BMRN BioMarin Pharmaceutical Inc

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 16, 2015

 

 

BioMarin Pharmaceutical Inc.

(Exact name of Registrant as Specified in Its Charter)

 

 

 

Delaware		000-26727		68-0397820
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

770 Lindaro San Rafael, CA		94901
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, Including Area Code: (415) 506-6700

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Explanatory Note.

On January 16, 2015, BioMarin Pharmaceutical Inc. (BioMarin) filed with the Securities and Exchange Commission (the SEC) a current report on Form 8-K (the Initial 8-K) to report, among other things, the consummation of the acquisition by BioMarin of Prosensa Holding N.V. (Prosensa). This Amendment No. 1 to the Initial 8-K (this Form 8-K/A) amends and supplements Item 9.01 of the Initial 8-K by providing the Unaudited Condensed Consolidated Financial Statements of Prosensa and the Unaudited Pro Forma Condensed Combined Financial Statements of BioMarin described below, which were not filed with the Initial 8-K and are permitted to be filed by amendment no later than seventy-one (71) calendar days after the Initial 8-K was required to be filed with the SEC.

Item 9.01 Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The Unaudited Condensed Consolidated Financial Statements of Prosensa, including the Condensed Consolidated Balance Sheet as of September 30, 2014 (Unaudited) and the Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the nine months ended September 30, 2014 and 2013, are included as Exhibit 99.2 to this Form 8-K/A and are incorporated by reference into this Item 9.01(a).

(b) Pro forma financial information.

The following pro forma financial information is included as Exhibit 99.1 to this Form 8-K/A and is incorporated by reference into this Item 9.01(b):

 

•

The Unaudited Pro Forma Condensed Combined Financial Statements of BioMarin, which describe the effect of the acquisition on BioMarin’s Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations for the year ended December 31, 2014 as if the acquisition had occurred on January 1, 2014.

BioMarin is providing the unaudited pro forma condensed combined financial information for illustrative purposes only. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies actually been combined during the periods presented or the future results that the combined companies will experience. See the risks identified under “Item 1A Risk Factors—Risks Related to our Acquisition of Prosensa Holding N.V.” in BioMarin’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, as filed with the SEC on March 2, 2015, and in the other reports filed by BioMarin with the SEC, for a discussion of the risks and uncertainties related to BioMarin’s acquisition of Prosensa.

(d) Exhibits.

 

Exhibit Number		Description
99.1*		Unaudited Pro Forma Condensed Combined Financial Statements
99.2*		Unaudited Condensed Consolidated Financial Statements of Prosensa Holding N.V. for the nine months ended September 30, 2014 and 2013.

 

*	Filed herewith.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

		BioMarin Pharmaceutical Inc.
Date: April 3, 2015		By:		/s/ Daniel Spiegelman
				Daniel Spiegelman
				Executive Vice President and Chief Financial Officer (Principal Financial Officer)

 

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Exhibit Index

 

Exhibit Number		Description
99.1*		Unaudited Pro Forma Condensed Combined Financial Statements
99.2*		Unaudited Condensed Consolidated Financial Statements of Prosensa Holding N.V. for the nine months ended September 30, 2014 and 2013.

 

*	Filed herewith.

 

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EXHIBIT 99.1

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements combine the historical condensed consolidated financial information of BioMarin Pharmaceutical Inc. (BioMarin) and Prosensa Holding N.V. (Prosensa). The unaudited pro forma condensed combined balance sheet at December 31, 2014 gives effect to BioMarin’s acquisition of Prosensa as if the acquisition had been consummated on that date. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 is presented as if the acquisition had been completed on January 1, 2014. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting.

BioMarin’s historical financial information used in preparing the condensed combined financial statements disclosed in Item 9.01 was derived from its audited consolidated financial statements for the year ended December 31, 2014 (as filed on BioMarin’s Annual Report on Form 10-K with the Securities and Exchange Commission (the SEC) on March 2, 2015). BioMarin’s historical consolidated financial statements used in preparing the unaudited pro forma condensed combined financial information are summarized and should be read in conjunction with its historical consolidated financial statements and risk factors, all of which are included in the filings with the SEC noted above.

Prosensa’s historical financial information used in preparing the unaudited pro forma condensed combined financial statements disclosed in Item 9.01 was derived from its unaudited consolidated financial statements for the year ended December 31, 2014. Prosensa’s historical financial statements used in preparing the unaudited pro forma condensed combined financial statements are summarized and should be read in conjunction with its historical condensed consolidated financial statements for the nine months ended September 30, 2014 and notes thereto (as filed on Form 6-K with the SEC on November 17, 2014) contained herein in Exhibit 99.2.

The unaudited pro forma adjustments, which are based upon available information and upon certain assumptions that BioMarin believes are reasonable, are described in the accompanying notes. BioMarin is providing the unaudited pro forma condensed combined financial information for illustrative purposes only. BioMarin and Prosensa may have performed differently had they been combined during the periods presented. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies actually been combined during the periods presented or the future results that the combined companies will experience. The unaudited pro forma condensed combined financial statements reflect adjustments to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and are based upon available information and certain assumptions, described in the accompanying notes to the unaudited pro forma combined financial information that management believes are reasonable under the circumstances. The unaudited pro forma condensed combined statements of operations do not give effect to any cost savings or operating synergies expected to result from the acquisitions or the costs to achieve such cost savings or operating synergies.

 

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BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS

December 31, 2014

(In thousands of U.S. dollars, except per share amounts)

 

