PROSPECTUS
Gentium
S.p.A.
151,200
American Depositary Shares
Representing
151,200 Ordinary Shares
The
selling security holders identified in this prospectus are offering up to
151,200 American Depositary Shares (“ADSs”), each representing one ordinary
share of our company, Gentium S.p.A. The ADSs offered hereby represent ordinary
shares that may be issued upon exercise of warrants that were issued to the
selling security holders listed herein. Our ADSs are listed on the Nasdaq Global
Market under the symbol “GENT.” The lasted reported sale price for our ADSs on
the Nasdaq Global Market on December 19, 2006 was $22.14 per ADS.
We
will
not receive any proceeds from the sale of ADSs by the selling security holders.
We are not offering any ADSs for sale under this prospectus. If the warrants
are
exercised in full, we would receive proceeds of $1,701,000. See “Selling
Security Holders” beginning on page 23 for a list of the selling security
holders. See “Plan of Distribution” beginning on page 24 for a description of
how the ADSs can be sold.
Our
business and an investment in our ADSs involve significant risks. These risks
are described under the caption “Risk Factors” beginning on page 5 of this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
December
20, 2006
TABLE
OF CONTENTS
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RISK
FACTORS
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5
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FORWARD-LOOKING
STATEMENTS
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16
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PRESENTATION
OF FINANCIAL INFORMATION
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17
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INCORPORATION
BY REFERENCE
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17
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WHERE
YOU CAN FIND MORE INFORMATION
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18
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SERVICE
OF PROCESS AND ENFORCEMENT OF JUDGMENTS
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18
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DETERMINATION
OF OFFERING PRICE
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18
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CAPITALIZATION
AND INDEBTEDNESS
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19
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PRICE
HISTORY
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20
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SHARE
CAPITAL
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21
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USE
OF PROCEEDS
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21
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SELLING
SECURITY HOLDERS
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23
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PLAN
OF DISTRIBUTION
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24
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OFFERING
EXPENSES
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26
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FINANCIAL
STATEMENTS
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26
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EXPERTS
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26
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LEGAL
MATTERS
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26
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ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form F-3 that we filed with
the Securities and Exchange Commission (or the SEC) using a “shelf registration”
process. Under this process, the selling security holders listed in the table
commencing on page 23 may, from time to time, sell the offered securities
described in this prospectus in one or more offerings, up to a total of 151,200
ADSs.
This
prospectus does not contain all of the information included in the registration
statement and the exhibits thereto. This prospectus includes statements that
summarize the contents of contracts and other documents that are filed as
exhibits to the registration statement. These statements do not necessarily
describe the full contents of such documents, and each such statement made
in
this prospectus or any prospectus supplement concerning any such documents
filed
as exhibits to the registration statement is qualified in its entirety by
reference to that exhibit. You should refer to those documents for a complete
description of these matters. It is important for you to read and consider
all
of the information contained in this prospectus and any applicable prospectus
supplement before making a decision whether to invest in our ADSs. You should
also read and consider the information contained in the documents that we have
incorporated by reference as described below under the headings “Incorporation
By Reference” and “Where You Can Find More Information” in this
prospectus.
You
should rely only on the information provided in this prospectus and any
applicable prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with additional or
different information. If anyone provides you with additional, different or
inconsistent information, you should not rely on it. We are not offering to
sell
or soliciting offers to buy, and will not sell, any securities in any
jurisdiction where it is unlawful. You should assume that the information
contained in this prospectus or in any prospectus supplement, as well as
information contained in a document that we have previously filed or in the
future will file with the SEC and incorporate by reference in this prospectus
or
any prospectus supplement, is accurate only as of the date of this prospectus,
the applicable prospectus supplement or the document containing that
information, as the case may be. Our financial condition, results of operations,
cash flows or business may have changed since that date.
We
have not taken any action to permit a public offering of the ADSs outside the
United States or to permit the possession or distribution of this prospectus
outside the United States. Persons outside the United States who come into
possession of this prospectus must inform themselves about and observe any
restrictions relating to this offering of the ADSs and the distribution of
the
prospectus outside of the United States. See “Plan of Distribution.”
PROSPECTUS
SUMMARY
This
prospectus summary highlights selected information contained elsewhere in this
prospectus and the documents incorporated by reference. You should read the
following information together with the more detailed information regarding
our
company and the ADSs being sold in this offering, with information appears
elsewhere in this prospectus and in selected portions of our Annual Report
on
Form 20-F for the year ended December 31, 2005 and other documents filed with
the SEC that we have incorporated by reference into this
prospectus.
Our
Business Focus
We
are a
biopharmaceutical company focused on the research, discovery and development
of
drugs to treat and prevent a variety of vascular diseases and conditions related
to cancer and cancer treatments. In 1986, our founding company received approval
to sell in Italy a drug called “defibrotide” to treat deep vein thrombosis, and,
in 1993, it received approval to manufacture and sell defibrotide to both treat
and prevent all vascular disease with risk of thrombosis. In 2005, we derived
approximately €2.476 million of revenues, or approximately 73.7% of our product
sales of €3.361 million, from sales of defibrotide for these uses in Italy to
Sirton Pharmaceuticals S.p.A., a subsidiary of our largest shareholder,
FinSirton S.p.A., which at September 30, 2006 owned approximately 32% of our
ordinary shares. Our primary focus is on the development of defibrotide for
other uses in the United States and Europe. We have not received approval by
the
U.S. Food and Drug Administration, or FDA, or any European regulators to sell
defibrotide for these other uses. We do not expect revenues from any of our
product candidates until at least 2008 and, as a result, we will require
additional funding in order to obtain FDA and European regulatory approvals
for
our product candidates and for working capital. See “Risk Factors.”
We
are
building upon our extensive experience with defibrotide, which our predecessors
discovered over 20 years ago, to develop it for a variety of additional uses,
including to treat and prevent hepatic Veno-Occlusive Disease, or VOD, a
condition in which some of the veins in the liver are blocked as a result of
toxic cancer treatments such as chemotherapy. A severe form of VOD with
multiple-organ failure is a potentially devastating complication with a survival
rate after 100 days of only approximately 20%, according to our review of more
than 200 published medical articles. Results from a Phase II clinical trial
conducted at Harvard University’s Dana-Farber Cancer Institute of VOD with
multiple-organ failure that concluded in December 2005 showed that the survival
rate after 100 days was approximately 41% after treatment with defibrotide,
although those results were based on the treatment of only 150 patients and
may
not show the safety or effectiveness of the product candidate. We believe that
there is no drug approved by the FDA or European regulators to treat or prevent
VOD.
Our
Advanced Product Candidates
The
stages of development and status of our most advanced product candidates are
summarized below. For additional information on our most advanced and additional
product candidates and the clinical trials, see “Business - Advanced Product
Candidates” and “- Additional Product Candidates.”
|
Product
Candidate
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Intended
Use
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Stage
of Development/Status
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Defibrotide
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Treat
VOD with multiple-organ failure
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Phase
III in the United States/Orphan drug designation in the United States
and
Europe; fast track designation in the United States
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Defibrotide
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Prevent
VOD
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Phase II/III
in Europe/Orphan drug designation in Europe
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Defibrotide
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Treat
multiple myeloma
|
Phase
I/II in Italy
|
Our
Development and Commercialization Strategy
Our
goal
is to research, discover, develop and manufacture drugs derived from DNA
extracted from natural sources and drugs that are synthetic oligonucleotides
(molecules chemically similar to natural DNA) to treat and prevent of a variety
of vascular diseases and conditions related to cancer and cancer treatments.
The
primary elements of our strategy include:
1
• Obtain
FDA approval to use defibrotide to treat VOD with multiple-organ
failure.
The
Dana-Farber Phase II clinical trial of defibrotide in patients with VOD with
multiple-organ failure was completed in December 2005. Results show that the
survival rate after 100 days for the 150 patients treated was approximately
41%
after 100 days as compared to the historical 100 day survival rate of
approximately 20%. The FDA has approved our application for “fast track”
designation for defibrotide to treat VOD with multiple-organ failure occurring
after stem cell transplantation by means of injection. The FDA approval process
for defibrotide for this use remains dependent upon the successful completion
of
clinical trials. We are sponsoring a Phase III clinical trial of defibrotide
for
this use in the United States.
• Obtain
European regulatory approval to use defibrotide to treat VOD with multiple-organ
failure.
We
believe that we may be able to use results from U.S. clinical trials of
defibrotide to treat VOD with multiple-organ failure to apply for European
regulatory approval of this product candidate without the need to replicate
the
clinical trials in Europe.
• Expand
approval of defibrotide to include prevention of VOD in Europe and the United
States.
A
preliminary study indicated that defibrotide may provide safe and effective
protection against VOD. We are co-sponsoring a Phase II/III clinical trial
for
this use of defibrotide in children in Europe. We intend to start a Phase II/III
clinical trial in Europe and the United States in 2007 for both the prevention
of VOD and the prevention of transplant associated microangiopathy in adults.
If
the clinical trials confirm the preliminary indications, we intend to pursue
further development in Europe and the United States, and ultimately to apply
for
FDA and European regulatory approval for this use.
• Expand
approval of defibrotide to include treatment of multiple
myeloma.
Based
on preclinical studies conducted at the Jerome Lipper Multiple Myeloma Center
at
Harvard University’s Dana Farber Cancer Institute, a Phase I/II clinical study
of defibrotide to treat multiple myeloma started in December 2005 which we
expect will include approximately 10 cancer centers in Italy. The principal
investigator for the clinical trial is Dr. Mario Boccadoro, M.D., Division
of
Hematology, University of Turin, Italy.
• Discover
and develop additional product candidates.
We and
others have conducted preclinical studies of other uses of defibrotide and
of
other drugs in our pipeline. We plan to continue to develop these product
candidates and to further expand the possible markets for our products and
product candidates. If we are successful in bringing our initial product
candidates to market, our cash flow from operations will fund some of the costs
needed to develop these product candidates. These product candidates will be
very expensive to develop, and we will need to either raise additional funds
through debt and/or equity financings, or enter into strategic partnerships,
or
both, to complete these developments.
• Increase
our marketing capacity, including the use of strategic
partnerships.
We have
already entered into a strategic license agreement with Sigma-Tau
Pharmaceuticals, Inc. to market defibrotide to treat VOD in North America,
Central America and South America upon regulatory approval and have granted
Sigma-Tau Pharmaceuticals, Inc. a right of first refusal to market defibrotide
to prevent VOD, to mobilize and increase the number of stem cells available
for
transplant and in non-intravenous forms. We intend to pursue similar agreements
with Sigma-Tau Pharmaceuticals, Inc. and other strategic partners to market
defibrotide in other jurisdictions and to market our other product candidates
and/or develop such capacity internally.
