UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
OR
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended December 31 , 2023
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
OR
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Date of event requiring this shell company report
For the transition period from to
Commission file number 001-39670
(Exact name of registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Chief Executive Officer Tel: (617 ) 482-2333
E-mail: ir@puretechhealth.com
c/o PureTech Health LLC
6 Tide Street, Suite 400
Boston, Massachusetts 02210
United States
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||||||
The | ||||||||
* | The | |||||||
* | Listed not for trading, but only in connection with the registration of the American Depositary Shares on The Nasdaq Global Market. | ||||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: Ordinary Shares: 271,853,731 outstanding as of December 31, 2023.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files): Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | ☒ | Non-accelerated filer | ☐ | Emerging growth company | ||||||||||||||||||||||||||||||
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| † | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. | ||||
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐ | Other ☐ | |||||||||||||||||||||||||
by the International Accounting Standards Board | ☒ | |||||||||||||||||||||||||
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
TABLE OF CONTENTS
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Special Note Regarding Forward-Looking Statements
This annual report on Form 20-F contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this report, other than statements of historical fact, including statements regarding our and our Founded Entities' strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this annual report on Form 20-F include, among other things, statements about:
•our ability to realize value from our Founded Entities, which may be impacted if we reduce our ownership to a minority interest or otherwise cede control to other investors through contractual agreements or otherwise;
•the success, cost and timing of our clinical development within our Internal Programs and Founded Entities, including the progress of, and results from, our Internal Programs' and Founded Entities' preclinical and clinical trials of LYT-100, LYT-200, SPT-300 (formerly known as LYT-300) SPT-310 (formerly known as LYT-310) and SPT-320 (formerly known as LYT-320), our technology platforms and other potential therapeutic candidates within our Internal Programs and therapeutic candidates being developed by our Founded Entities;
•our ability to obtain and maintain regulatory clearance, certification, authorization or approval of the therapeutic candidates within our Internal Programs or our Founded Entities, and any related restrictions, limitations or warnings in the label of any of the therapeutic candidates if cleared, certified, authorized or approved;
•our ability to compete with companies currently marketing or engaged in the development of treatments for indications within our Internal Programs or our Founded Entities are designed to target;
•our plans to pursue research and development of other future therapeutic candidates;
•the potential advantages of the therapeutic candidates within our Internal Programs and the therapeutic candidates being developed by our Founded Entities;
•the rate and degree of market acceptance and clinical utility of our therapeutic candidates;
•the success of our collaborations and partnerships with third parties;
•our estimates regarding the potential market opportunity for the therapeutic candidates within our Internal Programs and the therapeutic candidates being developed by our Founded Entities;
•our sales, marketing and distribution capabilities and strategy;
•our ability to establish and maintain arrangements for manufacture of the therapeutic candidates within our Internal Programs and therapeutic candidates being developed by our Founded Entities;
•our intellectual property position;
•our expectations related to the use of capital;
•the effect of any pandemic or other public health crises, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations;
•our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
•the impact of government laws and regulations; and
•our competitive position.
ii
SUMMARY OF RISK FACTORS
The risk factors described below are a summary of the principal risk factors associated with our business. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors incorporated by reference into Item 3D. of this annual report on Form 20-F and the other reports and documents filed by us with the SEC.
•As of December 31, 2023, we had never generated revenue from the therapeutic candidates within our Internal Programs, and we may never be operationally profitable.
•We may require substantial additional funding to achieve our business goals. If we are unable to obtain this funding when needed and on acceptable terms, we could be forced to delay, limit or terminate certain of our therapeutic development efforts. Certain of our Founded Entities will similarly require substantial additional funding to achieve their business goals.
•Our ability to realize value from our Founded Entities may be impacted if we reduce our ownership or otherwise cede control to other investors through contractual agreements or otherwise.
•We have limited information about and limited control or influence over our Non-Controlled Founded Entities.
•The therapeutic candidates within our Internal Programs and most of our Founded Entities’ therapeutic candidates are in preclinical or clinical development, which is a lengthy and expensive process with uncertain outcomes and the potential for substantial delays. We cannot give any assurance that any of our and our Founded Entities’ therapeutic candidates will receive regulatory clearance, authorization or approval, which is necessary before they can be commercialized.
•Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory clearance, authorization or approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business.
•Clinical trials of our or our Founded Entities’ therapeutic candidates may be delayed, and certain programs may never advance in the clinic or may be more costly to conduct than we anticipate, any of which can affect our ability to fund our company and would have a material adverse impact on our platform or our business.
•If we encounter difficulties enrolling patients in clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
•Use of the therapeutic candidates within our Internal Programs or the therapeutic candidates being developed by our Founded Entities could be associated with side effects, AEs or other properties or safety risks, which could delay or halt their clinical development, prevent their regulatory clearance, authorization or approval, cause us to suspend or discontinue clinical trials, abandon a therapeutic candidate, limit their commercial potential, if cleared, authorized or approved, or result in other significant negative consequences that could severely harm our business, prospects, operating results and financial condition.
•Our clinical trials may fail to demonstrate substantial evidence of the safety and effectiveness of therapeutic candidates that we may identify and pursue for their intended uses, which would prevent, delay or limit the scope of regulatory clearance, certification, authorization or approval and potential commercialization.
•Even if we complete the necessary preclinical studies and clinical trials, the marketing approval and certification process is expensive, time-consuming and uncertain and may prevent us from obtaining clearance, certification, authorization or approvals for the potential commercialization of therapeutic candidates.
•If we are unable to obtain regulatory clearance, certification, authorization or approval in one or more jurisdictions for any therapeutic candidates that we may identify and develop, our business could be substantially harmed.
•Certain of the therapeutic candidates being developed by us or our Founded Entities are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business.
•If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any therapeutic candidates we may develop, we may not be successful in commercializing those therapeutic candidates if and when they are approved.
•If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected.
•We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours, which may negatively impact our ability to successfully market or commercialize any therapeutic candidates we may develop and ultimately harm our financial condition.
•We are currently party to and may seek to enter into additional collaborations, licenses and other similar arrangements and may not be successful in maintaining existing arrangements or entering into new ones, and even if we are, we may not realize the benefits of such relationships, which could cause us to expend significant resources and give rise to substantial business risk with no assurance of financial return.
•We rely on third parties to assist in conducting our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing.
•If we or our Founded Entities are unable to obtain and maintain sufficient intellectual property protection for our or our Founded Entities’ existing therapeutic candidates or any other therapeutic candidates that we or they may identify, or if the scope of the intellectual property protection we or they currently have or obtain in the future is not sufficiently broad, our competitors could develop and commercialize therapeutic candidates similar or identical to ours, and our ability to successfully commercialize our existing therapeutic candidates and any other therapeutic candidates that we or they may pursue may be impaired.
•We may not be able to protect our intellectual property rights throughout the world.
•Our or our Founded Entities’ proprietary rights may not adequately protect our technologies and therapeutic candidates, and do not necessarily address all potential threats to our competitive advantage.
•The failure to maintain our licenses and realize their benefits may harm our business.
•If we or our Founded Entities fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or these agreements are terminated or we or our Founded Entities otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.
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•Patent terms may be inadequate to protect our competitive position on therapeutic candidates for an adequate amount of time.
•Issued patents covering our Internal Programs or our Founded Entities' therapeutics candidates could be found invalid or unenforceable if challenged in courts or patent offices.
•If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.
•We and our Founded Entities may be subject to claims challenging the inventorship of our patents and other intellectual property.
•The COVID-19 pandemic has impacted, and any future global health crises may in the future impact, our business, including our clinical trials and preclinical studies, and may materially and adversely affect our business in the future.
•Failures in one or more of our programs could adversely impact other programs and have a material adverse impact on our business, results of operations and ability to fund our business.
•Our business is highly dependent on the clinical advancement of our programs and our success in identifying potential therapeutic candidates. Delay or failure to advance our programs could adversely impact our business.
•Our future success depends on our ability to retain key employees, directors, consultants and advisors and to attract, retain and motivate qualified personnel.
•The market price of our ADSs has been and will likely continue to be highly volatile, and you could lose all or part of your investment.
•Holders of ADSs are not treated as holders of our ordinary shares.
•As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
•If we are unable to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our ADSs.
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EXPLANATORY NOTE
Pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as amended, the information required in this annual report on Form 20-F for the fiscal year ended December 31, 2023 (this "annual report on Form 20-F") of PureTech Health plc (the “Company”) set out below is being incorporated by reference from PureTech’s “Annual Report and Accounts 2023”, portions of which are included as exhibit 15.1 to this annual report on Form 20-F. Only the information set out below with specific reference to items and pages of PureTech's "Annual Report and Accounts 2023" is deemed to be filed as part of this annual report on Form 20-F. Other information contained within PureTech's "Annual Report and Accounts 2023" that is not specified, including graphs and tabular data, is not included in this annual report on Form 20-F and is not deemed to be filed as part of this annual report on Form 20-F. Photographs are also not included. References herein to PureTech's websites are textual references only and information on or accessible through such websites does not form part of and is not incorporated into this annual report on Form 20-F.
References below to major headings include all information under such major headings, including subheadings, unless such reference is a reference to a subheading, in which case such reference includes only the information contained under such subheading. Unless the context otherwise requires, “PureTech” and “PureTech Health” refer to the Company, which is comprised of PureTech and its subsidiaries (together, the “Group”).
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PART I
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. | ||||
A. IDENTITY OF DIRECTORS
Not applicable.
B. IDENTITY OF SENIOR MANAGEMENT
Not applicable.
C. IDENTITY OF ADVISERS.
Not applicable.
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| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | ||||
Not applicable.
2
| ITEM 3. | KEY INFORMATION | ||||
A. [Reserved]
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
The information (including tabular data) set forth or referenced under the heading “Risk Factor Annex" on pages 186 to 223 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
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| ITEM 4. | INFORMATION ON THE COMPANY | ||||
A. HISTORY AND DEVELOPMENT OF THE COMPANY
The information set forth under the heading "History and Development of the Company" on page 185 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
For a description of our principal capital expenditures and divestitures for the three years ended December 31, 2023 and for those currently in progress, see Item 5. “Operating and Financial Review and Prospects—A. Operating Results”.
The United States Securities and Exchange Commission (the “SEC”) maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. We also maintain an Internet website at www.puretechhealth.com. The information contained on, or that may be accessed through, our website is not part of, and is not incorporated into, annual report on Form 20-F.
B. BUSINESS OVERVIEW
The information (including graphs and tabular data) set forth under the following headings is incorporated by reference herein: “Highlights of the Year—2023” (for the years of 2021, 2022 and 2023) on page 1, “PureTech's Hub-and-Spoke Model” on page 10, "Internal Program" on page 11, “ESG Report— Patients-Ensuring Drug Efficacy and Safety” on page 33, “Risk Management—Risks related to regulatory approval" on page 61 and "Risk Management—Risks related to intellectual property protection" on page 63, “Financial Review—Revenue” on page 71, in each case of PureTech's "Annual Report and Accounts 2023" included as exhibit 15.1 to this annual report on Form 20-F, “Consolidated Statement of Comprehensive Income/(Loss),” “Notes to the Consolidated Financial Statements—Note 3. Revenue” and “Notes to the Consolidated Financial Statements—Note 4. Segment Information,” in each case of our audited consolidated financial statements included elsewhere in this annual report on Form 20-F. Seasonality does not materially impact the Company's main business.
Competition
The biotechnology and pharmaceutical industries utilize rapidly advancing technologies and are characterized by intense competition. There is also a strong emphasis on intellectual property and proprietary products. Our pipeline builds on validated biology of known therapeutics while applying unique inventive steps that improve the clinical pharmacology. We further de-risk programs with key experiments at an early stage to validate the underlying value proposition. We believe that our technology, drug discovery and development expertise and capabilities enable such strong pipeline creation and provide us with a competitive advantage. However, we will continue to face competition from different sources including major pharmaceutical companies, biotechnology companies, academic institutions, government agencies, and public and private research institutions. In addition, there are many companies that have approved therapeutics for some of our target indications. For any products that we eventually commercialize, we will not only compete with existing therapies but also compete with new therapies that may become available in the future.
In addition to the competition we will face from the parties described above, we face competition for certain of the product candidates we are developing internally as well as the products we are advancing through our Founded Entities.
LYT-100
In the field of idiopathic pulmonary fibrosis (IPF), there are two approved drugs, pirfenidone (Esbriet), marketed by Roche, and nintedanib (Ofev), marketed by Boehringer Ingelheim. These drugs have unfavorable tolerability profiles, leading to sustained unmet need for novel therapies. In May 2022, a generic version of pirfenidone was approved in the US. Generic pirfenidone is also starting to be prescribed in some EU countries. Other potential competitive product candidates in various stages of development include, but are not limited to: United Therapeutics’ treprostinil in Phase 3 clinical trials, Boehringer Ingelheim’s BI1015550 in Phase 3 development, BMS’ BMS-986278 in Phase 3 clinical development, Avalyn’s AP01 which is expected to enter a Phase 2 or 3 trial , Pliant Therapeutics’ PLN-74809 in Phase 2 clinical development, and Horizon Therapeutics’ HZN-825 in Phase 2 clinical development.
LYT-200
We are aware of one current drug product candidate targeting galectin-9, FibroGen’s FG-3165, which FibroGen has disclosed that they are anticipating submitting an Investigational New Drug Application, or IND, for in the first quarter of 2024. Additionally, if we are successful in developing LYT-200 as an immuno-oncology (IO) treatment we would expect to compete with currently approved IO therapies and those that may be developed in the future. Current marketed IO products include CTLA-4, such as BMS’ Yervoy, and PD-1/PD-L1, such as BMS’ Opdivo, Merck’s Keytruda and Genentech’s Tecentriq, and T cell engager immunotherapies, such as Amgen’s Blincyto. In addition, there are other academic groups and/or companies that may be involved in pre-clinical research centered around galectin-9 as a therapeutic target.
SPT-300 (formerly known as LYT-300)
In the field of GABAA positive allosteric modulators, there are four approved drugs, allopregnanolone (Zulresso) and zuranolone (Zurzuvae), marketed by Sage Therapeutics, ganaxolone (Ztalmy), marketed by Marinus Pharmaceuticals, and cenobamate (Xcopri), marketed by SK Life Science. Other potential competitive product candidates in various stages of development include, Abbvie/Cerevel’s darigabat , Roche’s alogabat and Sage’s SAGE-324, all in Phase 2 clinical development.
SPT-310 (formerly known as LYT-310)
In the field of cannabidiol agents, there is one FDA approved drug, Epidiolex, marketed by Jazz Pharmaceuticals (originally GW Pharmaceuticals). Other potential competitive product candidates in various stages of development include Horizon/Zynerba Pharmaceuticals’ ZyGel in Phase 3 clinical development, Cardiol Therapeutics’ Cardiol Rx in Phase 2 clinical development.
SPT-320 (formerly known as LYT-320)
We are aware of only one other agomelatine agent in development, Alto Neuroscience’s ALTO-300. ALTO-300 successfully completed a Phase 2a open-label trial to evaluate predictive biomarkers for efficacy and safety. ALTO-300 is now in a placebo-
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controlled Phase 2b trial and topline data is estimated to be in the second half of 2024. In addition, there are other academic groups that may be involved in research centered around agomelatine as a therapeutic target.
Glyph Technology Platform
We are not aware of any direct competitors to our Glyph technology platform, but it may compete with new therapies that become available in the future to target the indications we are focused on.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, or EU, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, and import and export of drugs, biological products and medical devices. The processes for obtaining regulatory approvals in the United States and in foreign countries and jurisdictions, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
U.S. Regulation of Drugs and Biologics
In the United States, the FDA regulates drugs under the FDCA, and its implementing regulations, and biologics under the FDCA and the Public Health Service Act and its implementing regulations. FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the United States. Drugs and biologics are also subject to other federal, state, and local statutes and regulations. The process required by the FDA before such product candidates may be marketed in the United States generally involves the following:
•completion of extensive preclinical laboratory tests and preclinical animal studies, certain of which must be performed in accordance with Good Laboratory Practice, or GLP, regulations and other applicable regulations;
•submission to the FDA of an IND, which must become effective before human clinical studies may begin;
•approval by an independent institutional review board, or IRB, or ethics committee representing each clinical site before each clinical study may be initiated;
•performance of adequate and well-controlled human clinical studies in accordance with Good Clinical Practice, or GCP, requirements to establish the safety and efficacy, or with respect to biologics, the safety, purity and potency of the product candidate for each proposed indication;
•preparation of and submission to the FDA of a new drug application, or NDA, or biologics license application, or BLA, after completion of all pivotal clinical studies;
•potential review of the product application by an FDA advisory committee, where appropriate and if applicable;
•a determination by the FDA within 60 days of its receipt of an NDA or BLA to file the application for review;
•satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities where the proposed product drug substance is produced to assess compliance with current Good Manufacturing Practices, or cGMP, and potential audits of selected clinical trial sites to ensure compliance with GCP; and
•FDA review and approval of an NDA or BLA prior to any commercial marketing or sale of the drug in the United States.
An IND is a request for authorization from the FDA to administer an investigational drug product to humans. The central focus of an IND submission is on the general investigational plan and the protocol or protocols for preclinical studies and clinical trials. The IND also includes results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology and pharmacodynamics of the product, chemistry, manufacturing and controls, or CMC, information, and any available human data or literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP, which includes, among other things, the requirement that all research subjects provide their informed consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments. While the IND is active, progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the drug, findings from animal or in vitro testing suggesting a significant risk to humans exposed to the drug, and any clinically important increased rate of a serious suspected adverse reaction compared to that listed in the protocol or investigator brochure.
Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial and its informed consent form before the clinical trial begins at that site, and must monitor the study until completed. Regulatory authorities, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk or that the trial is unlikely to meet its stated objectives. Some studies also include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization for whether or not a study may move forward at designated check points based on access to certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There are also requirements governing the reporting of ongoing preclinical studies and clinical trials and clinical study results to public registries.
The clinical investigation of a drug is generally divided into three phases. Although the phases are usually conducted sequentially, they may overlap or be combined.
•Phase 1. The investigational product is initially introduced into healthy human subjects or patients with the target disease or condition. These studies are generally designed to test the safety, dosage tolerance, absorption, metabolism and distribution
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of the investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness.
•Phase 2. The investigational product is administered to a limited patient population with a specified disease or condition to evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety risks.
•Phase 3. The investigational product is administered to an expanded patient population to further evaluate dosage, to provide statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to provide an adequate basis for product approval.
In some cases, the FDA may condition approval of an NDA or BLA for a product candidate on the sponsor’s agreement to conduct additional clinical studies after approval. In other cases, a sponsor may voluntarily conduct additional clinical studies after approval to gain more information about the drug within the approved indication. Such post-approval studies are often referred to as Phase 4 clinical studies. Concurrent with clinical trials, companies may complete additional animal studies and develop additional information about the biological characteristics of the product candidate, and must finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, must develop methods for testing the identity, strength, quality and purity of the final product, or for biologics, the safety, purity and potency.
Special Protocol Assessment
The special protocol assessment, or SPA, process is designed to facilitate the FDA’s review and approval of certain drugs and biologics by allowing the FDA to evaluate the proposed design of certain preclinical studies and clinical trials, including among others, trials that are intended to form the primary basis for determining a product candidate’s efficacy. Upon specific request by a clinical trial sponsor, the FDA aims to evaluate the protocol and respond to a sponsor’s questions regarding, among other things, entry, criteria, dose selection, endpoints, trial conduct and data analyses, within 45 days of receipt of the request. The FDA ultimately assesses whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate with respect to effectiveness of the indication studied. All agreements and disagreements between the FDA and the sponsor regarding an SPA must be clearly documented in an SPA letter or the minutes of a meeting between the sponsor and the FDA.
Even if the FDA agrees to the design, execution and analyses proposed in protocols reviewed under the SPA process, the FDA may rescind or alter its agreement where the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the product candidate has been identified after the trial has begun, which can include, but is not limited to, the following circumstances:
•identification of data that would call into question the clinical relevance of previously agreed-upon efficacy endpoints;
•identification of safety concerns related to the product or its pharmacological class;
•paradigm shifts in disease diagnosis or management recognized by the scientific community and the FDA; or
•the relevant data, assumptions, or information provided by the sponsor in the SPA submission are found to be false statements or misstatements, or are found to omit relevant facts, such that the clinical relevance of critical components of trial design is called into question, or appropriate safety monitoring and human subject protection are affected.
A documented SPA may be modified, and such modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and the sponsor agree in writing to modify the protocol and such modification is intended to improve the study. If the sponsor fails to follow the protocol that was agreed upon with FDA consistent with the SPA agreement, or makes substantive changes in the protocol without the FDA’s agreement, then FDA will consider the results from the study as a BLA or NDA review issue. The FDA will not be bound by an SPA agreement where the sponsor fails to conduct the trial in accordance with the agreed SPA.
NDA and BLA Review Process
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product development, including, among other things, the results from nonclinical studies and clinical trials are submitted to the FDA as part of an NDA or BLA requesting approval to market the product for one or more indications. The NDA or BLA must include all relevant data available from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information relating to the product’s CMC and proposed labeling, among other things. Data can come from company-sponsored clinical studies intended to test the safety and effectiveness of the product, or from a number of alternative sources, including studies initiated and sponsored by investigators. The submission of an NDA or BLA requires payment of a substantial application user fee to the FDA, unless a waiver or exemption applies.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or BLA or supplement to an NDA or BLA must contain data to assess the safety and effectiveness of the biological product candidate for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA requires that a sponsor who is planning to submit a marketing application for a drug or biological product that includes a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration submit an initial pediatric study plan within sixty days after an end-of-Phase 2 meeting or as may be agreed between the sponsor and FDA. Unless otherwise required by regulation, PREA does not apply to any product candidate for an indication for which orphan designation has been granted.
Within 60 days following submission of the application, the FDA reviews the submitted BLA or NDA to determine if the application is substantially complete before the FDA accepts it for filing. The FDA may refuse to file any NDA or BLA that it deems incomplete or not properly reviewable at the time of submission and may request additional information. In this event, the NDA or BLA must be resubmitted with the additional information. Once an NDA or BLA has been accepted for filing, the FDA’s goal is to review applications for original biologics or new-molecular-entity drugs within ten months after the filing date, or, if the application qualifies for priority review, six months after the filing date. In both standard and priority reviews, the review process may also be extended for a three-month period for the FDA to review additional information that is deemed a major amendment to an application.
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The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is sufficient to assure and preserve the product’s identity, strength, quality and purity. The FDA reviews a BLA to determine, among other things, whether a product is safe, pure and potent and the facility in which it is manufactured, processed, packed or held meets standards designed to assure the product’s continued safety, purity and potency. When reviewing an NDA or BLA, the FDA may convene an advisory committee to provide clinical insight on application review questions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA or BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
After the FDA evaluates the NDA or BLA and conducts inspections of manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a Complete Response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A Complete Response letter will describe all of the deficiencies that the FDA has identified in the NDA or BLA, except that where the FDA determines that the data supporting the application are inadequate to support approval, the FDA may issue the Complete Response letter without first conducting required inspections, testing submitted product lots and/or reviewing proposed labeling. In issuing the Complete Response letter, the FDA may recommend actions that the applicant might take to place a resubmittedNDA or BLA in condition for approval, including requests for additional clinical studies, or other information supporting the application. Notwithstanding the submission of any additional information or data, the FDA may delay or refuse approval of an NDA or BLA if applicable regulatory criteria are not satisfied.
If the FDA approves a BLA or NDA, such approval will be granted for particular indications and may entail limitations on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA or BLA with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or potential serious risk associated with a product and to enable patients to have continued access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-marketing requirements is not maintained or if problems occur after the product reaches the marketplace. The FDA may require one or more post-market studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit further marketing of the product based on the results of these post-marketing studies.
Regulation of Combination Products in the United States
Certain therapeutic products are comprised of multiple components, such as drug or biologic components and device components, that would normally be subject to different regulatory frameworks by the FDA and frequently regulated by different centers at the FDA. These products are known as combination products. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review of a combination product. The determination of which center will be the lead center is based on the “primary mode of action” of the combination product. Thus, if the primary mode of action of a drug-device combination product is attributable to the drug product, the FDA center responsible for premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has also established the Office of Combination Products to address issues surrounding combination products and provide more certainty to the regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute. A combination product with a primary mode of action attributable to the drug or biologic component generally would be reviewed and approved pursuant to the drug approval processes set forth in the FDCA. In reviewing the NDA or BLA for such a product, however, FDA reviewers would consult with their counterparts in the FDA’s Center for Devices and Radiological Health to ensure that the device component of the combination product met applicable requirements regarding safety, effectiveness, durability and performance. In addition, under FDA regulations, combination products are subject to cGMP requirements applicable to both drugs and devices, including the Quality System Regulation, or QSR, currently applicable to medical devices.
Expedited Development and Review Programs for Drugs and Biologics
The FDA offers a number of expedited development and review programs for qualifying product candidates. The fast track program is intended to expedite or facilitate the process for reviewing product candidates that meet certain criteria. Specifically, product candidates are eligible for fast track designation if they are intended to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation applies to the combination of the product candidate and the specific indication for which it is being studied. The sponsor of a fast track product candidate has opportunities for more frequent interactions with the review team during product development and, once an NDA or BLA is submitted, the application may be eligible for priority review. A fast track product candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to accept sections of the NDA or BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA or BLA.
A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for breakthrough therapy designation to expedite its development and review. A product candidate can receive breakthrough therapy designation if preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation includes all of the fast track program
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features, as well as more intensive FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of the product candidate, including involvement of senior managers.
Any marketing application for a drug or biologic submitted to the FDA for approval, including a product candidate with a fast track designation and/or breakthrough therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA review and approval process, such as priority review . An NDA or BLA is eligible for priority review if the product candidate has the potential to provide a significant improvement in the treatment, diagnosis or prevention of a serious disease or condition. For new-molecular-entity NDAs and original BLAs, priority review designation means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date (as compared to ten months under standard review).
Additionally, depending on the designs of the applicable clinical trials, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or conditions may receive accelerated approval upon a determination that the product candidate has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will generally require the sponsor to perform adequate and well-controlled confirmatory clinical studies to verify and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit and may require such confirmatory studies be underway prior to granting accelerated approval. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory studies in a timely manner or if such studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials, which could adversely impact the timing of the commercial launch of the product.
Fast track designation, breakthrough therapy designation, priority review, and accelerated approval do not change the standards for approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. We may explore some of these opportunities for our product candidates as appropriate.
Rare Pediatric Disease Priority Review Voucher Program
In 2012, the U.S. Congress authorized the FDA to award priority review vouchers to Sponsors of certain rare pediatric disease product applications. This program is designed to encourage development of new drug and biological products for prevention and treatment of certain rare pediatric diseases. Specifically, under this program, a sponsor who receives an approval for a drug or biologic for a “rare pediatric disease” may qualify for a voucher that can be redeemed to receive priority review of a subsequent marketing application for a different product. The Sponsor of a rare pediatric disease drug product receiving a priority review voucher may transfer (including by sale) the voucher to another sponsor. The voucher may be further transferred any number of times before the voucher is used, as long as the Sponsor making the transfer has not yet submitted the application. The FDA may also revoke any priority review voucher if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.
For purposes of this program, a “rare pediatric disease” is a (a) serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates, infants, children, and adolescents; and (b) rare diseases or conditions within the meaning of the Orphan Drug Act. On December 27, 2020, the Rare Pediatric Disease Priority Review Voucher Program was extended. Under the current statutory sunset provisions, after September 30, 2024, FDA may only award a voucher for an approved rare pediatric disease product application if the Sponsor has rare pediatric disease designation for the drug, and that designation was granted by September 30, 2024. After September 30, 2026, FDA may not award any Rare Pediatric Disease Priority Review Voucher.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States for which there is no reasonable expectation that the cost of developing and making available in the United States a drug or biologic for this type of disease or condition will be recovered from sales in the United States for that drug or biologic. Orphan drug designation must be requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. The orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review or approval process.
If a product that has orphan drug designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusive approval (or exclusivity), which means that the FDA may not approve any other applications, including a full NDA or BLA, to market the same drug or biologic for the same disease or condition for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug or biologic was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA or BLA application user fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the disease or condition for which it received orphan designation. In addition, exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Post-Approval Requirements for Drugs and Biologics
Any products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the
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approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing user fee requirements, under which the FDA assesses an annual program fee for each product identified in an approved NDA or BLA. Drug and biologic manufacturers and their subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements upon NDA or BLA holders and any third-party manufacturers. Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMPs and impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMPs and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among other things:
•restrictions on the marketing or manufacturing of a product, complete withdrawal of the product from the market or product recalls;
•fines, warning letters or holds on post-approval clinical studies;
•refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of existing product approvals;
•product seizure or detention, or refusal of the FDA to permit the import or export of products;
•consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;
•mandated modification of promotional materials and labeling and the issuance of corrective information;
•the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or other safety information about the product; or
•injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of biologics. A company can make only those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available products for uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of their products.
Hatch-Waxman Act and Drug Product Exclusivity
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA's prior findings of safety and efficacy for an existing product, or published literature, in support of its application. Section 505(j) of the FDCA establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application, or ANDA. An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics and intended use, among other things, to a previously approved product. ANDAs are termed "abbreviated" because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients into a subject's bloodstream in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug. In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant's drug or a method of using the drug. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.
Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that: (1) no patent information on the drug product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through the last type of certification, also known as a paragraph IV certification. If the applicant does not challenge the listed patents or indicates that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until all of the listed patents claiming the referenced product have expired. If the ANDA or 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must send notice of the Paragraph IV certification to the NDA and patent holders once the application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the paragraph IV certification. If the paragraph IV certification is challenged by an NDA holder or the patent owner(s) asserts a patent challenge to the paragraph IV certification, the FDA may not approve that application until the earlier of 30 months from the receipt of the notice of the paragraph IV certification, the expiration of the patent, when the infringement case
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concerning each such patent was favorably decided in the applicant's favor or settled, or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take action to trigger the 30-month stay, recognizing that the related patent litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor's decision to initiate patent litigation.
The Hatch-Waxman Act also establishes periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application that relies on the branded reference drug. For example, the holder of an NDA, including a 505(b)(2) NDA, may obtain five years of non-patent data exclusivity upon approval of a new drug containing new chemical entities that have not been previously approved by the FDA. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the therapeutic activity of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The Hatch-Waxman Act also provides three years of non-patent exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for the condition of the new drug's approval. As a general matter, the three year exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.
Biosimilars and Reference Product Exclusivity
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated approval pathway for biological products that are highly similar, or “biosimilar,” to or interchangeable with an FDA-approved reference biological product. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product in terms of safety, purity, and potency, is generally shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the reference product in any given patient and, for products that are administered multiple times to an individual, the biologic and the reference biologic may be alternated or switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. A product shown to be biosimilar or interchangeable with an FDA-approved reference biological product may rely in part on the FDA’s previous determination of safety and effectiveness for the reference product for approval, which can potentially reduce the cost and time required to obtain approval to market the product.
Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing that applicant’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The BPCIA also created certain exclusivity periods for biosimilars approved as interchangeable products. At this juncture, it is unclear whether products deemed “interchangeable” by the FDA will, in fact, be readily substituted by pharmacies, which are governed by state pharmacy law.
A biological product can also obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing exclusivity periods and patent terms. This six-month exclusivity, which runs from the end of any existing periods of regulatory exclusivity or patent terms, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written Request” for such a study.
U.S. Drug Enforcement Administration Regulation
We are developing certain product candidates that utilize, or may utilize controlled substances regulated by the U.S. Drug Enforcement Administration, DEA. The Controlled Substances Act of 1970, or CSA, establishes registration, security, recordkeeping, reporting, storage, distribution and other requirements administered by the DEA. The DEA is concerned with the control of handlers of controlled substances, and with the equipment and raw materials used in their manufacture and packaging, in order to prevent loss and diversion into illicit channels of commerce. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances.
Annual registration is required for any facility that manufactures, distributes, dispenses, imports or exports any controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. For example, separate registrations are needed for import and manufacturing, and each registration will specify which schedules of controlled substances are authorized. The DEA typically inspects a facility to review its security measures prior to issuing a registration. Security requirements vary by controlled substance schedule, with the most stringent requirements applying to Schedule I and Schedule II substances. Required security measures include background checks on employees and physical control of inventory through measures such as cages, surveillance cameras and inventory reconciliations. Records must be maintained for the handling of all controlled substances, and periodic reports made to the DEA. Reports must also be made for thefts or losses of any controlled substance, and authorization must be obtained to destroy any controlled substance. In addition, special authorization and notification requirements apply to imports and exports.
To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance with applicable requirements, particularly as manifested in loss or diversion, can result in
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enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could eventuate in criminal proceedings. Individual states also regulate controlled substances, and we and our contract manufacturers are also subject to state regulation on distribution of these products.
U.S. Regulation of Medical Devices
The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.
U.S. Medical Device Classification:
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, or approval of a premarket approval, or PMA, application. Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the QSR, facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA. Some pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed.
510(k) Clearance Marketing Pathway
To obtain 510(k) clearance, a manufacturer must submit to the FDA a premarket notification demonstrating that the proposed device is “substantially equivalent” to a predicate device already on the market. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to twelve months, but may take longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.
If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or de novo reclassification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo request or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance or PMA approval is obtained or a de novo request is granted. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.
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PMA Approval Pathway
Class III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from pre-clinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.
The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, or on some form of post-market surveillance when deemed necessary to protect the public health. or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.
Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel.
De novo classification process
Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified into Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 established a route to market for low-to-moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application. Manufacturers may request de novo classification directly without first submitting a 510(k) pre-market notification to the FDA and receiving a not-substantially-equivalent determination.
The FDA is required to classify a medical device within 120 days following receipt of a de novo request, although, in practice, the process may take significantly longer. If the manufacturer seeks reclassification into Class II, the manufacturer must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. If FDA grants the de novo request, the device may be legally marketed in the United States. However, the FDA may reject the request if the FDA identifies a legally marketed predicate device that would be appropriate for a 510(k) notification, determines that the device is not low-to-moderate risk, or determines that general controls would be inadequate to control the risks and/or special controls cannot be developed. After a device receives de novo classification, any modification that could significantly affect its safety or efficacy, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, another de novo request or even PMA approval.
Clinical Trials for Medical Devices
Clinical trials are almost always required to support a PMA or a de novo request, and are sometimes required to support 510(k) submissions. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s investigational device exemption, or IDE, regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. If the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.
Regardless of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an IRB for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.
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During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.
Post-market Regulation
After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply. These include:
•establishment registration and device listing with the FDA;
•QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process;
•labeling regulations and FDA prohibitions against the promotion of investigational products, or the promotion of “off-label” uses of cleared or approved products;
•requirements related to promotional activities;
•clearance or approval of product modifications to cleared devices or devices authorized through the de novo classification process that could significantly affect safety or effectiveness, or that would constitute a major change in intended use of such devices, or approval of certain modifications to PMA-approved devices;
•medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;
•correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;
•the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and
•post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
Manufacturing processes for medical devices are currently required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Failure to maintain compliance with the QSR requirements could result in the shutdown of, or restrictions on, manufacturing operations and the recall or seizure of marketed products. The discovery of previously unknown problems with marketed medical devices, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.
In addition, in February 2024, the FDA issued a final rule to amend and replace the QSR, which sets forth the FDA’s current good manufacturing practice requirements for medical devices, to align more closely with the International Organization for Standardization standards. Specifically, this final rule, which the FDA expects to go into effect on February 2, 2026, establishes the Quality Management System Regulation, or QMSR, which, among other things, incorporates by reference the quality management system requirements of ISO 13485:2016. Until such time as the QMSR becomes effective, manufacturers of medical devices are still required to comply with the current QSR.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in a variety of sanctions, including: warning letters, untitled letters, fines, injunctions, consent decrees and civil penalties; recalls, withdrawals, or administrative detention or product seizures; operating restrictions or partial suspension or total shutdown of production; refusing or delaying requests for 510(k) marketing clearance or PMA approvals of new products or modified products; withdrawing 510(k) clearances or PMA approvals that have already been granted; refusal to grant export approvals for; or criminal prosecution.
FDA Regulation of Companion Diagnostics
If safe and effective use of a drug or biologic depends on an in vitro diagnostic test, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a novel therapeutic product or indication, FDA generally will not approve the therapeutic product or new therapeutic product indication if the companion diagnostic device is not approved or cleared for that indication. Approval or clearance of the companion diagnostic device will ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population.
Foreign Regulation
To market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of our products. The foreign regulatory approval process includes all of the risks associated with FDA approval set forth above, as well as additional country-specific regulation. Because biologically sourced raw materials are subject to unique contamination risks, their use may be restricted in some countries.
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Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. The approval process varies from country to country, can involve additional testing beyond that required by FDA, and may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing, promotion, and reimbursement vary greatly from country to country.
Regulation of medicinal products in the European Union
Non-clinical Studies and Clinical Trials
Similar to the United States, the various phases of preclinical and clinical research in the EU are subject to significant regulatory controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical or biological substances. Non-clinical studies (pharmaco-toxicological) must be conducted in compliance with the GLP principles, as set forth in EU Directive 2004/10/EC (unless otherwise justified for certain particular medicinal products – e.g., radio-pharmaceutical precursors for radio-labelling purposes). In particular, non-clinical studies, both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and Development requirements.
Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use, or ICH, guidelines on Good Clinical Practices, or GCP, as well as the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. If the sponsor of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal representative. The sponsor must take out a clinical trial insurance policy, and in most EU member states, the sponsor is liable to provide ‘no fault’ compensation to any study subject injured in the clinical trial.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. Unlike directives, the CTR is directly applicable in all EU member states without the need for member states to further implement it into national law. The CTR notably harmonizes the assessment and supervision processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU portal and database.
While the EU Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee, much like the FDA and IRB respectively, the CTR introduces a centralized process and only requires the submission of a single application for multi-center trials. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The CTA must include, among other things, a copy of the trial protocol and an investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under investigation. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed.
The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the EU Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR.
Medicines used in clinical trials must be manufactured in accordance with Good Manufacturing Practice, or GMP. Other national and EU-wide regulatory requirements may also apply.
Marketing Authorization
In order to market our product candidates in the EU and many other foreign jurisdictions, we must obtain separate regulatory approvals. More concretely, in the EU, medicinal products can only be commercialized after obtaining a marketing authorization, or MA. To obtain regulatory approval of a product candidate under EU regulatory systems, we must submit a MA application, or MAA. The process for doing this depends, among other things, on the nature of the medicinal product. There are two main types of MA.
•“Centralized MAs” are issued by the European Commission through the centralized procedure, based on the opinion of the Committee for Medicinal Products for Human Use, or CHMP, of the European Medicines Agency, or EMA, and are valid throughout the entire territory of the EU. The centralized procedure is mandatory for certain types of products, such as (i) medicinal products derived from biotechnological processes, (ii) designated orphan medicinal products, (iii) advanced-therapy medicinal products, or ATMPs (i.e. gene-therapy, somatic cell-therapy or tissue-engineered medicines) and (iv) medicinal products containing a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, or autoimmune diseases and other immune dysfunctions and viral diseases. The centralized procedure is optional for products containing a new active substance not yet authorized in the EU, or for products that constitute a significant therapeutic, scientific or technical innovation or which are in the interest of public health in the EU. Under the centralized procedure the maximum timeframe for the evaluation of a MAA by the EMA is 210 days, excluding clock stops. In exceptional cases, the CHMP might perform an accelerated review of a MAA in no more than 150 days (not including clock stops).“National MAs” are issued by the competent authorities of the EU member states, only cover their respective territory, and are available for products not falling within the mandatory scope of the centralized procedure. Where a product has already been authorized for marketing in an EU member state, this national MA can be recognized in other member states through the mutual recognition procedure. If the product has not received a national MA in any member state at the time of application, it can be approved simultaneously in various member states through the decentralized procedure. Under the decentralized procedure an
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identical dossier is submitted to the competent authorities of each of the member states in which the MA is sought, one of which is selected by the applicant as the reference member state, or RMS. The competent authority of the RMS prepares a draft assessment report, a draft summary of the product characteristics, or SmPC, and a draft of the labeling and package leaflet, which are sent to the other Member States (referred to as the concerned member states, or CMSs) for their approval. If the CMSs raise no objections, based on a potential serious risk to public health, to the assessment, SmPC, labeling, or packaging proposed by the RMS, the product is subsequently granted a national MA in all the member states (i.e., in the RMS and the CMSs).
Under the above described procedures, before granting the MA, the EMA or the competent authorities of the EU member states make an assessment of the risk-benefit balance of the product on the basis of scientific criteria concerning its quality, safety and efficacy. MAs have an initial duration of five years. After these five years, the authorization may be renewed on the basis of a reevaluation of the risk-benefit balance.
Furthermore, MA may also be granted “under exceptional circumstances” when the applicant can show that it is unable to provide comprehensive data on the efficacy and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. This may arise in particular when the intended indications are very rare and, in the present state of scientific knowledge, it is not possible to provide comprehensive information, or when generating data may be contrary to generally accepted ethical principles. This MA is reserved to medicinal products to be approved for severe diseases or unmet medical needs and the applicant does not hold the complete data set legally required for the grant of a MA. The applicant does not have to provide the missing data and will never have to. Although the MA “under exceptional circumstances” is granted definitively, the risk-benefit balance of the medicinal product is reviewed annually and the MA is withdrawn in case the risk-benefit ratio is no longer favorable.
Data and Marketing Exclusivity
In the EU, innovative medicinal products (including both small molecules and biological medicinal products) generally receive eight years of data exclusivity and an additional two years of market exclusivity upon MA. The data exclusivity period, if granted, prevents generic or biosimilar applicants from referencing the innovator’s pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar MA, for a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year period of market exclusivity, a generic or biosimilar MA can be submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period can be extended to a maximum of 11 years if, during the first eight years of those ten years, the MA holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are determined to bring a significant clinical benefit in comparison with currently approved therapies. However, there is no guarantee that a product will be considered by the EU’s regulatory authorities to be a new chemical or biological entity, and products may not qualify for data exclusivity.
In the EU, there is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet the definition of a generic medicinal product, for example, because of differences in raw materials or manufacturing processes. For such products, the results of appropriate preclinical or clinical trials must be provided, and guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of biological product. There are no such guidelines for complex biological products, such as gene or cell therapy medicinal products, and so it is unlikely that biosimilars of those products will currently be approved in the EU. However, guidance from the EMA states that they will be considered in the future in light of the scientific knowledge and regulatory experience gained at the time.
Orphan Medicinal Products
The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. A medicinal product can be designated as an orphan if its sponsor can establish that: (1) the product is intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions, (2) either (a) such condition affects no more than 5 in 10,000 persons in the EU when the application is made, or (b) where it is unlikely that the marketing of the medicine would generate sufficient return in the EU to justify the necessary investment in its development, and (3) there exists no satisfactory method of diagnosis, prevention or treatment of the condition that have been authorized in the EU or, if such a method exists, the product in question would be of significant benefit to those affected by the condition.
Orphan designation must be requested before submitting an MAA. In the EU, orphan designation entitles a party to incentives such as reduction of fees or fee waivers, protocol assistance and access to the centralized procedure. Upon grant of a MA, orphan medicinal products are entitled to ten years of market exclusivity for the approved indication, which means that the competent authorities cannot accept another MAA, or grant a MA, or accept an application to extend a MA for a similar medicinal product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan medicinal products that have also complied with an agreed Pediatric Investigation Plan, or PIP. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.
This period may be reduced to six years if, at the end of the fifth year, it is established that the orphan designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity or where the prevalence of the condition has increased above the threshold. Additionally, MA may only be granted to a “similar medicinal product” for the same indication at any time, if (i) the holder of the MA for the original orphan medicinal product consents to a second orphan medicinal product application, (ii) the holder of the MA for the original orphan medicinal product cannot supply sufficient quantities of the orphan medicinal product, or (iii) the second applicant can establish that its medicinal product, although similar, is safer, more effective or otherwise clinically superior to the authorized orphan medicinal product. A “similar medicinal product” is defined as a medicinal product containing a similar active substance or substances as contained in an authorized orphan medicinal product, and which is intended for the same therapeutic indication. Orphan designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
European Pediatric Development
In the EU, MAAs for new medicinal products have to include the results of studies conducted in the pediatric population, in compliance with a PIP, with the EMA’s Pediatric Committee, or PDCO. The PIP sets out the timing and measures proposed to
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generate data to support a pediatric indication of the product candidate for which MA is being sought. The PDCO can grant a deferral of the obligation to implement some or all of the measures of the PIP until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Further, the obligation to provide pediatric clinical trial data can be waived by the PDCO when this data is not needed or appropriate because the product is likely to be ineffective or unsafe in children, the disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic benefit over existing treatments for pediatric patients. Once the MA is obtained in all the EU member states and study results are included in the product information, even where such results are negative, the product is eligible for six months’ supplementary protection certificate extension (if any is in effect at the time of approval).
Controlled Substances
Controlled substances are not regulated at EU level and the EU legislation does not establish different classes of narcotic or psychotropic substances. However, the United Nations, or UN, Single Convention on Narcotic Drugs of 1961 and the UN Convention on Psychotropic Substances of 1971, or the UN Conventions, codify internationally applicable control measures to ensure the availability of narcotic drugs and psychotropic substances for medical and scientific purposes. The individual EU member states are all signatories to these UN Conventions. All signatories have a dual obligation to ensure that these substances are available for medical purposes and to protect populations against abuse and dependence.
The UN Conventions regulate narcotic drugs and psychotropic substances as Schedule I, II, III, IV substances with Schedule II substances presenting the lowest relative risk of abuse among such substances and Schedule I and IV substances considered to present the highest risk of abuse.
The UN Conventions require signatories to require all persons manufacturing, trading (including exporting and importing) or distributing controlled substances to obtain a license from the relevant authority. Each individual export or import of a controlled substance must also be subject to an authorization. Before the relevant authority can issue an export authorization for a particular shipment, the exporter must provide the authority with a copy of the import authorization issued by the relevant authority of the importing country. Implementation of the obligations provided in the UN Conventions and additional requirements are regulated at national level and requirements may vary from one member state to another.
Post-Approval requirements
Similar to the United States, both MA holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the competent regulatory authorities of the member states. The holder of a MA must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance, or QPPV, who is responsible for the establishment and maintenance oversight of that system, and oversees the safety profiles of medicinal products and any emerging safety concerns. Key obligations include expedited reporting of suspected serious adverse reactions and submission of periodic safety update reports, or PSURs.
All new MAA must include a risk management plan, or RMP, describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies.
The advertising and promotion of medicinal products is also subject to laws concerning promotion of medicinal products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics, and therefore all off-label promotion is prohibited. Direct-to-consumer advertising of prescription medicines is also prohibited in the EU. Although general requirements for advertising and promotion of medicinal products are established under EU directives, the details are governed by regulations in each member state and can differ from one country to another.
Much like the Anti-Kickback Statue prohibition in the United States, the provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of medicinal products is also prohibited in the EU. The provision of benefits or advantages to induce or reward improper performance generally is usually governed by national EU member states anti-bribery laws. Infringement of these laws could result in substantial fines and imprisonment.
Payments made to physicians in certain EU member states must be publicly disclosed. Moreover, agreements with physicians often must be the subject of prior notification and/or approval by the physician’s employer, his or her competent professional organization and/or the regulatory authorities of the individual EU member states. These requirements are provided in national laws, industry codes or professional codes of conduct, applicable in the EU member states.
Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval, MA of medicinal products and marketing of such products, both before and after grant of the MA, manufacturing of pharmaceutical products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.
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Regulation of Combination Products in the European Union
The EU regulates medical devices and medicinal products separately, through different legislative instruments, and the applicable requirements will vary depending on the type of drug-device combination product. EU guidance has been published to help manufacturers select the right regulatory framework.
Drug-delivery products intended to administer a medicinal product where the medicinal product and the device form a single integral product are regulated as medicinal products in the EU. The EMA is responsible for evaluating the quality, safety and efficacy of MAAs submitted through the centralized procedure, including the safety and performance of the medical device in relation to its use with the medicinal product. The EMA or the EU member state national competent authority will assess the product in accordance with the rules for medicinal products described above but the device part must comply with Regulation (EU) No 2017/745, or the EU Medical Devices Regulation (including the general safety and performance requirements provided in Annex I). MAA must include—where available—the results of the assessment of the conformity of the device part with the EU Medical Devices Regulation contained in the manufacturer’s EU declaration of conformity of the device or the relevant certificate issued by a notified body. If the MAA does not include the results of the conformity assessment and where for the conformity assessment of the device, if used separately, the involvement of a notified body is required, the competent authority must require the applicant to provide a notified body opinion on the conformity of the device.
By contrast, in case of drug-delivery products intended to administer a medicinal product where the device and the medicinal product do not form a single integral product (but are e.g. co-packaged), the medicinal product is regulated in accordance with the rules for medicinal products described above while the device part is regulated as a medical device and will have to comply with all the requirements set forth by the EU Medical Devices Regulation.
The characteristics of non-integral devices used for the administration of medicinal products may impact the quality, safety and efficacy profile of the medicinal products. To the extent that administration devices are co-packaged with the medicinal product or, in exceptional cases, where the use of a specific type of administration device is specifically provided for in the product information of the medicinal product, additional information may need to be provided in the MAA for the medicinal product on the characteristics of the medical device(s) that may impact on the quality, safety and/or efficacy of the medicinal product.
The requirements regarding quality documentation for medicinal products when used with a medical device, including single integral products, co-packaged and referenced products, are outlined in the EMA guideline of July 22, 2021, which became applicable as of January 1, 2022.
The aforementioned EU rules are generally applicable in the EEA
Regulation of Medical Devices in the European Union
In the EU, until May 25, 2021, medical devices were regulated by the Council Directive 93/42/EEC, or the EU Medical Devices Directive which has been repealed and replaced by the EU Medical Devices Regulation. Our Founded Entities' medical devices current certificates have been granted under the EU Medical Devices Directive whose regime is described below. However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance and vigilance requirements. Pursuing marketing of medical devices in the EU will notably require that our devices be certified under the new regime set forth in the EU Medical Devices Regulation .
Medical Devices Directive
Under the EU Medical Devices Directive, all medical devices placed on the market in the EU must meet the relevant essential requirements laid down in Annex I to the EU Medical Devices Directive, including the requirement that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performance intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter as it creates a rebuttable presumption that the device satisfies that essential requirement.
To demonstrate compliance with the essential requirements laid down in Annex I to the EU Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-assess the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body. Notified bodies are independent organizations designated by EU member states to assess the conformity of devices before being placed on the market. A notified body would typically audit and examine a product’s technical dossiers and the manufacturer’s quality system (the notified body must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements). If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the European Conformity, or CE mark, to the device, which allows the device to be placed on the market throughout the EU.
Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s).
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Medical Devices Regulation
The regulatory landscape related to medical devices in the EU recently evolved. On April 5, 2017, the EU Medical Devices Regulation was adopted with the aim of ensuring better protection of public health and patient safety. The EU Medical Devices Regulation establishes a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. Unlike the EU Medical Devices Directive, the EU Medical Devices Regulation is directly applicable in EU member states without the need for member states to implement into national law. This aims at increasing harmonization across the EU.
The EU Medical Devices Regulation became effective on May 26, 2021. In accordance with its recently extended transitional provisions, both (i) devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021 and (ii) legacy devices lawfully placed on the EU market after May 26, 2021 in accordance with the transitional provisions of the EU Medical Devices Regulation may generally continue to be made available on the market or put into service, provided that the requirements of the transitional provisions are fulfilled. However, even in this case, manufacturers must comply with a number of new or reinforced requirements set forth in the EU Medical Devices Regulation, in particular the obligations described below.
The EU Medical Devices Regulation requires that before placing a device, other than a custom-made device, on the market, manufacturers (as well as other economic operators such as authorized representatives and importers) must register by submitting identification information to the electronic system (Eudamed), unless they have already registered. The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the person or persons responsible for regulatory compliance. The new Regulation also requires that before placing a device, other than a custom-made device, on the market, manufacturers must assign a unique identifier to the device and provide it along with other core data to the unique device identifier, or UDI, database. These new requirements aim at ensuring better identification and traceability of the devices. Each device – and as applicable, each package – will have a UDI composed of two parts: a device identifier, or UDI-DI, specific to a device, and a production identifier, or UDI-PI, to identify the unit producing the device. Manufacturers are also notably responsible for entering the necessary data on Eudamed, which includes the UDI database, and for keeping it up to date. The obligations for registration in Eudamed will become applicable at a later date (as Eudamed is not yet fully functional). Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply for the purpose of meeting the obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.
All manufacturers placing medical devices on the market in the EU must comply with the EU medical device vigilance system which has been reinforced by the EU Medical Devices Regulation. Under this system, serious incidents and Field Safety Corrective Actions, or FSCAs, must be reported to the relevant authorities of the EU member states. These reports will have to be submitted through Eudamed – once functional – and aim to ensure that, in addition to reporting to the relevant authorities of the EU member states, other actors such as the economic operators in the supply chain will also be informed. Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply. Manufacturers are required to take FSCAs, which are defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market. A serious incident is any malfunction or deterioration in the characteristics or performance of a device on the market (e.g., inadequacy in the information supplied by the manufacturer, undesirable side-effect), which, directly or indirectly, might lead to either the death or serious deterioration of the health of a patient, user, or other persons, or to a serious public health threat. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices. For similar serious incidents that occur with the same device or device type and for which the root cause has been identified or a FSCA implemented or where the incidents are common and well documented, manufacturers may provide periodic summary reports instead of individual serious incident reports.
The advertising and promotion of medical devices are subject to some general principles set forth in EU legislation. According to the EU Medical Devices Regulation, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended purpose. Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules (for example, requiring that advertisements are evidenced, balanced and not misleading). Specific requirements are defined at a national level. EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.
In the EU, regulatory authorities have the power to carry out announced and, if necessary, unannounced inspections of companies, suppliers and/or sub-contractors and, where necessary, the facilities of professional users. Failure to comply with regulatory requirements (as applicable) could require time and resources to respond to the regulatory authorities’ observations and to implement corrective and preventive actions, as appropriate. Regulatory authorities have broad compliance and enforcement powers and, if such issues cannot be resolved to their satisfaction, can take a variety of actions, including untitled or warning letters, fines, consent decrees, injunctions or civil or criminal penalties.
The aforementioned EU rules are generally applicable in the EEA.
Regulation of In Vitro Diagnostic Medical Devices in the European Union
The EU regulatory landscape concerning in vitro diagnostic medical devices, or IVD MDs, recently evolved. On April 5, 2017 Regulation (EU) 2017/746 of the European Parliament and of the Council on IVD MDs and repealing Directive 98/79/EC and Commission Decision 2010/227/EU, or the IVDR, was adopted to establish a modernized and more robust EU legislative framework, with the aim of ensuring better protection of public health and patient safety. This aims at reducing the risk of discrepancies in interpretation across the different European markets.
The IVDR fully applies since May 26, 2022. The IVDR fully applies since May 26, 2022. IVD MDs lawfully placed on the market pursuant to the Directive 98/79/EC, or EU IVDD, prior to May 26, 2022 may generally continue to be made available on the market or put into service until May 26, 2027, provided that the requirements of the transitional provisions are fulfilled. However, even in
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this case, manufacturers must comply with a number of new or reinforced requirements set forth in the EU IVDR. The IVDR among other things:
•strengthens the rules on placing devices on the market and reinforce surveillance once they are available;
•establishes explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance and safety of devices placed on the market;
•establishes explicit provisions on importers’ and distributors’ obligations and responsibilities;
•imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the new regulation;
•improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk;
•sets up a central database (Eudamed) to provide patients, healthcare professionals and the public with comprehensive information on products available in the EU; and
•strengthens rules for the assessment of certain high-risk devices that may have to undergo an additional check by experts before they are placed on the market.
The aforementioned EU rules are generally applicable in the EEA.
Regulation of Companion Diagnostics in the European Union
In the EU, IVD MDs were regulated by the EU IVDD, which regulated the placing on the market, the CE marking, the essential requirements, the conformity assessment procedures, the registration obligations for manufactures and devices as well as the vigilance procedure. IVD MDs had to comply with the requirements provided for in the EU IVDD, and with further requirements implemented at national level (as the case may be).
The regulation of companion diagnostics is subject to further requirements since the IVDR became applicable on May 26, 2022. The IVDR introduced a new classification system for companion diagnostics which are now specifically defined as diagnostic tests that support the safe and effective use of a specific medicinal product, by identifying patients that are suitable or unsuitable for treatment. Companion diagnostics will have to undergo a conformity assessment by a notified body. Before it can issue an EU certificate, the notified body must seek a scientific opinion from the EMA on the suitability of the companion diagnostic to the medicinal product concerned if the medicinal product falls exclusively within the scope of the centralized procedure for the authorization of medicines, or the medicinal product is already authorized through the centralized procedure, or a MAA for the medicinal product has been submitted through the centralized procedure. For other substances, the notified body can seek the opinion from a national competent authorities or the EMA.