		Historical
		BioMarin Pharmaceutical Inc.				Prosena Holdings N.V.				Presentation Reclassification Adjustments (1)						Pro Forma Adjustments (2)						Pro Forma Combined
ASSETS
Current assets:
Cash and cash equivalents		$	875,486			$	110,249			$	—					$	(686,786	)		2(a)		$	298,949
Short-term investments			69,706				—				—						—						69,706
Accounts receivable, net			144,472				3,311				—						(209	)		2(b)			147,574
Inventory			199,452				—				—						—						199,452
Current deferred tax assets			31,203				—				—						—						31,203
Prepaid expenses			—				1,679				(1,679	)		1(a)			—						—
Other current assets			105,310				—				1,679			1(a)			(49,271	)		2(c)			57,718
Total current assets			1,425,629				115,239				—						(736,266	)					804,602
Noncurrent assets:
Investment in BioMarin/Genzyme LLC			1,039				—				—						—						1,039
Long term investments			97,856				—				—						—						97,856
Property, plant and equipment, net			523,516				2,322				765			1(b)			(389	)		2(b)			526,214
Intangible assets, net			156,578				1,286				(765	)		1(b)			746,568			2(b)			903,667
Goodwill			54,258				—				—						168,158			2(d)			222,416
Long-term deferred tax assets			166,296				—				—						—						166,296
Other assets			65,281				108				—						(3	)					65,386
Total assets		$	2,490,453			$	118,955			$	—					$	178,068					$	2,787,476
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	235,739			$	28,670			$	—					$	42,019			2(b) 2(f)		$	306,428
Short-term debt			—				51,844				—						(51,844	)		2(b), 2(c)			—
Deferred revenue			—				625				—						(516	)		2(b)			109
Total current liabilities			235,739				81,139				—						(10,341	)					306,537
Noncurrent liabilities:
Long-term convertible debt			657,976				8,170				—						(269	)		2(b)			665,877
Long-term contingent acquisition consideration payable			38,767				—				—						31,676			2(f)			70,443
Long-term deferred tax liabilities			—				—				—						186,648			2(e)			186,648
Other long-term liabilities			30,077				98				—						(98	)		2(b)			30,077
Total liabilities			962,559				89,407				—						207,616						1,259,582
Stockholders’ equity (deficit):
Common stock			149				439				—						(439	)		2(g)			149
Additional paid-in capital			2,359,744				145,311				7,265			1(c)			(152,576	)		2(g)			2,359,744
Other reserves			—				7,265				(7,265	)		1(c)			—						—
Company common stock held by Nonqualified Deferred Compensation Plan			(9,695	)			—				—						—						(9,695	)
Accumulated other comprehensive income			27,466				—				—						—						27,466
Accumulated deficit			(849,770	)			(123,467	)			—						123,467			2(g)			(849,770	)
Total stockholders’ equity			1,527,894				29,548				—						(29,548	)					1,527,894
Total liabilities and stockholders’ equity		$	2,490,453			$	118,955			$	—					$	178,068					$	2,787,476

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

(1)	See Note 1 for additional information on the components included under the heading “Presentation Reclassification Adjustments”.

(2)	See Note 2 for additional information on the components included under the heading “Pro Forma Adjustments”.

 

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BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS

Year Ended December 31, 2014

(In thousands, except for per share data)

 

		Historical
		BioMarin Pharmaceutical Inc.				Prosena Holdings N.V.				Presentation Reclassification Adjustments (1)						Pro Forma Adjustments (2)						Pro Forma Combined
REVENUES;
Net product revenues		$	738,416			$	—			$	—					$	—					$	738,416
Collaborative agreement revenues			1,592				80				20,357			1(d)			—						22,029
Royalty and license revenues			11,032				20,514				(19,530	)		1(d)			—						12,016
Total revenues			751,040				20,594				827						—						772,461
OPERATING EXPENSES:
Cost of sales			129,764				—				—						—						129,764
Research and development			461,543				42,515				827			1(d)			—						504,885
Selling, general and administrative			302,156				34,417				—						—			2(h)			336,573
Intangible asset amortization and contingent consideration			17,968				—				—						714			2(i)			18,682
Gain on sale of intangible asset			(67,500	)			—				—						—						(67,500	)
Total operating expenses			843,931				76,932				827						714						922,404
LOSS FROM OPERATIONS			(92,891	)			(56,338	)			—						(714	)					(149,943	)
Equity in the loss of BioMarin/Genzyme LLC			(877	)			—				—						—						(877	)
Interest income			5,937				1,095				—						(5,764	)		2(j)			1,268
Interest expense			(36,642	)			(1,984	)			—						—						(38,626	)
Debt conversion expense			(674	)			—				—						—						(674	)
Other income (expense)			279				(31	)			—						—						248
LOSS BEFORE INCOME TAXES			(124,868	)			(57,258	)			—						(6,478	)					(188,604	)
Provision for income taxes			9,101				—				—						—			2(k)			9,101
NET LOSS		$	(133,969	)		$	(57,258	)		$	—					$	(6,478	)				$	(197,705	)
NET LOSS PER SHARE, BASIC AND DILUTED		$	(0.92	)		$	—			$	—					$	—					$	(1.35	)
Weighted average common shares outstanding, basic and diluted			146,349				—				—						—						146,349

The accompanying notes are an integral part of these unaudited pro forma condensed combined financial statements.

 

(1)	See Note 1 for additional information on the components included under the heading “Presentation Reclassification Adjustments”.

(2)	See Note 2 for additional information on the components included under the heading “Pro Forma Adjustments”.

 

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BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

(In thousands, except for per share data or as disclosed)

1. Description of the transactions and basis of presentation

Description of the Transaction

On December 12, 2014, BioMarin Pharmaceutical Inc. (BioMarin) commenced a tender offer through two of its subsidiaries (the Offer) to acquire all of the ordinary shares (the Prosensa Shares) of Prosensa Holding N.V. (Prosensa), a public limited liability company (NASDAQ: RNA) organized under the laws of the Netherlands, in an all cash transaction for $17.75 per Prosensa Share for an upfront purchase price of approximately $680.1 million. In addition, for each Prosensa Share purchased, BioMarin issued one non-transferable contingent value right (the CVR), which represents the contractual right to receive a cash payment of up to $4.14 per Prosensa Share, or approximately $160.0 million, upon the achievement of certain product approval milestones.

On January 15, 2015, BioMarin closed the initial offering period relating to the Offer and purchased approximately 93.4% of the Prosensa Shares. BioMarin immediately launched a subsequent offering period that expired on January 29, 2015. As of the expiration of the subsequent offering period, BioMarin had paid approximately $620.7 million for 34,970,514 Prosensa Shares, representing approximately 96.8% of all outstanding Prosensa Shares. Additionally, BioMarin paid approximately $38.6 million for the options that vested pursuant to the definitive purchase agreement. On February 12, 2015, BioMarin completed an asset transfer from Prosensa and paid an additional $20.8 million to the remaining Prosensa shareholders that did not tender their shares under the Offer through an advance liquidation distribution by Prosensa. BioMarin funded the acquisition with its available cash balances. BioMarin will maintain operations at Prosensa’s headquarters, based in Leiden, the Netherlands and integrate Prosensa personnel from that office.

Effective February 12, 2015, Prosensa has been dissolved and is in liquidation under the laws of the Netherlands.

