Quarterly Report • Sep 25, 2017
Quarterly Report
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HALF-YEAR FINANCIAL REPORT AS OF JUNE 30, 2015 *This report has been translated in English for information only. In the event of any differences between the French text and the English text, the French language version shall supersede.
| Half-year business and financial report as of June 30, |
|
|---|---|
| 2017………………… | [p. 3-22] |
| Half-year financial statements as of June 30, 2017………… | [p. 23-87] |
| Statutory auditors' limited review report on 2017 half-year |
financial |
| statements……………………………………………………… | [p. 88-91] |
This report contains certain forward-looking statements. Although the Company believes its expectations are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. These risks and uncertainties include among other things, the uncertainties inherent in research and development, including related to biomarkers, progression of, and results of clinical data from, the RESOLVE-IT trial and the elafibranor in PBC trial, review and approvals by regulatory authorities, such as the FDA or the EMA, regarding in particular, elafibranor in NASH and PBC, as well as other drug candidates in other indications and biomarker candidates, the success of any inlicensing strategies, the Company's continued ability to raise capital to fund its development, as well as those discussed or identified in the Company's public filings with the AMF, including those listed under Section 7 "Main Risks and Uncertainties" of this report.
Created in 1999, Genfit is a biopharmaceutical group dedicated to the discovery and development of drugs in therapeutic areas with strong unmet medical needs due to the lack of efficient treatments and the increase in the number of patients worldwide. Genfit concentrates its research and development to participate in bringing to market innovative treatments (drug candidates) and diagnostic solutions (biomarker candidates) in the area of metabolic, inflammatory, autoimmune and fibrotic diseases, in particular liver diseases (such as non alcoholic steatohepatitis or NASH) and more generally in hepato-gastroenterology. Based in Lille, Paris and Cambridge (USA), the Group employs approximately 120 collaborators.
The Company's drug candidate research and development activity relies on the Company's expertise in nuclear receptors (nuclear receptors are transcription factors that specifically regulate the expression of certain genes), and particularly knowledge of their roles in physiopathological mechanisms and their pharmacological modulation for the treatment of certain metabolic inflammatory, autoimmune and/or fibrotic liver diseases (NASH, PBC, PSC, cirrhosis).
In order to meet all the medical needs required for individual patient management by physicians, the Company's R&D strategy also includes diagnostic programs aimed at identifying new biomarkers for some of these diseases, to optimize their diagnostic capacity with innovative algorithms, and to develop, register and market new in vitro diagnostic (IVD) tests/kits.
At the end of 2016 and the beginning of 2017, the Company has chosen to guide and strengthen its portfolio of compounds under development and research programs in its main therapeutic areas of interest, from the elafibranor program (NASH, PBC), biomarker programs (BMGFT03), its developments in fibrosis (TGFTX4) and in autoimmune diseases (TGFTX1), and to suspend its investments in the TGFTX3 and TGFTX5 programs, which are less advanced and less directly associated with its specialty strategy. For more information on the Company's strategy, see section 10 below.
Genfit's pipeline at the date of this Report can be summarized as follows:
** Marketing Authorization
More specifically, the pipeline includes:
currently prescribed as an anti-parisitic, that the Company wishes to evaluate for its potential to be repurposed in the treatment of various fibrotic diseases including liver fibrosis. The Company expects a request for authorization from the FDA to launch a Phase II proof of concept study of nitazoxanide in NASH with advanced fibrosis to be made during the second half 2017. Other lead compounds identified in this program are being optimized with a goal to begin pre-clinical development;
• The TGFTX1 program, to discover innovative drug candidates targeting RORγt, a nuclear receptor involved in certain inflammatory and autoimmune diseases. Within this program, the Company has developed proprietary molecules that effectively inhibit RORγt activity and that have demonstrated beneficial effects in functional in vitro and in vivo assays relevant to the targeted diseases, in particular for their potential benefit in the treatment of several autoimmune diseases. The Company has in particular launched pre-IND studies for a topical treatment of mild to intermediate psoriasis. A research program was also launched to validate the therapeutic benefit of proprietary RORγt inverse agonists in certain respiratory illnesses.
Since its inception, GENFIT has endeavored to protect its strategic achievements and technological assets, by placing Intellectual Property at the heart of its approach to the creation of value. The intellectual property of GENFIT mainly concerns patents relating to:
The Company thus has a portfolio of 432 patents and patent applications (of which 344 are issued or pending), grouped into 38 families, each corresponding to a specific invention. These patents and patent applications broadly seek to protect the Company's portfolio of programs and proprietary products and enable the Company to manage their valorization. They relate to:
In particular, 329 patents and patent applications relate to elafibranor.
Enrolment of patients in the RESOLVE-IT Phase 3 study progressed actively during the course of the first half 2017.
A 4 to 6 month delay in the initial enrolment calendar was observed during the first half, partly due to the increasing number of clinical trials now being launched in NASH, but is mainly attributable to the Company's desire to ensure enrollment quality in order to produce the most statistically robust clinical trial by ensuring that patient stratification ratios remain as close as possible to the medical reality.
Thus, during the half year and based on its past experience, the Company paid close attention to the following factors:
• Balance within the randomized patient population (gender, disease severity) and among geographical regions of enrollment.
With these precautions and despite the need, in this context, to open more centers, enrolment of the first ~1000 patients to participate in the first phase of the trial is expected to be completed towards the end of Q1 2018.
Early June, approximately one year after enrollment of the first patient in the RESOLVE-IT study, based on the initial tolerability and safety data, the Data Safety Monitoring Board (DSMB) issued a positive recommendation for the continuation of the RESOLVE-IT Phase 3 trial in NASH without any modifications.
In March 2017, the Company launched a disease awareness initiative through the endowment fund it founded in 2016, The NASH Education Program™, asserting its leadership in this area, and sparked an unprecedented wave of interest in the French media. This initiative is an important element in the awareness of all the stakeholders in NASH. It is also crucial in the context of enrollment for a little known and asymptomatic pathology like NASH.
This initiative, welcomed by a growing number of industry specialists and analysts, is planned to be launched in other countries. The Company announced that The NASH Education Program™ will organize the first International NASH Information Day in June 2018.
The Company is proactive in its combination therapy approaches in NASH, with elafibranor as the backbone therapy.
To address the multifactoral nature of the disease and the multiple co-morbidities that NASH patients face, the Company is evaluating the therapeutic potential of the following combinations with elafibranor:
The goal is to treat the largest number of NASH patients, and if possible, using reduced dosages of the drugs to be combined with elafibranor.
In this context, during the International Liver Congress (held on April 19-23, 2017 in Amsterdam, and organized by EASL), the Company presented preclinical data on the therapeutic synergies of elafibranor with an FXR agonist (exemplified with obeticholic acid). These results illustrate the potential for new combination treatments with elafibranor for the best possible care for NASH patients.
The synergistic effect obtained in the disease models used showed an attenuation of fibrosis at submaximal doses, which confirmed the relevance of these combination approaches.
The Phase 2a clinical trial which is designed to evaluate the efficacy and safety of elafibranor in patients with primary biliary cholangitis (PBC) and inadequate response to ursodeoxycholic acid, entered into its active enrollment phase.
The Company announced in April that the European and American centers participating in the Phase 2 study had all been identified, and the first patient had been enrolled in the study at the beginning of May.
The trial is designed as follows:
The primary objective is to determine the effect of daily oral administration of elafibranor on serum alkaline phosphatase (ALP) in these patients, based on relative change from baseline to end of treatment compared to placebo.
Secondary endpoints will include:
The preliminary study results should be available, subject to meeting the Company's estimated timelines for carrying out the study and, in particular, the date of the last enrolled patient, during the second half of 2018.
At the International Liver Congress organized by EASL, the Company presented two abstracts on its biomarker program and development opportunities for a non-invasive in-vitro diagnostic (IVD) test in NASH. The Company presented new data on:
These new, innovative miRNAs were identified by analyzing samples of over 500 NAFLD patients from different cohorts, including those from the RESOLVE-IT Phase 3 study.
The scoring method is the result of identifying a new algorithm based on a smaller number of variables, generating a powerful score with good performance based on AUROC (Area Under the Receiver Operating Curve), sensitivity, specificity, NPV (Negative Predictive Value) and PPV (Positive Predictive Value).
The two presentations/posters confirmed the potential of the approach developed by the Company and its ability to provide an IVD solution based on a blood test which is non-invasive, easy to use, and at lower cost and thus able to be widely available compared with other existing approaches or those in development. Although these other approaches, such as imaging and elastography, are complementary, they nevertheless require greater investment in equipment and training and would not, in any case, be able to replace a widely available point-of-care IVD tool.
Other results obtained in June confirmed the diagnostic potential of circulating microRNAs and the relevance of GENFIT's signature to identify patients with active NASH (NAS≥4) and significant fibrosis (F≥2), i.e. patients who should be treated:
A new Next Generation Sequencing (NGS) experiment validates the diagnostic value of 13 circulating microRNAs, previously identified in GOLDEN-505 cohort and in a cohort of obese patients (Professor Sven Francque, LB 535, EASL 2017), in the Phase 3 RESOLVE-IT serum samples.
A bioinformatics analysis confirms that a previously described signature combining miR-34a, alpha-2 macroglobulin, HbA1c and YKL-40 (Professor Stephan A. Harrison, LB 534, EASL 2017) has a significantly better diagnostic performance than other main scores described in scientific literature, when tested in both GOLDEN-Diag and RESOLVE-IT cohorts (see table below):
This data and the level of statistical performance obtained suggest that the GENFIT signature can answer different medical needs, at different steps of the patient journey, allowing general practitioners, endocrinologists, diabetologists and hepatologists to support their diagnosis including decision to treat a patient with an anti-NASH drug. The Company has finished the feasibility phase of the program to begin, in the second half of the year the phase of development which should be carried out with an industrial partner.
As part of the industrial phase for the development of a new In Vitro Diagnostic (IVD) test, GENFIT intends to partner with a major diagnostic company with particular expertise in microRNA application to IVD, which would also include the development of the test within IVD regulatory requirements, as well as the manufacturing of the kits.
Finally, during the first half, GENFIT continued to widen its research collaboration program on NASH biomarkers and announces the signing of an agreement with the University Hospital Center Angers (France). This collaboration with Professor Jérôme Boursier and Professor Paul Calès will provide access to an additional independent cohort of NASH and non-NASH patients. In the coming months, GENFIT expects to sign other collaborations to obtain access to new prospective longitudinal cohorts for further validation of GENFIT diagnostic test in future intended uses.
In the context of the TGFTX4 program, the Company has identified several potential drug candidates that show a strong anti-fibrotic activity in both cell-based assays and in vivo disease models.
These results were obtained either by the therapeutic repurposing of compounds approved in another indication – allowing the Company to shorten development time – or by a more classical hit-tolead optimization of the Company's proprietary compounds using a phenotypic screening approach in TGF beta-activated human hepatic stellate cells.
Nitazoxanide, an antiparasitic drug with proven safety, was repurposed as a potent antifibrotic agent with efficacy demonstrated in two disease models of liver fibrosis, as presented at the International Liver Congress organized by EASL.
The Company plans to submit to the FDA an application for authoritzation to launch a first Proof-of-concept phase 2 study of nitazoxanide in NASH patients with advanced fibrosis, before the end of 2017.
As part of ambitious efforts to diversify and expand its development pipeline in the treatment of autoimmune, inflammatory and fibrotic diseases, the Company has conducted significant work in the design and optimization of novel RORgt inverse agonists.
The Company has recently launched pre-IND studies for a topically delivered treatment in mild to moderate psoriasis vulgaris. The Company is currently looking to forge a partnership with a company that has an established dermatology franchise for both topically and orally administered drugs, to move this program forward.
At the June 16, 2017 Extraordinary Shareholders' Meeting, the shareholders approved the change in mode of administration and management of the Company proposed by the management and decided to change from the historical two-tiered board structure of the Company (Executive Board and Supervisory Board) to a one tiered board with a Board of Directors.
The same Meeting also appointed all of the new members of the Board of Directors proposed by management, which is now composed of the following members:
GENFIT also welcomed two new members to the Company:
Dr. Catherine Larue who has been CEO ad interim of Luxembourg Institute of Health (LIH), a biomedical research institute, since January 2016.
From 2012 to end 2015, she was CEO of the Integrated Biobank of Luxembourg (IBBL), where she led the development of the biobanking strategy and new initiatives in the field of personalized medicine. Prior to joining the IBBL, Dr. Larue piloted the biomarker program at Genfit until 2012.
Dr. Catherine Larue began her career as team leader at Sanofi at the Montpellier, France based R&D center in the cardiovascular research department. She later joined Sanofi Diagnostics Pasteur Inc., in Minnesota, United States, where she ran the immunology department for three years, developing tests and instruments. She thereafter returned to Paris, France as Director at Sanofi Diagnostics Pasteur, and then spent 11 years at the Bio-Rad group, holding different management positions. She participated in the discovery of several innovative biomarkers and the commercialization of dozens of diagnostic products.
Dr. Catherine Larue is the author of 85 articles and has filed 13 patents. She holds a doctorate in experimental biology and an accreditation to direct research (Habilitation à Diriger la Recherche or HDR) from the University of Rouen, a degree in clinical oncology from the University of Paris VI and an executive MBA from St John's University (New York). In 2014, she was voted Luxembourg's most inspiring woman of the year in the "Science, Technology and Research" category.
Anne-Hélène Monsellato is a Certified Public Accountant in France since 2008 and graduated from EM Lyon in 1990 with a degree in Business Management.
Since May 2015, she has been an independent director, the Chairman of the Audit and Risk Committee and a member of the Corporate Governance and Nomination Committee of Euronav, a Belgian crude oil tanker company listed on NYSE and Euronext Brussels. In addition, she serves as the Vice President and Treasurer of the Mona Bismarck American Center for Art and Culture, a U.S. public foundation based in New York.
From 2005 until 2013, Mrs. Monsellato served as a Partner with Ernst & Young (now EY), Paris, after having served as Auditor/Senior, Manager and Senior Manager for the firm starting in 1990. During her time at EY, she gained extensive experience in cross border listing transactions, in particular with the U.S., internal control and risk management, and was involved with several companies in the pharmaceutical and biotechnology sector.
Mrs. Monsellato is an active member of the French Association of Directors (IFA) and of the selection committee of Femmes Business Angels since 2013.
The new Board of Directors met following the Ordinary and Extraordinary Shareholders' Meeting and appointed Mr. Jean-François MOUNEY as Chairman of the Board of Directors and Chief Executive Officer of the Company. Mr. Xavier GUILLE DES BUTTES was appointed Vice-Chairman of the Board of Directors.
The members of the Audit Committee and the Nominations and Compensation Committee were also appointed:
Audit Committee:
3.1 Comments on the statement of consolidated net income for the periods ended June 30, 2016 and June 30, 2017
The Company's revenue and other income results, in particular, from the research tax credit, its revenues, government grants and other operating income.
| Revenue and other income | Half-year ended | |
|---|---|---|
| $(in \in$ thousands) | 2016/06/30 | 2017/06/30 |
| Revenues | 151 | 65 |
| Government grants | 384 | 21 |
| Research tax credit | 3043 | 4533 |
| Other operating income | 69 | 91 |
| Total | 3647 | 4710 |
Revenue and other income amounts to € 4,710 thousand at June 30, 2017 compared to €3,647 thousand for the same period in the previous year representing an increase of 29%.
Revenues and other income are mainly made up of the Research Tax Credit which amounted to €4,533 thousand in the first half 2017 compared to €3,043 thousand in the first half 2016. This increase of 49% of the Research Tax Credit is many due to the increase in research and development expenses over the two halves, which is due to the progress of the RESOLVE-IT Phase III clinical study (see in particular, (ii) "operating expenses and other operating income by destination" below).
Revenues totaled €65 thousand at June 30, 2017 compared with €151 thousand for the same period in the previous half year, or a decrease of 51% (see Note 6.3.17 of the notes to the 2017 half year financial statements included herein, for more detail).
Government grants in the first half 2017 were €21 thousand compared with €384 thousand for the same period the previous year, owing to the end of the last subsidized research programs.
Finally, other operating income increased from €69 thousand at June 30, 2016 to €91 thousand at June 30, 2017.
The tables below breaks down operating expenses by destination mainly into research and development expenses on the one hand, and general and administrative expenses on the other, for the half years ended June 30, 2016 and 2017.
| Operating expenses and other operating income (expenses) | Half-vear ended | Of which: | ||||||
|---|---|---|---|---|---|---|---|---|
| 2016/06/30 | Raw materials | Contracted | Employee | Other | Depreciation. | Gain / (loss) | ||
| & consumables | research & | expenses | expenses | amortization | on disposal of | |||
| used | development | (maintenance, fees. | & impairment | property, plant | ||||
| activities | travel.taxes) | charges | & equipment | |||||
| conducted by | ||||||||
| $(in \in$ thousands) | third parties | |||||||
| Research & development expenses | (12323) | (970) | (6226) | (3566) | (1310) | (251) | o | |
| General & administrative expenses | (4166) | (45) | (0) | (2, 202) | (1842) | (77) | ||
| Other operating income | o | ٥ | ٥ | o | O | |||
| Other operating expenses | (1) | n | $\Omega$ | o | (1) | o | o | |
| TOTAL | (16489) | (1015) | (6226) | (5768) | (3152) | (328) | O | |
| Operating expenses and other operating income (expenses) | Half-year ended | Of which: | ||||||
| 2017/06/30 | Raw materials | Contracted | Employee | Other | Depreciation, | Gain / (loss) | ||
| & consumables | research & | expenses | expenses | amortization | on disposal of | |||
| used | development | (maintenance, fees, | & impairment | property, plant | ||||
| activities | travel, taxes) | charges | & equipment | |||||
| conducted by | ||||||||
| (in € thousands) | third parties | |||||||
| Research & development expenses | (23670) | (1351) | (14329) | (3984) | (3545) | (461) | $\vert 0 \rangle$ | |
| General & administrative expenses | (3448) | (66) | (4) | (1664) | (1681) | (34) | O | |
| Other operating income | (2) | O | ٥ | ٥ | o | (2) | ||
| Other operating expenses | 36 | $\Omega$ | $\Omega$ | 36 | o | o | ||
| TOTAL | (27084) | (1416) | (14333) | (5648) | (5190) | (495) | (2) |
Operating expenses in the first half 2017 amounted to €27,084 thousand compared to €16,489 thousand in first half 2016, or a 64% increase. They include, in particular:
• research and development expenses, which include the wages and salaries paid to the research staff (€3,984 thousand at June 30, 2017 compared to €3,566 thousand at June 30, 2016), the cost of consumables and operational outsourcing (particularly clinical and pharmaceutical representing €14,329 thousand at June 30, 2017 compared to €6,226 thousand at June 30, 2016), expenses related to intellectual property and the grant to the endowment fund, The NASH Education ProgramTM founded in December 2016. These research and development expenses amounted to €23,670 thousand at June 30, 2017 compared to €12,323 thousand at June 30, 2016), or 87% and 75% of operating expenses, respectively.