Manufacturing
and Product Sales
We
manufacture defibrotide, calcium heparin, sulglicotide and other miscellaneous
pharmaceutical products at our manufacturing facility near Como, Italy, and
we
lease our affiliate Sirton’s facility to manufacture urokinase. Urokinase and
calcium heparin are active pharmaceutical ingredients used to make other drugs.
Sulglicotide is intended to be used to treat peptic ulcers. During 2002, 2003,
2004 and 2005, 100%, 100%, 92% and 97%, respectively, of our total product
sales
came from sales of these products to Sirton. Our revenues from the sales of
these products to date have been generated only in Italy and, in 2004, also
in
Korea and amounted to €5.9 million, €6.5 million, €3.1 million
and €3.3 million in 2002, 2003, 2004 and 2005, respectively. In 2004 we
completed an upgrade to our facilities that cost approximately €7.2 million
which we believe will facilitate the FDA and European regulatory approval
process for our product candidates and enable our future production. In
anticipation of the renovations, we temporarily increased our production shifts
and deliveries in 2003 and suspended our production for approximately seven
months in 2004. Period to period comparisons of our results will therefore
be
difficult.
2
Risk
Factors
We
have
generated limited revenues to date, most of which have been derived from sales
to Sirton. Our general and administrative expenses have increased as we
internalized certain of our administrative services which were previously
provided by Sirton and FinSirton and adapted to being a public reporting
company. We do not have regulatory approvals for the sale of defibrotide to
treat or prevent VOD and will be required to perform further clinical trials
for
these and other uses. The approval process for new drugs is lengthy and
expensive and if we fail to raise additional funds in the future or enter into
collaborative agreements, we may be unable to continue the development of our
product candidates. See “Risk Factors.”
Corporate
Information and Executive Offices
We
were
originally formed in 1993 as Pharma Research S.r.L., an Italian private limited
company, to pursue research and development activities of prospective
pharmaceutical specialty products. In December 2000, we changed from a
private limited company to a corporation organized under the laws of the
Republic of Italy. In July 2001 we changed our name to Gentium S.p.A. Under
our current bylaws, the duration of our company will expire on December 31,
2050.
We
are
part of a group of pharmaceutical businesses founded in Italy in 1944 that
has
been involved in the research and development of drugs derived from DNA and
DNA
molecules since the 1970’s. Our largest shareholder is FinSirton S.p.A., an
Italian corporation. FinSirton is controlled by Dr. Laura Ferro, who is our
Chief Executive Officer and President and one of our directors, and her family.
We receive administrative and other services and lease office and manufacturing
facilities from FinSirton and Sirton. The manufacturing facilities are 3,200
square meters in size.
We
have
Italian, United States and international trademark rights in “Gentium,” United
States and European Union trademarks in “Gentide,” international and Italian
trademarks in “Obligotide” and Italian trademark rights to “Pharma Research” and
“Dinelasi.” We also have a number of patent registrations issued and pending in
Italy, the United States and other countries. This prospectus also refers to
brand names, trademarks, service marks, and trade names of other companies
and
organizations, and these brand names, trademarks, service marks, and trade
names
are the property of their respective holders.
This
prospectus contains market data and industry forecasts that were obtained from
industry publications.
Recent
Developments
Private
Placement
On
June
6, 2006, we issued 1,943,525 ADSs at a price per ADS of $11.39 and warrants
to
purchase an aggregate of 388,705 ADSs, exercisable at $14.50 per ADS in a
private placement. We also issued warrants to purchase 77,741 ADSs, exercisable
at $17.40 per ADS, to one of the placement agents. We entered into a
registration rights agreement with the investors and placement agent under
which
we agreed to register the resale of the ADSs issued and the ADSs issuable upon
exercise of the warrants. If the registration statement ceases to be effective
or the prospectus not usable for twenty consecutive trading days or an aggregate
of thirty trading days in any twelve month period, then we must pay the
investors liquidated damages equal to 1% of their purchase price per month,
prorated for any period of less than one month and subject to a cap of 10%
of
the purchase price paid by each investor.
Debt
Restructuring
On
June
28, 2006, we entered into a Loan Contract with Banca Nazionale Del Lavoro S.p.A.
pursuant to which we restructured our two outstanding loans with Banca
Nazionale. The first of these outstanding loans was originally granted in
November 1996 for €1.291 million and was secured by mortgage on some of our real
estate. As of June 28, 2006 the outstanding principal was €67,954.95 and accrued
but unpaid interest was €535.97. The second of these outstanding loans was
originally granted in July 2004 for €2.0 million and was secured by a mortgage
on some of our real estate, a mortgage on some of Sirton’s real estate and a
guarantee by FinSirton. As of June 28, 2006, the outstanding principal was
€1.8
million and accrued but unpaid interest was €29,152.60.
3
In
April
2006, as the first part of the restructuring of these loans, Banca Nazionale
released Sirton from its mortgage and FinSirton from its guarantee with respect
to the July 2004 loan. We deposited €550,000 into escrow with Banca Nazionale to
secure repayment of the loan. FinSirton agreed to transfer certain real estate
to us as well.
On
June
28, 2006, the new Loan Contract we entered into with Banca Nazionale effected
the following restructuring of our loans with Banca Nazionale.
| · |
The
two existing loans were
extinguished;
|
| · |
Banca
Nazionale released our €550,000 cash escrow
deposit;
|
| · |
Banca
Nazionale released our existing mortgages on our real estate
property;
|
| · |
Banca
Nazionale granted us a new, increased loan for €2.8 million that bears
interest at the six month Euribor rate plus 1.00%, the principal
of which
will be repaid in 14 instalments, every six months, starting from
December
27, 2007 until final maturity in 2014 and the interest on which will
be
paid every six months starting from June 27, 2006;
and
|
We
granted Banca Nazionale an expanded mortgage on certain of our land and
buildings valued at €4.7 million.
4
RISK
FACTORS
You
should carefully consider the risks described below, in conjunction with the
other information and financial statements and related notes included elsewhere
in this prospectus, before making an investment decision. You should pay
particular attention to the fact that we conduct our operations in Italy and
are
governed by a legal and regulatory environment that in some respects differs
significantly from the environment that prevails in other countries with which
you may be familiar. Our business, financial condition or results of operations
could be affected materially and adversely by any or all of these risks. In
that
event, the market price of our ADSs could decline and you could lose all or
part
of your investment.
Risks
Relating to Our Business
We
have generated limited revenues from commercial sales of our products to date,
our revenues have declined significantly since 2003, and we do not know whether
we will ever generate significant revenues or achieve
profitability.
We
are
focused on product development and have generated limited revenue from
commercial sales of our products to date since 2003, because Sirton
Pharmaceuticals S.p.A., our primary customer, has had a decrease in demand
for
some of the products we sell to it, as discussed below. In 2004, we had total
product sales of €3.113
million and
in
2005 we had total product sales of €3.361
million.
We
do not
expect our total product sales to materially increase unless we are able to
sell
our product candidates, and we will continue to incur significant expenses
as we
research, develop, test and seek regulatory approval for these product
candidates. While we were profitable in 2002 and 2003, we incurred a net loss
of
€581 thousand in 2001, a net loss of €7.0 million in 2004 and a net loss
of €12.3
million in 2005. Our general and administrative expenses have increased as
we
added personnel to support our operations in connection with our development
of
our product candidates, internalized certain administrative services that were
performed for us by our largest shareholder, FinSirton, and our affiliate,
Sirton, and supported our operations in connection with being a public company.
As a result, we anticipate incurring substantial and increasing losses for
the
foreseeable future. We cannot assure you that we will ever become profitable.
If
we fail to achieve profitability within the time frame expected by investors
or
securities analysts, the market price of our ADSs may decline.
Most
of our revenues are from sales to Sirton, our affiliate; those sales have
declined over the past several years and may continue to decline in the
future.
Substantially
all of our product sales in 2001, 2002 and 2003, approximately 92% of our
product sales in 2004 and approximately 97% of our product sales in 2005 have
been from the sale of our active pharmaceutical ingredients and products to
Sirton, which has recently experienced financial difficulties. Sirton sells
its
finished products to one customer, Crinos, which sells them to the retail
market. Our products have seen decreased demand over the past several years
due
to various market factors. As a result, Sirton’s demand for these products has
decreased over the past several years, and may continue to decrease over the
next several years until and unless both we and Sirton develop new customers.
If
we and Sirton are unsuccessful at developing new customers and the demand for
our products continues to decrease, it could increase our need for additional
capital, and our business could be adversely affected.
We
currently do not have any regulatory approvals to sell defibrotide to treat
or
prevent VOD or defibrotide to treat multiple myeloma or any of our other product
candidates and we cannot guarantee that we will ever be able to sell any of
these products anywhere in the world.
We
must
demonstrate that our product candidates satisfy rigorous standards of safety
and
effectiveness before the FDA, the European Commission and other regulatory
authorities will approve the products for commercial marketing. We or others
must conduct clinical trials of those products which must be approved by the
FDA
or other regulatory agencies. These trials are time consuming and expensive,
and
we cannot guarantee whether they will be successful. Currently, the only
regulatory approvals we have relate to the use of defibrotide to prevent
vascular disease with risk of thrombosis in Italy. We do not have approval
to
sell defibrotide to treat or prevent VOD, defibrotide to treat multiple myeloma
or any of our other product candidates anywhere in the world. We will need
to
conduct significant additional research, preclinical testing and clinical
testing before we can file applications with the FDA, the European Commission
and other regulatory authorities for approval of our product candidates. In
addition, to compete effectively, our future products must be easy to use,
cost-effective and economical to manufacture on a commercial scale. We may
not
achieve any of these objectives, and, as a result, may not be able to sell
any
of our product candidates anywhere in the world.
5
The
FDA and other regulatory authorities may require us to conduct a new clinical
trial of defibrotide to treat VOD with multiple-organ failure using a control
group.
The
Dana-Farber Cancer Institute at Harvard University conducted a Phase II clinical
trial in the United States for the use of defibrotide to treat VOD with
multiple-organ failure that concluded in December 2005. Based on our review
of
more than 200 articles in the medical literature, we believe that the survival
rate for this disease is only approximately 20%. As a result of this fact and
the fact that we and the Dana-Farber clinical investigators believe that there
are no approved treatments available at this time, the Dana-Farber clinical
investigators did not establish a control group of patients who do not receive
the drug, as is customarily done in the FDA approval process. The FDA has stated
a preference for a double-blind study that utilizes a control group but
indicated that they would review a trial using a historical control only. Our
Phase III clinical trial of defibrotide to treat VOD with multiple-organ failure
that is currently underway uses historical control only. The FDA, upon reviewing
this trial, may require us to conduct a new clinical trial using a control
group
and other regulatory authorities may take the same position. This could
significantly delay the filing of a New Drug Application with the FDA or
applications for other regulatory approval for this use because one or more
of
the clinical centers where the clinical trial is to be conducted may not be
willing to conduct such a clinical trial on the basis that it is unethical
to
refuse treatment to patients when the treatment being investigated could
potentially save their lives. The committee of clinical investigators who
sponsored a Phase II/III clinical trial of defibrotide to treat VOD in Europe
conducted by Consorzio Mario Negri Sud, which had a control group, cancelled
the
trial in October 2005 due to a lack of patients enrolling. We believe that
patients were reluctant to enroll due to the possibility of being placed into
the control group and not receiving treatment. A requirement for a control
group
would also require the expenditure of more funds on clinical trials and delay
our ability to generate revenue from this product candidate.