Prior to the consummation of the transactions described above, Prosensa was an innovative biotechnology company engaged in the discovery and development of ribonucleic acid (RNA)-modulating therapeutics for the treatment of genetic disorders. Prosensa’s primary focus was on rare neuromuscular and neurodegenerative disorders with a large unmet medical need, including subsets of patients with Duchenne muscular dystrophy (DMD), myotonic dystrophy and Huntington’s disease. Prosensa’s clinical portfolio of RNA-based product candidates was focused on the treatment of DMD. Each of Prosensa’s DMD compounds has been granted orphan drug status in the United States and the European Union. Prosensa’s lead product, drisapersen, is currently under a rolling review as part of a rolling new drug application (NDA) with the U.S. Food and Drug Administration. As previously announced by Prosensa, BioMarin expects to complete the filing of this application in April 2015. BioMarin expects to file a marketing authorization application (MAA) for drisapersen with the European Medicines Agency in the summer of 2015.

Basis of Presentation

The unaudited pro forma condensed combined financial statements have been prepared based on BioMarin’s historical financial information and the historical financial information of Prosensa giving effect to the acquisitions and related adjustments described in these notes. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 is presented as if the acquisition had been completed on January 1, 2014. The unaudited pro forma condensed combined financial statements were prepared using the acquisition method of accounting. The unaudited pro forma condensed combined financial statements reflects adjustments to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) expected to have a continuing impact on the combined results.

Certain note disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) have been condensed or omitted as permitted by the SEC rules and regulations.

The historical Prosensa balance sheet has been converted from Euros to U.S. dollars using the exchange rate of $1.2155 to €1 on December 31, 2014. The historical Prosensa statement of operations has been converted from Euros to U.S. dollars using a historical average exchange rate of $1.3290 to €1 from January 1, 2014 to December 31, 2014.

In addition, certain of the amounts in the Prosensa historical information, which was prepared under International Financial Reporting Standards (IFRS), have been reclassified to conform to BioMarin’s financial statement presentation. The material reclassification items are as follows:

 

(a)

$1.7 million of prepaid expenses into Other Current Assets to conform to BioMarin’s presentation;

 

(b)

$0.8 million of intangible assets into Property, Plant and Equipment, net (PP&E) as these amounts represent software licenses fees which BioMarin includes as a component of PP&E;

 

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(c)

$7.3 million of other reserves into Additional Paid-in Capital (APIC) to conform to BioMarin’s presentation; and

 

(d)

The reclassification adjustments to the Statement of Operations for the year ended December 31, 2014 relates to the revenues earned from Prosensa’s Research and Development Collaboration and License agreement with GlaxoSmithKline, to conform to BioMarin’s presentation.

These unaudited pro forma condensed combined financial statements are not necessarily indicative of the results of operations that would have been achieved had the acquisitions actually taken place at the dates indicated and do not purport to be indicative of future financial position or operating results.

2. Purchase accounting

The acquisition of Prosensa is accounted for as a business acquisition using the acquisition method of accounting in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805, Business Combinations, whereby the assets acquired and liabilities assumed were recognized based on their estimated fair values on the acquisition date. Fair value measurements have been applied based on assumptions that market participants would use in the pricing of the asset or liability.

The fair values of assets acquired and liabilities assumed included in the accompanying unaudited pro forma condensed combined financial statements are based on a preliminary evaluation of their fair value and may change when the final valuation of certain intangible assets and acquired working capital is determined. Upon completion of purchase accounting, BioMarin may make additional adjustments, and the valuations for the assets acquired and liabilities assumed could change from those used in the unaudited pro forma condensed combined financial statements.

The preliminary purchase price is calculated as follows:

 

Cash payments		$	680,062
Estimated fair value of contingent value rights (CVRs)			71,402
Total consideration		$	751,464

The table below presents a summary of the net assets acquired based upon a preliminary estimate of their respective fair values:

 

Cash and cash equivalents		$	103,630
Trade accounts receivable			3,102
Other current assets			1,650
Property, plant and equipment			2,698
Intangible assets			499
Acquired IPR&D			746,590
Total identifiable assets acquired			858,169
Accounts payable and accrued expenses			(30,963	)
Debt assumed			(57,143	)
Deferred revenue			(109	)
Deferred tax liability			(186,648	)
Total liabilities assumed			(274,863	)
Net identifiable assets acquired			583,306
Goodwill			168,158
Net assets acquired		$	751,464

The amount allocated to acquired in-process research and development (IPR&D) is considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if BioMarin becomes aware of any events occurring or changes in circumstances that would indicate the reduction in the fair value of the IPR&D assets below their respective carrying amounts. When development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point.

 

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Prosensa pro forma adjustments and assumptions to unaudited pro form condensed combined financial statements

 

(a)

Reflects the cash payments of $680.1 million to the former Prosensa shareholders and cash usage. Refer to (c) below for additional discussion regarding repayment of acquired debt.

 

(b)

To record the net assets acquired, which are primarily comprised of IPR&D assets. The IPR&D assets are comprised of intellectual property related to Prosensa’s product candidates drisapersen, PRO 044 (exon 044) and PRO 055 (exon 055) and are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts.

 

(c)

Prior to the completion of the acquisition, BioMarin historical balance sheet included a $49.3 million note receivable from Prosensa with a corresponding note payable recorded on Prosensa’s historical balance sheet. The note receivable from Prosensa was issued under the terms of the definitive purchase agreement in November 2014. The pro forma adjustment to Other Current Assets is primarily comprised of the elimination of the $49.3 million note receivable from Prosensa on BioMarin’s historical balance sheet. The pro forma adjustment to Long-term Convertible Debt is comprised of the elimination of the $49.3 million note payable to BioMarin on Prosensa’s historical balance sheet and the repayment of approximately $2.8 million of the acquired debt.

 

(d)

Reflects the Goodwill resulting from the difference between the preliminary estimate of the fair value of the assets and liabilities acquired and the total estimated purchase price.

 

(e)

Reflects the deferred tax liability which relates to the tax impact of future amortization or possible impairments associated with the identified intangible assets acquired.

 

(f)

For each Prosensa Share, BioMarin issued one non-transferable CVR, which represents the contractual right to receive a cash payment of up to $4.14 per Prosensa Share, or approximately an aggregate amount of $160.0 million (undiscounted), upon the achievement of certain product approval milestones. The fair value of the CVRs on the acquisition date was $71.4 million and was estimated by applying a probability-based income approach utilizing an appropriate discount rate. The pro forma adjustment reflects the estimated fair value of the CRVs payable to the former Prosensa shareholders on the acquisition date and is comprised of a short-term and long-term component of which $39.7 million was included in Accounts Payable and Accrued Expenses and $31.7 million was included in Long-term Contingent Acquisition Consideration Payable.