The first half 2017 was marked by the increase in operational outsourcing costs related to the Phase III RESOLVE-IT study compared with the first half 2016 which was the beginning of the study. Although other programs also generated operational outsourcing costs in the first half 2017, these amounts were less significant compared to those related to the Phase III RESOLVE-IT because they are in an earlier stage of R&D.
The expenses for personnel assigned to research in the first half 2017 increased by 12% compared to the expenses for the previous period a year earlier due to the increase in research personnel (93 versus 83), and to a lesser extent, the impact in the first half 2017 of expenses related to the implementation of stock option and free share plans on December 15, 2016, while no equity incentive compensation of this kind was granted during the first half 2016. These two elements compensated the fact the Company's incentive plan was not used in the first half 2017, whereas bonuses were granted under the plan in the first half 2016.
• general and administrative expenses, which include the costs of personnel not assigned to research (€1,664 thousand at June 30, 2017 compared to €2,202 thousand at June 30, 2016), and administrative and commercial costs.
These general and administrative expenses amounted to €3,448 thousand in the first half 2017 compared with €4,166 thousand in the first half 2016, or 13% and 25% of operating expenses and other operating income, respectively.
The expenses for personnel not assigned to research in the first half 2017 decreased 24% compared with the expenses in the same period in the preceding year. Although the average number of personnel not assigned to research (31 versus 25) increased from one half to the other, in the absence of eligible events under the incentive plan, the bonuses granted to certain of these employees under the incentive plan in the first half 2016, were not granted in the first half 2017.
Broken down by type instead of by destination, operating expenses mainly included the following:
| Contracted research & development activities conducted by third parties | Half-year ended | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 |
| Research & development expenses | (6226) | (14329) |
| General & administrative expenses | (0) | (4) |
| Other operating income | ٥ | o |
| Other operating expenses | ٥ | ٥ |
| TOTAL | (6226) | (14333) |
Contracted research and development expenses conducted by third parties amounted to €14,333 thousand in the first half 2017 compared to €6,226 thousand in the first half 2016, corresponding to a 130% increase, which is mainly due to the increase in costs related to the Phase III RESOLVE-IT study. The Company expects this expense item to continue to increase substantially during the second half of 2017 in conjunction with the progress of the RESOLVE-IT study.
| Employee expenses | Half-vear ended | |
|---|---|---|
| $(in \in$ thousands) | 2016/06/30 | 2017/06/30 |
| Wages and salaries | (4188) | (3985) |
| Social security costs | (1548) | (1503) |
| Pension costs | (33) | (31) |
| Share-based compensation | ٥ | (129) |
| TOTAL | (5768) | (5648) |
Employee expenses excluding share-based compensation amounted to €5,519 thousand in the first half 2017 compared to €5,768 thousand in the first half 2016, or a 4% decrease, despite the average number of employees increasing from 103 in the first half 2016 to 124 in the first half 2017.
This change is mainly due to bonuses granted to certain employees under the Company's incentive plan during the first half 2016, whereas the incentive plan was not used in the first half 2017.
The amount recognized as share-based compensation free of any impact on cash flow increased from €0 in the first half 2016 to €129 thousand in the first half 2017 as a result of the stock option and free share plans put in place by the Company on December 16, 2016. For further information, please refer to Note 6.20 of the Notes to the Consolidated Financial Statements for the period ended June 30, 2017.
[13]
| Other expenses (maintenance, fees, travel, taxes) | Half-year ended | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 |
| Research & development expenses | (1310) | (3545) |
| General & administrative expenses | (1842) | (1681) |
| Other operating income | ٥ | ٥ |
| Other operating expenses | $\left( 1\right)$ | 36 |
| TOTAL | (3152) | (5190) |
Other expenses amount to €5,190 thousand in the first half 2017 compared to €3,152 thousand in the first half 2016, or an increase of 65%. They include, in particular:
This increase is mainly due to the Group's business' faster pace of development and its stronger presence in the United States.
In particular, the growth in other operating expenses related to R & D activity from one semester to the next is mainly due to:
The decrease in other operating expenses related to general and administrative activities from one semester to the next is essentially due to a decrease in legal fees.
Financial income amounted to a loss of €214 thousand at June 30, 2017 compared to financial income of €181 thousand in the first half 2016.
This loss is due to an increase in financial expenses which increased from €97 thousand at June 30, 2016 to €555 thousand at June 30, 2017, which was mainly the result of an exchange rate loss of €511 thousand (compared with €19 thousand at June 30, 2016) due to changes in the euro to dollar exchange rate.
The first half 2017 resulted in a net loss of €22,615 thousand compared to a net loss of €12,662 thousand in the first half 2016.
At June 30, 2017, the total amount of the Group's Statement of Financial Position amounts to €147,404 thousand compared to €166,214 thousand as of December 31, 2016.
At June 30, 2017, the Group's cash and cash equivalents amount to €126,286 thousand, compared to €152,277 thousand as of December 31, 2016.
Non-current assets, which include goodwill and intangible, tangible, and financial assets, increase from €4,219 thousand as of December 31, 2016 to €6,025 thousand at June 30, 2017. This increase is mainly due to investments made in the first half 2017 (scientific equipment and IT materials).
Current assets amount to €141,379 thousand at June 30, 2017 compared to €161,996 thousand as of December 31, 2016.
The variation of trade and other receivables is justified by the receivables related to the research tax credit for the fiscal years 2014, 2016 and the first half 2017. Further information regarding the nature of these receivables is provided in note 6.7 of the Notes to the half 2017 year consolidated financial statements included herein (see also chapter 8 of this Report).
The variation of trade and other receivables corresponds to the increase in expenses recognized in advance related to current operating expenses.
Cash and cash equivalents went from €152,277 thousand as of December 31, 2016 to €126,286 thousand at June 30, 2017, a decrease of 17%.
| Cash & cash equivalents | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Short-term deposits | 150438 | 107517 |
| Cash & bank accounts | 1839 | 18769 |
| TOTAL | 152 277 | 126 286 |
As of June 30, 2017, the amount of the Group's shareholders' equity totaled €120,293 thousand compared to €142,797 thousand as of December 31, 2016.
The change in the Company's shareholders' equity is mainly due to the recognitation of the half year loss.
The Notes to the 2017 half year consolidated financial statements included herein, as well as the Table of Changes in Shareholders' Equity established under IFRS provide details on the change in the Company's share capital and the Group's shareholders' equity, respectively.
This mainly concerns the following liabilities reaching maturity in more than one year:
This balance sheet item mainly includes liabilities reaching maturity in less than one year, such as conditional advances granted by Bpifrance to GENFIT, trade payables, and social security expenses. Please also refer to notes 6.12.2 and 6.13 of the notes to the 2017 half year consolidated financial statements included herein. Changes in current liabilities are essentially due to, as indicated above, the increase in trade payables related to the increase in contracted research and development activities.
| Trade & other payables - Current | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade payables | 13341 | 14953 |
| Social security costs payables | 2562 | 2372 |
| Employee profit sharing | 17 | 17 |
| VAT payables | 24 | 22 |
| Taxes payables | 187 | 156 |
| Other payables | 14 | 27 |
| TOTAL | 16 14 6 | 17549 |
Effective as from January 1, 2017, GENFIT CORP and GENFIT SA renewed their intragroup services agreement through which GENFIT CORP provides certain services to GENFIT SA, particularly services associated with the clinical trials monitoring, investor relations in the United States, and business development. This agreement provides for the cost of said services to be equal to the fees and expenses incurred by GENFIT CORP while performing the services described in the agreement, plus 5%. "Structural" costs are billed at cost. In the first half 2017, GENFIT CORP billed USD\$2,116 thousand to GENFIT SA.
In addition, GENFIT and GENFIT CORP renewed their cash management agreement effective as of January 1, 2017. The purpose of this agreement will be to ensure GENFIT SA's continued financing of its American subsidiary's operations via interest-bearing cash advances. This agreement is in place pursuant to the terms of Article L.511-7-3° of the French Monetary and Financial Code.
This information is available in note 6.25 to the 2017 half year consolidated financial statements published in this report.
Changes in the Company's share capital since 2006 are shown in the table below:
| Changes in issued capital & premium | Share capital | |||||
|---|---|---|---|---|---|---|
| Number of | Face | Share | Share premium | Merger premium | Premium | |
| shares | value | capital | ||||
| At 31 December 2005 | 150001 | 16,00 | 2400016 | $\circ$ | $\circ$ | n |
| 06/27/2006 - Division of shares' par value | 9600064 | 0.25 | 2400016 | 609796 | $\Omega$ | 609796 |
| 10/18/2006 - Private placement | 11 270 626 | 0.25 | 2817657 | 14 32 3 8 3 2 | $\circ$ | 14323832 |
| 11/21/2006 - Absorption of IT.OMICS | 11 270 626 | 0.25 | 2817657 | 14 3 2 3 8 3 2 | 37833 | 14 361 665 |
| 02/16/2010 - Private placement | 11662166 | 0,25 | 2915542 | 16 240 395 | 37833 | 16 278 228 |
| 07/15/2011 & 07/19/2011 - Private placement | 13 340 295 | 0.25 | 3335074 | 20864969 | 37833 | 20 902 802 |
| 10/04/2011 - Reserved share capital increase | 13 4 24 3 28 | 0,25 | 3356082 | 20968324 | 37833 | 21 006 157 |
| 10/28/2011 - Reserved share capital increase | 13 580 578 | 0.25 | 3395145 | 21427072 | 37833 | 21 464 905 |
| 10/28/2011 - Share capital increase - offset against receivables (BSA 2011) | 13 630 578 | 0,25 | 3 407 645 | 21406881 | 37833 | 21 444 714 |
| 02/22/2012 - Reserved share capital increase - exercise of BSA (2011) | 13726762 | 0.25 | 3431691 | 21 606 965 | 37833 | 21 644 798 |
| From 03/07/2012 to 07/03/2012 - Reserved share capital increase | 15 085 665 | 0,25 | 3771416 | 23 707 055 | 37833 | 23 744 888 |
| 08/01/2012 - Share capital increase - offset against receivables (OCA 2012) | 15 148 321 | 0.25 | 3787080 | 23 690 141 | 37833 | 23 727 974 |
| From 09/05/2012 to 10/14/2012 - Conversion of bonds (OCA 2012) | 15969232 | 0.25 | 3992308 | 25 437 239 | 37833 | 25 475 072 |
| From 12/21/2012 to 03/08/2013 - Share capital increase - offset against receivables (OCA 20 | 16029806 | 0.25 | 4 007 452 | 25 415 946 | 37833 | 25 453 779 |
| From 12/27/2012 to 04/11/2013 - Conversion of bonds (OCA 2012-2) | 17370068 | 0.25 | 4342517 | 30591512 | 37833 | 30629345 |
| 04/17/2013 - Private placement | 20 299 516 | 0.25 | 5074879 | 43 294 235 | 37833 | 43 332 068 |
| 04/19/2013 & 05/02/2013 - Share capital increase - offset against receivables (OCA 2012-2) | 20317291 | 0.25 | 5079323 | 43 287 291 | 37833 | 43 325 124 |
| From 04/24/2013 to 08/02/2013 - Conversion of bonds (OCA 2012-2) | 20541821 | 0.25 | 5 1 3 5 4 5 5 | 44 270 698 | 37833 | 44 308 531 |
| 02/03/2014 - Share capital increase - maintenance of preferential subscription rights | 21 257 671 | 0.25 | 5314418 | 48839327 | 37833 | 48 877 160 |
| 06/20/2014 - Private placement | 23 374 238 | 0,25 | 5843560 | 95 698 624 | 37833 | 95 736 457 |
| 12/17/2014 - Private placement | 23957671 | 0.25 | 5989418 | 115 718 226 | 37833 | 115 756 059 |
| 29/10/2015 & 04/11/2015 - Augm. capital par exercice de BSAAR | 23958904 | 0.25 | 5989726 | 115 720 750 | 37833 | 115 758 583 |
| 29/02/2016 - Augm, capital par placement privé | 26354794 | 0.25 | 6588699 | 163 099 866 | 37833 | 163 137 699 |
| 10/12/2016 - Private placement | 28049794 | 0,25 | 7012449 | 193 895 034 | 37833 | 193 932 867 |
| 11/02/2016 - Private placement | 31 166 437 | 0.25 | 7791609 | 234926121 | 37833 | 234 963 954 |
No transaction occurred in the first half 2017 which changed the share capital.
The risk factors affecting the Company are discussed in Chapter 4 of the Company"s 2016 Registration Document registered with the Autorité des marchés financiers ("AMF") on April 28, 2017 under no. R.17-034.
The main risks and uncertainties which the Company could face in the remaining six months of the fiscal year are identical to those presented in the 2016 Registration Document available on the Internet website of the Company, with the exception of the following updated risk factor:
As of the date of this Report, the Company's exposure to exchange rate risk is moderate because the majority of all of its operations are denominated in euros, except those realized in US dollars by Genfit Corp.
In the future and in particular, in relation to its clinical trials, the Company will be required to manage transactions denominated in foreign currencies or indirectly exposed to exchange rate risk, which will increase its overall exposure to this risk.
An increase in the overall exposure of the Company to this risk will depend on:
At present, the Company has put in place several specific hedging arrangements (purchase of US dollars, UCITS and currency forwards in US dollars). If its currency exposure were to change, the Company could put in place additional hedging instruments.
The following table shows the sensitivity of the Company's expenses in US dollars to a variation of 10% of the US dollar during the course of the first half 2017:
| Sensitivity of the Company's expenses to a variation of +/-10% of US dollar (during the period) | Half-year ended |
|---|---|
| (in € thousands or in US dollar thousands) | 2017/06/30 |
| Expenses denominated in US dollars | 2541 |
| Equivalent in euros, on the basis of a 1 euro = 1,1412 US dollar ratio | 2227 |
| Equivalent in euros, in the event of an increase of 10% of US dollar vs euro | 2474 |
| Equivalent in euros, in the event of a decrease of 10% of US dollar vs euro | 2024 |
For the 2016 fiscal year, the net impact of the operational exchange rate risk amounted to a foreign exchange gain of €100 thousand, and for the half year 2017, an exchange rate loss of €511 thousand, although these gains and losses do not predict the future impact of exchange rate risk.
These risks may occur during the remaining six months of the fical year but also during subsequent fiscal years.
In April 2008, Jean-Charles Fruchart relinquished his position as Chairman of the Supervisory Board of the Company. Following this, he and his wife initiated multiple legal proceedings, in both commercial and criminal courts, against or involving the Company and certain of its officers, shareholders, subsidiaries and affiliated companies, almost systematically appealing against unfavorable court rulings.
As these proceedings negatively impacted their reputation and their investment in the Company, two institutional shareholders of the Company have sought to hold Mr. and Mrs. Fruchart liable. As the Company has itself incurred a number of internal expenses, lawyers' fees and other legal expenses, it has joined the shareholders' legal action to obtain indemnification for these expenses, as well as compensation for the costs and damages it has suffered due to Mr. and Ms. Fruchart's actions. The Company and its shareholders have appealed a ruling by the trial court in this matter.
As of the date of this Report, some of these claims are ongoing before trial courts or in appeal courts, or are in pre-hearing proceedings.
Following a tax audit of the fiscal years ended December 31, 2011, 2012, and 2013, as well as the audit of the Research Tax Credit (Crédit d'Impôt Recherche) for the 2010 fiscal year, authorities have notified the Company regarding two proposed tax adjustments pertaining to the 2010, 2011, and 2012 CIRs fiscal years, which could lead to a total potential tax adjustment of €2,475 thousand. The Company is currently disputing these adjustments.
The dispute with the French tax authorities pertains mainly to collaborative research alliances with companies in the pharmaceutical industry. The tax authorities contend that, in these alliances, the Company is acting as a sub-contractor, which should reduce the basis on which the CIR is computed by deducting amounts billed by the Company to the other party. The Company maintains that the contracts governing said collaborative research alliances include reciprocal provisions concerning intellectual property, the shared governance of the research programs, risk sharing, conditions governing the termination of the agreements and the terms of compensation, which demonstrate that they are not sub-contracting agreements.
In February 2015, the Company formally contested the proposed tax adjustment pertaining to the 2010 CIR (€1,141 thousand). A similar type of detailed response regarding the tax adjustment pertaining to the 2011 and 2012 CIRs was sent by the Company to the tax authorities in February 2016. At the end of May 2016, the tax authorities responded to these two claims letters, maintaining that the majority of the adjustments claimed in the proposed tax adjustments; the Company has appealed this position.
Thus after an initial unsuccessful phase, the Company implemented the second phase of recourse at its disposal on October 17, 2016, at the end of which the Company prevailed in part of its arguments. As a result, the research tax credit adjustment definitively totaled €566 thousand for 2010, €623 thousand for 2011 and €285 thousand for 2012. On January 27, 2017, the Company received a tax assessment notice of €1,479 thousand from the tax authorities. The Company paid the amounts assessed by paying an amount of €338 thousand and for the balance, requested it be set-off with the amount withheld in respect of its receivable from the CIR for 2014 (€1,141 thousand), as mentioned below.