At
present, we do not have sole control of the distribution of defibrotide in
Italy, and we may not be able to gain such control, which may adversely affect
our clinical trials and our pricing of defibrotide.
Because
defibrotide is on the market in Italy, we believe it has been purchased and sold
in other countries where its use is not licensed or permitted. This could impact
our ability to enroll patients in our trials and the timing of such enrollments.
Also, in the future, it could have a negative impact on our ability to
appropriately price defibrotide for new indications, unless we can control
the
distribution of defibrotide in Italy. There can be no assurance of our ability
to do so.
Our
additional product candidates are at early stages of development and will
require clinical trials which may not be successful.
We
intend
to apply for FDA and other regulatory agency approval for our additional product
candidates, including other uses of defibrotide, in the future, and these
additional product candidates will require that we conduct clinical trials
and
undergo the regulatory approval process. The commencement and completion of
these clinical trials could be delayed or prevented by a variety of factors,
including:
· delays
in
identifying and reaching agreement on acceptable terms with institutional review
boards of clinical trial providers and prospective clinical trial sites;
· delays
in
obtaining FDA or other regulatory agency clearance to commence a clinical trial;
· delays
in
the enrollment of patients;
· lack
of
effectiveness of the product candidate during clinical trials; or
· adverse
events or safety issues.
We
do not
know whether these future clinical trials will be initiated or completed at
all.
Significant delays in clinical trials will impede our ability to commercialize
these additional product candidates and generate revenue, and could
significantly increase our development costs.
6
We
may be required to suspend or discontinue clinical trials, including due to
adverse events or other safety issues that could preclude approval of our
products or due to difficulty enrolling participants.
Our
clinical trials may be suspended at any time for a number of safety-related
reasons. For example, we may voluntarily suspend or terminate our clinical
trials if at any time we believe that our product candidates present an
unacceptable risk to the clinical trial patients. In addition, institutional
review boards of clinical trial providers or regulatory agencies may order
the
temporary or permanent discontinuation of our clinical trials at any time if
they believe that the clinical trials are not being conducted in accordance
with
applicable regulatory requirements, including if they present an unacceptable
safety risk to patients.
Administering
any product candidate to humans may produce undesirable side effects. VOD and
VOD with multiple-organ failure are complications associated with high dose
chemotherapy and stem cell transplantation. Adverse events involving vascular
disorders, coagulation, and potentially life-threatening bleeding have been
reported in patients with VOD treated with defibrotide which potentially could
be related to the defibrotide therapy. Hypotension has been reported as a
possibly related serious adverse event in the trials of defibrotide to treat
VOD
with multiple-organ failure. Also, we discontinued a 69-patient Phase I/II
clinical trial of defibrotide to prevent deep vein thrombosis after hip surgery
in Denmark in 2002 after three patients experienced hypotension after receiving
the defibrotide intravenously. That trial was discontinued due to the
hypotension and because defibrotide can also be administered orally to prevent
deep vein thrombosis. These adverse events reports will be weighed by FDA and
other regulatory authorities in determining whether defibrotide can, from a
risk-benefit perspective, be considered to be safe and effective to treat VOD
with multiple-organ failure, to prevent deep vein thrombosis or any other
indication for which approval is sought.
It
is
possible that as further data are collected and analyzed, additional adverse
events or safety issues could emerge which could impact conclusions relating
to
the safety of these additional product candidates. As one of our current
products and many of our product candidates utilize or will utilize defibrotide,
any problems that arise from the use of this drug would severely harm our
business operations, since most of our anticipated primary revenue sources
would
be negatively affected.
Furthermore,
the committee of clinical investigators who sponsored a Phase II/III clinical
trial of defibrotide to treat VOD in Europe that was conducted by Consorzio
Mario Negri Sud cancelled the trial in October 2005 due to a lack of enrollees.
In addition, the National Institute of Tumors in Milan cancelled a Phase I
clinical trial of defibrotide to increase the number of stem cells available
for
transplant in December 2005 due to a lack of eligible enrollees. We are
co-sponsoring with the European Group for Blood and Marrow Transplantation
a
Phase II/III clinical trial in Europe of defibrotide to prevent VOD in children,
and a Phase II/III clinical trial in Europe of defibrotide to prevent VOD and
transplant associated microangiopathy in adults. The participants in both of
these trials randomly receive either defibrotide or no treatment. We may have
difficulty enrolling participants in these trials as patients may be reluctant
to take the risk of not receiving treatment with defibrotide. Further, because
defibrotide is available on the market in Italy, we believe it has been
purchased and sold in other countries where its use is not licensed. This could
impact our ability to enroll patients in our trials and the timing of such
enrollments. Our other clinical trials may also be discontinued if we or the
sponsors are not successful in enrolling participants.
Our
products could be subject to restrictions or withdrawal from the market and
we
may be subject to penalties if we fail to comply with regulatory requirements,
if and when any of our product candidates are approved.
Any
product for which we obtain marketing approval, together with the manufacturing
processes, post-approval commitments, and advertising and promotional activities
for such product, will be subject to continued regulation by the FDA and other
regulatory agencies. Later discovery of previously unknown problems with our
products or their manufacture, or failure to comply with regulatory
requirements, may result in:
· restrictions
on such products or manufacturing processes;
· withdrawal
of the products from the market;
· voluntary
or mandatory recalls;
· fines;
· suspension
of regulatory approvals;
7
· product
seizures; or
· injunctions
or the imposition of civil or criminal penalties.
If
we are
slow to adapt, or unable to adapt, to changes in existing regulatory
requirements or adoption of new regulatory requirements or policies, we may
lose
marketing approval for our products when and if any of them are approved.
Our
manufacturing facility is subject to continuing regulation by Italian
authorities and is subject to inspection and regulation by the FDA and European
regulatory. These authorities could force us to stop manufacturing our products
if they determine that we are not complying with applicable regulations or
require us to complete further costly alterations to our facility.
Although
our main business is discovering, researching and developing drugs, we also
manufacture drugs, active pharmaceutical ingredients and other products at
our
manufacturing facility located near Como, Italy. This facility is subject to
continuing regulation by the Italian Health Authority and other Italian
regulatory authorities. During a biannual inspection of our manufacturing
facility by the Italian Health Authority in October 2004, the Italian
Health Authority noted by way of observations certain deficiencies in regard
to
the operation of our facility. We have corrected all of these deficiencies,
and
have kept the Italian Health Authority current with respect to the progress
of
our corrective actions. No penalties were imposed, our facility was not shut
down and our manufacturing activities were not otherwise limited or curtailed
as
a result of the Italian Health Authorities’ notation of these deficiencies.
Our
manufacturing facility is subject to inspection and regulation by the FDA and
European regulatory authorities with respect to manufacturing our product
candidates for investigational use. Also, part of the process for obtaining
approval from the FDA and European regulatory authorities for our product
candidates is approval by those authorities of our manufacturing facility’s
compliance with current good manufacturing practices. After receiving initial
approval, if any, the FDA or those European regulatory authorities will continue
to inspect our manufacturing facility, including inspecting it unannounced,
to
confirm whether we are complying with the good manufacturing practices.
These
regulators may require us to stop manufacturing our products and product
candidates if they determine that we are not complying with applicable
regulations or require us to complete costly alterations to our facility. We
spent approximately €292 thousand in 2004 to correct the deficiencies noted
by the Italian Health Authority and spent approximately €200 thousand in 2005 to
complete these corrective actions. We spent approximately €7.2 million in
2004 to substantially upgrade our facility in anticipation of the FDA and
European regulatory approval process for our product candidates.
If
our third-party clinical trial vendors fail to comply with strict regulations,
the clinical trials for our product candidates may be delayed or unsuccessful.
We
do not
have the personnel capacity to conduct or manage all of the clinical trials
that
we intend for our product candidates. We rely on third parties to assist us
in
managing, monitoring and conducting most of our clinical trials. We expect
to
enter into clinical trial agreements with numerous centers in the United States
and Canada regarding our Phase III clinical trial of defibrotide to treat VOD
with multiple-organ failure. We have entered into co-sponsoring agreements
with
the European Group for Blood and Marrow Transplantation, regarding a Phase
II/III clinical trial of defibrotide to prevent VOD in children in Europe and
a
Phase II/III clinical trial of defibrotide to prevent VOD and transplant
associated microangiopathy in adults in Europe. We have entered into an
agreement with Bradstreet Clinical Research & Associates, Inc. to
perform clinical research project management services in connection with
clinical trials conducted in the United States and agreements with KKS-UKT,
GmbH
and MDS Pharma Services Italy SpA to
provide such services for our clinical trials in Europe. If these third parties
fail to comply with applicable regulations or do not adequately fulfill their
obligations under the terms of our agreements with them, we may not be able
to
enter into alternative arrangements without undue delay or additional
expenditures, and therefore the clinical trials for our product candidates
may
be delayed or unsuccessful.
Furthermore,
the FDA can be expected to inspect some or all of the clinical sites
participating in our clinical trials, or our third party vendors’ sites, to
determine if our clinical trials are being conducted according to current good
clinical practices. If the FDA determines that our third-party vendors are
not
in compliance with applicable regulations, we may be required to delay, repeat
or terminate the clinical trials. Any delay, repetition or termination of our
clinical trials could materially harm our business.
8
The
development and approval of our product candidates and the acquisition and
development of additional products or product candidates by us, as well as
the
expansion of our research, regulatory and manufacturing operations, will require
a commitment of substantial funds. Our future capital requirements are dependent
upon many factors, some of which are beyond our control, including:
· the
successful and continued development of our existing product candidates in
preclinical and clinical testing;
· the
costs
associated with protecting and expanding our patent and other intellectual
property rights;
· future
payments, if any, received or made under existing or possible future
collaborative arrangements;
· the
timing of regulatory approvals needed to market our product candidates; and
· market
acceptance of our products.
We
will
need additional funds before we have completed the development of our product
candidates. We have no committed sources of additional funds. We cannot assure
you that funds will be available to us in the future on favorable terms, if
at
all. If adequate funds are not available to us on terms that we find acceptable,
or at all, we may be required to delay, reduce the scope of, or eliminate
research and development efforts or clinical trials on any or all of our product
candidates. We may also be forced to curtail or restructure our operations,
obtain funds by entering into arrangements with collaborators on unattractive
terms or relinquish rights to certain technologies or product candidates that
we
would not otherwise relinquish in order to continue independent operations.
We
are currently dependent on third parties to market and distribute our products
in finished dosage form, and we may continue to be dependent on third parties
to
market and distribute our products and product candidates.
