue as a going concern beyond the next twelve months, unforeseen events could negatively affect our estimates and
assumptions about how much capital will be required for us to meet our near and long-term obligations under the License Agreement and to continue as a going concern. If our current estimates and
assumptions prove to be wrong and we need to raise additional capital to meet our obligations under the License Agreement and remain a going concern, we cannot assure you that we will be able to raise
additional working capital as needed on terms acceptable to us, if at all. If we are unable to raise capital as needed, we may be required to reduce the scope of our operations, which could harm our
financial condition and operating results, or cease our operations entirely. In addition, if we fail to prevail in the Opposition Proceeding, including all appeals, future revenues are unlikely and
the Company's ability to continue as a going concern long-term would be uncertain.
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, the ownership interests of our
existing equity holders will be diluted, and the terms of any new securities may include liquidation or other preferences that adversely affect the rights of our existing equity holders. In addition,
the issuance of additional equity securities by us, or the possibility of such issuance, may cause the market price of our ADSs to decline. Debt financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions such as, but not limited to, incurring additional debt, making capital expenditures, declaring and paying dividends or
making capital reductions.
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 and the fact that a substantial amount of our cash is currently denominated in U.S. Dollars and
Euros, fluctuations in exchange rates, particularly between the Danish Kroner, or the DKK, the Euro and the U.S. Dollar, may adversely affect us. Although we are based in Denmark, we have sourced many
services from several countries outside Denmark where the transactions are settled in currencies that are not the DKK. Further, potential future revenue may be derived from abroad. As a result, our
business is affected by fluctuations in foreign exchange rates between the DKK, the Euro, the U.S. Dollar or other currencies, and the effects
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could
have a significant impact on our reported results of operations and cash flows from period to period. For example, in the year ended December 31, 2020 we recognized a foreign exchange
loss of $3.0 million. This loss was primarily related to our U.S. Dollar cash holdings and the weakening of the U.S. Dollar during the year compared to the DKK. While we benefited from changes
in foreign exchange rates in 2019 and 2018, it is possible that the foreign exchange loss experienced in 2020 could reoccur. Any foreign exchange losses would negatively affect the Group and the
effect could be material. Currently, we do not have any exchange rate hedging arrangements in place and do not currently have plans to implement any hedging arrangements. Losses incurred by the
Company, including those caused by foreign exchange, could have a negative effect on the trading price of the ADSs.
Developments relating to Biogen, Tecfidera®, our competitors or their products could materially
and adversely affect our business, results of operations, business prospects and the market price of our ADSs.
In the event that our competitors or others in the pharmaceutical industry, including Biogen, experience developments relating to their
business, products or product candidates, our business, results of operations, business prospects and the market price of our ADSs could suffer. In particular, if we are eligible to receive royalties
on sales of Tecfidera®, our future success will depend on the continued market acceptance of Tecfidera® and adverse events, or the perception of adverse events, relating to
Biogen or Tecfidera® would have material adverse effects on us. As a result of entering into the License Agreement, we expect that the market price of our ADSs will become more
significantly affected by announcements made by Biogen,
over which we have no control. Additionally, cases of progressive multifocal leukoencephalopathy have been reported in patients being treated with Tecfidera®, which could raise safety
concerns and harm the market profile of DMF-containing treatments for MS, including Tecfidera®. Similarly, developments relating to other competitors of Biogen and their products could
have significant adverse effects on our business prospects and the market price of our ADSs. For example, competitors may offer their products at reduced prices or with discounts or rebates that
increase pricing pressure with respect to therapies for the treatment of MS.
Related party transactions may be challenged by tax authorities.