In the course of the treatment of this request for set-off, the authorities conducted additional investigations with the intent to apply the same sub-contratcing doctrine. Following these investigations, the authorities informed the Company in August 2017 that it granted part of the Company's request for reimbursement with respect to the 2014 CIR, in the amount of €693 thousand. The two parties agreed that this amount would be used to extinguish a part of the €1,479 thousand previously assessed.
On February 15, 2017, the Company filed a claim contesting the aforementioned adjustments and a second claim is expected to be filed in the coming weeks.
The Company, applying IFRS standards, calculated its potential liability should the tax authorites' interpretation with respect to the 2010 to 2015 CIR prevail. The mention of this potential tax liability in this Report and in the Notes to the 2017 half year consolidated financial statements included herein does not, under any circumstances whatsoever, constitute an acknowledgement of the tax authorities' arguments in this matter. On the basis of analyses conducted by third party experts, the Company believes that this potential tax liability could amount to €1,925 thousand, out of the aggregate €20,695 thousand in CIRs reported in the 2010 to 2015 financial statements. (see note 6.24 of the 2017 half year consolidated financial statements included herein).
Despite the payment made pursuant to the amounts in the assessement notice, the amount of the potential liability of €1,925 thousand mentioned above remains unchanged due to the claims filed by the Company.
The Company has however recognized a provision for this litigation amounting to €156k for contracts, not including joint research alliances, which could be considered as sub-contracting for third parties that are themselves eligible for the research tax credit and for any adjustments related to the type of capital assets eligible for the CIR.
Following an URSAAF (French social security) audit which begun in September 2016 on the 2013, 2014 and 2015 fiscal years, the Company received an observation letter in November 2016 notifying it of a social security contribution assessment of €5 thousand, €4 thousand of which it has contested before the Commission de Recours Amiable (amicable settlement board).
Lastly, on January 19, 2015, the Autorité des Marchés Financiers (French financial markets regulator) opened an inquiry into the Company's financial disclosures and into the trading of its shares over the June 2014 – April 2015 period. On January 14, 2016, the AMF's Investigations and Inspections Department sent three official
letters to Biotech Avenir, Genfit SA and the Chairman of Genfit SA's Executive Board, now its Chairman and CEO. These letters mainly discuss the fact that on September 26, 2014, after market close, Biotech Avenir sold shares in a block trade shortly before the Company's press release announcing half-year 2015 results was published. In addition, the AMF's Investigations and Inspections Department also raised the issue of an interview given by the Chairman of the Executive Board, now Chairman and CEO, that same day in the afternoon, in which the recent activities and positive outlook of Genfit were discussed, without mention of its net losses in the first half of that year. Finally, the AMF's official letters also referred to the sale notification that Biotech Avenir made on October 7, 2014 pursuant to Article 223-22 of the AMF's General Regulations, which the AMF contends was not made by in full accordance with the regulations.
The Company, Biotech Avenir, and the Chairman of the Executive Board sent their responses to said official letter on February 23, 2016.
On June 26, 2016, Biotech Avenir and the Chairman of Genfit's Executive Board, now Chairman and CEO, were notified of claims relating to the aforementioned transaction of September 26, 2014 (nevertheless, the AMF did not make any claim regarding the sale notification). In responses dated September 19, 2016, Biotech Avenir and Genfit's Chairman and CEO vigorously contested the claims that were notified to them.
However, no sanction proceedings were opened with respect to the Company.
At its meeting on September 7, 2017, the Sanctions Commission of the AMF heard from Biotech Avenir, the holding company of the founders and managers of Genfit, and the Chairman of Biotech Avenir, Jean-François Mouney, also Chairman of the Board of Directors and Chief Executive Officer of Genfit. The AMF's Board (Collège) sought fines of €60,000 for each of Biotech Avenir and its Chairman, while Mr Christophe Lepître, who was appointed Rapporteur by the Sanctions Commission, and is responsible for examining the matter in order to prepare a report to the Commission, concluded that there had been no fault and requested they be cleared from any alleged wrongdoing.
See note 6.28 to the Notes to the 2017 half-year consolidated financial statements included herein.
Based on its expertise in nuclear receptors and in-depth knowledge of cardiometabolic diseases in particular, GENFIT aims to progressively evolve towards a model of a biopharmaceutical company specialized in liver and gastroenterological diseases with largely unmet medical needs.
This strategy will be based on both the maturation of the Company's programs and products pipeline, while maintaining a focus on liver diseases, particularly metabolic liver diseases and gastroenterological diseases, and, in certain cases, on the creation of partnerships with key players of the biopharmaceutical industry with the financial capacity and/or specific expertise – or in therapeutic areas which are not strategic for GENFIT - to successfully conduct clinical trials and/or bring products to market requiring significant resources.
This strategy has recently led the Company to undertake disease awareness efforts under the auspices of an endowment fund known as "The NASH Education ProgramTM", dedicated to the development and funding of awareness and education activities aimed at the medical community and the general public.
Progressively, this strategy could build upon the forward integration of new value-generating activities, while retaining marketing rights in certain therapeutic indications or territories.
GENFIT has defined five major objectives:
• The continued development or co-development of Elafibranor as a first-line treatment for NASH and PBC. With respect to this program, the Company has begun Phase III development of elafibranor in
NASH with the RESOLVE-IT pivotal clinical trial in progress as of the date of this Report. It also launched a Phase II clinical trial with elafibranor for the treatment of Primary Biliary Cholangitis (PBC), and launched the first juvenile toxicology studies of the elafibranor Pediatric Investigation Plan in the NAFLD/NASH. It is also evaluating combination therapy approaches combining elafibranor in NASH with molecules derived from other Company programs, molecules already marketed in other indications, or certain molecules currently being developed in NASH either with complementary methods of actions or enlarging the treated population by addressing the co-morbidities of NASH patients. The first studies to establish the feasibility of an evaluation of the effectiveness of elafibranor in a sub-population of NASH patients with an F4 fibrosis score (cirrhotic patients) has also begun. In either of these cases, the Company may sign a licensing agreement(s) with one or more pharmaceutical laboratories to contribute to the financing of such clinical trials and, if successful, to the marketing of elafibranor.
"I hereby declare, to the best of my knowledge, that the financial statements have been prepared in accordance with the applicable generally accepted accounting principles and give a true and fair view of the assets and liabilities, the financial position and the results of the Company at June 30, 2017, and that the half year business and financial report gives a true and fair view of the important events of the first six months of the fiscal year and their impact on the half year financial statements, the main related party transactions as well as a description of the main risks and uncertainties for the six months to come."
Jean-François Mouney Chairman of the Board of Directors and Chief Executive Officer
Loos, September 22, 2017
Encl:
| 1. | CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | 26 | |
|---|---|---|---|
| 2. | CONSOLIDATED STATEMENTS OF OPERATIONS | 27 | |
| 3. | CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS | 28 | |
| 4. | CONSOLIDATED STATEMENTS OF CASH FLOWS | 29 | |
| 5. | CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | 30 | |
| 6. | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 31 | |
| 6.1. | THE COMPANY 31 | ||
| 6.2. | BASIS OF PRESENTATION 32 | ||
| 6.2.1. | Changes in accounting policies and new standards or amendments 32 | ||
| 6.2.2. | Standards, interpretations and amendments issued but not yet effective 32 | ||
| 6.3. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 34 | ||
| 6.3.1. | Use of estimates and judgments 34 | ||
| 6.3.2. | Consolidation 34 | ||
| 6.3.3. | Foreign currency 34 | ||
| 6.3.4. | Intangible assets 35 | ||
| 6.3.5. | Property, plant and equipment 35 | ||
| 6.3.6. | Leases 36 | ||
| 6.3.7. | Impairment of tangible assets, intangible assets and goodwill 36 | ||
| 6.3.8. | Financial instruments 37 | ||
| 6.3.9. | Inventories 37 | ||
| 6.3.10. | Trade & other receivables 37 | ||
| 6.3.11. | Other financial assets 37 | ||
| 6.3.12. | Cash and cash equivalents 38 | ||
| 6.3.13. | Equity 38 | ||
| 6.3.14. | Loans & borrowings 38 | ||
| 6.3.15. | Trade & other payables 38 | ||
| 6.3.16. | Provisions 39 | ||
| 6.3.17. | Employee benefits 39 | ||
| 6.3.18. | Revenues 40 | ||
| 6.3.19. | Other income 40 | ||
| 6.3.20. | Research and development costs 42 | ||
| 6.3.21. | Classification of operating expenses 42 | ||
| 6.3.22. | Share-based compensation 43 | ||
| 6.3.23. | Income tax 43 | ||
| 6.3.24. | Earnings per share 44 | ||
| 6.3.25. | Operating segments 44 | ||
| 6.4. | FINANCIAL RISKS MANAGEMENT 45 | ||
| 6.4.1. | Foreign exchange risk 45 | ||
| 6.4.2. | Interest rate risk 46 | ||
| 6.4.3. | Liquidity risk 46 | ||
| 6.4.4. | Credit risk 46 |
| 6.5. | INTANGIBLE ASSETS 47 | |
|---|---|---|
| 6.6. | PROPERTY, PLANT AND EQUIPMENT 48 | |
| 6.7. | TRADE AND OTHER RECEIVABLES 50 | |
| 6.8. | OTHER FINANCIAL ASSETS 52 | |
| 6.9. | OTHER ASSETS 53 | |
| 6.10. | CASH AND CASH EQUIVALENTS 54 | |
| 6.11. | EQUITY 55 | |
| 6.12. | LOANS AND BORROWINGS 56 | |
| 6.12.1. Breakdown of loans and borrowings 56 6.12.2. Maturities of financial liabilities 60 |
||
| 6.13. | TRADE AND OTHER PAYABLES 62 | |
| 6.14. | DEFERRED INCOME AND REVENUE 63 | |
| 6.15. | PROVISIONS 64 | |
| 6.16. | EMPLOYEE BENEFITS 65 | |
| 6.17. | FAIR VALUE OF FINANCIAL INSTRUMENTS 66 | |
| 6.18. | REVENUE AND OTHER INCOME 67 | |
| 6.19. | OPERATING EXPENSE 68 | |
| 6.19.1. Research and development expenses 69 |
||
| 6.19.2. General and administrative expenses 69 |
||
| 6.19.3. Employee expenses 69 |
||
| 6.20. | SHARE-BASED COMPENSATION 70 | |
| 6.21. | FINANCIAL REVENUE AND EXPENSES 78 | |
| 6.22. | INCOME TAX 79 | |
| 6.22.1. Losses available for offsetting against future taxable income 79 6.22.2. Deferred tax assets and liabilities 79 |
||
| 6.23. | EARNINGS PER SHARE 80 | |
| 6.24. | LITIGATION AND CONTINGENT LIABILITIES 81 | |
| 6.25. | RELATED PARTIES 83 | |
| 6.26. | COMPENSATION OF CORPORATE OFFICERS 84 | |
| 6.27. | COMMITMENTS 85 | |
| 6.28. | EVENTS AFTER THE REPORTING PERIOD 87 | |
[26]
| ASSETS | Notes | As of | |
|---|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 | |
| Non-current assets | |||
| Intangible assets | 6.5. | 668 | 778 |
| Property, plant & equipment | 6.6. | 3010 | 4676 |
| Other non-current financial assets | 6.8. | 541 | 571 |
| Total - Non-current assets | 4219 | 6025 | |
| Current assets | |||
| Inventories | ۰ | 14 | 4 |
| Current trade & others receivables | 6.7. | 8394 | 13 19 2 |
| Other current financial assets | 6.8. | 174 | 173 |
| Other current assets | 6.9. | 1137 | 1723 |
| Cash & cash equivalents | 6.10. | 152 277 | 126 286 |
| Total - Current assets | 161996 | 141379 | |
| Total Accord | 1 CC 914 | 1.47.404 |
| EQUITY & LIABILITIES | Notes | As of | |
|---|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Shareholders' equity | |||
| Share capital | 6.11. | 7792 | 7792 |
| Share premium | 237 305 | 237434 | |
| Retained earnings | (68654) | (102321) | |
| Currency translation adjustment | ۰ | 21 | |
| Net loss | ۰ | (33667) | (22615) |
| Total shareholders' equity - Group share | 142797 | 120 294 | |
| Non-controlling interests | ٠ | o | o |
| Total - Shareholders' equity | 142797 | 120 294 | |
| Non-current liabilities | |||
| Non-current loans & borrowings | 6.12. | 5004 | 6916 |
| Non-current deferred income and revenue | 6.14 | з | в |
| Non-current employee benefits | 6.16. | 849 | 893 |
| Total - Non-current liabilities | 5855 | 7812 | |
| Current liabilities | |||
| Current loans & borrowings | 6.12. | 1248 | 1587 |
| Current trade & other payables | 6.13. | 16 14 6 | 17549 |
| Current deferred income and revenue | 6.14. | 1 | 1 |
| Current provisions | 6.15. | 167 | 162 |
| Total - Current liabilities | 17562 | 19 2 9 9 | |
| Total - Equity & liabilities | 166 214 | 147404 |
HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS PREPARED UNDER IFRS
[27]
| Notes | Half-year ended | |||
|---|---|---|---|---|
| (in € thousands, except earnings per share data) | 2016/06/30 | 2017/06/30 | ||
| Revenues and other income | ||||
| Revenue | 6.18. | 151 | 65 | |
| Other income | 6.18. | 3495 | 4645 | |
| Revenues and other income | 3647 | 4710 | ||
| Operating expenses and other operating income (expenses) | ||||
| Research & development expenses | 6.19. | (12323) | (23670) | |
| General & administrative expenses | 6.19. | (4166) | (3, 448) | |
| Other operating income | 6.19. | o | (2) | |
| Other operating expenses | 6.19. | (1) | 36 | |
| Operating loss | (12843) | (22374) | ||
| Financial revenue | 6.21. | 278 | 341 | |
| Financial expenses | 6.21. | (97) | (555) | |
| Financial loss | 181 | (214) | ||
| Income tax | 6.22. | (0) | (26) | |
| Net loss | (12662) | (22615) | ||
| Attributable to owners of the Company | (12662) | (22615) | ||
| Attributable to non-controlling interests | ٥ | o | ||
| Basic / diluted loss per share attributable to shareholders of Genfit | ||||
| $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ $\sim$ | --- | Les Avello | $\mathbf{r} = \mathbf{r}$ |
[28]
| Notes | Half-year ended | ||
|---|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 | |
| Net loss | (12662) | (22615) | |
| Actuarial gains and losses | 6.16. | ٥ | o |
| Other comprehensive income (loss) | o | ||
| that will never be reclassified to profit or loss | |||
| Exchange differences on translation of foreign operations | (5) | (18) | |
| Other comprehensive income (loss) | (5) | (18) | |
| that are or may be reclassified to profit or loss |
| Total other comprehensive loss | (12667) | (22632) |
|---|---|---|
| Attributable to owners of the Company | (12667) | (22632) |
| Attributable to non-controlling interests |
[29]
| (in € thousands) | Half-year ended 30/06/2016 |
Year ended 31/12/2016 |
Half-year ended 30/06/2017 |
|---|---|---|---|
| Cash flows from operating activities | |||
| + Net loss | (12662) | (33667) | (22615) |
| + Non-controlling interets | |||
| Reconciliation of net loss and of the cash used for operating activities | |||
| Adjustments for: | |||
| + Amortization | 274 | 630 | 505 |
| +Depreciation & impairment charges | 39 | 186 | 36 |
| + Expenses related to share-based compensation | ٥ | 11 | 129 |
| - Gain / (loss) on disposal of property, plant & equipment | o | o | 2 |
| +Net finance expenses / (revenue) | 71 | 45 | 20 |
| + Income tax expense | ٥ | 35 | 26 |
| + Other non-cash items | (394) | (338) | (27) |
| Operating cash flows before change in working capital | (12671) | (33098) | (21923) |
| Change in: | |||
| Decrease (+) / increase (-) in inventories | 12 | 14 | 10 |
| Decrease (+) / increase (-) in trade receivables & other assets | (3599) | (2942) | (5384) |
| Decrease (-) / increase (+) in trade payables & other liabilities | 2951 | 8828 | 1396 |
| Change in working capital | (636) | 5900 | (3978) |
| Income tax paid | ٥ | (28) | ٥ |
| Net cash flows provided by (used in) operating activities | (13308) | (27226) | (25902) |
| Cash flows from investment activities | |||
| - Acquisition of property, plant & equipment | (686) | (2036) | (1120) |
| + Proceeds from disposal of property, plant & equipment | (0) | (0) | (0) |
| - Acquisition of financial instruments | ٥ | (51) | (11) |
| + Proceeds from sale of financial instruments | ٥ | ٥ | ٥ |
| - Acquisition of subsidiary, net of cash acquired | ٥ | ٥ | ٥ |
| Net cash flows provided by (used in) investment activities | (686) | (2086) | (1131) |
| Cash flows from financing activities | |||
| + Proceeds from issue of share capital (net) | 47978 | 121007 | ٥ |
| + Proceeds from subscription / exercise of share warrants | o | 50 | o |
| + Proceeds from new loans & borrowings | 1000 | 1500 | 1915 |
| - Repayments of loans & borrowings | (390) | (1034) | (848) |
| - Financial interests paid (including finance lease) | (66) | (43) | (24) |
| Net cash flows provided by (used in) financing activities | 48522 | 121480 | 1042 |
| Increase / (decrease) in cash & cash equivalents | 34 5 29 | 92 167 | (25990) |
| Cash & cash equivalents at the beginning of the period | 60111 | 60111 | 152 277 |
| Cash & cash equivalents at the end of the period | 94,640 | 152.277 | 126.286 |
HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS PREPARED UNDER IFRS FOR THE HALF YEAR ENDED JUNE 30, 2017
| Share capital | Share premiums | Treasury | Retained | Currency | Net | Total | Non-controlling | Total | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Number | Share capital | shares | earnings | translation | profit (loss) | shareholders' | interests | shareholders' | ||
| (in $\epsilon$ thousands) | of shares | adjustment | equity Group share |
equity | ||||||
| As of January 1, 2016 | 23 958 904 | 5990 | 118038 | 127 | (51619) | 15 | (17135) | 55416 | 55 4 16 | |
| Net loss | (33667) | (33667) | (33667) | |||||||
| Other comprehensive income (loss) | (27) | (21) | (21) | |||||||
| Total comprehensive income (loss) | $\sqrt{2}$ | (27) | (33667) | (33688) | (33688) | |||||
| Allocation of prior period profit (loss) | (17135) | 17135 | o | |||||||
| Capital increase | 7 207 533 | 1802 | 119 205 | 121007 | 121007 | |||||
| Share-based compensation | 11 | 11 | 11 | |||||||
| Treasury shares | o | |||||||||
| Other movements | 50 | 50 | 50 | |||||||
| As of December 31, 2016 | 31 166 437 | 7792 | 237 305 | 127 | (68781) | 21 | (33667) | 142797 | 142797 | |
| Net loss | (22615) | (22615) | (22615) | |||||||
| Other comprehensive income (loss) | $\Omega$ | (18) | (18) | (18) | ||||||
| Total comprehensive income (loss) | $\Omega$ | $\Omega$ | $\Omega$ | $\Omega$ | (18) | (22615) | (22632) | (22632) | ||
| Allocation of prior period profit (loss) | (33667) | 33 667 | ||||||||
| Capital increase | $\Omega$ | |||||||||
| Share-based compensation | 129 | 129 | 129 | |||||||
| Treasury shares | o | o | ||||||||
| Other movements | ||||||||||
| As of December 31, 2017 | 31 166 437 | 7792 | 237 434 | 127 | (102447) | (22615) | 120 294 | n | 120 294 |
HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS PREPARED UNDER IFRS
[31] [31]
Founded in 1999 under the laws of France, GENFIT S.A. (the "Company") is a biopharmaceutical company dedicated to the discovery and development of drugs and biomarkers in therapeutic areas of high unmet need due to the lack of effective treatments or diagnostic tools and/or due to the increasing number of patients worldwide. The Company concentrates its R&D efforts to participate in the commercialization of treatment solutions and diagnostic tools to fight certain metabolic, inflammatory, autoimmune or fibrotic diseases affecting especially the liver (such as non-alcoholic steatohepatitis or NASH).