Our
internal ability to handle the marketing and distribution functions for our
current products and our product candidates is limited and we do not expect
to
develop the capability to provide marketing and distribution for all of our
future products. Our long-term strategy includes having alliances with third
parties to assist in the marketing and distribution of our product candidates.
We have entered into an agreement with Sigma-Tau Pharmaceuticals, Inc. to market
defibrotide to treat VOD in North America, Central America and South America
and
we may need to enter into similar agreements to market and distribute our other
product candidates or develop these capabilities internally. We face, and will
continue to face, intense competition from other companies for collaborative
arrangements with pharmaceutical and biotechnology companies, for establishing
relationships with academic and research institutions, for attracting
investigators and sites capable of conducting our clinical trials and for
licenses of proprietary technology. Moreover, these arrangements are complex
to
negotiate and time-consuming to document. Our future profitability will depend
in large part on our ability to enter into effective marketing agreements and
our product revenues will depend on those marketers’ efforts, which may not be
successful.
If
we are unable to attract and retain key personnel, we may be unable to
successfully develop and commercialize our product candidates or otherwise
manage our business effectively.
We
are
highly dependent on our senior management, especially Dr. Laura Ferro, our
President and Chief Executive Officer, and Dr. Massimo Iacobelli, our
Senior Vice President and Scientific Director, whose services are critical
to
the successful implementation of our product acquisition, development and
regulatory strategies. If we lose their services or the services of one or
more
of the other members of our senior management or other key employees, our
ability to successfully commercialize our product candidates or otherwise manage
our business effectively could be seriously harmed. Dr. Ferro’s employment
agreement with us is for a period of three years with a two year renewal option
and prohibits her from competing with us during the term of her employment
and
for a period of one year after the termination of her employment.
Dr. Ferro’s employment agreement provides that she is not obligated to
spend more than 75% of her time working for our company
Replacing
key employees may be difficult and may take an extended period of time because
of the limited number of individuals in our industry with the breadth of
specific skills and experience required to develop, gain regulatory approval
of
and commercialize products successfully. Competition to hire from this limited
pool is intense, and we may be unable to hire, train, retain or motivate these
additional key personnel. In addition, under Italian law, we must pay our
employees a severance amount based on their salary and years of service if
they
leave their employment, even if we terminate them for cause or they
resign.
9
In
order
to expand our operations, we will need to hire additional personnel and add
corporate functions that we currently do not have. Our ability to manage our
operations and growth will require us to continue to improve our operational,
financial and management controls and reporting system and procedures, or
contract with third parties to provide these capabilities for us.
Our
independent registered public accounting firm reported a material weakness
in
our internal controls and we may not be able to remedy this material weakness
or
prevent future weaknesses. If we fail to maintain effective internal controls,
we may not be able to accurately report our financial results or prevent fraud.
As a result, potential security holders could lose confidence in our financial
reporting, which would harm our business and the trading price of our ordinary
shares.
Prior
to
our initial public offering in June 2005, we were a relatively small, family
run
Italian business. We had not been required to close our accounting records
on a
monthly or even quarterly basis. A very small accounting team handled the
accounts for not only us, but also our then-parent, FinSirton S.p.A., and sister
companies, Sirton and Foltene Pharmaceuticals S.p.A., all of which are also
private companies. Therefore, the internal control structure was not adequate
for a company publicly listed and reporting in the United States. Also, the
financial reporting environment in Italy for private companies is significantly
different than for public companies in the United States.
As
an
Italian company publicly listed in the United States, we are required by Italian
law to keep our books according to the local statutory accounting methods,
but
we also prepare U.S. GAAP based financial statements for our Securities Act
registration statements and Exchange Act reports. The preparation of our U.S.
GAAP based financial statements is a manual process which involves the
transformation of our Italian statutory financial statements into U.S. GAAP
through a significant number of complex accounting adjustments and processes.
This process also requires an ongoing review and update of the applicable U.S.
GAAP that should be applied to the underlying Italian financial statements.
This
process is complicated and time-consuming and requires significant attention
and
time of our senior accounting personnel. Moreover, U.S. GAAP accounting
adjustments tend to result in large differences between our Italian statutory
and U.S. GAAP based financial statements.
When
we
started the process of preparing for our initial public offering, one of the
first needs we identified to solve these issues was that of a full time,
dedicated finance professional with knowledge of both U.S. and Italian
accounting principles. We believe we satisfied that need by hiring Mr. Salvatore
Calabrese, our Vice-President, Finance, in February of 2005. However, our
independent registered public accounting firm informed us during the course
of
auditing our 2005 financial statements that our financial statement close
process and the transformation of our Italian statutory financial statements
into U.S. GAAP still did not reduce to an acceptably low level the risk that
errors in amounts that would be material in relation to those financial
statements may occur and may not be detected within a timely period by
management in the normal course of business at December 31, 2005. Our
independent registered public accounting firm considered these deficiencies
in
determining the nature, timing and extent of their procedures in their audit
of
our 2005 financial statements, and those deficiencies did not affect their
report on our 2005 financial statements. The following highlights the issues
identified and the steps that we are taking to remedy these items. We believe
that all material weakness issues will be resolved during 2006.
· Issue:For
the
first six months of 2005, we still relied on FinSirton for most of the data
processing related to our significant processes, such as inventory costing,
payroll and general ledger. We also had limited control over FinSirton’s
information technology system related to the input or output of data.
Additionally, we had no direct control over the security of data and access
controls related to the control environment.
Remedy: During
the second six months of 2005, we established our own six (6) person accounting,
controlling and reporting department, separate from FinSirton, which includes
not only Mr. Calabrese but also Roberta Grandini as our controller. Ms. Grandini
is experienced in U.S. GAAP and was previously the controller for the Italian
subsidiary of a U.S. public biotechnology company. In addition, we purchased
and
have installed our own information technology system which will allow us to
have
full control, including information security control, over our data processing,
including our underlying books and records. At June 30, 2006, this transition
from FinSirton’s accounting department and information technology system to our
accounting department and information technology system had been
completed.
10
· Issue:Our
process for budgeting, awarding, tracking and verifying research and development
contracts and costs has historically been handled outside of the general
accounting system. We have not had controls surrounding this process to closely
monitor such areas as actual costs versus budgeted costs, actual costs billed
versus the contractual amounts and the timing of when those costs have been
incurred.
Remedy: As
mentioned above, during the second half of 2005, we established and expanded
our
own independent accounting department. In addition to Mr. Calabrese and Ms.
Grandini, this department includes a contract administrator who now has primary
responsibility for controlling the research and development contracts and costs.
We also established internal procedures for purchases, cash disbursements,
limits of authorization and segregation of duties. These procedures include
requirements that all research and development expenditures be accompanied
by a
budget estimate, and any deviations be adequately explained. Additionally,
the
procedures require that expenses over €2,500 not previously budgeted must be
approved by the internal control department, Mr. Calabrese and by our medical
director before any purchase requests or contracts may be signed. Furthermore,
on a quarterly basis, we perform an analysis of actual expenses versus budgeted
expenses, and such analysis is presented and discussed with our management,
our
Audit Committee and the Board of Directors as a whole.
· Issue:Our
overall control environment continued to have difficulties in 2005 in closing
our accounting records on a timely basis, given (i) the lack of personnel
dedicated to performing such services for us, separate from our affiliated
companies, (ii) our reliance upon FinSirton’s information technology system and
(iii) the need for us to prepare Italian statutory financial statements and
then
manually convert those statements into U.S. GAAP financial statements.
Remedy: We
believe that our establishment of and expansion of our own, independent
accounting department, including Mr. Calabrese and Ms.
Grandini, and the acquisition of our own independent information technology
system, will solve points (i) and (ii) above. In addition, although we will
continue to need to prepare both Italian statutory financial statements and
U.S.
GAAP based financial statements, we believe that the expansion of our accounting
department will help us close our records more quickly and that the
establishment of our new information technology system will reduce the overall
complexity of the process and the risk of errors.
Any
failure to implement new or improved internal controls, or resolve difficulties
encountered in their implementation, could harm our operating results or cause
us to fail to meet our reporting obligations. Inferior internal controls could
also cause investors to lose confidence in our reported financial information,
which could have a negative effect on the trading price of our ordinary shares.
Our
revenues, expenses and results of operations have been and will continue to
be
subject to significant fluctuations, which makes it difficult to compare our
operating results from period to period.
Since
2003, our revenues have fluctuated significantly due to the need to temporarily
cease operations at our manufacturing facility for an upgrade to the facility
for seven months in 2004 and increase production at the facility in 2003 to
stockpile inventory in anticipation of this cessation. Our revenues have also
fluctuated due to changes in the amounts of each of our products that we sell
in
different periods. Due to the fact that we do not sell directly to the end-user,
the timing of manufacturer orders can cause variability in sales. In 2005,
we
experienced higher sales volume in the second and in the fourth quarters;
however we cannot predict if such fluctuation will happened in future years.
Until we have successfully developed and commercialized a product candidate,
we
expect that substantially all of our revenues will result from the sale of
our
existing products. We expect that our operating results will vary significantly
from quarter to quarter and year to year as a result of the timing and extent
of:
· our
research and development efforts;
· the
revenues generated from the sale or licensing of our products;
· the
execution or termination of collaborative arrangements;
· the
receipt of grants;
· the
initiation, success or failure of clinical trials; and
· the
manufacture of our product candidates, or other development related factors.
11
Some
of
Series A senior convertible promissory notes we issued in the fourth quarter
of
2004 and the first quarter of 2005 were converted into our ordinary shares
upon
the closing of our initial public offering in June 2005 and the remainder were
repaid in June and July 2005. Our results of operations in 2004 and 2005 reflect
the interest expense we incurred on those notes. That interest expense included
the amortization of the debt issue costs and of the original issue discount
resulting from the inclusion of the warrants with the notes and the amortization
of the value of the beneficial conversion feature resulting from the effective
conversion price since the conversion ratio, which is equal
to
the principal amount of the notes divided by $8.10 (ninety percent (90%) of
the
initial offering price per ADS in our initial public offering), was less than
the fair value of our ordinary shares at the time of issuance of the notes,
which was $10.00. During 2004 and 2005, we incurred €1.828 million and €4.095
million, respectively, of interest expense on these notes (including
amortization of original issue discount and debt issue costs). As a result,
our
interest expense, pre-tax income (loss) and net income (loss) for those periods
was less than it would have been otherwise.
Accordingly,
our revenues and results of operations for any period may not be comparable
to
the revenues or results of operations for any other period.
Most
of our manufacturing capability is located in one facility that is vulnerable
to
natural disasters, telecommunication and information system failures, terrorism
and similar problems, and we are not insured for losses caused by all of these
incidents.