The jurisdictions in which we conduct or will conduct business, and in particular Denmark, Germany and the United States, have detailed transfer
pricing rules which require that all transactions with related parties be priced using arm's-length pricing principles. The taxation authorities in these jurisdictions could challenge our arm's-length
related-party transfer pricing practices. For example, prior to the consummation of the License Agreement with Biogen, FP GmbH and the Company terminated their internal license agreement and
agreed that FP GmbH should be paid an arm's-length compensation for said termination. 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. The Danish and German tax authorities have commenced a joint tax audit of the Group's Danish and German tax returns covering
multiple years through the year ended December 31, 2017 and, to date, the joint tax audit has focused on whether cross-border intercompany transactions were conducted at arm's length and in
accordance with tax regulations. It is uncertain when, or if, a tax audit will commence in the United States. If such a tax audit were to occur, we expect that the U.S. tax authorities will also focus
on the intercompany recognition of revenue and expense to ensure that such transactions were conducted at arm's length. There is no assurance that the Group will successfully defend that intercompany
transactions were conducted in accordance with arm's length pricing principles and that any additional taxes, interest or penalties, which could be material, will not be incurred. There is also the
risk that the tax authorities could impose additional taxable income or disallow the deductibility of expenses on intercompany cross-border transactions resulting in higher tax obligations in one or
more tax jurisdictions. Management's experience has been that the tax authorities can be aggressive in taking positions that would increase taxable income and/or disallow deductible
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expenses
reported. If the tax authorities are successful in increasing taxable income and/or disallowing the deduction of expenses in one or more jurisdictions, it would result in the Group
experiencing a higher effective tax rate that could be material. The imposition of additional taxes, interest and/or penalties resulting from a tax audit would negatively impact the Company's
financial position, operating results and cash flows and the impact could be material.
Management
has determined, based on consultations with the Group's tax advisors, that it is not probable (i.e., more likely than not) that the Group will be required to pay
additional taxes to the German tax authorities upon the ultimate resolution of the joint tax audit. However, such determination is inherently subjective and, if it is incorrect, then the Group may be
subject to significant tax levies. The ultimate resolution of the joint tax audit may require that the Group incur a material outflow of cash that would negatively affect the Group's financial
position, results of operations and cash holdings.
We may need to return the proceeds of a government grant if it is found that we did not fully comply with all
terms and conditions.
As part of the project for the development of new or innovative products and procedures in the Free State of Saxony, Germany, the
Sächsische AufbaubankFörderbank, or SAB, awarded FP GmbH a grant, or the Grant, of €3.8 million ($4.7 million based on
the December 31, 2020 exchange rate) that subsidized certain product development costs incurred by FP GmbH, during the period from March 2007 to December 2008. While the SAB has
conducted an audit of the use of proceeds and confirmed that FP GmbH had complied with all the terms and conditions of the Grant, the SAB maintains the right to revoke the Grant and demand
repayment of the Grant, plus interest, in the event the SAB in the future determines that FP GmbH failed to fully comply with all the terms and conditions of the Grant. While we believe that
FP GmbH is in full compliance with all the terms and conditions of the Grant, there is always a risk that the SAB in the future could disagree and demand repayment of the Grant plus interest.
If we were required to repay the Grant, it would have a material negative effect on our financial position and operating results.
Risks Related to Our Ordinary Shares and ADSs
If we fail to maintain the listing of our ADSs with a U.S. national securities exchange, the liquidity of our
ADSs could be adversely affected.
Our ADSs are currently listed for trading on The Nasdaq Capital Market. In order to maintain our listing on The Nasdaq Capital Market, we must
comply with certain Nasdaq listing rules. In June 2019, we received written notices from Nasdaq indicating that we were not in compliance with two of the requirements for continued listing on The
Nasdaq Global Select Market, which was our listing venue at the time. In order to regain compliance and maintain our listing, we
subsequently transferred our listing venue from The Nasdaq Global Select Market to The Nasdaq Capital Market and changed the ADS ratio from one ADS per two ordinary shares to one ADS per fourteen
ordinary shares through a reduction of the number of outstanding ADSs.
While
the trading price of our ADSs has been above $1.00, as required by the Nasdaq listing rules, since the ADS ratio change was effected, there is no assurance that the trading price
will stay above $1.00. We actively monitor the price of our ADSs and will consider available options, including, but not limited to, changing the ADS ratio, to maintain compliance with the continued
listing standards of Nasdaq. We cannot assure that we will stay in compliance with Nasdaq's continued listing standards. If we fail to comply with the continued listing standards of Nasdaq, we will
not be able to remain listed on that stock exchange, which could have a material adverse effect on the price of our ADSs. In addition, if we do not prevail in the Opposition Proceeding, we may choose
to delist our ADSs from The Nasdaq Capital Market.