The consolidated financial statements of the Company include the operations of GENFIT S.A. and GENFIT CORP., our whollyowned U.S. subsidiary (together referred to as "GENFIT" or the "Group").
The Consolidated Financial Statements of GENFIT have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"), at June 30, 2017. Comparative figures are presented for the year ended December 31, 2016 and the half-year ended June 30, 2016.
In application of EC Regulation no 1606/2002, the financial statements for the half year ended June 30, 2017 were prepared in accordance with IAS 34 on interim financial information, the IFRS standard as adopted by the European Union. GENFIT applied IAS 1, Presentation of Financial Statements, to prepare in consolidated financial statements at June 30, 2017.
The consolidated financial statements have been prepared using the historical cost measurement basis except for certain assets and liabilities that are measured at fair value in accordance with IFRS.
Entities are consolidated on the basis of interim balance sheets at June 30, 2017. These consolidated financial statements for the six-month period ended June 30, 2017 were prepared under the responsibility of the Board of Directors that approved such statements on September 22, 2017.
The term IFRS includes International Financial Reporting Standards ("IFRS"), International Accounting Standards (the "IAS"), as well as the Interpretations issued by the Standards Interpretation Committee (the "SIC"), and the International Financial Reporting Interpretations Committee ("IFRIC"). The principal accounting methods used to prepare the Consolidated Financial Statements are described below.
All financial information (unless indicated otherwise) is presented in thousands of euros (€).
None.
The paragraph below describes the standards and amendments to standards that are binding and apply starting from January 1, 2018 or later, and indicates GENFIT's position with respect to the future application of these texts.
GENFIT has not applied any of these texts earlier than required.
| New or amended | Effective date | Potential impact on | |
|---|---|---|---|
| Standards | consolidated financial statements | ||
| Text already adopted in the EU | |||
| IFRS 9 | IFRS 9, published in July 2014, replaces | Applicable for fiscal years open | The Group is currently assessing the |
| Financial Instruments | the existing guidance in IAS 39, |
from January 1, 2018. | impact of this standard on its |
| Financial Instruments: Recognition and | consolidated financial statements. | ||
| Measurement. | Early adoption permitted. | ||
| IFRS 9 (2009) | |||
| IFRS 9 (2010) | |||
| Amendments to IFRS 7 and IFRS 9 | |||
| IFRS 15 | IFRS 15 establishes a comprehensive | Applicable for fiscal years open | The Group is currently assessing the |
| Revenue from Contracts with | framework for determining whether, | from January 1, 2018. | impact of this standard on its |
| Customers | how much and when revenue is | consolidated financial statements. | |
| IFRS 15 Amendment | recognized. It replaces existing revenue | Early adoption permitted. | |
| Clarification | recognition guidance, including IAS 18, | ||
| Revenue. | |||
| New standards Text not adopted in the EU |
Effective date | Potential impact on consolidated financial statements |
|
|---|---|---|---|
| IFRS 16 Leases |
IFRS 16 aligns the accounting of simple leases to that of finance leases. |
Applicable for fiscal years open from January 1, 2019. |
The Group is currently assessing the impact of this standard on its consolidated financial statements. |
| Amendments to standards | Effective date | Potential impact on | |
|---|---|---|---|
| Text not yet adopted in the EU | consolidated financial statements | ||
| Amendment to IAS 12 | The amendment to IAS 12 clarifies how | Applicable for fiscal years open | These provisions are not expected to have |
| Deferred tax assets on unrealized losses |
to recognize future taxable profits required to recognize these deferred tax assets. |
from January 1, 2017. | a significant impact on the Group's consolidated financial statements. |
| Amendment to IAS 7 | This amendment to IAS 7 concerns the | Applicable for fiscal years open | These provisions are not expected to have |
| Disclosure initiatives | disclosure of changes in financial liabilities on the balance sheet. |
from January 1, 2017. | a significant impact on the Group's consolidated financial statements. |
| Amendment to IFRS 2 | This amendment to IFRS 2 provides | Applicable for fiscal years open | These provisions are not expected to have |
| Share-based payments | clarification on the valuation and modification of plans. |
from January 1, 2018. | a significant impact on the Group's consolidated financial statements. |
| Improvement of IFRS, 2014- | This cycle concerns IFRS 1, IFRS 12 and | Applicable respectively for |
These provisions are not expected to have |
| 2016 cycle | IAS 28. | fiscal years open from January 1, 2018, January 1, 2017 and January 1, 2018. |
a significant impact on the Group's consolidated financial statements. |
| IFRIC 22 | Applicable for fiscal years open | These provisions are not expected to have | |
| Foreign currency |
from January 1, 2018. | a significant impact on the Group's | |
| transactions and advanced | consolidated financial statements. | ||
| consideration | |||
[34] [34]
In preparing the financial statements, management makes judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, incomes and expenses. Actual amounts may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
The estimates and underlying assumptions mainly relate to research tax credit (see section 6.3.19.2. - "Research tax credit"), employee benefits (see section 6.3.17. - "Employee benefits") and share-based payments. (see section 6.20 - "Share-based compensation").
An investor controls an investee when the investor is exposed to variable returns from its involvement with the investee, and when the investor has the ability to affect those returns through its power over the investee. The notion of control implies exposure, or rights, to variable returns from the involvement with the investee and the ability to affect those returns through the power over the investee.
The Group controls all the entities included in the consolidation.
Transactions in foreign currencies are translated into the respective functional currencies of the entities of the Group at the exchange rates applicable at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the reporting date.
The resulting exchange gains or losses are recognized in the statement of operations.
[35] [35]
The assets and liabilities of foreign operations having a functional currency different from the euro are translated into euros at the closing exchange rate. The income and expenses of foreign operations are translated into euros at the exchange rates effective at the transaction dates or, in practice, using the average exchange rate for the reporting period unless this method cannot be applied due to significant exchange rate fluctuations.
Gains and losses arising from foreign operations are recognized in the statement of other comprehensive loss. When a foreign operation is partly or fully divested, the associated share of gains and losses recognized in the currency translation reserve is transferred to the statement of operations.
The Group presentation currency is euro, which is also the functional currency of GENFIT S.A. The functional currency of GENFIT CORP is US dollars.
| Euros (EUR) / US dollars (USD) | Half-vear ended | Year ended | Half-vear ended |
|---|---|---|---|
| 2016/06/30 | 2016/12/31 | 2017/06/30 | |
| Exchange rate at period-end | 0.90074 | 0.94868 | 0.87627 |
| Average exchange rate for the period | 0.89672 | 0.90389 | 0.92427 |
Intangible assets mainly consist of software and operating licenses acquired by the Group. They are recognized at cost less accumulated amortization and impairment. Amortization expense is recorded on a straight-line basis over the estimated useful lives of the intangible assets. The estimated useful lives of both software and license agreements are between 3 and 5 years.
Property, plant and equipment are initially recognized at cost. Cost includes expenditure that is directly attributable to the acquisition of the asset. Routine maintenance costs are expensed as incurred.
Subsequently, depreciation expense is recognized on a straight-line basis over the estimated useful lives of the assets. If components of property, plant and equipment have different useful lives, they are accounted for separately. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if appropriate.
Estimated useful lives are as follows:
[36] [36]
| Scientific equipment | Between 4 and 12 years |
|---|---|
| Computer equipment | 4 years |
| Furniture | 10 years |
| Vehicles | 6 years |
Any gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item. The net amount is recognized in the consolidated statement of operations under the line item "Other operating income" or "Other operating expenses."
6.3.6. Leases
If, according to the terms of a lease, it appears that substantially all the risks and rewards incidental to ownership are transferred from the lessor to the lessee, the leasing contract is qualified as a finance lease. The associated leased assets are initially recognized as an asset at their fair value or present value of the minimum lease payments due under the contract, if this is lower, and are subsequently depreciated or impaired, as necessary. The resulting financial liabilities are reported in the line item "Non-current loans and borrowings" and "Current loans and borrowings".
A lease is classified as an operating lease if it does not transfer to the lessee substantially all the risks and rewards incidental to ownership.
Payments made under operating leases are expensed on a straight-line basis over the term of the lease.
Lease incentives received such as rent-free periods or uneven lease payments are spread on a straight-line basis over the term of the lease.
GENFIT is a lessee in a number of lease contracts (see section 6.6. - "Property, plant and equipment").
If indicators of impairment are identified, amortizable intangible assets and depreciable tangible assets are subject to an impairment test under the provisions of IAS 36, Impairment of Assets.
[37] [37]
Goodwill is tested for impairment as part of the cash-generating unit to which it has been allocated at least once per year. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
The Company may use financial instruments in connection with the application of IAS 39, Financial Instruments Recognition and Measurement, in connection with the Company's foreign exchange risk.
Instruments are measured and recognized at fair value. Market values are determined on the basis of valuations communicated by external and independent experts. Changes in the fair value of these instruments are always recorded in profit or loss, except in the case of hedging relationships relating to future cash flows.
When a derivative financial instrument has not been (or is no longer) classified as a hedge, its successive changes in fair value are recognized directly in profit or loss for the period in the "financial expenses" account.
Inventories of supplies which consist mainly of laboratory consumables are measured at the lower of cost and net realizable value. Cost is determined using the weighted average cost method.
Since 2015, the amount of inventory of laboratory consumables has continued to decrease due to a decrease in the collaboration research activity.
Trade and other receivables are recognized at fair value, which is the nominal value of invoices unless payment terms require a material adjustment for the time value discounting effect at market interest rates. Trade receivables are subsequently measured at amortized cost. A valuation allowance for trade receivables is recognized if their recoverable amount is less than their carrying amount.
Receivables are classified as current assets, except for those with a maturity exceeding 12 months after the reporting date.
[38] [38]
Investments in dynamic UCITS where the recommended investment horizon is generally more than three months are considered as available-for-sale financial assets. These investments can be liquidated within a period between 0 and 32 days, but without capital protection in case of early redemption. All these investments have capital protection at maturity.
A gain or loss arising from a change in the fair value of an available-for-sale financial asset is recognized in other comprehensive income except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognized. At that time the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment.
Cash and cash equivalents comprise cash on hand and demand deposits, together with short-term, highly liquid investments. They are readily convertible to a known amount of cash and thus present a negligible risk of a change in value.
Initially recognized at their purchase cost at the transaction date, investments are subsequently measured at fair value. Changes in fair value are recognized in net finance costs.
Share capital comprises ordinary shares and ordinary shares with double voting rights classified in equity. Costs directly attributable to the issue of ordinary shares or share options are recognized as a reduction in equity.
Financial liabilities are initially recognized at fair value, net of directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest rate method.
The Group derecognizes financial liabilities when the contractual obligations are discharged or cancelled or expire.
6.3.15. Trade & other payables
[39] [39]
Trade and other payables are initially recognized at the fair value of the amount due. This value is usually the nominal value, due to the relatively short period of time between the recognition of the instrument and its repayment.
Provisions are recognized when the Group has a present obligation (legal, regulatory, contractual or constructive) as a result of a past event, for which it is probable that an outflow of resources will be required to settle the obligation, and of which the amount can be estimated reliably.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date.
Provisions are discounted when the time value effect is material.
The Group's pension schemes and other post-employment benefits consist of defined benefit plans and defined contribution plans.
Defined benefit plans relate to French retirement benefit plans under which the Group is committed to guaranteeing a specific amount or level of contractually defined benefits. The obligation arising from these plans is measured on an actuarial basis using the projected unit credit method. The method consists in measuring the obligation based on a projected end-of-career salary and vested rights at the measurement date, according to the provisions of the collective bargaining agreement, corporate agreements and applicable law.
Actuarial assumptions are performed to determine the benefit obligations. The amount of future payments is determined on the basis of demographic and financial assumptions such as mortality, staff turnover, pay increases and age at retirement, and then discounted to their present value. The discount rate used is the yield at the reporting date on AA credit-rated bonds with maturity dates that approximate the expected payments for the Group's obligations.
Re-measurements of the net defined benefit liability which comprise actuarial gains and losses are recognized immediately in the statement of other comprehensive loss.
The Group determines the net interest expense on the net defined benefit liability for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit
liability, taking into account any changes in the net defined benefit liability during the period as a result of contributions and benefit payments.
Under defined contribution plans, the management of plans is performed by an external organization, to which the Group pays regular contributions. Payments made by the Group in respect of these plans are recognized as an expense for the period in the statement of operations.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive undertaking to pay the amount as a result of past service provided by the employee, and the undertaking can be estimated reliably.
Until and including in 2015, GENFIT recognized revenues from co-research alliances with partners in the pharmaceutical industry.
Until 2016, GENFIT recognized revenues from occasional provision of research services.
Revenue recognized in the first half 2017 related to the sub-lease of a part of its corporate headquarters.
The Group received until 2016 various forms of government grants. This government aid is provided for and managed by French state-owned entities, and specifically "BPI France" ("Banque Publique d'Investissement"), formerly named "OSEO Innovation".
Subsidies received are non-refundable. Conditional advances received are interest-free or are subject to low interest rates depending on contractual provisions.
[41] [41]
Grants related to assets are intended to finance the purchase of long-term assets. They are presented in the statement of financial position as deferred income and recognized in the line item "Other income" in the statement of operations on a systematic basis over the useful life of the related asset.
Grants related to income are intended to finance research programs.
They are presented in the statement of financial position as deferred income and recognized in the line item "Other income" in the statement of operations as and when costs related to the research programs are incurred.
Conditional advances that are interest-free or subject to low interest rates are intended to finance research programs
In accordance with IAS 20, Accounting for government grants and disclosure of government assistance, the advantage resulting from interest-free or low interest rates as compared to a market interest rate is considered and accounted for as a government grant. A financial liability is recognized for proceeds received from the advance less the grant, and interest expense is subsequently imputed at market interest rate.
The grant portion of conditional advances is treated as a grant related to income.
For advances granted by BPI France, repayment is required in the event of commercial success. In addition, if GENFIT decides to stop the research program, the conditional advance may be repayable. If a program is unsuccessful, a predetermined amount may be repayable. The remaining amount, if any, is then considered as a grant and written off in the line item "Other income" in the statement of operations.
The interest-bearing advance has been provided by MEL ("Métropole Européenne de Lille"), formerly named LMCU ("Lille Métropole Communauté Urbaine" hereafter "Lille Metropolitan Urban Community") in order to support the Group. Repayment of the advance is required regardless of the circumstances.
The Research Tax Credit ("Crédit d'Impôt Recherche", or "CIR") is granted to entities by the French tax authorities in order to encourage them to conduct technical and scientific research. Entities that demonstrate that their research expenditures meet the required CIR criteria receive a tax credit that may be used for the payment of their income tax due for the fiscal year in which the expenditures were incurred, as well as in the next three years. If taxes due are not sufficient to cover the full amount of tax credit at the end of the three-year period, the difference is repaid in cash to the entity by the authorities. If a company meets certain criteria in terms of sales, headcount or assets to be considered a small/mid-size company, immediate payment of the Research Tax Credit can be requested. GENFIT S.A. meets such criteria.
The Group applies for CIR for research expenditures incurred in each fiscal year and recognizes the amount claimed in the line item "Other income" in the statement of operations in the same fiscal year. In the notes to the financial statements,
the amount claimed is recognized under the heading "Research tax credit" (see section 6.7. - "Trade and other receivables" and 6.18. - "Revenue and other income"). The CIR for fiscal years 2010, 2011 and 2012 was under audit by the tax authorities and proposed reassessments were made which the Group is contesting using the legal remedies available to it.