We
conduct most of our manufacturing operations in one facility located in Villa
Guardia, near Como, Italy. This facility could be damaged by fire, floods,
earthquake, power loss, telecommunication and information system failures,
terrorism or similar events. Our insurance covers losses to our facility,
including the buildings, machinery, electronic equipment and goods, for
approximately €15 million, but does not insure against all of the losses
listed above, including terrorism and some types of flooding. Although we
believe that our insurance coverage is adequate for our current and proposed
operations, there can be no guarantee that it will adequately compensate us
for
any losses that may occur. We are not insured for business interruption and
we
have no replacement manufacturing facility readily available.
We
obtain office and manufacturing space and certain administrative, financial,
information technology, human resources, regulatory and quality control services
from affiliates. This structure creates inherent conflicts of interest that
may
adversely affect us.
Our
largest shareholder is FinSirton, which owned approximately 32% of our ordinary
shares at September 30, 2006. Dr. Ferro, who is our Chief Executive Officer
and President and one of our directors, together with members of her family,
controls FinSirton. FinSirton provides some of our office space, and corporate,
payroll and information technology services. Sirton, which is a wholly owned
subsidiary of FinSirton, has been and currently is our principal customer.
Sirton also provides us with a number of business services such as, quality
control and infrastructure services, and leases us office and manufacturing
space.
If
either
of these affiliates failed to perform services for us adequately or caused
us
damage through their negligent conduct, our management would be presented with
inherent conflicts of interest due to their ownership and oversight of
FinSirton. We may have limited recourse in the event of such conflicts, and
our
business may be adversely affected by their occurrence.
Our
industry is highly competitive and subject to rapid technological changes.
As a
result, we may be unable to compete successfully or to develop innovative
products, which could harm our business.
Our
industry is highly competitive and subject to significant and rapid
technological change as researchers learn more about diseases and develop new
technologies and treatments. While we are unaware of any other products or
product candidates that treat or prevent VOD or the apoptosis that our product
candidate oligotide is designed to treat, we believe that other companies have
products or are currently developing products to treat some of the same
disorders and diseases that our other product candidates are designed to treat.
These companies include AnorMED Inc., AstraZeneca International, British
Biotech plc, Abbott Laboratories, The Bayer Group, GlaxoSmithKline plc,
Bristol-Myers Squibb Company, Eli Lilly Company, Boehringer Ingelheim, Axcan
Pharma Inc., The Proctor & Gamble Company, Solvay
Pharmaceuticals, Inc., Millenium Pharmaceuticals, Inc., ARIAD
Pharmaceuticals, Inc., Celgene Corp., Titan Pharmaceuticals, Inc.,
Cell Genesys, Inc., Human Genome Sciences, Inc., Chugai Pharmaceutical
Co., Ltd., The National Cancer Institute, Seattle Genetics, Inc.,
EntreMed, Inc., NeoRxx Corporation, Xcyte Therapies, Inc.,
Amgen, Inc., CuraGen Corporation, Aesgen, Inc. and Endo Pharmaceutical
Holdings Inc.
12
In
addition, low molecular weight heparin, made by Aventis and other companies,
competes with calcium heparin, which is one of the active pharmaceutical
ingredients that we sell to Sirton which makes it into a finished product for
sale by Crinos.
Many
of
these competitors have substantially greater research and development
capabilities and experience, and greater manufacturing, marketing and financial
resources, than we do. In addition, these companies’ products and product
candidates are in more advanced stages of development than ours or have been
approved for sale by the FDA and other regulatory agencies. As a result, these
companies may be able to develop their product candidates faster than we can
or
establish their products in the market before we can. Their products may also
prove to be more effective, safer or less costly than our product candidates.
This could hurt our ability to recognize any significant revenues from our
product candidates.
In
May 2003, the FDA designated defibrotide as an orphan drug to treat VOD. If
the FDA approves the New Drug Application that we intend to file before
approving a New Drug Application filed by anyone else for this use of
defibrotide, the orphan drug status will provide us with limited market
exclusivity for seven years from the date of the FDA’s approval of our New Drug
Application. However, a marketing authorization may be granted for the same
therapeutic indications to a similar medicinal product if we give our consent
to
the second applicant, we are unable to supply sufficient quantities of
defibrotide, or the second applicant can establish in its application that
the
second medicinal product, although similar to defibrotide, is safer, more
effective or otherwise clinically superior. In that case, our product would
not
have market exclusivity. Additionally, while we are not aware of any other
company researching defibrotide for this use, if another company does develop
defibrotide for this use, there is no guarantee that the FDA will approve our
New Drug Application before approving anyone else’s defibrotide product for this
use, in which case the first product approved would have market exclusivity
and
our product would not be eligible for approval until that exclusivity expires.
In
July 2004, the European Commission designated defibrotide as an orphan
medicinal product to both treat and prevent VOD. If the European regulators
grant us a marketing authorization for those uses of defibrotide, we will have
limited market exclusivity for those uses for ten years after the date of the
approval. However, a marketing authorization may be granted for the same
therapeutic indications to a similar medicinal product if we give our consent
to
the second applicant, we are unable to supply sufficient quantities of
defibrotide, or the second applicant can establish in its application that
the
second medicinal product, although similar to defibrotide, is safer, more
effective or otherwise clinically superior. In that case, our product would
not
have market exclusivity.
If
we are unable to adequately protect our intellectual property, our ability
to
compete could be impaired.
Our
long-term success largely depends on our ability to create and market
competitive products and to protect those creations. Our pending patent
applications, or those we may file in the future, may not result in patents
being issued. Until a patent is issued, the claims covered by the patent may
be
narrowed or removed entirely, and therefore we may not obtain adequate patent
protection. As a result, we may face unanticipated competition, or conclude
that
without patent rights the risk of bringing products to the market is too great,
thus adversely affecting our operating results.
Because
of the extensive time required for the development, testing and regulatory
review of a product candidate, it is possible that before any of our product
candidates can be approved for sale and commercialized, our relevant patent
rights may expire or remain in force for only a short period following
commercialization. Our issued United States patents expire between 2008 and
2019, and our United States patents for which we have submitted applications
will expire between 2008 and 2026. Our United States patent covering defibrotide
expires in 2010, and our U.S. patent covering the chemical process for
extracting defibrotide expires in 2008. Our European patent covering both
defibrotide and the chemical process for extracting defibrotide expires in
2007.
There may be no opportunities to extend these patents and thereby extend FDA
approval exclusivity, in which case we could face increased competition for
our
products that are derived from defibrotide. Patent expiration could adversely
affect our ability to protect future product development and, consequently,
our
operating results and financial position.
We
also
rely on trade secrets to protect our technology, especially where we do not
believe patent protection is appropriate or obtainable. However, trade secrets
are difficult to protect. While we use reasonable efforts to protect our trade
secrets, our employees, consultants, contractors, outside scientific
collaborators and other advisors may unintentionally or willfully disclose
our
information to competitors. Enforcing a claim that a third party illegally
obtained and is using our trade secrets is expensive and time consuming, and
the
outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. We intend to eventually license
or sell our products in China, Korea and other countries which do not have
the
same level of protection of intellectual property rights as exists in the United
Sates and Europe. Moreover, our competitors may independently develop equivalent
knowledge, methods and know-how.
13
Risks
Related to Ownership of the ADSs
Our
largest shareholder exercises significant control over us, which may make it
more difficult for you to elect or replace directors or management and approve
or reject mergers and other important corporate events.
Our
largest shareholder, FinSirton, owned approximately 32% of our outstanding
ordinary shares at September 30, 2006. Dr. Laura Ferro, who is our Chief
Executive Officer and President and one of our directors, together with members
of her family, controls FinSirton. As a result, Dr. Ferro and her family,
through FinSirton, will substantially control the outcome of all matters
requiring approval by our security holders, including the election of directors
and the approval of mergers or other important corporate events. They may
exercise this ability in a manner that advances their best interests and not
necessarily yours. In particular, Dr. Ferro may use her control over
FinSirton’s shareholdings in our company to resist any attempts to replace her
or other members of our board of directors or management or approve or reject
mergers and other important corporate events. Also, the concentration of our
beneficial ownership may have the effect of delaying, deterring or preventing
a
change in our control, or may discourage bids for the ADSs or our ordinary
shares at a premium over the market price of the ADSs. The significant
concentration of share ownership may adversely affect the trading price of
the
ADSs due to investors’ perception that conflicts of interest may exist or arise.
If
a significant number of ADSs are sold into the market, the market price of
the
ADSs could significantly decline, even if our business is doing well.
Some
of
our executive officers and directors and our current largest shareholder,
FinSirton, agreed with the underwriters of our initial public offering to a
lock-up of an aggregate of 3,750,000 outstanding ordinary shares and 822,000
ordinary shares issuable upon exercise of certain options for a period of 18
months after the effective date of the registration statement relating to our
initial public offering of securities, provided, however, that if the average
price per ADS equals or exceeds 200% of the initial public offering price of
the
ADSs in our initial public offering for a minimum of twenty continuous trading
days, the ordinary shares may be released from the lock-up at the request of
the
holder, which could result in the release from the lock-up restrictions of
the
3,750,000 outstanding shares held by FinSirton and the 822,000 ordinary shares
issuable upon exercise of the options. Sales of a substantial number of ADSs
representing these ordinary shares in the public market could depress the market
price of the ADSs and impair our ability to raise capital through the sale
of
additional equity securities. The underwriters, in their sole discretion and
at
any time without notice, may release all or any portion of the ordinary shares
held by our officers, directors, and FinSirton subject to these lockup
agreements. Our other outstanding ordinary shares, ordinary shares issuable
upon
exercise of warrants and ordinary shares issuable upon exercise of options
are
not subject to lock-up agreements. This prospectus offers the resale of 151,200
ordinary shares issuable upon the exercise of warrants by certain selling
security holders. We have filed registration statements including prospectuses
offering the resale of most of our other outstanding restricted ADSs and our
ADSs issuable upon exercise of outstanding warrants. Such offer and ultimate
sale of the securities in the markets may adversely affect the market for the
ADSs.
Risks
Relating to Being an Italian Corporation
The
process of seeking to raise additional funds is cumbersome, subject to the
verification of a notary public as to compliance with our bylaws and applicable
law and may require prior approval of our shareholders at an extraordinary
meeting of shareholders.
We
were
incorporated under the laws of the Republic of Italy. The principal laws and
regulations that apply to our operations, those of Italy and the European Union,
are different from those of the United States. In order to issue new equity
or
debt securities convertible into equity, with some exceptions, we must increase
our authorized capital.
There
are
two ways for us to increase our authorized capital. The first way is to obtain
shareholder approval. In order to do so, our board must meet and resolve to
recommend to our shareholders that they approve an amendment to our bylaws
to
increase our capital. Our security holders must then approve that amendment
to
our bylaws in a formal meeting duly called, with the favorable vote of the
required majority, which may change depending on whether the meeting is held
on
a first or subsequent call.
14
The
second way is that our shareholders can authorize the board of directors to
increase our capital, but the board may exercise such power for only five years.