 

BioMarin determines the fair value of contingent acquisition consideration payable on the acquisition date using a probability-based income approach utilizing an appropriate discount rate. Each reporting period thereafter, BioMarin revalues these obligations and records increases or decreases in their fair value as adjustments to Intangible Asset Amortization and Contingent Consideration in its Consolidated Statements of Operations. Changes in the fair value of the contingent acquisition consideration payable can result from adjustments to the estimated probability and assumed timing of achieving the underlying milestones, as well as from changes to the discount rates and periods.

 

(g)

Reflects the elimination of Prosensa’s historical stockholders’ equity.

 

(h)

BioMarin’s historical Statement of Operations includes transaction costs of $2.9 million related to the acquisition of Prosensa.

 

(i)

Reflects the estimated change in the fair value of the Contingent Acquisition Consideration Payable to former Prosensa shareholders due to the passage of time.

 

(j)

Reflects reduction of Cash and investments due to the cash payments to the former Prosensa shareholders of $576.4 million, net of cash acquired. An interest rate of 1% was used to estimate the reduction of interest income for the year ended December 31, 2014.

 

(k)

Reflects estimated income tax impact of the pro forma adjustments, assuming Prosensa’s zero historical tax rate for the year ended December 31, 2014.

 

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Exhibit 99.2

PROSENSA HOLDING N.V.

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

		Page
Condensed Consolidated Statement of Comprehensive Income (Unaudited)			2
Condensed Consolidated Balance Sheet (Unaudited)			3
Condensed Consolidated Statement of Changes in Equity (Unaudited)			4
Condensed Consolidated Statement of Cash Flows (Unaudited)			5
Notes to the Condensed Consolidated Financial Statements (Unaudited)			6

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

						Three months ended September 30,								Nine months ended September 30,
		Note				2014				2013				2014				2013
										€ (‘000 except per share data)
License revenue			16				—				1,319				14,695				4,012
Collaboration revenue							—				1,060				60				2,751
Total revenue							—				2,379				14,755				6,763
Other income			17				250				186				702				220
Research and development expense			18				(8,395	)			(4,919	)			(19,191	)			(13,528	)
General and administrative expense			19				(2,403	)			(1,939	)			(7,554	)			(5,808	)
Other gains - net							26				11				122				19
Operating loss							(10,522	)			(4,282	)			(11,166	)			(12,334	)
Finance income							177				166				633				458
Finance costs							(304	)			(177	)			(787	)			(576	)
Finance cost – net							(127	)			(11	)			(154	)			(118	)
Net loss							(10,649	)			(4,293	)			(11,320	)			(12,452	)
Other comprehensive income							—				—				—				—
Total comprehensive loss*							(10,649	)			(4,293	)			(11,320	)			(12,452	)
Loss per share from operations attributable to the equity holders of the Company during the period (in € per share)
Basic and diluted loss per share			21				(0.29	)			(0.12	)			(0.31	)			(0.40	)

 

*	Total comprehensive loss is fully attributable to equity holders of the Company

The notes are an integral part of these condensed consolidated financial statements.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

 

€ (‘000)		Note				As of September 30, 2014				As of December 31, 2013
Assets
Non-current assets
Leasehold improvements and equipment			7				1,963				2,177
Intangible assets			8				1,146				758
Other financial assets			9				89				289
Total non-current assets							3,198				3,224
Current assets
Trade and other receivables			10				3,493				4,403
Prepayments			11				1,686				931
Cash and cash equivalents			12				61,984				82,232
Total current assets							67,163				87,566
Total assets							70,361				90,790
Equity and liabilities
Equity attributable to owners of the parent
Share capital							361				359
Share premium							119,455				119,222
Other reserves							3,493				2,123
Accumulated deficit							(58,494	)			(41,890	)
Unappropriated earnings							(11,320	)			(16,604	)
Total equity			13				53,495				63,210
Liabilities
Non-current liabilities
Borrowings – non-current portion			15				8,577				7,630
Derivative financial instruments			15				61				22
Deferred revenue/income			16				84				10,852
Total non-current liabilities							8,722				18,504
Current liabilities
Borrowings – current portion			15				—				191
Derivative financial instruments			15				—				8
Trade and other payables			14				8,063				5,150
Deferred revenue/income			16				81				3,727
Total current liabilities							8,144				9,076
Total liabilities							16,866				27,580
Total equity and liabilities							70,361				90,790

The notes are an integral part of these condensed consolidated financial statements.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

€ (‘000)		Common Share capital				Class O Share capital				Class A Share capital				Class B Share capital				Total Share capital				Share premium				Other reserves				Accumulated deficit				Unappropriated earnings				Total equity
Balance at January 1, 2014			359				—				—				—				359				119,222				2,123				(41,890	)			(16,604	)			63,210
Net loss			—				—				—				—				—				—				—				—				(11,320	)			(11,320	)
Appropriation of result			—				—				—				—				—				—				—				(16,604	)			16,604				—
Share-based payments			—				—				—				—				—				—				1,370				—				—				1,370
Proceeds from shares issued			2				—				—				—				2				233				—				—				—				235
Balance at September 30, 2014			361				—				—				—				361				119,455				3,493				(58,494	)			(11,320	)			53,495
Balance at January 1, 2013			35				7				74				174				290				56,118				1,056				(31,998	)			(9,892	)			15,574
Net loss			—				—				—				—				—				—				—				—				(12,452	)			(12,452	)
Appropriation of result			—				—				—				—				—				—				—				(9,892	)			9,892				—
Share-based payments			—				—				—				—				—				—				692				—				—				692
Proceeds from shares issued			69				—				—				—				69				63,958				—				—				—				64,027
Share issuance cost			—				—				—				—				—				(897	)			—				—				—				(897	)
Conversion preference shares			255				(7	)			(74	)			(174	)			—				—				—				—				—				—
Balance at September 30, 2013			359				—				—				—				359				119,179				1,748				(41,890	)			(12,452	)			66,944

The notes are an integral part of these condensed consolidated financial statements.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

 