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If
our ADSs are delisted, either by Nasdaq or voluntarily by the Company, our ADSs may be eligible to trade on the OTC Bulletin Board or another over-the-counter market, however, such
delisting could have an adverse impact on the price of our ADSs. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private
sale of equity securities and for investors to dispose of, or obtain accurate quotations as to the market value of, our ADSs. In addition, there can be no assurance that our ADSs would be eligible for
trading on any such alternative exchange or markets.
Holders of our ADSs have different rights than holders of our ordinary shares.
We have issued to our security holders ADSs and ordinary shares, each of which afford their holders different rights. Currently, only our ADSs
are publicly traded (on The Nasdaq Capital Market). An ADS holder will not be treated as one of our shareholders and will not have shareholder rights. Danish law governs shareholder rights. Our
depositary, Bank of New York Mellon, is the holder of the ordinary shares underlying outstanding ADSs. Holders of ADSs only have ADS holder rights. The deposit agreement among us, the depositary, and
ADS holders sets out ADS holder rights as well as the rights and obligations of the depositary.
The market price of the ADSs may be volatile and may fluctuate due to factors beyond our control.
The price of equity securities 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 the ADSs may fluctuate significantly due to a variety of factors,
including:
-
-
developments in the Opposition Proceeding;
-
-
developments regarding our ongoing tax audits;
-
-
economic conditions related to the ongoing COVID-19 pandemic;
-
-
developments concerning proprietary rights, including patents and litigation matters;
-
-
technological innovations or commercial product introductions by our competitors;
-
-
changes in government regulations;
-
-
public concern relating to the commercial value or safety of Tecfidera®;
-
-
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' equity securities, including ours, regardless of actual operating performance.
There may be a lack of liquidity and market for our ordinary shares and ADSs.
A lack of liquidity in the markets for our ADSs could negatively affect the ability of the holders to sell our ADSs or the price at which
holders of our ADSs will be able to sell them. As a result of the ADS ratio change that we effected in December 2019, there are fewer ADSs outstanding, which could have a negative impact on liquidity
for such ADSs. Future trading prices of our ADSs will depend on
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many
factors including, among other things, prevailing interest rates, our operating results and the market for similar securities.
Our
ordinary shares underlying the ADSs are not listed on any public securities exchange. Future sales by our existing shareholders could limit the ability of an ADS holder to sell the
ADSs at the price and time such holder desires. Any such limited trading market may also increase the price volatility of the ADSs or the ordinary shares underlying the ADSs.
Our ordinary shares are controlled by insiders, who could have significant influence over the outcome of
corporate actions requiring board and shareholder approval.
Our Chairman, Florian Schönharting, and director, Torsten Goesch, indirectly beneficially own approximately 72% of our ordinary
shares, of which approximately 54% is beneficially owned by Mr. Schönharting. With such concentrated control, Messrs. Schönharting and Goesch, acting
individually or in concert, have significant influence over the outcome of corporate actions requiring board and shareholder approval, including the election of directors, certain decisions relating
to our capital structure, amendments to our Articles of Association, and the approval of mergers and other significant corporate actions or transactions. The interests of these insiders may not always
coincide with our interests or the interests of our other shareholders or holders of the ADSs and those other shareholders and holders of the ADSs may have no effective voice in the management of the
Company.
Certain of our principal shareholders as well as NB FP Investment II K/S have entered into a shareholders'
agreement under which they have agreed to take certain actions that may be adverse to the interests of other shareholders and holders of ADSs.
Certain of our principal shareholders as well as NB FP Investment II K/S have entered into a shareholders' agreement, under which they have
agreed to take certain actions, including with respect to the ability of certain principal shareholders to nominate directors to the board of directors and the obligation to increase share capital in
certain circumstances. The shareholders that are party to the shareholders' agreement control a majority of the voting power of our ordinary shares, and the actions taken under or pursuant to the
shareholders' agreement may conflict with the interests of other shareholders and holders of ADSs.