Research expenses are recorded in the financial statements as expenses (see section 6.19. - "Operating expense").
In accordance with IAS 38, Intangible Assets, development expenses are recognized as intangible assets only if all the following criteria are met:
Since some of these criteria were not fulfilled, the Group did not capitalize any development costs.
Research and development expenses include:
Contracted research and development activities conducted by third parties include services subcontracted to research partner for regulatory reasons, for the production of active ingredients and therapeutic units, as well as pharmacokinetics studies. Costs primarily relate to clinical trials (coordination of clinical trials, hospital services, etc.) and pre-clinical trials (tolerability and interaction studies) that are necessary to the development of GENFIT's drug candidates and biomarker candidates.
General and administrative expenses include:
[43] [43]
The fair value of equity settled share-based compensation granted to employees as determinate on the grant date is recognized as a compensation expense with a corresponding increase in equity, over the vesting period. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met.
The fair values of equity settled share-based compensation granted to employees are measured using the Black-Scholes model with respect to the redeemable share warrants (BSAAR) and using the Monte Carlo model for the stock options (SO) and free shares (AGA). Measurement inputs include share price on the measurement date, the exercise price of the instrument, expected volatility, expected maturity of the instruments, expected dividends, and the risk-free interest rate (based on government bonds). With respect to the redeemable share warrants, service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Regarding the stock options and free shares, market conditions are taken into account in the evaluation of the fair value for the allocation plans that provide for it. For share-based compensation awards with non vesting conditions, the grant date fair value of the sharebased compensation is measured to reflect such conditions and there is no adjustment for differences between expected and actual outcomes.
GENFIT may also grant equity-settled share-based compensation to consultants who are not considered employees in exchange for services. In such cases, the value of the services is measured when they are rendered by the consultants and the share-based compensation exchanged for the services is measured at an equal amount. If the value of the services cannot be measured reliably, then such value is measured with reference to the fair value of the equity instruments granted.
Share-based compensation granted to consultants consists of share warrants, some of which may be redeemed at GENFIT's discretion.
Share-based compensation granted to employees consists of redeemable share warrants, stock options and free shares.
Income tax expense (income) comprises current tax expense (income) and deferred tax expense (income).
Deferred taxes are recognized for all the temporary differences arising from the difference between the tax basis and the accounting basis of assets and liabilities.
Deferred tax assets are recognized for unused tax losses, unused tax credits and temporary deductible differences to the extent that it is probable that future taxable profit will be available against which they can be used.
GENFIT has not recognized net deferred tax assets in the statement of financial position.
Basic earnings per share are calculated by dividing profit attributable to our ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share are calculated by adjusting profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all potentially dilutive ordinary shares (share warrants, redeemable share warrants).
The Executive Board and since June 16, 2017, the Board of Directors and Chief Executive Officer are the Chief Operating Decision Maker ("CODM").
The Executive Board, and since June 16, 2017, the Board of Directors and the Chief Executive Officer, oversee the operations and manage the business as one segment with a single activity; namely the research and development of innovative medicines, the marketing of which depends on the success of the clinical development phase.
[45] [45]
The Group may be exposed to the following risks arising from financial instruments: foreign exchange risk, interest rate risk, liquidity risk and credit risk.
As of the date of this document, the Group's exposure to exchange rate risk is moderate because the majority of its operations are denominated in euros, with the notable exception of the operations performed by GENFIT CORP in US dollars.
In the future, and in particular with respect its clinical trials, GENFIT S.A. might need to manage an increasing number of transactions denominated in other foreign currencies or indirectly exposed to currency risk, which will increase its overall exposure to this risk.
The increase in the overall exposure of the Company to this risk will depend, in particular, on:
At present, the Company has put in place several specific hedging arrangements (purchase of US dollars and UCITS in dollars, currency forwards in US dollars). However, if its currency exposure were to progress, the Company would consider putting in place appropriate hedging arrangements.
The following table shows the sensitivity of the Company's expenses in US dollars to a variation of 10% of the US dollar during the course of the first half 2017:
| Sensitivity of the Company's expenses to a variation of +/-10% of US dollar (during the period) | Half-vear ended |
|---|---|
| (in € thousands or in US dollar thousands) | 2017/06/30 |
| Expenses denominated in US dollars | 2541 |
| Equivalent in euros, on the basis of a 1 euro = 1,1412 US dollar ratio | 2 2 2 7 |
| Equivalent in euros, in the event of an increase of 10% of US dollar vs euro | 2474 |
| Equivalent in euros, in the event of a decrease of 10% of US dollar vs euro | 2024 |
For the 2016 fiscal year, the net impact of the operational exchange rate risk amounted to a foreign exchange gain of €100 thousand, and for the half year 2017, an exchange rate loss of €511 thousand, although these gains and losses do not predict the future impact of exchange rate risk.
[46] [46]
To date, the Group is only liable for governmental advances or conditional advances with no interest or interest at a fixed rate, generally below market rate. Consequently, the Group is not significantly exposed to fluctuations in interest rates for their liabilities.
At June 30, 20176, the Group's financial liabilities totaled €8,503k (as of December 31, 2016: €6,252k). The only variablerate loan was repaid during the period (the principal remaining at December 31, 2016 was €25k). The Group's exposure to interest rate risk through its financial assets is also limited, since these assets are mainly euro-denominated money market funds (SICAV), medium-term negotiable notes or term deposits with progressive rates.
The Group's loans and borrowings mainly consist of government advances for research projects, bank loans, and development loans with participation features. For conditional advances, reimbursement of the principal is subject to the commercial success of the related research project.
The Company has conducted a specific review of its liquidity risk and considers that it is able to meet its future maturities. At June 30, 2017, the Group has €127,031k in cash and cash equivalents and other financial assets (as of December 31, 2016: €152,992k). The Group's net cash at June 30, 2017 amounted to €117,783k (€146,024k at December 31, 2016). In light of this amount at June 30, 2017, the Company does not believe in the short term that is has liquidity risk. In particular, the Company believes that its cash and cash equivalents and current financial instruments are sufficient to ensure its financing, in light of its current projects and undertakings, for the next twelve months.
However, these funds could prove insufficient to cover any additional financing needs, in which case new funding would be required. The conditions and arrangements for such new financing would depend, among other factors, on economic and market conditions that are beyond the Company's control.
Credit risk is the risk of financial loss if a customer or counterparty to a financial asset defaults on their contract commitments. The Group is exposed to credit risk due to trade receivables and other financial assets.
The Group's policy is to manage this risk by transacting with third parties with good credit standards.
6.5. INTANGIBLE ASSETS
Intangible assets mainly comprise office and administrative software as well as scientific software purchased by the Group.
| Intangible assets - Movements | As of | Increase | Decrease | Translation | Reclassification | As of |
|---|---|---|---|---|---|---|
| (En milliers d'euros) | 31/12/2016 | adjustments | 30/06/2017 | |||
| Gross | ||||||
| Software | 1688 | 248 | (40) | o | $\circ$ | 1896 |
| Patents | 21 | ۰ | ٥ | o | ۰ | 21 |
| Other intangibles | ٥ | ٥ | o | ٥ | $\circ$ | ۰ |
| TOTAL - Gross | 1709 | 248 | (40) | o | o | 1917 |
| Accumulated depreciation & impairment | ||||||
| Software | (1020) | (135) | 38 | (1118) | ||
| Patents | (21) | $\circ$ | ٥ | (21) | ||
| Other intangibles | ٥ | ٥ | n | $\circ$ | ||
| TOTAL - Accumulated depreciation & impairment | (1042) | (135) | 38 | (1139) | ||
| TOTAL - Net | 668 | 112 | (2) | o | 0 | 778 |
[48] [48]
| Immobilisations corporelles - Movements | As of | Increase | Decrease | Translation | Reclassification | As of |
|---|---|---|---|---|---|---|
| (En milliers d'euros) | 31/12/2016 | adjustments | 30/06/2017 | |||
| Gross | ||||||
| Buildings on non-freehold land | o | $\Omega$ | 0 | o | o | $\circ$ |
| Scientific equipment | 6078 | 1838 | (32) | ٥ | 7884 | |
| Fittings | 988 | 95 | ٥ | n | o | 1083 |
| Vehicles | 82 | ٥ | ٥ | ٥ | o | -82 |
| Computer equipment | 1475 | 182 | (12) | ٥ | 1645 | |
| Furniture | 317 | 12 | o | ٥ | 329 | |
| In progress | (0) | (78) | 0 | 0 | o | (78) |
| TOTAL - Gross | 8940 | 2048 | (44) | 0 | 0 | 10944 |
| Accumulated depreciation & impairment | ||||||
| Buildings on non-freehold land | ٥ | ٥ | 0 | o | ||
| Scientific equipment | (4438) | (250) | 31 | (4656) | ||
| Fittings | (657) | (32) | ٥ | (689) | ||
| Vehicles | (29) | (8) | ٥ | (37) | ||
| Computer equipment | (530) | (85) | 11 | (605) | ||
| Furniture | (276) | (5) | ٥ | (281) | ||
| In progress | ٥ | ٥ | ٥ | o | ||
| TOTAL - Depreciation & impairment | (5930) | (380) | 42 | 0 | (6268) | |
| TOTAL - Net | 3010 | 1668 | (2) | 0 | 0 | 4676 |
Assets under finance lease contracts relate to scientific equipment. Their net carrying value as of June 30, 2017 amounts to €1,500k (at December 31, 2016: €417k).
The minimum future lease payments for property rented under the Group's real estate operating leases (Lille, Paris and Boston) amounted to €1,073k at June 30, 2016 for the next 12 months:
| Operating lease payments - group as lessee | Half-year ended | ||
|---|---|---|---|
| $(in \in$ thousands) | 2016/06/30 | 2017/06/30 | |
| Minimum payments - for the period | 460 | 542 | |
| Operating lease commitments - group as lessee | As of | ||
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Minimum payments - within 1 year | 1072 | 1073 | |
| Minimum payments - after 1 year but no more than 5 years | 4 2 8 9 | 4230 | |
| Minimum payments - more than 5 years | 725 | 252 | |
| TOTAL | 6086 | 5555 |
GENFIT has guaranteed its obligation under the lease agreement for the headquarters in Lille in the amount of €455k at June 30, 2017 (same amount as of December 31, 2016).
Minimum future payments under capital leases amount to:
[49] [49]
| Finance lease & hire purchase commitments | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| Minimum payments - Within 1 year | 81 | 306 |
| Minimum payments - After 1 year but not more than 5 years | 314 | 1 1 7 5 |
| Minimum payments - More than 5 years | ٥ | 0 |
| Total - Minimum payments | 394 | 1481 |
| Of which: Repayment - Within 1 year | 79 | 15 |
| Of which: Repayment - After 1 year but not more than 5 years | 311 | 281 |
| Of which: Repayment - More than 5 years | ٥ | o |
| Total - Of which: Repayments | 390 | 295 |
| Of which: Interests - Within 1 year | 15 | |
| Of which: Interests - After 1 year but not more than 5 years | з | 25 |
| Of which: Interests - More than 5 years | ٥ | 0 |
| Total - Of which : Interests | 4 | 40 |
| Trade & other receivables - Total | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade receivables | 81 | 81 |
| Research tax credit | 7 1 0 4 | 11971 |
| Social security costs receivables | 22 | 12 |
| VAT receivables | 993 | 907 |
| Grants receivables | 23 | 26 |
| Other receivables | 171 | 195 |
| TOTAL | 8394 | 13 192 |
| Trade & other receivables - Current | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade receivables | 81 | 81 |
| Research tax credit | 7104 | 11971 |
| Social security costs receivables | 22 | 12 |
| VAT receivables | 993 | 907 |
| Grants receivables | 23 | 26 |
| Other receivables | 171 | 195 |
| TOTAL | 8394 | 13 192 |
| Trade & other receivables - Non-current | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade receivables | o | |
| Research tax credit | ٥ | 0 |
| Social security costs receivables | ٥ | o |
| VAT receivables | ٥ | o |
| Grants receivables | ٥ | o |
| Other receivables | ٥ | O |
| TOTAL | 0 | 0 |
At June 30, 2017, trade receivables neither past due nor impaired amounted to €58k compared with €44k as of December 31, 2016.
At June 30, 2017, past due trade receivables amounted to €23k compared with €37k at December 31, 2016.
At December 31, 2016, the part of trade receivables classified as doubtful accounts amounted to €74k. During the period, part of the trade receivables were classified as irrecoverable, in the amount of €1k. Thus, at June 30, 2017, the part of trade receivables classified as doubtful accounts amounts to €73k.
A provision for depreciation was registered at December 31, 2017 in an amount of €62k and adjusted in an amount of €1k, brining the amount to €61k at June 30, 2017.
The research tax credit receivable as of June 30, 2017 relates to the unpaid portion of the 2014 research tax credit (€1,140k) as well as the amount paid in the context of a partial payment of the assessment (€333k) due to an ongoing tax audit described in section 6.24. - "Litigation and contingent liabilities".
[51] [51]
In addition to this amount should be added:
[52] [52]
| Financial assets - Total | As of | |||
|---|---|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 | ||
| Loans | 190 | 203 | ||
| Loan related security deposit | 141 | 143 | ||
| Deposits & guarantees | 276 | 274 | ||
| Liquidity contracts | 109 | 125 | ||
| TOTAL | 715 | 745 | ||
| Financial assets - Current | As of | |||
| (in € thousands) | 2016/12/31 | 2017/06/30 | ||
| Loans | 0 | o | ||
| Loan related security deposit | 141 | 143 | ||
| Deposits & guarantees | 33 | 31 | ||
| Liquidity contracts | ٥ | 0 | ||
| TOTAL | 174 | 173 | ||
| Financial assets - Non current | As of | |||
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 | ||
| Loans | 190 | 203 | ||
| Loan related security deposit | o | (0) | ||
| Deposits & guarantees | 243 | 243 | ||
| Liquidity contracts | 109 | 125 |
At June 30, 2017, loan-related securities deposit are composed of, in particular, €115k of a guarantee related to the development loan with BPI France that should be returned to the Group in the second half of 2017 upon payment of the last installment.
6.9. OTHER ASSETS
Other assets of €1,723k at June 30, 2017 and €1,137 at December 31, 2016 correspond to prepaid expenses related to current operating expenses. This increase follows the increase in operating expenses in the first half 2017.
The main components of cash equivalents were:
These investments are short-term, highly liquid and subject to a low risk of changes in value.
| Cash & cash equivalents | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Short-term deposits | 150438 | 107517 |
| Cash & bank accounts | 1839 | 18769 |
| TOTAL | 152 277 | 126 286 |
| Short-term deposits | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| UCITS | 57 130 | 41694 |
| TERM ACCOUNTS | 75937 | 53712 |
| NEGOTIABLE MEDIUM TERM NOTES | 14250 | 9000 |
| INTEREST BEARING CURRENT ACCOUNT | 3 1 2 0 | 3 1 1 0 |
| TOTAL | 150438 | 107517 |
[55] [55]
Common shares are classified under shareholders' equity. Any shareholder, regardless of nationality, whose shares are fully paid-in and registered for at least two years, enjoys double voting rights under the conditions prescribed by law (Article 32 of the Articles of GENFIT S.A.).
At June 30, 2017, 2,570,744 shares have been held for more than two years and entitle their holders to double voting rights (8.25% of the issued share capital).
None.
On February 29, 2016, pursuant to the 5th resolution of the Shareholders' Meeting of February 24, 2015, GENFIT SA increased its share capital through the private placement of 2,395,890 new shares representing a subscription of a total gross amount of €49,595k.
On October 6, 2016, in accordance with the 19th and 23rd resolutions of the Shareholders' Meeting of June 21, 2016, GENFIT SA increased its share capital through a private placement of 1,695,000 new shares, representing the subscription of a total gross amount of €33,900k.
On October 31, 2016, in accordance with the 15th resolution of the Shareholders' Meeting of June 21, 2016, GENFIT SA increased its share capital through a public offering with preferential subscription rights to existing shareholders of 3,116,643 new shares, representing the subscription of a total gross amount of €44,568k.
[56] [56]
| Loans & borrowings - Total | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| Refundable & conditional advances | 3549 | 3438 |
| Bank loans | 1941 | 3557 |
| Development loans with participation feature | 345 | o |
| Obligations under finance leases and hire purchase contracts | 387 | 1481 |
| Accrued interests | ||
| Other financial loans and borrowings | 24 | 24 |
| TOTAL | 6252 | 8503 |
| Loans & borrowings - Current | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Refundable & conditional advances | 180 | 209 |
| Bankloans | 614 | 1045 |
| Development loans with participation feature | 345 | o |
| Obligations under finance leases and hire purchase contracts | 79 | 306 |
| Accrued interests | 2 | |
| Other financial loans and borrowings | 24 | 24 |
| ΤΟΤΑΙ | 1 248 | 1587 |
| Loans & borrowings - Non current | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| Refundable & conditional advances | 3369 | 3229 |
| Bankloans | 1327 | 2512 |
| Development loans with participation feature | ٥ | o |
| Obligations under finance leases and hire purchase contracts | 307 | 1 1 7 5 |
| Accrued interests | ٥ | o |
| Other financial loans and borrowings | ٥ | o |
| TOTAL | 5004 | 6916 |
All financial liabilities are denominated in euros.
[57] [57]
From 2006 to 2010, GENFIT received 12 conditional advances with BPI France. Advances are subject to nil or low interest rates and are intended to finance research programs described in 6.3.19.1 - "Government grants".