Brexit and the Regulatory Framework in the United Kingdom
Since the end of the Brexit transition period on January 1, 2021, Great Britain, or GB (England, Scotland and Wales) has not been directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. On February 27, 2023, the United Kingdom, or UK, Government and the European Commission reached a political agreement on the “Windsor Agreement” which will revise the Protocol on Ireland/Northern Ireland in order to address some of the perceived shortcomings in its operation. Under the changes, Northern Ireland will be reintegrated under the regulatory authority of the Medicines and Healthcare products Regulatory Agency, or MHRA, with respect to medicinal products. The UK Government has confirmed that the Windsor Agreement will come into effect on January 1, 2025, at which point the MHRA will be solely responsible for authorizing medicines for the Northern Ireland market. There could be additional uncertainty and risk around what these changes will mean to our business.
It remains unclear as to what extent the UK Government will seek to align its regulations with the EU. The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain;however, new legislation such as the (EU) CTR is not applicable in GB. Whilst the EU-UK Trade and Cooperation Agreement, or TCA, includes the mutual recognition of GMP inspections of manufacturing facilities for medicinal products and GMP documents issued, it does not contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards. There may be divergent local requirements in Great Britain from the EU in the future, which may impact clinical and development activities that occur in the UK in the future. Similarly, clinical trial submissions in the UK will not be able to be bundled with those of EU countries within the EMA Clinical Trial Information System, or CTIS, adding further complexity, cost and potential risk to future clinical and development activity in the UK. Significant political and economic uncertainty remains about how much the relationship between the UK and EU will differ as a result of the UK’s withdrawal.
The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). On January 17, 2022, the MHRA launched an eight-week consultation on reframing the UK legislation for clinical trials, with the aim to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The resulting new legislation will determine how aligned the UK clinical trials regime is compared to the (EU) CTR.
The MHRA has introduced changes to national licensing procedures, including procedures to prioritize access to new medicines that will benefit patients, including a 150-day assessment and a rolling review procedure. All existing EU MAs for centrally authorized products were automatically converted or grandfathered into UK MAs, effective in GB (only), free of charge on January 1, 2021, unless the MA holder opted out. In order to use the centralized procedure to obtain a MA that will be valid throughout the EEA, companies must be established in the EEA. Therefore, since Brexit, companies established in the UK can no longer use the EU centralized procedure and instead an EEA entity must hold any centralized MAs. In order to obtain a UK MA to commercialize products in the UK, an applicant must be established in the UK and must follow one of the UK national authorization procedures or one of the remaining post-Brexit international cooperation procedures to obtain an MA to commercialize products in the UK. A new international recognition framework has applied since January 1, 2024, whereby the MHRA will have regard to decisions on the approval of MAs made by the EMA and certain other regulators when determining an application for a new GB MA.
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With respect to medical devices (including IVD MDs), the TCA does not specifically refer to them but does provide for cooperation and exchange of information in the area of product safety and compliance, including market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, the “rules of origin” criteria will need to be reviewed. The rules for placing medical devices on the Northern Ireland market will differ from those in GB.
All medical devices must be registered with the MHRA, and since January 1, 2022, manufacturers based outside the UK have been required to appoint a UK responsible person that has a registered place of business in the UK to register devices with the MHRA.
On June 26, 2022, the MHRA published its response to a 10-week consultation on the post-Brexit regulatory framework for medical devices and diagnostics. The MHRA seeks to amend the UK Medical Devices Regulations 2002, or the “UK MDR” (which continues to be based on the EU legislation which preceded the EU Medical Devices Regulation, EUIVDD, in particular to create a new access pathway to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform in vitro diagnostic medical device regulation and foster sustainability through the reuse and remanufacture of medical devices. Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the Government has confirmed that core elements of the new regime are likely to apply from July 2025. Devices which have valid certification issued by EU notified bodies under the EU Medical Devices Regulation or EU Medical Devices Directive are subject to transitional arrangements. The UK Government has introduced legislation which provides that CE marked medical devices may be placed on the Great Britain market to the following transitional timelines:
•General medical devices compliant with the EU Medical Devices Directive or EU active implantable medical devices directive, or EU AIMDD, with a valid declaration and CE marking can be placed on the GB market up until the sooner of expiry of certificate or June 30, 2028;
•IVD MDs compliant with the EU IVDD can be placed on the GB market up until the sooner of certificate expiration or June 30, 2030; and
•General medical devices, including custom-made devices, compliant with the EU Medical Devices Regulation and IVD MDs compliant with the (EU) IVDR can be placed on the GB market up until June 30, 2030.
Following these transitional periods, it is expected that all medical devices will require a UK Conformity Assessment, or UKCA, mark. Manufacturers may choose to use the UKCA mark on a voluntary basis prior to the regulations coming into force. However, from July 2025, products which do not have existing and valid CE certification under the EU Medical Devices Directive or EU Medical Devices Regulation and are therefore not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain. UKCA marking will not be recognized in the EU. The rules for placing medical devices on the market in Northern Ireland, which is part of the UK, differ from those in Great Britain (England, Scotland and Wales) and continues to be based on EU law.
Under the terms of the Northern Ireland Protocol, Northern Ireland follows EU rules on medical devices and devices marketed in Northern Ireland require assessment according to the EU regulatory regime. Such assessment may be conducted by an EU notified body, in which case a CE mark is required before placing the device on the market in the EU or Northern Ireland. Alternatively, if a UK notified body conducts such assessment, a ‘UKNI’ mark applied and the device may only be placed on the market in Northern Ireland and not the EU.
Rest of the World Regulation
For other countries outside of the EU, the UK and the United States, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. Additionally, the clinical trials must be conducted in accordance with GCP requirements and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Additional Laws and Regulations Governing International Operations
Our operations are subject to global anti-corruption laws, including the UK Bribery Act 2020 (“Bribery Act”), the . US Foreign Corrupt Practices Act ("FCPA"), and other applicable laws which generally prohibit us, our employees, and intermediaries acting on our behalf from corruptly authorizing, promising, offering, or providing, directly or indirectly, anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. The Bribery Act also prohibits: (i) “commercial” bribery of private parties, in addition to bribery involving domestic or foreign officials; (ii) the acceptance of bribes, as well as the giving of bribes; and (iii) “facilitation payments”, meaning generally low-level payments designed to secure or expedite routine governmental actions or other conduct that persons are already under obligations to perform. The Bribery Act also creates an offense applicable to corporate entities for failure to prevent bribery by our employees, officers, directors, and other third parties acting on our behalf, to which the only defense is to maintain “adequate procedures” designed to prevent such acts of bribery.
Compliance with global anti-corruption laws presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered foreign officials. We have policies and procedures designed to promote compliance with anti-corruption laws and may need to dedicate additional resources as our operations expand around the world.
Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain non-U.S. nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. If we expand our presence outside of the United States, it will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling certain products and product candidates outside of the United States, which could limit our growth potential and increase our development costs.
The failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the FCPA’s accounting provisions.
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Healthcare Laws and Regulation
Manufacturing, sales, promotion and other activities following product approval are also subject to regulation by numerous regulatory authorities in the United States in addition to the FDA, including the Centers for Medicare & Medicaid Services, or CMS, the Office of Inspector General and Office for Civil Rights, other divisions of the Department of Health and Human Services, or HHS, the Department of Justice, the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency and state and local governments.
Healthcare providers and third-party payors play a primary role in the recommendation and prescription of drug products and other medical items and services. Arrangements with providers, consultants, third-party payors and customers are subject to broadly applicable fraud and abuse, anti-kickback, false claims laws, reporting of payments to physicians and teaching hospitals and patient privacy laws and regulations and other healthcare laws and regulations that may constrain our business and/or financial arrangements. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
•the federal Anti-Kickback Statute, which makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration (including any kickback, bribe or certain rebate), directly or indirectly, overtly or covertly, in cash or in kind, or in return for, that is intended to induce or reward referrals, including the purchase, recommendation, order or prescription of a particular drug, for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. A person or entity need not have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it in order to have committed a violation;
•the federal civil and criminal false claims laws, including the civil False Claims Act, or FCA, which prohibit individuals or entities from, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for payment or approval that are false, fictitious or fraudulent; knowingly making, using or causing to be made or used, a false statement or record material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to pay money to the federal government. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery.
•the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies;
•the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes civil and criminal liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;
•the federal transparency requirements known as the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to CMS information related to payments and other transfers of value made by that entity to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners such as physician assistants and nurse practitioners, and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members;
•federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers;
•federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved products;
•analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers; and
•some state laws require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other healthcare providers, marketing expenditures, and pricing information. Certain state and local laws require the registration of pharmaceutical sales and medical representatives.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, in the event we obtain regulatory approval for any one of our products, it is possible that some of our business activities could be subject to challenge and may not comply under one or more of such laws, regulations, and guidance. Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be challenged under these laws. Violations of these laws can subject us to administrative, civil and criminal penalties, damages, fines, disgorgement, the exclusion from participation in federal and state healthcare programs, individual imprisonment, reputational harm, and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply with applicable healthcare laws and regulations will involve substantial costs.
Moreover, analogous state and foreign laws and regulations may be broader in scope than the provisions described above and may apply regardless of payor. These laws and regulations may differ from one another in significant ways, thus further complicating compliance efforts. For instance, in the EU, many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medicinal products and MDs, in particular vis-à-vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to
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healthcare professionals or entities and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on pharmaceutical companies. Certain countries also mandate implementation of commercial compliance programs, or require disclosure of marketing expenditures and pricing information.
Coverage and Reimbursement
In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Thus, even if a product candidate is approved, sales of the product will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, the product. In the United States, no uniform policy of coverage and reimbursement for drug and other medical products exists among third-party payors. Although CMS determines whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree, coverage and reimbursement for drug and other medical products can differ significantly from payor to payor. The process for determining whether a third-party payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic or other studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. Additionally, companies may also need to provide discounts to purchasers, private health plans or government healthcare programs. Nonetheless, product candidates may not be considered medically necessary or cost effective. A decision by a third-party payor not to cover a product could reduce physician utilization once the product is approved and have a material adverse effect on sales, our operations and financial condition. Additionally, a third-party payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage and reimbursement for the product, and the level of coverage and reimbursement can differ significantly from payor to payor. Factors payors consider in determining reimbursement are based on whether the product is:
•a covered benefit under its health plan;
•safe, effective and medically necessary;
•appropriate for the specific patient;
•cost-effective; and
•neither experimental nor investigational.
Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any product candidate that we commercialize and, if reimbursement is available, the level of reimbursement. In addition, many pharmaceutical manufacturers must calculate and report certain price reporting metrics to the government, such as average sales price, or ASP, and best price. Penalties may apply in some cases when such metrics are not submitted accurately and timely. Further, these prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs.
In addition, in many foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing and reimbursement vary widely from country to country. In the EU, governments influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of the cost of those products to consumers. Member states are free to restrict the range of pharmaceutical products for which their national health insurance systems provide reimbursement, and to control the prices and reimbursement levels of pharmaceutical products for human use. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed to by the government. Member states may approve a specific price or level of reimbursement for the pharmaceutical product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the pharmaceutical product on the market, including volume-based arrangements, caps and reference pricing mechanisms. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines, but monitor and control company profits. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. The downward pressure on health care costs has become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of products have been a focus in this effort. Governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit a company’s revenue generated from the sale of any approved products. Coverage policies and third-party payor reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is attained
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for one or more products for which a company or its collaborators receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Healthcare Reform
In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing or lowering the cost of healthcare. For example, in March 2010, the U.S. Congress enacted the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively the ACA which, among other things, included changes to the coverage and payment for products under government health care programs. The ACA included provisions of importance to our potential product candidates that:
•created an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic products, apportioned among these entities according to their market share in certain government healthcare programs;
•expanded eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133 percent of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
•expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” or AMP, for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices;
•addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;
•expanded the types of entities eligible for the 340B drug discount program;
•established the Medicare Part D coverage gap discount program by requiring manufacturers to provide a 50 percent point-of-sale-discount (increased to 70% as of January 1, 2019 pursuant to subsequent legislation) off the negotiated price of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturers’ outpatient drugs to be covered under Medicare Part D; and
•created a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA.
On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2032 unless additional Congressional action is taken. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. More recently, on March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminated the statutory Medicaid drug rebate cap,, beginning January 1, 2024. The rebate was previously capped at 100% of a drug’s average manufacturer price.
Moreover, payment methodologies may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS may develop new payment and delivery models, such as bundled payment models. In addition, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products, which has resulted in several Congressional inquiries and proposed and enacted state and federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. For that and other reasons, it is currently unclear how the IRA will be effectuated.
Individual states in the United States have also become increasingly active in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. It is difficult to predict the future legislative landscape in healthcare and the effect on our business, results of operations, financial condition and prospects. However, we expect that additional state and federal healthcare reform measures will be adopted in the future.
On May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides a federal framework for certain patients to access certain investigational new drug products that have completed a Phase 1 clinical trial and that are undergoing investigation for FDA approval. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA expanded access program. There is no obligation for a drug manufacturer
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to make its drug products available to eligible patients as a result of the Right to Try Act. Drug manufacturers who provide their investigational product under the Right to Try Act are required to submit to FDA an annual summary of the use of their drug.
Outside the United States, ensuring coverage and adequate payment for a product also involves challenges. Pricing of prescription pharmaceuticals is subject to government control in many countries. In the EU, pricing negotiations with government authorities can extend well beyond the receipt of regulatory approval for a product and may require a clinical trial that compares the cost-effectiveness of a product to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in commercialization.
Health Technology Assessment, or HTA, of medicinal products in the EU is an essential element of the pricing and reimbursement decision-making process in a number of EU member states. The outcome of HTA has a direct impact on the pricing and reimbursement status granted to the medicinal product. A negative HTA by a leading and recognized HTA body concerning a medicinal product could undermine the prospects to obtain reimbursement for such product not only in the EU member state in which the negative assessment was issued, but also in other EU member states
In 2011, Directive 2011/24/EU was adopted at the EU level. This Directive establishes a voluntary network of national authorities or bodies responsible for HTA in the individual EU member states. The network facilitates and supports the exchange of scientific information concerning HTAs. Further to this, on December 13, 2021, Regulation No 2021/2282 on HTA, amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have a phased implementation depending on the concerned products. The Regulation intends to boost cooperation among EU member states in assessing health technologies, including new medicinal products as well as certain high-risk medical devices, and provide the basis for cooperation at the EU level for joint clinical assessments in these areas. It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highestpotential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technologies, and making decisions on pricing and reimbursement.
Data Privacy and Security Laws
Numerous state, federal and foreign laws, regulations and standards govern the collection, use, access to, confidentiality and security of health-related and other personal information, and could apply now or in the future to our operations or the operations of our partners. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws and consumer protection laws and regulations govern the collection, use, disclosure, and protection of health-related and other personal information. In addition, certain foreign laws govern the privacy and security of personal data, including health-related data. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Foreign Private Issuer Status
We report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. As long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
•the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
•sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time;
•the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and
•Regulation FD, which regulates selective disclosures of material information by issuers.
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C. ORGANIZATIONAL STRUCTURE
The information (including tabular data) set forth or referenced under the heading“Highlights of the Year—2023" on page 1 and- "PureTech's Hub-and-Spoke Model” on page 10 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference and "Notes to the Consolidated Financial Statements—Note 1. Material Accounting Policies" in each case of our audited consolidated financial statements included elsewhere in this annual report on Form 20-F .
D. PROPERTY, PLANTS AND EQUIPMENT
The information (including tabular data) set forth or referenced under the headings “Notes to the Consolidated Financial Statements—Note 12. Property and Equipment” and “Notes to the Consolidated Financial Statements—Note 23. Leases and subleases” in each case of our audited consolidated financial statements included elsewhere in this annual report on Form 20-F.
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| ITEM 4A. | UNRESOLVED STAFF COMMENTS | ||||
Not applicable.
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| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | ||||
You should read the following discussion and analysis, including those portions incorporated herein by reference, together with our consolidated financial statements, including the notes thereto, included elsewhere in this annual report on Form 20-F. Some of the information contained in this discussion and analysis or incorporated herein, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section incorporated herein by reference, our actual results could differ materially from the results described in or implied by these forward-looking statements.
Our audited consolidated financial statements as of and for the years ended December 31, 2023, 2022 and 2021 have been prepared in accordance with IFRSs as issued by the International Accounting Standards Board ("IASB").
The following discussion contains references to the consolidated financial statements of PureTech Health plc and its consolidated subsidiaries, or the Company. These financial statements consolidate the Company’s subsidiaries and include the Company’s interest in associates and investments held at fair value. Subsidiaries are those entities over which the Company maintains control. Associates are those entities in which the Company does not have control for financial accounting purposes but maintains significant influence over the financial and operating policies. Where we have neither control nor significant influence for financial accounting purposes, we recognize our holding in such entity as an investment at fair value. For purposes of our consolidated financial statements, each of our Founded Entities are considered to be either a “subsidiary” or an “associate” depending on whether PureTech Health plc controls or maintains significant influence over the financial and operating policies of the respective entity at the respective period end date. For additional information regarding the accounting treatment of these entities, see Note 1. Material Accounting Policies of our consolidated financial statements included elsewhere in this annual report on Form 20-F.
A. OPERATING RESULTS
The information (including tabular data) set forth or referenced under the heading “Key Performance Indicators—2023” on page 67 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
2023 Compared with 2022
The information (including tabular data) set forth or referenced under the heading “Financial Review” on pages 68 to 80 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
2022 Compared with 2021 is set forth under Item 5. A. Operating Results of PureTech's 2022 Form 20-F.
The information (including tabular data) set forth or referenced under the heading “Risk Management” on pages 60 to 64 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
B. LIQUIDITY AND CAPITAL RESOURCES
The information (including tabular data) set forth or referenced under the following headings is incorporated by reference herein: "Viability" on pages 65 to 66 and "Financial Review—Cash Flow and Liquidity" on page 69 of PureTech's "Annual Report and Accounts 2023" included as exhibit 15.1 to this annual report on Form 20-F and “Notes to the Consolidated Financial Statements—Note 22. Long-term loan”, “Notes to the Consolidated Financial Statements—Note 23. Leases and subleases”, “Notes to the Consolidated Financial Statements—Note 24. Capital and Financial Risk Management ” and “Notes to the Consolidated Financial Statements—Note 25. Commitments and Contingencies”, in each case of our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Under various license and collaboration agreements we are required to make milestone payments upon successful completion and achievement of certain intellectual property, clinical, regulatory and sales milestones. We will also be required to make royalty payments in connection with the sale of products developed under these agreements, if and when such sales occur. As of December 31, 2023, these milestone events have not yet occurred and therefore the Company does not have a present obligation to make the related payments in respect of the licenses. We believe that the occurrence of many of these milestones is remote at this time. As of December 31, 2023 payments in respect of developmental milestones that are dependent on events that are outside the control of the Company but are reasonably possible to occur amounted to approximately $7.4 million. These milestone amounts represent an aggregate of multiple milestone payments depending on different milestone events in multiple agreements. The probability that all such milestone events will occur in the aggregate is remote. We are not able to predict when and if such milestone events will occur. Payments made to license IP represent the acquisition cost of intangible assets. For more information, see "Note 13. Intangible Assets" to our audited consolidated financial statements included elsewhere in this annual report on Form 20-F.
We present the preferred shares issued by our subsidiaries to third parties as liabilities in our Consolidated Statement of Financial Position. Such preferred shares are redeemable only upon liquidation or deemed liquidation (as defined in the subsidiaries' incorporation documents) of the respective subsidiaries. We are unable to predict when and if such liquidation or deemed liquidation events will occur, and therefore when and if such shares will be redeemed, if at all.
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As of December 31, 2023, our off-balance sheet arrangements consist of outstanding standby letters of credit. We have no other off-balance sheet arrangements that have had, or are reasonably likely to have, a material current or future effect on our consolidated financial statements or changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. See “Notes to the Consolidated Financial Statements—Note 14. Other Financial Assets” included in our audited consolidated financial statements included elsewhere in this annual report on Form 20-F.
We consider the Group's working capital to be sufficient for its present requirements.
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
The information (including tabular data) set forth or referenced under the following headings is incorporated by reference herein: "Overview - Giving Life To Science" on page 1 and “ESG Report- Patients—Bioethics: R&D” on page 32 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F and "Notes to the Consolidated Financial Statements - Note 4. Segment Information" of our consolidated financial statements included elsewhere in this annual report on Form 20-F.
D. TREND INFORMATION
Other than as disclosed elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2023 to the present time that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. CRITICAL ACCOUNTING ESTIMATES
The information (including tabular data) set forth or referenced under the following headings is incorporated by reference herein "Notes to the Consolidated Financial Statements – Note 1. – Material Accounting Policies" of our consolidated financial statements included elsewhere in this annual report on Form 20-F.
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| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | ||||
A. DIRECTORS AND SENIOR MANAGEMENT
The information (including tabular data) set forth under the heading “Board of Directors” on pages 82 to 84, “Management team” on page 85 and "Directors’ Report for the year ended December 31, 2023” on pages 93 to 97 in each case of PureTech’s “Annual Report and Accounts 2023" included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
Board Diversity
The table below provides certain information regarding the diversity of our Board and Directors as of the date of this annual report.
Board Diversity Matrix as of April 25, 2024 | |||||
| Country of Principal Executive Offices | United States | ||||
| Foreign Private Issuer | Yes | ||||
| Disclosure Prohibited Under Home Country Law | No | ||||
| Total Number of Directors | 6 | ||||
| Female | Male | Non-Binary | Did Not Disclose Gender | |||||||||||
| Part I: Gender Identity | ||||||||||||||
| Directors | 2 | 4 | 0 | 0 | ||||||||||
| Part II: Demographic Background | ||||||||||||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | |||||||||||||
| LGBTQ+ | 0 | |||||||||||||
| Did Not Disclose Demographic Background | 0 | |||||||||||||
B. COMPENSATION
The information (including graphs and tabular data) set forth under the following headings is incorporated by reference herein: “Directors’ Report for the year ended December 31, 2023” on pages 93 to 97, “Directors’ Remuneration Report for the year ended December 31, 2023” on pages 102 to 112, “Directors’ Remuneration Policy” on pages 106 to 112, “Annual Report on Remuneration” on pages 113 to 122, in each case of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F and “Notes to the Consolidated Financial Statements—Note 9. Share-based Payments” of our audited consolidated financial statements included elsewhere in this annual report. References to the term audited within the "Annual Report on Remuneration" are not incorporated by reference within this Form 20-F.
C. BOARD PRACTICES
The information (including graphs and tabular data) set forth under the headings "Board of Directors" on pages 82 to 84 “The Board” on pages 86 to 90, “Report of the Nomination Committee” on page 98, “Report of the Audit Committee” on pages 99 to 101, and "Directors' Remuneration Report for the year ended December 31, 2023" on pages 102 to 112 in each case of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
D. EMPLOYEES
The information (including tabular data) set forth under the heading “ESG Report— People” on pages 34 to 39 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
E. SHARE OWNERSHIP
The information (including graphs and tabular data) set forth under the headings “Directors’ Report for the year ended December 31, 2023” on pages 93 to 97 and “Annual Report on Remuneration” on pages 113 to 122, in each case of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference. For information regarding the share ownership of our directors and executive officers, see Item 7.A - "Major Shareholders". References to the term audited within the "Annual Report on Remuneration" are not incorporated by reference within this Form 20-F.
F. DISCLOSURE OF REGISTRANT'S ACTION TO RECOVER ERRONEOUSLY AWARDED COMPENSATION
None.
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| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | ||||
A. MAJOR SHAREHOLDERS
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of by:
•each of our directors;
•each of our executive officers; and
•each person, or group of affiliated persons, who is known by us to beneficially own more than 3 percent of our outstanding ordinary shares.
The column entitled “Percentage of Shares Beneficially Owned” is based on a total of 270,209,101 ordinary shares outstanding as of March 31, 2024.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our ordinary shares. Ordinary shares subject to options that are currently exercisable or exercisable within 60 days after March 31, 2024 are considered outstanding and beneficially owned by the person holding the options for the purpose of calculating the percentage ownership of that person but not for the purpose of calculating the percentage ownership of any other person. Except as otherwise noted, the persons and entities in this table have sole voting and investment power with respect to all of the ordinary shares beneficially owned by them, subject to community property laws, where applicable. Except as otherwise set forth below, the address of the beneficial owner is c/o PureTech Health, 6 Tide Street, Suite 400, Boston, Massachusetts 02210. The information in the table below is based on information known to us or ascertained by us from public filings made by the shareholders. We have also set forth below information known to us regarding any significant change in the percentage ownership of our ordinary shares by any major shareholders during the past three years. The major shareholders listed below do not have voting rights with respect to their ordinary shares that are different from the voting rights of other holders of our ordinary shares.
| NAME OF BENEFICIAL OWNER | PERCENTAGE OF SHARES BENEFICIALLY OWNED | ||||
| 3 Percent Shareholders | |||||
Invesco Ltd.1 | 23.8 | % | |||
| Lansdowne Partners Limited2 | 8.1 | % | |||
| Baillie Gifford & Co3 | 7.7 | % | |||
Vanguard Group, Inc. 4 | 4.2 | % | |||
Patient Capital Management,5 | 3.9 | % | |||
Recordati S.p.A 6 | 3.5 | % | |||
M&G Investment Management, LTD 7 | 3.4 | % | |||
| Executive Officers and Directors | |||||
| Daphne Zohar8 | 4.7 | % | |||
Bharatt Chowrira, Ph.D., J.D.9 | 1 | % | |||
| Sharon Barber-Lui | * | ||||
| Raju Kucherlapati, Ph.D. | * | ||||
| John LaMattina, Ph.D. | * | ||||
Robert Langer, Sc.D.10 | 1.1 | % | |||
| Kiran Mazumdar-Shaw | * | ||||
* Represents beneficial ownership of less than 1 percent of our outstanding ordinary shares.
We are not aware that the Company is directly owned or controlled by another corporation, any foreign government or any other natural or legal person(s) severally or jointly. We are not aware of any arrangement, the operation of which may result in a change of control of the Company.
The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held by brokers or other nominees. As of March 31, 2024, assuming that all of our ordinary shares represented by ADSs are held by residents of the United States, we estimate that approximately 30% of our outstanding ordinary shares were held in the United States by approximately 78 holders of record.
1 Consists of 64,188,623 shares beneficially held. The address for Invesco Ltd. is c/o Invesco Ltd.,1331 Spring Street NW, Suite 2500, Atlanta, GA 30309
2 Consists of 21,876,774 shares beneficially held. The address for Lansdowne Partners Limited is c/o 15 Davies Street, London W1K 3AG, United Kingdom.
3 Consists of 20,662,288 shares beneficially held. The address for Baillie Gifford & Co. is c/o Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, United Kingdom.
4 Consists of 11,469,994 shares beneficially held. The address for Vanguard Group, Inc. is 455 Devon Park Dr Valley Forge, PA, 19482. .
5 Consists of 10,533,234 shares beneficially held. .The address for Patient Capital Management, Inc. is 100 Simcoe St., Suite 100, Toronto, ON M5H 3G2, Canada.
6 Consists of 9,554,140 shares beneficially held. The address for Recordati S.p.A. is c/o Via Civitali, 1, 20148 Milano, Italy.
7 Consists of 9,153,518 shares beneficially held. The address for M&G Investment Management, LTD is c/o 10 Fenchurch Avenue London EC3M 5BM, United Kingdom
8 Consists of an aggregate of 12,778,029 shares held by (i) the Zohar Family Trust I, a U.S. established trust of which Ms. Zohar is a beneficiary and trustee (ii) the Zohar Family Trust II, a U.S. established trust of which Ms. Zohar is a beneficiary (in the event of her spouse’s death) and trustee; (iii) Zohar LLC, a U.S. established limited liability company and (iv) Ms. Zohar owns or has a beneficial interest in 100 percent of the share capital of Zohar LLC. Effective April 8, 2024, Ms. Zohar resigned from her role as the Company’s Chief Executive Officer and as a member of the board of directors.
9 Consists of an aggregate of 1,00,001 shares beneficially held by Bharatt Chowrira, Ph.D., J.D., and 1,762,500 vested but unexercised options.
10 Consists of an aggregate of 2,976,831 shares held by (i) Langer Family 2020 Trust and (ii) Dr. Langer direct
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The information (including graphs and tabular data) set forth under the headings “Directors’ Report for the year ended December 31, 2023—Substantial Shareholders” on page 93 and “Annual Report on Remuneration” on pages 113 to 122, in each case of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
Change in Ownership of Major Shareholders
To our knowledge, other than as disclosed in the table above, our other filings with the SEC, public disclosure, including without limitation Schedule 13 filings, and this annual report, there has been no significant change in the percentage ownership held by any major shareholder since January 1, 2021.
B. RELATED PARTY TRANSACTIONS
The information (including graphs and tabular data) set forth under the following headings is incorporated by reference herein: headings “Directors’ Report for the year ended December 31, 2023—Related party transactions” on page 95, “Highlights of the Year – 2023” on page 1, "PureTech's Hub-and-Spoke Model" on page 10"and Founded Entities" on pages 13 to 21, in each case of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F and “Notes to the Consolidated Financial Statements—Note 26. Related Parties Transactions” of our audited consolidated financial statements included elsewhere in this annual report. For information regarding transactions with our Founded Entities, see Item 10.C - "Material Contracts."
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
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| ITEM 8. | FINANCIAL INFORMATION | ||||
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Consolidated Financial Statements
Please see the information below under the heading Item 18—“Financial Statements.”
Dividend Distribution Policy
We have never declared or paid any dividends on our ordinary shares, though we may consider doing so in the future depending on the progression of our business. Under English law, we may only pay dividends if our accumulated realized profits, which have not been previously distributed or capitalized, exceed our accumulated realized losses, so far as such losses have not been previously written off in a reduction or reorganization of capital. Therefore, we must have sufficient distributable profits before issuing a dividend. Distributable profits are determined at the holding company level and not on a consolidated basis. Subject to such restrictions and to any restrictions set out in the Articles of Association, declaration and payment of cash dividends in the future, if any, will be at the discretion of our Board of Directors (the "Board") (and in the case of final dividends, must be approved by our shareholders), and will depend upon such factors as results of operations, capital requirements, contractual restrictions, our overall financial condition or applicable laws and any other factors deemed relevant by the Board.
Legal Proceedings
As of December 31, 2023, we were not party to any material legal matters or claims, except as noted below. In the future, we may become party to legal matters and claims arising in the ordinary course of business, the resolution of which we do not anticipate would have a material adverse impact on our financial position, results of operations or cash flows. In March 2024, a complaint was filed against the Company alleging breach of contract with respect to certain payments alleged to be owed to a previous employee of a Company subsidiary based on purported terms of a contract between such individual and the Company. The Company intends to defend itself vigorously though the ultimate outcome of this matter and the timing for resolution remains uncertain. No determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable.
B. SIGNIFICANT CHANGES
Except as otherwise disclosed in this annual report on Form 20-F and in the “Notes to the Consolidated Financial Statements—Note 28. Subsequent Events”, no significant change has occurred since the date of the most recent financial statements included elsewhere in this annual report on Form 20-F.
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| ITEM 9. | THE OFFER AND LISTING | ||||
A. OFFER AND LISTING DETAILS
Our American Depositary Shares ("ADSs") have been listed on The Nasdaq Global Market under the symbol “PRTC” since November 16, 2020. Prior to that date, there was no public trading market for our ADSs. Our ordinary shares have been trading on the main market of the London Stock Exchange since June 2015 under the ticker code “PRTC.” Prior to that date, there was no public trading market for our ordinary shares.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
Our ADSs have been listed on the Nasdaq Global Market under the symbol “PRTC” since November 16, 2020 and our ordinary shares have been listed on the main market of the London Stock Exchange since June 2015.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
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| ITEM 10. | ADDITIONAL INFORMATION | ||||
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
Objects
Section 31 of the Companies Act 2006 provides that the objects of a company are unrestricted unless any restrictions are set out in the articles. There are no such restrictions in our Articles of Association ("Articles") and our objects are therefore unrestricted.
A copy of our Articles is attached as Exhibit 1.1 to this annual report on Form 20-F. The information called for by this Item is set forth in Exhibit 2.3 to this annual report on Form 20-F for the year ended December 31, 2023.
C. MATERIAL CONTRACTS
Except as otherwise set forth below or as otherwise disclosed in this report, we are not currently, and have not been in the last two years, party to any material contract, other than contracts entered into in the ordinary course of business.
The Company asked shareholders to approve a resolution to adopt a new PureTech Health plc Performance Share Plan, or PSP, at the Company’s Annual General Meeting (“AGM”) on June 13, 2023, to help better manage the potential dilution from equity incentives, a critically important part of our overall compensation program. The new PSP proposal passed with support from 96.8% of the shares voted at the AGM. Following the AGM, a new forward-looking limit of 10% of the issued share capital over the next 5 years was instituted for all new awards. Any forfeitures, cancellations, or withholdings from shares granted under the prior extinguished limit of the prior PSP are not eligible to be re-granted at any time under the new limit contained in the new PSP. As part of the change and the implementation of the new PSP, the Company removed the separate “5% in 10 years” dilution limit applicable to awards granted to senior employees such as Executive Directors, to ensure we have full flexibility in operating the new PSP going forward.
On August 10, 2018, we entered into a Lease Agreement with RBK I Tenant, LLC for certain premises of approximately 50,858 rentable square feet of space at 6 Tide Street, Boston, MA 02210. The lease commenced on April 26, 2019 for an initial term consisting of ten years and three months and there is an option to extend for two consecutive periods of five years each.
We have executed agreements with the members of the Board substantially in the form of our Form of Deed of Indemnity.
We entered into an Asset Purchase Agreement by and between Auspex Pharmaceuticals, Inc. and PureTech Health LLC, dated July 15, 2019, pursuant to which Auspex assigned and transferred all patent claims, inventory, technology, contracts and related rights relating to LYT-100 to us. As consideration, we paid an upfront payment, which we do not deem material. In addition, Auspex is eligible to receive milestone payments of approximately $84 million in the aggregate depending upon specified developmental, regulatory and commercial achievements. In addition, for ten years following the first commercial sale of any commercialized product containing LYT-100, Auspex is eligible to receive low to middle single-digit royalties on the worldwide net sales of such product.
We entered into a Royalty Agreement with Follica, Incorporated, dated July 23, 2013, pursuant to which Follica agreed to pay us a two percent royalty on net sales by Follica or its sublicensees of (i) products involving skin disruption using any mechanical, energy or chemical based approaches, applying compounds to the skin, or any other approaches to the treatment of hair follicles or other dermatological disorders commercialized by Follica, (ii) processes involving such products, or (iii) services which use or incorporate any such product or process. In the event that Follica sublicenses the rights to any of these products, processes or services, Follica will be obligated to pay us low teen royalties on any income received from the sublicensee. Either party may terminate this agreement upon an uncured material breach by the other party. To date, we have not received any royalty payments pursuant to this agreement. We do not direct or control the development and commercialization of the intellectual property licensed pursuant to this agreement.
We entered into a Royalty and Sublicense Income Agreement with Gelesis, dated December 18, 2009, pursuant to which we are required to provide certain funding, management services and services relating to intellectual property. In exchange, Gelesis is required to pay us a royalty equal to 2 percent of all net product sales and 10 percent of gross sublicense income received on certain food products as a result of developing hydrogel-based products that are covered by a licensed patent that has issued and has not been revoked or abandoned. The royalty rate is subject to customary downward adjustments in the event Gelesis is required to pay third parties to obtain a license to intellectual property rights that are necessary for Gelesis to develop or commercialize our products. There are no milestone payment obligations under this agreement. Management services provided by us include advisory services on corporate strategy, general and administrative support including office space, supplies and administrative support, payroll services and website development and support. Gelesis’ obligation to pay royalties to us will terminate on a country-by-country basis upon termination or expiration of the underlying patents. To date, we have not received any royalty payments pursuant to this agreement. We do not direct or control the development and commercialization of the intellectual property sublicensed pursuant to this agreement.
We entered into an Exclusive Patent License Agreement with Karuna, dated March 4, 2011, pursuant to which we granted Karuna an exclusive license to patent rights relating to combinations of a muscarinic activator with a muscarinic inhibitor for the treatment of central nervous system disorders. Karuna agreed to make milestone payments to us of up to an aggregate of $10 million upon the achievement of specified development and regulatory milestones. In addition, for the term of this agreement Karuna is obligated to pay us low single-digit running royalties on the worldwide net sales of any commercialized product covered by the licenses granted under this agreement. In the event that Karuna sublicenses any of the patent rights granted under this agreement, Karuna will be obligated to pay us royalties within the range of 15 percent to 25 percent on any income received from the sublicensee, excluding royalties. Karuna may terminate this agreement for any reason with proper prior notice to us, provided that it would lose its rights to the underlying patents as a result. Either party may terminate this agreement upon an uncured material breach by the other party. To date, we have not received any royalty payments pursuant
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to this agreement. We do not direct or control the development and commercialization of the intellectual property licensed pursuant to this agreement. The acquisition of Karuna by Bristol Meyers Squibb (NYSE: BMY), which closed on March 18, 2024 (the “Karuna Acquisition”), had no impact on our rights or obligations under the Exclusive Patent License Agreement with Karuna, which remains in full force and effect.
We entered into a Research and License Agreement with New York University, or NYU, on March 6, 2017, pursuant to which NYU granted to us an exclusive worldwide license to patents relating to certain therapeutic candidates, including LYT-200. In connection with this agreement, we are required to pay an annual license fee in addition to milestone payments upon the achievement of certain clinical and commercial milestones, both of which we deem immaterial. Additionally, for the term of this agreement, we are obligated to make low single digit royalty payments on the net sales of any commercialized product covered by the license granted under the agreement. In the event that we sublicense any of the patent rights granted under the Research and License Agreement, we will be obligated to pay NYU a low teen percentage of any royalties received by such sublicensee, provided that such payments are capped at a low single digit of net sales of any commercialized product by such sublicensee.
Gelesis Business Combination and Other Transactions
On January 13, 2022, Gelesis, Capstar Special Acquisition Corp., a Delaware corporation (“CPSR”), and CPSR Gelesis Merger Sub, Inc., a Delaware corporation, and wholly-owned subsidiary of CPSR (“Merger Sub”), consummated a business combination ("Gelesis Merger") pursuant to the business combination agreement, dated July 19, 2021, as amended on November 8, 2021 (the “Gelesis Business Combination Agreement”). Pursuant to the terms of the Gelesis Business Combination Agreement, Merger Sub merged with and into Gelesis, with Gelesis surviving the merger as a wholly-owned subsidiary of CPSR. In connection with the consummation of the Merger on the Closing Date, CPSR changed its name to Gelesis Holdings, Inc ("GLS"). As a result of the Gelesis Merger, among other things, each common share of Gelesis that was issued and outstanding immediately prior to the effective time of the Merger, after giving effect to the conversion of all preferred shares of Gelesis into common shares of Gelesis immediately prior to the effective time, was canceled and converted into the right to receive a number of shares of GLS Common Stock equal to an exchange ratio of approximately 2.59 multiplied by the number of common shares of Gelesis held by such holder immediately prior to the effective time. In addition, (a) all vested and unvested stock options of Gelesis were assumed by GLS and (b) each warrant of Old Gelesis was cancelled in exchange for a warrant to purchase shares of GLS, in each case based on an implied equity value of $675,000,000 as of the Closing.
Concurrently with the execution of the Gelesis Business Combination Agreement, on July 19, 2021, CPSR entered into subscription agreements (the “Subscription Agreements”) with certain investors, including us, pursuant to which we purchased 1.5 million shares of GLS common stock at a price of $10.00 per share, for an aggregate purchase price of $15.0 million (the “PIPE Financing”). The PIPE Financing was consummated concurrently with the closing of the Gelesis Merger.
On December 30, 2021, CPSR entered into a Backstop Agreement (the “Backstop Agreement”) with us and SSD2, LLC (“SSD2” and together with us, the “Backstop Purchasers”), pursuant to which the Backstop Purchasers agreed to purchase an aggregate of up to 1,500,000 shares of GLS common stock immediately prior to the closing at a cash purchase price of $10.00 per share (the “Backstop Purchase Shares”), resulting in aggregate proceeds of up to $15.0 million, which amount, when added to the proceeds from the PIPE Financing, would ensure that the minimum cash condition would be satisfied. Based on the number of redemptions at closing, we purchased 496,145 shares for an aggregate price of $5.0 million. In addition, at the closing of the sale of the Backstop Purchase Shares, GLS issued an additional 1,322,500 shares of common stock to us.
On the closing on January 13, 2022, Gelesis, CPSR, certain former directors of CPSR (the “Director Holders”) and certain former stockholders of Gelesis (collectively with Sponsor and the Director Holders, the “Holders”), including us, entered into an Amended and Restated Registration and Stockholder Rights Agreement, pursuant to which, among other things, the Holders agreed not to effect any sale or distribution of any equity securities of GLS held by any of them during a lock-up period (180 days after closing of the Gelesis Merger in the case of PureTech Health LLC), and GLS agreed to register for resale, pursuant to Rule 415 of the Securities Act of 1933, as amended, certain shares of common stock and other equity securities of GLS that are held by the parties thereto from time to time.
Gelesis Promissory Note and Convertible Notes
On July 25, 2022, GLS issued a short term promissory note in the aggregate principal amount of $15.0 million (the “Promissory Note”) to us for a cash purchase price of $15.0 million as part of a series of promissory notes issued by GLS. On July 27, 2022, the Promissory Note was amended and restated to revise certain provisions contained therein.
Upon a Payment Default under the Promissory Note that has not been cured by GLS after five days, (x) GLS will be required to issue a warrant to us (a “Promissory Note Warrant”) to purchase, at an exercise price of $0.01 per share, subject to adjustment, an aggregate of number of shares of GLS common stock equal to: (i) (A) 0.2 multiplied by (B) the amount of outstanding principal and accrued interest under the Promissory Note as of the date of conversion, divided by (ii) the volume weighted average price of the GLS common stock, as reported by the New York Stock Exchange (the “NYSE”), for the five trading days (the “Common Stock VWAP”) occurring immediately prior to the date of exercise and (y) we may elect, at our option, to convert the outstanding principal and accrued interest under the Promissory Note into a number of shares of GLS common stock equal to (i) the amount of outstanding principal and accrued interest under the Promissory Note as of the date of conversion, divided by (ii) the lesser of the price per share of (A) the GLS common stock, as reported by the NYSE or (B) the Common Stock VWAP as of the day prior to the date of our conversion notice. The Promissory Note Warrant will be exercisable from the date of issuance and will expire on the date that is ten years from the date of issuance.
On February 21, 2023, we entered into a Note and Warrant Purchase Agreement (the “NPA”) with GLS, Gelesis (together with GLS, the “Notes Issuers”), Gelesis 2012, Inc. and Gelesis, LLC, as guarantors of the Convertible Notes, pursuant to which, for a cash purchase price of $5.0 million, (i) the Notes Issuers issued a short term secured convertible note in the aggregate principal amount of $5.0 million (the “Convertible Notes” and such initial issuance, the “Initial Notes”) to us and (ii) GLS issued warrants to purchase 23,688,047 shares of common stock of GLS (the “Warrants”) to us. The Convertible Notes are guaranteed by the domestic subsidiaries of Gelesis and are secured by a first-priority lien on any and all assets of GLS, including without limitation, intellectual property, regulatory filings and product approvals, clearances and marks worldwide (other than the
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equity interests in Gelesis S.r.l. and assets held by Gelesis S.r.l.) and a pledge of the 100% of the equity interests of Gelesis and the domestic subsidiaries of the Notes Issuers. The Convertible Notes bear interest at a rate of 12% per annum, and were originally scheduled to mature on July 31, 2023, unless earlier converted or extended as described below. The Convertible Notes are not convertible, and the Warrants are not exercisable, until GLS receives stockholder approval of the issuance of the shares of common stock underlying the Convertible Note and the Warrants (the “Stockholder Approval”) in accordance with the terms thereof. Upon receipt of Stockholder Approval, (i) the Convertible Notes shall be convertible at our option into a number of shares of common stock equal to (x) the outstanding principal amount of such Note plus accrued and unpaid interest divided by (y) the Conversion Price (as defined in the Convertible Note) and (ii) the Warrants will become exercisable for a purchase price of $0.2744 per share.
In addition, pursuant to the NPA, we have agreed, upon the request of the Notes Issuers, to purchase from the Notes Issuers an additional $5.0 million principal amount of the Convertible Notes (the “Additional Notes”), and to purchase from GLS additional Warrants, representing warrant coverage of 170% of the principal amount of the Additional Notes, if (i) GLS and we, in our sole discretion, shall have agreed upon a satisfactory over-the-counter operating plan for GLS; (ii) GLS shall have successfully completed and submitted the usability study with respect to the OTC reclassification of its Plenity product; (iii) GLS shall have received Stockholder Approval on or prior to July 31, 2023; and (iv) other commercially reasonable customary conditions are satisfied.
On May 1, 2023, (i) the Notes Issuers issued to us, for a cash purchase price of $2.0 million, an Additional Note in the aggregate principal amount of $2.0 million (the “$2.0 million Additional Note”), and (ii) GLS issued to us a warrant to purchase 192,307,692 shares of Common Stock of GLS (the “Second Closing Warrant”) at an exercise price of $0.0182 expiring on May 1, 2028. The $2.0 million Additional Note is convertible into a number of shares of Common Stock of GLS equal to (i) the principal amount plus accrued and unpaid interest, divided by (ii) the initial conversion price of $0.0182. The terms of the $2.0 million Additional Note are generally the same as the terms of Initial Notes issued on February 21, 2023, including interest rate, maturity, covenants, events of default, and collateral.
On May 26, 2023, (i) the Notes Issuers issued to us, for a cash purchase price of $0.35 million, an Additional Note in the aggregate principal amount of $0.35 million (the “$0.35 million Additional Note"), and (ii) GLS used to us a warrant to purchase 43,133,803 shares of Common Stock of GLS(the “Third Closing Warrant”) at an exercise price of $0.0142 expiring on May 1, 2028. The $0.35 million Additional Note is convertible into a number of shares of Common Stock of GL:S equal to (i) the principal amount plus accrued and unpaid interest, divided by (ii) the initial conversion price of $0.0142. The terms of the Additional Note are generally the same as the terms of the Initial Note issued on February 21, 2023, and the $2.0 million Additional Note.
On June 12, 2023, the Notes Issuers issued to us, for a cash purchase price of $3.0 million, an Additional Note in the aggregate principal amount of $3.0 million (the “$3.0 million Additional Note”). The $3.0 million Additional Note is convertible into a number of shares of Common Stock of GLS equal to (i) the principal amount plus accrued and unpaid interest, divided by (ii) the initial conversion price of 0.0134. The $3.0 million Additional Note is issued on substantially the same terms (other than conversion price and warrant coverage) as the $2.0 million Additional Note issued on May 1, 2023 and the $0.35 million Additional Note issued on May 26, 2023.
On June 28, 2023, we entered into Amendment No. 3 to the NPA with the Notes Issuers and certain of its subsidiaries, which extended the maturity date of the Convertible Notes issued pursuant to the NPA to March 31, 2024, unless earlier converted or redeemed.
On September 20, 2023, the Notes Issuers issued to us, for a cash purchase price of $1.5 million, an Additional Note in the aggregate principal amount of $1.5 million (the “$1.5 million Additional Note”). The $1.5 Million Additional Note is convertible into a number of shares of Common Stock of GLS equal to (i) the principal amount plus accrued and unpaid interest, divided by (ii) the initial conversion price of $0.0494. The $1.5 Million Additional Note is issued on the same terms (other than conversion price) and in the same form as the $3.0 Million Additional Note issued on June 12, 2023. In addition, the parties amended the NPA to increase the aggregate principal amount of Additional Notes issuable to us pursuant to the NPA was increased to $6.85 million.
The aggregate principal amount of Convertible Notes issued under the NPA was $11.85 million.
During the terms of the Initial Notes and the Additional Notes, any term of any indebtedness, debt or equity-linked debt security incurred or issued by the Notes Issuers after the issuance of the Initial Notes that is more favorable than the terms of the Initial Notes or the Additional Notes (including warrant coverage), shall, at our option, automatically be incorporated into the Initial Notes, the Additional Notes and/or the Warrants (including warrant coverage).
The NPA provides that all shares of common stock issuable upon conversion of the Convertible Notes and upon exercise of the Warrants shall be entitled to registration rights which require GLS to file a shelf registration statement to register such shares for resale.
Gelesis Merger Agreement
On June 12, 2023, PureTech Health LLC and Caviar Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of PureTech Health LLC (“Merger Sub”), entered into an agreement (hereinafter the "Merger Agreement"), with GLS pursuant to which GLS was to merge with and into Merger Sub, with Merger Sub continuing as the surviving company (the “Surviving Company”, and such merger, the “Merger”). If the Merger had been completed, we would have acquired all issued and outstanding shares of common stock of GLS not otherwise held by us, and GLS would have become our indirect wholly-owned subsidiary. In connection with the execution and delivery of the Merger Agreement, PureTech Health LLC entered into a Voting and Support Agreement (the “Voting and Support Agreement”) with GLS.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of common stock of GLS issued and outstanding immediately prior to the Effective Time would have been cancelled and converted into the right to receive $0.05664 per share in cash, without interest.
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On October 12, 2023, we delivered a notice of termination to GLS in accordance with the Merger Agreement, terminating the Merger Agreement pursuant to Section 8.2(a) of the Merger Agreement. As a result of the termination of the Merger Agreement, the Voting and Support Agreement was terminated in accordance with its terms.
Gelesis Bankruptcy Filing
On October 30, 2023, GLS, together with its U. S. subsidiaries, Gelesis, Inc., and Gelesis, LLC, ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware Case No. 23-11787.
Akili Business Combination Transaction
On January 26, 2022, Akili entered into an Agreement and Plan of Merger (the “Akili Merger Agreement”), by and among Akili, Social Capital Suvretta Holdings Corp. I (“SCS”), and Karibu Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of SCS (“Merger Sub”). Pursuant to the Akili Merger Agreement, among other things: (i) prior to the closing of the transactions contemplated by the Akili Merger Agreement, SCS will domesticate as a Delaware corporation in accordance with the DGCL, and the Cayman Islands Companies Act (As Revised), (ii) at the closing, upon the terms and subject to the conditions of the Merger Agreement, in accordance with the DGCL, Merger Sub will merge with and into Akili, with Akili continuing as the surviving corporation and a wholly-owned subsidiary of SCS (the “Merger”), (iii) at the closing, all of the outstanding capital stock of Akili and all options and warrants to acquire capital stock of Akili will be converted into the right to receive shares of common stock, par value $0.0001 per share, of SCS (after its domestication) (“SCS Common Stock”) or comparable equity awards that are settled or are exercisable for shares of SCS Common Stock, representing an aggregate of 60 million shares of SCS Common Stock, (iv) at the closing, SCS will be renamed “Akili, Inc.” and (v) at the closing, SCS will deposit into an escrow account for the benefit of the pre-Closing Akili stockholders, optionholders and warrantholders an aggregate number of shares of SCS Common Stock equal to 7.5% of the fully diluted shares of SCS Common Stock (including shares reserved under the equity incentive plan to be adopted by the combined company in connection with the Closing), determined as of immediately following the Closing (collectively, the “Earnout Shares”), which Earnout Shares will be subject to release from escrow to the pre-Closing Akili stockholders, optionholders and warrantholders in three equal tranches upon the daily volume weighted average price of a share of SCS Common Stock reaching $15.00/share, $20.00/share and $30.00/share, respectively, over any 20 trading days within any 30 consecutive trading day period following the closing and prior to the fifth anniversary of the closing, in each case, on the terms set forth in the Akili Merger Agreement. The Closing is subject to the satisfaction or waiver of certain closing conditions contained in the Merger Agreement, including the approval of SCS’s shareholders.
Sonde Stock Purchase Agreement
On May 25, 2022, we entered into a Series B Preferred Stock Purchase Agreement (the “Sonde Series B Agreement”) with Sonde and other investors pursuant to which certain other investors purchased shares of Sonde’s Series B Preferred Stock, and the $2.8 million principal amount and accrued interest outstanding under the convertible promissory notes previously issued to us by Sonde shall be converted into 1.1 million shares of Series B Preferred Stock of Sonde.
Royalty Pharma Royalty Purchase Agreement
On March 22, 2023, we entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”) with Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”), pursuant to which Royalty Pharma acquired an interest in our royalty in Karuna’s KarXT for aggregate payments to us of up to $500.0 million. Pursuant to the Royalty Pharma Agreement, Royalty Pharma will receive 100% of the royalty payments that we had a right to receive from Karuna until Royalty Pharma receives $60.0 million in such royalty payments during a calendar year, after which Royalty Pharma will receive 33% and we will receive 67% of such royalty payments for such calendar year. We received an upfront payment of $100.0 million from Royalty Pharma upon closing and are eligible to receive up to $400.0 million in additional payments upon the achievement of certain regulatory and commercial milestones related to KarXT. The Karuna Acquisition had no impact on our rights or obligations under the Royalty Pharma Agreement with Karuna, which remains in full force and effect.
Vedanta Note Purchase Agreement
On April 24, 2023, we entered into a Secured Convertible Promissory Note Purchase Agreement with Vedanta and other investors pursuant to which we purchased a secured convertible promissory note (the “Vedanta Note”) from Vedanta in the principal amount of $5.0 million. The Vedanta Note bears interest at an annual rate of 9.0% and matures on the later of (i) November 1, 2025 and (ii) the date which is 60 days after all amounts owed under or in connection with Vedanta’s loan and security agreement with K2 HealthVentures LLC (if then in effect and outstanding) have been paid in full. The Vedanta Note is mandatorily convertible in a qualified equity financing and a qualified public offering into shares of Vedanta’s preferred stock or common stock, respectively. In addition, the Vedanta Note allows for optional conversion immediately prior to a non-qualified equity financing and for a pay-out in the case of a change of control transaction.
Seaport Therapeutics Asset Transfer Agreement and Transition Services Agreement
On April 8, 2024, in connection with the launch of our Founded Entity, Seaport Therapeutics, Inc. (“Seaport”), which we founded on April 1, 2024, we entered into an Asset Transfer Agreement, by and among Seaport, PureTech Health LLC (“PureTech Health”) and PureTech LYT, Inc. (“PureTech LYT”) pursuant to which PureTech Health and PureTech LYT agreed to transfer and assign to Seaport all assets, rights and properties existing as of the closing date (the “Seaport Closing Date”) related to the Glyph Technology or Products (as defined in the Asset Transfer Agreement) (together, the “Transferred Assets”) subject to the conditions set forth therein. In consideration of the asset transfer, Seaport issued to PureTech LYT shares of Seaport Series A-1 Preferred Stock and shares of Seaport common stock on the Seaport Closing Date. Following the Seaport Closing Date, PureTech is entitled to receive certain tiered royalty payments in respect of annual net sales of Glyph Products at specified rates ranging from 3% to 5% during the Royalty Term (as defined in the Asset Transfer Agreement). In addition, PureTech is entitled to receive from Seaport certain milestone payments upon achievement of certain specified milestones, certain sublicense income, and certain other amounts as set forth in the Asset Transfer Agreement. Seaport has the exclusive right to develop products utilizing the Glyph technology for CNS applications and may also develop products for non-CNS applications. PureTech retains certain rights to develop products utilizing the Glyph technology for non-CNS applications to the extent Seaport is not developing products in such applications.
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In connection with entry into the Asset Transfer Agreement, we entered into a Transition Services Agreement with Seaport pursuant to which we will provide to Seaport certain services relating to the orderly transition and continued operation of the Transferred Assets on a transitional basis for one year following the Seaport Closing Date (unless extended by mutual agreement of the parties or the earlier termination of all services provided under the Transition Services Agreement) in consideration of Seaport’s payment of all fees associated with the transitioned services.
Seaport Stock Purchase Agreement
On April 8, 2024, in connection with the launch of Seaport, we entered into a Series A-2 Preferred Stock Purchase Agreement with Seaport and other investors party thereto pursuant to which we agreed to purchase an aggregate of 8,421,052 shares of Seaport’s Series A-2 Preferred Stock at a purchase price of $3.80 per share and agreed to purchase, if requested by Seaport, up to a specified amount of Series B Preferred Stock in Seaport’s next qualified preferred stock financing.
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Voting and Investors’ Rights Agreements
We are party to voting and investors’ rights agreements with certain of our Founded Entities as described below:
•Pursuant to an Amended and Restated Investors’ Rights Agreement, as amended, between Vedanta and certain of its investors, dated March 1, 2023, we are entitled to designate a total of four directors to Vedanta’s board of directors, including (i) two directors for so long as PureTech Health LLC continues to hold a majority of Vedanta’s Series A-1 preferred stock, and (ii) two directors for so long as PureTech Health LLC continues to hold a majority of Vedanta’s Series B preferred stock. The execution of this agreement replaced and terminated the previous Amended and Restated Investors' Rights Agreement dated July 15, 2021, which had provided us with equivalent rights.
•Pursuant to an Amended and Restated Voting Agreement between Sonde and certain of its investors, dated May 25, 2022, we are entitled to designate one director to Sonde’s board of directors for so long as PureTech Health LLC and its affiliates continue to hold at least 1,000,000 shares of Sonde’s Series A-2 preferred stock. The execution of this agreement replaced and terminated the previous Voting Agreement dated April 9, 2019, which had provided us with equivalent rights.