ADS holders may not be able to exercise their right to vote the ordinary shares underlying the ADSs.
Holders of ADSs may exercise voting rights with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of
the deposit agreement and not as direct shareholders in the Company. The deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will
fix a record date for the determination of ADS holders who shall be entitled to give instructions for the exercise of voting rights. Upon timely receipt of notice from us, if we so request, the
depositary shall distribute to the holders as of the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us and (2) a statement as to the manner in
which instructions may be given by the holders. However, we may not request the depositary to distribute this information, which could effectively limit the ability of ADS holders to direct the voting
of the ordinary shares underlying their ADSs.
ADS
holders may instruct the depositary of their ADSs to vote the ordinary shares underlying their ADSs. Otherwise, ADS holders will not be able to exercise their right to vote, unless
they withdraw the ordinary shares underlying the ADSs. However, ADS holders may not know about the meeting far enough in advance to withdraw those ordinary shares. If we ask for ADS holders'
instructions, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to ADS holders. We cannot guarantee ADS holders that
they will receive the voting materials in time to ensure that they can instruct the depositary to vote the
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ordinary
shares underlying the ADSs held by them or to withdraw the ordinary shares underlying the ADSs so that the ADS holder can vote them. If the depositary does not receive timely voting
instructions from the ADS holder, it may give a proxy to a person designated by us to vote the ordinary shares underlying the ADSs. In addition, the depositary and its agents are not responsible for
failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that ADS holders may not be able to exercise any right to vote, and there may be nothing ADS
holders can do if the ordinary shares underlying their ADSs are not voted as requested.
ADS holders' rights to participate in any future preferential subscription rights or to elect to receive
dividends in shares may be limited, which may cause dilution to their holdings.
According to Danish law, if we issue additional securities for cash, current shareholders will have preferential subscription rights for these
securities on a pro rata basis unless (i) they waive those rights at a meeting of our shareholders (if issued at market value, by at least two-thirds of the votes cast and the share capital
represented at such meeting), (ii) such rights are waived individually by each shareholder, or (iii) the additional securities are issued pursuant to an authorization granted to our
board of directors including a waiver of preemptive rights. However, our ADS holders in the United States will not be entitled to exercise or sell such rights related to the ordinary shares which they
represent unless we register the rights and the securities to which the rights relate under the Securities Act of 1933, as amended, or the Securities Act, or an exemption from the registration
requirements is available. In addition, the deposit agreement provides that the depositary will not make rights available to our ADS holders unless the distribution to ADS holders of both the rights
and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. Further, if we offer holders of our ordinary shares the option to
receive dividends in either cash or shares, under the deposit agreement the depositary may require satisfactory assurances from us that extending the offer to holders of ADSs does not require
registration of any securities under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration statement with respect to any
such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities
Act. Accordingly, ADS holders may be unable to participate in our rights offerings or to elect to receive dividends in shares and may experience dilution in their holdings. In addition, if the
depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case our ADS holders
will receive no value for these rights.
ADS holders may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying
ordinary shares.
ADSs, which may be evidenced by American Depositary Receipts, or ADRs, are transferable on the books of the depositary. However, the depositary
may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of
ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or
governmental body, or under any provision of the deposit agreement, or for any other reason subject to each ADS holder's right to cancel such holder's ADSs and withdraw the underlying ordinary shares.
Temporary delays in the cancellation of ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the
transfer of ordinary shares is blocked to permit voting at a shareholders' meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and
withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order
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to
comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities.
Future sales, or the perception of future sales, of a substantial number of our ordinary shares or ADSs could
adversely affect the price of the ADSs, and actual sales of our equity will dilute shareholders and ADS holders.
Future sales of a substantial number of our ordinary shares or ADSs, or the perception that such sales will occur, could cause a decline in the
market price of the ADSs. If shareholders sell substantial amounts of shares or ADSs in the public market, or the market perceives that such sales may occur, the market price of the ADSs and our
ability to raise capital through an issue of equity securities in the future could be adversely affected. We have entered into a registration rights agreement pursuant to which we have agreed 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 have registered ordinary shares and ADSs that we may issue under our 2014 Omnibus Equity Incentive Plan and may register shares under other equity compensation plans. As a
result, these ordinary shares can be freely sold in the public market or otherwise upon issuance, subject to volume limitations applicable to affiliates and lock-up agreements.