						Nine months ended September 30,
€ (‘000)		Note				2014				2013
Cash flows from operating activities
Net loss							(11,320	)			(12,452	)
Adjustments for:
- Amortization/depreciation			7,8				968				917
- Costs employee share option plan			20				1,370				692
- Reversal finance income, net							101				118
- Changes in the fair value of derivatives							(30	)			(15	)
- Changes in trade and other receivables			10				868				(2,916	)
- Changes in prepayments			11				(755	)			(1,179	)
- Changes in trade and other payables			14				2,727				953
- Currency effect (outstanding) receivables and payables							120				(31	)
- Changes in deferred revenue			16				(14,415	)			(4,012	)
							(20,366	)			(17,925	)
Interest received							588				666
Interest paid							(15	)			(30	)
Net cash used in operating activities							(19,793	)			(17,289	)
Cash flows from investing activities
Purchases of tangible fixed assets			7				(491	)			(359	)
Purchases of intangible assets			8				(465	)			(37	)
Decrease of other financial assets			9				200				—
Net cash used in investing activities							(756	)			(396	)
Cash flows from financing activities
Proceeds from issuance of share capital			13				235				64,027
Issuance cost deducted from share premium			13				—				(897	)
Proceeds from borrowings			15				600				702
Redemption financial lease			15				(91	)			(125	)
Repayments of borrowings			15				(400	)			(75	)
Net cash generated from financing activities							344				63,632
Net (decrease)/increase in cash and cash equivalents							(20,205	)			45,947
Currency effect cash and cash equivalents							(43	)			29
Cash and cash equivalents at beginning of the period							82,232				40,738
Cash and cash equivalents at end of the period			12				61,984				86,714
Restricted cash			9				—				500

The notes are an integral part of these condensed consolidated financial statements.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General information

The activities of Prosensa Holding N.V. and its subsidiaries (together, “the Company”) primarily consist of developing innovative, RNA-based therapeutics for the treatment of genetic disorders.

Since July 3, 2013, the Company’s ordinary shares have been listed under the ticker symbol “RNA” in the United States on the NASDAQ Global Select Market.

Effective January 12, 2014, GlaxoSmithKline (GSK) and the Company mutually agreed to terminate the Research and Development Collaboration and License agreement (the research and collaboration agreement) entered into on October 6, 2009. As of the effective date, the Company regained all rights for the development and commercialization of drisapersen, PRO044 and other applicable compounds in its Duchenne muscular dystrophy (“DMD”) portfolio.

The Company is incorporated and domiciled in the Netherlands. The address of its registered office is J.H. Oortweg 21, Leiden. Prosensa Holding N.V. is the ultimate parent of the following group of entities:

 

1.

Prosensa Therapeutics B.V. (100%);

 

2.

Prosensa Technologies B.V. (100%);

 

3.

Polybiotics B.V. (100%); and

 

4.

Prosensa Inc. (100%)

The Management Board approved these condensed consolidated financial statements for issuance on November 17, 2014.

2. Summary of significant accounting policies

2.1 Basis of preparation

The condensed consolidated financial statements of the Company were prepared in accordance with International Financial Reporting Standards (IFRS) for interim financial information (IAS 34). Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with IFRS have been condensed or omitted. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2013 and accompanying notes included in the Form 20-F filed with the Securities & Exchange Commission (the Company’s annual consolidated financial statements or financial statements), which have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (IASB).

The principal accounting policies applied in the preparation of these condensed consolidated financial statements have been consistently applied to all the periods presented, unless otherwise stated, and are consistent with those of the Company annual consolidated financial statement.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to these condensed consolidated financials, are disclosed in note 4.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

2.2 Convertible notes

Convertible notes that can be converted into share capital at the option of the holder (see note 15) are accounted for as compound financial instruments comprised of the notes and a conversion option. If the number of shares to be issued upon conversion varies with changes in the fair value of the underlying shares, the conversion option is classified as a financial liability. The conversion option is recognized initially at fair value (see note 3.2) and is re-measured at each reporting date with changes recognized in the consolidated statement of comprehensive income. The notes are initially recognized at fair value and are subsequently measured at amortized cost. Any difference between the proceeds of the convertible notes issuance (net of transaction costs) and the redemption value is recognized in the income statement over the term of the notes using the effective interest method.

2.3 Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those discussed in the Company’s annual consolidated financial statements, except as described below:

(a) New and amended standards adopted by the Company

The following standards and amendments to standards became effective for annual periods on January 1, 2014, and have been adopted by the Company in the preparation of the condensed consolidated financial statements:

 

•

Amendment to IAS 36 Impairment of Assets

 

•

Amendment to IAS 39 Financial Instruments

 

•

IFRIC 21 Levies

The adoption of these new standards and amendments to standards had an immaterial effect on the Company’s financial position and results of operations in the periods presented.

(b) New standards and interpretations not yet adopted by the Company

IFRS 15 “Revenue from contracts with customers” is effective as from January 1, 2017 with a retrospective effect and could have a significant effect on the consolidated financial statements of the Company. The Company has not early adopted IFRS 15 and has yet to assess IFRS 15’s full impact. IFRS 9 “Financial Instruments” published in July 2014 is effective as from January 1, 2018 with early adoption permitted. The Company has not early adopted IFRS 9 and has yet to assess IFRS 9’s full impact. There are no other standards which are currently available for early adoption which are expected to have a significant effect on the condensed consolidated financial statements of the Company.

3. Financial risk management

3.1 Financial risk factors

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed consolidated financial statements do not include all financial risk management information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

There have been no changes in the financial management team that is responsible for financial risk management or in the Company’s financial risk management policies since December 31, 2013.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Liquidity risk

The following table sets forth the Company’s financial liabilities based on the remaining period at the balance sheet date to the contractual maturity date. Derivative financial liabilities are included in the analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

€ (‘000)		Less than 1 year				Between 1 and 2 years				Between 2 and 5 years				Over 5 years				Undefined
At September 30, 2014
Borrowings			—				1,168				—				—				7,331
Finance lease liabilities			—				—				—				—				—
Trade and other payables			8,063				—				—				—				—
Total			8,063				1,168				—				—				7,331
At December 31, 2013
Borrowings			100				100				200				—				7,792
Finance lease liabilities			91				—				—				—				—
Derivative financial instruments (interest rate swap)			8				8				14				—				—
Trade and other payables			5,150				—				—				—				—
Total			5,349				108				214				—				7,792

3.2 Fair value estimation

The Company has issued convertible notes to CureDuchenne that are accounted for as compound financial instruments with a conversion option measured at fair value. The different fair value levels have been defined as follows:

 

•

Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).