•Pursuant to a Voting Agreement between Entrega and certain of its investors, dated December 18, 2017, we are entitled to designate four directors to Entrega’s board of directors.
•Pursuant to a Voting Agreement between Seaport and certain investors, dated April 8, 2024, we are entitled to designate three directors to Seaport’s board of directors so long as we and our affiliates beneficially own an aggregate of at least 10,000,000 shares of the Series A-1 Preferred Stock of Seaport.
Agreements with Founded Entities Restricting Sale of Shares in Connection with an Underwritten Offering
We are party to agreements containing market stand-off provisions with certain of our Founded Entities that restrict our ability to sell shares of such Founded Entities for 180 days (or for a period of time as specified below) after their initial public offerings or initial public listing through a business combination, or an underwritten offering, as follows:
•Amended and Restated Registration Rights Agreement, by and among Akili and the holders listed therein, dated as of August 19, 2022, which provides for a 90-day market stand-off period;
•Lock-Up Agreement, by and among Akili and the holders listed therein, dated as of August 19, 2022;
•Third Amended and Restated Investors’ Rights Agreement between Akili and the investor parties named therein, dated May 25, 2021, the execution of which replaced and terminated the Second Amended and Restated Investors' Rights Agreement dated May 8, 2018, which had contained an equivalent restriction;
•Amended and Restated Investors’ Rights Agreement between Vedanta, as amended, and the investor parties named therein, dated March 1, 2023, the execution of which replaced and terminated the previous Amended and Restated Investors' Rights Agreement dated July 15, 2021, which had contained an equivalent restriction;
•Investors’ Rights Agreement between Entrega and the investor parties named therein, dated December 18, 2017;
•Amended and Restated Investors’ Rights Agreement between Sonde and the investor parties named therein, dated May 25, 2022, the execution of which replaced and terminated the previous Investors' Rights Agreement dated April 9, 2019, which had contained an equivalent restriction;
•Amended and Restated Investors’ Rights Agreement between Vor and the investor parties named therein, dated June 30, 2020, which terminated as of Vor’s initial public offering, except for the registration rights granted thereunder;
•Amended and Restated Registration and Stockholders Rights Agreement dated January 13, 2022 between CPSR and the stockholder parties named therein, the execution of which terminated the Ninth Amended and Restated Stockholders Agreement between Gelesis and the stockholder parties named therein, dated December 5, 2019, which had contained an equivalent restriction; and
•The Backstop Agreement between CPSR and us, among others, dated December 30, 2021, which provides that certain shares acquired thereunder are subject to a 180-day market stand off provision.
Other Shareholder Rights Agreements
We have certain registration rights provisions in agreements with our Founded Entities as follows:
•Third Amended and Restated Investors’ Rights Agreement between Akili and the investor parties named therein, dated May 25, 2021, the execution of which replaced and terminated the Second Amended and Restated Investors' Rights Agreement dated May 8, 2018, which had provided us with similar rights;
•Amended and Restated Registration Rights Agreement, by and among Akili and the holders listed therein, dated as of August 19, 2022;
•Amended and Restated Investors’ Rights Agreement between Vedanta, as amended, and the investor parties named therein, dated March 1, 2023, the execution of which replaced and terminated the previous Amended and Restated Investors' Rights Agreement dated July 15, 2021, which had provided us with similar rights;
•Investors’ Rights Agreement between Entrega and the investor parties named therein, dated December 18, 2017;
•Amended and Restated Investors’ Rights Agreement between Sonde and the investor parties named therein, dated May 25, 2022, the execution of which replaced and terminated the previous Investors' Rights Agreement dated April 9, 2019, which had provided us with similar rights ;
•Amended and Restated Registration and Stockholders Rights Agreement dated January 13, 2022 between CPSR and the stockholder parties named therein, the execution of which terminated the Ninth Amended and Restated Stockholders Agreement between Gelesis and the stockholder parties named therein, dated December 5, 2019,which had provided us with similar rights;
•The Backstop Agreement between CPSR and us, among others, dated December 30, 2021;
•Subscription Agreement between CPSR and the investor parties thereto dated July 19, 2021; and
•Amended and Restated Investors’ Rights Agreement between Vor and the investor parties named therein, dated June 30, 2020.
•Investors’ Rights Agreement between Seaport and the investor parties thereto, dated April 8, 2024.
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We have certain preemptive rights of first refusal with respect to transfers of shares by other holders pursuant to the following agreements:
•Fifth Amended and Restated Right of First Refusal and Co-Sale Agreement, dated July 19, 2019, by and among Follica, Incorporated and the investors and key holders party thereto;
•Amended and Restated Right of First Refusal and Co-Sale Agreement, dated May 25, 2022, by and between Sonde Health, Inc. and the investors and key holders party thereto, the execution of which replaced and terminated the previous Right of First Refusal and Co-Sale Agreement dated April 9, 2019, which had provided us with similar rights; and
•Right of First Refusal and Co-Sale Agreement, dated December 18, 2017, by and between Entrega, Inc. and the investors and key holders party thereto.
•Right of First Refusal and Co-Sale Agreement, dated April 8, 2024, by and between Seaport Therapeutics, Inc. and the investors and key holders party thereto.
D. EXCHANGE CONTROLS
Other than certain economic sanctions which may be in place from time to time, there are currently no UK laws, decrees or other regulations restricting the import or export of capital or affecting the remittance of dividends or other payment to holders of ordinary shares who are non-residents of the United Kingdom. Similarly, other than certain economic sanctions which may be in force from time to time, there are no limitations relating only to nonresidents of the United Kingdom under English law or the Company's articles of association on the right to be a holder of, and to vote in respect of, the ordinary shares.
E. TAXATION
Certain United Kingdom Tax Considerations
The following is a general summary of certain U.K. tax considerations relating to the ownership and disposal of an ordinary share or ADS and does not address all possible tax consequences relating to an investment in an ordinary share or ADS. It is based on U.K. tax law and generally published HM Revenue & Customs, or HMRC, practice (which may not be binding on HMRC) as of the date of this annual report on Form 20-F, both of which are subject to change, possibly with retrospective effect.
Save as provided otherwise, this summary applies only to a person who is the absolute beneficial owner of an ordinary share or ADS and who is resident (and, in the case of an individual, domiciled) in the United Kingdom for tax purposes and who is not resident for tax purposes in any other jurisdiction and does not have a permanent establishment or fixed base in any other jurisdiction with which the holding of an ordinary share or ADS is connected (“U.K. Holders”). A person (a) who is not resident (or, if resident, is not domiciled) in the United Kingdom for tax purposes, including an individual and company who trades in the United Kingdom through a branch, agency or permanent establishment in the United Kingdom to which an ordinary share or ADS is attributable, or (b) who is resident or otherwise subject to tax in a jurisdiction outside the United Kingdom, is recommended to seek the advice of professional advisors in relation to their taxation obligations.
This summary is for general information only and is not intended to be, nor should it be considered to be, legal or tax advice to any particular investor. It does not address all of the tax considerations that may be relevant to specific investors in light of their particular circumstances or to investors subject to special treatment under U.K. tax law. In particular:
•this summary only applies to an absolute beneficial owner of an ordinary share or ADS and any dividend paid in respect of the ordinary share where the dividend is regarded for U.K. tax purposes as that person’s own income (and not the income of some other person);
•this summary: (a) only addresses the principal U.K. tax consequences for an investor who holds an ordinary share or ADS as a capital asset, (b) does not address the tax consequences that may be relevant to certain special classes of investor such as a dealer, broker or trader in shares or securities and any other person who holds an ordinary share or ADS otherwise than as an investment, (c) does not address the tax consequences for a holder that is a financial institution, insurance company, collective investment scheme, pension scheme, charity or tax-exempt organization, (d) assumes that a holder is not an officer or employee of the company (nor of any related company) and has not (and is not deemed to have) acquired the an ordinary share or ADS by virtue of an office or employment, and (e) assumes that a holder does not control or hold (and is not deemed to control or hold), either alone or together with one or more associated or connected persons, directly or indirectly (including through the holding of an ordinary share or ADS), an interest of 10 percent or more in the issued share capital (or in any class thereof), voting power, rights to profits or capital of the company, and is not otherwise connected with the company.
This summary further assumes that a holder of an ordinary share or ADS is the beneficial owner of the underlying ordinary share for U.K. direct tax purposes.
POTENTIAL INVESTORS IN THE ORDINARY SHARES OR ADSs SHOULD SATISFY THEMSELVES PRIOR TO INVESTING AS TO THE OVERALL TAX CONSEQUENCES, INCLUDING, SPECIFICALLY, THE CONSEQUENCES UNDER U.K. TAX LAW AND HMRC PRACTICE OF THE ACQUISITION, OWNERSHIP AND DISPOSAL OF THE ORDINARY SHARES OR ADSs, IN THEIR OWN PARTICULAR CIRCUMSTANCES BY CONSULTING THEIR TAX ADVISERS.
Taxation of Dividends
Withholding Tax
A dividend payment in respect of an ordinary share may be made without withholding or deduction for or on account of U.K. tax.
Income Tax
A dividend received by individual U.K. Holders may, depending on his or her particular circumstances, be subject to U.K. income tax on the gross amount of the dividend paid.
An individual holder of an ordinary share or ADS who is not a U.K. Holder will not be chargeable to U.K. income tax on a dividend paid by the company, unless such holder carries on (whether solely or in partnership) a trade, profession or vocation
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in the United Kingdom through a permanent establishment in the United Kingdom to which the ordinary share or ADS is attributable. In these circumstances, such holder may, depending on his or her individual circumstances, be chargeable to U.K. income tax on a dividend received from the company.
All dividends received by a UK Holder from the Company or from other sources will form part of the UK Holder’s total income for UK income tax purposes and will constitute the top slice of that income. The rate of U.K. income tax that is chargeable on dividends received in the tax year 2022/2023 by (i) an additional rate taxpayer is 39.35 percent, (ii) a higher rate taxpayer is 33.75 percent, and (iii) a basic rate taxpayer is 8.75 percent. A nil rate of income tax will apply to the first £2,000 of taxable dividend income received by an individual U.K. Holder in a tax year. Note that from April 6, 2023 the dividend allowance will be reduced to £1,000, and that from April 6, 2024 the dividend allowance is expected to be reduced again to £500.
Corporation Tax
A U.K. Holder within the charge to U.K. corporation tax may be entitled to exemption from U.K. corporation tax in respect of dividend payments, provided the dividends qualify for exemption (which is likely) and certain conditions are met (including anti-avoidance conditions). If the conditions for the exemption are not satisfied, or such U.K. Holder elects for an otherwise exempt dividend to be taxable, U.K. corporation tax will be chargeable on the gross amount of a dividend. If potential investors are in any doubt as to their position, they should consult their own professional advisers.
A corporate holder of an ordinary share or ADS that is not a U.K. Holder will not be subject to U.K. corporation tax on a dividend received from the company, unless it carries on a trade in the United Kingdom through a permanent establishment to which the ordinary share or ADS is attributable. In these circumstances, such holder may, depending on its individual circumstances and if the exemption from U.K. corporation tax discussed above does not apply, be chargeable to U.K. corporation tax on dividends received from the company.
Taxation of Disposals
U.K. Holders
A disposal or deemed disposal of an ordinary share or ADS by an individual U.K. Holder may, depending on his or her individual circumstances, give rise to a chargeable gain or to an allowable loss for the purpose of U.K. capital gains tax. The principal factors that will determine the capital gains tax position on a disposal of an ordinary share or ADS are the extent to which the holder realizes any other capital gains in the tax year in which the disposal is made, the extent to which the holder has incurred capital losses in that or any earlier tax year and the level of the annual exemption for tax-free gains in that tax year (the “annual exemption”). The annual exemption for the 2023/2024 tax year is £12,300. Note that from April 6, 2023 the annual exemption will be reduced to £6,000, and that from April 6, 2024 the annual exemption is expected to be reduced again to £3,000. If, after all allowable deductions, an individual U.K. Holder’s total taxable income for the year exceeds the basic rate income tax limit, a taxable capital gain accruing on a disposal of an ordinary share or an ADS is taxed at the rate of 20 percent. In other cases, a taxable capital gain accruing on a disposal of an ordinary share or ADS may be taxed at the rate of 10 percent save to the extent that any capital gains exceed the unused basic rate tax band. In that case, the rate currently applicable to the excess would be 20 percent.
An individual U.K. Holder who ceases to be resident in the United Kingdom (or who fails to be regarded as resident in a territory outside the United Kingdom for the purposes of double taxation relief) for a period of five tax years or less than five years and who disposes of an ordinary share or ADS during that period of temporary non-residence may be liable to U.K. capital gains tax on a chargeable gain accruing on such disposal on his or her return to the United Kingdom (or upon ceasing to be regarded as resident outside the United Kingdom for the purposes of double taxation relief) (subject to available exemptions or reliefs).
A disposal (or deemed disposal) of an ordinary share or ADS by a corporate U.K. Holder may give rise to a chargeable gain or an allowable loss for the purpose of U.K. corporation tax. Any gain or loss in respect of currency fluctuations over the period of holding an ordinary share or an ADS are also brought into account on a disposal.
Non-U.K. Holders
An individual holder who is not a U.K. Holder should not normally be liable to U.K. capital gains tax on capital gains realized on the disposal of an ordinary share or ADS unless such holder carries on (whether solely or in partnership) a trade, profession or vocation in the United Kingdom through a permanent establishment in the United Kingdom to which the ordinary share or ADS is attributable. In these circumstances, such holder may, depending on his or her individual circumstances, be chargeable to U.K. capital gains tax on chargeable gains arising from a disposal of his or her ordinary share or ADS.
A corporate holder of an ordinary share or ADS that is not a U.K. Holder will not be liable for U.K. corporation tax on chargeable gains realized on the disposal of an ordinary share or ADS unless: (i) it carries on a trade in the United Kingdom through a permanent establishment to which the ordinary share or ADS is attributable; or (ii) the corporate holder is disposing of an interest in a company and that disposal is of an asset that derives 75 percent or more of its gross asset value from UK land and that holder has a substantial indirect interest in UK land (broadly at least 25 percent at any time during the previous two years). In these circumstances, a disposal (or deemed disposal) of an ordinary share or ADS by such holder may give rise to a chargeable gain or an allowable loss for the purposes of U.K. corporation tax.
Inheritance Tax
If, for the purposes of the Double Taxation Relief (Taxes on Estates of Deceased Persons and on Gifts) Treaty United States of America Order 1979 (S1 1979/1454) between the United States and the United Kingdom, an individual holder is domiciled at the time of their death or at the time of a transfer made during their lifetime in the United States and is not a national of the United Kingdom, any ordinary share or ADS beneficially owned by that holder should not generally be subject to U.K. inheritance tax, provided that any applicable U.S. federal gift or estate tax liability is paid, except where (i) the ordinary share or ADS is part of the business property of a U.K. permanent establishment or pertain to a U.K. fixed base used for the performance of independent personal services; or (ii) the ordinary share or ADS is comprised in a settlement unless, at the time the settlement was made, the settlor was domiciled in the United States and not a national of the U.K. (in which case no charge to U.K. inheritance tax should apply).
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Stamp Duty and Stamp Duty Reserve Tax
The stamp duty and stamp duty reserve tax, or SDRT, treatment of the issue, transfer and agreement to transfer an ordinary share outside a depositary receipt system or a clearance service are discussed in the paragraphs under “General” below. The stamp duty and SDRT treatment of such transactions in relation to such systems are discussed in the paragraphs under “Depositary Receipt Systems and Clearance Services” below. The discussion below relates to the holders of our ordinary shares or ADSs wherever resident, however it should be noted that special rules may apply to certain persons such as market makers, brokers, dealers or intermediaries.
General
Issue of Ordinary Shares or ADSs
The issue of an ordinary share or ADS does not give rise to a SDRT liability, according to the HM Revenue & Customs practice and recent case law and is not subject to stamp duty.
Transfer of Ordinary Shares
A transfer of an ordinary share will generally be subject to stamp duty at the rate of 0.5 percent of the consideration given for the transfer (rounded up to the next £5). An exemption from stamp duty is available on an instrument transferring an ordinary share where the amount or value of the consideration is £1,000 or less, and it is certified on the instrument that the transaction effected does not form part of a larger transaction or series of transactions in respect of which the aggregate amount or value of the consideration exceeds £1,000. The purchaser normally pays the stamp duty.
An unconditional agreement to transfer an ordinary share will normally give rise to a charge to SDRT at the rate of 0.5 percent of the amount or value of the consideration payable for the transfer. SDRT is, in general, payable by the purchaser. If a duly stamped transfer completing an agreement to transfer is produced within six years of the date on which the agreement is made (or, if the agreement is conditional, the date on which the agreement becomes unconditional) any SDRT already paid is generally repayable, normally with interest, and any SDRT charge yet to be paid is cancelled.
Transfer of ADSs
No stamp duty will, in practice, be payable on a written instrument transferring an ADS or on an unconditional agreement to transfer an ADS provided the instrument of transfer or the unconditional agreement to transfer is executed and remains at all times outside the UK. Where these conditions are not met, the transfer of, or agreement to transfer, an ADS could, depending on the circumstances, attract a charge to U.K. stamp duty at the rate of 0.5 percent of the value of the consideration. No SDRT will be payable in respect of an agreement to transfer an ADS.
Depositary Receipt Systems and Clearance Services
Based on current HM Revenue & Customs practice and recent case law in respect of the European Council Directives 69/335/EC and 2009/7/EC, or the Capital Duties Directives, no SDRT is generally payable when shares are issued or transferred to a clearance service or depositary receipt system as an integral part of a raising of capital. HM Revenue & Customs has confirmed that it will continue not to apply the 1.5 percent stamp duty and SDRT charge on the issue of shares (and transfers integral to the raising of capital) into overseas clearance systems and depository receipt issuers once the U.K. leaves the EU. In addition, a recent Court of Justice of the European Union judgment (Air Berlin plc v HM Revenue & Customs (2017)) held on the relevant facts that the Capital Duties Directives preclude the taxation of a transfer of legal title to shares for the sole purpose of listing those shares on a stock exchange which does not impact the beneficial ownership of the shares, but, as yet, the U.K. domestic law and HM Revenue & Customs’ published practice remain unchanged and, accordingly, we anticipate that amounts on account of SDRT will continue to be collected by the depositary receipt issuer or clearance service. Holders of ordinary shares should consult their own independent professional advisers before incurring or reimbursing the costs of such a 1.5 percent SDRT charge.
Where an ordinary share or ADS is otherwise transferred (i) to, or to a nominee or an agent for, a person whose business is or includes the provision of clearance services or (ii) to, or to a nominee or an agent for a person whose business is or includes issuing depositary receipts, stamp duty or SDRT will generally be payable at the higher rate of 1.5 percent of the amount or value of the consideration given or, in certain circumstances, the value of the shares.
There is an exception from the 1.5 percent charge on the transfer to, or to a nominee or agent for, a clearance service where the clearance service has made and maintained an election under section 97A(1) of the Finance Act 1986, which has been approved by HM Revenue & Customs. It is understood that HM Revenue & Customs regards the facilities of DTC as a clearance service for these purposes and we are not aware of any section 97A election having been made by the DTC.
Any liability for stamp duty or SDRT in respect of a transfer into a clearance service or depositary receipt system, or in respect of a transfer within such a service, which does arise will strictly be accountable by the clearance service or depositary receipt system operator or their nominee, as the case may be, but will, in practice, be borne by the participants in the clearance service or depositary receipt system.
Repurchase of Ordinary Shares
U.K. stamp duty will generally be due at a rate of 0.5% of the consideration paid (rounded up to the next £5.00) on a repurchase by the company of its ordinary shares.
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Taxation in the United States
The following discussion is a summary of the material U.S. federal income tax consequences to U.S. Holders and Non-U.S. Holders, each as defined below, of the acquisition, ownership and disposition of our ordinary shares or ADSs, but does not purport to be a comprehensive discussion of all the tax considerations that may be relevant to a decision to purchase our ordinary shares or ADSs. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws, are not discussed. This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury Regulations promulgated thereunder, published rulings and administrative pronouncements of the U.S. Internal Revenue Service, or the IRS, and judicial decisions, in each case as available on the date of this annual report on Form 20-F. All of the foregoing are subject to change, which change could apply retroactively and could affect the tax consequences described below. We have not, and will not, seek a ruling from the IRS with regard to the U.S. federal income tax treatment of an investment in our ordinary shares or ADSs, and there can be no assurance the IRS or a court will agree with the discussion below. This discussion is limited to U.S. Holders and Non-U.S. Holders of our ordinary shares or ADSs. This discussion addresses only the U.S. federal income tax considerations for holders that our ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax matters that may be relevant to a particular holder, including the impact of the Medicare contribution tax on net investment income and the alternative minimum tax. Each prospective investor should consult a professional tax advisor with respect to the tax consequences of the acquisition, ownership or disposition of our ordinary shares or ADSs. In addition, this discussion does not address tax considerations applicable to a holder of our ordinary shares or ADSs that may be subject to special tax rules including, without limitation, the following:
•U.S. expatriates and former citizens or long-term residents of the United States;
•banks or other financial institutions;
•insurance companies;
•dealers or traders in securities, currencies, or notional principal contracts;
•tax-exempt entities, including an “individual retirement account” or “Roth IRA” retirement plan;
•regulated investment companies or real estate investment trusts;
•“qualified foreign pension funds,” or entities wholly owned by a “qualified foreign pension fund”;
•persons who have elected to mark securities to market;
•tax-exempt organizations or governmental organizations;
•persons that hold our ordinary shares as part of a hedge, straddle, conversion, constructive sale or similar transaction involving more than one position;
•partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
•"controlled foreign corporations," "passive foreign investment companies," and corporations that accumulate earnings to avoid U.S. federal income tax;
•persons who acquired our ordinary shares or ADSs as compensation for the performance of services;
•“qualified foreign pension funds” as defined in Section 897(l)(2) of the Code and entities all of the interests of which are held by qualified foreign pension funds;
•holders that own (or are deemed to own) 10 percent or more of our ordinary shares or ADSs, by vote or value; and
•U.S. Holders that have a “functional currency” other than the U.S. dollar.
If an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes holds our ordinary shares or ADSs, the tax treatment of a partner in the partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations made at the partner level. A partner in a partnership or other pass-through entity that hold our ordinary shares or ADSs should consult his, her or its tax advisor regarding the tax consequences of acquiring, holding and disposing of our ordinary shares or ADSs through a partnership or other pass-through entity, as applicable.
For the purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares or ADSs that is (or is treated as), for U.S. federal income tax purposes:
•an individual who is either a citizen or resident of the United States;
•a corporation created or organized in or under the laws of the United States, any state of the United States or the District of Columbia;
•an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
•a trust, if (1) a court within the United States is able to exercise primary supervision over its administration and one or more "United States persons" (within the meaning of Section 7701(a)(3) of the Code) have the authority to control all of the substantial decisions of such trust or (2) such trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.
For purposes of this discussion, a "Non-U.S. Holder" is a beneficial owner of our ordinary shares or ADSs that is not a U.S. Holder.
THIS DISCUSSION IS NOT TAX ADVICE. PERSONS CONSIDERING AN INVESTMENT IN ORDINARY SHARES OR ADSs SHOULD CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES APPLICABLE TO THEM RELATING TO THE ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR ORDINARY SHARES OR ADSs, INCLUDING THE APPLICABILITY OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS, ANY NON-U.S. TAX LAWS AND ANY INCOME TAX TREATY.
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Ownership of ADSs
For U.S. federal income tax purposes, a holder of ADSs generally will be treated as the owner of the ordinary shares represented by such ADSs. Gain or loss will generally not be recognized on account of exchanges of ordinary shares for ADSs, or of ADSs for ordinary shares. References to ordinary shares in the discussion below are deemed to include ADSs, unless context otherwise requires.
Treatment of the Company as a Domestic Corporation for U.S. Federal Income Tax Purposes
Even though we are incorporated under the laws of England and Wales, due to the circumstances of its formation and the application of Section 7874 of the Code, the Company is treated as a U.S. domestic corporation for U.S. federal income tax purposes. This has implications for all shareholders; we are subject to U.S. federal income tax as if we were a U.S. corporation, and distributions made by us are generally treated as U.S.-source dividends as described below and generally subject to U.S. dividend withholding tax.
U.S. Holders
Distributions
As described in the section entitled “Dividend Distribution Policy,” we have never declared or paid any dividends on our ordinary shares, though we may consider doing so in the future depending on the progression of our business. If we do make distributions of cash or property on our ordinary shares or ADSs, such distributions will be treated as U.S.-source dividends includible in the gross income of a U.S. Holder as ordinary income to the extent of the our current and accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent the amount of a distribution exceeds tour current and accumulated earnings and profits, the distribution will be treated first as a non-taxable return of capital to the extent of a U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs and thereafter as gain from the sale of such ordinary shares or ADSs. Subject to applicable limitations and requirements, dividends received on the ordinary shares or ADSs generally should be eligible for the “dividends received deduction” available to corporate shareholders. A dividend paid by us to a non-corporate U.S. Holder generally will be eligible for preferential rates if certain holding period requirements are met.
The U.S. dollar value of any distribution made by us in foreign currency will be calculated by reference to the exchange rate in effect on the date of the U.S. Holder’s actual or constructive receipt of such distribution, regardless of whether the foreign currency is in fact converted into U.S. dollars. If the foreign currency is converted into U.S. dollars on such date of receipt, the U.S. Holder generally will not recognize foreign currency gain or loss on such conversion. If the foreign currency is not converted into U.S. dollars on the date of receipt, such U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other taxable disposition of the foreign currency generally will be U.S.-source ordinary income or loss to such U.S. Holder.
Sale or Other Taxable Disposition
A U.S. Holder will recognize gain or loss for U.S. federal income tax purposes upon a sale or other taxable disposition of its ordinary shares or ADSs in an amount equal to the difference between the amount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs. A U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs generally will be the U.S. Holder’s cost for such ordinary shares or ADSs. Any such gain or loss generally will be U.S.-source capital gain or loss and will be long-term capital gain or loss if, on the date of sale or disposition, such U.S. Holder held the ordinary shares or ADSs for more than one year. Long-term capital gains derived by non-corporate U.S. Holders are eligible for taxation at reduced rates. The deductibility of capital losses is subject to significant limitations.
Information Reporting And Backup Withholding
Payments of distributions on or proceeds arising from the sale or other taxable disposition of ordinary shares or ADSs generally will be subject to information reporting, and they may be subject to backup withholding if a U.S. Holder (i) fails to furnish such U.S. Holder’s correct U.S. taxpayer identification number (generally on IRS Form W-9), (ii) furnishes an incorrect U.S. taxpayer identification number, (iii) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (iv) fails to certify under penalty of perjury that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Non-U.S. Holders
Distributions
As described in the section entitled “Dividend Distribution Policy,” we have never declared or paid any dividends on our ordinary shares, though we may consider doing so in the future depending on the progression of our business. If we do make distributions of cash or property on our ordinary shares or ADSs, such distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for U.S. federal income tax purposes will constitute a return of capital and first be applied against and reduce a Non-U.S. Holder’s adjusted tax basis in its ordinary shares or ADSs, but not below zero. Any excess will be treated as capital gain and will be treated as described below under “—Sale or Other Taxable Disposition.”
Subject to the discussion below on effectively connected income, dividends paid to a Non-U.S. Holder will be subject to U.S. federal withholding tax at a rate of 30% of the gross amount of the dividends (or such lower rate specified by an applicable income tax treaty, provided the Non-U.S. Holder furnishes a valid IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) certifying qualification for the lower treaty rate). A Non-U.S. Holder that does not timely furnish the required documentation, but that qualifies for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
If dividends paid to a Non-U.S. Holder are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent
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establishment in the United States to which such dividends are attributable), the Non-U.S. Holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the Non-U.S. Holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States.
Any such effectively connected dividends will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected dividends, as adjusted for certain items. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.
Sale or Other Taxable Disposition
A Non-U.S. Holder will not be subject to U.S. federal income tax on any gain realized upon the sale or other taxable disposition of our ordinary shares or ADSs unless:
•the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the Non-U.S. Holder maintains a permanent establishment in the United States to which such gain is attributable);
•the Non-U.S. Holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met; or
•our ordinary shares or ADSs constitutes U.S. real property interests (“USRPI”) by reason of our status as a U.S. real property holding corporation (“USRPHC”) for U.S. federal income tax purposes.
Gain described in the first bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular rates. A Non-U.S. Holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
A Non-U.S. Holder described in the second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on gain realized upon the sale or other taxable disposition of our ordinary shares or ADSs, which may be offset by U.S. source capital losses of the Non-U.S. Holder (even though the individual is not considered a resident of the United States), provided the Non-U.S. Holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends, however, on the fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance we currently are not a USRPHC or will not become one in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition of our ordinary shares or ADSs by a Non-U.S. Holder will not be subject to U.S. federal income tax if our ordinary shares or ADSs is “regularly traded,” as defined by applicable U.S. Treasury Regulations, on an established securities market and such Non-U.S. Holder owned, actually and constructively, 5% or less of our ordinary shares or ADSs throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the Non-U.S. Holder’s holding period.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Payments of dividends on our ordinary shares or ADSs will not be subject to backup withholding, provided the applicable withholding agent does not have actual knowledge or reason to know the holder is a United States person and the holder either certifies its non-U.S. status, such as by furnishing a valid IRS Form W-8BEN, W-8BEN-E, or W-8ECI, or otherwise establishes an exemption. However, information returns are required to be filed with the IRS in connection with any distributions on our ordinary shares or ADSs paid to the Non-U.S. Holder, regardless of whether such distributions constitute dividends or whether any tax was actually withheld. In addition, proceeds of the sale or other taxable disposition of our ordinary shares or ADSs within the United States or conducted through certain U.S.-related brokers generally will not be subject to backup withholding or information reporting if the applicable withholding agent receives the certification described above and does not have actual knowledge or reason to know that such holder is a United States person or the holder otherwise establishes an exemption. Proceeds of a disposition of our ordinary shares or ADSs conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. Holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such Sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends on, or (subject to the proposed U.S. Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, our ordinary shares or ADSs paid to a “foreign financial institution” or a “non-financial foreign entity” (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any “substantial United States owners” (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a foreign financial institution and is subject to the diligence and reporting requirements in (1) above, it must enter into an agreement with the U.S. Department of the Treasury requiring, among other things, that it undertake to identify accounts held by certain “specified United States persons” or “United States
45
owned foreign entities” (each as defined in the Code), annually report certain information about such accounts, and withhold 30% on certain payments to non-compliant foreign financial institutions and certain other account holders. Foreign financial institutions located in jurisdictions that have an intergovernmental agreement with the United States governing FATCA may be subject to different rules.
Under the applicable U.S. Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on our ordinary shares or ADSs. While withholding under FATCA would have applied also to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019, proposed U.S. Treasury Regulations eliminate FATCA withholding on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed U.S.Treasury Regulations until final U.S. Treasury Regulations are issued.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to make certain filings with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains a website at http://www.sec.gov from which filings may be accessed.
We also make available on our website, free of charge, our annual reports on Form 20-F and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is www.puretechhealth.com. The information contained on our website is not incorporated by reference into this annual report on Form 20-F.
I. SUBSIDIARY INFORMATION
Not applicable.
J. ANNUAL REPORT TO SECURITY HOLDERS
[Not applicable.]
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| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | ||||
The information (including graphs and tabular data) set forth under the following headings is incorporated by reference herein: “Quantitative and Qualitative Disclosures about Financial Risks” on page 79 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F and in “Financial Statements—Notes to the Consolidated Financial Statements—Note 24. Capital and Financial Risk Management ” in the audited consolidated financial statements included elsewhere in this annual report on Form 20-F.
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| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | ||||
A. DEBT SECURITIES
Not applicable.
B. WARRANTS AND RIGHTS
Not applicable.
C. OTHER SECURITIES
Not applicable.
D. AMERICAN DEPOSITARY SHARES
Our ADSs are registered with Citibank, N.A., as depositary . Each ADS represents ten ordinary shares (or a right to receive ten ordinary shares) deposited with Citibank, N.A. (London), as custodian for the depositary in the United Kingdom. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York, 10013. ADSs represent ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A.—London Branch, located at Citigroup Centre Canary Wharf, London E14 5LB D.
A deposit agreement among us, the depositary, ADS holders and beneficial owners of ADSs issued thereunder sets out ADS holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADSs. A copy of the deposit agreement is incorporated by reference as exhibit 2.1 to this annual report on Form 20-F.
Fees and Charges
As an ADS holder, you will be required to pay the following fees under the terms of the deposit agreement:
| SERVICE | FEES | |||||||
• Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason), excluding ADS issuances as a result of distributions of ordinary shares) | Up to U.S.$0.05 per ADS issued | |||||||
•Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason) | Up to U.S.$0.05 per ADS cancelled | |||||||
•Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) | Up to U.S.$0.05 per ADS held | |||||||
•Distribution of ADSs pursuant to (i) share dividends or other free share distributions, or (ii) exercise of rights to purchase additional ADSs | Up to U.S.$0.05 per ADS held | |||||||
•Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin-off) | Up to U.S.$0.05 per ADS held | |||||||
•ADS Services | Up to U.S.$0.05 per ADS held on the applicable record date(s) established by the depositary bank | |||||||
•Registration of ADS transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason) | Up to U.S.$0.05 per ADS (or fraction thereof) transferred | |||||||
•Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of partial entitlement ADSs for full entitlement ADSs, or upon conversion of restricted ADSs (each as defined in the deposit agreement) into freely transferable ADSs, and vice versa). | Up to U.S.$0.05 per ADS (or fraction thereof) converted | |||||||
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As an ADS holder you will also be responsible to pay certain charges such as:
•taxes (including applicable interest and penalties) and other governmental charges;
•the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon the making of deposits and withdrawals, respectively;
•certain cable, telex and facsimile transmission and delivery expenses;
•the fees, expenses, spreads, taxes and other charges of the depositary bank and/or service providers (which may be a division, branch or affiliate of the depositary bank) in the conversion of foreign currency;
•the reasonable and customary out-of-pocket expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and ADRs; and
•the fees, charges, costs and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the ADR program.
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary bank into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
In the event of refusal to pay the depositary bank fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary bank fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the purchase of ADSs. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes. The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.
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PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | ||||
None.
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| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | ||||
None.
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| ITEM 15. | CONTROLS AND PROCEDURES | ||||
A. Disclosure Controls and Procedures
Disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act, are designed to ensure that information required to be disclosed by us in the reports that are filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the management of the Group, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of its inherent limitations, disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of December 31, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.
B. Management’s Annual Report on Internal Control Over Financial Reporting
In accordance with the requirements of section 404 of Sarbanes-Oxley, the following report is provided by management in respect of the Group’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)):
•Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
•Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of Group's internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO);
•Based on their assessment under these criteria, our management has concluded that as of December 31, 2023, the Group's internal control over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The effectiveness of the Group's internal control over financial reporting as of December 31, 2023 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears under Item 18 - "Financial Statements".
C. Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, the Group's internal control over financial reporting.
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| ITEM 16. | RESERVED | ||||
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | ||||
Our Board of Directors has determined that Sharon Barber-Lui, independent director (under the standards set forth in Nasdaq Stock Market Rule 5605(a)(2) and Rule 10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert as defined in Item 16A of Form 20-F under the Exchange Act.
| ITEM 16B. | CODE OF ETHICS | ||||
Our Board of Directors has adopted a written Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on the investor relations section of our website, which is located at www.puretechhealth.com.The information contained on, or that can be accessed through, our website is not and shall not be deemed to be part of this annual report on Form 20-F. Our Code of Business Conduct and Ethics is intended to meet the definition of “code of ethics” under Item 16B of Form 20-F under the Exchange Act. We will disclose on our website any amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics that applies to our directors or executive officers to the extent required under the rules of the SEC or Nasdaq. We granted no waivers under our Code of Business Conduct and Ethics in 2023.
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | ||||
The following table sets forth the aggregate fees billed to us for professional services rendered by PwC in 2023 and KPMG LLP in 2022 and the subsequent interim period through May 31, 2023.
PwC:
| For the years ending December 31, | 2023 $000s | ||||
| Audit fees | $ | 2,686 | |||
| Audit-related fees | $ | — | |||
| Tax fees | $ | — | |||
All other fees* | $ | 9 | |||
| Total | $ | 2,695 | |||
*"All other fees” represents non-audit fees in connection with access to the PricewaterhouseCoopers LLP on-line accounting research and disclosure database.
KPMG:
| For the years ending December 31, | 2023 $000s | 2022 $000s | ||||||
| Audit fees | — | 3,099 | ||||||
| Audit-related fees | — | — | ||||||
| Tax fees | — | — | ||||||
| All other fees | — | — | ||||||
| Total | — | 3,099 | ||||||
The information set forth or referenced under the heading “Report of the Audit Committee” on pages 99 to 101 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
The Audit Committee evaluates the qualifications, independence and performance of the independent auditor as well as pre-approves and reviews the audit and non-audit services to be performed by the independent auditor. In accordance with this policy, all services performed by and fees paid to KPMG LLP and PwC were approved by the Audit Committee.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | ||||
Not applicable.
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| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | ||||
| Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1 | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||
January 1, 2023 through January 31, 2023 | 42,994 | 3.16 | 42,994 | 23,504 | ||||||||||
February 1, 2023 through February 28, 2023 | 204,868 | 2.90 | 204,868 | 22,910,768.05 | ||||||||||
March 1, 2023 through March 31, 2023 | 234,714 | 2.63 | 234,714 | 22,294,150.13 | ||||||||||
April 1, 2023 through April 30, 2023 | 165,143 | 2.73 | 165,143 | 21,843,534.07 | ||||||||||
May 1, 2023 through May 31, 2023 | 790,639 | $2.74 | 790,639 | $19,677,236 | ||||||||||
June 1, 2023 through June 30, 2023 | 1,072,529 | $2.96 | 1,072,529 | $16,506,598 | ||||||||||
July 1, 2023 through July 31, 2023 | 906,369 | $2.90 | 906,369 | $13,879,886 | ||||||||||
August 1, 2023 through August 31, 2023 | 770,163 | $2.56 | 770,163 | $11,907,992 | ||||||||||
September 1, 2023 through September 30, 2023 | 810,833 | $2.57 | 810,833 | $9,822,077 | ||||||||||
October 1, 2023 through October 31, 2023 | 1,034,123 | $2.12 | 1,034,123 | $7,631,621 | ||||||||||
November 1, 2023 through November 30, 2023 | 788,347 | $2.06 | 788,347 | $6,004,615 | ||||||||||
December 1, 2023 through December 31, 2023 | 862,804 | $1.89 | 862,804 | $4,374,617 | ||||||||||
| Total | 7,683,526 | $2.60 | 7,683,526 | 4,374,617 | ||||||||||
1.On May 9, 2022, the Company announced the commencement of a $50 million share repurchase program (the “Program”) of its ordinary shares. The Company executed the Program in two equal tranches, the first of which was completed on October 26, 2022, and the second which was completed on February 7, 2024. In respect of each of the two tranches, the Company entered into an irrevocable non-discretionary instruction with Jefferies International Limited (“Jefferies”) in relation to the purchase by Jefferies of the Company’s ordinary shares for an aggregate consideration (excluding expenses) of no greater than $25 million and the simultaneous on-sale of such ordinary shares by Jefferies to the Company. Jefferies makes its trading decisions in relation to the ordinary shares independently of, and uninfluenced by, the Company. Between May 9, 2022, and February 7, 2024, the Company repurchased an aggregate of 20,182,863 ordinary shares under the Share Buyback Program, which represents approximately 7% of the Company’s issued share capital at the time the program commenced. In light of the closing of the merger between its Founded Entity, Karuna Therapeutics, Inc. (Nasdaq: KRTX), and Bristol Meyers Squibb (NYSE: BMY) which occurred on March 18, 2024, the Company announced a proposed capital return of up to $100 million to its shareholders by way of a tender offer (the “Tender Offer”). The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. A circular setting out the full terms of the Tender Offer and a timetable is expected to be published after the Company’s Annual Report and Accounts. . Any purchase of ordinary shares under the Program was carried out on the London Stock Exchange and any other UK recognized investment exchange which may have been agreed, in accordance with pre-set parameters and in accordance with, and subject to limits, including those limits related to daily volume and price, prescribed by the Company’s general authority to repurchase ordinary shares granted by its shareholders at its most recent annual general meeting on June 13, 2023, Chapter 12 of the Financial Conduct Authority’s UK Listing Rules, Article 5(1) of Regulation (EU) No. 596/2014 (as incorporated into UK domestic law by the European Union (Withdrawal) Act 2018) and Commission Delegated Regulation (EU) 2016/1052 (as incorporated into UK domestic law by the European Union (Withdrawal) Act 2018). All ordinary shares repurchased under the Program were held in treasury.
No ordinary shares were repurchased during 2023 other than through the Program.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | ||||
Not applicable.
| ITEM 16G. | CORPORATE GOVERNANCE | ||||
We qualify as a foreign private issuer (as such term is defined in Rule 3b-4 under the Exchange Act). The Listing Rules of the Nasdaq Stock Market include certain accommodations in the corporate governance requirements that allow foreign private issuers to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of the Nasdaq Stock Market. We rely on the certain exemptions for foreign private issuers and follow United Kingdom corporate governance practices in lieu of the Nasdaq corporate governance rules.
A summary of the significant ways in which the Company’s corporate governance practices differ from those followed by U.S. domestic companies under the Nasdaq corporate governance rules is set forth below.
The information (including tabular data) set forth or referenced under the headings “Directors’ Report for the year ended 31 December 2023—Compliance with the UK Corporate Governance Code” (first paragraph only) on page 94 of PureTech’s “Annual Report and Accounts 2023” included as exhibit 15.1 to this annual report on Form 20-F is incorporated by reference.
The Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the SEC, requires foreign private issuers, including our company, to comply with various corporate governance practices. In addition, Nasdaq rules provide that foreign private issuers may follow home country practice in lieu of the Nasdaq corporate governance standards, subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws. The home country practices followed by our company in lieu of Nasdaq rules are described below:
•We do not follow Nasdaq’s quorum requirements applicable to meetings of shareholders. Such quorum requirements are not required under U.K. law. In accordance with generally accepted business practice, our articles of association provide alternative quorum requirements that are generally applicable to meetings of shareholders.
•We do not follow Nasdaq’s requirements that independent directors have regularly scheduled meetings at which only independent directors are present. Under U.K. law the independent directors may choose to meet in executive session at their discretion.
•We do not follow Nasdaq’s requirements to seek shareholder approval for the implementation of certain equity compensation plans, the issuances of ordinary shares under such plans, or in connection with certain private placements of equity securities. In
54
accordance with U.K. law, we are not required to seek shareholder approval to allot ordinary shares in connection with applicable employee equity compensation plans. We will follow U.K. law with respect to any requirement to obtain shareholder approval prior to any private placements of equity securities.
•We do not follow Nasdaq’s requirements with respect to review and approval of related party transactions. We will follow U.K. law with respect to any requirements regarding review and approval of related party transactions.
Other than as discussed above, we intend to comply with the rules generally applicable to U.S. domestic companies listed on Nasdaq. We may in the future, however, decide to use other foreign private issuer exemptions with respect to some or all of the other Nasdaq rules. Following our home country governance practices may provide less protection than is accorded to investors under Nasdaq rules applicable to domestic issuers.
We intend to take all actions necessary for us to maintain compliance as a foreign private issuer under the applicable corporate governance requirements of the Sarbanes-Oxley Act of 2002, the rules adopted by the SEC and Nasdaq’s listing standards.
Because we are a foreign private issuer, our directors and senior management are not subject to short-swing profit and insider trading reporting obligations under Section 16 of the Exchange Act . They are, however, subject to the obligations to report changes in share ownership under Section 13 of the Exchange Act and related SEC rules.
| ITEM 16H. | MINE SAFETY DISCLOSURE | ||||
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 16J. INSIDER TRADING POLICIES
Not applicable.
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ITEM 16K. CYBERSECURITY DISCLOSURE
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality, integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a cybersecurity incident response plan.
We design and assess our program based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and shares common methodologies, reporting channels and governance processes that apply across the enterprise risk management program to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes:
•risk assessments designed to help identify material cybersecurity risks to our critical systems, information, products, services, and our broader enterprise IT environment;
•a security team principally responsible for managing (1) our cybersecurity risk assessment processes, (2) our security controls, and (3) our response to cybersecurity incidents;
•the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our security controls;
•cybersecurity awareness training of our employees, incident response personnel, and senior management, including phishing training courses designed to educate users on detecting malicious emails;
•a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents;
•use of a Digital Forensics and Incident Response team provided by our external IT service provider as needed.
We have not identified risks from known cybersecurity threats. We have not experienced any prior cybersecurity incidents, that have materially affected us, including our operations, business strategy, results of operations, or financial condition. For more information, see the section titled “Risk Factor— Cyberattacks or other failures in our telecommunications or information technology systems, or those of our collaborators, contract research organizations, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business operations.”
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee (Committee) oversight of cybersecurity and other information technology risks. The Committee oversees management’s implementation of our cybersecurity risk management program.
The Committee receives reports at least annually from management on our cybersecurity risks. In addition, management updates the Committee, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser impact potential.
Our management team, including our Vice President of IT and Information Security Officer, has a combined 30+ years of risk management experience and is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management team’s experience includes experience managing IT programs as well as various certifications, such as the Information Systems Security Professional certification, and Certified Cloud Security Professionalism certification.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the information technology environment.
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PART III
| ITEM 17. | FINANCIAL STATEMENTS | ||||
Not applicable
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| ITEM 18. | FINANCIAL STATEMENTS | ||||
See pages F-1 through F-55 of this annual report.
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| ITEM 19. | EXHIBITS | ||||
The Exhibits listed in the Exhibit Index at the end of this annual report are filed as Exhibits to this annual report.
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| EXHIBIT NUMBER | DESCRIPTION OF EXHIBIT | INCORPORATION BY REFERENCE | |||||||||||||||
| Schedule/Form | File Number | Exhibit | File Date | ||||||||||||||
| 1.1 | 20FR12B | 001-39670 | 3.1 | 10/27/2020 | |||||||||||||
| 2.1 | 20-F | 001-39670 | 2.1 | 4/15/2021 | |||||||||||||
| 2.2 | Form of American Depository Receipt (included in Exhibit 2.1) | ||||||||||||||||
| 2.3 | 20-F | 001-39670 | 2.3 | 4/26/2022 | |||||||||||||
| 4.1# | 20FR12B | 001-39670 | 10.1 | 10/27/2020 | |||||||||||||
4.2# | |||||||||||||||||
4.3# | 20FR12B | 001-39670 | 10.2 | 10/27/2020 | |||||||||||||
4.4# | 20FR12B | 001-39670 | 10.3 | 10/27/2020 | |||||||||||||
4.5# | 20FR12B | 001-39670 | 10.4 | 10/27/2020 | |||||||||||||
| 4.6 | 20FR12B | 001-39670 | 10.5 | 10/27/2020 | |||||||||||||
4.7# | 20FR12B | 001-39670 | 10.6 | 10/27/2020 | |||||||||||||
4.8† | 20FR12B | 001-39670 | 10.7 | 10/27/2020 | |||||||||||||
4.9† | 20FR12B | 001-39670 | 10.8 | 10/27/2020 | |||||||||||||
| 4.10 | 20FR12B | 001-39670 | 10.9 | 10/27/2020 | |||||||||||||
4.11† | 20FR12B | 001-39670 | 10.10 | 10/27/2020 | |||||||||||||
4.12† | 20FR12B | 001-39670 | 10.12 | 10/27/2020 | |||||||||||||
| 4.13† | 20FR12B | 001-39670 | 10.18 | 10/27/2020 | |||||||||||||
4.14† | 20FR12B | 001-39670 | 10.21 | 10/27/2020 | |||||||||||||
4.15*† | |||||||||||||||||
4.16*† | |||||||||||||||||
4.17*† | |||||||||||||||||
4.18† | 20FR12B | 001-39670 | 10.26 | 10/27/2020 | |||||||||||||
60
| EXHIBIT NUMBER | DESCRIPTION OF EXHIBIT | INCORPORATION BY REFERENCE | |||||||||||||||
| Schedule/Form | File Number | Exhibit | File Date | ||||||||||||||
4.19† | 20FR12B | 001-39670 | 10.27 | 10/27/2020 | |||||||||||||
4.20† | 20FR12B | 001-39670 | 10.28 | 10/27/2020 | |||||||||||||
4.21† | 20FR12B | 001-39670 | 10.29 | 10/27/2020 | |||||||||||||
4.22+ | 8-K | 001-39362 | 10.2 | 1/20//2022 | |||||||||||||
4.23*† | |||||||||||||||||
4.24*† | |||||||||||||||||
4.25*† | |||||||||||||||||
4.26+ | S-4/A | 333-258693 | 2.1 | 12/23/2021 | |||||||||||||
| 4.27 | S-4/A | 333-258693 | 2.2 | 12/23/2021 | |||||||||||||
| 4.28 | 8-K | 001-39362 | 2.1 | 1/3/2022 | |||||||||||||
| 4.29 | S-4 | 333-258693 | 10.2 | 8/10/2021 | |||||||||||||
| 4.30 | 8-K | 001-39362 | 10.1 | 1/3/2022 | |||||||||||||
4.31+ | 8-K/A | 001-40558 | 2.1 | 1/27/2022 | |||||||||||||
| 4.32 | 8-K | 001-39362 | 10.1 | 7/29/2022 | |||||||||||||
4.33+ | 8-K | 001-39362 | 10.1 | 2/23/2023 | |||||||||||||
61
| EXHIBIT NUMBER | DESCRIPTION OF EXHIBIT | INCORPORATION BY REFERENCE | |||||||||||||||
| Schedule/Form | File Number | Exhibit | File Date | ||||||||||||||
4.34+ | 8-K | 001-40558 | 10.6 | 8/23/2022 | |||||||||||||
4.35+ | 8-K | 001-40558 | 10.7 | 8/23/2022 | |||||||||||||
4.36*†+ | |||||||||||||||||
4.37* | |||||||||||||||||
4.38+ | |||||||||||||||||
| 8.1 | 20FR12B | 001-39670 | 21.1 | 10/27/2020 | |||||||||||||
| 12.1* | |||||||||||||||||
| 12.2* | |||||||||||||||||
| 13.1*** | |||||||||||||||||
| 13.2*** | |||||||||||||||||
| 15.1** | |||||||||||||||||
97.1* | |||||||||||||||||
| 101.INS* | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||
| 104* | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||||||||||||||
* Filed herewith.
** Certain of the information included within Exhibit 15.1, which is provided pursuant to Rule 12b-23(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference in this annual report on Form 20-F, as specified elsewhere in this annual report on Form 20-F. With the exception of the items and pages so specified, the "Annual Report and Accounts 2022" is not deemed to be filed as part of this annual report on Form 20-F.
*** Furnished herewith.
# Indicates a management contract or any compensatory plan, contract or arrangement.
62
† Portions of this exhibit (indicated by asterisks) have been omitted because either (A) they are both (i) not material and (ii) would likely cause competitive harm if publicly disclosed., or (B) they are both (i) not material and (ii) the type of information that the Registrant customarily and actually treats as private or confidential, as applicable. The Registrant agrees to furnish an unredacted copy of this exhibit to the Securities and Exchange Commission upon request.
+ Schedules and exhibits to this exhibit omitted. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.
63
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Date: April 25, 2024
| PURETECH HEALTH PLC | ||||||||
| By: | /s/ Bharatt Chowrira | |||||||
Name: Bharatt Chowrira | ||||||||
| Title: Chief Executive Officer | ||||||||
64
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | |||||
Consolidated Financial Statements as of and for the Years Ended December 31, 2023, 2022, and 2021 | |||||
F-2 | |||||
F-4 | |||||
F-5 | |||||
F-6 | |||||
F-7 | |||||
F-9 | |||||
F-11 | |||||
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of PureTech Health plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statement of financial position of PureTech Health Plc and its subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of comprehensive income/(loss), of changes in equity and of cash flows for the year then ended, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15B. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
Determination of the Accounting Treatment for the Sale of Future Royalties Liability
As described in Notes 1 and 17 to the consolidated financial statements, on March 4, 2011, the Company entered into a license agreement with Karuna Therapeutics, Inc. (“Karuna”) according to which the Company granted Karuna an exclusive license to research, develop and sell KarXT in exchange for a royalty on annual net sales, development and regulatory milestones and a fixed portion of sublicensing income, if any (hereinafter “License Agreement”). On March 22, 2023, the Company signed an agreement with Royalty Pharma (hereinafter "Royalty Purchase Agreement"), according to which the Company sold Royalty Pharma a partial right to receive royalty payments made by Karuna in respect of net sales of KarXT, if and when received. According to the Royalty Purchase Agreement, all royalties due to the Company under the License Agreement will be paid to Royalty Pharma up until an annual threshold of $60 million, while all royalties above such annual threshold in a given year will be split 33% to Royalty Pharma and 67% to the Company. Under the terms of the Royalty Purchase Agreement, the Company received a non-refundable initial payment of $100 million at the execution of the Royalty Purchase Agreement and is eligible to receive additional payments in the aggregate of up to an additional $400 million based on the achievement of certain regulatory and commercial milestones. The Company continues to hold the rights under the License Agreement and has a contractual obligation to deliver cash to Royalty Pharma for a portion of the royalties it receives. Therefore, the Company will continue to account for any royalties and regulatory milestones due to the Company under the License Agreement as revenue in its Consolidated Statement of Comprehensive Income/(Loss) and record the proceeds from the Royalty Purchase Agreement as a financial liability on its Consolidated Statement of Financial Position. In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgment. In order to determine the amortized cost of the sale of future royalties liability, management is required to estimate the total amount of future receipts from and payments to Royalty Pharma under the Royalty Purchase Agreement over the life of the agreement. The $100 million liability, recorded at execution of the Royalty Purchase Agreement, will be accreted to the total of these receipts and payments as interest expense over the life of the Royalty Purchase Agreement. The sale of future royalties liability amounted to $110.2 million as of December 31, 2023.
The principal considerations for our determination that performing procedures relating to the determination of the accounting treatment for the sale of future royalties liability is a critical audit matter are (i) the significant judgment by management when determining the accounting treatment for the sale of future royalties liability and (ii) a high degree of auditor judgment and effort in performing procedures and evaluating audit evidence related to the accounting for the sale of future royalties liability.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the accounting treatment for the sale of future royalties liability. These procedures also included, among others, (i) obtaining and reviewing the key terms of the License Agreement and Royalty Purchase Agreement; (ii) evaluating the reasonableness of management’s determined accounting treatment for the sale of future royalties liability; (iii) testing the liability related to the sale of future royalties, including considering the contractual terms of the agreements and the impact on the accounting determination; and (iv) evaluating the sufficiency of the disclosures within the consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
25 April, 2024
We have served as the Company’s auditor since 2023.
F-3
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
PureTech Health PLC
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of PureTech Health PLC and subsidiaries (the Group) as of December 31, 2022, the related consolidated statements of comprehensive income / (loss), changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2022 and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2022, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 31, 2022, in conformity with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board and international accounting standards in conformity with the requirements of the UK-adopted IFRSs.
Basis for Opinion
These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We served as the Group’s auditor from 2015 to 2022.