We do not expect to pay dividends or other shareholder distributions in the foreseeable future.
While we distributed the proceeds from a capital reduction of EUR 917.7 million, or $1.1 billion, to our ADS holders and
shareholders in September 2017, we do not expect to pay dividends or other shareholder distributions in the foreseeable future. Even if future operations lead to significant levels of distributable
profits, any earnings may be reinvested in our business and dividends or other shareholder distributions, if any, may not be paid until we have an established revenue stream to support such continuing
dividends or other shareholder distributions. Payment of future dividends or other shareholder distributions, if at all, will effectively be at the discretion of our board of directors, after taking
into account various factors including our business prospects, cash requirements and financial performance. In addition, payment of future dividends may be made only if our shareholders' equity
exceeds the sum of share capital plus the reserves required to be maintained by the License Agreement, Danish law or by our Articles of Association. Accordingly, investors cannot rely on income from
dividends or other shareholder distributions and any returns on an investment in the ADSs may depend entirely upon any future appreciation in the price of the ADSs.
We are 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.
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, 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 non-accelerated filers are required to file their annual report on Form 10-K within 90 days after
the end of each fiscal year. Foreign private issuers are
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also
exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, our shareholders and ADS holders may not
have the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status in the future, which could result in significant additional
costs and expenses.
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, 2021. 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, 2020, approximately $168,000 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 the ADSs.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate
disclosure controls and procedures, is designed to detect and/or prevent errors and fraud. Any failure to maintain current controls or implement on a timely basis, 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 work performed by our independent registered accounting firm as part of their audit of our financial statements may reveal deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or
improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of the ADSs.
We
are required to disclose changes made in our internal control over financial reporting and procedures and our management is required to assess the effectiveness of these controls
annually. 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 and could adversely affect the price of
our ADSs.
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Failure to maintain effective internal control over financial reporting could result in material
misstatements in our financial statements which could negatively impact the price of our ADSs.
In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we carried out an
evaluation of the effectiveness of our internal controls over financial reporting and concluded that our previously identified material weakness still exists, as described in "Item 15. Controls
and Procedures" herein. We cannot assure you that our internal control over financial reporting will be effective in the future or that additional material weakness will not be discovered.
As
a consequence of this material weakness, management concluded that our internal control over financial reporting and, consequently, our disclosure controls and procedures, were not
effective as of December 31, 2020. Our management believes that the consolidated financial statements included in this annual report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods presented.
We
have taken actions, or Actions, to remediate the causes of the material weakness; However, since the material weakness was associated with specific transactions that did not occur
subsequent to implementing the Actions, there has been no opportunities for us to monitor and test that the Actions taken were sufficient to mitigate the material weakness. The lack of objective
evidence to support that the material weakness has been remediated, necessitates that we continue to report that the material weakness has not been remediated. Failure to effectively remediate the
causes of this material weakness or establish and maintain effective internal control over financial reporting could result in material misstatements in our financial statements or a failure to meet
our reporting obligations. This, in turn, could negatively impact the Company's financial position, operating results and cash flows, the market price of our ADSs and our ability to remain listed on
The Nasdaq Capital Market.
Failure to comply with Section 404 of the Sarbanes-Oxley Act could negatively affect our business
including the price of our ADSs.
Under the Sarbanes-Oxley Act, we are required to maintain effective disclosure controls and procedures and internal control over financial
reporting and to make a formal assessment of the effectiveness of our internal control over financial reporting. We concluded that our disclosure controls and procedures and internal controls over
financial reporting were not effective as of December 31, 2020, and there is no assurance that we will be able to remediate the material weakness and maintain adequate disclosure controls and
procedures and internal controls in the future. We may experience situations in the future where our evaluation and testing processes required by Section 404 of the Sarbanes-Oxley Act, or work
performed by independent registered accountants, may identify one or more material weaknesses in our internal controls over financial reporting that will result in our
inability to assert that our internal control over financial reporting is effective. If we cannot maintain adequate internal controls over financial reporting that provide reasonable assurance of the
reliability of the financial reporting and preparation of our financial statements for external use, we could suffer harm to our reputation, fail to meet our public reporting requirements by providing
timely and accurate financial statements, be required to restate our prior period financial statements, or we may be unable to comply with applicable stock exchange listing requirements, any of which
could adversely affect the price of our ADSs.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research
about our business, the price of the ADSs and our trading volume could decline.