At the end of those five years, the authorized capital expires, and our board
and shareholders would need to meet again to authorize a new capital increase.
Our security holders authorized our board of directors to increase our capital
by up to €90 million of par value for ordinary shares and €10 million for
ordinary shares issuable upon conversion of convertible bonds on April 28,
2006,
which our board can exercise until April 28, 2011.
In
either
case, these meetings take time to call. In addition, a notary public must verify
the compliance of the capital increase with our bylaws and applicable Italian
law. Further, under Italian law, our existing shareholders and any holders
of
convertible securities have preemptive rights to acquire any such shares on
the
same terms as are approved concurrent with the new increase of the authorized
capital pro rata based on their percentage interests in our company. The
shareholders or board of directors can “exclude” or limit the pre-emptive right,
but only for certain specific reasons.
Italian
law also provides that if the shareholders vote to increase our capital or
authorize our board of directors to increase our capital, dissenting, abstaining
or absent security holders representing more than 5% of the outstanding shares
of our company may, for a period of 90 days following the filing of the
shareholders’ resolutions with the Registry of Companies, challenge such capital
increase if the increase was not in compliance with Italian law. If our board
of
directors resolves to increase our capital, our board of statutory auditors,
any
member of our board of directors and any shareholder who was prejudiced may
challenge that resolution for a period of 90 days following the adoption of
the
resolution. Finally, if a shareholders’ or board of directors’ meeting
authorizing a capital increase was not properly called and held, any interested
person may challenge the capital increase for a period of three years following
the filing of the security holders’ approval with the Registry of Companies or
180 days following the filing of the board resolution with the Registry of
Companies.
Once
our
security holders authorize a capital increase, we must issue all of those
authorized shares before the security holders may authorize a new capital
increase, unless the security holders vote to cancel the previously authorized
shares. These restrictions could limit our ability to issue new equity or
convertible debt securities on a timely basis.
We
are restricted under Italian law as to the amount of debt securities that we
may
issue relative to our equity.
Italian
law provides that we may not issue debt securities for an amount exceeding
twice
the amount of the sum of the aggregate par value of our ordinary shares (which
we call our capital), our legal reserve and any other disposable reserves
appearing on our latest Italian GAAP balance sheet approved by our security
holders. The legal reserve is a reserve to which we allocate 5% of our Italian
GAAP net income each year until it equals at least 20% of our Italian GAAP
capital. One of the other reserves that we maintain on our balance sheet is
a
“share premium reserve”, meaning amounts paid for our ordinary shares in excess
of the capital. At December 31, 2005, the sum of our capital, legal reserves
and
other reserves on our Italian GAAP balance sheet was €29.6
million. If we issue debt securities in the future, until such debt securities
are repaid in full, we may not voluntarily reduce our capital or our reserves
(such as by declaring dividends) if it results in the aggregate of the capital
and reserves being less than half of the outstanding amount of the debt. If
our
equity is reduced by losses or otherwise such that the amount of the outstanding
debt securities is more than twice the amount of our equity, some legal scholars
are of the opinion that the ratio must be restored by a recapitalization of
our
company. If our equity is reduced, we could recapitalize by issuing new shares
or having our security holders contribute additional capital to our company,
although there can be no assurance that we would be able to find purchasers
for
new shares or that any of our current security holders would be willing to
contribute additional capital.
If
we suffer losses that reduce our capital to less than €120 thousand, we
would need to either recapitalize, change our form of entity or be liquidated.
Italian
law requires us to reduce our security holders’ equity and, in particular, our
capital (aggregate par value of our ordinary shares) to reflect on-going losses.
We are also required to maintain a minimum capital of €120 thousand. At
December 31, 2005, our Italian GAAP capital was approximately €9.611 million. If
we suffer losses from operations that would reduce our capital to less than
€120 thousand, then either we must increase our capital (which we could do
by issuing new shares or having our security holders contribute additional
capital to our company) or convert the form of our company into an S.r.l.,
which
has a lower capital requirement of €10 thousand. If we did not take these
steps, a court could liquidate our company.
15
You
may not have the same voting rights as the holders of our ordinary shares and
may not receive voting materials in time to be able to exercise your right
to
vote.
Except
as
described in this annual report and in the deposit agreement for the ADSs,
with
our depositary, holders of the ADSs will not be able to exercise voting rights
attaching to the ordinary shares evidenced by the ADSs on an individual basis.
Holders of the ADSs will have the right to instruct the depositary as their
representative to exercise the rights attached to the ordinary shares
represented by the ADSs. You may not receive voting materials in time to
instruct the depositary to vote, and it is possible that you, or persons who
hold their ADSs through brokers, dealers or other third parties, will not have
the opportunity to exercise a right to vote.
You
may not be able to participate in rights offerings and may experience dilution
of your holdings as a result.
We
may
from time to time distribute rights to our security holders, including rights
to
acquire our securities. Under our deposit agreement for the ADSs with our
depositary, the depositary will not offer those rights to ADS holders unless
both the rights and the underlying securities to be distributed to ADS holders
are either registered under the Securities Act of 1933, as amended, or exempt
from registration under the Securities Act with respect to all holders of ADSs.
We are under no obligation to file a registration statement with respect to
any
such rights or underlying securities or to endeavor to cause such a registration
statement to be declared effective. In addition, we may not be able to take
advantage of any exemptions from registration under the Securities Act.
Accordingly, holders of our ADSs may be unable to participate in our rights
offerings and may experience dilution in their holdings as a result.
You
may be subject to limitations on transfer of your ADSs.
Your
ADSs
represented by the ADRs are transferable on the books of the depositary.
However, the depositary may close its transfer books at any time or from time
to
time when it deems expedient in connection with the performance of its duties.
In addition, the depositary may refuse to deliver, transfer or register
transfers of ADSs generally when our books or the books of the depositary are
closed, or at any time if we or the depositary deem it advisable to do so
because of any requirement of law or of any government or governmental body,
or
under any provision of the deposit agreement, or for any other reason.
Due
to the differences between Italian and U.S. law, the depositary (on your behalf)
may have fewer rights as a shareholder than you would if you were a shareholder
of a U.S. company.
We
are
incorporated under the laws of the Republic of Italy. As a result, the rights
and obligations of our security holders are governed by Italian law and our
bylaws, and are in some ways different from those that apply to U.S.
corporations. Some of these differences may result in the depositary (on your
behalf) having fewer rights as a shareholder than you would if you were a
shareholder of a U.S. corporation. We have presented a detailed comparison
of
the Italian laws applicable to our company against Delaware law in “Item
10, Additional Information, Comparison
of Italian and Delaware Corporate Laws”
of our
annual report on Form 20-F for the year ended December 31, 2005, which is
incorporated herein by reference. We compared the Italian laws applicable to
our
company against Delaware law because Delaware is the most common state of
incorporation for U.S. public companies.
Italian
labor laws could impair our flexibility to restructure our business.
In
Italy,
our employees are protected by various laws giving them, through local and
central works councils, rights of consultation with respect to specific matters
regarding their employers’ business and operations, including the downsizing or
closure of facilities and employee terminations. These laws and the collective
bargaining agreements to which we are subject could impair our flexibility
if we
need to restructure our business.
FORWARD-LOOKING
STATEMENTS
This
prospectus may contain forward-looking statements that involve substantial
risks
and uncertainties regarding future events or our future performance. When used
in this prospectus, the words “anticipate,” “believe,” “estimate,” “may,”
“intent,” “continue,” “will,” “plan,” “intend,” and “expect” and similar
expressions identify forward-looking statements. You should read statements
that
contain these words carefully because they discuss our future expectations,
contain projections of our future results of operations or of our financial
condition or state other “forward-looking” information. We believe that it is
important to communicate our future expectations to our investors. Although
we
believe that our expectations reflected in any forward-looking statements are
reasonable, these expectations may not be achieved. The factors listed in the
section captioned “Risk Factors,” as well as any cautionary language included in
this prospectus or incorporated by reference, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before
you
invest in our ordinary shares or ADSs, you should be aware that the occurrence
of the events described in the “Risk Factors” section and elsewhere in this
prospectus could have a material adverse effect on our business, performance,
operating results and financial condition. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements set
forth
in this prospectus. Except as required by federal securities laws, we are under
no obligation to update any forward-looking statement, whether as a result
of
new information, future events, or otherwise.
16
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell and seeking offers to buy our
ordinary shares only in jurisdictions where offers and sales are permitted.
The
information contained in this prospectus is accurate only as of the date of
this
prospectus, regardless of the time of delivery of this prospectus or any sale
of
our ordinary shares.
PRESENTATION
OF FINANCIAL INFORMATION
Our
financial statements are all expressed in euros. Assets and liabilities
denominated in United States dollars or other foreign currencies have been
converted into euros at the Noon Buying Rate in New York City as certified
by
the Federal Reserve Bank of New York on the date of the applicable financial
statement. Transactions that were conducted in United States dollars or other
foreign currencies have been converted into euros at the Noon Buying Rate in
New
York City as certified by the Federal Reserve Bank of New York on the date
of
such transactions. On December 19, 2006, the Noon Buying Rate was euro 1.00
to
U.S.$1.3194.
Our
fiscal year ends on December 31 of each year. Where this prospectus refers
to a
particular year, this means the fiscal year unless otherwise
indicated.
INCORPORATION
BY REFERENCE
The
SEC
allows us to incorporate by reference documents we file with the SEC, which
means that we can disclose information to you by referring you to those
documents. The information incorporated by reference is considered to be part
of
this prospectus, and certain later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the following documents:
| (i) |
our
Annual Report on Form 20-F for the fiscal year ended December 31,
2005,
filed with the SEC on May 30, 2006;
and
|
| (ii) |
all
of our Reports on Form 6-K furnished to the SEC between the date
of filing
of our Annual Report on Form 20-F with the SEC and the date of this
prospectus.
|
All
annual reports we file with the SEC pursuant to the Exchange Act on Form 20-F
after the date of this prospectus and prior to the termination of the offering
shall be deemed to be incorporated by reference into this prospectus and to
be
part hereof from the date of filing of such documents. We may incorporate by
reference any Form 6-K subsequently submitted to the SEC by identifying in
such
Form that it is being incorporated by reference into this prospectus. Any
statement made in this prospectus, a prospectus supplement or a document
incorporated by reference in this prospectus or a prospectus supplement will
be
deemed to be modified or superseded for purposes of this prospectus and any
applicable prospectus supplement to the extent that a statement contained in
an
amendment to the registration statement, any subsequent prospectus supplement
or
in any other subsequently filed document incorporated by reference herein or
therein adds, updates or changes that statement. Any statement so affected
will
not be deemed, except as so affected, to constitute a part of this prospectus
or
any applicable prospectus supplement.