In addition, two refundable advances of €1,000k and €500k were granted in 2011 by the Hauts-de-France region and Lille Metropolitan Urban Community (LMCU).
| Refundable & conditional advances - general overview $(in \in$ thousands) |
Grant date |
Total amount allocated |
Receipts | Repayments | Other movements |
Effets of discounting |
Net book value 06/30/2017 |
|---|---|---|---|---|---|---|---|
| BPI FRANCE - OLNORME 2 | 06/21/2007 | 200 | 200 | (100) | (100) | ۰ | |
| Identification of novel ligands for orphan nuclear receptors from plant extracts | |||||||
| BPI FRANCE - IT-DIAB | 12/23/2008 | 3 2 2 9 | 3229 | o | o | $\circ$ | 3 2 2 9 |
| Development of a global strategy for the prevention and management of type 2 diabetes | |||||||
| BPI FRANCE - ADVANCE N°1 - AD-INOV 1 | 12/14/2009 | 172 | 172 | (73) | (98) | $\circ$ | $\Omega$ |
| BPI FRANCE - ADVANCE Nº2 - AD-INOV 2 | 12/14/2009 | 172 | 172 | (73) | (98) | ٥ | $\Omega$ |
| BPI FRANCE - ADVANCE N°3 - AD-INOV 3 | 02/17/2010 | 150 | 150 | (64) | (86) | o | (0) |
| Innovation program | |||||||
| BPI FRANCE - ADVANCE N°1 - OLNORME II - 1 | 11/24/2010 | 250 | 200 | (119) | o | (6) | 75 |
| BPI FRANCE - ADVANCE Nº2 - OLNORME II - 2 | 11/24/2010 | 250 | 200 | (119) | ٥ | (6) | 75 |
| BPI FRANCE - ADVANCE N°3 - OLNORME II - 3 | 11/24/2010 | 200 | 160 | (95) | ٥ | (5) | 60 |
| Research of pharmaceutical entities in plant extracts for the treatment of inflammatory diseases | |||||||
| LILLE METROPOLITAN URBAN COMMUNITY | 07/28/2012 | 500 | 500 | (500) | Ω | $\circ$ | $\Omega$ |
| To support the Company | |||||||
| TOTAL | 7121 | 6980 | (3141) | (383) | (18) | 3438 |
Between January 1, 2017 and June 30, 2017, GENFIT repaid €123K of refundable and conditional advances. In 2016, GENFIT repaid €133k of refundable and conditional advances.
| BPI FRANCE | This non-interest bearing advance is repayable in full (at 100% of its nominal value) in |
|---|---|
| OLNORME 2 | the event of technical and/or commercial success. |
| As provided in the agreement, GENFIT has requested that LMCU ("Lille Metropolitan | |
| Urban Community") fully waive repayment of the advance, based on the industrial exploitation in the metropolitan area. |
|
| In June 2016, the Company received a waiver of the advance of €100k. A grant was thus accounted for as of June 30, 2016. |
|
[58] [58]
| BPI FRANCE IT-DIAB |
The advance granted by BPI France was part of a framework innovation aid agreement involving several scientific partners and for which GENFIT was the lead partner. The contribution expected at each stage by each of the partners in respect of work carried out and results achieved is defined in the framework agreement. As regards GENFIT, the aid consists of: • a €3,229k repayable advance; • a €3,947k non-repayable government grant; The program ended on December 31, 2014. In the event of success, defined as the commercial spin-offs of the IT-Diab program which involves products for the treatment or diagnosis of type 2 diabetes, the financial returns generated will be used initially to repay the €3,229k advance1 Any further amounts will be classified as additional payments. |
|---|---|
| BPI FRANCE ADVANCE N°1 - AD-INOV 1 BPI FRANCE ADVANCE N°2 - AD-INOV 2 BPI FRANCE ADVANCE N°3 - AD-INOV 3 |
These non-interest bearing advances are repayable in full (at 100% of their nominal amount) in the event of technical and/or commercial success. Regardless of the technical and / or commercial success, the attribution contract includes a minimum repayment clause up to: • advance n°1 : €35k • advance n°2 : €35k • advance n°3 : €30k Three partial failures were recorded in June 2016. The remaining amount due was thus waived by BPI France and accounted as an operating grant for an amount of €283k. |
| BPI FRANCE ADVANCE N°1 - OLNORME II - 1 BPI FRANCE ADVANCE N°2 - OLNORME II - 2 BPI FRANCE ADVANCE N°3 - OLNORME II - 3 |
These non-interest bearing advances are repayable in full (at 100% of their nominal amount) in the event of technical and/or commercial success. Regardless of the technical and / or commercial success, the attribution contract includes a minimum repayment clause up to: • advance n°1 : €120k • advance n°2 : €120k • advance n°3 : €96k |
| LILLE METROPOLITAN URBAN COMMUNITY |
This interest bearing advance is repayable monthly in accordance with the repayment schedule. The interest rate of this advance is 4.25%. At December 31, 2016, the entirety of this advance has been repaid. |
1 The agreement stipulates that the repayable advance will be regarded as repaid in full when the total payments made in this regard by the recipient, discounted at the rate of 5.19%, equal the total amount, discounted at the same rate, of the aid paid.
[59] [59]
| Crédit du Nord | In June 2017, GENFIT borrowed: • a €600k loan, • repayable in 48 monthly instalments, • at a fixed interest rate of 0.36%. At June 30, 2017, the principal amount outstanding was €600k. |
|---|---|
| Banque Nationale de Paris - Paribas |
In April 2017, GENFIT borrowed: • a €800k loan, • repayable in 60 monthly instalments, • at a fixed interest rate of 0.87%. At June 30, 2017, the loan had not yet been drawn down. |
| Crédit Industriel et Commercial | In December 2016, GENFIT borrowed: • a €264.6k loan, • repayable in 60 monthly instalments, • at a fixed interest rate of 0.69%. At June 30, 2017, the principal amount outstanding was €243k. (at December 31, 2016, the loan had not yet been drawn down.) |
| Banque Nationale de Paris - Paribas |
In October 2016, GENFIT borrowed: • a €1,050k loan, • repayable in 20 quarterly instalments, • at a fixed interest rate of 0.8%. At June 30, 2017, the principal amount outstanding was €1,050 (at December 31, 2016, the loan had not yet been drawn down). |
| Banque Neuflize OBC | In June 2016, GENFIT borrowed: • a €500k loan, • repayable in 12 quarterly instalments, • at a fixed interest rate of 1.10%. At June 30, 2017, the principal amount outstanding was €377k (at December 31, 2016, €418k.) |
| Banque Nationale de Paris - Paribas |
In June 2016, GENFIT borrowed: • a €500k loan, • repayable in 20 quarterly instalments, • at a fixed interest rate of 0.8%. At June 30, 2017, the principal amount outstanding was €426k (at December 31, 2016, €475k). |
| Crédit du Nord | In April 2016, GENFIT borrowed: • a €500k loan, • repayable in 60 monthly instalments, • at a fixed interest rate of 0.78%. At June 30, 2017, the principal amount outstanding was €385k (at December 31, 2016: €434k). |
| Crédit Industriel et Commercial | In March 2015, GENFIT borrowed: • a €500k loan, • repayable in 16 quarterly instalments, • at a fixed interest rate of 0.85%. At June 30, 2017, the principal amount outstanding was €221k (at December 31, 2016: €283k). |
|---|---|
| Banque Nationale de Paris - Paribas |
In December 2014, GENFIT borrowed: • a €500k loan, • repayable in 20 quarterly instalments, • at a fixed interest rate of 2.00%. At June 30, 2017, the principal amount outstanding was €255k (at December 31, 2016: €305k). |
| Banque Neuflize OBC | In June 2014, GENFIT borrowed: • a €150k loan, • repayable in 12 quarterly instalments, • at an interest rate of 3 month EURIBOR + 2.50%. At June 30, 2017, the loan has been entirely repaid (at December 31, 2016, €25k.) |
Bank loans are used to finance research and laboratory equipment.
In June 2010, BPI France granted GENFIT S.A. a development loan with participation feature amounting to €2,300k over a 7 year period.
No repayment of principal was scheduled during the first two years. Since June 15, 2012, the repayments are made quarterly.
The loan agreement contains a participation feature, which entitles BPI France to additional remuneration based on the revenues of GENFIT S.A. This additional remuneration is equal to 0.2294% of revenues.
This loan had an interest rate of 4.46% and was repaid in its entirety at June 30, 2017.
| Maturity of financial liabilities | As of | Less than | Less than | Less than | Less than | Less than | More than |
|---|---|---|---|---|---|---|---|
| $(in \in$ thousands) | 2017/06/30 | 1 year | 2 years | 3 years | 4 years | 5 years | 5 years |
| BPI FRANCE - IT-DIAB | 3 2 2 9 | 0 | 0 | 0 | 3 2 2 9 | o | 0 |
| BPI FRANCE - AVANCE N°1 - OLNORME II - 1 | 75 | 75 | o | o | 0 | ||
| BPI FRANCE - AVANCE N°2 - OLNORME II - 2 | 75 | 75 | 0 | 0 | ٥ | o | 0 |
| BPI FRANCE - AVANCE N°3 - OLNORME II - 3 | 60 | 60 | o | 0 | ο | o | o |
| TOTAL - Refundable & conditional advances | 3438 | 209 | 0 | 3 2 2 9 | 0 | 0 | |
| Bank loans | 3557 | 1045 | 979 | 666 | 600 | 267 | $\circ$ |
| Obligations under finance leases and hire purchase contracts | 1481 | 306 | 310 | 313 | 316 | 236 | o |
| Accrued interests | ٥ | o | ο | $^{\circ}$ | 0 | ||
| Other financial loans and borrowings | 24 | 24 | o | o | o | O | $\Omega$ |
| TOTAL - Other loans & borrowings | 5065 | 1378 | 1288 | 979 | 916 | 503 | O |
| TOTAL | 8503 | 1587 | 1 2 8 8 | 979 | 4 1 4 6 | 503 | o |
| Trade & other payables - Total | As of | |
|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade payables | 13341 | 14953 |
| Social security costs payables | 2562 | 2372 |
| Employee profit sharing | 17 | 17 |
| VAT payables | 24 | 22 |
| Taxes payables | 187 | 156 |
| Other payables | 14 | 27 |
| TOTAL | 16 14 6 | 17549 |
| Trade & other payables - Current | As of | ||
|---|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Trade payables | 13341 | 14953 | |
| Social security costs payables | 2562 | 2372 | |
| Employee profit sharing | 17 | 17 | |
| VAT payables | 24 | 22 | |
| Taxes payables | 187 | 156 | |
| Other payables | 14 | 27 | |
| TOTAL | 16 14 6 | 17549 |
| Trade & other payables - Non current | As of | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 |
| Trade payables | 0 | 0 |
| Social security costs payables | ٥ | o |
| Employee profit sharing | ٥ | o |
| VAT payables | ٥ | o |
| Taxes payables | ٥ | o |
| Other payables | (0) | O |
| TOTAL | (0) | 0 |
| Deferred income & revenue - Total | As of | ||
|---|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Deferred income arising from equipment grants | |||
| TOTAL | |||
| Deferred income & revenue - Current | As of | ||
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Deferred income arising from equipment grants | |||
| TOTAL | |||
| Deferred income & revenue - Non-current | As of |
| - Personal Robert Control and the Control of Provincial Party | --- | ||
|---|---|---|---|
| $(in \in$ thousands) | 2016/12/31 | 2017/06/30 | |
| Deferred income arising from equipment grants | |||
| TOTAL | |||
See section 6.24 – "Litigation and contingent liabilities" regarding the provision for risks and expenses related to the CIR.
In France, pension funds are generally financed by employer and employee contributions and are accounted for as defined contribution plans with the employer contributions recognized as expense as incurred. The Group has no actuarial liabilities in connection with these plans. Expenses recorded in the periods ended June 30, 2017 and June 30, 2016 amounted to €252k and €227k respectively.
French law also requires payment of a lump sum retirement indemnity to employees based on years of service and annual compensation at retirement. Benefits do not vest prior to retirement. The Group is paying this defined benefit plan. It is calculated as the present value of estimated future benefits to be paid, applying the projected unit credit method whereby each period of service is seen as giving rise to an additional unit of benefit entitlement, each unit being measured separately to build up the final. At June 30, 2017, €893k are recognized as pension provisions compared to €849k at December 31, 2016.
As part of the estimation of the retirement indemnity to employees, the following assumptions were used for all categories of employees:
| Population | Permanent staff |
|---|---|
| Retirement age | 67 |
| Terms of retirement | Initiated by the employee |
| Life expectancy | On the basis of the INSEE table |
| Probability of continued presence in the company at retirement age | On the basis of the DARES table |
| Rate | As of | ||
|---|---|---|---|
| (in $\epsilon$ thousands) | 2016/12/31 | 2017/06/30 | |
| Salary growth rate | 4.% | 4.% | |
| Discount rate | 1.5% | 1.5% |
The discount rates are based on the market yield at December 31, 2016 on high quality corporate bonds.
The following table presents the changes in the present value of the defined benefit obligation:
| Changes in the present value of the defined benefit obligation | |
|---|---|
| (in $\epsilon$ thousands) | |
| Defined benefit obligation as of January 1, 2016 | 743 |
| Current service cost | 65 |
| Interest cost on benefit obligation | 13 |
| Actuarial losses / (gains) on obligation | 27 |
| Defined benefit obligation as of December 31, 2016 | 849 |
| Current service cost | 31 |
| Interest cost on benefit obligation | 13 |
| Actuarial losses / (gains) on obligation | o |
| Defined benefit obligation as of December 31, 2017 | 893 |
The following tables provide the financial assets and liabilities carrying values by category and fair values as of June 30, 2017 and December 31, 2016:
| As of December 31, 2016 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying value | Fair value | ||||||
| As per | Assets at | Loans & | Debt at | Level 1 | Level 2 | Level 3 | |
| statement of | fair value | receivables | amortized cost | ||||
| financial | through | ||||||
| (in $\epsilon$ thousands) | position | profit & loss | |||||
| Assets | |||||||
| Loans | 190 | 190 | 190 | ||||
| Loan related security deposit | 141 | 141 | 141 | ||||
| Deposits & guarantees | 276 | 276 | 276 | ||||
| Trade receivables | 81 | 81 | 81 | ||||
| Cash & cash equivalents | 152 277 | 152 277 | 152 277 | ||||
| TOTAL - Assets | 152963 | 152 277 | 687 | 152 277 | 687 | 0 | |
| Liabilities | |||||||
| Conditional advances | 3549 | 3549 | 3549 | ||||
| Bankloans | 1941 | 1941 | 1941 | ||||
| Participating development loan | 345 | 345 | 345 | ||||
| Obligations under finance leases and hire purchase contracts | 387 | 387 | 387 | ||||
| Accrued interests | 7 | ||||||
| Other financial loans and borrowings | 24 | 24 | 24 | ||||
| Trade payables | 13341 | 13341 | 13341 | ||||
| Other payables | 14 | 14 | 14 | ||||
| TOTAL - Liabilities | 19607 | O | $\mathbf 0$ | 19607 | 0 | 16059 | 3549 |
| As of December 31, 2017 | |||||||
|---|---|---|---|---|---|---|---|
| Carrying value | Fair value | ||||||
| As per | Assets at | Loans & | Debt at | Level 1 | Level 2 | Level 3 | |
| statement of | fair value | receivables | amortized cost | ||||
| financial | through | ||||||
| (in € thousands) | position | profit & loss | |||||
| Assets | |||||||
| Loans | 203 | 203 | 203 | ||||
| Loan related security deposit | 143 | 143 | 143 | ||||
| Deposits & guarantees | 274 | 274 | 274 | ||||
| Trade receivables | 81 | 81 | 81 | ||||
| Cash & cash equivalents | 126 286 | 126 286 | 126 286 | ||||
| TOTAL - Assets | 126 987 | 126 286 | 701 | 126 286 | 701 | O | |
| Liabilities | |||||||
| Conditional advances | 3438 | 3438 | 3438 | ||||
| Bankloans | 3557 | 3557 | 3557 | ||||
| Obligations under finance leases and hire purchase contracts | 1481 | 1481 | 1481 | ||||
| Accrued interests | 2 | ||||||
| Other financial loans and borrowings | 24 | 24 | 24 | ||||
| Trade payables | 14953 | 14953 | 14953 | ||||
| Other payables | 27 | 27 | 27 | ||||
| TOTAL - Liabilities | 23 4 8 4 | $\bf{0}$ | $\mathbf{o}$ | 23 4 8 4 | $\bf{0}$ | 20 045 | 3438 |
[67]
Industrial revenues were €65k at June 30, 2017 compared with €151k for the same period in 2016.
| Revenue and other income | Half-year ended | ||
|---|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 | |
| Revenues | 151 | 65 | |
| Other income | 3495 | 4645 | |
| TOTAL | 3647 | 4710 |
| Other income | Half-year ended | ||
|---|---|---|---|
| $(in \in$ thousands) | 2016/06/30 | 2017/06/30 | |
| Government grants | 384 | 21 | |
| Research tax credit for the period | 3043 | 4533 | |
| Other operating income | 69 | 91 | |
| TOTAL | 3495 | 4645 |
As described in section "6.24. - Litigation and contingent liabilities", the research tax credits for the fiscal years 2010, 2011 and 2012 were subject to a tax audit and proposed reassessments were made which the Group is contesting using the legal remedies available to it.
During the first half of 2017, the Group recognized in other operating income €89k (first half 2016: €61k) relating to the CICE (Crédit d'impôt pour la compétitivité et l'emploi), which is a tax credit implemented to enhance the competitiveness of businesses through the promotion of certain activities and employment. In 2017, the tax credit is equal to 7% of all wages paid to employees during the year in respect of salaries that do not exceed 2.5 times the French minimum wage (2016: 6%). In 2017, this tax credit was used to finance the increase in headcount and to purchase scientific equipment.