 

•

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

 

•

Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The fair value of the conversion option upon initial recognition and as of September 30, 2014 has been determined using a decision tree/cumulative probabilities option pricing model. Key inputs to the option pricing model included Level 2 and Level 3 fair value hierarchy inputs and the fair value of the option is classified as Level 3. Changes in fair value are analyzed by the Company at each reporting date. As of September 30, 2014 the change in fair value of the conversion option was nil.

The Company had entered into a floating-to-fixed interest rate swap to reduce the impact of volatility in changes to interest rates. During the nine month period ended September 30, 2014, the interest rate swap was settled. The determined fair value of the interest rate swap was the impact between a fixed interest rate of 4.15% and the estimated interest rate at measurement date for the remaining period of the instrument discounted over time. The estimated interest rate and discount rates were Level 2 fair value hierarchy inputs. As of September 30, 2014 and 2013, the change in fair value of the interest rate swap which was recorded through the condensed consolidated statement of comprehensive income amounted to €3 thousand gain and €15 thousand gain, respectively. Until its settlement the interest rate swap was recorded as both a non-current and current liability in the condensed consolidated balance sheet.

The carrying amount of the Company’s financial assets and financial liabilities is a reasonable approximation of their fair value.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4. Critical accounting estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The preparation of financial statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenues and expenses in the condensed consolidated financial statements. Actual results could differ materially from those estimates and assumptions.

The preparation of financial statements in conformity with IFRS also requires the Company to exercise judgment in applying accounting policies. Critical judgments in the application of the Company’s accounting policies and the key sources of estimation of uncertainty were the same as those applied to the Company’s annual consolidated financial statements.

The condensed consolidated financial statements do not include all disclosures for critical accounting estimates and judgments that are required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

On June 3, 2014, the Company announced that following feedback from the U.S. Food and Drug Administration (FDA), the Company will pursue a New Drug Application (NDA) filing for drisapersen with the FDA, under an accelerated approval pathway based on existing data. On October 10, 2014, the Company commenced the submission of a NDA for drisapersen under a rolling submission with the FDA, under an accelerated approval pathway based on existing data. In addition, the Company intends to file for conditional approval in Europe.

The outcomes of these filings may have a material impact on the Company’s further development of drisapersen and other DMD compounds. A negative outcome of the regulatory approval process could alter the Company’s development plans and costs, and potentially impact the following accounts in the Company’s consolidated financial statements.

Borrowings

Certain loans from patient organizations have no fixed redemption schemes, and repayment is due when certain predetermined milestones are met. As of September 30, 2014, the Company recorded €7.5 million of such loans with no fixed redemption schemes. As of September 30, 2014, the maturity dates of the borrowings have been assessed resulting in no material changes to the maturity dates.

Valuation of convertible notes

To determine the fair value of the conversion feature of the convertible notes issued to CureDuchenne (see note 3.2), the Company uses a decision tree/cumulative probabilities option pricing model. The notes have no fixed redemption scheme, and the conversion feature can be exercised any time prior to maturity. Assumptions are made on relevant factors such as the investor’s conversion strategy and the timing of a qualified financing in order to determine the fair value of the conversion feature. A 10% change in the probability assigned to the investor’s conversion strategy would increase the fair value of the option by a maximum of €23 thousand. A delay of one year in the Company’s assumed timing of a qualified financing would decrease the fair value of the conversion option by €11 thousand.

Intangible assets

As of September 30, 2014, the Company recorded patents and licenses with a net book value of €452 thousand. As of September 30, 2014, there were no changes to management’s assumptions used to determine the patent and licenses’ recoverable amount, which exceeds the carrying value of €452 thousand, and therefore no impairment is required.

Deferred revenue & License revenue

Upfront license fee payments received under the research and collaboration agreement with GSK were initially deferred and recognized based on the percentage of completion method, which required the Company to estimate the work performed to date as a proportion of the total work expected to be performed.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

As a result of the termination of the research and collaboration agreement, the Company was released from any performance obligations and recorded €14.7 million license revenue in the first quarter of 2014. As of September 30, 2014, the Company’s deferred revenue balance totals €0.2 million of grants deferred (reference is made to note 17).

5. Seasonality of Operations

The Company’s financial results have varied substantially and are expected to continue to vary from quarter to quarter. The Company therefore believes that period to period comparisons should not be relied upon as indicative of future financial results.

6. Segment information

The Company operates in one reportable segment, which comprises the discovery and development of innovative, RNA-based therapeutics. The Management Board is identified as the chief operating decision maker. The Management Board reviews the consolidated operating results regularly to make decisions about resources and to assess overall performance.

The Company derived its revenues from a single party, GSK, under the research and collaboration agreement, an exclusive worldwide collaboration for the development and commercialization of RNA-based therapeutics for DMD. The agreement was terminated effective January 12, 2014.

7. Leasehold improvements and equipment

 

€ (‘000)		Leasehold improvements				Laboratory equipment				Office equipment				Construction in progress				Total
Period ended September 30, 2014
Opening net book amount			262				1,486				224				205				2,177
Additions			2				494				208				(166	)			538
Depreciation charge			(27	)			(611	)			(114	)			—				(752	)
Closing net book amount			237				1,369				318				39				1,963
At September 30, 2014
Cost			355				4,966				998				39				6,357
Accumulated depreciation			(118	)			(3,597	)			(680	)			—				(4,394	)
Net book amount			237				1,369				318				39				1,963

Depreciation expense of €636 thousand for the nine months ended September 30, 2014 (nine months ended September 30, 2013: €599 thousand) has been charged to research and development expense. Depreciation expense of €116 thousand for the nine months ended September 30, 2014 (nine months ended September 30, 2013: €144 thousand) has been charged to general and administrative expense.

Construction in progress mainly comprises laboratory and computer equipment not ready for use as of September 30, 2014.

As of September 30, 2014, acquired laboratory equipment in the amount of €47 thousand was not yet paid for and accordingly not reflected in the consolidated statement of cash flows.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

8. Intangible assets

 

€ (‘000)		Patents and licenses				Software				Total
Period ended September 30, 2014
Opening net book amount			522				236				758
Additions			—				604				604
Amortization charge			(70	)			(146	)			(216	)
Closing net book amount			452				694				1,146
At September 30, 2014
Cost			939				1,336				2,275
Accumulated amortization and impairment			(487	)			(642	)			(1,129	)
Net book amount			452				694				1,146

Amortization expense of €153 thousand for the nine months ended September 30, 2014 (nine months ended September 30, 2013: €120 thousand) has been charged to research and development expense. Amortization expense of €63 thousand for the nine months ended September 30, 2014 (nine months ended September 30, 2013: €54 thousand) has been charged to general and administrative expense.