We
shall
undertake to provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus has been delivered, upon the written
or
oral request of any such person to us, a copy of any or all of the information
referred to above that have been or may be incorporated into this prospectus
by
reference, including exhibits that are specifically incorporated by reference
to
such information. Requests for such copies should be directed to Gentium S.p.A.,
Piazza XX September 2, Villa Guardia (Como), Italy, Attention: Salvatore
Calabrese, Vice-President Finance, telephone +39-031-385-287.
17
You
should rely only on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone
else
to provide you with different information. This prospectus is an offer to sell
or to buy only the securities referred to in this prospectus, and only under
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this prospectus or any prospectus supplement is current only as
of
the date on the front page of those documents. Also, you should not assume
that
there has been no change in our affairs since the date of this prospectus or
any
applicable prospectus supplement,
WHERE
YOU CAN FIND MORE INFORMATION
We
file
and submit reports, including annual reports on Form 20-F, and other information
with the Securities and Exchange Commission pursuant to the rules and
regulations of the SEC that apply to foreign private issuers. You may read
and
copy any materials filed with the SEC at its Public Reference Room at 100 F
Street N.E., Washington, D.C. 20459. You may obtain information on the operation
of the Public Reference Room by calling the SEC at l-800-SEC-0330. The
registration statement of which this prospectus is a part, and other public
filings with the SEC, are also available on the website maintained by the SEC
at
http://www.sec.gov.
Our
website is located at www.gentium.it. The information contained on our website
is not part of this prospectus.
SERVICE
OF PROCESS AND ENFORCEMENT OF JUDGMENTS
We
are a
società
per azioni
(stock
company) organized under the laws of the Republic of Italy. Substantially all
of
our directors, executive officers, and certain experts named herein, reside
in
the Republic of Italy. All or a substantial portion of our assets and the assets
of such persons are located outside the United States. As a result, it may
not
be possible for investors to effect service of process within the United States
upon us or such persons or to enforce judgments obtained in the United States
courts predicated upon the civil liability provisions of the Federal securities
laws of the United States against us or such persons in United States courts.
We
have been advised that (a) enforceability in Italy, in actions for
enforcement of final judgments of United States courts, of civil liabilities
predicated upon the Federal securities laws of the United States is subject,
among other things, to the Italian courts’ determination that certain
jurisdictional and procedural standards were satisfied in the U.S. proceeding,
that the U.S. decision is not contrary to an existing Italian decision, that
the
matter is not the subject of a concurrent proceeding in Italy, and that
enforcement would not violate Italian public policy; and (b) in original
actions in Italy to enforce such liabilities, an Italian court would examine
the
merits of the claim in accordance with Italian substantive law and procedure
and
not necessarily apply United States substantive law. We have expressly submitted
to the nonexclusive jurisdiction of New York State and United States federal
courts sitting in The City of New York for the purpose of any suit, action
or
proceeding arising out of the this public offering. We have appointed CT
Corporation System, 111 Eighth Avenue, 13th Floor, New York, New York 10011,
as
our agent upon whom process may be served in any action.
DETERMINATION
OF OFFERING PRICE
The
selling security holders may offer and sell their ADSs on the Nasdaq National
Market System at prevailing market prices. The selling security holders may
also
offer and sell their ADSs in privately negotiated transactions at prices other
than the market price.
18
CAPITALIZATION
AND INDEBTEDNESS
The
following table summarizes our capitalization and indebtedness as of September
30, 2006 on an actual basis. No securities were issued prior to sixty days
prior
to the date of this prospectus.
You
should read the following table in conjunction with our financial statements
and
related notes from our annual report on Form 20-F and other reports on Form
6-K
incorporated by reference into this prospectus.
|
|
As
of September 30, 2006
(unaudited)
|
||||||
|
Indebtedness:
|
|||||||
|
Mortgage
loans secured by real property
|
€
|
2,800
|
|||||
|
Equipment
loans
|
1,800
|
||||||
|
Loans
secured by equipment
|
525
|
||||||
|
Capital
lease obligation
|
130
|
||||||
|
Other
|
409
|
||||||
|
5,664
|
|||||||
|
Less
current maturities
|
311
|
||||||
|
5,353
|
|||||||
|
Security
holders’ equity:
Ordinary
shares, par value €1.00 per share, 15,100,299 shares authorized,
11,666,013 shares issued and outstanding
|
11,666
|
||||||
|
Additional
paid-in capital
|
48,489
|
||||||
|
Accumulated
deficit
|
(35,444
|
)
|
|||||
|
Accumulated
other comprehensive loss
|
63
|
||||||
|
Total
Security holders’ Equity
|
24,774
|
||||||
|
Total
Capitalization
|
€
|
37,126
|
19
PRICE
HISTORY
Our
ADSs
are listed on Nasdaq under the symbol “GENT.” Neither our ordinary shares nor
our ADSs are listed on a securities exchange outside the United States. The
Bank
of New York is our depositary for the ADSs. Each ADS represents one ordinary
share.
Trading
in our ADSs on the Nasdaq Global Market System commenced on May 16, 2006. Prior
to this date, our ADSs were traded on the American Stock Exchange, beginning
June 16, 2005 and ending on May 15, 2006, the date we de-listed. The following
table sets forth, for each of the periods indicated, the high and low closing
prices per ADS as reported by the American Stock Exchange and Nasdaq, as
applicable.
|
|
Price
Range of ADSs
|
||||||
|
|
High
|
Low
|
|||||
|
2005
|
|||||||
|
Second
Quarter (beginning June 16, 2005)
|
$
|
9.10
|
$
|
8.77
|
|||
|
Third
Quarter
|
$
|
8.99
|
$
|
6.92
|
|||
|
Fourth
Quarter
|
$
|
8.68
|
$
|
7.05
|
|||
|
2006
|
|||||||
|
First
Quarter
|
$
|
13.25
|
$
|
7.85
|
|||
|
Second
Quarter
|
$
|
19.76
|
$
|
12.17
|
|||
|
Month
Ended
|
|||||||
|
June
30, 2006
|
$
|
15.00
|
$
|
12.60
|
|||
|
July
31, 2006
|
$
|
14.33
|
$
|
12.97
|
|||
|
August
31, 2006
|
$
|
15.11
|
$
|
12.95
|
|||
|
September
30, 2006
|
$
|
15.49
|
$
|
13.82
|
|||
|
October
31, 2006
|
$
|
14.29
|
$
|
13.64
|
|||
|
November
30, 2006
|
$
|
17.01
|
$
|
14.25
|
|||
|
December
31, 2006 (through December 19, 2006)
|
$
|
22.74
|
$
|
17.00
|
|||
The
closing price of the ADSs on Nasdaq on December 19, 2006 was
$22.14.
Sources:
American Stock Exchange and the Nasdaq Stock Market.
20
SHARE
CAPITAL
Authorized
Shares
At
September 30, 2006, our authorized ordinary shares consisted of 15,100,292
ordinary shares, par value one euro per share, and 11,666,013 ordinary shares
were outstanding.
Of
our
15,100,292 authorized ordinary shares at September 30, 2006:
| · |
11,666,013
are outstanding;
|
| · |
1,560,000
are reserved for issuance upon exercise of options granted and available
for grant under our share option plans;
|
| · |
484,964
are reserved for issuance upon exercise of warrants issued in connection
with our Series A senior convertible promissory
notes;
|
| · |
151,200
are reserved for issuance upon exercise of warrants granted to the
underwriters of our initial public
offering;
|
| · |
619,994
are reserved for issuance upon the exercise of warrants issued in
connection with our October 2005 private
placement;
|
| · |
466,446
are reserved for issuance upon the exercise of warrants issued in
connection with our June 2006 private placement, including warrants
issued
to one of our placement agents; and
|
| · |
151,675
shares are available for future issuance in certain
situations.
|
As
of
September 30, 2006, we had outstanding the following warrants:
| · |
warrants
to purchase 484,964 ordinary shares at a price of $9.52 per share,
issued
in connection with the issuance of our Series A
notes;
|
| · |
warrants
to purchase 151,200 ordinary shares at a price of $11.25 per share
issued
to our underwriters in connection with our initial public
offering;
|
| · |
warrants
to purchase 619,994 ordinary shares at a price of $9.69 per share,
issued
in connection with our October 2005 private
placement;
|
| · |
warrants
to purchase 388,705 ordinary shares
at
a price of $14.50 per share, issued in connection with our June 2006
private placement; and
|
| · |
warrants
to purchase 77,741 ordinary shares at a price of $17.40 per share,
issued
to one of our placement agents for the June 2006 private
placement.
|
Options
As
of
September 30, 2006 we had outstanding options to purchase a total of 1,137,000
ordinary shares. Our share option plans authorize the issuance of up to
1,560,000 ordinary shares. At September 30, 2006, 423,000 ordinary shares were
available for future issuance under our share option plans.
Share
History
The
following history of our share capital for the years ended December 31, 2003,
2004 and 2005, as well as January 1, 2006 through September 30, 2006,
supplements the disclosure in our annual report on Form 20-F for the year ended
December 31, 2005, which we incorporate by reference herein.
Increase
in Authorized Capital
On
May
31, 2006, pursuant to the April 28, 2006 amendment to our bylaws, our board
of
directors approved a capital increase to allow for the issuance of 1,943,525
ordinary shares and 466,446 ordinary shares upon the exercise of warrants in
connection with our June 2006 private placement.
21
Exercises
of Warrants
In
April
2006, we issued 18,334 ordinary shares upon exercise of a warrant issued in
connection with our Series A senior convertible promissory notes at a price
per
share of $9.52, for proceeds of $174,539.68.
In
April
2006, we issued 93,524 ordinary shares upon the exercise of warrants issued
in
connection with our October 2005 private placement at a price per share of
$9.69, for aggregate proceeds of $906,247.56.
June
2006 Private Placement
In
June
2006, we issued 1,943,525 ordinary shares at $11.39 per share for gross proceeds
of $22,136,749.75 together with warrants to purchase an aggregate of 388,705
ordinary shares at an exercise price of $14.50 per share in a private placement.
We also issued warrants to purchase 77,741 ordinary shares at an exercise price
of $17.40 to one of our placement agents for the private placement.
Options
In
March
2006, we issued options to purchase 15,000 ordinary shares at a price of $12.00
per share to a consultant under our 2004 Equity Incentive Plan.
In
April
2006, we issued options to purchase an aggregate of 40,000 ordinary shares
at a
price of $17.35 per share to our non-employee directors as automatic grants
under our 2004 Equity Incentive Plan.
In
June
2006, we issued options to purchase 90,000 ordinary shares at a price of $12.60
to an executive officer under our 2004 Equity Incentive Plan.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale by the selling security holders of the
securities offered in this prospectus. Although we will receive proceeds from
any exercise of outstanding warrants, we will not receive any proceeds from
sales of the underlying ADSs by the selling security holders. We will pay all
of
the expenses of the offering, including the expenses of the selling security
holders, other than any underwriters’ discounts and commissions and any fees and
disbursements of counsel to the selling security holders. We expect that the
selling security holders will sell their ADSs as described under “Plan of
Distribution”.