HALF YEAR CONSOLIDATED FINANCIAL STATEMENTS PREPARED UNDER IFRS FOR THE HALF YEAR ENDED JUNE 30, 2017
| Operating expenses and other operating income (expenses) | Half-year ended | Of which: | |||||
|---|---|---|---|---|---|---|---|
| 2016/06/30 | Raw materials | Contracted | Employee | Other | Depreciation, | Gain / (loss) | |
| & consumables | research & | expenses | expenses | amortization | on disposal of | ||
| used | development | (maintenance, fees, | & impairment | property, plant | |||
| activities | travel, taxes) | charges | & equipment | ||||
| conducted by | |||||||
| (in $\epsilon$ thousands) | third parties | ||||||
| Research & development expenses | (12323) | (970) | (6226) | (3566) | (1310) | (251) | 0 |
| General & administrative expenses | (4166) | (45) | (O) | (2.202) | (1842) | (77) | $\circ$ |
| Other operating income | 0 | 0 | o | 0 | 0 | o | |
| Other operating expenses | (1): | (1) | o | ||||
| TOTAL | (16489) | (1015) | (6226) | (5768) | (3152) | (328) | 0 |
| Operating expenses and other operating income (expenses) | Half-year ended | Of which: | |||||
|---|---|---|---|---|---|---|---|
| 2017/06/30 | Raw materials | Contracted | Employee | Other | Depreciation, | Gain / (loss) | |
| & consumables | research & | expenses | expenses | amortization | on disposal of | ||
| used | development | (maintenance, fees, | & impairment | property, plant | |||
| activities | travel, taxes) | charges | & equipment | ||||
| conducted by | |||||||
| $(in \in$ thousands) | third parties | ||||||
| Research & development expenses | (23670) | (1351) | (14329) | (3984) | (3545) | (461) | (O) |
| General & administrative expenses | (3, 448) | (66) | (4) | (1664) | (1681) | (34) | 0 |
| Other operating income | (2) | 0 | o | 0 | o | 0 | $\left( 2\right)$ |
| Other operating expenses | 36: | 0 | o | 36 | 0 | 0 | |
| TOTAL | (27084) | (1416) | (14333) | (5648) | (5 190) | (495) | (2) |
Research and development expenses include the costs of personnel dedicated to research, share-based payments for this personnel and scientific consultants, raw material and consumables used and operational outsourcing (notably clinical and pharmaceutical), grants to the endowment fund, The NASH Education ProgramTM and costs linked to intellectual property.
General and administrative expenses include the costs of personnel not dedicated to research, share-based payments for this personnel, administrative and commercial costs.
| Employee expenses | Half-year ended | |
|---|---|---|
| $(in \in$ thousands) | 2016/06/30 | 2017/06/30 |
| Wages and salaries | (4188) | (3985) |
| Social security costs | (1548) | (1503) |
| Pension costs | (33) | (31) |
| Share-based compensation | 0 | (129) |
| TOTAL | (5768) | (5648) |
| Number of employees at year-end - detail | Half-year ended | |||
|---|---|---|---|---|
| 2016/06/30 | 2017/06/30 | |||
| Average number of employees | 103 | 124 | ||
| Average age of employees | 37 years & 6 month: 37 years & 2 months | |||
| Number of employees | ||||
| Research & development | 83 | 93 | ||
| Administration & management | 25 | 31 | ||
| TOTAL | 108 | 124 |
Share-based compensation is granted by GENFIT to employees, executive officers and consultants who are not considered employees.
Share-based compensation granted to employees in 2014, 2015 and 2016 correspond to redeemable share warrants "Bons de Souscriptions et/ou d'Acquisition d'Actions" or "BSAAR"), stock options ("SO") and free shares ("AGA"). Share-based compensation granted to consultants in 2014 and 2015 correspond to share warrants ("Bons de Souscriptions d'Actions" or "BSA").
Under these programs, holders of vested instruments are entitled to subscribe to shares of GENFIT at a pre-determined exercise price. All of the plans are equity settled.
The following table presents the share-based compensation for each program:
| Share-based compensation - Annual expense | Half-year ended | Total expense | Total expense | |
|---|---|---|---|---|
| 2016/06/30 | 2017/06/30 | calculated | remaining | |
| BSA 2014-A | O | 0 | 945 | 0 |
| Of which: expense related to executive officers (1) | 0 | o | 365 | o |
| Of which : expense related to consultants | o | o | 581 | o |
| BSA 2014-B | O | 0 | 1045 | $\bf{0}$ |
| Of which : expense related to executive officers | o | o | 365 | o |
| Of which: expense related to consultants | o | ٥ | 680 | o |
| BSA 2015-A | 0 | 0 | 335 | 0 |
| Of which : expense related to executive officers | o | o | 178 | o |
| Of which : expense related to consultants | 0 | 0 | 157 | o |
| BSA 2015-B | 0 | 0 | 315 | 0 |
| Of which : expense related to executive officers | 0 | o | 178 | $\mathbf 0$ |
| Of which : expense related to consultants | ٥ | ٥ | 138 | o |
| BSAAR 2014-A | 0 | 0 | 43 | $\left( 0 \right)$ |
| Of which : expense related to members of the Management Board | o | o | 17 | o |
| Of which : expense related to employees | 0 | 0 | 26 | (0) |
| BSAAR 2014-B | 0 | O | 191 | $\bf{0}$ |
| Of which: expense related to members of the Management Board | o | о | 106 | $\mathbf 0$ |
| o | ٥ | 85 | ||
| Of which : expense related to employees BSAAR 2014-C |
O | 0 | 189 | (0) 0 |
| $\Omega$ | o | 105 | $\Omega$ | |
| Of which : expense related to members of the Management Board | ||||
| Of which : expense related to employees | o | o | 84 | o |
| BSAAR 2014-B | $\Omega$ | 0 | $\Omega$ | 0 |
| Of which: expense related to members of the Management Board | o | 0 | o | o |
| Of which : expense related to employees | 0 | 0 | o | 0 |
| BSAAR 2014-C | 0 | 0 | 0 | $\mathbf 0$ |
| Of which : expense related to members of the Management Board | o | o | o | o |
| Of which : expense related to employees | ٥ | ٥ | o | $\circ$ |
| BSAAR 2014-B | 0 | 19 | 113 | 92 |
| Of which : expense related to members of the Management Board | ٥ | 10 | 58 | 48 |
| Of which: expense related to employees | 0 | 9 | 54 | 44 |
| BSAAR 2014-C | 0 | 8 | 51 | 42 |
| Of which: expense related to members of the Management Board | ٥ | 4 | 26 | 22 |
| Of which : expense related to employees | o | 4 | 25 | 20 |
| BSAAR 2014-B | O | 22 | 133 | 109 |
| Of which : expense related to members of the Management Board | o | 0 | 0 | o |
| Of which : expense related to employees | ٥ | 22 | 133 | 109 |
| BSAAR 2014-C | 0 | 11 | 65 | 54 |
| Of which: expense related to members of the Management Board | o | 0 | ٥ | $\circ$ |
| Of which : expense related to employees | ٥ | 11 | 65 | 54 |
| BSAAR 2014-B | 0 | 42 | 249 | 204 |
| Of which : expense related to members of the Management Board | o | 20 | 119 | 97 |
| Of which : expense related to employees | о | 22 | 130 | 107 |
| BSAAR 2014-C | 0 | 19 | 113 | 92 |
| Of which : expense related to members of the Management Board | ٥ | 9 | 54 | 44 |
| Of which : expense related to employees | 0 | 10 | 59 | 48 |
| BSAAR 2014-B | 0 | 6 | 36 | 29 |
| Of which : expense related to members of the Management Board | o | o | o | $\circ$ |
| Of which: expense related to employees | o | 6 | 36 | 29 |
| BSAAR 2014-C | O | 3 | 16 | 13 |
| Of which : expense related to members of the Management Board | o | o | o | $\Omega$ |
| Of which: expense related to employees | 0 | 3 | 16 | 13 |
| TOTAL | O | 129 | 3839 | 635 |
| Share-based compensation | BSA | BSA 2014-B |
|||
|---|---|---|---|---|---|
| Share warrants (BSA) | 2014-A | ||||
| Executive | Consultants | Executive | Consultants | ||
| officers (1) | officers (1) | ||||
| Date of the Shareholder's meeting | 04/02/2014 | ||||
| Date of the Executive board meeting | 07/24/2014 | ||||
| Nombre total de BSA - subscribed | 23385 | 23380 | 23385 | 23380 | |
| Share entitlement per option | 1 warrant / 1 share | ||||
| Issue price | 0.01E | ||||
| Exercise price (2) | 23,50€ | ||||
| Subscription period | From 08/01/2014 | From 01/02/2015 | |||
| To 09/15/2014 | To 02/15/2015 | ||||
| Exercise period | From 11/01/2014 | From 03/01/2015 | |||
| To 09/30/2018 To 02/28/2019 |
|||||
| Methods of exercise | Exercisable per tranches of a minimum number of BSA | ||||
| equal to 2 000 or a multiple of 2 000, except outstanding balance | |||||
| Valuation method used | Black & Scholes | ||||
| Expected dividends | 0% | ||||
| Expected volatility | 74,9% | ||||
| Risk-free interest rate | 0.40% | ||||
| Expected life | 4 years | ||||
| Estimated fair value - valued by expert opinion (3) | 13.02€ | ||||
| Estimation of fair value as of December 31, 2014 | |||||
| Period used for the estimation of the underlying share | As of 08/01/2014 | From 08/01/2014 | As of 08/01/2014 | From 08/01/2014 | |
| To 11/01/2014 | To 12/31/2014 | ||||
| Estimated fair value - according to IFRS 2 | 15,61€ | 24,84€ | 15,61€ | 24,85€ | |
| Estimation of fair value as of December 31, 2015 | |||||
| Period used for the estimation of the underlying share | ٠ | As of 08/01/2014 | From 01/01/2015 | ||
| To 03/01/2015 | |||||
| Estimated fair value - according to IFRS 2 | 40,09€ 15,61€ ٠ ٠ |
| Share-based compensation | BSA | BSA | |||
|---|---|---|---|---|---|
| Share warrants (BSA) | 2015-A | 2015-B | |||
| Executive | Consultants | Executive | Consultants | ||
| officers (1) | officers (1) | ||||
| Date of the Shareholder's meeting | 04/02/2014 | ||||
| Date of the Executive board meeting | 01/09/2015 | ||||
| Total number of BSA - granted | 7015 | 5845 | 7015 | 5845 | |
| Share entitlement per option | 1 warrant / 1 share | ||||
| Issue price | 0.01E | ||||
| Exercise price (2) | 35,95€ | ||||
| Subscription period | From 01/20/2015 | From 07/01/2015 | |||
| To 02/25/2015 | To 09/15/2015 | ||||
| Exercise period | From 06/01/2015 | From 12/01/2015 | |||
| To 05/31/2019 To 11/30/2019 |
|||||
| Methods of exercise | Exercisable per tranches of a minimum number of BSA | ||||
| equal to 2 000 or a multiple of 2 000, except outstanding balance | |||||
| Valuation method used | Black & Scholes | ||||
| Expected dividends | O 96 | ||||
| Expected volatility | 74.9% | ||||
| Risk-free interest rate | 0.40% | ||||
| Expected life | 4 years | ||||
| Estimated fair value - valued by expert opinion (3) | 14,64€ | ||||
| Estimation of fair value as of June 30, 2015 | |||||
| Period used for the estimation of the underlying share | As of 01/09/2015 | From 01/09/2015 | As of 01/09/2015 | From 01/09/2015 | |
| To 06/01/2015 | To 06/30/2015 | ||||
| Estimated fair value - according to IFRS 2 | 25.33€ | 26.89€ | 25.33€ | 26.31€ | |
| Estimation of fair value as of December 31, 2015 | |||||
| Period used for the estimation of the underlying share | ۰ | ۰ | As of 01/09/2015 | From 07/01/2015 | |
| To 12/01/2015 | |||||
| Estimated fair value - according to IFRS 2 | ٠ | ٠ | 25,33€ | 20,80€ |
The services performed by the consultants are mainly:
| Share-based compensation | BSAAR | BSAAR | BSAAR | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Redeemable share subscription warrants (BSAAR) | $2014 - A$ | 2014-B | 2014-C | |||||||
| Members of the | Employees | Members of the | Employees | Members of the | Employees | |||||
| Executive Board | Executive Board | Executive Board | ||||||||
| Date of the Shareholder's meeting | 04/02/2014 | |||||||||
| Date of the Executive board meeting | 09/15/2014 | |||||||||
| Nombre total de BSAAR subscribed | 5901 | 9299 | 17822 | 5416 | 18711 | 5568 | ||||
| Share entitlement per option | 1 warrant / 1 share | |||||||||
| Issue price | 5.61€ | |||||||||
| Exercise price (1) | 23,50€ | |||||||||
| Subscription period | From 09/19/2014 | From 05/07/2015 | From 07/06/2015 | |||||||
| To 10/15/2014 | To 05/29/2015 | To 07/31/2015 | ||||||||
| Exercise period | From 09/15/2015 | From 09/15/2015 | From 09/15/2015 | |||||||
| To 09/15/2018 | To 05/04/2019 | To 07/01/2019 | ||||||||
| Methods of exercise | Exercisable by fraction of a number of BSAAR equal | |||||||||
| to 1/3 of the total number of warrants held by each beneficiary | ||||||||||
| Valuation method used | Black & Scholes | |||||||||
| Expected dividends | 0% | |||||||||
| Expected volatility | 74,9% | |||||||||
| Risk-free interest rate | 0.40% | |||||||||
| Expected life | 4 years | |||||||||
| Estimated fair value - valued by expert opinion (2) | 5,61€ | |||||||||
| Estimation of fair value as of December 31, 2014 | ||||||||||
| Period used for the estimation of the underlying share | From 10/10/2014 | From 10/10/2014 | As of 09/15/2014 | As of 09/19/2014 | As of 09/15/2014 | As of 09/19/2014 | ||||
| To 10/14/2014 | To 10/14/2014 | |||||||||
| Estimated fair value - according to IFRS 2 | 8,44€ | 8,44€ | 11,29€ | 10,61€ | 11,29€ | 10,61€ | ||||
| Estimation of fair value as of December 31, 2015 | ||||||||||
| Period used for the estimation of the underlying share | From 10/10/2014 | From 10/10/2014 | As of 09/15/2014 | As of 09/19/2014 | As of 09/15/2014 | As of 09/19/2014 | ||||
| To 10/14/2014 | To 10/14/2014 | |||||||||
| Estimated fair value - according to IFRS 2 | 8.44E | 8.44€ | 11.29€ | 10.61€ | 11.29€ | 10.61€ |
| Share-based compensation | BSAAR BSAAR |
||||
|---|---|---|---|---|---|
| Redeemable share subscription warrants (BSAAR) | 2016-A | 2016-B | |||
| Employees | Employees | ||||
| Date of the Shareholder's meeting | 02/24/2015 | ||||
| Date of the Executive board meeting | 07/22/2016 | ||||
| Nombre total de BSAAR subscribed | 7 200 | 3600 | |||
| Share entitlement per option | 1 warrant / 1 share | ||||
| Issue price | 4,60€ | ||||
| Exercise price (1) | 23.50€ | ||||
| Subscription period | From 07/25/2016 | ||||
| To 07/27/2016 | |||||
| Exercise period | 01/01/2018 | 08/01/2019 | |||
| 07/27/2020 | 07/27/2020 | ||||
| Conditions of exercise | Exercise is subject to the following | Exercise is subject to the following | |||
| performance condition: the Company, | performance condition: the Company | ||||
| at the date of receipt of the exercise | shall have published, at the date of | ||||
| request accompanied by the payment | receipt of the exercise request | ||||
| of the exercise price, has the financial | accompanied by the payment of the | ||||
| means to allow it to pursue its research | exercise price, the top-line results from | ||||
| and development programs, and at | its RESOLVE-IT clinical study. | ||||
| least its elafibranor development | |||||
| program in NASH, until the end of 2018. | |||||
| Methods of exercise | Exercisable by fraction | ||||
| of a number of BSAAR equal to 1/3 | |||||
| of the total number of warrants held by each beneficiary | |||||
| Valuation method used | Black & Scholes | ||||
| Expected dividends | O% | ||||
| Expected volatility | 75,4% | ||||
| Risk-free interest rate | 0.00% | ||||
| Expected life | 4 ans | ||||
| Estimated fair value - valued by expert opinion (2) | 4.60€ |
| Share-based compensation | SO. | SO US | SO. | SO US | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Stock-options (SO) | 2016-1 | 2016-1 | 2016-2 | 2016-2 | ||||||
| Members of the | Employees | Members of the | Employees | Members of the | Employees | Members of the | Employees | |||
| Executive Board | Executive Board | Executive Board | Executive Board | |||||||
| Date of the Shareholder's meeting | 06/21/2016 | |||||||||
| Date of the Executive board meeting | 12/15/2016 | |||||||||
| Total number of SO granted | 20 001 | 21916 | 7000 | 9999 | 10959 | 3500 | ||||
| Exercise price | 15.79€ 21.12€ |
15.79€ | 21.12€ | |||||||
| Vesting period | From 12/15/2016 | From 12/15/2016 | ||||||||
| To 09/15/2018 | To 12/15/2019 | |||||||||
| Performance conditions | Vesting is subject to continued employment with the Company as well as | Vesting is subject to continued employment with the Company as well as | ||||||||
| performance conditions. The performance conditions are as follows: | performance conditions. The performance conditions are as follows: | |||||||||
| a) Internal conditions | a) Internal conditions | |||||||||
| 66,2/3% of the stock options will be exercisable, regardless of the variation of | 66,2/3% of the Stock Options will be exercisable, regardless of the variation of | |||||||||
| the stock market price, in the following events: | the stock market price of the Company's shares, if at least one of the three | |||||||||
| (i) if, on the date of the Allocation Decision, one of the two ongoing or authorized | following conditions is fulfilled: | |||||||||
| clinical trials (Resolve-It, Phase 2 in the PBC) has revealed its first results and/or | (i) if an application for marketing authorization for a product (elafibranor for | |||||||||
| principal results and these results have been published; and | NASH) is examined by the European Medicines Agency (EMA) or the U.S. Food and | |||||||||
| (ii) if, on the date of the Allocation Decision, the launch authorization for at least | Drug Administration (FDA); or | |||||||||
| one of the new clinical trials among the projected clinical trials has been (ii) if the launch of at least two new clinical trials among the following are |
||||||||||
| obtained, either: | authorized by the EMA or the FDA, either: | |||||||||
| a clinical trial with elafibranor within a NASH subpopulation; or | - Phase III clinical trials of or which aim to record a new product (TGFTX4) or a new | |||||||||
| a clinical trial with respect to fibrosis within the TGFTX4/repositioning program. | indication for elafibranor (PBC); or | |||||||||
| b) External conditions | clinical trials with a product in Phase II (elafibranor) within a NASH | |||||||||
| (i) if the Final Price is strictly lower than the Initial Price, the number of the Stock | subpopulation; or | |||||||||
| Options exercisable is equal to 0; | (iii) if at least on licensing agreement, on one or another of Genfit's products in | |||||||||
| (ii) if the Final Price is between (i) a value equal to or higher than the Initial Price | one or several territories, is entered into by the Company | |||||||||
| and (ii) a value lower than the Ceiling Price, the number of Stock Options | b) External conditions | |||||||||
| exercisable is equal to: [(Final Price / Initial Price)-1] x 1/3 of number of Stock | 33,1/3% of the Stock Options will be exercisable in proportion to the variation of | |||||||||
| Options: | the Company's stock market price as per the following breakdown: | |||||||||
| (iii) if the Final Price is equal to or higher than the Ceiling Price, the number of | (i) if the Final Price is strictly lower than the Initial Price, the number of the Stock | |||||||||
| Stock Options exercisable is equal to the whole one-third of the Stock Options | Options exercisable is equal to 0; | |||||||||
| allocated. | (ii) if the Final Price is between (i) a value equal to or higher than the Initial Price | |||||||||
| and (ii) a value lower than the Ceiling Price, the number of Stock Options | ||||||||||
| exercisable is equal to: [(Final Price / Initial Price)-1] / 2 x 1/3 of number of Stock | ||||||||||