As of September 30, 2014, acquired software in the amount of €139 thousand was not yet paid for and accordingly not reflected in the consolidated statement of cash flows.

9. Other financial assets

 

		September 30,				December 31,
€ (‘000)		2014				2013
Deposit for rental obligations			89				89
Restricted cash			—				200
Total			89				289

The restricted cash balance secured a bank loan until its repayment in full during the nine month period ended September 30, 2014. Refer to note 12 of the condensed consolidated financial statements for further detail.

10. Trade and other receivables

 

		September 30,				December 31,
€ (‘000)		2014				2013
Trade accounts receivable			2,495				1,298
Amounts to be invoiced to partners			—				2,380
Trade receivables			2,495				3,678
Value-added tax			478				351
Government and other grants to be received			170				30
Advances to personnel			35				—
Interest receivable on bank accounts			302				344
Other receivables			13				—
Total			3,493				4,403

As of September 30, 2014, trade receivables include an allowance related to the final settlement of the termination agreement with GSK. No other receivables were impaired or not performing. The carrying amount of the Company’s trade receivables are fully denominated in British pounds, while other receivables are fully denominated in Euros.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Company does not hold any collateral as security.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

On June 27, 2014, the Company was awarded a $200 thousand research grant from Parent Project Muscular Dystrophy (PPMD), a not-for-profit organization founded by parents of children with Duchenne and Becker muscular dystrophy. As of September 30, 2014, the PPMD grant proceeds are included in government and other grants to be received.

11. Prepayments

As of September 30, 2014, the Company has made prepayments to suppliers for (pre)clinical studies and drug substance for a total of €0.7 million and prepayments of €0.5 million on insurance fees.

12. Cash and cash equivalents

 

€ (‘000)		September 30, 2014				December 31, 2013
Cash at bank and on hand			9,124				9,119
Short-term bank deposits			52,860				73,113
Total			61,984				82,232

In 2006, the Company received a bank loan of €900 thousand from ABN Amro N.V. The loan was fully repaid as of September 30, 2014. Repayment of the loan has been included in the repayment of borrowings line in the cash flows from financing activities. Upon repayment of the loan, €200 thousand of cash that secured the loan and accordingly had been considered restricted and all cash and cash equivalents as of September 30, 2014 are at free disposal of the Company. As of December 31, 2013, the €200 thousand that secured the bank loan was considered restricted cash and recorded as a component of other financial assets. The remaining balance of cash and cash equivalents at December 31, 2013 was at the free disposal of the Company.

13. Equity

 

Class of shares and stated value		September 30, 2014				December 31, 2013
Common shares of €0.01			36,104,929				35,932,792

The par value as of September 30, 2014, is €0.01 per share (as of December 31, 2013: €0.01 per share). All issued shares are fully paid. Besides the minimum amount of share capital to be held under Dutch law, there are no distribution restrictions applicable to equity of the Company.

In the nine month period ended September 30, 2014, 172,137 shares were issued as a result of the exercise of vested options granted under the Company’s share-based compensation plans (refer to the Company’s annual consolidated financial statements for details of the plans). The related weighted average share price at the time of exercise was $9.60 per share.

14. Trade and other payables

 

€ (‘000)		September 30, 2014				December 31, 2013
Trade payables			3,194				1,910
Holiday payments and holiday rights			406				457
Social security and wage tax			684				246
Other liabilities			3,779				2,537
Total			8,063				5,150

Other liabilities

Other liabilities mainly consist of accruals for not yet billed services provided by vendors and miscellaneous liabilities.

 

12

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

15. Borrowings

 

€ (‘000)		September 30, 2014				December 31, 2013
Non-current
Bank borrowings			—				300
Other loans			8,577				7,330
Total non-current			8,577				7,630
Current
Bank borrowings			—				100
Finance lease liabilities			—				91
Total current			—				191
Total			8,577				7,821

On August 11, 2014 the Company entered into an agreement to sell unsecured convertible notes in the amount of up to €5 million to an affiliate of CureDuchenne, a non-profit organization. An initial note with a principal amount of €500 thousand was issued on September 22, 2014. The remaining notes will be issued if and when specified milestones are met. As of September 30, 2014 no additional notes were issued. The notes must be repaid on the earliest to occur of a change in control, twelve months from when the Company obtains regulatory approval of its first product candidate and June 30, 2019. CureDuchenne has the option, under specified conditions, to convert the notes prior to maturity into the Company’s ordinary shares with a maximum value of the notes’ principal and accumulated interest at a conversion price based on the Company’s share price at the time of conversion including a discount. CureDuchenne could have converted the outstanding note for approximately 32 thousand shares based on the Company’s share price at September 30, 2014. If certain specified conditions would have been met, CureDuchenne could have converted the outstanding note for a maximum of approximately 80 thousand shares based on the Company’s share price at the end of the third quarter of 2014.

The conversion option of the notes has been bifurcated and accounted for as a financial liability measured at fair value through profit and loss. The fair value of the embedded derivative is €61 thousand and is classified as Derivative financial instruments under Non-current liabilities as of September 30, 2014.

In the nine months ended September 30, 2014, the Company received loan installments amounting to €100 thousand from Agentschap NL as part of the innovation credit facility (Innovatiekrediet) of the Dutch Ministry of Economic Affairs. During 2013, the Company received a loan installment of €99 thousand from Agentschap NL, €500 thousand from the Duchenne Children’s Trust as an installment of a €1.5 million funding agreement for research and development at an interest rate that approximates the market interest rate, €250 thousand from Association Française contre les Myopathies as an installment of a €3.0 million funding agreement and €202 thousand from Everest International Pte Ltd as an installment of a €1.0 million funding agreement for research and development at below market interest rates.

In 2006, the Company received a bank loan of €900 thousand from ABN Amro N.V. The loan bore interest equal to Euribor plus 1.75% per year. The Company fully repaid the outstanding amount of €400 thousand in the nine month period ended September 30, 2014.