London, United Kingdom
27 April 2023 except for Note 4 and Note 20, as to which the date is 25 April 2024
F-4
Consolidated Statement of Comprehensive Income/(Loss)
For the years ended December 31
| Note | 2023 $000s | 2022 $000s | 2021 $000s | |||||||||||
| Contract revenue | 3 | |||||||||||||
| Grant revenue | 3 | |||||||||||||
Total revenue | ||||||||||||||
| Operating expenses: | ||||||||||||||
| General and administrative expenses | 8 | ( | ( | ( | ||||||||||
| Research and development expenses | 8 | ( | ( | ( | ||||||||||
Operating income/(loss) | ( | ( | ( | |||||||||||
| Other income/(expense): | ||||||||||||||
Gain/(loss) on deconsolidation of subsidiary | 5 | |||||||||||||
| Gain/(loss) on investments held at fair value | 5 | ( | ||||||||||||
Realized gain/(loss) on sale of investments | 5 | ( | ( | ( | ||||||||||
| Gain/(loss) on investments in notes from associates | 7 | ( | ||||||||||||
| Other income/(expense) | ( | |||||||||||||
Other income/(expense) | ( | |||||||||||||
| Finance income/(costs): | ||||||||||||||
| Finance income | 10 | |||||||||||||
| Finance costs – contractual | 10 | ( | ( | ( | ||||||||||
| Finance income/(costs) – fair value accounting | 10 | |||||||||||||
| Finance costs – non cash interest expense related to sale of future royalties | 17 | ( | ||||||||||||
Net finance income/(costs) | ||||||||||||||
Share of net income/(loss) of associates accounted for using the equity method | 6 | ( | ( | ( | ||||||||||
Gain/(loss) on dilution of ownership interest in associates | 6 | |||||||||||||
Impairment of investment in associates | 6 | ( | ||||||||||||
Income/(loss) before taxes | ( | ( | ( | |||||||||||
| Taxation | 27 | ( | ( | |||||||||||
Income/(loss) for the year | ( | ( | ( | |||||||||||
| Other comprehensive income/(loss): | ||||||||||||||
| Items that are or may be reclassified as profit or loss | ||||||||||||||
| Equity-accounted associate – share of other comprehensive income (loss) | 6 | ( | ||||||||||||
| Reclassification of foreign currency differences on dilution of interest | ( | |||||||||||||
Total other comprehensive income/(loss) | ( | |||||||||||||
Total comprehensive income/(loss) for the year | ( | ( | ( | |||||||||||
| Income/(loss) attributable to: | ||||||||||||||
| Owners of the Group | ( | ( | ( | |||||||||||
| Non-controlling interests | ( | ( | ||||||||||||
| ( | ( | ( | ||||||||||||
| Comprehensive income/(loss) attributable to: | ||||||||||||||
| Owners of the Group | ( | ( | ( | |||||||||||
| Non-controlling interests | ( | ( | ||||||||||||
| ( | ( | ( | ||||||||||||
| $ | $ | $ | ||||||||||||
| Earnings/(loss) per share: | ||||||||||||||
| Basic earnings/(loss) per share | 11 | ( | ( | ( | ||||||||||
| Diluted earnings/(loss) per share | 11 | ( | ( | ( | ||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
Consolidated Statement of Financial Position
As of December 31,
| Note | 2023 $000s | 2022 $000s | |||||||||
| Assets | |||||||||||
| Non-current assets | |||||||||||
| Property and equipment, net | 12 | ||||||||||
| Right of use asset, net | 23 | ||||||||||
| Intangible assets, net | 13 | ||||||||||
| Investments held at fair value | 5 | ||||||||||
Investment in associates – equity method | 6 | ||||||||||
| Investments in notes from associates | 7 | ||||||||||
| Lease receivable – long-term | 23 | ||||||||||
| Other non-current assets | |||||||||||
| Total non-current assets | |||||||||||
| Current assets | |||||||||||
| Trade and other receivables | 24 | ||||||||||
| Income tax receivable | 27 | ||||||||||
| Prepaid expenses | |||||||||||
| Lease receivable – short-term | 23 | ||||||||||
| Other financial assets | 14 | ||||||||||
| Short-term investments | 24 | ||||||||||
| Cash and cash equivalents | 24 | ||||||||||
| Total current assets | |||||||||||
Total assets | |||||||||||
| Equity and liabilities | |||||||||||
| Equity | |||||||||||
| Share capital | |||||||||||
| Share premium | |||||||||||
| Treasury stock | ( | ( | |||||||||
| Merger reserve | |||||||||||
| Translation reserve | |||||||||||
| Other reserve | ( | ( | |||||||||
| Retained earnings | |||||||||||
Equity attributable to the owners of the Group | 15 | ||||||||||
| Non-controlling interests | 20 | ( | |||||||||
Total equity | |||||||||||
| Non-current liabilities | |||||||||||
| Sale of future royalties liability | 17 | ||||||||||
| Deferred tax liability | 27 | ||||||||||
| Lease liability, non-current | 23 | ||||||||||
| Long-term loan | 22 | ||||||||||
| Liability for share-based awards | 9 | ||||||||||
| Total non-current liabilities | |||||||||||
| Current liabilities | |||||||||||
| Deferred revenue | 3 | ||||||||||
| Lease liability, current | 23 | ||||||||||
| Trade and other payables | 21 | ||||||||||
| Notes payable | 19 | ||||||||||
| Warrant liability | 18 | ||||||||||
| Preferred shares | 16, 18 | ||||||||||
| Current portion of long-term loan | 22 | ||||||||||
| Total current liabilities | |||||||||||
Total liabilities | |||||||||||
Total equity and liabilities | |||||||||||
Please refer to the accompanying Notes to the consolidated financial information. Registered number: 09582467.
The Consolidated Financial Statements were approved by the Board of Directors and authorized for issuance on April 25, 2024 and signed on its behalf by:
The Consolidated Financial Statements were approved by the Board of Directors and authorized for issuance on April 25, 2024 and signed on its behalf by:
Bharatt Chowrira
Chief Executive Officer
April 25, 2024
April 25, 2024
The accompanying notes are an integral part of these financial statements.
F-6
Consolidated Statement of Changes in Equity
For the years ended December 31
| Share Capital | Treasury Shares | ||||||||||||||||||||||||||||||||||||||||
Note | Shares | Amount $000s | Share premium $000s | Shares | Amount $000s | Merger reserve $000s | Translation reserve $000s | Other reserve $000s | Retained earnings/ (accumulated deficit) $000s | Total Parent equity $000s | Non-controlling interests $000s | Total Equity $000s | |||||||||||||||||||||||||||||
Balance January 1, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income/(loss) for the year | — | — | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||
Exercise of stock options | 9 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Revaluation of deferred tax assets related to share-based awards | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Equity-settled share-based awards | 9 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Settlement of restricted stock units | 9 | — | — | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||
| Reclassification of equity settled awards to liability awards | — | — | — | — | — | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||
| Vesting of share-based awards and net share exercise | 9 | — | — | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||||||||
| Acquisition of subsidiary non-controlling interest | — | — | — | — | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||
| NCI exercise of share options in subsidiaries | 9 | — | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance December 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||
Other comprehensive income/(loss), net | — | — | — | — | ( | — | — | ( | — | ( | |||||||||||||||||||||||||||||||
Total comprehensive income/(loss) for the year | — | — | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||
| Deconsolidation of Subsidiary | 5 | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Exercise of stock options | 9 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Purchase of Treasury stock | 15 | — | — | — | ( | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||
| Revaluation of deferred tax assets related to share-based awards | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Equity-settled share-based awards | 9 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Settlement of restricted stock units | 9 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| NCI exercise of share options in subsidiaries | 9 | — | — | — | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance December 31, 2022 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
F-7
| Share Capital | Treasury Shares | ||||||||||||||||||||||||||||||||||||||||
Note | Shares | Amount $000s | Share premium $000s | Shares | Amount $000s | Merger reserve $000s | Translation reserve $000s | Other reserve $000s | Retained earnings/ (accumulated deficit) $000s | Total Parent equity $000s | Non-controlling interests $000s | Total Equity $000s | |||||||||||||||||||||||||||||
Balance January 1, 2023 | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | — | — | — | — | — | — | — | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Other comprehensive income/(loss) for the period | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Total comprehensive income/(loss) for the period | — | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Deconsolidation of Subsidiary | 5 | — | — | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||
Exercise of stock options | 9 | — | — | ( | — | — | |||||||||||||||||||||||||||||||||||
| Purchase of Treasury stock | 15 | — | — | — | ( | ( | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||
Equity-settled share-based awards | 9 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Settlement of restricted stock units | 9 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
| Expiration of share options in subsidiary | — | — | — | — | — | — | — | — | ( | ||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
Balance December 31, 2023 | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-8
Consolidated Statement of Cash Flows
For the years ended December 31
| Note | 2023 $000s | 2022 $000s | 2021 $000s | |||||||||||
| Cash flows from operating activities | ||||||||||||||
Income/(loss) for the year | ( | ( | ( | |||||||||||
| Adjustments to reconcile income/(loss) for the period to net cash used in operating activities: | ||||||||||||||
| Non-cash items: | ||||||||||||||
| Depreciation and amortization | 12, 23 | |||||||||||||
| Share-based compensation expense | 9 | |||||||||||||
| (Gain)/loss on investment held at fair value | 5 | ( | ( | |||||||||||
| Realized loss on sale of investments | 5 | |||||||||||||
| Gain on dilution of ownership interest in associate | 6 | ( | ||||||||||||
| Impairment of investment in associates | 6 | |||||||||||||
| Gain on deconsolidation of subsidiary | 5 | ( | ( | |||||||||||
| Share of net loss of associates accounted for using the equity method | 6 | |||||||||||||
| Loss on investments in notes from associates | 7 | |||||||||||||
| Fair value gain on other financial instruments | 6, 18 | ( | ( | |||||||||||
| Loss on disposal of assets | ||||||||||||||
| Impairment of fixed assets | ||||||||||||||
| Income taxes, net | 27 | ( | ||||||||||||
| Finance (income)/costs, net | 10 | ( | ( | ( | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Trade and other receivables | ( | ( | ||||||||||||
| Prepaid expenses | ( | ( | ||||||||||||
| Deferred revenue | ( | ( | ||||||||||||
| Trade and other payables | 21 | |||||||||||||
| Other | ( | |||||||||||||
| Income taxes paid | ( | ( | ( | |||||||||||
| Interest received | ||||||||||||||
| Interest paid | ( | ( | ( | |||||||||||
| Net cash used in operating activities | ( | ( | ( | |||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Purchase of property and equipment | 12 | ( | ( | ( | ||||||||||
| Proceeds from sale of property and equipment | ||||||||||||||
| Purchases of intangible assets | 13 | ( | ( | |||||||||||
| Investment in associates | 6 | ( | ||||||||||||
| Purchase of investments held at fair value | 5 | ( | ( | |||||||||||
| Sale of investments held at fair value | 5 | |||||||||||||
| Purchase of short-term note from associate | ( | |||||||||||||
| Repayment of short-term note from associate | ||||||||||||||
| Purchase of Convertible Note from associate | 7 | ( | ( | |||||||||||
| Cash derecognized upon loss of control over subsidiary (see table below) | 5 | ( | ( | |||||||||||
| Purchases of short-term investments | ( | ( | ||||||||||||
| Proceeds from maturity of short-term investments | ||||||||||||||
| Receipt of payment of sublease | ||||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Receipt of cash from sale of future royalties | 17 | |||||||||||||
| Issuance of subsidiary preferred Shares | 16 | |||||||||||||
| Issuance of Subsidiary Convertible Note | ||||||||||||||
| Payment of lease liability | 23 | ( | ( | ( | ||||||||||
| Exercise of stock options | ||||||||||||||
| Settlement of restricted stock unit equity awards | ( | |||||||||||||
| Vesting of restricted stock units and net share exercise | ( | |||||||||||||
| NCI exercise of stock options in subsidiary | ||||||||||||||
| Purchase of treasury stock | 15 | ( | ( | |||||||||||
| Acquisition of a non-controlling Interest of a subsidiary | ( | |||||||||||||
| Other | ( | ( | ( | |||||||||||
| Net cash provided by (used in) financing activities | ( | |||||||||||||
| Net increase (decrease) in cash and cash equivalents | ( | |||||||||||||
| Cash and cash equivalents at beginning of year | ||||||||||||||
Cash and cash equivalents at end of year | ||||||||||||||
| Supplemental disclosure of non-cash investment and financing activities: | ||||||||||||||
| Purchase of intangible assets not yet paid in cash | ||||||||||||||
Settlement of restricted stock units through issuance of equity | ||||||||||||||
| Purchase of property, plant and equipment against trade and other payables | ||||||||||||||
| Leasehold improvements purchased through lease incentives (deducted from Right of Use Asset) | ||||||||||||||
| Conversion of subsidiary convertible note into preferred share liabilities | ||||||||||||||
F-9
Supplemental disclosure of non-cash investment and financing activities (continued):
Assets, Liabilities and non-controlling interests in deconsolidated subsidiary
| 2023 $000s | 2022 $000s | |||||||
| Trade and other receivables | ( | |||||||
| Prepaid assets | ( | |||||||
| Property, plant and equipment, net | ( | |||||||
| Right of use asset, net | ( | |||||||
| Trade and other Payables | ||||||||
| Deferred revenue | ||||||||
| Lease liabilities (including current potion) | ||||||||
| Long-term loan (including current portion) | ||||||||
| Subsidiary notes payable | ||||||||
| Subsidiary preferred shares and warrants | ||||||||
| Other assets and liabilities, net | ( | |||||||
| Non-controlling interest | ( | |||||||
| Investment retained in deconsolidated subsidiary | ||||||||
| Gain on deconsolidation | ( | ( | ||||||
| Cash in deconsolidated subsidiary | ||||||||
The accompanying notes are an integral part of these financial statements.
F-10
Notes to the Consolidated Financial Statements
(Amounts in thousands, except share and per share data, or exercise price and conversion price)
1. Material Accounting Policies
Description of Business
PureTech Health plc (the “Parent”) is a public company incorporated, domiciled and registered in the United Kingdom (“UK”). The registered number is 09582467 and the registered address is 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom.
The Parent and its subsidiaries are together referred to as the “Group”.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these group financial statements.
Basis of Presentation
The consolidated financial statements of the Group (the "Consolidated Financial Statements") are presented as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021. The Consolidated Financial Statements have been approved by the Directors on April 25, 2024, and are prepared in accordance with International Financial Reporting Standards ("IFRSs") as issued by the International Accounting Standards Board ("IASB").
For presentation of the Consolidated Statement of Comprehensive Income/(Loss), the Group uses a classification based on the function of expenses, rather than based on their nature, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice.
Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts.
Basis of Measurement
Use of Judgments and Estimates
In preparing the Consolidated Financial Statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis.
Significant estimation is applied in determining the following:
•Financial instruments valuations (see Note 18. Financial Instruments): In accordance with IFRS 9, the Group carries certain financial assets and financial liabilities at fair value, with changes in fair value through profit and loss ("FVTPL"). Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, appropriate discount rate, volatility, and term to exit.
Significant judgement is also applied in determining the following:
•Whether financial instruments should be classified as liability or equity (see Note 16. Subsidiary Preferred Shares.). The judgement includes an assessment of whether the financial instruments include contractual obligations of the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether those obligations could be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgements and estimates is included below under Financial Instruments.
•Whether the power to control investees exists (see Note 5. Investments Held at Fair Value and Note 6. Investments in Associates and accounting policy with regard to Subsidiaries below). The judgement includes an assessment of whether the Group has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of its own returns. The Group considers among others its voting shares, shareholder agreements, ability to appoint board members, representation on the board, rights to appoint management, de facto control, investee dependence on the Group, etc. If the power to control the investee exists, it consolidates the financial statements of such investee in the Consolidated Financial Statements of the Group. Upon issuance of new shares in an investee and/or a change in any shareholders or governance agreements, the Group reassesses its ability to control the investee based on the revised voting interest, revised board composition and revised subsidiary governance and management structure. When such new circumstances result in the Group losing its power to control the investee, the investee is deconsolidated. On March 1 2023 Vedanta was deconsolidated. Although the Group holds 47 % of the voting rights and the other shareholders are widely dispersed, the Group does not have de facto control because the investor rights agreement stipulates that the relevant activities of Vedanta are directed by Vedanta's Board and the Group does not control Vedanta's Board decision making. Voting rights are not the dominant factor for directing Vedanta's relevant activities.
•Whether the Group has significant influence over financial and operating policies of investees in order to determine if the Group should account for its investment as an associate based on IAS 28 or a financial instrument based on IFRS 9. (refer to Note 5. Investments Held at Fair Value and Note 6. Investments in Associates ). This judgement includes, among others, an assessment whether the Group has representation on the board of directors of the investee, whether the Group participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Group and the investee.
•Upon determining that the Group does have significant influence over the financial and operating policies of an investee, if the Group holds more than a single instrument issued by its equity-accounted investee, judgement is required to determine whether the additional instrument forms part of the investment in the associate, which is accounted for under IAS 28 and
F-11
scoped out of IFRS 9, or it is a separate financial instrument that falls in the scope of IFRS 9. This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Group and whether such financial instrument provides access to returns underlying an ownership interest.
•When the Group has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute long-term interests ("LTI") for the purposes of IAS 28. This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments. After considering the individual facts and circumstances of the Group’s investment in its associate's preferred stock in the manner described above, including the long-term nature of such investment, the ability of the Group to convert its preferred stock investment to an investment in common shares and the likelihood of such conversion, the Group concluded that such investment was considered a long term interest.
•In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement (refer to Note 17. Sale of Future Royalties Liability).
As of December 31, 2023, the Group had cash and cash equivalents of $191,081 and short-term investments of $136,062 . Considering the Group’s financial position as of December 31, 2023, and its principal risks and opportunities, the Group prepared a going concern analysis covering a period of at least the twelve-month period from the date of signing the Consolidated Financial Statements ("the going concern period") utilizing realistic scenarios and applying a severe but plausible downside scenario. Even under the downside scenario, the analysis demonstrates the Group continues to maintain sufficient liquidity headroom and continues to comply with all financial obligations. The Board of Directors believe the Group and the Parent is adequately resourced to continue in operational existence for at least the twelve-month period from the date of signing the Consolidated Financial Statements. Accordingly, the Board of Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements and the PureTech Health plc Financial Statements.
Basis of consolidation
The Consolidated Financial Statements as of December 31, 2023 and 2022, and for each of the years ended December 31, 2023, 2022 and 2021, comprises PureTech Health plc and its consolidated subsidiaries. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated.
Subsidiaries
As used in these financial statements, the term subsidiaries refers to entities that are controlled by the Group. Under applicable accounting rules, the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights, board representation, shareholders' agreements, ability to appoint board of directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance.
F-12
A list of all current and former subsidiaries organized with respect to classification as of December 31, 2023, and the Group’s total voting percentage, based on outstanding voting common and preferred shares as of December 31, 2023, 2022 and 2021, is outlined below. All current subsidiaries are domiciled within the United States and conduct business activities solely within the United States.
Voting percentage at December 31, through the holdings in | ||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Subsidiary | Common | Preferred | Common | Preferred | Common | Preferred | ||||||||||||||||||||
| Subsidiary operating companies | ||||||||||||||||||||||||||
Alivio Therapeutics, Inc.2 | ||||||||||||||||||||||||||
Entrega, Inc. (indirectly held through Enlight)2 | ||||||||||||||||||||||||||
PureTech LYT, Inc. (formerly Ariya Therapeutics, Inc.)2 | ||||||||||||||||||||||||||
PureTech LYT 100, Inc.2 | ||||||||||||||||||||||||||
PureTech Management, Inc.3 | ||||||||||||||||||||||||||
PureTech Health LLC3 | ||||||||||||||||||||||||||
| Deconsolidated former subsidiary operating companies | ||||||||||||||||||||||||||
Sonde Health, Inc.2,5 | ||||||||||||||||||||||||||
Akili Interactive Labs, Inc.2,6 | ||||||||||||||||||||||||||
Gelesis, Inc.1,2 | ||||||||||||||||||||||||||
Karuna Therapeutics, Inc.2,6 | ||||||||||||||||||||||||||
Vedanta Biosciences, Inc.2, 4 | ||||||||||||||||||||||||||
Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)2, 4 | ||||||||||||||||||||||||||
Vor Biopharma Inc.2,6 | ||||||||||||||||||||||||||
| Nontrading holding companies | ||||||||||||||||||||||||||
Endra Holdings, LLC (held indirectly through Enlight)2 | ||||||||||||||||||||||||||
Ensof Holdings, LLC (held indirectly through Enlight)2 | ||||||||||||||||||||||||||
PureTech Securities Corp.2 | ||||||||||||||||||||||||||
PureTech Securities II Corp.2 | ||||||||||||||||||||||||||
| Inactive subsidiaries | ||||||||||||||||||||||||||
Appeering, Inc.2 | ||||||||||||||||||||||||||
Commense Inc.2 | ||||||||||||||||||||||||||
Enlight Biosciences, LLC2 | ||||||||||||||||||||||||||
Ensof Biosystems, Inc. (held indirectly through Enlight)2 | ||||||||||||||||||||||||||
Follica, LLC 2 | ||||||||||||||||||||||||||
Knode Inc. (indirectly held through Enlight)2 | ||||||||||||||||||||||||||
Libra Biosciences, Inc.2 | ||||||||||||||||||||||||||
Mandara Sciences, LLC2 | ||||||||||||||||||||||||||
Tal Medical, Inc.2 | ||||||||||||||||||||||||||
1 On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under the United States bankruptcy code. See Note 6. Investments in Associates for details.
2 Registered address is Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801, USA.
3 Registered address is 2711 Centerville Rd., Suite 400, Wilmington, DE 19808, USA.
4 On March 1, 2023, the Group lost control over Vedanta and Vedanta was deconsolidated from the Group’s financial statements, resulting in only the profits and losses generated by Vedanta through the deconsolidation date being included in the Group’s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5. Investments Held at Fair Value for further details about the accounting for the investments in Vedanta subsequent to deconsolidation.
5 On May 25, 2022, the Group lost control over Sonde and Sonde was deconsolidated from the Group’s financial statements, resulting in only the profits and losses generated by Sonde through the deconsolidation date being included in the Group’s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5. Investments Held at Fair Value and 6. Investments in Associates for further details about the accounting for the investments in Sonde subsequent to deconsolidation.
6 See Notes 5. Investments Held at Fair Value and 6. Investments in Associates for additional discussion on the Group's investment held in Akili, Karuna and Vor.
7 Follica became inactive during 2023.
Change in Subsidiary Ownership and Loss of Control
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
Where the Group loses control of a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (“NCI”). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss).
Associates
As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The Group evaluates if it maintains significant influence over associates by assessing if the Group has the power to participate in the financial and operating policy decisions of the associate.
Application of the Equity Method to Associates
Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated
F-13
Financial Statements include the Group’s share of the total comprehensive income or loss of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases.
To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument is accounted for in accordance with IFRS 9 as investments held at fair value.
When the Group’s share of losses exceeds its equity method investment in the investee, losses are applied against long-term interests, which are investments accounted for under IFRS 9. Investments are determined to be long-term interests when they are long-term in nature and in substance they form part of the Group's net investment in that associate. This determination is impacted by many factors, among others, whether settlement by the investee through redemption or repayment is planned or likely in the foreseeable future, whether the investment can be converted and/or is likely to be converted to common stock or other equity instrument and other factors regarding the nature of the investment. Whilst this assessment is dependent on many specific facts and circumstances of each investment, typically conversion features whereby the investment is likely to convert to common stock or other equity instruments would point to the investment being a long-term interest. Similarly, where the investment is not planned or likely to be settled through redemption or repayment in the foreseeable future, this would indicate that the investment is a long-term interest. When the net investment in the associate, which includes the Group’s investments in other long-term interests, is reduced to nil, recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee.
The Group has adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 when equity method losses are applied against long-term interests. The amendments provide the annual sequence in which both standards are to be applied in such a case. The Group has applied the equity method losses to the long-term interests presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date.
Sale of Future Royalties Liability
The Group accounts for the sale of future royalties liability as a financial liability, as it continues to hold the rights under the royalty bearing licensing agreement and has a contractual obligation to deliver cash to an investor for a portion of the royalty it receives. Interest on the sale of future royalties liability is recognized using the effective interest rate over the life of the related royalty stream.
The sale of future royalties liability and the related interest expense are based on the Group’s current estimates of future royalties expected to be paid over the life of the arrangement. Forecasts are updated periodically as new data is obtained. Any increases, decreases or a shift in timing of estimated cash flows require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future contractual cash flows that are discounted at the liability’s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
•Those to be measured subsequently at fair value either through other comprehensive income "FVOCI", or through profit or loss "FVTPL", and
•Those to be measured at amortized cost.
The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses are recorded in profit or loss.
Measurement
At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets that are carried at FVTPL are expensed.
Impairment
The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables.
Financial Assets
The Group’s financial assets consist of cash and cash equivalents, investments in debt securities, trade and other receivables, notes, restricted cash deposits and investments in equity securities. The Group’s financial assets are virtually all classified into the following categories: investments held at fair value, notes, trade and other receivables, short-term investments and cash and cash equivalents. The Group determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired.
Investments held at fair value are investments in equity instruments. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments that are not providing access to returns underlying ownership interests and are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date. The Group has elected to record the changes in fair values for the financial assets falling under this category through profit and loss. Please refer to Note 5. Investments Held at Fair Value.
Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss) as applicable.
F-14
The notes from an associate, since their contractual terms do not consist solely of cash flow payments of principal and interest on the principal amount outstanding, are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss.
Cash and cash equivalents consist of demand deposits with banks and other financial institutions and highly liquid instruments with original maturities of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates their fair value.
Short-term investments consist of short-term US treasury bills that are held to maturity. The contractual terms consist solely of payment of the principal and interest and the Group's business model is to hold the treasury bills to maturity. As such, such short-term investments are recorded at amortized cost. As of balance sheet date, amortized cost approximated the fair value of such short-term investments.
Trade and other receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any expected lifetime losses. Such losses are determined taking into account previous experience, credit rating and economic stability of counterparty and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision. As of balance sheet date, the Group did not record any such expected lifetime losses related to the outstanding trade and other receivable balances. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period.
Financial Liabilities
The Group’s financial liabilities primarily consist of trade and other payables, and preferred shares.
The majority of the Group’s subsidiaries have preferred shares and certain notes payable with embedded derivatives, which are classified as current liabilities. When the Group has preferred shares and notes with embedded derivatives that qualify for bifurcation, the Group has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the instrument qualifies to be accounted for under such FVTPL method.
The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
Equity Instruments Issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32:
1.They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable to the Group; and
2.Where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Group’s own shares, the amounts presented in the Group's shareholders' equity exclude amounts in relation to those shares.
IFRS 15, Revenue from Contracts with Customers
The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred.
The majority of the Group’s contract revenue is generated from licenses and services, some of which are part of collaboration arrangements.
Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group has entered into transactions that generate revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for Government Grants. Contract revenue is recognized at either a point-in-time or over time, depending on the nature of the performance obligations.
The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model:
•Identify the contract(s) with a customer – A contract with a customer exists when (i) the Group enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration.
•Identify the performance obligations in the contract – Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Group, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract.
•Determine the transaction price – The transaction price is determined based on the consideration to which the Group will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Group estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Group’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.
F-15
•Allocate the transaction price to the performance obligations in the contract – If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis.
•Recognize revenue when (or as) the Group satisfies a performance obligation – The Group satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer.
Revenue generated from services agreements (typically where licenses and related services were combined into one performance obligation) is determined to be recognized over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs; (b) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date.
It was determined that the Group has contracts that meet criteria (a), since the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Group believes that in research and development service type agreements using costs incurred to date represents the most faithful depiction of the entity’s performance towards complete satisfaction of a performance obligation.
Revenue from licenses that are not part of a combined performance obligation are recognized at a point in time due to the licenses relating to intellectual property that has significant stand-alone functionality and as such represent a right to use the entity's intellectual property as it exists at the point in time at which the license is granted.
Royalty income received in respect of licensing agreements when the license of intellectual property is the predominant item in the arrangement is recognized as the related third-party sales in the licensee occur.
Amounts that are receivable or have been received per contractual terms but have not been recognized as revenue since performance has not yet occurred or has not yet been completed are recorded as deferred revenue. The Group classifies as non-current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle.
Grant Revenue
The Group recognizes grants from governmental agencies as grant revenue in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that the Group will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Group evaluates the conditions of each grant as of each reporting date to ensure that the Group has reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant payment will be received as a result of meeting the necessary conditions.
The Group submits qualifying expenses for reimbursement after the Group has incurred the research and development expense. The Group records an unbilled receivable upon incurring such expenses. In cases in which the grant revenue is received prior to the expenses being incurred or recognized, the amounts received are deferred until the related expense is incurred and/or recognized. Grant revenue is recognized in the Consolidated Statement of Comprehensive Income/(Loss) at the time in which the Group recognizes the related reimbursable expense for which the grant is intended to compensate.
Functional and Presentation Currency
The Consolidated Financial Statements are presented in United States dollars (“US dollars”). The functional currency of all members of the Group is the U.S. dollar. The Group's share in foreign exchange differences in associates were reported in other comprehensive income/(loss).
Foreign Currency
Share Capital
Ordinary shares are classified as equity. The Group's equity is comprised of share capital, share premium, merger reserve, other reserve, translation reserve, and retained earnings/accumulated deficit.
Treasury Shares
Treasury shares are recognized at cost and are deducted from shareholders' equity. No gain or loss is recognized in profit and loss for the purchase, sale, re-issue or cancellation of the Group's own equity shares.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation is calculated using the straight-line method over the estimated useful life of the related asset:
F-16
| Laboratory and manufacturing equipment | |||||
| Furniture and fixtures | |||||
| Computer equipment and software | |||||
| Leasehold improvements | |||||
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
Intangible Assets
Intangible assets, which include purchased patents and licenses with finite useful lives, are carried at historical cost less accumulated amortization, if amortization has commenced. Intangible assets with finite lives are amortized from the time they are available for their intended use. Amortization is calculated using the straight-line method to allocate the costs of patents and licenses over their estimated useful lives.
Research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are presented as In-Process Research and Development (IPR&D). The cost of IPR&D represents upfront payments as well as additional contingent payments based on development, regulatory and sales milestones related to certain license agreement where the Group licenses IP from a third party. These milestones are capitalized as the milestone is triggered. See Note 25. Commitments and Contingencies. IPR&D is not amortized since it is not yet available for its intended use, but it is evaluated for potential impairment on an annual basis or more frequently when facts and circumstances warrant.
Impairment of Non-Financial Assets
The Group reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there are indicators of impairment. If any such indicators of impairment exist, then an asset’s recoverable amount is estimated. The recoverable amount is the higher of an asset’s fair value less cost of disposal and value in use.
The Group’s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at least annually.
An impairment loss is recognized when an asset’s carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non- financial asset instrument is impaired, an impairment loss is recognized in the Consolidated Statement of Comprehensive Income/(Loss).
Employee Benefits
Short-Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation due to past service provided by the employee, and the obligation can be estimated reliably.
Defined Contribution Plans
Share-based Payments
Share-based payment arrangements, in which the Group receives goods or services as consideration for its own equity instruments, are accounted for as equity-settled share-based payment transactions (except certain restricted stock units - see below) in accordance with IFRS 2, regardless of how the equity instruments are obtained by the Group. The grant date fair value of employee share-based payment awards is recognized as an expense with a corresponding increase in equity over the requisite service period related to the awards. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Certain restricted stock units are treated as liability settled awards starting in 2021. Such awards are remeasured at every reporting date until settlement date and are recognized as compensation expense over the requisite service period. Differences in remeasurement are recognized in profit and loss. The cumulative cost that will ultimately be recognized in respect of these awards will equal to the amount at settlement.
Development Costs
Expenditures on research activities are recognized as incurred in the Consolidated Statement of Comprehensive Income/(Loss). In accordance with IAS 38, development costs are capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group can demonstrate its ability to use or sell the intangible asset, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and it is able to measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is, generally, when regulatory approval has been received where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving meaningful recurring sales. Otherwise, the development expenditure is recognized
F-17
as incurred in the Consolidated Statement of Comprehensive Income/(Loss). As of balance sheet date, the Group has not capitalized any development costs.
Provisions
A provision is recognized in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Leases
The Group leases real estate for use in operations. These leases have lease terms of approximately 10 years. The Group includes options that are reasonably certain to be exercised as part of the determination of the lease term. The group determines if an arrangement is a lease at inception of the contract in accordance with guidance detailed in IFRS 16. Right-of-use (ROU) assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Group's leases do not provide an implicit rate, the Group used its estimated incremental borrowing rate, based on information available at commencement date, in determining the present value of future payments.
The Group’s leases are virtually all leases of real estate.
The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for:
•Leases with a term of 12 months or less and containing no purchase options; and
•Leases where the underlying asset has a value of less than $5,000.
Finance Income and Finance Costs
Finance income consists of interest income on funds invested in money market funds and U.S. treasuries. Finance income is recognized as it is earned. Finance costs consist mainly of loan, notes and lease liability interest expenses, interest expense due to accretion of and adjustment to sale of future royalties liability as well as the changes in the fair value of financial liabilities carried at FVTPL (such changes can consist of finance income when the fair value of such financial liabilities decreases).
Taxation
Tax on the profit or loss for the year comprises current and deferred income tax. In accordance with IAS 12, tax is recognized in the Consolidated Statement of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets with respect to investments in associates are recognized only to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Fair Value Measurements
The Group’s accounting policies require that certain financial assets and certain financial liabilities be measured at their fair value.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
•Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
•Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Operating Segments
Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The CODM reviews discrete financial information for the operating segments in order to assess their
F-18
performance and is responsible for making decisions about resources allocated to the segments. The CODM has been identified as the Group’s Board of Directors.
2. New Standards and Interpretations
The Group has applied the following amendments for the first time for its annual reporting period commencing January 1, 2023:
•IFRS 17 Insurance Contracts
•Definition of Accounting Estimates (Amendments to IAS 8)
•Deferred Tax related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12)
The amendments listed above did not have any impact on the amounts recognized in prior and current periods and are not expected to significantly affect the future periods.
Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for December 31, 2023 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.
3. Revenue
Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss) consists of the following:
For the years ended December 31, | 2023 $ | 2022 $ | 2021 $ | ||||||||
| Contract revenue | |||||||||||
Grant revenue | |||||||||||
| Total revenue | |||||||||||
All amounts recorded in contract revenue were generated in the United States.
For the years ended December 31, 2023, 2022 and 2021, contract revenue includes royalties received from an associate in the amounts of zero , $509 and $231 , respectively.
Substantially all of the Group’s contracts related to contract revenue for the years ended December 31, 2023, 2022 and 2021 were determined to have a single performance obligation which consists of a combined deliverable of license of intellectual property and research and development services. Therefore, for such contracts, revenue is recognized over time based on the input method which the Group believes is a faithful depiction of the transfer of goods and services. Progress is measured based on costs incurred to date as compared to total projected costs. Payments for such contracts are primarily made up-front on a periodic basis.
During the year ended December 31, 2021, the Group received a $6,500 payment from Imbrium Therapeutics, Inc. following the exercise of the option to acquire an exclusive license for the Initial Product Candidate, as defined in the agreement. Since the license transferred was a right to use license, revenue from the option exercise was recognized at a point in time upon transfer of the license, which occurred during the year ended December 31, 2021.
Disaggregated Revenue
The Group disaggregates contract revenue in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Group disaggregates revenue based on contract revenue or grant revenue, and further disaggregates contract revenue based on the transfer of control of the underlying performance obligations.
Timing of contract revenue recognition For the years ended December 31, | 2023 $ | 2022 $ | 2021 $ | ||||||||
Transferred at a point in time – Licensing Income | |||||||||||
Transferred over time | |||||||||||
| Customers over 10% of revenue | 2023 $ | 2022 $ | 2021 $ | ||||||||
| Customer A | |||||||||||
| Customer B | |||||||||||
| Customer C | |||||||||||
F-19
4. Segment Information
Basis for Segmentation
The Directors are the Group’s chief operating decision-makers. The Group’s operating segments are determined based on the financial information provided to the Board of Directors periodically for the purposes of allocating resources and assessing performance. During the second half of 2023, the Group changed the financial information that was regularly reviewed by the Board of Directors to allocate resources and assess performance. The Group has determined each of its Wholly-Owned Programs represents an operating segment and the Group has aggregated each of these operating segments into one reportable segment, the Wholly-Owned Programs segment, given the high level of operational and financial similarities across its Wholly-Owned Programs. Each of the Group’s Controlled Founded Entities represents an operating segment. The Group aggregates each Controlled Founded Entity operating segment into one reportable segment, the Controlled Founded Entities segment. For the Group’s entities that do not meet the definition of an operating segment, the Group presents this information in the Parent & Other column in its segment footnote to reconcile the information in this footnote to the Consolidated Financial Statements. Substantially all of the Group’s revenue and profit generating activities are generated within the United States and, accordingly, no geographical disclosures are provided.
The Group has retroactively recast its fiscal year 2022 and 2021 results on the new basis for comparability.
Following is the description of the Group's reportable segments:
Wholly-Owned Programs
The Wholly-Owned Programs segment is advancing Wholly-Owned Programs which are focused on treatments for patients with devastating diseases. The Wholly-Owned Programs segment is comprised of the technologies that are wholly-owned and will be advanced through with either the Group's funding or non-dilutive sources of financing. The operational management of the Wholly-Owned Programs segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development.
Controlled Founded Entities
The Controlled Founded Entities segment is comprised of the Group’s consolidated operational subsidiaries as of December 31, 2023 that either have, or have plans to hire, independent management teams and currently have already raised third-party dilutive capital. These subsidiaries have active research and development programs and either have entered into or plan to seek an equity or debt investment partner, who will provide additional industry knowledge and access to networks, as well as additional funding to continue the pursued growth of the entity.
The Group’s entities that were determined not to meet the definition of an operating segment are included in the Parent Company and Other column to reconcile the information in this footnote to the financial statements. This column captures activities not directly attributable to the Group's operating segments and includes the activities of the Parent, corporate support functions and certain research and development support functions that are not directly attributable to a strategic business segment as well as the elimination of intercompany transactions. This column also captures the operating results for the deconsolidated entities through the date of deconsolidation (e.g. Vedanta in 2023 and Sonde in 2022) and accounting for the Group's holdings in Founded Entities for which control has been lost, which primarily represents: the activity associated with deconsolidating an entity when the Group no longer controls the entity (e.g. Vedanta in 2023 and Sonde in 2022), the gain or loss on the Group's investments accounted for at fair value (e.g. the Group's ownership stakes in Karuna, Vor and Akili) and the Group's net income or loss of associates accounted for using the equity method.
(The term "Founded Entities" refers to entities which the Company incorporated and announced the incorporation as a Founded Entity externally. It includes certain of the Company’s wholly-owned subsidiaries which have been announced by the Company as Founded Entities, Controlled Founded Entities and deconsolidated Founded Entities.)
In January 2024, the Group launched two new Founded Entities to advance certain programs from the Wholly-Owned Programs segment. Refer to Note 28. Subsequent Events for detail. The financial results of these programs were included in the Wholly-Owned Programs segment as of December 31, 2023 and 2022 and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities.
F-20
The Group’s Board of Directors reviews segment performance and allocates resources based upon revenue and operating loss as well as the funds available for each segment. The Board of Directors do not review any other information for purposes of assessing segment performance or allocating resources.
For the year ended December 31, 2023 | ||||||||||||||
Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |||||||||||
| Contract revenue | ||||||||||||||
| Grant revenue | ||||||||||||||
| Total revenue | ||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | ||||||||||
| Research and development expenses | ( | ( | ( | ( | ||||||||||
| Total operating expense | ( | ( | ( | ( | ||||||||||
| Operating income/(loss) | ( | ( | ( | ( | ||||||||||
Income/expenses not allocated to segments | ||||||||||||||
| Other income/(expense): | ||||||||||||||
| Gain on deconsolidation of subsidiary | ||||||||||||||
| Gain/(loss) on investment held at fair value | ||||||||||||||
| Realized loss on sale of investments | ( | |||||||||||||
| Gain/(loss) on investment in notes from associates | ( | |||||||||||||
| Other income/(expense) | ( | |||||||||||||
| Total other income/(expense) | ||||||||||||||
| Net finance income/(costs) | ||||||||||||||
| Share of net income/(loss) of associates accounted for using the equity method | ( | |||||||||||||
| Income/(loss) before taxes | ( | |||||||||||||
As of December 31, 2023 | ||||||||||||||
Available Funds | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Short-term Investments | ||||||||||||||
| Consolidated cash, cash equivalents and short-term investments | ||||||||||||||
For the year ended December 31, 2022 | ||||||||||||||
| Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |||||||||||
| Contract revenue | ||||||||||||||
| Grant revenue | ||||||||||||||
| Total revenue | ||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | ||||||||||
| Research and development expenses | ( | ( | ( | ( | ||||||||||
| Total Operating expenses | ( | ( | ( | ( | ||||||||||
Operating income/(loss) | ( | ( | ( | |||||||||||
Income/expenses not allocated to segments | ||||||||||||||
| Other income/(expense): | ||||||||||||||
| Gain on deconsolidation | ||||||||||||||
| Gain/(loss) on investment held at fair value | ( | |||||||||||||
| Realized loss on sale of investments | ( | |||||||||||||
| Other income/(expense) | ||||||||||||||
| Total other income/(expense) | ( | |||||||||||||
| Net finance income/(costs) | ||||||||||||||
| Share of net income/(loss) of associate accounted for using the equity method | ( | |||||||||||||
| Gain on dilution of ownership interest in associate | ||||||||||||||
Impairment of investment in associates | ( | |||||||||||||
| Income/(loss) before taxes | ( | |||||||||||||
As of December 31, 2022 | ||||||||||||||
| Available Funds | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Short-term Investments | ||||||||||||||
| Consolidated cash, cash equivalents and short-term investments | ||||||||||||||
F-21
For the year ended December 31, 2021 | ||||||||||||||
| Wholly-Owned Programs $ | Controlled Founded Entities $ | Parent Company & Other $ | Consolidated $ | |||||||||||
| Contract revenue | ||||||||||||||
| Grant revenue | ||||||||||||||
| Total revenue | ||||||||||||||
| General and administrative expenses | ( | ( | ( | ( | ||||||||||
| Research and development expenses | ( | ( | ( | ( | ||||||||||
| Total operating expense | ( | ( | ( | ( | ||||||||||
Operating income/(loss) | ( | ( | ( | |||||||||||
Income/expenses not allocated to segments | ||||||||||||||
| Other income/(expense): | ||||||||||||||
| Gain/(loss) on investment held at fair value | ||||||||||||||
| Realized loss on sale of investments | ( | |||||||||||||
| Other income/(expense) | ||||||||||||||
| Other income/(expense) | ||||||||||||||
| Net finance income/(costs) | ||||||||||||||
| Share of net income/(loss) of associate accounted for using the equity method | ( | |||||||||||||
| Income/(loss) before taxes | ( | |||||||||||||
5. Investments Held at Fair Value
Investments held at fair value include both unlisted and listed securities held by the Group. These investments, which include interests in Akili, Vor, Karuna, Sonde, Vedanta, Gelesis and other insignificant investments, are initially measured at fair value and are subsequently re-measured at fair value at each reporting date with changes in the fair value recorded through profit and loss. Activities related to such investments during the periods are shown below:
| Investments held at fair value | $ | ||||
Balance as of January 1, 2022 | |||||
| Investment in Sonde preferred shares - Sonde deconsolidation | |||||
| Sale of Karuna and Vor shares | ( | ||||
| Loss realised on sale of investments as a result of written call option | ( | ||||
| Investment in Akili common shares | |||||
| Gelesis Earn-out Shares received in the SPAC exchange | |||||
| Exchange of Gelesis preferred shares to Gelesis common shares | ( | ||||
| Loss – change in fair value through profit and loss | ( | ||||
Balance as of December 31, 2022 and January 1, 2023 | |||||
| Investment in Vedanta preferred shares – Vedanta deconsolidation | |||||
Investment in Gelesis 2023 Warrants | |||||
| Sale of Karuna shares | ( | ||||
| Loss realised on sale of investments | ( | ||||
| Gain – change in fair value through profit and loss | |||||
Balance as of December 31, 2023 | |||||
Vedanta
On March 1, 2023, Vedanta issued convertible debt to a syndicate of investors. The Group did not participate in this round of financing. As part of the issuance of the debt, the convertible debt holders were granted representation on Vedanta's Board of Directors and the Group lost control over the Vedanta Board of Directors and the power to direct the relevant Vedanta activities. Consequently, Vedanta was deconsolidated on March 1, 2023 and its results of operations are included in the Consolidated Financial Statements through the date of deconsolidation.
Following deconsolidation, the Group has significant influence over Vedanta through its voting interest in Vedanta and its remaining representation on Vedanta's Board of Directors. However, the Group only holds convertible preferred shares in Vedanta that do not provide their holders with access to returns associated with a residual equity interest, and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss. Under IFRS 9, the preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
Upon deconsolidation, the Group derecognized its assets, liabilities and non-controlling interest in respect of Vedanta and recorded its aforementioned investment in Vedanta at fair value. The deconsolidation resulted in a gain of $61,787 . As of the date of deconsolidation, the investment in Vedanta convertible preferred shares held at fair value amounted to $20,456 .
During the year ended December 31, 2023, the Group recognized a loss of $6,303 for the changes in the fair value of the investment in Vedanta that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Vedanta is $14,153 as of December 31, 2023.
Karuna
F-22
Karuna was deconsolidated in March 2019. During 2019, Karuna completed its IPO and the Group lost its significant influence in Karuna. The shares held in Karuna are accounted for as an investment held at fair value under IFRS 9.
2021
On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118,000 . On November 9, 2021, the Group sold an additional 750,000 common shares of Karuna for $100,125 . As a result of the aforementioned sales, the Group recorded a loss of $20,925 , attributable to blockage discount included in the sales price, in realized gain/(loss) on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss).
2022
On August 8, 2022, the Group sold 125,000 shares of Karuna common stock. In addition, the Group wrote a series of call options entitling the holders thereof to purchase up to 477,100 Karuna common stock at a set price, which were exercised in full in August and September 2022. Aggregate proceeds to the Group from all aforementioned transactions amounted to $115,457 , net of transaction fees. As a result of the aforementioned sales, the Group recorded a loss of $29,303 , attributable to the exercise of the aforementioned call options, in realized gain/(loss) on sale of investment within the Consolidated Statement of Comprehensive Income/(Loss).
2023
During the three months ended December 31, 2023, the Group sold 167,579 shares of Karuna common stock with aggregate proceeds of $33,309 , net of transaction fees.
During the years ended December 31, 2023, 2022, and 2021 the Group recorded gains of $107,079 , $134,952 , $109,987 , respectively for the changes in the fair value of the Karuna investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2023, the Group held 886,885 shares or 2.3 percent of total outstanding Karuna common stock. In December 2023, Karuna entered into a definitive merger agreement with Bristol Myers Squibb ("BMS") under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024. See Note 28. Subsequent Events. The fair value of the Group’s investment in Karuna is $280,708 as of December 31, 2023.
Vor
Vor was deconsolidated in February 2019. As the Group did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value with changes in fair value recorded in the Consolidated Statement of Comprehensive Income/(Loss).
2021
On January 8, 2021, the Group participated in the second closing of Vor’s Series B preferred share financing. For consideration of $500 , the Group received an additional 961,538 Series B preferred shares.
On February 9, 2021, Vor closed its initial public offering (the "IPO") of 9,828,017 shares of its common stock at a price of $18.00 per share. Subsequent to the closing, the Group held 3,207,200 shares of Vor common stock, representing 8.6 percent of Vor common stock.
2022
In August and December 2022, the Group sold an aggregate of 535,400 shares of Vor common stock for aggregate proceeds of $3,253 .
During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $11,756 , a loss of $16,247 , and a gain of $3,903 , respectively, for the changes in the fair value of the investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Vor is $6,012 as of December 31, 2023.
Gelesis
Gelesis was deconsolidated in July 2019. The common stock held in Gelesis was accounted for under the equity method, while the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, with changes to the fair value of the instruments recorded through the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 6. Investments in Associates for information regarding the Group's investment in Gelesis as an associate.
2021
During the year ended December 31, 2021, as the equity method based investment in Gelesis was reduced to zero previously, the Group allocated a portion of its share in the net loss in Gelesis of $73,703 , to its preferred share and warrant investments in Gelesis, which were considered to be long-term interests in Gelesis.
2022
On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp ("Capstar"). As part of the business combination, all shares in Gelesis, common and preferred, including the shares held by the Group, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (hereinafter "Gelesis Earn-out Shares"). In addition, the Group invested $15,000 in the class A common shares of Capstar as part of the Private Investment in Public Equity ("PIPE") transaction that took place immediately prior to the closing of the business combination and an additional approximately $4,961 , as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6. Investments in Associates). Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol "GLS" on January 14, 2022. The exchange of the preferred stock (including warrants) for common stock (including common stock warrants) represents an additional investment in Gelesis equity investment. The Group recorded the changes in fair value of the preferred stock and warrants through the date of the exchange upon which the preferred shares and warrants were derecognized and recorded as an additional investment in
F-23
Gelesis equity interest. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value were reclassified to include within the equity method investment in Gelesis and were offset against the gain on dilution of interest.
As part of the aforementioned exchange, the Group received 4,526,622 Gelesis Earn-out Shares, which were valued on the date of the exchange at $14,214 . The Group accounted for such Gelesis Earn-out Shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss.
2023
In February and May 2023, as part of Gelesis' issuance of senior secured promissory notes to the Group, Gelesis also issued to the Group (i) warrants to purchase 23,688,047 shares of Gelesis common stock with an exercise price of $0.2744 per share (ii) warrants to purchase 192,307,692 shares of Gelesis common stock at an exercise price of $0.0182 per share and (iii) warrants to purchase 43,133,803 shares of Gelesis common stock at an exercise price of $0.0142 per share. These warrants expire five years after issuance and are collectively referred to as the Gelesis 2023 Warrants.
The Gelesis 2023 Warrants were recorded at their initial fair value of $1,121 and then subsequently re-measured to fair value through the profit and loss. As of December 31, 2023, the fair value of the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023.
During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $1,264 , a loss of $18,476 and a gain of $34,566 , respectively, related to the change in the fair value of these instruments that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing, which resulted in the Group losing control over Sonde and the deconsolidation of Sonde. Therefore, the results of operations of Sonde are included in the Consolidated Financial Statements through the date of deconsolidation.
Upon deconsolidation, the Group derecognized its assets and liabilities and non-controlling interest in respect of Sonde and recorded its aforementioned investments in Sonde at fair value. The deconsolidation resulted in a gain of $27,251 . As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11,168 .
Following deconsolidation, the Group had significant influence in Sonde through its 48.2 % voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares have the same terms as common stock and provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The convertible Preferred A-2 and B shares do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss. Under IFRS 9, the A-2 and B preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest.
During the years ended December 31, 2023 and 2022, the Group recognized a loss of $994 , and a gain of $235 , respectively, for the changes in the fair value of the investment in Sonde that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Sonde is $10,408 as of December 31, 2023.
Akili
Akili was deconsolidated in 2018. At time of deconsolidation, as the Group did not hold common shares in Akili and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and changes to the fair value of the preferred shares were recorded through the Consolidated Statement of Comprehensive Income/(Loss), in accordance with IFRS 9.
On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110,000 in which Akili issued 13,053,508 Series D preferred shares. The Group did not participate in this round of financing and as a result, the Group's interest in Akili was reduced from 41.9 percent to 27.5 percent.
On August 19, 2022, Akili Interactive merged with Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company. The combined company's securities began trading on August 22, 2022 on the Nasdaq Stock Market under the ticker symbol "AKLI". As part of this transaction, the Akili Interactive shares held by the Group were exchanged for the common stock of the combined company's securities as well as unvested common stock ("Akili Earnout Shares") that will vest when the share price exceeds certain thresholds. In addition, as part of a PIPE transaction that took place concurrently with the closing of the transaction, the Group purchased 500,000 shares for a total consideration of $5,000 . Following the closing of the aforementioned transactions, the Group holds 12,527,477 shares of the combined entity and 1,433,914 Akili Earn-out Shares, with fair value amounted to $6,422 as of December 31, 2023.
During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $8,681 , a loss of $131,419 , and a gain of $32,151 , respectively, for the changes in the fair value of the investment in Akili that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss).
6. Investments in Associates
Gelesis
Gelesis was founded by the Group and raised funding through preferred shares financings as well as issuances of warrants and loans. As of July 1, 2019, Gelesis was deconsolidated from the Group’s financial statements. Upon deconsolidation, the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 Financial Instruments and were treated as financial assets held at fair value and the investment in common shares of Gelesis was subject to IAS 28 Investment in Associates as the Group had significant influence over Gelesis.
F-24
2021
Due to the Group's share in the losses of Gelesis, in 2020, the Group's investment in Gelesis accounted for under the equity method was reduced to zero . Since the Group had investments in Gelesis warrants and preferred shares that were deemed to be long-term interests, the Group continued recognizing its share in Gelesis losses while applying such losses to its preferred share and warrant investment in Gelesis accounted for as an investment held at fair value. In 2021, total investment in Gelesis, including the long-term interests, was reduced to zero . Since the Group did not incur legal or constructive obligations or made payments on behalf of Gelesis, the Group discontinued recognizing equity method losses in 2021. As of December 31, 2021, unrecognized equity method losses amounted to $38,101 , which included $709 of unrecognized other comprehensive loss.
During 2021, due to exercise of stock options into common shares in Gelesis, the Group's equity interest in Gelesis was reduced from 47.9 percent at December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting from the issuance of shares to third parties and the resulting reduction in the Group's share in the accumulated deficit of Gelesis under the equity method was fully offset by the unrecognized equity method losses.
Backstop agreement – 2022 and 2021
On December 30, 2021, the Group signed a Backstop agreement with Capstar and had committed to acquire Capstar class A common shares at $10 per share immediately prior to the closing of the business combination between Gelesis and Capstar, in case, the Available Funds, as defined in the agreement, were less than $15,000 . According to the Backstop agreement, if the Group had to acquire any shares under the agreement, the Group would receive an additional 1,322,500 class A common shares of Capstar at no additional consideration.
The Group determined that such agreement meets the definition of a derivative under IFRS 9 and as such should be recorded at fair value with changes in fair value recorded through profit and loss. The derivative was initially recorded at fair value adjusted to defer the day 1 gain equal to the difference between the fair value of $11,200 and transaction price of zero on the effective date of the Backstop agreement and as such was initially recorded at zero . The deferred gain was amortized over the period from the effective date until settlement date, January 13, 2022. During the years ended December 31, 2022 and 2021, the Group recognized income of $10,400 and $800 , respectively, for the amortization of the deferred gain. During the year ended December 31, 2022, the Group recognized a loss of $2,776 in respect of the decrease in the fair value of the derivative until the settlement date, resulting in a net gain of $7,624 recorded during the year ended December 31, 2022 in respect of the Backstop agreement. The gain was included in other Income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the derivative on the settlement date in the amount of $8,424 represents an additional investment in Gelesis as part of the SPAC transaction described below.
On January 13, 2022, as part of the conclusion of the aforementioned Backstop agreement, the Group acquired 496,145 class A common shares of Capstar for $4,961 and received an additional 1,322,500 class A common shares of Capstar for no additional consideration.
2022
Share exchange – Capstar
On January 13, 2022, Gelesis completed its business combination with Capstar. As part of the business combination, all shares in Gelesis, common and preferred, including the shares held by the Group, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (the "Gelesis Earn-out Shares"). In addition, the Group invested $15,000 in the class A common shares of Capstar as part of the PIPE transaction that took place immediately prior to the closing of the business combination and an additional $4,961 , as part of the Backstop agreement described above. Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol "GLS" on January 14, 2022. Following the closing of the business combination, the PIPE transaction, the settlement of the aforementioned Backstop agreement with Capstar, and the exchange of all preferred shares in Gelesis to common shares in the new combined entity, the Group holds 16,727,582 common shares of Gelesis Holdings Inc., which was equal to approximately 23.2 % of Gelesis Holdings Inc's outstanding common shares at the time of the exchange. Due to the Group's significant equity holding and voting interest in Gelesis, the Group continued to maintain significant influence in Gelesis and as such continued to account for its Gelesis equity investment under the equity method.
Gelesis was deemed to be the acquirer in Gelesis Holdings Inc. and the financial assets and financial liabilities in Capstar were deemed to be acquired by Gelesis in consideration for the shares held by Capstar legacy shareholders. As such, the Group did not revalue the retained investment in Gelesis but rather treated the exchange as a dilution of its equity interest in Gelesis from 42.0 percent as of December 31, 2021 to 22.8 percent as of January 13, 2022 (including warrants that provide its holders access to returns associated with equity holders). After considering the aforementioned additional investments, the exchange of the preferred stock, previously accounted for as an investment held at fair value, to common stock (and representing an additional equity investment in Gelesis), the earn-out shares received in Gelesis (see Note 5. Investments Held at Fair Value) and the offset of previously unrecognized equity method losses, the net gain recorded on the dilution of interest amounted to $28,255 .
Impairment
Following Gelesis’ decline in its market price in 2022 and its lack of liquidity, the Group recorded an impairment loss of $8,390 as of December 31, 2022 in respect of its investment in Gelesis. The recoverable amount of the investment in Gelesis was $4,910 as of December 31, 2022, which was determined based on fair value less costs to sell (which were estimated to be insignificant). Fair value was determined based on level 1 of the fair value hierarchy as Gelesis shares were traded on an active market as of December 31, 2022.
The impairment loss was presented separately in the Consolidated Statement of Comprehensive Income/(loss) for the year ended December 31, 2022 in the line item impairment of investment in associates.
2023
During the year ended December 31, 2023, the Group entered into agreements with Gelesis to purchase senior secured convertible promissory notes and warrants for shares of Gelesis common stock (see Note 7. Investment in Notes from Associates). The warrants to purchase shares of Gelesis common stock represented potential voting rights to the Group and it is therefore
F-25
necessary to consider whether they were substantive. If these potential voting rights were substantive and the Group had the practical ability to exercise the rights and take control of greater than 50% of Gelesis common stock, the Group would be required to consolidate Gelesis under the accounting standards.
In February 2023, the Group obtained warrants to purchase 23,688,047 shares of Gelesis common stock (the “February Warrants”) at an exercise price of $0.2744 per share. The exercise of the February Warrants was subject to the approval of the Gelesis stockholders until May 1, 2023. On May 1, 2023, stockholder approval was no longer required for the Group to exercise the February Warrants. The potential voting rights associated with the February Warrants were not substantive as the exercise price of the February Warrants was at a significant premium to the fair value of the Gelesis common stock.
In May 2023, the Group obtained warrants to purchase 235,441,495 shares of Gelesis common stock (the “May Warrants”). The May Warrants were exercisable at the option of the Group and had an exercise price of either $0.0182 or $0.0142 . The May Warrants were substantive as the Group would have benefited from exercising such warrants since their exercise price was at the money or at an insignificant premium over the fair value of the Gelesis common stock. However, that benefit from exercising the May Warrants only existed for a short period of time because in June 2023, the potential voting rights associated with the May Warrants were impacted by the terms and conditions of the Merger Agreement as described below and were no longer substantive.