The trading market for the ADSs depends in part on the research and reports that securities or industry analysts publish about us or our
business. Presently, the Company is not covered by any analysts. If we are covered by securities or industry analysts in the future and such analysts downgrade
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our
ADSs or publish inaccurate or unfavorable research about our business, the price of our ADSs would likely decline. If one or more such analysts ceased coverage of our company or failed to publish
reports on us regularly, demand for the ADSs could decrease, which might cause the price of our ADSs and trading volume to decline.
We believe that we were classified as a passive foreign investment company, or a PFIC, from 2014 to 2020 and
may be classified as a PFIC in future years. If we are a PFIC for any taxable year, this could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs.
Under the U.S. Internal Revenue Code of 1986, as amended, or the 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 consists 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. We believe that we were a PFIC for each of the seven years preceding December 31, 2020, and may be classified as a PFIC in future years. 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 a substantial amount of passive assets, including cash, and (ii) the value 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 future years.
If
we are a PFIC for any taxable year during which a U.S. Holder, as defined below, holds ADSs, a U.S. Holder may be subject to adverse tax consequences, including (i) if a
mark-to-market election or a qualified electing fund, or QEF, election has not been made with respect to its ADSs, a U.S. Holder may incur significant additional U.S. federal income taxes on income
resulting from distributions on, or any gain from the disposition of, such ADSs, as such income generally would be allocated over the U.S. Holder's holding period for its ADSs and would be subject to
tax at the highest rates of U.S. federal income taxation in effect for such years, with an interest charge then imposed on the resulting taxes in respect of such income, and (ii) dividends paid
by us would not be eligible for preferential individual rates of U.S. federal income tax. In addition, U.S. Holders that own an interest in a PFIC are required to comply with certain reporting
requirements.
A
U.S. Holder may in certain circumstances mitigate adverse tax consequences of the PFIC rules by filing an election to treat the PFIC as a QEF, or, if shares of the PFIC are "marketable
stock" for purposes of the PFIC rules, by making a mark-to-market election with respect to the shares of the PFIC. However, we are not obligated to comply with the reporting requirements necessary to
permit U.S. Holders to elect to treat us as a QEF and accordingly U.S. Holders may not be able to make QEF elections to avoid the adverse tax consequences of the PFIC rules. While we have complied
with the reporting requirements to permit U.S. Holders to elect to treat us as a QEF in the past, we reserve the right to discontinue such reporting in the future for any reason at any time.
Furthermore, if a U.S. Holder were able to make a mark-to-market election with respect to its ADSs, the U.S. Holder would be required to include annually in its U.S. federal taxable income an amount
reflecting any year-end increase in the value of its ADSs (which may not be matched by cash distributions). Mark-to-market elections will not be available for any of our subsidiaries that are also
PFICs. For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC, see "Item 10. Additional InformationTaxationU.S.
Federal Income Tax Considerations for U.S. Holders."
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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 two-thirds of the votes cast and of the share capital represented at the general meeting
if the share capital increase is made at market price, or, if the share capital increase is made at below market price, by nine-tenths of the votes cast and of the share capital represented at the
general meeting. 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.
We are a Danish 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 a Danish 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, the interests of our shareholders.
We are, as a foreign private issuer, not obligated to and do not comply with all the corporate governance
requirements of Nasdaq. This may affect the rights of our shareholders.
We are a foreign private issuer for purposes of U.S. federal securities laws. As a result, in accordance with the listing requirements of
Nasdaq, we 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 an applicable regulatory regime for the solicitation of proxies, and thus our practice will vary from the requirement of Nasdaq Listing Rule 5620(b).