These condensed consolidated financial statements do not include all disclosures for borrowings that are required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

16. Revenue and deferred revenue

From October 2009 to January 2014, the Company operated under an exclusive worldwide collaboration with GSK for the development and commercialization of RNA-based therapeutics for DMD, with GSK exclusively licensing worldwide rights to develop and commercialize drisapersen and obtaining an option to exclusively license PRO044 and other specified assets in the Company’s DMD portfolio. Under the research and collaboration agreement, GSK paid the Company a total of £41.5 million (€47.4 million) in upfront and milestone payments. Under the research and collaboration agreement, GSK was responsible for all costs of clinical development of drisapersen.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

On January 12, 2014, the research and collaboration agreement was mutually terminated pursuant to a termination agreement, which terminated all intellectual property license grants as well as any rights arising under the research and collaboration agreement (other than rights to payments that accrued prior to termination of the collaboration). In addition, the termination agreement required GSK to transfer to the Company certain data and know-how, inventory, regulatory filings, clinical trial sponsorships, clinical study reports and material agreements relating to the development of the Company’s products.

Going forward, the Company will be solely responsible for the cost of developing and commercializing drisapersen and its other product candidates, which may have significant financial and operational implications.

The agreement to terminate the research and collaboration agreement released the Company from any performance obligations under the upfront payments already received from GSK. As a result, in the nine month period ended September 30, 2014, the Company recognized €14.5 million deferred license income. The release from any performance obligations also resulted in recognition of €0.2 million revenue related to other services delivered under the research and collaboration agreement with GSK. In the nine month period ended September 30, 2014, collaboration revenue was minimal due to the termination of the research and collaboration agreement.

In the nine month period ended September 30, 2013, an amount of €2,576 thousand of the initial upfront payment under the research and collaboration agreement with GSK was recognized as license revenue in the consolidated condensed income statement. In the nine month period ended September 30, 2013, the Company recognized revenue of €1,436 thousand related to other upfront payments under the research and collaboration agreement.

These condensed consolidated financial statements do not include all disclosures for revenue and deferred revenue that are required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

17. Other income

The Company is part of two pan-European consortia, each of which has been awarded a Framework Programme 7 (FP7) research grant of €6 million from the European Commission to support the ongoing clinical study of PRO045 and the development of imaging biomarkers for Duchenne muscular dystrophy (DMD), respectively. The Company has also received a research grant from a private non-profit organization and governmental research grants. Grant proceeds are deferred and recognized in other income based on the percentage of completion method in the amount of €682 thousand in the nine months ended September 30, 2014 (for the nine months ended September 30, 2013: €180 thousand).

The Company has obtained certain loans made to support research and development that generally bear interest at a rate below the market interest rate, considered by the Company to be 12% over the last four years. The difference between fair value and the notional amount at inception is treated as a grant received for certain research performed by the Company and recognized in other income over the periods during which research and development expenses are incurred. The Company recognized other income of €9 thousand related to these loans in the nine months ended September 30, 2014 (for the nine months ended September 30, 2013: nil).

18. Research and development expense

Research and development expenses increased from €13.5 million to €19.2 million in the nine months ended September 30, 2013 and 2014, respectively. The increase is mainly due to the expansion of our development and regulatory activities, directly impacted by the termination of the research and collaboration agreement with GSK, as well as the costs of preparing for the regulatory filing and other costs for drisapersen, and the progressing of clinical studies of PRO044, PRO045 and PRO053.

19. General and administrative expense

General and administrative expense increased from €5.8 million to €7.6 million in the nine months ended September 30, 2013 and 2014, respectively. The increase is primarily due to share-based compensation and costs associated with operating as a public company in the period ended September 30, 2014 offset by expenses related to our initial public offering (IPO) in the same period in 2013.

On July 3, 2014 the Company filed a shelf registration statement (Form F-3) that provides the flexibility to raise up to $150 million in a primary offering if the Company chooses to do so. Costs incurred related to the Form F-3 in the period ended September 30, 2014 were recorded in the consolidated statement of comprehensive income in an amount of €231 thousand.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

20. Share-based Payments

Share-based compensation expenses of €1,370 thousand were recognized during the nine month period ended September 30, 2014 (for the nine month period ended September 30, 2013: €692 thousand). A total of 552,000 options were granted in the nine month period ended September 30, 2014. The exercise price of the options is the quoted share price at the time of grant. The Company used similar valuation assumptions, such as volatility, as used for previously granted options during the second half of 2013.

These condensed consolidated financial statements do not include all disclosures for share-based payments that are required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

21. Loss per share

Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary and preferred shares in issue during the year.

 

		Three months ended September 30,								Nine months ended September 30,
		2014				2013				2014				2013
Loss attributable to equity holders of the Company in € (000)			(10,649	)			(4,293	)			(11,320	)			(12,452	)
Weighted average number of Common shares in issue			36,096,069				35,677,928				36,005,034				31,251,749

Diluted

Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Due to the fact that the Company is loss making, all potential ordinary shares had an antidilutive effect if converted, and thus have been excluded from the computation of loss per share.

22. Income tax expense

No tax charge or income has been recognized in the nine month period ended September 30, 2014, or the corresponding period in 2013. The Company has a history of tax losses and expects to record a loss for the year ended December 31, 2014. Management’s judgment is that sufficient evidence is currently not available that future taxable profit will be available against which the unused tax losses or unused tax credits can be utilized by the fiscal unity, therefore a deferred tax asset is not recognized.

23. Related-party transactions

In the period ended September 30, 2014 and 2013, the Management Board was paid regular salaries and contributions to post-employment schemes. Additionally, members of the Supervisory Board received compensation for their services in the form of cash and of share-based compensation. No loans, advances or guarantees were made to Management Board or Supervisory Board members as of September 30, 2014 and 2013.

The condensed consolidated financial statements do not include all disclosures for related-party transactions that are required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual consolidated financial statements for the period ended December 31, 2013.

 

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PROSENSA HOLDING N.V.

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

24. Contingent liabilities

In July 2014, the Company and certain of its managing directors and supervisory directors were named as defendants in Singh v. Schikan et al., a purported class action lawsuit filed in the U.S. District Court for the Southern District of New York. The complaint asserts claims under the federal securities laws on behalf of a professed class consisting of all those who purchased the Company’s ordinary shares pursuant and/or traceable to the registration statement used in connection with the Company’s IPO. The complaint alleges that the Company omitted and/or misstated certain facts in the registration statement concerning the Phase III trial of drisapersen that, as announced on September 20, 2013, did not meet its primary endpoint. The litigation is in its earliest stages, and the Company and the individual defendants intend to defend the action vigorously. The Company is not able at present to reasonably estimate potential losses, if any, in connection with the litigation, but an adverse resolution could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

25. Events after the balance sheet date

No events occurred after the balance sheet date that would have had a material impact on the condensed consolidated financial statements of the Company.

 

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