In October 2023, the Group terminated the Merger Agreement with Gelesis and the potential voting rights associated with the May Warrants were not substantive. Also, in October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. A Chapter 7 trustee has been appointed by the Bankruptcy Court who has control over the assets and liabilities of Gelesis, effectively eliminating the authority and powers of the Board of Directors of Gelesis and its executive officers to act on behalf of Gelesis. The assets of Gelesis will be liquidated and Gelesis no longer has any officers or employees. The Group ceased accounting for Gelesis as an equity method investment as it no longer had significant influence in Gelesis. During the year ended December 31, 2023, the Group recorded $4,910 as its share in the losses of Gelesis and the Group’s balance in this equity method investment was zero as of December 31, 2023.
Merger Agreement
On June 12, 2023, PureTech Health LLC and Caviar Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of PureTech (“Merger Sub”), entered into an agreement (the "Merger Agreement"), pursuant to which Gelesis would merge with and into Merger Sub, with Merger Sub continuing as the surviving company ( the “Merger”). If the Merger had been completed, PureTech would have acquired all issued and outstanding shares of common stock of Gelesis not otherwise held by PureTech, and Gelesis would have become an indirect wholly-owned subsidiary of PureTech. On October 12, 2023, the Group terminated the Merger Agreement.
Sonde
On May 25, 2022, Sonde completed a Series B preferred share financing. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group lost its control over Sonde and as such ceased to consolidate Sonde on the date the round of financing was completed.
Following deconsolidation, the Group has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group's voting interest at date of deconsolidation and as of December 31, 2022 was 48.2 % and 40.17 %, respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value.
The fair value of the Preferred A-1 shares on the date of deconsolidation amounted to $7,716 , which is the initial value of the equity method investment in Sonde.
During the years ended December 31, 2023 and 2022, the Group recorded losses of $1,052 and $3,443 , respectively, related to Sonde's equity method of accounting. As of December 31, 2023, the Sonde equity method investment has a balance of $3,185 .
The following table summarizes the activity related to the investment in associates balance for the years ended December 31, 2023 and 2022.
| Investment in Associates | $ | ||||
As of January 1, 2022 | |||||
| Cash investment in associates | |||||
| Additional investment as a result of settling the Backstop agreement (see above) | |||||
| Gain on dilution of interest in associate (*) | |||||
| Investment in Sonde - deconsolidation | |||||
| Share in net loss of associates | ( | ||||
| Reversal of equity method losses recorded against LTI (due to decrease in the fair value of such LTI): | ( | ||||
| Share in other comprehensive loss of associates | ( | ||||
| Impairment | ( | ||||
As of December 31, 2022 and January 1, 2023 | |||||
| Share in net loss of associates | ( | ||||
| Share in other comprehensive income of associates | |||||
| As of December 31, 2023 | |||||
* Gain on dilution of interest was further increased due to the receipt of Gelesis Earn-out Shares accounted for as investments held at fair value (see above).
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Summarized financial information
The following table summarizes the financial information of Gelesis as of December 31, 2022 and for the years ended December 31, 2022 and 2021, as included in its own financial statements, adjusted for fair value adjustments at deconsolidation and differences in accounting policies. The table also reconciles the summarized financial information to the carrying amount of the Group’s interest in Gelesis. As of December 31, 2023, the Group’s investment in Gelesis is $0 and Gelesis does not represent a significant equity method investment. As a result, such a disclosure for Gelesis is not presented for the year ended December 31, 2023.
2022 $ | ||||||||
| As of and for the year ended December 31, | ||||||||
| Percentage ownership interest | % | |||||||
| Non-current assets | ||||||||
| Current assets | ||||||||
| Non-current liabilities | ( | |||||||
| Current liabilities | ( | |||||||
| Non-controlling interests and options issued to third parties | ( | |||||||
| Net assets (deficit) attributable to shareholders of Gelesis Inc. | ||||||||
| Group's share of net assets (net deficit) | ||||||||
| Goodwill | ||||||||
| Impairment | ( | |||||||
| Investment in associates | ||||||||
2022 $ | 2021 $ | |||||||
| Revenue | ||||||||
| Loss from continuing operations (100%) | ( | ( | ||||||
| Total comprehensive loss (100%) | ( | ( | ||||||
| Group's share in net losses - limited to net investment amount (*) | ( | ( | ||||||
| Group's share of total comprehensive loss - limited to net investment amount | ( | ( | ||||||
* For the year ended December 31, 2022, the amount includes $4,406 reversal of equity method losses recorded against long-term Interests ("LTI") due to the decrease in fair value of such LTI.
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7. Investment in Notes from Associates
Gelesis
Unsecured Promissory Note
On July 27, 2022, the Group, as a lender, entered into an unsecured promissory note (the "Junior Note") with Gelesis, as a borrower, in the amount of $15,000 . The Junior Note bears an annual interest rate of 15 % per annum. The maturity date of the Junior Note is the earlier of December 31, 2023 or five business days following the consummation of a qualified financing by Gelesis. Based on the terms of the Junior Note, due to the option to convert to a variable amount of shares at the time of default, the Junior Note is required to be measured at fair value with changes in fair value recorded through profit and loss.
As of December 31, 2023 and December 31, 2022 the fair value of the Junior Note was $0 and $16,501 , respectively. In the year ended December 31, 2023, the Group recorded a loss of $16,501 for the change in the fair value of the Junior Note which was included in gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Junior Note was determined to be $0 as of December 31, 2023 as Gelesis has ceased operations and filed for bankruptcy. In the year ended December 31, 2022, the Group recorded interest income of $963 and a gain of $539 for the change in the fair value of the Junior Note which was included in other income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss).
Senior Secured Convertible Promissory Notes
During the year ended December 31, 2023, the Group entered into multiple agreements with Gelesis to purchase for $11,850 senior secured convertible promissory notes (the "Senior Notes") and warrants for share of Gelesis common stock. The initial fair value of the Senior Notes was determined to be $10,729 while $1,121 was determined to be the initial fair value of the warrants. The Senior Notes represent debt instruments that are presented at fair value through profit and loss as the amounts receivable do not solely represent payments of principal and interest as the Senior Notes are convertible into Gelesis common stock.
The Senior Notes are secured by a first-priority lien on substantially all assets of Gelesis and the guarantors (other than the equity interests in, and assets held by Gelesis s.r.l., a subsidiary of Gelesis, and certain other exceptions).
In October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. Therefore, the Group determined that the fair value of the Senior Notes was $0 as of December 31, 2023 and the Group recorded a loss of $10,729 for the changes in the fair value of the Senior Notes. The loss was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss).
Vedanta
On April 24, 2023, Vedanta closed the second tranche of its convertible debt for additional proceeds of $18,000 , of which $5,000 were invested by the Group. The convertible debt carries an interest rate of 9 percent per annum. The debt has various conversion triggers and the conversion price is established at the lower of 80 % of the equity price of the last financing round, or a certain pre-money valuation cap established in the agreement. If the convertible debt is not earlier converted or repaid, the entire outstanding amount of the convertible debt shall be due and payable upon the earliest to occur of (a) the later of (x) November 1, 2025 and (y) the date which is sixty (60 ) days after all amounts owed under, or in connection with, the loan Vedanta received from a certain investor have been paid in full, or (b) the consummation of a Deemed Liquidation Event (as defined in Vedanta’s Amended and Restated Certificate of Incorporation).
Due to the terms of the convertible debt, the investment in such convertible debt is measured at fair value with changes in the fair value recorded through profit and loss. During the years ended December 31, 2023, the Group recorded a loss of $400 for the changes in the fair value of the Vedanta convertible debt which was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss).
Following is the activity in respect of investments in notes from associates during the periods. The fair value of the $4,600 note from associate as of December 31, 2023 is determined using unobservable Level 3 inputs. See Note 18. Financial Instruments for additional information.
| Investment in notes from associates | $ | ||||
| Balance as of January 1, 2022 | |||||
Investment In Gelesis notes | |||||
Changes in the fair value of the notes | |||||
Balance as of December 31, 2022 and January 1, 2023 | |||||
Investment In Gelesis notes | |||||
| Investment in Vedanta convertible debt | |||||
Changes in the fair value of the notes and convertible debt | ( | ||||
Balance as of December 31, 2023 | |||||
F-28
8. Operating Expenses
Total operating expenses were as follows:
| For the years ending December 31, | 2023 $ | 2022 $ | 2021 $ | ||||||||
| General and administrative | |||||||||||
| Research and development | |||||||||||
| Total operating expenses | |||||||||||
The average number of persons employed by the Group during the year, analyzed by category, was as follows:
| For the years ending December 31, | 2023 | 2022 | 2021 | ||||||||
| General and administrative | |||||||||||
| Research and development | |||||||||||
| Total | |||||||||||
The aggregate payroll costs of these persons were as follows:
2023 $ | 2022 $ | 2021 $ | |||||||||
| For the years ending December 31, | |||||||||||
| General and administrative | |||||||||||
| Research and development | |||||||||||
| Total | |||||||||||
Detailed operating expenses were as follows:
2023 $ | 2022 $ | 2021 $ | |||||||||
| For the years ending December 31, | |||||||||||
| Salaries and wages | |||||||||||
Healthcare and other benefits | |||||||||||
| Payroll taxes | |||||||||||
| Share-based payments | |||||||||||
| Total payroll costs | |||||||||||
Amortization | |||||||||||
Depreciation | |||||||||||
Total amortization and depreciation expenses | |||||||||||
| Other general and administrative expenses | |||||||||||
| Other research and development expenses | |||||||||||
| Total other operating expenses | |||||||||||
| Total operating expenses | |||||||||||
Please refer to Note 9. Share-based Payments for further disclosures related to share-based payments and Note 26. Related Parties Transactions for management’s remuneration disclosures.
F-29
9. Share-based Payments
Share-based payments includes stock options, time-based restricted stock units (“RSUs”) and performance-based RSUs in which the expense is recognized based on the grant date fair value of these awards, except for performance-based RSUs to executives that are treated as liability awards where expense is recognized based on reporting date fair value up until settlement date.
Share-based Payment Expense
The Group's share-based payment expense for the years ended December 31, 2023, 2022 and 2021, was $4,415 , $14,699 , and $13,950 respectively. The following table provides the classification of the Group’s consolidated share-based payment expense as reflected in the Consolidated Statement of Income/(Loss):
Year ended December 31, | 2023 $ | 2022 $ | 2021 $ | ||||||||
| General and administrative | |||||||||||
| Research and development | |||||||||||
| Total | |||||||||||
The Performance Share Plan
In June 2015, the Group adopted the Performance Stock Plan (the “2015 PSP”). Under the 2015 PSP and subsequent amendments, awards of ordinary shares may be made to the Directors, senior managers and employees, and other individuals providing services to the Group up to a maximum authorized amount of 10.0 percent of the total ordinary shares outstanding. The shares have various vesting terms over a period of service between and four years , provided the recipient remains continuously engaged as a service provider. The options awards expire 10 years from the grant date.
In June 2023 the Group adopted a new Performance Stock Plan (the "2023 PSP") that has the same terms as the 2015 PSP but instituted for all new awards a limit of 10.0 percent of the total ordinary shares outstanding over a five-year period.
The share-based awards granted under the PSPs are generally equity-settled (see cash settlements below). As of December 31, 2023, the Group had issued 27,384,777 units of share-based awards under these plans.
RSUs
RSU activity for the years ended December 31, 2023, 2022 and 2021 is detailed as follows:
| Number of Shares/Units | Weighted Average Grant Date Fair Value (GBP) (*) | |||||||
| Outstanding (Non-vested) at January 1, 2021 | ||||||||
| RSUs Granted in Period | ||||||||
| Vested | ( | |||||||
| Forfeited | ( | |||||||
| Outstanding (Non-vested) at December 31, 2021 and January 1, 2022 | ||||||||
| RSUs Granted in Period | ||||||||
| Vested | ( | |||||||
| Forfeited | ( | |||||||
| Outstanding (Non-vested) at December 31, 2022 and January 1, 2023 | ||||||||
| RSUs Granted in Period | ||||||||
| Vested | ( | |||||||
| Forfeited | ( | |||||||
| Outstanding (Non-vested) at December 31, 2023 | ||||||||
* For liability awards - based on fair value at reporting date.
Each RSU entitles the holder to one ordinary share on vesting and the RSU awards are generally based on a vesting schedule over a to three-year requisite service period in which the Group recognizes compensation expense for the RSUs. Following vesting, each recipient will be required to make a payment of one pence per ordinary share on settlement of the RSUs.
RSUs granted to the non-executive directors are time-based and equity-settled. The grant date fair value on such RSUs is recognized over the vesting term.
RSUs granted to executives are performance-based and vesting of such RSUs is subject to the satisfaction of both performance and market conditions. The performance condition is based on the achievement of the Group's strategic targets. The market conditions are based on the achievement of the absolute total shareholder return (“TSR”), TSR as compared to the FTSE 250 Index, and TSR as compared to the MSCI Europe Health Care Index. The RSU award performance criteria have changed over time as the criteria are continually evaluated by the Group’s Remuneration Committee.
The Group recognizes the estimated fair value of performance-based awards with non-market conditions as share-based compensation expense over the performance period based upon its determination of whether it is probable that the performance targets will be achieved. The Group assesses the probability of achieving the performance targets at each reporting period. Cumulative adjustments, if any, are recorded to reflect subsequent changes in the estimated outcome of performance-related conditions.
The fair value of the performance-based awards with market conditions is based on the Monte Carlo simulation analysis utilizing a Geometric Brownian Motion process with 100,000 simulations to value those shares. The model considers share price volatility, risk-free rate and other covariance of comparable public companies and other market data to predict distribution of relative share performance.
F-30
Liability settled RSUs classification
The RSUs to executives are treated as liability awards as the Group has a historical practice of settling these awards in cash, and as such adjusted to fair value at every reporting date until settlement with changes in fair value recorded in earnings as stock based compensation expense.
The Group incurred share-based payment expenses for RSUs of $827 (including $402 expense in respect of RSU liability awards), $1,637 (including $1,131 expense in respect of RSU liability awards), and $1,540 (including $589 expense in respect of RSU liability awards) for the years ended December 31, 2023, 2022 and 2021, respectively. The decrease in the share-based compensation expense in respect of the RSUs for the year ended December 31, 2023, as compared to the year ended December 31, 2022 is due to reduction in the fair value of the liability awards.
As of December 31, 2023, the carrying amount of the RSU liability awards was $4,782 , $1,281 current; $3,501 non current, out of which $1,283 related to awards that have met all their performance and market conditions.
Stock Options
Stock option activity for the years ended December 31, 2023, 2022 and 2021, is detailed as follows:
| Number of Options | Wtd Average Exercise Price (GBP) | Wtd Average of remaining contractual term (in years) | Wtd Average Stock Price at Exercise (GBP) | |||||||||||
| Outstanding at January 1, 2021 | ||||||||||||||
| Granted | ||||||||||||||
| Exercised | ( | |||||||||||||
| Forfeited and expired | ( | |||||||||||||
| Options Exercisable at December 31, 2021 and January 1, 2022 | ||||||||||||||
| Outstanding at December 31, 2021 and January 1, 2022 | ||||||||||||||
| Granted | ||||||||||||||
| Exercised | ( | |||||||||||||
| Forfeited and expired | ( | |||||||||||||
| Options Exercisable at December 31, 2022 and January 1, 2023 | ||||||||||||||
| Outstanding at December 31, 2022 and January 1, 2023 | ||||||||||||||
| Granted | ||||||||||||||
| Exercised | ( | |||||||||||||
| Forfeited and expired | ( | |||||||||||||
| Options Exercisable at December 31, 2023 | ||||||||||||||
| Outstanding at December 31, 2023 | ||||||||||||||
The fair value of the stock options awarded by the Group was estimated at the grant date using the Black-Scholes option valuation model, considering the terms and conditions upon which options were granted, with the following weighted-average assumptions:
At December 31, | 2023 | 2022 | 2021 | ||||||||
| Expected volatility | % | % | % | ||||||||
| Expected terms (in years) | |||||||||||
| Risk-free interest rate | % | % | % | ||||||||
| Expected dividend yield | |||||||||||
| Exercise price (GBP) | |||||||||||
| Underlying stock price (GBP) | |||||||||||
These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2023, 2022 and 2021 of $1.37 ,$1.15 and $1.87 , respectively.
The Group incurred share-based payment expense for the stock options of $3,310 , $8,351 and $6,158 for the years ended December 31, 2023, 2022 and 2021, respectively.
For shares outstanding as of December 31, 2023, the range of exercise prices is detailed as follows:
| Range of Exercise Prices (GBP) | Options Outstanding | Wtd Average Exercise Price (GBP) | Wtd Average of remaining contractual term (in years) | ||||||||
| Total | |||||||||||
F-31
Subsidiary Plans
Certain subsidiaries of the Group have adopted stock option plans. A summary of stock option activity by number of shares in these subsidiaries is presented in the following table:
Outstanding as of January 1, 2023 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2023 | |||||||||||||||||
| Entrega | |||||||||||||||||||||||
| Follica | ( | ( | |||||||||||||||||||||
| Vedanta | ( | ( | ( | ||||||||||||||||||||
Outstanding as of January 1, 2022 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2022 | |||||||||||||||||
| Entrega | ( | ||||||||||||||||||||||
| Follica | |||||||||||||||||||||||
| Sonde | ( | ||||||||||||||||||||||
| Vedanta | ( | ( | ( | ||||||||||||||||||||
Outstanding as of January 1, 2021 | Granted During the Year | Exercised During the Year | Expired During the Year | Forfeited During the Year | Deconsolidation During the Year | Outstanding as of December 31, 2021 | |||||||||||||||||
| Alivio | ( | ( | ( | ||||||||||||||||||||
| Entrega | ( | ( | |||||||||||||||||||||
| Follica | ( | ||||||||||||||||||||||
| Sonde | ( | ( | |||||||||||||||||||||
| Vedanta | ( | ( | ( | ||||||||||||||||||||
The weighted-average exercise prices and remaining contractual life for the options outstanding as of December 31, 2023, were as follows:
Outstanding at December 31, 2023 | Number of options | Weighted-average exercise price $ | Weighted-average contractual life outstanding | ||||||||
| Entrega | |||||||||||
There were no grants in 2023 under any of the subsidiary option plans. The weighted average exercise prices for the options granted for the years ended December 31, 2022 and 2021, were as follows:
For the years ended December 31, | 2022 $ | 2021 $ | ||||||
| Entrega | ||||||||
| Follica | ||||||||
Vedanta | ||||||||
The weighted average exercise prices for options forfeited during the year ended December 31, 2023, were as follows:
| Forfeited during the year ended December 31, 2023 | Number of options | Weighted-average exercise price $ | ||||||
| Follica | ||||||||
| Vedanta | ||||||||
The weighted average exercise prices for options exercisable as of December 31, 2023, were as follows:
| Exercisable at December 31, 2023 | Number of Options | Weighted-average exercise price $ | Exercise Price Range $ | ||||||||
| Entrega | |||||||||||
There were no subsidiary options exercised during the year ended December 31, 2023.
F-32
10. Finance Income/(Costs), net
The following table shows the breakdown of finance income and costs:
2023 $ | 2022 $ | 2021 $ | |||||||||
For the years ended December 31, | |||||||||||
| Finance income | |||||||||||
| Interest income from financial assets | |||||||||||
| Total finance income | |||||||||||
| Finance costs | |||||||||||
| Contractual interest expense on notes payable | ( | ( | ( | ||||||||
| Interest expense on other borrowings | ( | ( | ( | ||||||||
| Interest expense on lease liability | ( | ( | ( | ||||||||
| Gain/(loss) on foreign currency exchange | ( | ( | |||||||||
| Total finance cost – contractual | ( | ( | ( | ||||||||
| Gain/(loss) from change in fair value of warrant liability | |||||||||||
| Gain/(loss) from change in fair value of preferred shares | |||||||||||
| Gain/(loss) from change in fair value of convertible debt | ( | ( | |||||||||
| Total finance income/(costs) – fair value accounting | |||||||||||
| Total finance costs - non cash interest expense related to sale of future royalties | ( | ||||||||||
| Finance income/(costs), net | |||||||||||
F-33
11. Earnings/(Loss) per Share
Basic earnings/(loss) per share is calculated by dividing the Group's net income or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, net of treasury shares.
Diluted EPS is calculated by dividing the Group's net income or loss for the year by the weighted average number of ordinary shares outstanding, net of treasury shares, plus the weighted average number of ordinary shares that would be issued at conversion of all the dilutive potential ordinary shares into ordinary shares. Dilutive effects arise from equity-settled shares from the Group's share-based plans.
For the years ended December 31, 2023, 2022 and 2021, the Group incurred a net loss and therefore all outstanding potential securities were considered anti-dilutive. The amount of potential securities that were excluded from the diluted calculation amounted to 1,509,900 , 3,134,131 and 6,553,905 shares, respectively.
Earnings/(Loss) Attributable to Owners of the Group:
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Basic $ | Diluted $ | Basic $ | Diluted $ | Basic $ | Diluted $ | |||||||||||||||||||||
| Income/(loss) for the year, attributable to the owners of the Group | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
Weighted-Average Number of Ordinary Shares:
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Basic | Diluted | Basic | Diluted | Basic | Diluted | |||||||||||||||||||||
| Issued ordinary shares at January 1, | ||||||||||||||||||||||||||
| Effect of shares issued & treasury shares purchased | ( | ( | ( | ( | ||||||||||||||||||||||
| Weighted average number of ordinary shares at December 31, | ||||||||||||||||||||||||||
Earnings/(Loss) per Share:
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| Basic $ | Diluted $ | Basic $ | Diluted $ | Basic $ | Diluted $ | |||||||||||||||||||||
| Basic and diluted earnings/(loss) per share | ( | ( | ( | ( | ( | ( | ||||||||||||||||||||
F-34
12. Property and Equipment
| Cost | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ | ||||||||||||||
| Balance as of January 1, 2022 | ||||||||||||||||||||
| Additions, net of transfers | ||||||||||||||||||||
| Disposals | ( | ( | ( | |||||||||||||||||
| Deconsolidation of subsidiaries | ( | ( | ||||||||||||||||||
| Reclassifications | ( | |||||||||||||||||||
| Balance as of December 31, 2022 | ||||||||||||||||||||
| Additions, net of transfers | ||||||||||||||||||||
| Disposals/Impairment | ( | ( | ( | |||||||||||||||||
| Deconsolidation of subsidiaries | ( | ( | ( | ( | ( | ( | ||||||||||||||
| Reclassifications | ( | ( | ||||||||||||||||||
| Balance as of December 31, 2023 | ||||||||||||||||||||
| Accumulated depreciation and impairment loss | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ | ||||||||||||||
| Balance as of January 1, 2022 | ( | ( | ( | ( | ( | |||||||||||||||
| Depreciation | ( | ( | ( | ( | ( | |||||||||||||||
| Disposals | ||||||||||||||||||||
| Deconsolidation of subsidiaries | ||||||||||||||||||||
| Balance as of December 31, 2022 | ( | ( | ( | ( | ( | |||||||||||||||
| Depreciation | ( | ( | ( | ( | ( | |||||||||||||||
| Disposals | ||||||||||||||||||||
| Deconsolidation of subsidiaries | ||||||||||||||||||||
| Balance as of December 31, 2023 | ( | ( | ( | ( | ( | |||||||||||||||
| Property and Equipment, net | Laboratory and Manufacturing Equipment $ | Furniture and Fixtures $ | Computer Equipment and Software $ | Leasehold Improvements $ | Construction in process $ | Total $ | ||||||||||||||
| Balance as of December 31, 2022 | ||||||||||||||||||||
| Balance as of December 31, 2023 | ||||||||||||||||||||
Depreciation of property and equipment is included in the general and administrative expenses and research and development expenses in the Consolidated Statement of Comprehensive Income/(Loss). The Group recorded depreciation expense of $2,955 , $5,845 and $4,347 for the years ended December 31, 2023, 2022 and 2021, respectively.
13. Intangible Assets
Intangible assets consist of licenses of intellectual property acquired by the Group through various agreements with third parties and are recorded at the value of the consideration transferred. Information regarding the cost and accumulated amortization of intangible assets is as follows:
| Cost | Licenses $ | ||||
| Balance as of January 1, 2022 | |||||
| Additions | |||||
| Impairment | ( | ||||
| Deconsolidation of subsidiary | ( | ||||
| Balance as of December 31, 2022 | |||||
| Additions | |||||
| Impairment | ( | ||||
| Deconsolidation of subsidiaries | ( | ||||
Balance as of December 31, 2023 | |||||
F-35
| Accumulated amortization | Licenses $ | ||||
| Balance as of January 1, 2022 | ( | ||||
| Amortization | ( | ||||
| Deconsolidation of subsidiary | |||||
| Balance as of December 31, 2022 | |||||
| Amortization | |||||
| Deconsolidation of subsidiary | |||||
Balance as of December 31, 2023 | |||||
| Intangible assets, net | Licenses $ | ||||
| Balance as of December 31, 2022 | |||||
Balance as of December 31, 2023 | |||||
Substantially all the intangible asset licenses represent in-process-research-and-development assets since they are still being developed and not ready for their intended use. As such, these assets are not amortized but tested for impairment annually.
During the year ended December 31, 2023, the Group wrote off two of its research intangible assets for which research was ceased in the amount of $105 .
During the year ended December 31, 2023, Vedanta , Inc. was deconsolidated and as such, $19 net in intangible assets were derecognized.
During the year ended December 31,2022, the Group wrote off one of its research intangible assets for which research was ceased in the amount of $163 .
During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated and as such, $18 net intangible assets were derecognized.
The Group tested all intangible assets for impairment as of the balance sheet date and concluded that none of such assets were impaired.
14. Other Financial Assets
Other financial assets consist primarily of restricted cash reserved as collateral against a letter of credit with a bank that is issued for the benefit of a landlord in lieu of a security deposit for office space leased by the Group. The restricted cash was $1,628 and $2,124 as of December 31, 2023 and 2022, respectively.
15. Equity
Total equity for the Group as of December 31, 2023, and 2022, was as follows:
December 31, 2023 $ | December 31, 2022 $ | |||||||
| Equity | ||||||||
Share capital, £ | ||||||||
| Share premium | ||||||||
Treasury shares, | ( | ( | ||||||
| Merger Reserve | ||||||||
| Translation reserve | ||||||||
| Other reserves | ( | ( | ||||||
| Retained earnings/(accumulated deficit) | ||||||||
| Equity attributable to owners of the Group | ||||||||
| Non-controlling interests | ( | |||||||
| Total equity | ||||||||
Changes in share capital and share premium relate primarily to incentive options exercises during the period.
Shareholders are entitled to vote on all matters submitted to shareholders for a vote. Each ordinary share is entitled to one vote and is entitled to receive dividends when and if declared by the Group’s Directors.
On June 18, 2015, the Group acquired the entire issued share capital of PureTech LLC in return for 159,648,387 ordinary shares. This was accounted for as a common control transaction at cost. It was deemed that the share capital was issued in line with movements in share capital as shown prior to the transaction taking place. In addition, the merger reserve records amounts previously recorded as share premium.
Other reserves comprise the cumulative credit to share-based payment reserves corresponding to share-based payment expenses recognized through Consolidated Statement of Comprehensive Income/(Loss), settlements of vested stock awards as well as other additions that flow directly through equity such as the excess or deficit from changes in ownership of subsidiaries while control is maintained by the Group.
F-36
On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program (the "Program") of its ordinary shares of one pence each (the “Ordinary Shares”). The Group executed the Program in two equal tranches. The Group entered into an irrevocable non-discretionary instruction with Jefferies International Limited (“Jefferies”) in relation to the purchase by Jefferies of the Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25,000 for each tranche, and the simultaneous on-sale of such Ordinary Shares by Jefferies to the Group, subject to certain volume and price restrictions. Jefferies made its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Group. Purchases could continue during any close period to which the Group was subject. The instruction to Jeffries could be amended or withdrawn so long as the Group was not in a close period or otherwise in possession of inside information.
Any purchases of the Ordinary Shares under the Program were carried out on the London Stock Exchange and could be carried out on any other UK recognized investment exchange in accordance with pre-set parameters and subject to limits prescribed by the Group’s general authority to repurchase the Ordinary Shares granted by its shareholders at its annual general meeting on May 27, 2021, and relevant Rules and Regulations. All Ordinary Shares repurchased under the Program are held in treasury and re-issued for settlement of share-based awards. As of December 31, 2023, the Group had repurchased an aggregate of 18,278,873 Ordinary Shares under the share repurchase program with 7,683,526 shares repurchased in 2023. The Program was completed during the month ended February 2024.
As of December 31, 2023, the Group’s issued share capital was 289,468,159 shares, including 17,614,428 shares repurchased under the Program and were held by the Group in treasury. The Group does not have a limited amount of authorized share capital.
16. Subsidiary Preferred Shares
Preferred shares issued by subsidiaries often contain redemption and conversion features that are assessed under IFRS 9 in conjunction with the host preferred share instrument. This balance represents subsidiary preferred shares issued to third parties.
The subsidiary preferred shares are redeemable upon the occurrence of a contingent event, other than full liquidation of the Group, that is not considered to be within the control of the Group. Therefore these subsidiary preferred shares are classified as liabilities. These liabilities are measured at fair value through profit and loss. The preferred shares are convertible into ordinary shares of the subsidiaries at the option of the holders and are mandatorily convertible into ordinary shares under certain circumstances. Under certain scenarios, the number of ordinary shares receivable on conversion will change and therefore, the number of shares that will be issued is not fixed. As such the conversion feature is considered to be an embedded derivative that normally would require bifurcation. However, since the preferred share liabilities are measured at fair value through profit and loss, as mentioned above, no bifurcation is required.
The preferred shares are entitled to vote with holders of common shares on an as converted basis.
The fair value of all subsidiary preferred shares as of December 31, 2023 and December 31, 2022, is as follows:
2023 $ | 2022 $ | |||||||
As of December 31, | ||||||||
| Entrega | ||||||||
| Follica | ||||||||
| Vedanta Biosciences | ||||||||
| Total subsidiary preferred share balance | ||||||||
As is customary, in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, the holders of subsidiary preferred shares which are outstanding shall be entitled to be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. A merger, acquisition, sale of voting control or other transaction of a subsidiary in which the shareholders of the subsidiary immediately before the transaction do not own a majority of the outstanding shares of the surviving company shall be deemed to be a liquidation event. Additionally, a sale, lease, transfer or other disposition of all or substantially all of the assets of the subsidiary shall also be deemed a liquidation event.
As of December 31, 2023 and December 31, 2022, the minimum liquidation preference reflecting the amounts that would be payable to the subsidiary preferred holders upon a liquidation event of the subsidiaries, is as follows:
2023 $ | 2022 $ | |||||||
As of December 31, | ||||||||
| Entrega | ||||||||
| Follica | ||||||||
| Vedanta Biosciences | ||||||||
| Total minimum liquidation preference | ||||||||
F-37
For the years ended December 31, 2023 and 2022, the Group recognized the following changes in the value of subsidiary preferred shares:
$ | |||||
| Balance as of January 1, 2022 | |||||
| Decrease in value of preferred shares measured at fair value – finance costs (income) | ( | ||||
| Deconsolidation of subsidiary - (Sonde) | ( | ||||
| Balance as of December 31, 2022 | |||||
| Decrease in value of preferred shares measured at fair value – finance costs (income) | ( | ||||
| Deconsolidation of subsidiary – (Vedanta) | ( | ||||
| Balance as of December 31, 2023 | |||||
F-38
17. Sale of Future Royalties Liability
On March 4, 2011, the Group entered into a license agreement with Karuna Therapeutics, Inc. (“Karuna”) according to which the Group granted Karuna an exclusive license to research, develop and sell KarXT in exchange for a royalty on annual net sales, development and regulatory milestones and a fixed portion of sublicensing income, if any (hereinafter “License Agreement”).
On March 22, 2023, the Group signed an agreement with Royalty Pharma (hereinafter "Royalty Purchase Agreement"), according to which the Group sold Royalty Pharma a partial right to receive royalty payments made by Karuna in respect of net sales of KarXT, if and when received. According to the Royalty Purchase Agreement, all royalties due to the Group under the License Agreement will be paid to Royalty Pharma up until an annual threshold of $60,000 , while all royalties above such annual threshold in a given year will be split 33 % to Royalty Pharma and 67 % to the Group. Under the terms of the Royalty Purchase Agreement, the Group received a non-refundable initial payment of $100,000 at the execution of the Royalty Purchase Agreement and is eligible to receive additional payments in the aggregate of up to an additional $400,000 based on the achievement of certain regulatory and commercial milestones.
The Group continues to hold the rights under the License Agreement and has a contractual obligation to deliver cash to Royalty Pharma for a portion of the royalties it receives. Therefore, the Group will continue to account for any royalties and regulatory milestones due to the Group under the License Agreement as revenue in its Consolidated Statement of Comprehensive Income/(Loss) and record the proceeds from the Royalty Purchase Agreement as a financial liability on its Consolidated Statement of Financial Position. In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement.
The acquisition of Karuna by Bristol Meyers Squibb (NYSE: BMY), which closed on March 18, 2024, had no impact on the Group's rights or obligations under the License Agreement or Royalty Purchase Agreement, each of which remains in full force and effect.
In order to determine the amortized cost of the sale of future royalties liability, management is required to estimate the total amount of future receipts from and payments to Royalty Pharma under the Royalty Purchase Agreement over the life of the agreement. The $100,000 liability, recorded at execution of the Royalty Purchase Agreement, will be accreted to the total of these receipts and payments as interest expense over the life of the Royalty Purchase Agreement. These estimates contain assumptions that impact both the amortized cost of the liability and the interest expense that will be recognized in future periods.
Additional proceeds received from Royalty Pharma will increase the Group’s financial liability. As royalty payments are made to Royalty Pharma, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The estimated timing and amount of royalty payments to and proceeds from Royalty Pharma are likely to change over the life of the Royalty Purchase Agreement. A significant increase or decrease in estimated royalty payments, or a significant shift in the timing of cash flows, will materially impact the sale of future royalties liability, interest expense and the time period for repayment. The Group will periodically assess the expected payments to, or proceeds from, Royalty Pharma, and any such changes in amount or timing of cash flows will require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future cash flows from the Royalty Purchase Agreement that are discounted at the liability’s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense.
The following shows the activity in respect of the sale of future royalties liability:
| Sale of future royalties liability | $ | ||||
Balance as of January 1, 2023 | |||||
| Amounts received at closing | |||||
| Non cash interest expense recognized | |||||
Balance as of December 31, 2023 | |||||
F-39
18. Financial Instruments
The Group’s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value recorded through profit and loss.
Fair Value Process
For financial instruments measured at fair value under IFRS 9, the change in the fair value is reflected through profit and loss. Using the guidance in IFRS 13, the total business enterprise value and allocable equity of each entity being valued can be determined using a market backsolve approach through a recent arm’s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method ("PWERM") approach, discounted cash flow approach, or hybrid approaches. The approaches, in order of strongest fair value evidence, are detailed as follows:
| Valuation Method | Description | ||||
| Market – Backsolve | The market backsolve approach benchmarks the original issue price (OIP) of the company’s latest funding transaction as current value. | ||||
| Market/Asset – PWERM | Under a PWERM, the company value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise. Possible future outcomes can include IPO scenarios, potential SPAC transactions, merger and acquisition transactions as well as other similar exit transactions of the investee. | ||||
Income Based – DCF | The income approach is used to estimate fair value based on the income streams, such as cash flows or earnings, that an asset or business can be expected to generate. | ||||
At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (“OPM”), PWERM, or hybrid allocation framework. The methods are detailed as follows:
| Allocation Method | Description | ||||
| OPM | The OPM model treats preferred stock as call options on the enterprise’s equity value, with exercise prices based on the liquidation preferences of the preferred stock. | ||||
| PWERM | Under a PWERM, share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise, as well as the rights of each share class. | ||||
| Hybrid | The hybrid method is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. | ||||
Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
| Fair Value Hierarchy Level | Description | ||||
| Level 1 | Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. | ||||
| Level 2 | Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). | ||||
| Level 3 | Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. | ||||
Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed.
F-40
Subsidiary Preferred Shares Liability and Subsidiary Convertible Notes
The following table summarizes the changes in the Group’s subsidiary preferred shares and convertible notes liabilities measured at fair value, which were categorized as Level 3 in the fair value hierarchy:
| Subsidiary Preferred Shares $ | Subsidiary Convertible Notes $ | |||||||
| Balance at January 1, 2021 | ||||||||
| Value at issuance | ||||||||
| Conversion to subsidiary preferred shares | ( | |||||||
| Accrued interest - contractual | ||||||||
| Change in fair value | ( | |||||||
| Balance at December 31, 2021 and January 1, 2022 | ||||||||
| Value at issuance | ||||||||
| Accrued interest - contractual | ||||||||
| Deconsolidation - Sonde | ( | ( | ||||||
| Change in fair value | ( | |||||||
| Balance at December 31, 2022 and January 1, 2023 | ||||||||
| Change in fair value | ( | |||||||
| Deconsolidation - Vedanta | ( | |||||||
| Balance at December 31, 2023 | ||||||||
The change in fair value of preferred shares and convertible notes liabilities are recorded in finance income/(costs) – fair value accounting in the Consolidated Statement of Comprehensive Income/(Loss).
Investments Held at Fair Value
Karuna, Vor and Akili Valuation
Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq: AKLI) and additional immaterial investments are listed entities on an active exchange, and as such, the fair value as of December 31, 2023, was calculated utilizing the quoted common share price which is categorized as Level 1 in the fair value hierarchy.
Vedanta and Sonde
As of December 31, 2023, the Group accounts for the following investments under IFRS 9 as investments held at fair value with changes in fair value through the profit and loss: Sonde preferred A-2 and B shares and Vedanta convertible preferred shares (subsequent to the date of deconsolidation). The valuation of the aforementioned investments is categorized as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs to value such assets. During the year ended December 31, 2023, the Group recorded such investments at fair value and recognized a loss of $7,298 for the change in fair value of the investments. In addition, the Group determined that the fair value of its investment in the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023.
The following table summarizes the changes in all the Group’s investments held at fair value, which were categorized as Level 3 in the fair value hierarchy:
$ | |||||
| Balance at January 1, 2021 | |||||
| Cash purchase of Vor preferred shares | |||||
| Reclassification of Vor from level 3 to level 1 | ( | ||||
| Gain/(loss) on change in fair value | |||||
| Balance at December 31, 2021 | |||||
| Deconsolidation of Sonde | |||||
Gelesis Earn-out Shares received in the SPAC exchange | |||||
| Exchange of Gelesis preferred shares to Gelesis common shares | ( | ||||
| Reclassification of Akili to level 1 investment | ( | ||||
| Gain/(loss) on change in fair value | ( | ||||
| Balance at December 31, 2022 | |||||
| Deconsolidation of Vedanta - new investment in Vedanta preferred shares | |||||
| Investment in Gelesis 2023 Warrants | |||||
Gain/(loss) on changes in fair value | ( | ||||
| Balance as of December 31, 2023 | |||||
The change in fair value of investments held at fair value is recorded in gain/(loss) on investments held at fair value in the Consolidated Statement of Comprehensive Income/(Loss).
At December 31, 2023, the Group’s material investments held at fair value categorized as Level 3 in the fair value hierarchy include the preferred shares of Sonde and Vedanta, with fair value of $10,408 and $14,153 , respectively. The significant unobservable inputs used at December 31, 2023 in the fair value measurement of these investments and the sensitivity of the fair value measurements for these investments to changes to these significant unobservable inputs are summarized in the table below.
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As of December 31, 2023 | Investment (Sonde) Measured through Market Backsolve & OPM | ||||||||||
| Unobservable Inputs | Input Value | Sensitivity Range | Investment Fair Value Increase/(Decrease) $ | ||||||||
Equity Value | - | % | ( | ||||||||
| Time to Liquidity | - | ||||||||||
+ | ( | ||||||||||
Volatility | % | - | % | ||||||||
| ( | |||||||||||
As of December 31, 2023 | Investment (Vedanta) Measured through Market Backsolve that Leverages a Monte Carlo Simulation | ||||||||||
| Unobservable Inputs | Input Value | Sensitivity Range | Investment Fair Value Increase/(Decrease) $ | ||||||||
Equity Value | - | % | ( | ||||||||
| Time to Liquidity | - | ( | |||||||||
+ | |||||||||||
| Volatility | % | - | % | ( | |||||||
Investments in Notes from Associates
As of December 31, 2022, the investment in notes from associates was $16,501 and represents investments the Group made in convertible promissory notes of Gelesis. During the year ended December 31, 2023, the Group invested $10,729 in convertible promissory notes of Gelesis and $5,000 in a convertible note of Vedanta. The Group recorded a loss of $27,630 for the change in fair value of the notes from associates in the gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/Loss. The loss was driven by a reduction in the fair value of the Gelesis convertible promissory notes of $27,230 as Gelesis filed for bankruptcy in October 2023 and a change in the fair value of the Vedanata convertible note of $400 .
The convertible debt issued by Vedanta was valued using a market backsolve approach that leverages a Monte Carlo simulation. The significant unobservable inputs categorized as Level 3 in the fair value hierarchy used at December 31, 2023, in the fair value measurement of the convertible debt are the same as the inputs disclosed above for Vedanta preferred shares.
Fair Value Measurement and Classification
The fair value of financial instruments by category as of December 31, 2023 and 2022:
| 2023 | |||||||||||||||||||||||
| Carrying Amount | Fair Value | ||||||||||||||||||||||
| Financial Assets $ | Financial Liabilities $ | Level 1 $ | Level 2 $ | Level 3 $ | Total $ | ||||||||||||||||||
Financial assets3: | |||||||||||||||||||||||
Money Markets1,2 | — | ||||||||||||||||||||||
| Investment in notes from associates | — | ||||||||||||||||||||||
| Investments held at fair value | — | ||||||||||||||||||||||
| Total financial assets | — | ||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Subsidiary preferred shares | — | ||||||||||||||||||||||
| Share-based liability awards | — | ||||||||||||||||||||||
| Total financial liabilities | — | ||||||||||||||||||||||
1 Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade.
2 Included within cash and cash equivalents.
3. Excluded from the table above are short-term investments of $136,062 that are classified at amortized cost as of December 31, 2023. The cost of these short-term investments approximates current fair value.
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The Group has a number of financial instruments that are not measured at fair value in the Consolidated Statement of Financial Position. For these instruments the fair values are not materially different from their carrying amounts.
| 2022 | |||||||||||||||||||||||
| Carrying Amount | Fair Value | ||||||||||||||||||||||
| Financial Assets $ | Financial Liabilities $ | Level 1 $ | Level 2 $ | Level 3 $ | Total $ | ||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||
Money Markets1,2 | — | ||||||||||||||||||||||
Short-term investments1 | — | ||||||||||||||||||||||
| Note from associate | — | ||||||||||||||||||||||
| Investments held at fair value | — | ||||||||||||||||||||||
Trade and other receivables3 | — | ||||||||||||||||||||||
| Total financial assets | — | ||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||
| Subsidiary warrant liability | — | ||||||||||||||||||||||
| Subsidiary preferred shares | — | ||||||||||||||||||||||
| Subsidiary notes payable | — | ||||||||||||||||||||||
| Share-based liability awards | — | ||||||||||||||||||||||
| Total financial liabilities | — | ||||||||||||||||||||||
1 Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade.
2 Included within cash and cash equivalents.
3 Outstanding receivables are owed primarily by government agencies and large corporations, virtually all of which are investment grade.
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19. Subsidiary Notes Payable
The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2023 and December 31, 2022, the loan in Follica and the convertible notes for Knode and Appeering did not contain embedded derivatives and therefore these instruments continue to be held at amortized cost. The notes payable consist of the following:
2023 $ | 2022 $ | |||||||
| As of December 31, | ||||||||
| Loans | ||||||||
| Convertible notes | ||||||||
| Total subsidiary notes payable | ||||||||
Loans
In October 2010, Follica entered into a loan and security agreement with Lighthouse Capital Partners VI, L.P. The loan is secured by Follica’s assets, including Follica’s intellectual property and bears interest at a rate of 5.0 percent in the interest only period and 12.0 percent in the repayment period.
Convertible Notes
Convertible Notes outstanding were as follows:
Knode $ | Appeering $ | Sonde $ | Total $ | |||||||||||
January 1, 2022 | ||||||||||||||
| Gross principal - issuance of notes - financing activity | ||||||||||||||
| Accrued interest on convertible notes - finance costs | ||||||||||||||
| Change in fair value - finance costs | ||||||||||||||
| Deconsolidation | ( | ( | ||||||||||||
December 31, 2022 and January 1, 2023 | ||||||||||||||
| Accrued interest on convertible notes - finance costs | ||||||||||||||
December 31, 2023 | ||||||||||||||
On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4,329 , of which $2,215 were issued to third-party shareholders (and $2,113 were issued to the Group and eliminated in consolidation). In addition, in March 2022, Sonde issued an additional amount of $921 , of which $393 were issued to third parties (and $528 issued to the Group and eliminated in consolidation). The notes bore interest at an annual rate of 6.0 percent and were to mature on the second anniversary of the issuance. The notes were to mandatorily convert in a Qualified Financing, as defined in the note purchase agreement, at a discount of 20.0 percent from the price per share in the Qualified Financing. In addition, the notes allowed for optional conversion concurrently with a discount of 20.0 percent from the price per share in the Non Qualified Equity Financing. Upon the completion of the Preferred B round of financing in Sonde on May 25, 2022, the Group lost control in Sonde and all convertible notes were derecognized as part of the deconsolidation - See Note 5. Investments Held at Fair Value.
For Sonde convertible notes, since these notes contained embedded derivatives, the notes were assessed under IFRS 9 and the entire financial instruments were elected to be accounted for as FVTPL. The Sonde notes were deconsolidated in May 2022 as described above.
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20. Non-Controlling Interest
As of December 31, 2023, non-controlling interests include Entrega and Follica. Ownership interests of the non-controlling interests in these entities as of December 31, 2023 were 11.7 percent, and 19.9 percent, respectively. As of December 31, 2022, non-controlling interests include Entrega, Follica, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent , 19.9 percent, and 12.2 percent, respectively. As of December 31, 2021, non-controlling interests include Entrega, Follica, Sonde, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent, 19.9 percent, 6.2 percent and 3.7 percent, respectively. During the year ended December 31, 2023, Vedanta Biosciences, Inc was deconsolidated. During the year ended December 31, 2022, Sonde Health, Inc was deconsolidated. See Note 5. Investments Held at Fair Value.
Non-controlling interests include the amounts recorded for subsidiary stock options.
On June 11, 2021, the Group acquired the remaining 17.1 percent of the minority non-controlling interests of Alivio (after exercise of all in the money stock options) increasing its ownership to 100.0 percent of Alivio. The consideration for such non-controlling interests amounted to $1,224 , to be paid in three equal installments, with the first installment of $408 paid at the effective date of the transaction and two additional installments to be paid upon the occurrence of certain contingent events. The Group recorded a contingent consideration liability of $560 at fair value for the two additional installments, resulting in a total acquisition cost of $968 . The excess of the consideration paid over the book value of the non-controlling interest of approximately $9,636 was recorded directly as a charge to shareholders’ equity. The second installment of $408 was paid in July 2021, upon the occurrence of the contingent event specified in the agreement. The contingent consideration liability was adjusted to fair value at the end of each reporting period with changes in fair value recorded in earnings. Changes in fair value of the aforementioned contingent consideration liability were not material. As of December 31, 2022, the remaining contingent liability was reduced to zero as the second contingent event did not occur.
On December 1, 2021, option holders in Entrega exercised options into shares of common stock, increasing the NCI interest held from 0.2 percent to 11.7 percent. During 2021, option holders in Vedanta exercised options and increased the NCI interest to 3.7 percent. The exercise of the options resulted in an increase in the NCI share in Entrega and Vedanta shareholder's deficit of $5,887 . The amount together with the consideration paid by NCI ($101 ) amounted to $5,988 and was recorded as a gain directly in shareholders' equity.
On February 15, 2022, option holders in Vedanta exercised options into shares of common stock, increasing the NCI interest held from 3.7 percent to 12.2 percent. The exercise of the options resulted in an increase in the NCI share in Vedanta shareholder's deficit of $15,171 . The amount together with the consideration paid by NCI ($7 ) amounted to $15,171 and was recorded as a gain directly in shareholders' equity.
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21. Trade and Other Payables
Information regarding Trade and other payables was as follows:
| As of December 31, | 2023 $ | 2022 $ | ||||||
| Trade payables | ||||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Liability for share-based awards | ||||||||
| Other | ||||||||
| Total trade and other payables | ||||||||
22. Long-term loan
In September 2020, Vedanta entered into a $15,000 loan and security agreement with Oxford Finance LLC. The loan is secured by Vedanta's assets, including equipment, inventory and intellectual property. The loan bears a floating interest rate of 7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.17 percent. The loan matures September 2025 and requires interest-only payments prior to 2023. The loan also carries a final fee upon full repayment of 7.0 percent of the original principal, or $1,050 . As part of the loan agreement, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030. The outstanding loan balance totaled approximately $15,400 as of December 31, 2022. On March 1, 2023, the Group derecognized the loan in connection with Vedanta's deconsolidation. Refer to Note 5. Investments Held at Fair Value.
The following table summarizes long-term loan activity for the years ended December 31, 2023 and 2022:
| Long-term loan | ||||||||
2023 $ | 2022 $ | |||||||
| Balance at January 1, | ||||||||
| Accrued interest | ||||||||
| Interest paid | ( | ( | ||||||
| Other | ( | ( | ||||||
Deconsolidation of subsidiary | ( | |||||||
Balance at December 31, | ||||||||
The long-term loan is presented as follows in the Statement of Financial Position as of December 31, 2023 and 2022:
| Long-term loan | ||||||||
2023 $ | 2022 $ | |||||||
Current portion of long-term loan | ||||||||
| Long-term loan | ||||||||
| Total Long-term loan | ||||||||
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23. Leases and subleases
The activity related to the Group’s right of use asset and lease liability for the years ended December 31, 2023 and 2022 is as follows:
| Right of use asset, net | ||||||||
2023 $ | 2022 $ | |||||||
| Balance at January 1, | ||||||||
| Additions | ||||||||
| Depreciation | ( | ( | ||||||
| Deconsolidated | ( | |||||||
| Balance at December 31, | ||||||||
| Total lease liability | ||||||||
2023 $ | 2022 $ | |||||||
| Balance at January 1, | ||||||||
| Additions | ||||||||
| Cash paid for rent - principal - financing cash flow | ( | ( | ||||||
| Cash paid for rent - interest | ( | ( | ||||||
| Interest expense | ||||||||
| Deconsolidated | ( | |||||||
| Balance at December 31, | ||||||||
Depreciation of the right-of-use assets, which virtually all consist of leased real estate, is included in the general and administrative expenses and research and development expenses line items in the Statement of Comprehensive Income/(Loss). The Group recorded depreciation expense of $1,979 , $3,047 and $2,938 for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table details the short-term and long-term portion of the lease liability as of December 31, 2023 and 2022:
| Total lease liability | ||||||||
2023 $ | 2022 $ | |||||||
| Short-term portion of lease liability | ||||||||
| Long-term portion of lease liability | ||||||||
| Total lease liability | ||||||||
The following table details the future maturities of the lease liability, showing the undiscounted lease payments to be paid after the reporting date:
2023 $ | |||||
| Less than one year | |||||
| One to two years | |||||
| Two to three years | |||||
| Three to four years | |||||
| Four to five years | |||||
| More than five years | |||||
| Total undiscounted lease maturities | |||||
| Interest | |||||
| Total lease liability | |||||
During the year ended December 31, 2019, the Group entered into a lease agreement for certain premises consisting of 50,858 rentable square feet of space located at 6 Tide Street, Boston, Massachusetts. The lease commenced on April 26, 2019 for an initial term consisting of ten years and three months, and there is an option to extend the lease for two consecutive periods of five years each. The Group assessed at the lease commencement date whether it was reasonably certain to exercise the extension options, and deemed such options were not reasonably certain to be exercised. The Group will reassess whether it is reasonably certain to exercise the options only if there is a significant event or significant change in circumstances within its control.
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On June 26, 2019, the Group executed a sublease agreement with Gelesis. The lease is for 9,446 rentable square feet located on the sixth floor of the Group’s former office at 501 Boylston Street, Boston, Massachusetts. The sublease was set to expire on August 31, 2025, and was determined to be a finance lease. Gelesis ceased operations and filed for bankruptcy on October 30, 2023. As a result, the Group wrote off its receivable in the lease of $1,266 in 2023.
Rental income recognized by the Group during the year ended December 31, 2023 was $781 which was included in the other income/(expense) line item in the Consolidated Statement of Comprehensive Income/(Loss). In the year ended December 31, 2022, the Group did no t recognize any rental income.
24. Capital and Financial Risk Management
Capital Risk Management
The Group's capital and financial risk management policy is to maintain a strong capital base to support its strategic priorities, maintain investor, creditor and market confidence as well as sustain the future development of the business. The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Group may issue new shares or incur new debt. The Group has no material externally imposed capital requirements. The Group’s share capital is set out in Note 15. Equity.
Management continuously monitors the level of capital deployed and available for deployment in the Wholly-Owned Programs segment and at Founded Entities. The Directors seek to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position.
The Group’s Directors have overall responsibility for the establishment and oversight of the Group's capital and risk management framework. The Group is exposed to certain risks through its normal course of operations. The Group’s main objective in using financial instruments is to promote the development and commercialization of intellectual property through the raising and investing of funds for this purpose. The nature, amount and timing of investments are determined by planned future investment activity. Due to the nature of activities and with the aim to maintain the investors’ funds as secure and protected, the Group’s policy is to hold any excess funds in highly liquid and readily available financial instruments and maintain minimal exposure to other financial risks.
The Group has exposure to the following risks arising from financial instruments:
Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and trade and other receivables. The Group held the following balances (not including the income tax receivable resulting from overpayment of income taxes as of December 31, 2022. See Note 27. Taxation):
2023 $ | 2022 $ | |||||||
| As of December 31 | ||||||||
| Cash and cash equivalents | ||||||||
| Short-term investments | ||||||||
| Trade and other receivables | ||||||||
| Total | ||||||||
The Group invests its excess cash in U.S. Treasury Bills (presented as short-term investments), and money market accounts, which the Group believes are of high credit quality. Further, the Group's cash and cash equivalents and short-term investments are held at diverse, investment-grade financial institutions.
The Group assesses the credit quality of customers on an ongoing basis. The credit quality of financial assets is assessed by historical and recent payment history, counterparty financial position, and reference to credit ratings (if available) or to historical information about counterparty default rates. The Group does not have expected credit losses due to the high credit quality or healthy financial conditions of these counterparties. As of December 31, 2023 and 2022, none of the trade and other receivables were impaired.
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group actively manages its liquidity risk by closely monitoring the maturity of its financial assets and liabilities and projected cash flows from operations, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Due to the nature of these financial liabilities, the funds are available on demand to provide optimal financial flexibility.
F-48
The table below summarizes the maturity profile of the Group’s financial liabilities, including subsidiary preferred shares that have customary liquidation preferences, as of December 31, 2023 and 2022, based on contractual undiscounted payments:
| As of December 31 | 2023 | ||||||||||||||||
Carrying Amount $ | Within Three Months $ | Three to Twelve Months $ | One to Five Years $ | Total $ (*) | |||||||||||||
Subsidiary notes payable | |||||||||||||||||
| Trade and other payables | |||||||||||||||||
Subsidiary preferred shares (Note 16)1 | |||||||||||||||||
| Total | |||||||||||||||||
| As of December 31 | 2022 | ||||||||||||||||
Carrying Amount $ | Within Three Months $ | Three to Twelve Months $ | One to Five Years $ | Total $ (*) | |||||||||||||
| Long-term loan | |||||||||||||||||
| Subsidiary notes payable | |||||||||||||||||
| Trade and other payables | |||||||||||||||||
Warrants2 | |||||||||||||||||
Subsidiary preferred shares (Note 16)1 | |||||||||||||||||
| Total | |||||||||||||||||
1 Redeemable only upon a liquidation or deemed liquidation event, as defined in the applicable shareholder documents.
2 Warrants issued by subsidiaries to third parties to purchase preferred shares.
* Does not include payments in respect of lease obligations. For the contractual future payments related to lease obligations, see Note 23. Leases and subleases.
Interest Rate Sensitivity
As of December 31, 2023, the Group had cash and cash equivalents of $191,081 , and short-term investments of $136,062 . The Group's exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. The Group has not entered into investments for trading or speculative purposes. Due to the conservative nature of the Group's investment portfolio, which is predicated on capital preservation and investments in short duration, high-quality U.S. Treasury Bills and related money market accounts, a change in interest rates would not have a material effect on the fair market value of the Group's portfolio, and therefore, the Group does not expect operating results or cash flows to be significantly affected by changes in market interest rates.