Accordingly, our shareholders 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, auditor, disclosure, compliance and enforcement standards. Certain provisions apply to our board of directors (e.g., in relation to role, composition,
conflicts of interest requirements and remuneration), shareholders and the general meeting of shareholders
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(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 within the
European Economic Area, or EEA, and accordingly do not apply to us. This may affect the rights of our shareholders.
We have historically filed our Danish tax returns on a standalone basis; however, due to certain changes to
our ownership structure made at the start of 2013, as of January 2013, we began to file our Danish tax returns as part of joint taxation schemes.
During the period January 19, 2013 to December 31, 2015, we were subject to a Danish joint taxation scheme with Tech Growth Invest
ApS and entities under Tech Growth Invest ApS's control, collectively referred to hereafter as Tech Growth. From the establishment of FA on December 3, 2015, FA was part of the joint taxation
scheme with Tech Growth. A subsidiary of Tech Growth Invest ApS experienced a change in ownership on December 31, 2015. The effect of the change in ownership resulted in the year ended
December 31, 2015 being the final year that the Company and FA were part of the joint taxation group with Tech Growth. On January 1, 2016, the Company and FA became members of a new
Danish joint taxation group with NB FP Investment General Partner ApS (collectively the "2016 Tax Group"). Upon their inception during 2017, Operations and FWP IP (through the date of the sale of FWP
IP (November 22, 2017) to HoldCo, which is owned and controlled by the Foundation) became members of the 2016 Tax Group. The Company remains liable with other entities in the joint taxation
group with Tech Growth Invest ApS for Tech Growth's Danish tax liabilities that can be allocated to the period January 19, 2013 to December 31, 2015 and the Company is liable with other
entities in the 2016 Tax Group for Danish tax liabilities that can be allocated to the five-year period ended December 31, 2020.
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 the
administration company and its wholly-owned entities to satisfy Danish tax liabilities and to look to partially owned entities (such as us) only on a secondary basis. While we do not believe Tech
Growth, NB FP Investment General Partner ApS or any other member of the joint taxation scheme has any material Danish tax liabilities, there can be no assurance that it does not have any such material
liabilities, that it will not incur such material liabilities in the future, or that it will fulfill any such obligations. If Tech Growth Invest ApS, NB FP Investment General Partner ApS or any other
entity that is a member of any of the joint taxation groups has any material Danish tax liabilities that are not satisfied by them or if they, while being members of the respective joint taxation
group, incur 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.
U.S. federal and/or state income tax may apply to us in the future.
We have taken the position that we are not currently subject to U.S. federal or state income tax. Our Vice President, Finance and Controller,
Thomas Carbone, is employed by FP USA. Pursuant to the U.S. tax laws and the income tax treaty between Denmark and the United States, we will not be subject to U.S. tax in connection with any of such
employees' activities unless there is a U.S. trade or business being conducted in connection with a permanent establishment. While we have taken the position that the functions such employees fulfill
do not give rise to U.S. tax liability for us, there can be no assurance that the U.S. tax authorities will agree with such position. If the U.S. Internal Revenue Service disagrees with our position,
and/or if the functions of such employees are expanded in the future, and/or we engage additional personnel located in the United States whose functions are sufficiently broad, we may be or may become
subject to U.S. federal and/or state income tax, which might have a material adverse effect on us and our results of operations.
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Claims of U.S. civil liabilities may not be enforceable against us.
Forward Pharma A/S is incorporated under the laws of Denmark, and three of its subsidiaries, Operations, FP GmbH and FA, are incorporated
under the laws of Denmark, Germany and Denmark, respectively. Substantially all of our assets are located outside the United States. On a combined basis, the majority of our directors and officers
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 judgments 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 does not have a treaty with Denmark or Germany 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 U.S. court based on civil liability will not be directly enforceable in Denmark or Germany. 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 such court. In
addition, the final judgment of a U.S. court may be recognized and enforced in Germany in compliance with certain requirements including petitioning a German court to recognize and declare such
judgment enforceable. Also, general reciprocity in respect of the mutual recognition of judgments between Germany and the U.S. court that rendered the concerned judgment must be guaranteed, and the
judgment must not violate German (international) public policy.