22
SELLING
SECURITY HOLDERS
Our
ADSs
to which this prospectus relates are being registered for resale by the selling
security holders.
The
selling security holders may resell all, a portion or none of such ADSs from
time to time. The table below sets forth with respect to each selling security
holder, based upon information available to us as of the date of this
prospectus, the number and percentage of ADSs (or, in the case of security
holders who currently hold ordinary shares or securities exercisable into
ordinary shares, the number and percentage of ordinary shares) beneficially
owned before this offering, the number of ADSs registered for resale by this
prospectus and the number and percent of ADSs that will be beneficially owned
immediately after this offering assuming the sale of all of the registered
ADSs.
Beneficial
ownership and percentage ownership are determined in accordance with the rules
of the SEC. ADSs or ordinary shares underlying our convertible securities that
are exercisable within 60 days from the date of this prospectus are deemed
outstanding for computing the amount and percentage owned by the person or
group
holding such convertible securities, but are not deemed outstanding for
computing the percentage owned by any other person or group.
|
Holder
|
ADSs
Beneficially Owned Before The Offering
|
ADSs
Offered
|
ADSs
Beneficially Owned After The Offering
|
|||||||
|
ADSs
|
Percent
|
ADSs
|
Percent
|
|||||||
|
I-Bankers
Securities, Incorporated (1)
|
|
75,600
|
*
|
75,600
|
0
|
0
|
||||
|
Maxim
Partners LLC (2)
|
|
75,600
|
*
|
75,600
|
0
|
0
|
||||
|
Total
ADSs Offered:
|
151,200
|
|||||||||
* Less
than
1%
|
(1)
|
Address
is 1560 East Southlake Boulevard, Suite 232, Southlake, Texas 76092.
ADSs
beneficially owned before the offering and ADSs offered consist of
75,600
ADSs representing ordinary shares issuable upon exercise of warrants
that
are currently exercisable. I-Bankers Securities, Incorporated is
controlled by Michael McCory. As a result, Mr. McCory may be deemed
to
share dispositive control over the ADSs beneficially owned and offered
by
I-Bankers Securities, Incorporated and therefore may be deemed to
be a
beneficial owner of such
securities.
|
|
(2)
|
Address
is 405 Lexington Avenue, New York, New York 10174. ADSs beneficially
owned
before the offering and ADSs offered consist of 75,600 ADSs representing
ordinary shares issuable upon exercise of warrants that are currently
exercisable. MJR Holdings LLC is the majority owner of Maxim Partners
LLC.
Michael Rabinowitz is the sole manager of MJR Holdings, Inc. As a
result,
each of MJR Holdings LLC and Mr. Rabinowitz may be deemed to share
dispositive control over the ADSs beneficially owned and offered
by Maxim
Partners LLC and therefore may be deemed to be a beneficial owner
of such
securities.
|
The
selling security holders have not within the past three years had any position,
office or other material relationship with our company, except that each of
the
selling security holders acted as a managing underwriter of our initial public
offering of securities, as described in our registration statement on Form
F-1,
Registration No. 333-122233.
The
information provided above with respect to the selling security holders has
been
obtained from such selling security holders. Because the selling security
holders may sell all or some portion of the ADSs or ordinary shares beneficially
owned by them, only an estimate (assuming the selling security holders sell
all
of the ADSs or ordinary shares offered in this prospectus) can be given as
to
the number of ADSs or ordinary shares that will be beneficially owned by the
selling security holders after this offering, and as to the percentage of all
outstanding ADSs or ordinary shares constituted by such ADSs or ordinary shares.
In addition, the selling security holders may have sold, transferred or
otherwise disposed of, or may sell, transfer or otherwise dispose of, at any
time or from time to time since the dates on which they provided the information
regarding the ADSs or ordinary shares beneficially owned by them, all or a
portion of the ADSs or ordinary shares beneficially owned by them in
transactions exempt from the registration requirements of the Securities
Act.
23
PLAN
OF DISTRIBUTION
Each
selling security holder and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their ADSs
on
the Nasdaq National Market System or any other stock exchange, market or trading
facility on which the ADSs are traded or in private transactions. These sales
may be at fixed or negotiated prices. A selling security holder may use any
one
or more of the following methods when selling ADSs:
· ordinary
brokerage transactions and transactions in which the broker-dealer solicits
purchasers;
· block
trades in which the broker-dealer will attempt to sell the shares as agent
but
may position and resell a portion of the block as principal to facilitate the
transaction;
· purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
· an
exchange distribution in accordance with the rules of the applicable
exchange;
· public
or
privately negotiated transactions;
· settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
· on
the
Nasdaq National Market System (or through facilities of any national securities
exchange or US inter-dealer quotation system of a registered national securities
association on which the ADSs are then listed, admitted to unlisted trading
privileges or included for quotation);
· broker-dealers
may agree with the selling security holders to sell a specified number of such
ADSs at a stipulated price per ADSs;
· through
underwriters, brokers or dealers (who may act as agents or principals) or
directly to one or more purchasers;
· through
the writing or settlement of options or other hedging transactions, whether
through an options exchange or otherwise;
· a
combination of any such methods of sale; or
· any
other
method permitted pursuant to applicable law.
The
selling security holders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling security holders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling security holders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this Prospectus, in the case of an agency
transaction not in excess of a customary brokerage commission in compliance
with
NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
in compliance with NASDR IM-2440.
In
connection with the sale of the ADSs or interests therein, the selling security
holders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the ADSs
in
the course of hedging the positions they assume. The selling security holders
may also sell the ADSs short and deliver these securities to close out their
short positions, or loan or pledge the ADSs to broker-dealers that in turn
may
sell these securities. The selling security holders may also enter into option
or other transactions with broker-dealers or other financial institutions or
the
creation of one or more derivative securities which require the delivery to
such
broker-dealer or other financial institution of ADSs offered by this prospectus,
which ADSs such broker-dealer or other financial institution may resell pursuant
to this prospectus (as supplemented or amended to reflect such transaction).
The
selling security holders may also pledge ADSs to a broker-dealer or other
financial institution which, upon default, they may in turn resell.
In
addition to the foregoing methods, the selling security holders may offer their
ADSs from time to time in transactions involving principals or brokers not
otherwise contemplated above, in a combination of such methods or described
above or any other lawful methods. The selling security holders may also
transfer, donate or assign their ADSs to lenders, family members and others
and
each of such persons will be deemed to be a selling security holder for purposes
of this prospectus. The selling security holders or their successors in interest
may from time to time pledge or grant a security interest in some or all of
the
ADSs, and if the selling security holders default in the performance of their
secured obligations, the pledgees or secured parties may offer and sell the
ADSs
from to time under this prospectus; provided however in the event of a pledge
or
then default on a secured obligation by the selling security holder, in order
for the ADSs to be sold under this prospectus, unless permitted by law, we
must
distribute a prospectus supplement and/or amendment to the registration
statement of which this prospectus forms a part amending the list of selling
security holders to include the pledgee, secured party or other successors
in
interest of the selling security holder under this prospectus.
24
The
selling security holders may also sell their ADSs pursuant to Rule 144 under
the
Securities Act, which permits limited resale of ADSs purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information concerning
the issuer, the resale occurring following the required holding period under
Rule 144 and the number of shares being sold during any three-month period
not
exceeding certain limitations.
Sales
through brokers may be made by any method of trading authorized by any stock
exchange or market on which the ADSs may be listed or quoted, including block
trading in negotiated transactions. Without limiting the foregoing, such brokers
may act as dealers by purchasing any or all of the ADSs covered by this
prospectus, either as agents for others or as principals for their own accounts,
and reselling such ADSs pursuant to this prospectus. The selling security
holders may effect such transactions directly, or indirectly through
underwriters, broker-dealers or agents acting on their behalf, in effecting
sales, broker-dealers or agents engaged by the selling security holders may
arrange for other broker-dealers to participate. Broker-dealers or agents may
receive commissions, discounts or concessions from the selling security holders,
in amounts to be negotiated immediately prior to the sale (which compensation
as
to a particular broker-dealer might be in excess of customary commissions for
routine market transactions).
The
selling security holders and any broker-dealers or agents that are involved
in
selling the ADSs may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any profits
received by the selling security holders or such broker-dealers or agents and
any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We
are
required to pay certain fees and expenses incurred by us incident to the
registration of the ADSs. We have agreed to indemnify the selling security
holders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
We
agreed
to keep this prospectus effective until the earlier of (i) the date on which
the
ADSs may be resold by the selling security holders without registration and
without regard to any volume limitations by reason of Rule 144(e) under the
Securities Act or any other rule of similar effect or (ii) all of the ADSs
have
been sold pursuant to the prospectus or Rule 144 under the Securities Act or
any
other rule of similar effect.
Under
applicable rules and regulations under the Exchange Act, any person engaged
in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the ordinary shares or ADSs for the applicable
restricted period, as defined in Regulation M, prior to the commencement of
the
distribution. In addition, the selling security holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of the ordinary shares or ADSs by the selling security holders
or any other person.
25
OFFERING
EXPENSES
We
will
bear all costs, expenses and fees in connection with the registration of the
ADSs offered by this prospectus. The selling security holders will bear
brokerage commissions and similar selling expenses, if any, attributable to
the
sale of ADSs, as well as any fees and disbursements of counsel to the selling
security holders.
The
following table sets forth the estimated expenses payable by us in connection
with the offering described in this registration statement. All amounts are
subject to future contingencies other than the SEC registration
fee.
|
Securities
and Exchange Commission Registration Fee
|
$
|
321
|
||
|
Legal
Fees and Expenses
|
$
|
10,000
|
||
|
Accounting
Fees and Expenses
|
$
|
5,000
|
||
|
Total
|
$
|
18,321
|
FINANCIAL
STATEMENTS
Audited
financial statements for the fiscal year ended December 31, 2005 are contained
in our Annual Report on Form 20-F for the fiscal year ended December 31, 2005,
which is incorporated by reference herein.
EXPERTS
The
financial statements of Gentium at December 31, 2003, 2004, 2005 and for each
of
the three years in the period ended December 31, 2005 appearing in this
prospectus and in the registration statement of which this prospectus forms
a
part have been audited by Reconta Ernst & Young S.p.A., independent
registered public accounting firm, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
The
address of Reconta Ernst & Young S.p.A. is Via della Chiusa, 2, 20123,
Milan, Italy. Reconta Ernst & Young S.p.A. is registered with the
Public Company Accounting Oversight Board.
LEGAL
MATTERS
The
validity of the ordinary shares underlying the ADSs offered hereby have been
passed upon for us by Gianni, Origoni, Grippo & Partners, Piazza Belgioioso,
2, 20121 Milan, Italy.
26
Gentium
S.p.A.
151,200
American
Depositary
Shares
Representing
151,200
Ordinary
Shares
PROSPECTUS
December
20, 2006