Controlled Founded Entity Investments
The Group maintains investments in certain Controlled Founded Entities. The Group’s investments in Controlled Founded Entities are eliminated as intercompany transactions upon financial consolidation. The Group is, however, exposed to a preferred share liability owing to the terms of existing preferred shares and the ownership of Controlled Founded Entities preferred shares by third parties. As discussed in Note 16. Subsidiary Preferred Shares, certain of the Group’s subsidiaries have issued preferred shares that include the right to receive a payment in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, including in the event of "deemed liquidation" as defined in the incorporation documents of the entities, which shall be paid out of the assets of the subsidiary available for distribution to shareholders, and before any payment shall be made to holders of ordinary shares. The liability of preferred shares is maintained at fair value through the profit and loss. The Group’s cash position supports the business activities of the Controlled Founded Entities. Accordingly, the Group views exposure to the third party preferred share liability as low.
Deconsolidated Founded Entity Investments
The Group maintains certain debt or equity holdings in Founded Entities that are deconsolidated. These holdings are deemed either as investments and accounted for as investments held at fair value, or as associates and accounted for under the equity method. The Group's exposure to investments held at fair value is $317,841 as of December 31, 2023, and the Group may or may not be able to realize the value in the future. Accordingly, the Group views the risk as high. The Group’s exposure to investments in associates is limited to the carrying amount of the investment in an associate. The Group is not exposed to further contractual obligations or contingent liabilities beyond the value of the initial investments. Accordingly, the Group does not view this as a high risk. As of December 31, 2023, Sonde is the only associate, and the carrying amount of the investment as associate is $3,185 .
Equity Price Risk
As of December 31, 2023, the Group held 886,885 common shares of Karuna, 2,671,800 common shares of Vor and 12,527,477 common shares of Akili. The fair value of these investments in Karuna, Vor and Akili was $292,831 , of which approximately 96 % is related to the Karuna common shares.
The investments in Karuna, Vor and Akili are exposed to fluctuations in the market price of these common shares. The effect of a 10.0 percent adverse change in the market price of Karuna, Vor and Akili common shares would cause a loss of approximately $29,283 to be recognized as a component of other income (expense) in the Consolidated Statement of Comprehensive Income/(Loss). However, the Group views exposure to equity price risk as low due to the definitive merger agreement Karuna entered into with Bristol Myers Squibb "BMS") in December 2023 under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024.
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Foreign Exchange Risk
The Group maintains consolidated financial statements in the Group's functional currency, which is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Such foreign currency gains or losses were not material for all reported periods.
The Group does not currently engage in currency hedging activities since its foreign currency risk is limited, but the Group may begin to do so in the future if and when its foreign currency risk exposure changes.
25. Commitments and Contingencies
The Group is a party to certain licensing agreements where the Group is licensing IP from third parties. In consideration for such licenses, the Group has made upfront payments and may be required to make additional contingent payments based on developmental and sales milestones and/or royalty on future sales. As of December 31, 2023, certain milestone events have not yet occurred, and therefore, the Group does not have a present obligation to make the related payments in respect of the licenses. Such milestones are dependent on events that are outside of the control of the Group, and many of these milestone events are remote of occurring. As of December 31, 2023 and December 31, 2022, payments in respect of developmental milestones that are dependent on events that are outside the control of the Group but are reasonably possible to occur amounted to approximately $7,371 and $8,666 , respectively. These milestone amounts represent an aggregate of multiple milestone payments depending on different milestone events in multiple agreements. The probability that all such milestone events will occur in the aggregate is remote. Payments made to license IP represent the acquisition cost of intangible assets.
The Group was a party to certain sponsored research arrangements and is a party to arrangements with contract manufacturing and contract research organizations, whereby the counterparty provides the Group with research and/or manufacturing services. As of December 31, 2023 and 2022, the noncancellable commitments in respect of such contracts amounted to approximately $16,422 and $11,288 , respectively.
In March 2024, a complaint was filed in Massachusetts District Court against the Group alleging breach of contract with respect to certain payments alleged to be owed to a previous employee of a Group subsidiary based on purported terms of a contract between such individual and the Group. The Group intends to defend itself vigorously though the ultimate outcome of this matter and the timing for resolution remains uncertain. No determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable.
The Group is involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Group does not expect the resolution of such legal proceedings to have a material adverse effect on its financial position or results of operations. The Group did not book any provisions and did not identify any contingent liabilities requiring disclosure for any legal proceedings other than already included above for the years ended December 31, 2023 and 2022.
26. Related Parties Transactions
Related Party Subleases and Royalties
During 2019, the Group executed a sublease agreement with a related party, Gelesis. As of December 31, 2022, the sublease receivable amounted to $1,285 . During 2023, the sublease receivable was written down to $0 as Gelesis ceased operations and filed for bankruptcy.
The Group recorded $23 , $89 and $113 of interest income with respect to the sublease during the years ended December 31, 2023, 2022, and 2021, respectively, which is presented within finance income in the Consolidated Statement of Comprehensive Income/(Loss).
The Group received royalties from Gelesis on its product sales. The Group recorded zero , $509 , and $231 of royalty revenue during the years ended December 31, 2023, 2022, 2021, respectively, which is presented in contract revenue in the Consolidated Statement of Comprehensive Income/(Loss).
Key Management Personnel Compensation
Key management includes executive directors and members of the executive management team of the Group (not including non-executive directors). The key management personnel compensation of the Group was as follows for the years ended December 31:
2023 $ | 2022 $ | 2021 $ | |||||||||
| As of December 31 | |||||||||||
| Short-term employee benefits | |||||||||||
| Post-employment benefits | |||||||||||
| Termination Benefits | |||||||||||
| Share-based payment expense | |||||||||||
| Total | |||||||||||
Short-term employee benefits include salaries, health care and other non-cash benefits. Post-employment benefits include 401K contributions from the Group. Termination benefits include severance pay. Share-based payments are generally subject to vesting terms over future periods. See Note 9. Share-based Payments. As of 12/31/2023, the payable due to the key management employees was $4,732 .
F-50
In addition the Group paid remuneration to non-executive directors in the amounts of $475 , $655 and $605 for the years ended December 31, 2023, 2022 and 2021, respectively. Also, the Group incurred $373 , $365 , and $161 of stock based compensation expense for such non-executive directors for the years ended December 31, 2023, 2022, and 2021, respectively.
During the years ended December 31, 2023 and 2022, the Group incurred $46 , and $51 , respectively, of expenses paid to related parties.
Convertible Notes Issued to Directors
Certain related parties of the Group have invested in convertible notes issued by the Group’s subsidiaries. As of December 31, 2023 and December 31, 2022, the outstanding related party notes payable totaled $104 and $99 , respectively, including principal and interest. The notes issued to related parties bear interest rates, maturity dates, discounts and other contractual terms that are the same as those issued to outside investors during the same issuances.
Directors’ and Senior Managers’ Shareholdings and Share Incentive Awards
The Directors and senior managers hold beneficial interests in shares in the following businesses and sourcing companies as of December 31, 2023:
| Business name (share class) | Number of shares held as of December 31, 2023 | Number of options held as of December 31, 2023 | Number of RSUs held as of December 31, 2023 | Ownership interest¹ | |||||||||||||
| Directors: | |||||||||||||||||
| Dr Robert Langer | Entrega (Common) | % | |||||||||||||||
| Dr Raju Kucherlapati | Enlight (Class B Common) | % | |||||||||||||||
Dr John LaMattina2 | Akili (Common) | % | |||||||||||||||
| Vedanta Biosciences (Common) | % | ||||||||||||||||
| Senior Managers: | |||||||||||||||||
| Dr Bharatt Chowrira | Karuna (Common) | % | |||||||||||||||
1 Ownership interests as of December 31, 2023 are calculated on a diluted basis, including issued and outstanding shares, warrants and options (and written commitments to issue options) but excluding unallocated shares authorized to be issued pursuant to equity incentive plans and any shares issuable upon conversion of outstanding convertible promissory notes.
2 Dr John LaMattina holds convertible notes issued by Appeering in the aggregate principal amount of $50,000 .
Directors and senior managers hold 23,547,554 ordinary shares and 11.5 percent voting rights of the Group as of December 31, 2023. This amount excludes options to purchase 2,262,500 ordinary shares. This amount also excludes 7,301,547 102,732 shares, which are issuable to directors immediately prior to the Group's 2024 Annual General Meeting of Stockholders, based on the terms of the RSU awards granted to non-executive directors in 2023. Such shares will be issued to such senior managers and non-executive directors in future periods provided that performance and/or service conditions are met, and certain of the shares will be withheld for payment of customary withholding taxes.
Other
See Note 7. Investment in Notes from Associates for details on the notes issued by Gelesis and Vedanta to the Group.
As of December 31, 2023, the Group has a receivable from Sonde and Vedanta in the amount of $1,569 .
See Note 6. Investments in Associates for details on the execution and termination of Merger Agreement with Gelesis.
27. Taxation
Tax on the profit or loss for the year comprises current and deferred income tax. Tax is recognized in the Consolidated Statement of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity.
For the years ended December 31, 2023, 2022 and 2021, the Group filed a consolidated U.S. federal income tax return which included all subsidiaries in which the Group owned greater than 80 50
Amounts recognized in Consolidated Statement of Comprehensive Income/(Loss):
2023 $ | 2022 $ | 2021 $ | |||||||||
| For the year ended December 31 | |||||||||||
| Income/(loss) for the year | ( | ( | ( | ||||||||
| Income tax expense/(benefit) | ( | ||||||||||
| Income/(loss) before taxes | ( | ( | ( | ||||||||
Recognized Income Tax Expense/(Benefit):
2023 $ | 2022 $ | 2021 $ | |||||||||
| For the year ended December 31 | |||||||||||
| Federal - current | ( | ||||||||||
| State - current | ( | ||||||||||
| Total current income tax expense/(benefit) | ( | ||||||||||
| Federal - deferred | ( | ( | |||||||||
| State - deferred | ( | ( | |||||||||
F-51
| Total deferred income tax expense/(benefit) | ( | ( | |||||||||
| Total income tax expense/(benefit), recognized | ( | ||||||||||
F-52
The income tax expense/(benefit) was $30,525 , $(55,719 ) and $3,756 in 2023, 2022 and 2021 respectively. The increase in tax expense for the year ended December 31, 2023 was primarily attributable to a lower pre-tax loss in the tax consolidated U.S. group, the tax in respect of the sale of future royalties to Royalty Pharma and the tax impact of derecognizing previously recognized deferred tax assets that are no longer expected to be utilized.
Reconciliation of Effective Tax Rate
The Group is primarily subject to taxation in the U.S. A reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||
| For the year ended December 31 | $ | % | $ | % | $ | % | ||||||||||||||||||||
| US federal statutory rate | ( | ( | ( | |||||||||||||||||||||||
| State taxes, net of federal effect | ( | ( | ( | |||||||||||||||||||||||
| Tax credits | ( | ( | ( | |||||||||||||||||||||||
| Stock-based compensation | ( | ( | ( | |||||||||||||||||||||||
| Finance income/(costs) – fair value accounting | ( | ( | ( | |||||||||||||||||||||||
| Loss with respect to associate for which no deferred tax asset is recognized | ( | ( | ( | |||||||||||||||||||||||
| Revaluation of deferred due to rate change | ( | |||||||||||||||||||||||||
| Nondeductible compensation | ( | ( | ( | |||||||||||||||||||||||
| Recognition of deferred tax assets and tax benefits not previously recognized | ( | ( | ( | |||||||||||||||||||||||
| Unrecognized deferred tax asset | ( | ( | ( | |||||||||||||||||||||||
| Deconsolidation of subsidiary | ( | ( | ||||||||||||||||||||||||
| Other | ( | ( | ( | |||||||||||||||||||||||
| Worthless stock deduction | ( | |||||||||||||||||||||||||
| ( | ( | ( | ||||||||||||||||||||||||
The Group is also subject to taxation in the UK, but to date, no taxable income has been generated in the UK. Changes in corporate tax rates can change both the current tax expense (benefit) as well as the deferred tax expense (benefit).
Deferred Tax Assets and Liabilities
Deferred tax assets have been recognized in the U.S. jurisdiction in respect of the following items:
2023 $ | 2022 $ | |||||||
| For the year ended December 31 | ||||||||
| Operating tax losses | ||||||||
| Tax credits | ||||||||
| Share-based payments | ||||||||
| Capitalized research & development expenditures | ||||||||
| Investment in Associates | ||||||||
| Lease liability | ||||||||
| Sale of future royalties | ||||||||
| Other temporary differences | ||||||||
| Deferred tax assets | ||||||||
| Investments held at fair value | ( | ( | ||||||
| Right of use assets | ( | ( | ||||||
| Property and equipment, net | ( | ( | ||||||
| Investment in Associates | ( | |||||||
| Deferred tax liabilities | ( | ( | ||||||
| Deferred tax assets (liabilities), net | ||||||||
| Deferred tax liabilities, net, recognized | ( | ( | ||||||
| Deferred tax assets (liabilities), net, not recognized | ||||||||
The Group has recognized deferred tax assets due to future reversals of existing taxable temporary differences that will be sufficient to recover the deferred tax assets. Our unrecognized deferred tax assets of $88,058 are primarily related to tax credits, capitalized research & development expenditures and deferred tax asset related to the sale of future royalties to Royalty Pharma. The Group does not believe it is probable that future taxable profit will be available to support the realizability of these unrecognized deferred tax assets.
Unrecognized Deferred Tax Assets
Deferred tax assets have not been recognized in respect of the following carryforward losses, credits and temporary differences, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom.
F-53
2023 $ | 2022 $ | ||||||||||||||||
| For the year ended December 31 | |||||||||||||||||
| Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||||||||||||||
| Deductible temporary difference | |||||||||||||||||
| Tax losses | |||||||||||||||||
| Tax credits | |||||||||||||||||
| Total | |||||||||||||||||
Tax Losses and Tax Credits Carryforwards
Tax losses and tax credits for which no deferred tax asset was recognized are presented below:
| As of December 31 | 2023 $ | 2022 $ | |||||||||||||||
| Gross Amount | Tax Effected | Gross Amount | Tax Effected | ||||||||||||||
| Tax losses expiring: | |||||||||||||||||
| Within 10 years | |||||||||||||||||
| More than 10 years | |||||||||||||||||
| Available Indefinitely | |||||||||||||||||
| Total | |||||||||||||||||
| Tax credits expiring: | |||||||||||||||||
| Within 10 years | |||||||||||||||||
| More than 10 years | |||||||||||||||||
| Available indefinitely | |||||||||||||||||
| Total | |||||||||||||||||
The Group had U.S. federal net operating losses carry forwards (“NOLs”) of $13,681 , $219,466 and $215,400 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire through 2037 with the exception of $2,305 which is not subject to expiration. The Group had U.S. federal research and development tax credits of approximately $1,396 , $4,500 and $3,900 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes that expire at various dates through 2043. The Group also had Federal Orphan Drug credits of approximately $930 and $6,100 as of December 31, 2023, and 2022, which are available to offset future taxes that expire at various dates through 2043. A portion of these federal NOLs and credits can only be used to offset the profits from the Group’s subsidiaries who file separate federal tax returns. These NOLs and credits are subject to review and possible adjustment by the Internal Revenue Service.
The Group had state net operating losses carry forwards (“NOLs”) of approximately $111,446 , $71,700 and $27,900 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire at various dates beginning in 2030. The Group had Massachusetts research and development tax credits of approximately $98 , $600 and $1,300 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes and expire at various dates through 2038. These NOLs and credits are subject to review and possible adjustment by state taxing authority.
Utilization of the NOLs and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Group has performed a Section 382 analysis through December 31, 2023. The results of this analysis concluded that certain net operating losses were subject to limitation under Section 382 of the Internal Revenue Code. None of the Group’s net operating losses which are subject to a Section 382 limitation has been recognized in the financial statements.
Tax Balances
The tax related balances presented in the Statement of Financial Position are as follows:
| For the year ended December 31 | 2023 $ | 2022 $ | ||||||
| Income tax receivable – current | ||||||||
Trade and other payables | ( | |||||||
Uncertain Tax Positions
The Group has no uncertain tax positions as of December 31, 2023. U.S. corporations are routinely subject to audit by federal and state tax authorities in the normal course of business.
F-54
28. Subsequent Events
The Group has evaluated subsequent events after December 31, 2023, up to the date of issuance, April 25, 2024, of the Consolidated Financial Statements, and has not identified any recordable or disclosable events not otherwise reported in these Consolidated Financial Statements or notes thereto, except for the following:
In January 2024, the Group launched two new Founded Entities (Seaport Therapeutics and Gallop Oncology) to advance certain programs from the Wholly-Owned Programs segment. Seaport Therapeutics ("Seaport") will advance certain central nervous system programs and relevant Glyph intellectual property. Gallop Oncology will advance LYT-200 and other galectin-9 intellectual property. The financial results of these programs were included in the Wholly-Owned Programs segment in the footnotes to the Consolidated Financial Statements, as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities.
On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program ( the "Program") of its ordinary shares of one pence each. In February 2024, the Group completed the Program and has repurchased an aggregate of 20,182,863 ordinary shares under the Program. These shares have been held as treasury shares and are being used to settle the vesting of restricted stock units or exercise of options.
In March 2024, Karuna was acquired by Bristol Myers Squibb (“BMS”) in accordance with a definitive merger agreement signed in December 2023. As a result of this transaction, the Group received total proceeds of $292,672 before income tax in exchange for its holding of 886,885 shares of Karuna common stock.
In March 2024, the Group announced a proposed capital return of $100,000 to its shareholders by way of a tender offer (the "Tender Offer"). The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. If the full $100,000 is not returned, then the Group intends to return any remainder following the completion of the Tender Offer, by way of a special dividend.
In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised $100,000 in a Series A financing, out of which $32,000 was invested by the Group. Following the Series A financing, the Group holds equity ownership in Seaport of 61.5 percent on a diluted basis.
In April 2024, the Gelesis' Chapter 7 Trustee provided notice that a third party bid to purchase the assets subject to the bankruptcy had been accepted as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of the assets is ultimately approved by the Bankruptcy Court and consummated, it is expected that PureTech could recover a portion of its investment in Gelesis senior secured convertible promissory notes. The ultimate resolution of this matter, any potential recovery, and the associated timing remain uncertain. The Group has not recorded any amount in its Consolidated Financial Statements related to amounts that may be received as a result of the bankruptcy process.
F-55
Exhibit 2.3
Description of Securities
The following description of the securities registered under Section 12 of the Securities Exchange Act of 1934 of PureTech Health plc (“PureTech,” “us,” “our,” “we” or the “Company”) is a summary of the rights of our American Depository Shares and certain provisions of our articles of association in effect as of December 31, 2021 (the “Articles”). This summary does not purport to be complete and is qualified in its entirety by the provisions of our Articles previously filed with the Securities and Exchange Commission and incorporated by reference as an exhibit to the Annual Report on Form 20‑F of which this Exhibit 2.3 is a part, as well as to the applicable provisions of the laws and regulations of England and Wales. We encourage you to read our Articles and applicable legislation on England and Wales carefully.
Ordinary Shares
The holders of our ordinary shares, par value £0.01 per share, are entitled to receive dividends in proportion to the number of ordinary shares held by them and according to the amount paid up on such ordinary shares during any portion or portions of the period in respect of which the dividend is paid. Holders of ordinary shares are entitled, in proportion to the number of ordinary shares held by them and to the amounts paid up thereon, to share in any surplus in the event of our winding up. The holders of ordinary shares are entitled to receive notice of, attend either in person or by proxy or, being a corporation, by a duly authorized representative, and vote at general meetings of shareholders.
Share Register
We are required by the Companies Act 2006 to keep a register of our shareholders. Under English law, the ordinary shares are deemed to be issued when the name of the shareholder is entered in our share register. The share register therefore is prima facie evidence of the identity of our shareholders, and the shares that they hold. The share register generally provides limited, or no, information regarding the ultimate beneficial owners of our ordinary shares. Our share register is maintained by our registrar, Computershare Investor Services PLC.
Under the Companies Act 2006, we must enter an allotment of shares in our share register as soon as practicable and in any event within two months of the allotment. We are also required by the Companies Act 2006 to register a transfer of shares (or give the transferee notice of and reasons for refusal) as soon as practicable and in any event within two months of receiving notice of the transfer.
We, any of our shareholders or any other affected person may apply to the court for rectification of the share register if:
| • | the name of any person is wrongly entered in or omitted from our register of members; or | ||||||||||
| • | there is a failure or unnecessary delay in amending the register of members to show the date a member ceased to be a member. | ||||||||||
Objects
Section 31 of the Companies Act 2006 provides that the objects of a company are unrestricted unless any restrictions are set out in the articles. There are no such restrictions in the Articles and our objects are therefore unrestricted.
Voting Rights
Subject to any rights or restrictions attached to any shares, on a show of hands:
| • | every shareholder who is entitled to vote on the resolution and who is present in person has one vote; | ||||||||||
| • | every proxy present who has be duly appointed by one or more shareholders entitled to vote on the resolution(s) has one vote; | ||||||||||
| • | a proxy has one vote for and one vote against the resolution(s) if he has been duly appointed by more than one shareholder entitled to vote on the resolution and either (i) is instructed by one or more of those shareholders to vote for the resolution and by one or more others to vote against it; or (ii) is instructed by one or more of those shareholders to vote in one way and is given a discretion as to how to vote by one or more others (and wishes to use that discretion to vote in the other way); | ||||||||||
| • | subject to any rights or restrictions attached to any shares, on a poll every shareholder who is entitled to vote on the resolutions and is present in person or by proxy shall have one vote for every share of which he is the holder; | ||||||||||
| • | where there are joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the vote or votes of the other joint holder or holders. Seniority is determined by the order in which the names of the holders stand in the register; and | ||||||||||
| • | unless the Board otherwise determines, a shareholder shall not be entitled to vote unless all calls or other sums due and payable from him in respect of shares in our company have been paid. | ||||||||||
Dividends
Subject to the Companies Act 2006 and the Articles, we may by ordinary resolution declare dividends, but no such dividends shall exceed the amount recommended by the Board. Subject to the Companies Act 2006, the Board may declare and pay such interim dividends (including any dividend payable at a fixed rate) as appear to the Board to be justified by the profits of our company available for distribution.
Except as otherwise provided by the rights attached to shares, all dividends shall be declared and paid according to the amounts paid up or credited as paid up (other than amounts paid in advance of calls) on the shares in respect of which the dividend is paid and shall be apportioned and paid proportionately to the amounts paid up on such shares during any portion or portions of the period in respect of which the dividend is paid.
Dividends may be declared or paid in whatever currency the Board decides. Unless otherwise provided by the rights attached to the shares, dividends shall not carry a right to receive interest.
All dividends unclaimed for a period of 12 years after having been declared or becoming due for payment shall be forfeited and cease to remain owing by us.
The Board may, with the authority of an ordinary resolution of our company:
| • | offer holders of ordinary shares the right to elect to receive further ordinary shares, credited as fully paid, instead of cash in respect of all or part of any dividend or dividends specified by the ordinary resolution; and | ||||||||||
| • | direct that payment of all or part of any dividend declared may be satisfied by the distribution of specific assets. | ||||||||||
There are no fixed or specified dates on which entitlements to dividends payable by us arise.
Pre-Emption Rights
In certain circumstances, shareholders may have statutory pre-emption rights under the Companies Act 2006 in respect of the allotment of new shares in our company. These statutory pre-emption rights would require us to offer new shares for allotment to existing shareholders on a pro rata basis before allotting them to other persons. In such circumstances, the procedure for the exercise of such statutory pre-emption rights would be set out in the documentation by which such shares would be offered to shareholders.
Distribution of Assets on a Winding-Up
On a winding up, a liquidator may, with the authority of a special resolution of our company and any other sanction required by law divide among the shareholders in kind the whole or any part of the assets of our company, whether or not the assets consist of property of one kind or different kinds and may for such purposes set such value as he considers fair upon any one or more class or classes of property and may determine how such division shall be carried out as between the Shareholders or different classes of Shareholders. The liquidator may, with the same authority, transfer any part of the assets to trustees on such trusts for the benefit of shareholders as the liquidator, with the same authority, thinks fit and the liquidation may then be closed and our company dissolved, but so that no Shareholder shall be compelled to accept any shares or other property in respect of which there is a liability.
Transfer of Shares
Every transfer of shares which are in certificated form must be in writing in any usual form or in any form approved by the Board and shall be executed by or on behalf of the transferor and (in the case of a transfer of a share which is not fully paid up) by or on behalf of the transferee.
Every transfer of shares which are in uncertificated form must be made by means of a relevant system (such as CREST).
The Board may, in its absolute discretion and without giving reason, refuse to register any transfer of certificated shares if: (a) it is in respect of a share which is not fully paid up (provided that, if such share is admitted to trading
on a recognised investment exchange, the refusal does not prevent dealings in our company’s shares from taking place on an open and proper basis); (b) it is in respect of more than one class of share; (c) it is not duly stamped (if so required)or duly certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty; or (d) it is not delivered for registration to the registered office of our company or such other place as the Board may from time to time determine, accompanied (except in the case of a transfer by a recognized person (as defined in the Articles) where a certificate has not been issued) by the relevant share certificate and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer and, if the transfer is signed by some other person on his behalf, the authority of that person to do so.
The Board may, in its absolute discretion and without giving reason, refuse to register any transfer or allotment of shares which is in favor of: (a) a child, bankrupt or person of unsound mind; or (b) more than four joint transferees
Restrictions on Voting Rights
If a member or any person appearing to be interested in shares held by such a member has been duly served with a notice under section 793 of the Companies Act 2006 and has failed in relation to any shares (“default shares”)
Variation of Class Rights
Subject to the Companies Act 2006, all or any of the rights or privileges attached to any class of shares in our company may be varied or abrogated in such manner (if any) as may be provided by such rights, or, in the absence of any such provision, either with the consent in writing of the holders of at least three-fourths of the nominal amount of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of such holders of shares of that class, but not otherwise. The quorum at any such meeting (other than an adjourned meeting) is two persons holding or representing by proxy at least one third in nominal amount of the issued shares of the class in question.
The rights attached to any class of shares shall not, unless otherwise expressly provided in the rights attaching to such shares, be deemed to be varied or abrogated by the creation or issue of shares ranking pari passu with or subsequent to them or by the purchase or redemption by us of any of our own shares.
Share Capital, Changes in Capital and Purchase of Own Shares
Subject to the Companies Act 2006 and to the Articles, the power to allot and issue shares shall be exercised by the Board at such times and on such terms and conditions as the Board may determine.
Subject to the Articles and to any rights attached to any existing shares, any share may be issued with such rights or restrictions as we may from time to time determine by ordinary resolution.
We may issue redeemable shares and the Board may determine the terms, conditions and manner of redemption of such shares, provided it does so before the shares are allotted.
General Meetings
The Board may convene a general meeting whenever it thinks fit.
Pursuant to the Companies Act 2006, an annual general meeting shall be called on not less than 21 clear days’ notice. All other general meetings shall be called by not less than 14 clear days’ notice.
The quorum for a general meeting is two shareholders present in person or by proxy and entitled to vote.
The Board and, at any general meeting, the chairman of the meeting may make any arrangement and impose any requirement or restriction which it or he considers appropriate to ensure the security or orderly conduct of the meeting. This may include requirements for evidence of identity to be produced by those attending, the searching of their personal property and the restriction of items which may be taken into the meeting place.
Appointment of Directors
Unless otherwise determined by ordinary resolution, there shall be no maximum number of directors, but the number of directors shall not be less than two. Subject to the Companies Act 2006 and the Articles, we may by ordinary resolution appoint any person who is willing to act as a director either as an additional director or to fill a vacancy. The Board may also appoint any person who is willing to act as a director, subject to the Companies Act 2006 and the Articles. Any person appointed by the Board as a director will hold office only until conclusion of the next annual general meeting, unless he is re-elected during such meeting.
The Board may appoint any director to hold any employment or executive office in our company and may also revoke or terminate any such appointment (without prejudice to any claim for damages for breach of any service contract between the director and our company). The Board may by ordinary resolution appoint any person who is willing to act as a director either as an additional director or to fill a vacancy. The Board may also appoint any person who is willing to act as a director, subject to the Companies Act 2006 and the Articles. Any person appointed by the Board as a director will hold office only until conclusion of the next annual general meeting, unless he is re-elected during such meeting.
The Board may appoint any director to hold any employment or executive office in our company and may also revoke or terminate any such appointment (without prejudice to any claim for damages for breach of any service contract between the director and our company).
Retirement and Removal of Directors
Our Articles provide that at each annual general meeting of our company, one-third of the directors who are subject to retirement by rotation or, if their number is not three, the number nearest to but not exceeding one third shall retire from office unless there are fewer than three directors who are subject to retirement by rotation, in which case only one shall retire from office. However, in accordance with the U.K. Corporate Governance Code and best practice, at each annual general meeting all of our directors retire from office and put themselves forward for re-election. In addition, any director who has been a director at each of the preceding two annual general meetings shall also retire. Each such director may, if eligible, offer himself for re-election. If our company, at the meeting at which a director retires, does not fill the vacancy the retiring director shall, if willing, be deemed to have been reappointed unless it is expressly resolved not to fill the vacancy or a resolution for the reappointment of the director is put to the meeting and lost.
Without prejudice to the provisions of the Companies Act 2006, our company may by ordinary resolution remove any director before the expiration of his period of office and may by ordinary resolution appoint another director in his place.
Directors’ Interests
Subject to the Companies Act 2006 and provided that he has disclosed to the directors the nature and extent of any interest, a director is able to enter into contracts or other arrangements with us, hold any other office (except auditor) with us or be a director, employee or otherwise interested in any company in which our company is interested. Such a director shall not be liable to account to us for any profit, remuneration or other benefit realized by any such office, employment, contract, arrangement or proposal.
Save as otherwise provided by the Articles, a director shall not vote on, or be counted in the quorum in relation to, any resolution of the Board concerning any contract, arrangement, transaction or proposal to which our company is or is to be a party and in which he (together with any person connected with him) is to his knowledge materially interested, directly or indirectly. Interests of which the director is not aware, interests which cannot reasonably be regarded as likely to give rise to a conflict of interest and interests arising purely as a result of an interest in our company’s shares, debentures or other securities are disregarded. However, a director can vote and be counted in the quorum where the resolution relates to any of the following:
| • | the giving of any guarantee, security or indemnity in respect of (i) money lent or obligations incurred by him or by any other person at the request of or for the benefit of our company or any of its subsidiary undertakings or (ii) a debt or obligation of our company or any of its subsidiary undertakings for which the director himself has assumed responsibility in whole or in part under a guarantee or indemnity or by the giving of security; | ||||||||||
| • | the participation of the director, in an offer of securities of our company or any of its subsidiary undertakings, including participation in the underwriting or sub-underwriting of the offer; | ||||||||||
| • | a proposal involving another company in which he and any persons connected with him has a direct or indirect interest of any kind, unless he and any persons connected with him hold an interest in shares representing one percent or more of either any class of equity share capital, or the voting rights, in such company; | ||||||||||
| • | any arrangement for the benefit of employees of our company or of any of its subsidiary undertakings which does not award the director any privilege or benefit not generally awarded to the employees to whom such arrangement relates; | ||||||||||
| • | any proposal concerning the purchase or maintenance of any insurance policy under which he may benefit; | ||||||||||
| • | any proposal concerning indemnities in favor of directors or the funding of expenditure by one or more directors on defending proceedings against such director(s). | ||||||||||
A director shall not vote or be counted in the quorum on any resolution of the Board concerning his own appointment (including fixing or varying the terms of his appointment or its termination) as the holder of any office or place of profit with our company or any company in which our company is interested.
The Board may authorize any matter that would otherwise involve a Director breaching his duty under the Companies Act 2006 to avoid conflicts of interest, provided that the interested director(s) do not vote or count in the quorum in relation to any resolution authorizing the matter. The Board may authorize the relevant matter on such terms as it may determine including:
| • | whether the interested director(s) may vote or be counted in the quorum in relation to any resolution relating to the relevant matter; | ||||||||||
| • | the exclusion of the interested director(s) from all information and discussion by our company of the relevant matter; and | ||||||||||
| • | the imposition of confidentiality obligations on the interested director(s). | ||||||||||
An interested director must act in accordance with any terms determined by the Board. An authorization of a relevant matter may also provide that where the interested director obtains information that is confidential to a third party (other than through his position as director) he will not be obliged to disclose it to our company or to use it in relation to our company’s affairs, if to do so would amount to a breach of that confidence.
Powers of the Directors
Subject to the Articles and to any directions given by special resolution of the Company, the business of the Company shall be managed by the Board, which may exercise all the powers of the Company whether relating to the management of the business or not.
Differences in Corporate Law
The applicable provisions of the Companies Act 2006 differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain differences between the provisions of the Companies Act 2006 applicable to us and the Delaware General Corporation Law relating to shareholders’ rights and protections. This summary is not intended to be a complete discussion of the respective rights and it is qualified in its entirety by reference to Delaware law and English law.
| ENGLAND AND WALES | DELAWARE | |||||||||||||
| Number of Directors | Under the Companies Act 2006, a public limited company must have at least two directors and the number of directors may be fixed by or in the manner provided in a company’s articles of association. | Under Delaware law, a corporation must have at least one director and the number of directors shall be fixed by or in the manner provided in the bylaws. | ||||||||||||
| Removal of Directors | Under the Companies Act 2006, shareholders may remove a director without cause by an ordinary resolution (which is passed by a simple majority of those voting in person or by proxy at a general meeting) irrespective of any provisions of any service contract the director has with the company, provided 28 clear days’ notice of the resolution has been given to the company and its shareholders. On receipt of notice of an intended resolution to remove a director, the company must forthwith send a copy of the notice to the director concerned. Certain other procedural requirements under the Companies Act 2006 must also be followed such as allowing the director to make representations against his or her removal either at the meeting or in writing. | Under Delaware law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, except (a) unless the certificate of incorporation provides otherwise, in the case of a corporation whose board of directors is classified, shareholders may effect such removal only for cause, or (b) in the case of a corporation having cumulative voting, if less than the entire board of directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire board of directors, or, if there are classes of directors, at an election of the class of directors of which he is a part. | ||||||||||||
| Vacancies on the Board of Directors | Under English law, the procedure by which directors, other than a company’s initial directors, are appointed is generally set out in a company’s articles of association, provided that where two or more persons are appointed as directors of a public limited company by resolution of the shareholders, resolutions appointing each director must be voted on individually. | Under Delaware law, vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director unless (a) otherwise provided in the certificate of incorporation or by-laws of the corporation or (b) the certificate of incorporation directs that a particular class of stock is to elect such director, in which case a majority of the other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy. | ||||||||||||
| Annual General Meeting | Under the Companies Act 2006, a public limited company must hold an annual general meeting within the six-month period following the company’s annual accounting reference date. | Under Delaware law, the annual meeting of stockholders shall be held at such place, on such date and at such time as may be designated from time to time by the board of directors or as provided in the certificate of incorporation or by the bylaws. | ||||||||||||
| General Meeting | Under the Companies Act 2006, a general meeting of the shareholders of a public limited company may be called by the directors. Shareholders holding at least 5 percent of the paid-up capital of the company carrying voting rights at general meetings can require the directors to call a general meeting and, if the directors fail to do so within 21 days (with the meeting to be held not more than 28 days after the date of the notice), may themselves convene a general meeting. | Under Delaware law, special meetings of the stockholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the bylaws. | ||||||||||||
| Notice of General Meetings | Under the Companies Act 2006, 21 clear days’ notice must be given for an annual general meeting and any resolutions to be proposed at the meeting. Subject to a company’s articles of association providing for a longer period, at least 14 clear days’ notice is required for any other general meeting. In addition, certain matters, such as the removal of directors or auditors, require special notice, which is 28 clear days’ notice. The shareholders of a company may in all cases consent to a shorter notice period, the proportion of shareholders’ consent required being 100 percent of those entitled to attend and vote in the case of an annual general meeting and, in the case of any other general meeting, a majority in number of the members having a right to attend and vote at the meeting, being a majority who together hold not less than 95 percent in nominal value of the shares giving a right to attend and vote at the meeting. | Under Delaware law, unless otherwise provided in the certificate of incorporation or bylaws, written notice of any meeting of the stockholders must be given to each stockholder entitled to vote at the meeting not less than ten nor more than 60 days before the date of the meeting and shall specify the place, date, hour, and purpose or purposes of the meeting. | ||||||||||||
| Proxy | Under the Companies Act 2006, at any meeting of shareholders, a shareholder may designate another person to attend, speak and vote at the meeting on their behalf by proxy. | Under Delaware law, at any meeting of stockholders, a stockholder may designate another person to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A director of a Delaware corporation may not issue a proxy representing the director’s voting rights as a director. | ||||||||||||
| Pre-emptive Rights | Under the Companies Act 2006, “equity securities”, being (i) shares in the company other than shares that, with respect to dividends and capital, carry a right to participate only up to a specified amount in a distribution (“ordinary shares”) or (ii) rights to subscribe for, or to convert securities into, ordinary shares, proposed to be allotted for cash must be offered first to the existing equity shareholders in the company in proportion to the respective nominal value of their holdings, unless an exception applies or a special resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise in each case in accordance with the provisions of the Companies Act 2006. | Under Delaware law, shareholders have no preemptive rights to subscribe to additional issues of stock or to any security convertible into such stock unless, and except to the extent that, such rights are expressly provided for in the certificate of incorporation. | ||||||||||||
| Authority to Allot | Under the Companies Act 2006 the directors of a company must not allot shares or grant of rights to subscribe for or to convert any security into shares unless an exception applies or an ordinary resolution to the contrary has been passed by shareholders in a general meeting or the articles of association provide otherwise in each case in accordance with the provisions of the Companies Act 2006 default, breach of duty or breach of trust in relation to the company is void. Any provision by which a company directly or indirectly provides an indemnity, to any extent, for a director of the company or of an associated company against any liability attaching to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company of which he is a director is also void except as permitted by the Companies Act 2006, which provides exceptions for the company to (a) purchase and maintain insurance against such liability; (b) provide a “qualifying third party indemnity” (being an indemnity against liability incurred by the director to a person other than the company or an associated company or criminal proceedings in which he is not convicted); and (c) provide a “qualifying pension scheme indemnity” (being an indemnity against liability incurred in connection with the company’s activities as trustee of an occupational pension plan). | Under Delaware law, if the corporation’s charter or certificate of incorporation so provides, the board of directors has the power to authorize the issuance of stock. It may authorize capital stock to be issued for consideration consisting of cash, any tangible or intangible property or any benefit to the corporation or any combination thereof. It may determine the amount of such consideration by approving a formula. In the absence of actual fraud in the transaction, the judgment of the directors as to the value of such consideration is conclusive can limit the liability of a director for: • any breach of the director’s duty of loyalty to the corporation or its stockholders; • acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; • intentional or negligent payment of unlawful dividends or stock purchases or redemptions; or • any transaction from which the director derives an improper personal benefit | ||||||||||||
| Voting Rights | Under English law, unless a poll is demanded by the shareholders of a company or is required by the chairman of the meeting or the company’s articles of association, shareholders shall vote on all resolutions on a show of hands. Under the Companies Act 2006, a poll may be demanded by (a) not fewer than five shareholders having the right to vote on the resolution; (b) any shareholder(s) representing not less than 10 percent of the total voting rights of all the shareholders having the right to vote on the resolution; or (c) any shareholder(s) holding shares in the company conferring a right to vote on the resolution being shares on which an aggregate sum has been paid up equal to not less than 10 percent of the total sum paid up on all the shares conferring that right. A company’s articles of association may provide more extensive rights for shareholders to call a poll. Under English law, an ordinary resolution is passed on a show of hands if it is approved by a simple majority (more than 50 percent) of the votes cast by shareholders present (in person or by proxy) and entitled to vote. If a poll is demanded, an ordinary resolution is passed if it is approved by holders representing a simple majority of the total voting rights of shareholders present, in person or by proxy, who, being entitled to vote, vote on the resolution. Special resolutions require the affirmative vote of not less than 75 percent of the votes cast by shareholders present, in person or by proxy, at the meeting and entitled to vote. | Delaware law provides that, unless otherwise provided in the certificate of incorporation, each stockholder is entitled to one vote for each share of capital stock held by such stockholder. | |||||||||||||||
| Shareholder Vote on Certain Transactions | The Companies Act 2006 provides for schemes of arrangement, which are arrangements or compromises between a company and any class of shareholders or creditors and used in certain types of reconstructions, amalgamations, capital reorganizations or takeovers. These arrangements require: • the approval at a shareholders’ or creditors’ meeting convened by order of the court, of a majority in number of shareholders or creditors representing 75 percent in value of the capital held by, or debt owed to, the class of shareholders or creditors, or class thereof present and voting, either in person or by proxy; and • the approval of the court. | Generally, under Delaware law, unless the certificate of incorporation provides for the vote of a larger portion of the stock, completion of a merger, consolidation, sale, lease or exchange of all or substantially all of a corporation’s assets or dissolution requires: • the approval of the board of directors; and • approval by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides for more or less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on the matter. | |||||||||||||||
| Standard of Conduct for Directors | Under English law, a director owes various statutory and fiduciary duties to the company, including: • to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole; • to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly conflicts, with the interests of the company; • to act in accordance with the company’s constitution and only exercise his powers for the purposes for which they are conferred; • to exercise independent judgment; • to exercise reasonable care, skill and diligence; • not to accept benefits from a third party conferred by reason of his being a director or doing, or not doing, anything as a director; and • a duty to declare any interest that he has, whether directly or indirectly, in a proposed or existing transaction or arrangement with the company. | Delaware law does not contain specific provisions setting forth the standard of conduct of a director. The scope of the fiduciary duties of directors is generally determined by the courts of the State of Delaware. In general, directors have a duty to act without self-interest, on a well-informed basis and in a manner they reasonably believe to be in the best interest of the stockholders. Directors of a Delaware corporation owe fiduciary duties of care and loyalty to the corporation and to its shareholders. The duty of care generally requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. In general, but subject to certain exceptions, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Delaware courts have also imposed a heightened standard of conduct upon directors of a Delaware corporation who take any action designed to defeat a threatened change in control of the corporation. In addition, under Delaware law, when the board of directors of a Delaware corporation approves the sale or break-up of a corporation, the board of directors may, in certain circumstances, have a duty to obtain the highest value reasonably available to the shareholders. | ||||||||||||
| Stockholder Suits | Under English law, generally, the company, rather than its shareholders, is the proper claimant in an action in respect of a wrong done to the company or where there is an irregularity in the company’s internal management. Notwithstanding this general position, the Companies Act 2006 provides that (i) a court may allow a shareholder to bring a derivative claim (that is, an action in respect of and on behalf of the company) in respect of a cause of action arising from a director’s negligence, default, breach of duty or breach of trust and (ii) a shareholder may bring a claim for a court order where the company’s affairs have been or are being conducted in a manner that is unfairly prejudicial to some of its shareholders. | Under Delaware law, a stockholder may initiate a derivative action to enforce a right of a corporation if the corporation fails to enforce the right itself. The complaint must: • state that the plaintiff was a stockholder at the time of the transaction of which the plaintiff complains or that the plaintiffs shares thereafter devolved on the plaintiff by operation of law; and • allege with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors and the reasons for the plaintiff’s failure to obtain the action; or • state the reasons for not making the effort. Additionally, the plaintiff must remain a stockholder through the duration of the derivative suit. The action will not be dismissed or compromised without the approval of the Delaware Court of Chancery. | ||||||||||||
Description of American Depository Shares
Citibank, N.A. has agreed to act as the depositary bank for our American Depositary Shares. Citibank’s depositary offices are located at 388 Greenwich Street, New York, New York, 10013. American Depositary Shares are frequently referred to as “ADSs” and represent ownership interests in securities that are on deposit with the depositary bank. ADSs may be represented by certificates that are commonly known as “American Depositary Receipts” or “ADRs.” The depositary bank typically appoints a custodian to safekeep the securities on deposit. In this case, the custodian is Citibank, N.A.—London Branch, located at Citigroup Centre Canary Wharf, London E14 5LB D.
We have appointed Citibank as depositary bank pursuant to a deposit agreement. A copy of the deposit agreement is on file with the SEC under cover of a Registration Statement on Form F-6. You may obtain a copy of the deposit agreement from the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and from the SEC’s website (www.sec.gov). Please refer to Registration Number 333-249809 when retrieving such copy.
We are providing you with a summary description of the material terms of the ADSs and of your material rights as an owner of ADSs. Please remember that summaries by their nature lack the precision of the information summarized and that the rights and obligations of an owner of ADSs will be determined by reference to the terms of the deposit agreement and not by this summary. We urge you to review the deposit agreement in its entirety. The portions of this summary description that are italicized describe matters that may be relevant to the ownership of ADSs but that may not be contained in the deposit agreement.
Each ADS represents the right to receive, and to exercise the beneficial ownership interests in, ordinary shares that are on deposit with the depositary bank and/or custodian. An ADS also represents the right to receive, and to exercise the beneficial interests in, any other property received by the depositary bank or the custodian on behalf of the owner of the ADS but that has not been distributed to the owners of ADSs because of legal restrictions or practical considerations. We and the depositary bank may agree to change the ADS-to-Share ratio by amending the deposit agreement. This amendment may give rise to, or change, the depositary fees payable by ADS owners. The custodian, the depositary bank and their respective nominees hold all deposited property for the benefit of the holders and beneficial owners of ADSs. The deposited property does not constitute the proprietary assets of the depositary bank, the custodian or their nominees. Beneficial ownership in the deposited property under the terms of the deposit agreement are vested in the beneficial owners of the ADSs. The depositary bank, the custodian and their respective nominees are the record holders of the deposited property represented by the ADSs for the benefit of the holders and beneficial owners of the corresponding ADSs. A beneficial owner of ADSs may or may not be the holder of ADSs. Beneficial owners of ADSs are able to receive, and to exercise beneficial ownership interests in, the deposited property only through the registered holders of the ADSs, the registered holders of the ADSs (on behalf of the applicable ADS owners) only through the depositary bank, and the depositary bank (on behalf of the owners of the corresponding ADSs) directly, or indirectly, through the custodian or their respective nominees, in each case upon the terms of the deposit agreement.
If you become (or already are) an owner of ADSs, you will become (or already are) a party to the deposit agreement and therefore will be (or are) bound to its terms and to the terms of any ADR that represents your ADSs. The deposit agreement and the ADR specify our rights and obligations as well as your rights and obligations as owner of ADSs and those of the depositary bank. As an ADS holder you appoint the depositary bank to act on your behalf in certain circumstances. The deposit agreement and the ADRs are governed by New York law. However, our obligations to the holders of ordinary shares will continue to be governed by the laws of England and Wales, which may be different from the laws of the United States.
In addition, applicable laws and regulations may require you to satisfy reporting requirements and obtain regulatory approvals in certain circumstances. You are solely responsible for complying with such reporting requirements and obtaining such approvals. Neither the depositary bank, the custodian, us or any of their or our respective agents or affiliates shall be required to take any actions whatsoever on your behalf to satisfy such reporting requirements or obtain such regulatory approvals under applicable laws and regulations.
As an owner of ADSs, we will not treat you as one of our shareholders and you will not have direct shareholder rights. The depositary bank will hold on your behalf the shareholder rights attached to the ordinary shares underlying your ADSs. An owner of ADSs is able to exercise the shareholders rights for the ordinary shares represented by ADSs through the depositary bank only to the extent contemplated in the deposit agreement. To exercise any shareholder rights not contemplated in the deposit agreement you will, as an ADS owner, need to arrange for the cancellation of your ADSs and become a direct shareholder.
The manner in which you own the ADSs (e.g., in a brokerage account vs. as registered holder, or as holder of certificated vs. uncertificated ADSs) may affect your rights and obligations, and the manner in which, and extent to which, the depositary bank’s services are made available to you. As an owner of ADSs, you may hold your ADSs either by means of an ADR registered in your name, through a brokerage or safekeeping account, or through an account established by the depositary bank in your name reflecting the registration of uncertificated ADSs directly on the books of the depositary bank (commonly referred to as the “direct registration system” or “DRS”). The direct registration system reflects the uncertificated (book-entry) registration of ownership of ADSs by the depositary bank. Under the direct registration system, ownership of ADSs is evidenced by periodic statements issued by the depositary bank to the holders of the ADSs. The direct registration system includes automated transfers between the depositary bank and The Depository Trust Company (“DTC”), the central book-entry clearing and settlement system for equity securities in the United States. If you decide to hold your ADSs through your brokerage or safekeeping account, you must rely on the procedures of your broker or bank to assert your rights as ADS owner. Banks and brokers typically hold securities such as the ADSs through clearing and settlement systems such as DTC. The procedures of such clearing and settlement systems may limit your ability to exercise your rights as an owner of ADSs. Please consult with your broker or bank if you have any questions concerning these limitations and procedures. All ADSs held through DTC will be registered in the name of a nominee of DTC. This summary description assumes you have opted to own the ADSs directly by means of an ADS registered in your name and, as such, we will refer to you as the “holder.” When we refer to “you,” we assume the reader owns ADSs and will own ADSs at the relevant time.
The registration of the ordinary shares in the name of the depositary bank or the custodian shall, to the maximum extent permitted by applicable law, vest in the depositary bank or the custodian the record ownership in the applicable ordinary shares with the beneficial ownership rights and interests in such ordinary shares being at all times vested with the beneficial owners of the ADSs representing the ordinary shares. The depositary bank or the custodian shall at all times be entitled to exercise the beneficial ownership rights in all deposited property, in each case only on behalf of the holders and beneficial owners of the ADSs representing the deposited property.
Dividends and Distributions
As a holder of ADSs, you generally have the right to receive the distributions we make on the securities deposited with the custodian. Your receipt of these distributions may be limited, however, by practical considerations and legal limitations. Holders of ADSs will receive such distributions under the terms of the deposit agreement in proportion to the number of ADSs held as of the specified record date, after deduction of the applicable fees, taxes and expenses.
Distributions of Cash
Whenever we make a cash distribution for the securities on deposit with the custodian, we will deposit the funds with the custodian. Upon receipt of confirmation of the deposit of the requisite funds, the depositary bank will arrange for the funds received in a currency other than U.S. dollars to be converted into U.S. dollars and for the distribution of the U.S. dollars to the holders, subject to the laws and regulations of England and Wales.
The conversion into U.S. dollars will take place only if practicable and if the U.S. dollars are transferable to the United States. The depositary bank will apply the same method for distributing the proceeds of the sale of any property (such as undistributed rights) held by the custodian in respect of securities on deposit.
The distribution of cash will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. The depositary bank will hold any cash amounts it is unable to distribute in a non-interest bearing account for the benefit of the applicable holders and beneficial owners of ADSs until the distribution can be effected or the funds that the depositary bank holds must be escheated as unclaimed property in accordance with the laws of the relevant states of the United States.
Distributions of Shares
Whenever we make a free distribution of ordinary shares for the securities on deposit with the custodian, we will deposit the applicable number of ordinary shares with the custodian. Upon receipt of confirmation of such deposit, the depositary bank will either distribute to holders new ADSs representing the ordinary shares deposited or modify the ADS-to-ordinary shares ratio, in which case each ADS you hold will represent rights and interests in the additional ordinary shares so deposited. Only whole new ADSs will be distributed. Fractional entitlements will be sold and the proceeds of such sale will be distributed as in the case of a cash distribution.
The distribution of new ADSs or the modification of the ADS-to-ordinary shares ratio upon a distribution of ordinary shares will be made net of the fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes or governmental charges, the depositary bank may sell all or a portion of the new ordinary shares so distributed.
No such distribution of new ADSs will be made if it would violate a law (e.g., the U.S. securities laws) or if it is not operationally practicable. If the depositary bank does not distribute new ADSs as described above, it may sell the ordinary shares received upon the terms described in the deposit agreement and will distribute the proceeds of the sale as in the case of a distribution of cash.
Distributions of Rights
Whenever we intend to distribute rights to subscribe for additional ordinary shares, we will give prior notice to the depositary bank and we will assist the depositary bank in determining whether it is lawful and reasonably practicable to distribute rights to subscribe for additional ADSs to holders.
The depositary bank will establish procedures to distribute rights to subscribe for additional ADSs to holders and to enable such holders to exercise such rights if it is lawful and reasonably practicable to make the rights available to holders of ADSs, and if we provide all of the documentation contemplated in the deposit agreement (such as opinions to address the lawfulness of the transaction). You may have to pay fees, expenses, taxes and other governmental charges to subscribe for the new ADSs upon the exercise of your rights. The depositary bank is not
obligated to establish procedures to facilitate the distribution and exercise by holders of rights to subscribe for new ordinary shares other than in the form of ADSs.
The depositary bank will not distribute the rights to you if:
| • | We do not timely request that the rights be distributed to you or we request that the rights not be distributed to you; or | ||||||||||
| • | We fail to deliver satisfactory documents to the depositary bank; or | ||||||||||
| • | It is not reasonably practicable to distribute the rights. | ||||||||||
The depositary bank will sell the rights that are not exercised or not distributed if such sale is lawful and reasonably practicable. The proceeds of such sale will be distributed to holders as in the case of a cash distribution. If the depositary bank is unable to sell the rights, it will allow the rights to lapse.
Elective Distributions
Whenever we intend to distribute a dividend payable at the election of shareholders either in cash or in additional shares, we will give prior notice thereof to the depositary bank and will indicate whether we wish the elective distribution to be made available to you. In such case, we will assist the depositary bank in determining whether such distribution is lawful and reasonably practicable.
The depositary bank will make the election available to you only if it is reasonably practicable and if we have provided all of the documentation contemplated in the deposit agreement. In such case, the depositary bank will establish procedures to enable you to elect to receive either cash or additional ADSs, in each case as described in the deposit agreement.
If the election is not made available to you, you will receive either cash or additional ADSs, depending on what a shareholder in England and Wales would receive upon failing to make an election, as more fully described in the deposit agreement.
Other Distributions
Whenever we intend to distribute property other than cash, ordinary shares or rights to subscribe for additional ordinary shares, we will notify the depositary bank in advance and will indicate whether we wish such distribution to be made to you. If so, we will assist the depositary bank in determining whether such distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to you and if we provide to the depositary bank all of the documentation contemplated in the deposit agreement, the depositary bank will distribute the property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and governmental charges payable by holders under the terms of the deposit agreement. In order to pay such taxes and governmental charges, the depositary bank may sell all or a portion of the property received.
The depositary bank will not distribute the property to you and will sell the property if:
| • | We do not request that the property be distributed to you or if we request that the property not be distributed to you; or | ||||||||||
| • | We do not deliver satisfactory documents to the depositary bank; or | ||||||||||
| • | The depositary bank determines that all or a portion of the distribution to you is not reasonably practicable. | ||||||||||
The proceeds of such a sale will be distributed to holders as in the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the securities on deposit with the custodian, we will notify the depositary bank in advance. If it is practicable and if we provide all of the documentation contemplated in the deposit agreement, the depositary bank will provide notice of the redemption to the holders. The custodian will be instructed to surrender the shares being redeemed against payment of the applicable redemption price. The depositary bank will convert into U.S. dollars, upon the terms of the deposit agreement, the redemption funds received in a currency other than U.S. dollars and will establish procedures to enable holders to receive the net proceeds from the redemption upon surrender of their ADSs to the depositary bank. You may have to pay fees, expenses, taxes and other governmental charges upon the redemption of your ADSs. If less than all ADSs are being redeemed, the ADSs to be retired will be selected by lot or on a pro rata basis, as the depositary bank may determine.
Changes Affecting Ordinary Shares
The ordinary shares held on deposit for your ADSs may change from time to time. For example, there may be a change in nominal or par value, split-up, cancellation, consolidation or any other reclassification of such ordinary shares or a recapitalization, reorganization, merger, consolidation or sale of assets of the company.
If any such change were to occur, your ADSs would, to the extent permitted by law and the deposit agreement, represent the right to receive the property received or exchanged in respect of the ordinary shares held on deposit.
The depositary bank may in such circumstances deliver new ADSs to you, amend the deposit agreement, the ADRs and the applicable Registration Statement(s) on Form F-6, call for the exchange of your existing ADSs for new ADSs and take any other actions that are appropriate to reflect as to the ADSs the change affecting the ordinary shares. If the depositary bank may not lawfully distribute such property to you, the depositary bank may sell such property and distribute the net proceeds to you as in the case of a cash distribution.
Issuance of ADSs upon Deposit of Ordinary Shares
The ordinary shares have been deposited by us with the custodian and the depositary bank has issued ADSs to the holders thereof.
The depositary bank may create ADSs on your behalf if you or your broker deposit ordinary shares with the custodian. The depositary bank will deliver these ADSs to the person you indicate only after you pay any applicable
issuance fees and any charges and taxes payable for the transfer of the ordinary shares to the custodian. Your ability to deposit ordinary shares and receive ADSs may be limited by U.S. and English legal considerations applicable at the time of deposit.
The issuance of ADSs may be delayed until the depositary bank or the custodian receives confirmation that all required approvals have been given and that the ordinary shares have been duly transferred to the custodian. The depositary bank will only issue ADSs in whole numbers.
When you make a deposit of ordinary shares, you will be responsible for transferring good and valid title to the depositary bank. As such, you will be deemed to represent and warrant that:
| • | The ordinary shares are duly authorized, validly issued, fully paid, non-assessable and legally obtained. | ||||||||||
| • | All preemptive (and similar) rights, if any, with respect to such ordinary shares have been validly waived or exercised. | ||||||||||
| • | You are duly authorized to deposit the ordinary shares. | ||||||||||
| • | The ordinary shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the ADSs issuable upon such deposit will not be, “restricted securities” (as defined in the deposit agreement). | ||||||||||
| • | The ordinary shares presented for deposit have not been stripped of any rights or entitlements. | ||||||||||
If any of the representations or warranties are incorrect in any way, we and the depositary bank may, at your cost and expense, take any and all actions necessary to correct the consequences of the misrepresentations.