| Options; | ||||||||||
| (iii) if the Final Price is equal to or higher than the Ceiling Price, the number of | ||||||||||
| allocated. | Stock Options exercisable is equal to the entire one-third of the Stock Options | |||||||||
| Exercise period | From 12/16/2019 | |||||||||
| To 12/16/2026 | ||||||||||
| Valuation method used | Monte Carlo | |||||||||
| Price of the share at the time of allocation | 20.79€ | |||||||||
| Expected dividends | 0% | |||||||||
| Expected volatility | 63,0% | |||||||||
| Risk-free interest rate | 0.0% | |||||||||
| Turnover rate | 15.00% |
| Share-based compensation | AGA D | AGAS | AGA D | AGAS | ||||
|---|---|---|---|---|---|---|---|---|
| Free shares (AGA) | 2016-1 | 2016-1 | 2016-2 | 2016-2 | ||||
| Members of the | Employees | Members of the | Employees | Members of the | Employees | Members of the | Employees | |
| Executive Board | Executive Board | Executive Board | Executive Board | |||||
| Date of the Shareholder's meeting | 06/21/2016 | |||||||
| Date of the Executive board meeting | 12/15/2016 | |||||||
| Total number of AGA granted | 5242 4879 10399 |
2621 | 2439 | 5 1 2 9 | ||||
| Acquisition period | From 12/15/2016 | From 12/15/2016 | ||||||
| To 09/15/2018 | To 12/15/2019 | |||||||
| Performance conditions | Acquisition is subject to continued employment with the Company as well as performance conditions. The performance conditions are as follows: | |||||||
| a) Internal conditions | a) Internal conditions | |||||||
| 66,2/3% (AGA D 2016-1) or 100% (AGA S 2016-1) of the free shares will be | 66,2/3% (AGA D 2016-1) or 100% (AGA S 2016-1) of the free shares will be | |||||||
| definitively acquired, regardless of the variation of the stock market price, in the | definitively acquired, regardless of the variation of the stock market price, in the | |||||||
| following events: | following events: | |||||||
| (i) if, on the date of the Allocation Decision, one of the two ongoing or authorized | (iv) if an application for marketing authorization for a product (elafibranor for | |||||||
| clinical trials (Resolve-It, Phase 2 in the PBC) has revealed its first results and/or | NASH) is examined by the European Medicines Agency (EMA) or the U.S. Food and | |||||||
| principal results and these results have been published; and | Drug Administration (FDA); or | |||||||
| (ii) if, on the date of the Allocation Decision, the launch authorization for at least | (v) if the launch of at least two new clinical trials among the following are | |||||||
| one of the new clinical trials among the projected clinical trials has been | authorized by the EMA or the FDA, either: | |||||||
| obtained, either: | Phase III clinical trials of or which aim to record a new product (TGFTX4) or a new | |||||||
| a clinical trial with elafibranor within a NASH subpopulation; or | indication for elafibranor (PBC); or | |||||||
| a clinical trial with respect to fibrosis within the TGFTX4/repositioning program. | clinical trials with a product in Phase II (elafibranor) within a NASH | |||||||
| b) External conditions | subpopulation; or | |||||||
| With respect only to the AGA D-1, 33,1/3% of the free shares will be definitively | (vi) if at least on licensing agreement, on one or another of Genfit's products in | |||||||
| acquired in proportion to the variation of the Company's stock market price as | one or several territories, is entered into by the Company | |||||||
| per the following breakdown: | b) External conditions | |||||||
| (iv) if the Final Price is strictly lower than the Initial Price, the number of the free | With respect only to the AGA D-1, 33,1/3% of the free shares will be definitively | |||||||
| shares definitively acquired is equal to 0; | acquired in proportion to the variation of the Company's stock market price as | |||||||
| (v) if the Final Price is between (i) a value equal to or higher than the Initial Price | per the following breakdown: | |||||||
| and (ii) a value lower than the Ceiling Price, the number of free shares | (i) if the Final Price is strictly lower than the Initial Price, the number of the free | |||||||
| definitively acquired is equal to: [(Final Price / Initial Price)-1] x 1/3 of number of | shares definitively acquired is equal to 0; | |||||||
| free shares: | (ii) if the Final Price is between (i) a value equal to or higher than the Initial Price | |||||||
| (vi) if the Final Price is equal to or higher than the Ceiling Price, the number of | and (ii) a value lower than the Ceiling Price, the number of free shares | |||||||
| free shares definitively acquired is equal to the entire one-third of the free | definitively acquired is equal to: [(Final Price / Initial Price)-1] / 2 x 1/3 of number | |||||||
| shares allocated. | of free shares; | |||||||
| (iii) if the Final Price is equal to or higher than the Ceiling Price, the number of | ||||||||
| free shares definitively acquired is equal to the entire one-third of the free | ||||||||
| shares allocated. | ||||||||
| Valuation method used | Monte Carlo | |||||||
| Price of the share at the time of allocation | 20,79€ | |||||||
| Expected dividends | 0% | |||||||
| Expected volatility | 63,0% | |||||||
| Risk-free interest rate | 0,0% | |||||||
| Turnover rate | ||||||||
| 15,00% |
| Financial revenue and expenses | Half-year ended | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 |
| Financial revenue | ||
| Interest income | 189 | 205 |
| Foreign exchange gain | 9 | 25 |
| Other financial revenues | 79 | 110 |
| TOTAL - Financial revenue | 278 | 341 |
| Financial expenses | ||
| Interest expenses | (71) | (29) |
| Interest expenses for financial leases | ٥ | (2) |
| Foreign exchange losses | (19) | (511) |
| Other financial expenses | (7) | (13) |
| TOTAL - Financial expenses | (97) | (555) |
| FINANCIAL GAIN (LOSS) | 181 | (214) |
[79]
At June 30, 2017, the tax loss carryforwards for GENFIT S.A, a French entity, amounted to €187,659 (€160,617k as of December 31, 2016).
Such carryforwards can be offset against future taxable profit within a limit of €1 million per year, plus 50% of the profit exceeding this limit. Remaining unused losses will continue to be carried forwards indefinitely.
No deferred tax asset is recognized in 2017 and 2016 as it is not likely that taxable profit will be available against which the deductible temporary differences and tax losses carryforwards can be utilized.
The Group's main sources of deferred tax assets and liabilities as of June 30, 2017 relate to:
| Earnings per share | Half-year ended | ||
|---|---|---|---|
| 2016/06/30 | 2017/06/30 | ||
| Profit for the period - attributable to owners of the Company (in € thousands) | (12662) | (22615) | |
| Weighted average number of ordinary shares for the period | 25 604 433 | 31 166 437 | |
| Profit for the period - attributable to owners of the Company per share (in $\xi$ ) | (0.49) | (0.72) | |
| Weighted average number of ordinary shares used in the above calculation | 25 604 433 | 31 166 437 |
Following an URSAAF (French social security administration) audit which began in September 2016 with respect to the 2013, 2014 and 2015 fiscal years, in November 2016, the Company received an observation letter containing a social security contribution reassessment in the amount of €5k which the Company contested in the amount of €4k before the Commission de Recours Amiable (amicable settlement board)
Following a tax audit of the fiscal years ended December 31, 2011, 2012, and 2013, as well as the audit of the Research Tax Credit (Crédit d'Impôt Recherche) for the 2010 fiscal year, authorities have notified the Company regarding two proposed tax adjustments pertaining to the 2010, 2011, and 2012 CIRs fiscal years, which could lead to a total potential tax adjustment of €2,475 thousand. The Company is currently disputing these adjustments.
The dispute with the French tax authorities pertains mainly to collaborative research alliances with companies in the pharmaceutical industry. The tax authorities contend that, in these alliances, the Company is acting as a sub-contractor, which should reduce the basis on which the CIR is computed by deducting amounts billed by the Company to the other party. The Company maintains that the contracts governing said collaborative research alliances include reciprocal provisions concerning intellectual property, the shared governance of the research programs, risk sharing, conditions governing the termination of the agreements and the terms of compensation, which demonstrate that they are not subcontracting agreements.
In February 2015, the Company formally contested the proposed tax adjustment pertaining to the 2010 CIR (€1,141 thousand). A similar type of detailed response regarding the tax adjustment pertaining to the 2011 and 2012 CIRs was sent by the Company to the tax authorities in February 2016. At the end of May 2016, the tax authorities responded to these two claims letters, maintaining that the majority of the adjustments claimed in the proposed tax adjustments; the Company has appealed this position.
Thus after an initial unsuccessful phase, the Company implemented the second phase of recourse at its disposal on October 17, 2016, at the end of which the Company prevailed in part of its arguments. As a result, the research tax credit adjustment definitively totaled €566 thousand for 2010, €623 thousand for 2011 and €285 thousand for 2012. On January 27, 2017, the Company received a tax assessment notice of €1,479 thousand from the tax authorities. The Company paid the amounts assessed by paying an amount of €338 thousand and for the balance, requested it be set-off with the amount withheld in respect of its receivable from the CIR for 2014 (€1,141 thousand), as mentioned below.
In the course of the treatment of this request for set-off, the authorities conducted additional investigations with the intent to apply the same sub-contracting doctrine. Following these investigations, the authorities informed the Company in August 2017 that it granted part of the Company's request for reimbursement with respect to the 2014 CIR, in the amount of €693 thousand. The two parties agreed that this amount would be used to extinguish a part of the €1,479 thousand previously assessed.
[82]
On February 15, 2017, the Company filed a claim contesting the aforementioned adjustments and a second claim is expected to be filed in the coming weeks.
During the 2015 fiscal year, the tax authorities have agreed to the Company's request for the immediate payment of its 2014 CIR, minus, as a provisional measure, the proposed tax adjustment relative to the 2010 CIR (€1,141 thousand).
The Company, applying IFRS standards, calculated its potential liability should the tax authorities' interpretation with respect to the 2010 to 2015 CIR prevail. The mention of this potential tax liability in this Report and in the Notes to the 2017 half year consolidated financial statements included herein does not, under any circumstances whatsoever, constitute an acknowledgement of the tax authorities' arguments in this matter. On the basis of analyses conducted by third party experts, the Company believes that this potential tax liability could amount to €1,925 thousand, out of the aggregate €20,695 thousand in CIRs reported in the 2010 to 2015 financial statements.
Despite the payment made pursuant to the amounts in the assessment notice, the amount of the potential liability of €1,925 thousand mentioned above remains unchanged due to the claims filed by the Company.
The Company has however recognized a provision for this litigation amounting to €156k for contracts, not including joint research alliances, which could be considered as sub-contracting for third parties that are themselves eligible for the research tax credit and for any adjustments related to the type of capital assets eligible for the CIR.
[83]
Biotech Avenir SAS and the endowment fund, The NASH Education ProgramTM, a GENFIT initiative are related parties within the meaning of IAS 24.9.
At June 30, 2017, Biotech Avenir SAS held 5.79% of GENFIT's share capital.
Biotech Avenir SAS is a holding company incorporated in 2001 by GENFIT's founding managers. Most of its share capital is currently held by individuals, i.e. the four founders and approximately fifteen Company employees. Jean-François Mouney, the Chairman and CEO of GENFIT, is also the Chairman of Biotech Avenir.
In addition to the cash provided by GENFIT S.A. to the liquidity contract set up with the company CM-CIC Securities, Biotech Avenir provided GENFIT shares. This contract is in place as of June 30, 2017.
The registered office of Biotech Avenir SAS and that of The NASH Education ProgramTM are situated at the same address as GENFIT S.A. These domiciliations are provided without charge.
The endowment fund, The NASH Education ProgramTM was created in November 2016 by GENFIT to develop and finance disease awareness activities for the medical profession and general public.
Group companies did not carry out any transactions with Biotech Avenir in 2016 or 2017.
The transactions carried out between GENFIT and the endowment fund The NASH Education ProgramTM and GENFIT's undertakings with respect to The NASH Education ProgramTM are described in note 6.27 - "Commitments".
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By resolution of the General Shareholders Meeting on June 16, 2017, the shareholders adopted the change in mode of administration and management of the Company and decided to switch from the historical two-tiered GENFIT board structure (Executive Board and Supervisory Board) to a single board (Board of Directors).
As a result, the table below provides details of the compensation paid to the members of the Executive Board as well as the Chairman and CEO for the financial years in which the relevant amounts were recognized in the statement of operations.
| Compensation paid to key management personnel (employers' contributions included) | Half-year ended | |
|---|---|---|
| (in $\epsilon$ thousands) | 2016/06/30 | 2017/06/30 |
| Short-term employee benefits | 1562 | 820 |
| Post-employment pension & medical benefits | 333 | 391 |
| Director fees Genfit Corp (net) | 21 | 20 |
| TOTAL | 1916 | 1231 |
The changes in provision for pension liabilities relate to rates described in section 6.16. - "Employee benefits".
The Chairman and CEO is entitled to a severance payment falling within the scope of article L.225-90-1 of the French commercial code, equal to six months' salary, calculated on the basis of the last 12 months' salary (excluding payments under the Incentive Plan) and increased by additional compensation of one months' salary per year of service with the Company. (calculated on the same basis). This severance payment is capped at 2 years gross compensation (excluded exceptional payments under the Incentive Plan) paid with respect to the last fiscal year and subject to performance conditions. This commitment (gross amount and employer charges) at June 30, 2017 amounts to €1,315k.
GENFIT PHARMACEUTICALS SAS' executives do not receive any compensation since the company does not currently have any business activities.
| Deposits & guarantees | As of |
|---|---|
| (in $\epsilon$ thousands) | 2017/06/30 |
| Deposits & guarantees - granted by the Company | 481 |
| Deposits & guarantees - granted to the Company | 24 |
| Total | 505 |
The entirety of the intellectual property rights relating to the drug candidates and biomarkers developed by the Company belong to GENFIT.
With the exception of, and in the case of co-research alliances historically entered into by GENFIT, the pharmaceutical industry partners own all intellectual property rights relating to the drug candidates identified during such collaborations. This does not apply however to the drug candidates and biomarkers that the Company has developed on its own, and to the elafibranor drug candidate in particular, for which all intellectual property rights are held by GENFIT.
The collaboration agreements entered into within such co-research alliances also set out that:
To date, Sanofi is the only partner that still has rights to a drug candidate developed from these alliances. The other partners have either decided not to use or to stop using the results from the joint research.
The collaboration or sub contracting agreements entered into or related to the R&D programs for drug candidates or biomarkers for which the Company owns all of the intellectual property rights stipulate that the research results are the property of GENFIT. This is the case notably for the work carried out within the research consortia ITDIAB and OLNORME, in which GENFIT was associated with academic laboratories and other biotechnology companies.
Pursuant to an agreement with effect from July 1, 2016, GENFIT S.A. decided to finance the creation by Pinnacle Clinical Research of a registry of NAFLD/NASH patients, which diseases are targeted by certain of the Company's drug and biomarker candidates. This donation, for a maximum amount of USD 1,582,000 is paid over the course of the creation of the registry on the basis of three reporting periods at December 31, 2016, June 30, 2017 and December 31, 2017. A total of €601k paid by the Company for the start-up of the program.
GENFIT's goal in supporting the creation of this registry was to contribute to the improvement of scientific and medical knowledge around NAFLD and NASH. As a result, the Company decided on December 22, 2016, with effect from December
31, 2016, to assign the benefit and obligations of this agreement to its endowment fund, The NASH Education ProgramTM. The NASH Education ProgramTM was created on November 3, 2016 to educate the medical community and patients on the lessons that can be learned from these patients, in accordance with its objectives.
For 2017, GENFIT decided to grant to The NASH Education ProgramTM endowment fund a proposed donation of €1,900k so that The NASH Education ProgramTM could honor the obligations under the transfer of registry donation and carry out the other planned disease awareness activities to patients and doctors.
On May 3, 2017, GENFIT made a request for early repayment of the 2016 CIR which is currently being processed. In this context, and in relation to the a dispute with the tax authorities linked to the CIR (see note 6.24 – "Litigation and contingent liabilities", on September 1, 2017, the Company requested a set-off of €447k, which is intended to set off, thanks to the receivable from the 2016 CIR, the balance of the assessment notice received on January 27, 2017 for an amount of €1,479k.
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