Transfer, Combination and Split Up of ADRs
As an ADR holder, you are entitled to transfer, combine or split up your ADRs and the ADSs evidenced thereby. For transfers of ADRs, you will have to surrender the ADRs to be transferred to the depositary bank and also must:
| • | ensure that the surrendered ADR is properly endorsed or otherwise in proper form for transfer; | ||||||||||
| • | provide such proof of identity and genuineness of signatures as the depositary bank deems appropriate; | ||||||||||
| • | provide any transfer stamps required by the State of New York or the United States; and | ||||||||||
| • | pay all applicable fees, charges, expenses, taxes and other government charges payable by ADR holders pursuant to the terms of the deposit agreement, upon the transfer of ADRs. | ||||||||||
To have your ADRs either combined or split up, you must surrender the ADRs in question to the depositary bank with your request to have them combined or split up, and you must pay all applicable fees, charges and expenses payable by ADR holders, pursuant to the terms of the deposit agreement, upon a combination or split up of ADRs.
Withdrawal of Ordinary Shares Upon Cancellation of ADSs
As a holder, you are entitled to present your ADSs to the depositary bank for cancellation and then receive the corresponding number of underlying ordinary shares at the custodian’s offices. Your ability to withdraw the ordinary shares held in respect of the ADSs may be limited by U.S. and English law considerations applicable at the time of withdrawal. In order to withdraw the ordinary shares represented by your ADSs, you will be required to pay to the depositary bank the fees for cancellation of ADSs and any charges and taxes payable upon the transfer of the ordinary shares. You assume the risk for delivery of all funds and securities upon withdrawal. Once canceled, the ADSs will not have any rights under the deposit agreement.
If you hold ADSs registered in your name, the depositary bank may ask you to provide proof of identity and genuineness of any signature and such other documents as the depositary bank may deem appropriate before it will cancel your ADSs. The withdrawal of the ordinary shares represented by your ADSs may be delayed until the depositary bank receives satisfactory evidence of compliance with all applicable laws and regulations. Please keep in mind that the depositary bank will only accept ADSs for cancellation that represent a whole number of securities on deposit.
You have the right to withdraw the securities represented by your ADSs at any time except for:
| • | Temporary delays that may arise because (i) the transfer books for the ordinary shares or ADSs are closed, or (ii) ordinary shares are immobilized on account of a shareholders’ meeting or a payment of dividends. | ||||||||||
| • | Obligations to pay fees, taxes and similar charges. | ||||||||||
| • | Restrictions imposed because of laws or regulations applicable to ADSs or the withdrawal of securities on deposit. | ||||||||||
The deposit agreement may not be modified to impair your right to withdraw the securities represented by your ADSs except to comply with mandatory provisions of law.
Each holder and beneficial owner of ADSs agrees to provide such information as the company may request in a disclosure notice given pursuant to the U.K. Companies Act 2006, as amended, or the Companies Act, or the Articles. Each holder and beneficial owner of ADSs acknowledges that it understands that failure to comply with such request may result in the imposition of sanctions against the holder of the ordinary shares in respect of which the non-complying person is or was, or appears to be or has been, interested as provided in the Companies Act and the Articles which currently include, the withdrawal of the voting rights of such Shares and the imposition of restrictions on the rights to receive dividends on and to transfer such Shares.
Voting Rights
As a holder, you generally have the right under the deposit agreement to instruct the depositary bank to exercise the voting rights for the ordinary shares represented by your ADSs. The voting rights of holders of ordinary shares are described in herein above.
At our request, the depositary bank will distribute to you any notice of shareholders’ meeting received from us together with information explaining how to instruct the depositary bank to exercise the voting rights of the
securities represented by ADSs. In lieu of distributing such materials, the depositary bank may distribute to holders of ADSs instructions on how to retrieve such materials upon request.
If the depositary bank timely receives voting instructions from a holder of ADSs, it will endeavor to vote the securities (in person or by proxy) represented by the holder’s ADSs as follows:
| • | In the event of voting by show of hands, the depositary bank will vote (or cause the custodian to vote) all ordinary shares held on deposit at that time in accordance with the voting instructions received from a majority of holders of ADSs who provide timely voting instructions. | ||||||||||
| • | In the event of voting by poll, the depositary bank will vote (or cause the Custodian to vote) the ordinary shares held on deposit in accordance with the voting instructions received from the holders of ADSs. | ||||||||||
Securities for which no voting instructions have been received will not be voted (except as otherwise contemplated in the deposit agreement). Please note that the ability of the depositary bank to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure you that you will receive voting materials in time to enable you to return voting instructions to the depositary bank in a timely manner.
Fees and Charges
As an ADS holder, you are required to pay the following fees under the terms of the deposit agreement:
| SERVICE | FEES | |||||||
| • Issuance of ADSs (e.g., an issuance of ADS upon a deposit of ordinary shares, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason), excluding ADS issuances as a result of distributions of ordinary shares) | Up to U.S.$0.05 per ADS issued | |||||||
| • Cancellation of ADSs (e.g., a cancellation of ADSs for delivery of deposited property, upon a change in the ADS(s)-to-ordinary share(s) ratio, or for any other reason) | Up to U.S.$0.05 per ADS cancelled | |||||||
| • Distribution of cash dividends or other cash distributions (e.g., upon a sale of rights and other entitlements) | Up to U.S.$0.05 per ADS held | |||||||
| • Distribution of ADSs pursuant to (i) share dividends or other free share distributions, or (ii) exercise of rights to purchase additional ADSs | Up to U.S.$0.05 per ADS held | |||||||
| • Distribution of securities other than ADSs or rights to purchase additional ADSs (e.g., upon a spin-off) | Up to U.S.$0.05 per ADS held | |||||||
| • ADS Services | Up to U.S.$0.05 per ADS held on the applicable record date(s) established by the depositary bank | |||||||
• Registration of ADS transfers (e.g., upon a registration of the transfer of registered ownership of ADSs, upon a transfer of ADSs into DTC and vice versa, or for any other reason) | Up to U.S.$0.05 per ADS (or fraction thereof) transferred | |||||||
• Conversion of ADSs of one series for ADSs of another series (e.g., upon conversion of partial entitlement ADSs for full entitlement ADSs, or upon conversion of restricted ADSs (each as defined in the deposit agreement) into freely transferable ADSs, and vice versa). | Up to U.S.$0.05 per ADS (or fraction thereof) converted | |||||||
As an ADS holder you will also be responsible to pay certain charges such as:
| • | taxes (including applicable interest and penalties) and other governmental charges; | ||||||||||
| • | the registration fees as may from time to time be in effect for the registration of ordinary shares on the share register and applicable to transfers of ordinary shares to or from the name of the custodian, the depositary bank or any nominees upon the making of deposits and withdrawals, respectively; | ||||||||||
| • | certain cable, telex and facsimile transmission and delivery expenses; | ||||||||||
| • | the fees, expenses, spreads, taxes and other charges of the depositary bank and/or service providers (which may be a division, branch or affiliate of the depositary bank) in the conversion of foreign currency; | ||||||||||
| • | the reasonable and customary out-of-pocket expenses incurred by the depositary bank in connection with compliance with exchange control regulations and other regulatory requirements applicable to ordinary shares, ADSs and ADRs; and | ||||||||||
| • | the fees, charges, costs and expenses incurred by the depositary bank, the custodian, or any nominee in connection with the ADR program. | ||||||||||
ADS fees and charges for (i) the issuance of ADSs, and (ii) the cancellation of ADSs are charged to the person for whom the ADSs are issued (in the case of ADS issuances) and to the person for whom ADSs are cancelled (in the case of ADS cancellations). In the case of ADSs issued by the depositary bank into DTC, the ADS issuance and cancellation fees and charges may be deducted from distributions made through DTC, and may be charged to the DTC participant(s) receiving the ADSs being issued or the DTC participant(s) holding the ADSs being cancelled, as the case may be, on behalf of the beneficial owner(s) and will be charged by the DTC participant(s) to the account of the applicable beneficial owner(s) in accordance with the procedures and practices of the DTC participants as in effect at the time. ADS fees and charges in respect of distributions and the ADS service fee are charged to the holders as of the applicable ADS record date. In the case of distributions of cash, the amount of the applicable ADS fees and charges is deducted from the funds being distributed. In the case of (i) distributions other than cash and (ii) the ADS service fee, holders as of the ADS record date will be invoiced for the amount of the ADS fees and charges and such ADS fees and charges may be deducted from distributions made to holders of ADSs. For ADSs held through DTC, the ADS fees and charges for distributions other than cash and the ADS service fee may be deducted from distributions made through DTC, and may be charged to the DTC participants in accordance with the procedures and practices prescribed by DTC and the DTC participants in turn charge the amount of such ADS fees and charges to the beneficial owners for whom they hold ADSs. In the case of (i) registration of ADS transfers, the ADS transfer fee will be payable by the ADS Holder whose ADSs are being transferred or by the person to whom the ADSs are transferred, and (ii) conversion of ADSs of one series for ADSs of another series, the ADS conversion fee will be payable by the Holder whose ADSs are converted or by the person to whom the converted ADSs are delivered.
In the event of refusal to pay the depositary bank fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set off the amount of the depositary bank fees from any distribution to be made to the ADS holder. Certain depositary fees and charges (such as the ADS services fee) may become payable shortly after the purchase of ADSs. Note that the fees and charges you may be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such changes. The depositary bank may reimburse us for certain expenses incurred by us in respect of the ADR program, by making available a portion of the ADS fees charged in respect of the ADR program or otherwise, upon such terms and conditions as we and the depositary bank agree from time to time.
Amendments and Termination
We may agree with the depositary bank to modify the deposit agreement at any time without your consent. We undertake to give holders 30 days’ prior notice of any modifications that would materially prejudice any of their substantial rights under the deposit agreement. We will not consider to be materially prejudicial to your substantial rights any modifications or supplements that are reasonably necessary for the ADSs to be registered under the Securities Act or to be eligible for book-entry settlement, in each case without imposing or increasing the fees and charges you are required to pay. In addition, we may not be able to provide you with prior notice of any modifications or supplements that are required to accommodate compliance with applicable provisions of law.
You will be bound by the modifications to the deposit agreement if you continue to hold your ADSs after the modifications to the deposit agreement become effective. The deposit agreement cannot be amended to prevent you from withdrawing the ordinary shares represented by your ADSs (except as permitted by law).
We have the right to direct the depositary bank to terminate the deposit agreement. Similarly, the depositary bank may in certain circumstances on its own initiative terminate the deposit agreement. In either case, the depositary bank must give notice to the holders at least 30 days before termination. Until termination, your rights under the deposit agreement will be unaffected.
Termination
After termination, the depositary bank will continue to collect distributions received (but will not distribute any such property until you request the cancellation of your ADSs) and may sell the securities held on deposit. After the sale, the depositary bank will hold the proceeds from such sale and any other funds then held for the holders of ADSs in a non-interest bearing account. At that point, the depositary bank will have no further obligations to holders other than to account for the funds then held for the holders of ADSs still outstanding (after deduction of applicable fees, taxes and expenses).
In connection with any termination of the deposit agreement, the depositary bank may make available to owners of ADSs a means to withdraw the ordinary shares represented by ADSs and to direct the depositary of such ordinary shares into an unsponsored American depositary share program established by the depositary bank. The ability to receive unsponsored American depositary shares upon termination of the deposit agreement would be subject to satisfaction of certain U.S. regulatory requirements applicable to the creation of unsponsored American depositary shares and the payment of applicable depositary fees.
Books of Depositary
The depositary bank maintains ADS holder records at its depositary office. You may inspect such records at such office during regular business hours but solely for the purpose of communicating with other holders in the interest of business matters relating to the ADSs and the deposit agreement.
The depositary bank will maintain in New York facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADSs. These facilities may be closed from time to time, to the extent not prohibited by law.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary bank’s obligations to you. Please note the following:
| • | We and the depositary bank are obligated only to take the actions specifically stated in the deposit agreement without negligence or bad faith. | ||||||||||
| • | The depositary bank disclaims any liability for any failure to carry out voting instructions, for any manner in which a vote is cast or for the effect of any vote, provided it acts in good faith and in accordance with the terms of the deposit agreement. | ||||||||||
| • | The depositary bank disclaims any liability for any failure to determine the lawfulness or practicality of any action, for the content of any document forwarded to you on our behalf or for the accuracy of any translation of such a document, for the investment risks associated with investing in ordinary shares, for the validity or worth of the ordinary shares, for any tax consequences that result from the ownership of ADSs, for the credit-worthiness of any third party, for allowing any rights to lapse under the terms of the deposit agreement, for the timeliness of any of our notices or for our failure to give notice. | ||||||||||
| • | We and the depositary bank are not obligated to perform any act that is inconsistent with the terms of the deposit agreement. | ||||||||||
| • | We and the depositary bank disclaim any liability if we or the depositary bank are prevented or forbidden from or subject to any civil or criminal penalty or restraint on account of, or delayed in, doing or performing any act or thing required by the terms of the deposit agreement, by reason of any provision, present or future of any law or regulation, or by reason of present or future provision of any provision of our Articles, or any provision of or governing the securities on deposit, or by reason of any act of God or war or other circumstances beyond our control. | ||||||||||
| • | We and the depositary bank disclaim any liability by reason of any exercise of, or failure to exercise, any discretion provided for in the deposit agreement or in our Articles or in any provisions of or governing the securities on deposit. | ||||||||||
| • | We and the depositary bank further disclaim any liability for any action or inaction in reliance on the advice or information received from legal counsel, accountants, any person presenting Shares for deposit, any holder of ADSs or authorized representatives thereof, or any other person believed by either of us in good faith to be competent to give such advice or information. | ||||||||||
| • | We and the depositary bank also disclaim liability for the inability by a holder to benefit from any distribution, offering, right or other benefit that is made available to holders of ordinary shares but is not, under the terms of the deposit agreement, made available to you. | ||||||||||
| • | We and the depositary bank may rely without any liability upon any written notice, request or other document believed to be genuine and to have been signed or presented by the proper parties. | ||||||||||
| • | We and the depositary bank also disclaim liability for any consequential or punitive damages for any breach of the terms of the deposit agreement. | ||||||||||
| • | No disclaimer of any Securities Act liability is intended by any provision of the deposit agreement. | ||||||||||
| • | Nothing in the deposit agreement gives rise to a partnership or joint venture, or establishes a fiduciary relationship, among us, the depositary bank and you as ADS holder. | ||||||||||
| • | Nothing in the deposit agreement precludes Citibank, N.A. (or its affiliates) from engaging in transactions in which parties adverse to us or the holders or beneficial owners of ADS have interests, and nothing in the deposit agreement obligates Citibank, N.A. to disclose those transactions, or any information obtained in the course of those transactions, to us or to the holders or beneficial owners of ADS, or to account for any payment received as part of those transactions. | ||||||||||
Taxes
You are responsible for the taxes and other governmental charges payable on the ADSs and the securities represented by the ADSs. We, the depositary bank and the custodian may deduct from any distribution the taxes and governmental charges payable by holders and may sell any and all property on deposit to pay the taxes and governmental charges payable by holders. You are liable for any deficiency if the sale proceeds do not cover the taxes that are due.
The depositary bank may refuse to issue ADSs, to deliver, transfer, split and combine ADRs or to release securities on deposit until all taxes and charges are paid by the applicable holder. The depositary bank and the custodian may take reasonable administrative actions to obtain tax refunds and reduced tax withholding for any distributions on your behalf. However, you may be required to provide to the depositary bank and to the custodian proof of taxpayer status and residence and such other information as the depositary bank and the custodian may require to fulfill legal obligations. You are required to indemnify us, the depositary bank and the custodian for any claims with respect to taxes based on any tax benefit obtained for you.
Foreign Currency Conversion
The depositary bank will arrange for the conversion of all foreign currency received into U.S. dollars if such conversion is practical, and it will distribute the U.S. dollars in accordance with the terms of the deposit agreement. You may have to pay fees and expenses incurred in converting foreign currency, such as fees and expenses incurred in complying with currency exchange controls and other governmental requirements.
If the conversion of foreign currency is not practical or lawful, or if any required approvals are denied or not obtainable at a reasonable cost or within a reasonable period, the depositary bank may take the following actions in its discretion:
| • | Convert the foreign currency to the extent practical and lawful and distribute the U.S. dollars to the holders for whom the conversion and distribution is lawful and practical. | ||||||||||
| • | Distribute the foreign currency to holders for whom the distribution is lawful and practical. | ||||||||||
| • | Hold the foreign currency (without liability for interest) for the applicable holders. | ||||||||||
Governing Law/Waiver of Jury Trial
The deposit agreement, the ADRs, and the ADSs will be interpreted in accordance with the laws of the State of New York. The rights of holders of ordinary shares (including ordinary shares represented by ADSs) is governed by the laws of England and Wales.
AS A PARTY TO THE DEPOSIT AGREEMENT, YOU IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, YOUR RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF, OR RELATING TO, THE DEPOSIT AGREEMENT OR THE ADRs, OR ANYTHING CONTAINED THEREIN AGAINST US AND/OR THE DEPOSITARY.
The deposit agreement provides that, to the extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs or the deposit agreement, including any claim under U.S. federal securities laws. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable in the facts and circumstances of that case in accordance with applicable case law. However, you will not be deemed, by agreeing to the terms of the deposit agreement, to have waived our or the depositary’s compliance with U.S. federal securities laws and the rules and regulations promulgated thereunder.
PURETECH HEALTH PLC PERFORMANCE SHARE PLAN 2023 1. Establishment, Purpose and Types of Awards Puretech Health plc, a public limited company incorporated under English law (the “Company”), hereby establishes the PURETECH HEALTH PLC PERFORMANCE SHARE PLAN (the “Plan”). The purpose of the Plan is to promote the long-term growth and profitability of the Company by (i) providing key individuals with incentives to improve shareholder value and to contribute to the growth and financial success of the Company through their future services, and (ii) enabling the Company to attract, retain and reward the necessary talent. The Plan permits the granting of share options (including incentive share options qualifying under Code section 422 and nonstatutory share options), share appreciation rights, restricted or unrestricted share awards, restricted share units, performance awards, other share-based awards, or any combination of the foregoing. 2. Definitions Under this Plan, except where the context otherwise indicates, the following definitions apply: (a) “Administrator” means the remuneration committee of the Board or a committee(s) or officer(s) appointed by the remuneration committee that have authority to administer the Plan as provided in Section 3 hereof, provided that in relation to any director of the Company or any amendment to the Plan, the Administrator shall be the remuneration committee. (b) "Adoption Date" means the date on which the Plan is approved by shareholders in general meeting being 13 June 2023. (c) “Affiliate” means any entity, whether now or hereafter existing, which is a Subsidiary of the Company (as defined in section 1159 Companies Act 2006). (d) “Award” means any share option, share appreciation right, share award, restricted share unit award, performance award, or other share-based award granted under the Plan. (e) “Board” means the Board of Directors of the Company. (f) "Cause" has the meaning ascribed to such term or words of similar import in the grantee's written employment or service contract with the Company or Affiliate as in effect at the time of issue and, in the absence of such agreement or definition means the grantee's (i) material failure to perform his duties to the Company or any Affiliate (other than any such failure resulting from incapacity due to physical or mental illness) that would reasonably be expected to result in material injury to the Company and/or any Affiliate; (ii) failure to comply with any material, valid and legal directive of the grantee's supervisor or of the Board; (iii) engagement in dishonesty, illegal conduct or misconduct, which is, in each case, materially injurious to the Company and/or any Affiliate; (iv) embezzlement, or misappropriation of funds or property of the Company or any Affiliate (other than occasional and de minimis use of Company or Affiliate property for personal purposes), in each case related to the grantee’s service with the Company or Affiliate; (v) conviction of or plea of guilty or nolo contendere to a crime that constitutes (A) a felony (or state law equivalent), or a crime that constitutes (B) a misdemeanor involving moral turpitude or fraud that would reasonably be expected to result in material injury or reputational harm to the Company and/or any Affiliate; (vi) material violation of a material written policy of the Company or any Affiliate; (vii) willful unauthorized disclosure of confidential information of the Company or any Affiliate; or (viii) material breach of any material obligation under any other written agreement between the grantee and the Company and/or any Affiliate which is likely to be materially injurious to the Company and/or any Affiliate; provided, that Cause shall not include any matter otherwise falling within sub-paragraphs (i), (ii), (vi) or (viii) of the above definition unless the grantee shall have been given during the term of his or her employment thirty (30) days from the Exhibit 4.2
- 2 - delivery of written notice by the Company within which to cure any acts, failures, breaches or refusal within those sub-paragraphs, except for an act, failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured. (g) “Control” has the meaning given in section 1124 Corporation Taxes Act 2010 and “Control” shall be construed accordingly. (h) “Code” means the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (i) "Dealing Restrictions" means any restrictions imposed by the Company's share dealing code, the Listing Rules published by the United Kingdom Financial Conduct Authority, UK MAR and/or such other laws or regulations that impose restrictions on share dealing. (j) "Dividend Equivalent" means an amount equal to the net amount of any dividend paid in respect of Shares during the period over which Shares Vest. (k) "Executive Directors" means the executive directors of the Company; (l) “Fair Market Value” means, with respect to the Shares, as of any date: (i) if the principal market for the Shares (as determined by the Board if the Shares are listed or admitted to trading on more than one exchange or market) is a national securities exchange or an established securities market, the official closing price per share for the regular market session on that date on the principal exchange or market on which the Shares are then listed or admitted to trading or, if no sale is reported for that date, on the last preceding day for which a sale was reported; (ii) if the principal market for the Shares is not a national securities exchange or an established securities market, the average of the highest bid and lowest asked prices for the Shares on that date as reported on a national quotation system or, if no prices are reported for that date, on the last preceding day for which prices were reported; or (iii) if the Shares are neither listed or admitted to trading on a national securities exchange or an established securities market, nor quoted by a national quotation system, the value determined by the Board in good faith by the reasonable application of a reasonable valuation method. (m) “Grant Agreement” means a written document, in the terms of a deed between the Company, the employing company (if different) and the grantee to whom the Award is granted and in a form determined by the Administrator which effects the grant of the Award and which sets out the terms and conditions of the Award and which shall incorporate the terms of the Plan. (n) "Gross Misconduct” means the grantee's (i) material failure to perform his duties to the Company or any Affiliate (other than any such failure resulting from incapacity due to physical or mental illness) that would reasonably be expected to result in material injury to the Company and/or any Affiliate; (ii) engagement in dishonesty, illegal conduct or misconduct, which is, in each case, materially injurious to the Company and/or any Affiliate; (iii) embezzlement, or misappropriation of funds or property of the Company or any Affiliate (other than occasional and de minimis use of Company or Affiliate property for personal purposes), in each case related to the grantee’s service with the Company or Affiliate; (iv) conviction of or plea of guilty or nolo contendere to a crime that constitutes (A) a felony (or state law equivalent), or a crime that constitutes (B) a misdemeanor involving moral turpitude or fraud that would reasonably be expected to result in material injury or reputational harm to the Company and/or any Affiliate; (v) willful unauthorized disclosure of confidential information of the Company or any Affiliate; or (vi) material breach of any material obligation under any other written agreement between the grantee and the Company and/or any Affiliate which is likely to be materially injurious to the Company and/or any Affiliate; provided, however, that Gross Misconduct shall not be deemed to have
- 3 - occurred unless the grantee shall have been given during the term of his or her employment thirty (30) days from the delivery of written notice by the Company within which to cure any acts constituting Gross Misconduct, except for a failure, breach or refusal which, by its nature, cannot reasonably be expected to be cured. (o) "Group" means the Company and its Affiliates and "Group Company" shall be construed accordingly. (p) “Option Exercise Period” means the period commencing on the date of Vesting of an Option and ending on the day before the tenth anniversary of grant or such earlier date as may be specified by the Administrator at the date of grant and stated in the Grant Agreement. (q) “Performance Condition” means any performance condition imposed in relation to an Award pursuant to Section 7(a)(iii) of the Plan and “Performance Period” means the period over which such Performance Condition is measured. (r) "Policy" means the Company's directors' remuneration policy that has most recently been approved by the Company's shareholders; (s) "Section 409A" means Code section 409A and the Treasury regulations and other official guidance thereunder. (t) “Share” or “Shares” means a share or shares of the Company’s ordinary share capital. (u) “Termination Date” means the day immediately preceding the fifth anniversary of the Adoption Date. (v) "UK MAR" means the retained EU law version of the EU market abuse regulation 596/2014 which applies in the UK from time to time. (w) “Vesting” means, in relation to an option, the option becoming exercisable and in relation to any other Award, the Grantee becoming entitled to have the Shares (or cash, as the case may be) transferred to him subject to the Plan. 3. Administration (a) Administration of the Plan. The Plan shall be administered by the Board or by such committee or committees as may be appointed by the Board from time to time. To the extent allowed by applicable law, the Board by resolution may authorize an officer or officers to grant Awards to other officers and employees of the Company and its Affiliates, and, to the extent of such authorization, such officer or officers shall be the Administrators provided that any Award to be granted to an Executive Director shall be approved by a Committee comprising non-executive directors of the Company. (b) Powers of the Administrator. The Administrator shall have all the powers vested in it by the terms of the Plan, such powers to include authority, in its sole and absolute discretion, to grant Awards under the Plan, prescribe Grant Agreements evidencing such Awards and establish programs for granting Awards. The Administrator shall have full power and authority to take all other actions necessary to carry out the purpose and intent of the Plan, including, but not limited to, the authority to do any of the following but only to the extent not inconsistent with the terms of the Plan: (i) determine the eligible persons to whom, and the time or times at which Awards shall be granted; (ii) determine the types of Awards to be granted; (iii) determine the number of shares to be covered by or used for reference purposes for each Award; (iv) impose such terms, limitations, restrictions and conditions upon any such Award as the Administrator shall deem appropriate including Performance Conditions; (v) subject to Section 10(e) modify, amend, extend or renew outstanding Awards, or accept the surrender of outstanding Awards and substitute new Awards; provided, however, that, except as otherwise permitted
- 4 - under Section 10(c) of the Plan, any modification, amendment, extension, renewal or substitution that would materially adversely affect any outstanding Award shall not be made without the consent of the holder, but if any of the foregoing actions results in a change in the tax consequences with respect to an Award such change shall not be considered to materially adversely affect the Award; and (vi) for any purpose, including but not limited to, qualifying for preferred tax treatment under foreign tax laws or otherwise complying with the regulatory requirements of local or foreign jurisdictions, to establish, amend, modify, administer or terminate sub-plans, and prescribe, amend and rescind rules and regulations relating to such sub-plans provided that the terms, rules and regulations of the sub-plans are not inconsistent with the terms of the Plan. The Administrator shall have full power and authority, in its sole and absolute discretion, to administer, construe and interpret the Plan, Grant Agreements and all other documents relevant to the Plan and Awards issued thereunder, to establish, amend, rescind and interpret such rules, regulations, agreements, guidelines and instruments for the administration of the Plan and for the conduct of its business as the Administrator deems necessary or advisable, and to correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent the Administrator shall deem it desirable to carry it into effect. (c) Non-Uniform Determinations. The Administrator’s determinations under the Plan (including without limitation, determinations of the persons to receive Awards, the form, amount and timing of such Awards, the terms and provisions of such Awards, and the Grant Agreements evidencing such Awards) need not be uniform and may be made by the Administrator selectively among Awards or persons who receive, or are eligible to receive, Awards under the Plan, whether or not such persons are similarly situated. (d) Effect of Administrator’s Decision. All actions taken and decisions and determinations made by the Administrator on all matters relating to the Plan pursuant to the powers vested in it hereunder shall be in the Administrator’s sole and absolute discretion and shall be conclusive and binding on all parties concerned, including the Company, its shareholders, any participants in the Plan and any other employee, consultant, or director of the Company, and their respective successors in interest. (e) Determination of terms of Awards to Executive Directors. When determining the terms of any proposed Award to an Executive Director, the Administrator shall have regard to the current directors' remuneration policy as described in the Company's Report and Accounts. 4. Limits on Shares available under the Plan (a) Overall Plan Limits (i) No Award may be granted on any date if, as a result, the number of Shares issued or capable of being issued in respect of Awards granted under the Plan or awards granted under any other share plan operated by the Company, in each case granted during the five year period beginning on the Adoption Date, would exceed 10 per cent of the Company's Shares in issue immediately before that date. (ii) For the purposes of this section 4(a): (A) Awards granted after the Adoption Date and which subsequently lapse or are released during the five year period beginning on the Adoption Date shall not be counted;
- 5 - (B) references to any issue or prospective issue of Shares by the Company shall include a transfer of Treasury Shares but only for so long as (and to the extent that) the guidelines issued by the Association of British Insurers for share incentive schemes specify that Treasury Shares should be so included; and (C) whether an individual is a senior manager or senior service provider shall be determined by the Administrator acting reasonably. (iii) Notwithstanding (i) above, no more than an aggregate of 22,724,800 Shares may be issued pursuant to incentive share options intended to qualify under Code section 422. (b) Individual Limit The maximum total Market Value of Shares in respect of which an Award may be granted to a grantee in any financial year of the Company shall be 400 per cent. (or, in the case of the Chief Executive Officer of the Company, 600 per cent.) of his annual base salary (excluding benefits in kind) for that financial year (or for the preceding financial year, if greater). Base salary in a currency other than sterling will be converted into sterling by using any rate of exchange which the Administrator may reasonably select. An Award may be granted in excess of this limit if circumstances arise which the Administrator deems sufficiently exceptional to justify it which may include, without limitation, an Award to an individual who is a new hire in the financial year in question. Notwithstanding the foregoing, any Award to an executive director of the Company shall be consistent with the limits in the Policy. For these purposes, Market Value in respect of a Share on any date means the value equal to the closing middle market quotation of that Share as derived from the Daily Official List of the London Stock Exchange plc for the dealing day immediately preceding that date or, if the Administrator so determines, the average of such closing middle market quotation of a Share for the three dealing days immediately preceding that date. (c) Effect of limits Any Award shall be limited and take effect so that the limits in this section 4 are complied with. If any Award, or portion of an Award, under the Plan expires or terminates unexercised, becomes unexercisable, is settled in cash without delivery of Shares, or is forfeited or otherwise terminated, surrendered or canceled as to any Shares, or if any Shares are repurchased by or surrendered to the Company in connection with any Award, or if any Shares are withheld by the Company, the Shares subject to such Award and the repurchased, surrendered and withheld Shares shall thereafter be available for further Awards under the Plan. 5. Participation Participation in the Plan shall be open to all employees, officers, and directors of, and other individuals providing bona fide services to or for, the Company, or of any Affiliate of the Company, as may be selected by the Administrator from time to time. The Administrator may also grant Awards to individuals in connection with hiring, recruiting or otherwise, prior to the date the individual first performs services for the Company or an Affiliate, provided that such Awards shall not become vested or exercisable, and no shares shall be issued to such individual, prior to the date the individual first commences performance of such services.
- 6 - 6. Timing of Awards Awards may only be granted within 42 days starting on any of the following: (a) the date of shareholder approval of the Plan; (b) the day after the announcement of the Company's results for any period; (c) any day on which the Administrator resolves that exceptional circumstances exist which justify the grant of Awards, which may include, without limitation, a day on which the Administrator determines that it would be appropriate to make an award to an individual who is a new hire since the last period within section 6(a) or (b) above closed; (d) any day on which changes to legislation or regulations affecting share plans are announced, effected or made; or (e) the date of the lifting of Dealing Restrictions which prevented the granting of Awards during any period specified above. Awards may not be granted at any time after the Termination Date. 7. Awards (a) General (i) The Administrator shall, in its sole discretion, determine the terms of all Awards granted under the Plan. Awards may be granted individually or together with other types of Award, concurrently with or with respect to outstanding Awards. (ii) Awards are subject to the rules of the Plan. An Award must be granted by a Grant Agreement which shall state (1) the type of Award which is thereby granted; (2) the date on which the Award is granted; (3) the number of Shares subject to the Award or the basis on which the number of Shares subject to the Award will be calculated; (4) any Performance Condition; (5) any other condition specified under Section 7(a)(iv); (6) the date of Vesting (which shall not be later than the day before the tenth anniversary of grant); (7) whether the participant is entitled to receive any Dividend Equivalent; (8) if relevant, the price at which the Shares may be acquired pursuant to the Award and (9) the terms of any recovery and withholding provisions imposed pursuant to section 7(f). (iii) The Vesting of an Award may (and shall in the case of grantees who are Executive Directors) be conditional upon the satisfaction of one or more conditions linked to performance. A Performance Condition must be specified at the date of grant of the Award. The Administrator may waive or change a Performance Condition in accordance with its terms or if anything happens which causes the Administrator reasonably to consider it appropriate to do so, provided that any amended Performance Condition will represent a fairer measure of performance and will be no more difficult nor easy to satisfy than the original Performance Condition but for the event in question. (iv) The Administrator may impose other conditions when granting an Award. Any condition must be specified at the Award Date and may provide that an Award will lapse if it is not satisfied. The Administrator may waive or, provided it is not to the grantee's detriment, change a condition imposed under this Section 7(a)(iv). (v) A grantee is not required to pay for the grant of an Award. (vi) The Administrator may agree with the trustee of any trust set up for the benefit of grantees that any Award granted by the Administrator shall be satisfied by the trustee of such trust. (b) Types of Award
- 7 - Awards granted under the Plan may take any of the following forms: (i) Share Options. The Administrator may from time to time grant to eligible participants Awards of US incentive share options as that term is defined in Code section 422 or nonstatutory or non-approved share options; provided, however, that Awards of US incentive share options shall be limited to employees of the Company or of any current or hereafter existing “parent corporation” or “subsidiary corporation,” as defined in Code sections 424(e) and (f), respectively, of the Company and any other individuals who are eligible to receive incentive share options under the provisions of Code section 422. Options intended to qualify as incentive share options under Code section 422 must have an exercise price at least equal to Fair Market Value as of the date of grant, but nonstatutory or non- approved share options may be granted with an exercise price less than Fair Market Value if drafted in a manner intended to comply with Section 409A (if the Code will be applicable to that option). No share option shall be an incentive share option unless so designated by the Administrator at the time of grant or in the Grant Agreement evidencing such share option. (ii) Share Appreciation Rights. The Administrator may from time to time grant to eligible participants Awards of Share Appreciation Rights (“SAR”). A SAR entitles the grantee to receive, subject to the provisions of the Plan and the Grant Agreement, a payment having an aggregate value equal to the product of (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the base price per share specified in the Grant Agreement, times (ii) the number of Shares specified by the SAR, or portion thereof, which is exercised. The base price per share specified in the Grant Agreement shall not be less than the lower of the Fair Market Value on the grant date or the exercise price of any tandem share option Award to which the SAR is related. No SAR shall have a term longer than ten years’ duration. Payment by the Company of the amount receivable upon any exercise of a SAR may be made by the delivery of Shares or cash, or any combination of Shares and cash, as determined in the sole discretion of the Administrator. If upon settlement of the exercise of a SAR a grantee is to receive a portion of such payment in shares of Shares, the number of shares shall be determined by dividing such portion by the Fair Market Value of a share of Shares on the exercise date. No fractional Shares shall be used for such payment and the Administrator shall determine whether cash shall be given in lieu of such fractional shares or whether such fractional shares shall be eliminated. (iii) Share Awards. The Administrator may from time to time grant restricted or unrestricted share Awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine. A share Award may be paid in Shares, in cash, or in a combination of Shares and cash, as determined in the sole discretion of the Administrator. (iv) Restricted Share Units. The Administrator may from time to time grant Awards to eligible participants denominated in share-equivalent units or restricted share units in such amounts and on such terms and conditions as it shall determine. Share equivalent or restricted share units granted to a participant shall be credited to a bookkeeping reserve account solely for accounting purposes and shall not require a segregation of any of the Company’s assets. An Award of share-equivalent or restricted share units may be settled in Shares, in cash, or in a combination of Shares and cash, as determined in the sole discretion of the Administrator. Except as otherwise provided in the applicable Grant Agreement, the grantee shall not have the rights of a shareholder with respect to any Shares represented by a share-equivalent or restricted share unit solely as a result of the grant of a share- equivalent or restricted share unit to the grantee. (v) Other Share-Based Awards. The Administrator may from time to time grant other share-based awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine. Other share-based awards may be denominated in cash, in Shares or other securities, in share-equivalent units, in share appreciation units, in securities or debentures convertible into Shares, or in any combination of the foregoing and may be paid in Shares or other securities, in
- 8 - cash, or in a combination of Shares or other securities and cash, all as determined in the sole discretion of the Administrator. (c) Vesting of Awards (i) Testing of Performance Conditions. As soon as reasonably practicable after the end of the Performance Period, the Administrator will determine whether and to what extent any Performance Condition or other condition imposed under Section 7(a)(iv) has been satisfied or waived and how many Shares will accordingly Vest for each Award, subject to any adjustment pursuant to Section 7(c)(ii) below. (ii) Reduction of Awards. In determining the extent to which a Performance Condition has been satisfied or at any other time before an Award Vests, the Administrator may reduce (including to nil) the extent to which an Award would otherwise Vest (based on the formulaic application of a Performance Condition or otherwise) to reflect such circumstances as the Administrator may in its absolute discretion, determine, including (without limitation), the underlying performance of the Group or the participant, share price performance or the experience of shareholders over the Vesting period or other circumstances that were unexpected or unforeseen at the grant date of the Award. (iii) Timing of Vesting - Award not subject to Performance Condition. Where an Award is not subject to a Performance Condition, then subject to Sections 7(a)(iv), 8 and 9, an Award Vests on the date of Vesting specified at the time of grant of the Award or, if on that date a Dealing Restriction applies to that Award, the first date on which it ceases to apply. (iv) Timing of Vesting - Award subject to Performance Condition. Where an Award is subject to a Performance Condition, then subject to Rules 7(a)(iv), 8 and 9, an Award Vests, to the extent to which the Performance Condition has been satisfied (but subject to any adjustment pursuant to Section 7(c)(ii) above), on the date on which the Administrator makes its determination under Sections 7(c)(i) or, if on that date a Dealing Restriction applies to that Award, the first date on which it ceases to apply. (v) Dividend Equivalents. An award may include the right to a Dividend Equivalent (which may be paid in cash or Shares) (at the determination of the Administrator). Dividend Equivalents shall only be payable in respect of Shares which Vest and shall be paid at the time at which the Vested Award is satisfied. (d) Lapse To the extent that any Award does not Vest, it shall forthwith lapse on the date on which and to the extent to which it is no longer capable of Vesting. Where an Award lapses, the grantee shall cease to have any rights in respect of it. (e) Consequences of Vesting (i) Awards other than options. As soon as reasonably practicable after Vesting but in any event within 30 days of Vesting, the Company will use reasonable endeavours to arrange (subject to sections 10(a) and (h)) for the issue or transfer (including a transfer from treasury) to or to the order of the grantee of the number of Shares in respect of which the Award has Vested. (ii) Options (A) A grantee may exercise his option at any time during the Option Exercise Period (unless it lapses pursuant to Sections 8 or 9) following Vesting by giving notice in the prescribed form to the Company and paying the option exercise price (if any). The option will lapse at the end of the Option Exercise Period to the extent not then exercised.
- 9 - (B) As soon as reasonably practicable following exercise of an option (but subject to Sections 10(a) and (h), but in any event within 30 days of the date on which the option is exercised, the Company will use reasonable endeavours to arrange for Shares to be transferred to or issued to, or to the order of, the participant. (C) If an option Vests under more than one provision of the rules of the Plan, the provision resulting in the earliest Vesting applies. (iii) Share rights. (A) Subject to the terms upon which any restricted share awards are granted, Shares transferred or issued on Vesting or (as the case may be) exercise of Award shall rank pari passu in all respects with the Company's existing Shares, save that they shall not carry the right to dividends or other distributions declared or recommended the record date for which falls prior to the date when the Award Vested or, in the case of an option, was exercised. (B) If and so long as the Shares are listed and traded on a public market, the Company will apply for listing of any Shares issued under the Plan as soon as practicable. (f) Recovery and withholding (i) Applicability of recovery and withholding provisions Awards may be granted on terms that the Administrator may, at any time in the period of three years following Vesting of the Award (or such shorter period as the Administrator may determine) ("Recovery Period") decide that the grantee to whom an Award was granted shall be obliged to repay an amount determined in accordance with Section 7(f)(ii). if the Administrator reasonably determines that any of the following circumstances apply: (A) discovery of a material misstatement in the audited consolidated accounts of the Company or the audited accounts of any Affiliate; (B) the assessment of any Performance Condition and/or any other condition imposed in respect of an Award was based on an , or inaccurate or misleading information or assumptions; (C) action or conduct of the participant prior to the date of Vesting of the Award which, in the reasonable opinion of the Administrator amounts to fraud or gross misconduct or has had a materially detrimental effect on the reputation of the Company or any Affiliate and which in either case would have entitled the Company or any Affiliate to dismiss the grantee for Gross Misconduct. (D) a material failure of risk management or any serious reputational damage to any Group Company or business unit during the Recovery Period; and/or (E) corporate failure of any Group Company or relevant business unit during the Recovery Period. For the avoidance of doubt, any reduction under this Section 7(f) may be applied on an individual basis as determined by the Administrator. (ii) Amount subject to recovery and withholding The Administrator shall determine the amount which a grantee is obliged to repay in accordance with Section 7(f)(i) which shall be (i) in the case of (A) and (B) above, all or part of the additional value of which the Administrator considers would not have Vested under the Award had the misstatement not been made and/or had the Performance Condition been assessed on a correct basis, or in the case of
- 10 - (C) all or part of the value of the Award which would not have Vested had the employment been terminated in accordance with such misconduct, or in the case of (D) or (E) such amount as the Administrator considers appropriate taking into account the event(s) which have occurred, provided that the Administrator may determine that the amount which shall be repaid shall take into account any tax or social security contributions incurred by the grantee in relation to the Vesting of the Award and/or on subsequent sale of the Shares acquired. (iii) Satisfaction of recovery and withholding The Administrator may determine that the grantee's obligation to repay amounts pursuant to Section 7(f) shall be satisfied at any time following the determination under Section 7(f)(ii) in one or more of the following ways: (A) reduction of the number of Shares subject to any subsisting Award granted under the Plan or any subsisting award granted under any other share plan or share award agreement notwithstanding the extent to which any performance condition and/or any other condition imposed on such Award and/or other award (as relevant) has been satisfied; (B) reduction of any future bonus which would otherwise be payable to the grantee; (C) payment of any amount by the grantee on such terms as the Administrator may direct (including but without limitation to, on terms that the relevant amount is to be deducted from the grantee’s salary or from any other payment to made to the grantee by the Company or any Affiliate). (iv) Reduction in Awards to give effect to recovery and withholding in other plans The Administrator may decide at any time to reduce the number of Shares subject to an Award (including, if appropriate, reducing to zero) to give effect to recovery and withholding provisions of any form and/or name contained in any incentive plan or any bonus plan operated by the Company. The value of the reduction shall be in accordance with the terms of the relevant provisions of the relevant plan or, in the absence of any such term, on such basis as the Administrator and reasonably decides is appropriate. 8. Leavers (a) General (i) Unless Section 8(b) applies, an Award which has not Vested will lapse on the date on which the grantee ceases to be an employee, officer or director of, or to provide services to the Company or any Affiliate ("Cessation"). (ii) An Award which has Vested on the date of Cessation may be retained or exercised (as the case may be) by the grantee subject to and in accordance with the terms of the Plan save that if an employee or officer or director is dismissed for Cause: (A) all Vested but not yet exercised options shall also forthwith lapse on Cessation; and (B) all types of Vested Award shall be subject to such recovery and withholding provisions as the Administrator considers appropriate and which shall be set out in the relevant Grant Agreement. (b) Good leavers If the Cessation is as a result of: (i) the grantee's death or disability;
- 11 - (ii) the grantee's service being terminated by the Company or any Affiliate without Cause; or (iii) any other reason determined by the Administrator (subject to such determination not resulting in the relevant Award terms breaching Section 409A) before the date on which the Award Vests, then such Award shall not lapse but, subject to this Section 8 and Section 9 shall continue in force and Vest as if the Cessation had not occurred, subject to any terms specified in the Grant Agreement, unless (and subject to such determination not breaching Section 409A) the Administrator determines that the Award may Vest in such circumstances on the date of Cessation. (c) Number of Shares Vesting Where Section 8(b) applies, the number of Shares in respect of which an Award shall Vest shall be determined as follows: (i) the Administrator shall determine (in its reasonable opinion where the Performance Condition is determined before the normal Vesting date) the extent to which any Performance Condition applicable to that Award has been satisfied at the time of Vesting; and (ii) the resulting number of Shares so calculated shall then be reduced on a pro rata basis based on the number of days from beginning of the Performance Period applicable to that Award (or, where there is no Performance Period, the date of grant of the Award) until Cessation pro- rata to the original Performance Period (or, where there is no Performance Period, the original Vesting period applicable to the Award), and the resulting figure, rounded up to the nearest whole number of Shares shall be the number of Shares which Vest, provided that the Administrator may in its discretion determine that exceptional circumstances exist which justify Vesting to a greater extent than the pro-rating referred to in this section 8(c)(ii) would allow, and provided further that if a Cessation has occurred but before Vesting of the Award has occurred in accordance with section 8(b), a Specified Event occurs, the extent to which the Award Vests shall be the number calculated in accordance with section 9(a)(ii)(A)(a)or the proviso to section 9(a)(ii)(A) (as the case may be) as reduced by the pro-rating referred to in section 8(c)(ii) above). (d) Time period for exercise of option Where an option Vests in accordance with Section 8(b), or has already Vested at the date of Cessation, subject to Section 9 it may be exercised during the period of 6 months beginning on the date of Vesting (or such other period specified by the Administrator in the Grant Agreement or within 30 days of Cessation), but no later than the last day of the Option Exercise Period and to the extent not so exercised, shall lapse. (e) Meaning of Cessation Any reference to a Cessation in this Section 8 will not include a Cessation where the grantee ceases to be employed by, or to be an officer or director of, or to provide services to, the Company or any Affiliate (as the case may be) and immediately commences to be employed by, or to be an officer or director of or to provide services to the Company or any other Affiliate (as the case may be). In respect of any payments under an Award that are payments of deferred compensation subject to Section 409A, Cessation shall mean the grantee's "separation from service" as defined in Section 409A, if necessary to comply with Section 409A.
- 12 - 9. Change of Control and other corporate events (a) Change of control, compromise or arrangement and winding up (i) Specified events In respect of any Award that has not lapsed, if one of the following events ("Specified Events") occurs, then such Award shall Vest on such Specified Event subject to and as specified in this Section 9(a). (A) any person (or group of persons acting in concert) obtains Control of the Company as a result of making a general offer to acquire Shares; (B) any person becomes bound or entitled to acquire Shares under sections 979 to 982 (inclusive) of the Companies Act 2006; (C) the court sanctions a compromise or arrangement in relation to the Company pursuant to section 899 of the Companies Act 2006 in connection with or for the purposes of a change in Control of the Company; or (D) the Company gives notice of a general meeting at which a resolution is to be proposed for the voluntary winding up of the Company. Notwithstanding the foregoing, the Administrator may specify a different definition of change of Control or Specified Event in the Grant Agreement if necessary or advisable to comply with Section 409A, provided that any such different definition shall as closely as is possible follow the relevant definition of "Specified Event" above. (ii) Extent to which Award Vests (A) The extent to which an Award Vests upon the Specified Event shall be determined as follows: (a) the Administrator shall determine the extent to which, in its reasonable opinion, the Performance Condition applicable to that Award has been satisfied at that time and shall calculate the number of Shares in respect of which the Award would be capable of Vesting accordingly; and (b) unless the Administrator determines not to apply such pro-rating and to allow Vesting to a greater extent, the resulting number of Shares so calculated shall then be reduced on a pro rata basis based on the number of days from the beginning of the Performance Period applicable to that Award (or, where there is no Performance Period, the date of grant of the Award) until the date of the Specified Event pro rata to the Performance Period (or, where there is no Performance Period, the original Vesting period applicable to that Award) and the resulting figure, rounded up to the nearest whole number of Shares shall be the number of Shares in respect of which the Award shall vest To the extent that the Award does not Vest in accordance with this Section 9(a)(ii), and subject to Sections 9(a)(iii) to (v) below, the Award shall forthwith lapse on the occurrence of the Specified Event. (iii) Mandatory exchange of Awards Notwithstanding Section 9(a)(i), if an event within Section 9(a)(i) will result in another company acquiring Control of the Company and such other company agrees to offer replacement share
- 13 - awards, the Administrator may determine, if in its absolute discretion it is satisfied that the circumstances are exceptional, that it is not appropriate on the occurrence of such event for any part of the outstanding Awards to Vest and that instead outstanding Awards shall be released in consideration of the award of replacement options over shares or share awards in the acquiring company subject to and in compliance with Code sections 409A and 424. (iv) Exchange of Awards If the Specified Event is one referred to in Section 9(a)(i)(A) to (C), the Administrator may within the appropriate period and with the agreement of any company that obtains Control of the Company and with the agreement of the grantee and subject to and in compliance with Code sections 409A and 424, vary the terms of the Award made to the grantee or facilitate the exchange of the Award for a new award made by the acquiring company which may operate over shares in the acquiring company. In this section 9(a)(iv), "appropriate period" means: (A) where the Specified Event is one within section 9(a)(i)(A) or (B), the period specified in section 9(a)(v)(A) or (B) respectively; (B) where the Specified Event is one within section 9(a)(i)(C), the period of six months beginning with the time when the Court sanctions the scheme of arrangement. (v) Period for exercise In the case of an Award which is in the form of an option, where a Specified Event occurs any outstanding Option must be exercised (if at all): (A) where the event in question is within section 9(a)(i)(A) and where section 9(a)(i)(B) does not apply, within the period beginning on the date on which the grantee receives notification of the offer from the Board and ending 30 days after the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made is satisfied (provided that any exercise prior to the other person(s) obtaining Control shall take effect immediately prior to that other person actually obtaining Control); (B) where the event in question is within section 9(a)(i)(B), within the period during which the person remains so bound or entitled; (C) where the event in question is within section 9(a)(i)(C), during the period which starts on the date on which the Court sanctions the compromise, or arrangement and ends six months later or, if earlier, on the day immediately preceding the date upon which the compromise or arrangement becomes effective; (D) where the event in question is within section 9(a)(i)(D), at any time prior to the commencement of such winding up (any such exercise to take effect immediately prior to the commencement of the winding up) and to the extent not so exercised the Option shall lapse. (b) Demergers, reconstructions and other corporate events On the occurrence of any demerger, reorganisation, reconstruction or amalgamation, distribution or other transaction of the Company, which in the reasonable opinion of the Administrator may affect the value of any Award, the Administrator may vary or alter in any manner which it considers appropriate the terms of any Award to prevent enlargement or diminution of the grantee's rights or benefits under the Award.
- 14 - Such alteration may include (without limitation), amending the Performance Condition, the terms on which an Award Vests (and may provide for immediate Vesting on such event) and altering the terms of an Award such that the Award is over shares in another company, subject to and in compliance with Section 409A, or terminating and paying out the Award pursuant to Treasury Regulation section 1.409A- 3(j)(4). 10. Miscellaneous (a) Taxes. It shall be a term of the grant of any Awards that the grantee and holder of the Award shall indemnify the Company and each Affiliate in respect of, and shall be liable to pay to the Company or the Affiliate, or otherwise make provision satisfactory to the Administrator for payment of, any taxes (including social security or similar contributions (including, if the Administrator determines at the date of grant of the Award and as permitted by law, employers' social security or similar contributions)) which the Company or any Affiliate is required to withhold and/or account for to any taxation authority in respect of Awards under the Plan and such payment or provision shall be made no later than the date of the event creating such tax liability. Without prejudice to the generality of the foregoing, the Company or its Affiliate may, to the extent permitted by law: (i) deduct an amount equal to any such tax liabilities from any payment of any kind otherwise due to the grantee or holder of an Award; (ii) withhold and sell such number of Shares to which the grantee would otherwise become entitled on vesting or exercise of the Award as will provide the Company with an amount (after tax) equal to the amount of such tax and social security contributions for which it or any Affiliate is obliged to withhold or account; (iii) withhold Shares otherwise issued or issuable to the grantee on Vesting of the Award with a Fair Market Value equal to the amount of such tax liabilities; and/or (iv) if the Shares are then listed for trading on a public market, permit the grantee to enter into a “same day sale” commitment with a broker whereby the grantee irrevocably elects to sell a portion of the Shares to be delivered under this Agreement to satisfy such tax liabilities and whereby the broker irrevocably commits to forward the proceeds necessary to satisfy such tax liabilities directly to the Company. In the event that payment to the Company or its Affiliate of such tax liabilities is made in Shares, such shares shall be valued at Fair Market Value on the applicable date for such purposes and shall not exceed in amount the minimum statutory tax withholding obligation. For the avoidance of doubt, the Administrator may specify in relation to any particular Award (to the extent permitted by law) that the social security contributions which the grantee is liable to pay shall include employer contributions as well as employee contributions. (b) Transferability. No Award granted under the Plan shall be transferred, assigned, pledged, charged, or otherwise disposed of by a grantee to any person otherwise than by will or the laws of descent and distribution on death. Any purported transfer, assignment, pledge, charge or disposal shall cause the Award to lapse immediately. An Award may be exercised during the lifetime of the grantee, only by the grantee or, during the period the grantee is under a legal disability, by the grantee’s guardian or legal representative. (c) Adjustments for Corporate Transactions and Other Events. (i)Variation of Share Capital. In the event of any increase or variation of the share capital of the Company by way of capitalization, rights issue, sub-division, consolidation, reduction of shares or otherwise, the Administrator shall make such adjustment to (A) the maximum number of shares of such Shares as to which Awards may be granted under this Plan, as provided in Section 4 of the
- 15 - Plan, and the limits thereunder and (B) the description and/or number of shares covered by and the exercise price and other terms of outstanding Awards, as it may determine in its absolute discretion to be appropriate provided that no adjustment shall result in the shares being issued at less than nominal value unless and to the extent that the Board is authorised to capitalize from the reserves of the Company a sum equal to the amount by which the nominal value of the Shares to be allotted on exercise exceeds the price at which the shares may be subscribed, and to apply that sum in paying up such amount on the shares. The Administrator may make adjustments, in its discretion, to address the treatment of fractional shares and fractional amounts that arise with respect to outstanding Awards as a result of the variation of share capital. (d) Substitution of Awards in Mergers and Acquisitions. Awards may be granted under the Plan from time to time in substitution for awards held by employees, officers, consultants or directors of entities who become or are about to become employees, officers, consultants or directors of the Company or an Affiliate as the result of a merger or consolidation of the employing entity with the Company or an Affiliate, or the acquisition by the Company or an Affiliate of the assets or shares of the employing entity. The terms and conditions of any substitute Awards so granted may vary from the terms and conditions set forth herein to the extent that the Administrator deems appropriate at the time of grant to conform the substitute Awards to the provisions of the awards for which they are substituted. (e) Amendment to the Plan. (i) General. Subject to this Section the Administrator may by resolution at any time and from time to time make any alteration to the Plan which it thinks fit. (ii) Shareholder approval. The following provisions of the Plan cannot be amended to the advantage of grantees or potential grantees without the prior approval of the shareholders of the Company in general meeting except that minor amendments can be made without shareholder approval if they are to benefit the administration of the Plan or are amendments to take account of a change in legislation or statutory regulations or are to obtain or maintain favourable tax, exchange control or regulatory treatment for grantees in the Plan or for the Company or any Affiliate: (A) the basis for determining an eligible person's entitlement (or otherwise) to be granted an Award and/or to acquire Shares on Vesting of an Award; (B) the persons to whom an Award may be granted; (C) the limit on the aggregate number of Shares over which Awards may be granted under the Plan, including the limit under Section 4(a)(iv); (D) the individual participation limit in Section 4(b); (E) the adjustment of Awards pursuant to section 10(c); and (F) this section 10(e)(ii). (iii) Alterations which adversely affect grantees. No alteration may be made which would materially increase the liability of any grantee or which would materially decrease the value of any grantee's subsisting rights attached to any outstanding Award without in each case that grantee's prior written consent.
- 16 - (f) Termination of the Plan. The Board may terminate the Plan at any time. Except as otherwise determined by the Board, termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination. (g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any Grant Agreement thereunder shall confer any right on an individual to continue in the service of the Company or shall interfere in any way with the right of the Company to terminate such service at any time with or without cause or notice and whether or not such termination results in (i) the failure of any Award to vest; (ii) the forfeiture of any unvested or vested portion of any Award; and/or (iii) any other adverse effect on the individual’s interests under the Plan. This Plan shall not form part of the contract of employment of any individual who participates in it. The rights and obligations of any individual under the terms of his office or employment with any Company participating in the Plan shall not be affected by his participation in the Plan or any right which he may have to participate in it. An individual who participates in the Plan shall waive any and all rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever (including unfair or wrongful dismissal) insofar as those rights arise or may arise from his ceasing to have rights under or to be entitled to exercise any Award or to be entitled to under the Plan as a result of such termination. No such participation, rights or benefits shall be taken into account for the purposes of calculating the amount of benefits payable to any pension fund. Awards granted pursuant to the Plan shall not constitute any representation or warranty that any benefit will accrue to any individual to whom such Award is granted. (h) Compliance with Securities Laws; Listing and Registration. If at any time the Administrator determines that the delivery of Shares under the Plan, or exercise of Awards under the Plan, is or may be unlawful under the laws of any applicable jurisdiction, or federal, state or foreign securities laws, or may breach any Dealing Restriction, the right to exercise an Award or receive Shares pursuant to an Award shall be suspended until the Administrator determines that such delivery is lawful or such Dealing Restriction ceases to apply, subject to and in compliance with Section 409A. If an option may expire while a Dealing Restriction applies, the Administrator may, subject to applicable laws, provide for an automatic exercise of the option immediately before expiration. If at any time the Administrator determines that the delivery of Shares under the Plan would or may violate the rules of the national exchange on which the shares are then listed for trade, the right to exercise an Award or receive Shares pursuant to an Award shall be suspended until the Administrator determines that such delivery would not violate such rules. The Company shall have no obligation to effect any registration or qualification of the Shares under federal, state or foreign laws. The Company may require that a grantee, as a condition to exercise of an Award, and as a condition to the delivery of any share certificate, make such written representations (including representations to the effect that such person will not dispose of the Shares so acquired in violation of federal, state or foreign securities laws) and furnish such information as may, in the opinion of counsel for the Company, be appropriate to permit the Company to issue the Shares in compliance with applicable federal, state or foreign securities laws. The stock certificates for any Shares issued pursuant to this Plan may bear a legend restricting transferability of the Shares unless such shares are registered or (if relevant) an exemption from registration is available under the Securities Act of 1933, as amended, and applicable state or foreign securities laws. Any transfer or issue of Shares pursuant to the Plan shall be subject to any necessary consent from any competent authority and to the terms of such consent. (i) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company and a grantee or any other person. To the extent that any grantee or other person acquires a right to receive
- 17 - payments from the Company pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company. (j) Governing Law. The validity, construction and effect of the Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules, regulations, determinations or decisions made by the Administrator relating to the Plan or such Grant Agreements, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be determined exclusively in accordance with the laws of England and the courts of England shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Plan. Any proceedings suit or action arising out of the Plan shall be brought in such courts. (k) Section 409A. The Plan and all Awards granted hereunder are intended to comply with, or otherwise be exempt from, Section 409A. The Plan and all Awards granted under the Plan shall be administered, interpreted, and construed in a manner consistent with Section 409A to the extent necessary to avoid the imposition of additional taxes under Section 409A(a)(1)(B). Should any provision of the Plan, any Grant Agreement, or any other agreement or arrangement contemplated by the Plan be found not to be outside the scope of, comply with, or otherwise be exempt from, the provisions of Section 409A, such provision shall be modified and given effect (retroactively if necessary), in the sole discretion of the Administrator, and without the consent of the holder of the Award, in such manner as the Administrator determines to be necessary or appropriate to comply with, or to effectuate an exemption from, Section 409A. Notwithstanding anything in the Plan to the contrary, in no event shall the Administrator exercise its discretion to accelerate the payment or settlement of an Award where such payment or settlement would otherwise constitute deferred compensation within the meaning of Section 409A unless, and solely to the extent that, such accelerated payment or settlement is permissible under Treasury Regulation section 1.409A-3(j)(4) or any successor provision. The following rules shall apply to Awards subject to Section 409A: (i) Cessation of service or “termination of employment,” or words of similar import, for purposes of any payments under an Award that are payments of deferred compensation subject to Section 409A, shall mean the grantee’s “separation from service” as defined in Section 409A, to the extent required to comply with Section 409A. (ii) For purposes of Section 409A, the right to a series of installment payments shall be treated as a right to a series of separate payments. (iii) If payment of an Award arises on a ccount of the grantee’s separation from service while the grantee is a “specified employee” (as defined under Section 409A), then if necessary to comply with Section 409A, any payment that would be considered “deferred compensation” (as defined under Treasury Regulation section 1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six (6) months after such separation from service shall accrue without interest and shall be paid within 15 days after the end of the six-month period beginning on the date of such separation from service or, if earlier, within 15 days after the appointment of the personal representative or executor of the grantee’s estate following the grantee’s death. (l) Data Protection. The personal date of any grantee or participant will be processed in accordance with the Group's data protection policy as notified to grantees. By participating in the Plan, each grantee consents to the holding and processing of their personal data for all purposes relating to the operation of the Plan. These include, but are not limited to: (i) administering and maintaining grantee records;
- 18 - (ii) providing information to the Company and its Affiliates, trustees of any employee benefit trust, registrars, brokers or third party administrators of the Plan; (iii) providing information to future purchasers or merger partners of the Company, the grantee's employing company, or the business in which the grantee works; and (iv) transferring information about the grantee to a country or territory that may not provide the same statutory protection for the information as the grantee's home country. (m) Duration of the Plan and Termination. The Plan is effective from the Adoption Date. No Award shall be granted under the Plan after the close of business on the Termination Date. Subject to other applicable provisions of the Plan, all Awards made under the Plan prior to such termination of the Plan shall remain in effect until such Awards have been satisfied or terminated in accordance with the Plan and the terms of such Awards.
PLAN APPROVAL Date Approved by the Shareholders: 13 June 2023 Date Approved by the Board in implementation of the Shareholder Resolution: 25 July 2023
APPENDIX A - PROVISIONS FOR CALIFORNIA RESIDENTS With respect to Awards granted to California residents prior to a public offering of shares of the Company that is effected pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended, and only to the extent required by applicable law, the following provisions shall apply notwithstanding anything in the Plan or a Grant Agreement to the contrary: 1. With respect to any Award granted in the form of a share option pursuant to Section 6(a) of the Plan: (a) The exercise period shall be no more than 120 months from the date the option is granted. (b) The options shall be non-transferable other than by will, by the laws of descent and distribution, or, if and to the extent permitted under the Grant Agreement, to a revocable trust or as permitted by Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701). (c) Unless employment is terminated for “cause” as defined by applicable law, the terms of the Plan or Grant Agreement, or a contract of employment, the right to exercise the option in the event of termination of employment, to the extent that the Award recipient is entitled to exercise on the date employment terminates, will continue until the earlier of the option expiration date, or: (1) At least 6 months from the date of termination if termination was caused by death or disability. (2) At least 30 days from the date of termination if termination was caused by other than death or disability. 2. With respect to an Award, granted pursuant to Section 6(c) of the Plan, that provides the Award recipient the right to purchase shares, the Award shall be non-transferable other than by will, by the laws of descent and distribution, or, if and to the extent permitted under the Grant Agreement, to a revocable trust or as permitted by Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701). 3. The Plan shall have a termination date of not more than 10 years from the date the Plan is adopted by the Board or the date the Plan is approved by the security holders, whichever is earlier. 4. Security holders representing a majority of the Company’s outstanding securities entitled to vote must approve the Plan by the later of (a) 12 months after the date the Plan is adopted or (b) 12 months after the granting of any Award to a resident of California. Any option exercised or any securities purchased before security holder approval is obtained must be rescinded if security holder approval is not obtained within the period described in the preceding sentence. Such securities shall not be counted in determining whether such approval is obtained. 5. The Company will provide financial statements to each Award recipient annually during the period such individual has Awards outstanding, or as otherwise required under Section 260.140.46 of Title 10 of the California Code of Regulations. Notwithstanding the foregoing, the Company will not be required to provide such financial statements to Award recipients when the Plan complies with all conditions of Rule 701 of the Securities Act of 1933, as amended (17 C.F.R. 230.701); provided that for purposes of determining such compliance, any registered domestic partner shall be considered a “family member” as that term is defined in Rule 701. 6. The Plan is intended to comply with Section 25102(o) of the California Corporations Code. Any provision of this Plan which is inconsistent with Section 25102(o), including without limitation any provision of this Plan that is more restrictive than would be permitted by Section 25102(o) as amended from time to time, shall, without further act or amendment by the Board, be reformed to comply with the provisions of Section 25102(o). If at any time the Administrator determines that the delivery of Shares under the Plan is or may be unlawful under the laws of any applicable jurisdiction, or federal or state securities laws, the right to exercise an Award or receive Shares pursuant to an Award shall be suspended until the Administrator determines that such delivery is lawful. The Company shall have no obligation to effect any registration or qualification of the Shares under federal or state laws.
Exhibit 4.15
Execution Version
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
AMENDED AND RESTATED VOTING AGREEMENT
SONDE HEALTH, INC.
TABLE OF CONTENTS
Page
i
Schedule A - Investors
ii
Schedule B - Key Holders
Exhibit A - Adoption Agreement
Exhibit B - Consent of Spouse
iii
AMENDED AND RESTATED VOTING AGREEMENT
THIS AMENDED AND RESTATED VOTING AGREEMENT (this “Agreement”), is made and entered into as of this 25th day of May, 2022, by and among Sonde Health, Inc., a Delaware corporation (the “Company”), each holder of the Series A-1 Preferred Stock, $0.0001 par value per share, of the Company (“Series A-1 Preferred Stock”), Series A-2 Preferred Stock, $0.0001 par value per share, of the Company (“Series A-2 Preferred Stock”, and Series B Preferred Stock, $0.0001 par value per share, of the Company (“Series B Preferred Stock”, and referred to herein collectively with the Series A-1 Preferred Stock and Series A-2 Preferred Stock, as the “Preferred Stock”) listed on Schedule A (together with any subsequent investors, or transferees, who become parties hereto as “Investors” pursuant to Subsections 7.1(a) or 7.2 below, the “Investors”), and those certain stockholders of the Company and holders of options to acquire shares of the capital stock of the Company listed on Schedule B (together with any subsequent stockholders or option holders, or any transferees, who become parties hereto as “Key Holders” pursuant to Subsections 7.1(b) or 7.2 below, the “Key Holders,” and together collectively with the Investors, the “Stockholders”).
RECITALS
A. Concurrently with the execution of this Agreement, the Company and certain of the Investors are entering into a Series B Preferred Stock Purchase Agreement (as amended from time to time, the “Purchase Agreement”) providing for the sale of shares of the Series B Preferred Stock. Certain of the Investors (the “Existing Investors”) and the Key Holders are parties to that certain Voting Agreement, dated April 9, 2019, by and among the Company and the parties thereto, as amended (the “Prior Agreement”). The Company, the Key Holders and the Existing Investors party to the Prior Agreement desire to amend and restate that agreement to provide those Investors purchasing shares of the Series B Preferred Stock pursuant to the Purchase Agreement with the right, among other rights, to designate the election of certain members of the board of directors of the Company (the “Board”) in accordance with the terms of this Agreement.
B. The Amended and Restated Certificate of Incorporation of the Company (as the same may be amended and/or restated from time to time, the “Restated Certificate”) provides that (a) the holders of record of the shares of the Series B Preferred Stock, exclusively and as a separate class, shall be entitled to elect one director of the Company (the “Series B Director”), (b) the holders of record of the shares of Series A-2 Preferred Stock, exclusively and as a separate class, shall be entitled to elect two directors of the Company (the “Series A-2 Directors”), (c) the holders of record of the shares of the Series B Preferred Stock and Series A-2 Preferred Stock, voting together as a single class and on an as-converted basis, shall be entitled to elect one director of the Company and (d) the holders of record of the shares of common stock, $0.0001 par value per share, of the Company (the “Common Stock”) and Preferred Stock, voting together as a single class and on an as-converted basis, shall be entitled to elect the balance of the total number of directors of the Company.
C. The parties also desire to enter into this Agreement to set forth their agreements and understandings with respect to how shares of the capital stock of the Company held by them will be voted on, or tendered in connection with, an acquisition of the Company.
NOW, THEREFORE, the Existing Investors hereby agree that the Prior Agreement is hereby amended and restated in its entirety by this Agreement, and parties further agree as follows:
1.Voting Provisions Regarding the Board.
ACTIVEUS 190549707v.7
1.1Size of the Board. Each Stockholder agrees to vote, or cause to be voted, all Shares (as defined below) owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at six (6) directors and may be increased only with the written consent of the Requisite Holders (as defined in the Restated Certificate). For purposes of this Agreement, the term “Shares” shall mean and include any securities of the Company that the holders of which are entitled to vote for members of the Board, including without limitation, all shares of Common Stock and Preferred Stock, by whatever name called, now owned or subsequently acquired by a Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise.
1.2Board Composition. Each Stockholder agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, subject to Section 5, the following persons shall be elected to the Board:
(a)[***];
(b)As the Series A-2 Directors:
(i)[***];
(ii)One person designated from time to time by PureTech Health LLC, for so long as such Stockholder and its Affiliates (as defined below) continue to own beneficially at least 1,000,000 shares of Series A-2 Preferred Stock (such number subject to appropriate adjustment for any stock splits, stock dividends, combinations, recapitalizations and the like), which individual shall initially be Eric Elenko;
(c)[***];
(d)[***]; and
(e)[***].
To the extent that any of clauses (a) through (e) above shall not be applicable, any member of the Board who would otherwise have been designated in accordance with the terms thereof shall instead be voted upon by all the Stockholders of the Company entitled to vote thereon in accordance with, and pursuant to, the Restated Certificate.
For purposes of this Agreement, an individual, firm, corporation, partnership, association, limited liability company, trust or any other entity (collectively, a “Person”) shall be deemed an “Affiliate” of another Person who, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation, any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Person.
1.3Failure to Designate a Board Member. In the absence of any designation from the Persons or groups with the right to designate a director as specified above, the director previously designated by them and then serving shall be reelected if still eligible and willing to serve as provided herein and otherwise, such Board seat shall remain vacant.
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1.4Removal of Board Members. Each Stockholder also agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that:
(a)no director elected pursuant to Subsections 1.2 or 1.3 of this Agreement may be removed from office other than for cause unless (i) such removal is directed or approved by the affirmative vote of the Person(s) entitled under Subsection 1.2 to designate that director; or (ii) the Person(s) originally entitled to designate or approve such director pursuant to Subsection 1.2 is no longer so entitled to designate or approve such director;
(b)any vacancies created by the resignation, removal or death of a director elected pursuant to Subsections 1.2 or 1.3 shall be filled pursuant to the provisions of this Section 1; and
(c)upon the request of any party entitled to designate a director as provided in Subsection 1.2 to remove such director, such director shall be removed.
All Stockholders agree to execute any written consents required to perform the obligations of this Section 1, and the Company agrees at the request of any Person or member of a group entitled to designate directors to call a special meeting of stockholders for the purpose of electing directors.
1.5No Liability for Election of Recommended Directors. No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.
1.6No “Bad Actor” Designees. Each Person with the right to designate or participate in the designation of a director as specified above hereby represents and warrants to the Company that, to such Person’s knowledge, none of the “bad actor” disqualifying events described in Rule 506(d)(1)(i)-(viii) promulgated under the Securities Act of 1933, as amended (the “Securities Act”) (each, a “Disqualification Event”), is applicable to such Person’s initial designee named above except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. Any director designee to whom any Disqualification Event is applicable, except for a Disqualification Event to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable, is hereinafter referred to as a “Disqualified Designee”. Each Person with the right to designate or participate in the designation of a director as specified above hereby covenants and agrees (A) not to designate or participate in the designation of any director designee who, to such Person’s knowledge, is a Disqualified Designee and (B) that in the event such Person becomes aware that any individual previously designated by any such Person is or has become a Disqualified Designee, such Person shall as promptly as practicable take such actions as are necessary to remove such Disqualified Designee from the Board and designate a replacement designee who is not a Disqualified Designee.
2.Vote to Increase Authorized Common Stock. Each Stockholder agrees to vote or cause to be voted all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common Stock available for conversion of all of the shares of Preferred Stock outstanding at any given time.
3.Drag-Along Right.
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1.1Definitions. A “Sale of the Company” shall mean either: (a) a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from stockholders of the Company shares representing more than [***] of the outstanding voting power of the Company (a “Stock Sale”); or (b) a transaction that qualifies as a “Deemed Liquidation Event” as defined in the Restated Certificate.
1.2Actions to be Taken. In the event that (i) the Board and (ii) the Requisite Holders (the “Selling Investors”), approve a Sale of the Company in writing, specifying that this Section 3 shall apply to such transaction, then, subject to satisfaction of each of the conditions set forth in Subsection 3.3 below, each Stockholder and the Company hereby agree:
(a)if such transaction requires stockholder approval, with respect to all Shares that such Stockholder owns or over which such Stockholder otherwise exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of, and adopt, such Sale of the Company (together with any related amendment or restatement to the Restated Certificate required to implement such Sale of the Company) and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;
(b)if such transaction is a Stock Sale, to sell the same proportion of shares of capital stock of the Company beneficially held by such Stockholder as is being sold by the Selling Investors to the Person to whom the Selling Investors propose to sell their Shares, and, except as permitted in Subsection 3.3 below, on the same terms and conditions as the Selling Investors;
(c)to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the Selling Investors in order to carry out the terms and provision of this Section 3, including, without limitation, executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, any associated indemnity agreement, or escrow agreement, any associated voting, support, or joinder agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances), and any similar or related documents;
(d)not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any Shares of the Company owned by such party or Affiliate in a voting trust or subject any Shares to any arrangement or agreement with respect to the voting of such Shares, unless specifically requested to do so by the acquirer in connection with the Sale of the Company;
(e)to refrain from (i) exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company, or (ii); asserting any claim or commencing any suit (x) challenging the Sale of the Company or this Agreement, or (y) alleging a breach of any fiduciary duty of the Selling Investors or any affiliate or associate thereof (including, without limitation, aiding and abetting breach of fiduciary duty) in connection with the evaluation, negotiation or entry into the Sale of the Company, or the consummation of the transactions contemplated thereby;
(f)if the consideration to be paid in exchange for the Shares pursuant to this Section 3 includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D
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promulgated under the Securities Act of 1933, as amended (the “Securities Act”), the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Board) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the Shares; and
(g)in the event that the Selling Investors, in connection with such Sale of the Company, appoint a stockholder representative (the “Stockholder Representative”) with respect to matters affecting the Stockholders under the applicable definitive transaction agreements following consummation of such Sale of the Company, (x) to consent to (i) the appointment of such Stockholder Representative, (ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations, and (iii) the payment of such Stockholder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s services and duties in connection with such Sale of the Company and its related service as the representative of the Stockholders, and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Stockholder with respect to any action or inaction taken or failed to be taken by the Stockholder Representative, within the scope of the Stockholder Representative’s authority, in connection with its service as the Stockholder Representative, absent fraud, bad faith, gross negligence or willful misconduct.
1.3Conditions. Notwithstanding anything to the contrary set forth herein, a Stockholder will not be required to comply with Subsection 3.2 above in connection with any proposed Sale of the Company (the “Proposed Sale”), unless:
(a)any representations and warranties to be made by such Stockholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such Shares, including, but not limited to, representations and warranties that (i) the Stockholder holds all right, title and interest in and to the Shares such Stockholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Stockholder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Stockholder have been duly executed by the Stockholder and delivered to the acquirer and are enforceable (subject to customary limitations) against the Stockholder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into by the Stockholder in connection with the transaction, nor the performance of the Stockholder’s obligations thereunder, will cause a breach or violation of the terms of any agreement to which the Stockholder is a party, or any law or judgment, order or decree of any court or governmental agency that applies to the Stockholder;
(b)such Stockholder is not required to agree (unless such Stockholder is a Company officer or employee) to any restrictive covenant in connection with the Proposed Sale (including without limitation any covenant not to compete or covenant not to solicit customers, employees or suppliers of any party to the Proposed Sale);
(c)such Stockholder and its Affiliates are not required to amend, extend or terminate any contractual or other relationship with the Company, the acquirer or their respective Affiliates, except that the Stockholder may be required to agree to terminate the investment-related documents between or among such Stockholder, the Company and/or other stockholders of the Company;
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(d)the Stockholder is not liable for the breach of any representation, warranty or covenant made by any other Person in connection with the Proposed Sale, other than the Company;
(e)the liability for indemnification, if any, of such Stockholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its Stockholders in connection with such Proposed Sale, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders), and is pro rata in proportion to, and does not exceed, the amount of consideration paid to such Stockholder in connection with such Proposed Sale; and
(f)subject to Section 3.5, upon the consummation of the Proposed Sale (i) each holder of each class or series of the capital stock of the Company will receive the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of stock, and if any holders of any capital stock of the Company are given a choice as to the form of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Common Stock will receive the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common Stock, and (iv) unless waived pursuant to the terms of the Company’s Certificate of Incorporation in effect immediately prior to the Proposed Sale and as may be required by law, the aggregate consideration receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Common Stock are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed Sale is a Deemed Liquidation Event) in accordance with the Company’s Certificate of Incorporation in effect immediately prior to the Proposed Sale; provided, however, that notwithstanding the foregoing provisions of this Subsection 3.3(f), if the consideration to be paid in exchange for the Key Holder Shares or Investor Shares, as applicable, pursuant to this Subsection 3.3(f) includes any securities and due receipt thereof by any Key Holder or Investor would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Key Holder or Investor of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Key Holder or Investor in lieu thereof, against surrender of the Key Holder Shares or Investor Shares, as applicable, which would have otherwise been sold by such Key Holder or Investor, an amount in cash equal to the fair value (as determined in good faith by the Board) of the securities which such Key Holder or Investor would otherwise receive as of the date of the issuance of such securities in exchange for the Key Holder Shares or Investor Shares, as applicable.
1.4Restrictions on Sales of Control of the Company. No Stockholder shall be a party to any Stock Sale unless (a) all holders of Preferred Stock are allowed to participate in such transaction(s) and (b) the consideration received pursuant to such transaction is allocated among the parties thereto in the manner specified in the Company’s Certificate of Incorporation in effect immediately prior to the Stock Sale (as if such transaction(s) were a Deemed Liquidation Event), unless the holders of at least the requisite percentage required to waive treatment of the transaction(s) as a Deemed Liquidation Event pursuant to the terms of the Company’s Certificate of Incorporation in effect immediately prior to the Proposed Sale, elect to
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allocate the consideration differently by written notice given to the Company at least [***] prior to the effective date of any such transaction or series of related transactions.
1.5Consideration Payable to [***]. [***].
4.Remedies.
1.1Covenants of the Company. The Company agrees to use its best efforts, within the requirements of applicable law, to ensure that the rights granted under this Agreement are effective and that the parties enjoy the benefits of this Agreement. Such actions include, without limitation, the use of the Company’s best efforts to cause the nomination and election of the directors as provided in this Agreement.
1.2Irrevocable Proxy and Power of Attorney. Each party to this Agreement hereby constitutes and appoints as the proxies of the party and hereby grants a power of attorney to the Chief Executive Officer of the Company, and a designee of the Selling Investors, and each of them, with full power of substitution, with respect to the matters set forth herein, including, without limitation, election of persons as members of the Board in accordance with Section 1, votes to increase authorized shares pursuant to Section 2 hereof and votes regarding any Sale of the Company pursuant to Section 3 hereof, and hereby authorizes each of them to represent and vote, if and only if the party (i) fails to vote, or (ii) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, all of such party’s Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of this Agreement or the increase of authorized shares or approval of any Sale of the Company pursuant to and in accordance with the terms and provisions of Sections 2 and 3, respectively, of this Agreement or to take any action reasonably necessary to effect Sections 2 and 3, respectively, of this Agreement. The power of attorney granted hereunder shall authorize the Chief Executive Officer of the Company, to execute and deliver the documentation referred to in Section 3.2(c) on behalf of any party failing to do so within [***] of a request by the Company. Each of the proxy and power of attorney granted pursuant to this Section 4.2 is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until this Agreement terminates or expires pursuant to Section 6 hereof. Each party hereto hereby revokes any and all previous proxies or powers of attorney with respect to the Shares and shall not hereafter, unless and until this Agreement terminates or expires pursuant to Section 6 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein.
1.3Specific Enforcement. Each party acknowledges and agrees that each party hereto will be irreparably damaged in the event any of the provisions of this Agreement are not performed by the parties in accordance with their specific terms or are otherwise breached. Accordingly, it is agreed that each of the Company and the Stockholders shall be entitled to an injunction to prevent breaches of this Agreement, and to specific enforcement of this Agreement and its terms and provisions in any action instituted in any court of the United States or any state having subject matter jurisdiction.
1.4Remedies Cumulative. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
5.“Bad Actor” Matters.
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1.1Definitions. For purposes of this Agreement:
(a)“Company Covered Person” means, with respect to the Company as an “issuer” for purposes of Rule 506 promulgated under the Securities Act, any Person listed in the first paragraph of Rule 506(d)(1).
(b)“Disqualified Designee” means any director designee to whom any Disqualification Event is applicable, except for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable.
(c)“Disqualification Event” means a “bad actor” disqualifying event described in Rule 506(d)(1)(i)-(viii) promulgated under the Securities Act.
(d)“Rule 506(d) Related Party” means, with respect to any Person, any other Person that is a beneficial owner of such first Person’s securities for purposes of Rule 506(d) promulgated under the Securities Act.
1.2Representations.
(a)Each Person with the right to designate or participate in the designation of a director pursuant to this Agreement hereby represents that (i) such Person has exercised reasonable care to determine whether any Disqualification Event is applicable to such Person, any director designee designated by such Person pursuant to this Agreement or any of such Person’s Rule 506(d) Related Parties, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable and (ii) no Disqualification Event is applicable to such Person, any Board member designated by such Person pursuant to this Agreement or any of such Person’s Rule 506(d) Related Parties, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. Notwithstanding anything to the contrary in this Agreement, each Investor makes no representation regarding any Person that may be deemed to be a beneficial owner of the Company’s voting equity securities held by such Investor solely by virtue of that Person being or becoming a party to (x) this Agreement, as may be subsequently amended, or (y) any other contract or written agreement to which the Company and such Investor are parties regarding (1) the voting power, which includes the power to vote or to direct the voting of, such security; and/or (2) the investment power, which includes the power to dispose, or to direct the disposition of, such security.
(b)The Company hereby represents and warrants to the Investors that no Disqualification Event is applicable to the Company or, to the Company’s knowledge, any Company Covered Person, except for a Disqualification Event as to which Rule 506(d)(2)(ii-iv) or (d)(3) is applicable.
1.3Covenants. Each Person with the right to designate or participate in the designation of a director pursuant to this Agreement covenants and agrees (i) not to designate or participate in the designation of any director designee who, to such Person’s knowledge, is a Disqualified Designee, (ii) to exercise reasonable care to determine whether any director designee designated by such person is a Disqualified Designee, (iii) that in the event such Person becomes aware that any individual previously designated by any such Person is or has become a Disqualified Designee, such Person shall as promptly as practicable take such actions as are necessary to remove such Disqualified Designee from the Board and designate a replacement designee who is not a Disqualified Designee, and (iv) to notify the Company promptly in writing in the event a Disqualification Event becomes applicable to such Person or any of its Rule 506(d) Related Parties, or, to such Person’s knowledge, to such Person’s initial designee named in
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Section 1, except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable.
6.Term. This Agreement shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earliest to occur of (a) the consummation of the Company’s first underwritten public offering of its Common Stock (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or an SEC Rule 145 transaction); (b) the consummation of a Sale of the Company and distribution of proceeds to or escrow for the benefit of the Stockholders in accordance with the Restated Certificate, provided that the provisions of Section 3 hereof will continue after the closing of any Sale of the Company to the extent necessary to enforce the provisions of Section 3 with respect to such Sale of the Company; and (c) termination of this Agreement in accordance with Subsection 7.8 below.
7.Miscellaneous.
1.1Additional Parties.
(a)Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Preferred Stock or stock senior to Preferred Stock after the date hereof, as a condition to the issuance of such shares the Company shall require that any purchaser of such shares become a party to this Agreement by executing and delivering (i) the Adoption Agreement attached to this Agreement as Exhibit A, or (ii) a counterpart signature page hereto agreeing to be bound by and subject to the terms of this Agreement as an Investor and Stockholder hereunder. In either event, each such person shall thereafter be deemed an Investor and Stockholder for all purposes under this Agreement.
(b)In the event that after the date of this Agreement, the Company enters into an agreement with any Person to issue shares of capital stock to such Person (other than to a purchaser of Preferred Stock described in Subsection 7.1(a) above), following which such Person shall hold Shares constituting [***] or more of the then outstanding capital stock of the Company (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised and/or converted or exchanged), then, the Company shall cause such Person, as a condition precedent to entering into such agreement, to become a party to this Agreement by executing an Adoption Agreement in the form attached hereto as Exhibit A, agreeing to be bound by and subject to the terms of this Agreement as a Stockholder and thereafter such person shall be deemed a Stockholder for all purposes under this Agreement.
1.2Transfers. Each transferee or assignee of any Shares subject to this Agreement shall continue to be subject to the terms hereof, and, as a condition precedent to the Company’s recognition of such transfer, each transferee or assignee shall agree in writing to be subject to each of the terms of this Agreement by executing and delivering an Adoption Agreement substantially in the form attached hereto as Exhibit A. Upon the execution and delivery of an Adoption Agreement by any transferee, such transferee shall be deemed to be a party hereto as if such transferee were the transferor and such transferee’s signature appeared on the signature pages of this Agreement and shall be deemed to be an Investor and Stockholder, or Key Holder and Stockholder, as applicable. The Company shall not permit the transfer of the Shares subject to this Agreement on its books or issue a new certificate representing any such Shares unless and until such transferee shall have complied with the terms of this Subsection 7.2. Each certificate instrument, or book entry representing the Shares subject to this Agreement if issued on or after the date of this Agreement shall be notated by the Company with the legend set forth in Subsection 7.12.
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1.3Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
1.4Governing Law. This Agreement shall be governed by the internal law of the State of Delaware, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.
1.5Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
1.6Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
1.7Notices.
(a)All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule A or Schedule B hereto, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Subsection 7.7.
(b)Consent to Electronic Notice. Each Investor and Key Holder consents to the delivery of any stockholder notice pursuant to the Delaware General Corporation Law (the “DGCL”), as amended or superseded from time to time, by electronic transmission pursuant to Section 232 of the DGCL (or any successor thereto) at the electronic mail address or the facsimile number as on the books of the Company. To the extent that any notice given by means of electronic transmission is returned or undeliverable for any reason, the foregoing consent shall be deemed to have been revoked until a new or corrected electronic mail address has been provided, and such attempted electronic notice shall be ineffective and deemed to not have been given. Each Investor and Key Holder agrees to promptly notify the Company of any change in its electronic mail address, and that failure to do so shall not affect the foregoing.
1.8Consent Required to Amend, Modify, Terminate or Waive. This Agreement may be amended, modified or terminated (other than pursuant to Section 6) and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (a) the Company, (b) the Key Holders holding at least a majority of the Shares then held by the Key Holders who are then providing services to the Company as officers, employees or consultants, and (c) the Requisite Holders. Notwithstanding the foregoing:
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(a)this Agreement may not be amended, modified or terminated and the observance of any term of this Agreement may not be waived with respect to any Investor or Key Holder without the written consent of such Investor or Key Holder unless such amendment, modification, termination or waiver applies to all Investors or Key Holders, as the case may be, in the same fashion;
(b)[***];
(c)[***];
(d)the provisions of Subsection 1.2(b)(ii) and this Subsection 7.8(d) may not be amended, modified, terminated or waived without the written consent of PureTech Health LLC;
(e)the consent of the Key Holders shall not be required for any amendment, modification, termination or waiver if such amendment, modification, termination, or waiver either (A) is not directly applicable to the rights of the Key Holders hereunder; or (B) does not adversely affect the rights of the Key Holders in a manner that is different than the effect on the rights of the other parties hereto;
(f)Schedule A hereto may be amended by the Company from time to time in accordance with the Purchase Agreement to add information regarding additional Purchasers (as defined in the Purchase Agreement) without the consent of the other parties hereto; and
(g)any provision hereof may be waived by the waiving party on such party’s own behalf, without the consent of any other party.
The Company shall give prompt written notice of any amendment, modification, termination, or waiver hereunder to any party that did not consent in writing thereto. Any amendment, modification, termination, or waiver effected in accordance with this Subsection 7.8 shall be binding on each party and all of such party’s successors and permitted assigns, whether or not any such party, successor or assignee entered into or approved such amendment, modification, termination or waiver. For purposes of this Subsection 7.8, the requirement of a written instrument may be satisfied in the form of an action by written consent of the Stockholders circulated by the Company and executed by the Stockholder parties specified, whether or not such action by written consent makes explicit reference to the terms of this Agreement.
1.9Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default previously or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
1.10Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
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1.11Entire Agreement. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated to read in its entirety as set forth in this Agreement. This Agreement (including the Exhibits hereto), the Restated Certificate and the other Transaction Agreements (as defined in the Purchase Agreement) constitute the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled.
1.12Share Certificate Legend. Each certificate, instrument, or book entry representing any Shares issued after the date hereof shall be notated by the Company with a legend reading substantially as follows:
“THE SHARES REPRESENTED HEREBY ARE SUBJECT TO A VOTING AGREEMENT, AS MAY BE AMENDED FROM TIME TO TIME, (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF THAT VOTING AGREEMENT, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER AND OWNERSHIP SET FORTH THEREIN.”
The Company, by its execution of this Agreement, agrees that it will cause the certificates instruments, or book entry evidencing the Shares issued after the date hereof to be notated with the legend required by this Subsection 7.12 of this Agreement, and it shall supply, free of charge, a copy of this Agreement to any holder of such Shares upon written request from such holder to the Company at its principal office. The parties to this Agreement do hereby agree that the failure to cause the certificates, instruments, or book entry evidencing the Shares to be notated with the legend required by this Subsection 7.12 herein and/or the failure of the Company to supply, free of charge, a copy of this Agreement as provided hereunder shall not affect the validity or enforcement of this Agreement.
1.13Stock Splits, Stock Dividends, etc. In the event of any issuance of Shares or the voting securities of the Company hereafter to any of the Stockholders (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), such Shares shall become subject to this Agreement and shall be notated with the legend set forth in Subsection 7.12.
1.14Manner of Voting. The voting of Shares pursuant to this Agreement may be effected in person, by proxy, by written consent or in any other manner permitted by applicable law. For the avoidance of doubt, voting of the Shares pursuant to the Agreement need not make explicit reference to the terms of this Agreement.
1.15Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in order to carry out the intent of the parties hereunder.
1.16Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such
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suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
1.17Costs of Enforcement. If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys’ fees.
1.18Aggregation of Stock. All Shares held or acquired by a Stockholder and/or its Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement, and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
1.19Spousal Consent. If any individual Stockholder is married on the date of this Agreement, such Stockholder’s spouse shall execute and deliver to the Company a consent of spouse in the form of Exhibit B hereto (“Consent of Spouse”), effective on the date hereof. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Stockholder’s Shares that do not otherwise exist by operation of law or the agreement of the parties. If any individual Stockholder should marry or remarry subsequent to the date of this Agreement, such Stockholder shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.
1.20No Presumption against Drafter. The parties have participated jointly in negotiating and drafting this agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
SONDE HEALTH, INC.
By: /s/ David Liu
Name: David Liu
Title: Chief Executive Officer
KEY HOLDERS:
/s/[***]
[***]
/s/[***]
[***]
/s/[***]______________________________
[***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
INVESTORS:
PURETECH HEALTH LLC
By: /s/ Bharatt Chowrira
Name: Bharatt Chowrira
Title: President
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
[***]
By: /s/[***]
Name: [***]
Title: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
[***]
By: [***]
By: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
/s/[***]
[***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Voting Agreement as of the date first written above.
/s/[***]
[***]
Signature Page to Amended and Restated Voting Agreement
ACTIVEUS 190549707v.7
SCHEDULE A
INVESTORS
[***]
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SCHEDULE B
KEY HOLDERS
[***]
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EXHIBIT A
ADOPTION AGREEMENT
This Adoption Agreement (“Adoption Agreement”) is executed on ________________, 20__, by the undersigned (the “Holder”) pursuant to the terms of that certain Amended and Restated Voting Agreement dated as of May [__], 2022 (the “Agreement”), by and among the Company and certain of its Stockholders, as such Agreement may be amended or amended and restated hereafter. Capitalized terms used but not defined in this Adoption Agreement shall have the respective meanings ascribed to such terms in the Agreement. By the execution of this Adoption Agreement, the Holder agrees as follows.
1.1 Acknowledgement. Holder acknowledges that Holder is acquiring certain shares of the capital stock of the Company (the “Stock”) [or options, warrants, or other rights to purchase such Stock (the “Options”)], for one of the following reasons (Check the correct box):
☐ As a transferee of Shares from a party in such party’s capacity as an “Investor” bound by the Agreement, and after such transfer, Holder shall be considered an “Investor” and a “Stockholder” for all purposes of the Agreement.
☐ As a transferee of Shares from a party in such party’s capacity as a “Key Holder” bound by the Agreement, and after such transfer, Holder shall be considered a “Key Holder” and a “Stockholder” for all purposes of the Agreement.
☐ As a new Investor in accordance with Subsection 7.1(a) of the Agreement, in which case Holder will be an “Investor” and a “Stockholder” for all purposes of the Agreement.
☐ In accordance with Subsection 7.1(b) of the Agreement, as a new party who is not a new Investor, in which case Holder will be a “Stockholder” for all purposes of the Agreement.
1.2 Agreement. Holder hereby (a) agrees that the Stock [Options], and any other shares of capital stock or securities required by the Agreement to be bound thereby, shall be bound by and subject to the terms of the Agreement and (b) adopts the Agreement with the same force and effect as if Holder were originally a party thereto.
1.3 Notice. Any notice required or permitted by the Agreement shall be given to Holder at the address or facsimile number listed below Holder’s signature hereto.
HOLDER: By: Name and Title of Signatory Address: Facsimile Number: | ACCEPTED AND AGREED: SONDE HEALTH, INC. By: Title: | ||||
ACTIVEUS 190549707v.7
EXHIBIT B
CONSENT OF SPOUSE
I, [_______________], spouse of [__________________], acknowledge that I have read the Amended and Restated Voting Agreement, dated as of May [__], 2022, to which this Consent is attached as Exhibit B (the “Agreement”), and that I know the contents of the Agreement. I am aware that the Agreement contains provisions regarding the voting and transfer of shares of capital stock of the Company that my spouse may own, including any interest I might have therein.
I hereby agree that my interest, if any, in any shares of capital stock of the Company subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in such shares of capital stock of the Company shall be similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in the Agreement are complex and that I am free to seek independent professional guidance or counsel with respect to this Consent. I have either sought such guidance or counsel or determined after reviewing the Agreement carefully that I will waive such right.
| Dated: | [Name of Key Holder’s Spouse] | ||||
ACTIVEUS 190549707v.7
Exhibit 4.16
Execution Version
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
SONDE HEALTH, INC.
ACTIVEUS 190548915v.6
TABLE OF CONTENTS
Page
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5.5 Matters Requiring Director Approval | 20 | ||||
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Schedule A - Schedule of Investors
iii
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AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”), is made as of the 25th day of May, 2022, by and among Sonde Health, Inc., a Delaware corporation (the “Company”), and each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor”, and any purchaser that becomes a party to this Agreement in accordance with Section 6.9 hereof.
RECITALS
WHEREAS, certain of the Investors (the “Existing Investors”) possess registration rights, information rights, rights of first offer, and other rights pursuant to that certain Investors’ Rights Agreement dated as of April 9, 2019, by and among the Company and such Existing Investors (the “Prior Agreement”); and
WHEREAS, the Existing Investors are holders of at least sixty percent (60%) of the Series A-2 Preferred Stock, $0.0001 par value per share, of the Company (the “Series A-2 Preferred Stock”), and desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted to them under the Prior Agreement; and
WHEREAS, certain of the Investors are parties to that certain Series B Preferred Stock Purchase Agreement of even date herewith by and among the Company and such Investors (the “Purchase Agreement”), which provides that as a condition to closing of the issuance of Series B Preferred Stock, this Agreement must be executed and delivered by such Investors and the Company;
NOW, THEREFORE, the Existing Investors hereby agree that the Prior Agreement is hereby amended and restated in its entirety by this Agreement, and the parties to this Agreement further agree as follows:
1.Definitions. For purposes of this Agreement:
1.1“Affiliate” means, with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer, director or trustee of such Person, or any venture capital fund or registered investment company now or hereafter existing that is controlled by one or more general partners, managing members or investment adviser of, or shares the same management company or investment adviser with, such Person.
1.2“Board of Directors” means the board of directors of the Company.
1.3“Certificate of Incorporation” means the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
1.4“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.
1.5“Competitor” means a Person engaged, directly or indirectly (including through any partnership, limited liability company, corporation, joint venture or similar arrangement (whether now existing or formed hereafter)), in analyzing speech as an indicator or predictor of a speaker’s physical or mental health state or changes therein, but shall not include (a) [***].
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1.6“Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
1.7“Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including options and warrants.
1.8“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1.9“Excluded Registration” means (i) a registration relating to the sale or grant of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, equity incentive or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
1.10“FOIA Party” means a Person that, in the determination of the Board of Directors, may be subject to, and thereby required to disclose non-public information furnished by or relating to the Company under, the Freedom of Information Act, 5 U.S.C. 552 (“FOIA”), any state public records access law, any state or other jurisdiction’s laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.
1.11“Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
1.12“Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits forward incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.13“GAAP” means generally accepted accounting principles in the United States as in effect from time to time.
1.14“Holder” means any holder of Registrable Securities who is a party to this Agreement.
1.15“IFRS” means the International Financial Reporting Standards.
1.16“Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, life-partner or similar statutorily-recognized domestic
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partner, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.
1.17“Initiating Holders” means, collectively, Holders who properly initiate a registration request under this Agreement.
1.18“IPO” means the Company’s first underwritten public offering of its Common Stock under the Securities Act.
1.19“Major Investor” means any Investor that, individually or together with such Investor’s Affiliates, holds at least [***] shares of Registrable Securities (as adjusted for any stock split, stock dividend, combination, or other recapitalization or reclassification effected after the date hereof).
1.20“New Securities” means, collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
1.21“Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.22“Preferred Stock” means, collectively, shares of the Company’s Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock.
1.23“Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock; (ii) any Common Stock, or any Common Stock issued or issuable (directly or indirectly) upon conversion and/or exercise of any other securities of the Company, acquired by the Investors after the date hereof; and (iii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clauses (i) and (ii) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 6.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.13 of this Agreement.
1.24“Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
1.25“Relevant Stockholder” means each of [***.]
1.26“Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Subsection 2.12(b) hereof.
1.27“SEC” means the Securities and Exchange Commission.
1.28“SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.
1.29“SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.
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1.30“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.31“Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6.
2.Registration Rights. The Company covenants and agrees as follows:
1.1Demand Registration.
(a)Form S-1 Demand. If at any time after the earlier of (i) [***] after the date of this Agreement or (ii) [***] after the effective date of the registration statement for the IPO, the Company receives a request from Holders of [***] of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least [***] of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed [***]), then the Company shall (x) within [***] after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within [***] after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within [***] of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.
(b)Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least [***] of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least [***], then the Company shall (i) within [***] after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within [***] after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within [***] of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.
(c)Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than [***] after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than [***] in any
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[***] period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such [***] period other than an Excluded Registration.
(d)The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a)(i) during the period that is [***] before the Company’s good faith estimate of the date of filing of, and ending on a date that is [***] after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected [***] registration pursuant to Subsection 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b) (i) during the period that is [***] before the Company’s good faith estimate of the date of filing of, and ending on a date that is [***] after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected [***] registrations pursuant to Subsection 2.1(b) within the [***] period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Subsection 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Subsection 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Subsection 2.1(d); provided, that if such withdrawal is during a period the Company has deferred taking action pursuant to Subsection 2.1(c), then the Initiating Holders may withdraw their request for registration and such registration will not be counted as “effected” for purposes of this Subsection 2.1(d).
1.2Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its securities under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within [***] after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.6.
1.3Underwriting Requirements.
(a)If, pursuant to Subsection 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Initiating Holders, subject only to the reasonable approval of the Board of Directors. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 2.4(e)) enter into an underwriting
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agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 2.3, if the underwriter(s) advise(s) the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
(b)In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Subsection 2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below [***] of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.
1.4Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
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(a)prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to [***] or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that such [***] period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration;
(b)prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c)furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d)use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e)in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(f)use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g)provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h)promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
(i)notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
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(j)after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
1.5Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.
1.6Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements of one counsel for the selling Holders (“Selling Holder Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b), as the case may be. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
1.7Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
1.8Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:
(a)To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such
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Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
(b)To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.8(b) and 2.8(d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c)Promptly after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action.
(d)To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a
9
material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Subsection 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(e)Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f)Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.
1.9Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a)make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b)use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c)furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after [***] after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies; and (ii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
1.10Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of [***], enter into any agreement with any holder or prospective holder of any securities of the Company that would provide to such holder or prospective holder the right to include securities in any registration on
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other than either a pro rata basis with respect to the Registrable Securities or on a subordinate basis after all Holders have had the opportunity to include in the registration and offering all shares of Registrable Securities that they wish to so include; provided that this limitation shall not apply to Registrable Securities acquired by any additional Investor that becomes a party to this Agreement in accordance with Subsection 6.9.
1.11Market Stand-off Agreement. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the registration by the Company for its own behalf of shares of its Common Stock or any other equity securities under the Securities Act on a registration statement on Form S-1 or Form S-3, and ending on the date specified by the Company and the managing underwriter (such period not to exceed [***] in the case of the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports, and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in applicable FINRA rules, or any successor provisions or amendments thereto), or ninety (90) days in the case of any registration other than the IPO, or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in applicable FINRA rules, or any successor provisions or amendments thereto), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise. The foregoing provisions of this Subsection 2.11 shall apply only to the IPO, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, or the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than [***] of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock). The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 2.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Subsection 2.11 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply pro rata to all Company stockholders that are subject to such agreements, based on the number of shares subject to such agreements, except that, notwithstanding the foregoing, the Company and the underwriters may, in their sole discretion, waive or terminate these restrictions with respect to up to [***] of the Common Stock.
1.12Restrictions on Transfer.
(a)The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer,
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except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b)Each certificate, instrument, or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Subsection 2.12(c)) be notated with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Subsection 2.12.
(c)The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Subsection 2.12. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Subsection 2.12(b), except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of
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counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.
1.13Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.2 shall terminate upon the earliest to occur of: [***].
3.Information and Observer Rights.
1.1Delivery of Financial Statements. The Company shall deliver to each Major Investor, provided that the Board of Directors has not reasonably determined that such Major Investor is a Competitor of the Company:
(a)as soon as practicable, but in any event within [***] after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year, and a comparison between (x) the actual amounts as of and for such fiscal year and (y) the comparable amounts for the prior year and as included in the Budget (as defined in Subsection 3.1(d)) for such year, with an explanation of any material differences between such amounts and a schedule as to the sources and applications of funds for such year, and (iii) a statement of stockholders’ equity as of the end of such year;
(b)as soon as practicable, but in any event within [***] days after the end of each of the first three (3) quarters of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, and an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments; and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c)as soon as practicable, but in any event within [***] after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the Common Stock issuable upon conversion or exercise of any outstanding securities convertible or exercisable for Common Stock and the exchange ratio or exercise price applicable thereto, and the number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Major Investors to calculate their respective percentage equity ownership in the Company, and certified by the chief financial officer or chief executive officer of the Company as being true, complete, and correct;
(d)as soon as practicable, but in any event [***] before the end of each fiscal year, a budget and business plan for the next fiscal year (collectively, the “Budget”), approved by the Board of Directors prepared on a monthly basis, including balance sheets, income statements, and statements of cash flow for such months and, promptly after prepared, any other budgets or revised budgets prepared by the Company;
(e)with respect to the financial statements called for in Subsection 3.1(a), Subsection 3.1(b) and Subsection 3.1(d), an instrument executed by the chief financial officer or chief executive officer of the Company certifying that such financial statements were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (except as otherwise set forth in Subsection 3.1(b) and Subsection 3.1(d)) and fairly present the financial condition of the Company and its results of operation for the periods specified therein;
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(f)to the extent any Major Investor so requests, copies of the financial statements called for in Subsection 3.1(a), Subsection 3.1(b) and Subsection 3.1(d) prepared in accordance with IFRS (except that such financial statements called for in Subsection 3.1(b) may be (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with IFRS); and
(g)such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as any Major Investor may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Subsection 3.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in a form acceptable to the Company); or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Subsection 3.1 to the contrary, the Company may cease providing the information set forth in this Subsection 3.1 during the period starting with the date [***] before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Subsection 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
1.2Inspection. The Company shall permit each Major Investor (provided that the Board of Directors has not reasonably determined that such Major Investor is a Competitor of the Company), at such Major Investor’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Subsection 3.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
1.3Observer Rights. [***].
1.4Termination of Information and Observer Rights. The covenants set forth in Subsection 3.1, Subsection 3.2, and Subsection 3.3 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon the closing of a Deemed Liquidation Event, as such term is defined in the Certificate of Incorporation, whichever event occurs first.
1.5Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 3.5 by such Investor), (b) is or has
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been independently developed or conceived by such Investor without use of the Company’s confidential information, or (c) is or has been made known or disclosed to such Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Subsection 3.5 and such prospective purchaser is not a Competitor of the Company; (iii) to any existing or prospective Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that such Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
4.Rights to Future Stock Issuances.
1.1Right of First Offer. Subject to the terms and conditions of this Subsection 4.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Major Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having “beneficial ownership,” as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Major Investor (“Investor Beneficial Owners”); provided that each such Affiliate or Investor Beneficial Owner (x) is not a Competitor or FOIA Party, unless such party’s purchase of New Securities is otherwise consented to by the Board of Directors, (y) agrees to enter into this Agreement and each of the Amended and Restated Voting Agreement and Amended and Restated Right of First Refusal and Co-Sale Agreement of even date herewith among the Company, the Investors and the other parties named therein, as an “Investor” under each such agreement (provided that any Competitor or FOIA Party shall not be entitled to any rights as a Major Investor under Subsections 3.1, 3.2 and 4.1 hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Major Investor holding the fewest number of Preferred Stock and any other Derivative Securities.
(a)The Company shall give notice (the “Offer Notice”) to each Major Investor, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b)By notification to the Company within [***] after the Offer Notice is given, each Major Investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Major Investor (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Major Investor) bears to the total Common Stock of the Company then held by all the Major Investors (including all shares of Common Stock issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by all the Major Investors). At the expiration of such [***] period, the Company shall promptly notify each Major Investor that elects to purchase or acquire all the shares available to it (each, a “Fully Exercising Investor”) of any other Major Investor’s failure to do likewise. During the [***] period commencing after the Company has given such notice, each Fully Exercising
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Investor may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Major Investors were entitled to subscribe but that were not subscribed for by the Major Investors which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Investor bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Investors who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 4.1(b) shall occur within the later of [***] of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 4.1(c).
(c)If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 4.1(b), the Company may, during the [***] period following the expiration of the periods provided in Subsection 4.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within [***] of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Major Investors in accordance with this Subsection 4.1.
(d)The right of first offer in this Subsection 4.1 shall not be applicable to (i) Exempted Securities (as defined in the Certificate of Incorporation); (ii) shares of Common Stock issued in the IPO and (iii) shares of Series B Preferred Stock issued pursuant to Section 1.4 of the Purchase Agreement.
1.2Termination. The covenants set forth in Subsection 4.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon the closing of a Deemed Liquidation Event, as such term is defined in the Certificate of Incorporation, whichever event occurs first.
5.Additional Covenants.
1.1Insurance. The Company shall continue to maintain Directors and Officers liability insurance in an amount and on terms and conditions satisfactory to the Board of Directors, and will use commercially reasonable efforts to cause such insurance policies to be maintained until such time as the Board of Directors determines that such insurance should be discontinued. The Directors and Officers liability insurance shall not be cancelable by the Company without prior approval by the Board of Directors. Notwithstanding any other provision of this Section 5.1 to the contrary, for so long as [***] is serving on the Board of Directors, the Company shall not cease to maintain a Directors and Officers liability insurance policy in an amount of at least [***] unless approved by [***], and the Company shall annually, within [***] after the end of each fiscal year of the Company, deliver to the holders of Preferred Stock a certification that such a Directors and Officers liability insurance policy remains in effect.
1.2Employee Agreements. The Company will cause each Person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement. In addition, the Company shall not amend, modify, terminate, waive, or otherwise alter, in whole or in part, any
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of the above-referenced agreements or any restricted stock agreement between the Company and any employee, without the consent of the Board of Directors.
1.3Employee Stock. Unless otherwise approved by the Board of Directors, all future employees and consultants of the Company who purchase, receive options to purchase, or receive awards of shares of the Company’s capital stock after the date hereof shall be required to execute restricted stock or option agreements, as applicable, providing for (i) vesting of shares over a [***] period, with the first [***] of such shares vesting following [***] of continued employment or service, and the remaining shares vesting in equal installments every [***] over the following [***], and (ii) a market stand-off provision substantially similar to that in Subsection 2.11. Without the prior approval by the Board of Directors, the Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, any stock purchase, stock restriction or option agreement with any existing employee or service provider if such amendment would cause it to be inconsistent with this Subsection 5.3. In addition, unless otherwise approved by the Board of Directors, the Company shall retain (and not waive) a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock.
1.4Qualified Small Business Stock. The Company shall use commercially reasonable efforts to cause the shares of Series B Preferred Stock issued pursuant to the Purchase Agreement, as well as any shares into which such shares are converted, within the meaning of Section 1202(f) of the Internal Revenue Code (the “Code”), to constitute “qualified small business stock” as defined in Section 1202(c) of the Code; provided, however, that such requirement shall not be applicable if the Board of Directors of the Company determines, in its good-faith business judgment, that such qualification is inconsistent with the best interests of the Company. The Company shall submit to its stockholders (including the Investors) and to the Internal Revenue Service any reports that may be required under Section 1202(d)(1)(C) of the Code and the regulations promulgated thereunder. In addition, within twenty (20) business days after any Investor’s written request therefor, the Company shall, at its option, either (i) deliver to such Investor a written statement indicating whether (and what portion of) such Investor’s interest in the Company constitutes “qualified small business stock” as defined in Section 1202(c) of the Code or (ii) deliver to such Investor such factual information in the Company’s possession as is reasonably necessary to enable such Investor to determine whether (and what portion of) such Investor’s interest in the Company constitutes “qualified small business stock” as defined in Section 1202(c) of the Code.
1.5Board Matters. Unless otherwise determined by the vote of a majority of the directors then in office, the Board of Directors shall meet at least quarterly in accordance with an agreed-upon schedule. The Company shall reimburse all directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board of Directors. The Company shall also maintain a formal scientific advisory board comprised of outside scientists who shall from time to time advise the Board of Directors and Company on matters within their expertise.
1.6Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board of Directors as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, the Certificate of Incorporation, or elsewhere, as the case may be.
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1.7Expenses of Counsel. In the event of a transaction which is a Sale of the Company (as defined in the Amended and Restated Voting Agreement of even date herewith among the Investors, the Company and the other parties named therein), the reasonable fees and disbursements of one counsel for the Major Investors (“Investor Counsel”), in their capacities as stockholders, shall be borne and paid by the Company. Investor Counsel shall be selected by Major Investors possessing a majority of the Registrable Securities held by Major Investors. At the outset of considering a transaction which, if consummated would constitute a Sale of the Company, the Company shall obtain the ability to share with the Investor Counsel (and such counsel’s clients) and shall share the confidential information (including, without limitation, the initial and all subsequent drafts of memoranda of understanding, letters of intent and other transaction documents and related noncompete, employment, consulting and other compensation agreements and plans) pertaining to and memorializing any of the transactions which, individually or when aggregated with others would constitute the Sale of the Company. The Company shall be obligated to share (and cause the Company’s counsel and investment bankers to share) such materials when distributed to the Company’s executives and/or any one or more of the other parties to such transaction(s). In the event that Investor Counsel deems it appropriate, in its reasonable discretion, to enter into a joint defense agreement or other arrangement to enhance the ability of the parties to protect their communications and other reviewed materials under the attorney client privilege, the Company shall, and shall direct its counsel to, execute and deliver to Investor Counsel and its clients such an agreement in form and substance reasonably acceptable to Investor Counsel and the Company’s counsel. In the event that one or more of the other party or parties to such transactions require the clients of Investor Counsel to enter into a confidentiality agreement and/or joint defense agreement in order to receive such information, then the Company shall share whatever information can be shared without entry into such agreement and shall, at the same time, in good faith work expeditiously to enable Investor Counsel and its clients to negotiate and enter into the appropriate agreement(s) without undue burden to the clients of Investor Counsel.
1.8Indemnification Matters. The Company hereby acknowledges that one (1) or more of the directors nominated to serve on the Board of Directors by the Investors (each an “Investor Director”) may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Investors and certain of their Affiliates (collectively, the “Investor Indemnitors”). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Investor Director are primary and any obligation of the Investor Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Investor Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Investor Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Investor Director to the extent legally permitted and as required by the Company’s Certificate of Incorporation or Bylaws of the Company (or any agreement between the Company and such Investor Director), without regard to any rights such Investor Director may have against the Investor Indemnitors, and, (c) that it irrevocably waives, relinquishes and releases the Investor Indemnitors from any and all claims against the Investor Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Investor Indemnitors on behalf of any such Investor Director with respect to any claim for which such Investor Director has sought indemnification from the Company shall affect the foregoing and the Investor Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Investor Director against the Company. The Investor Directors and the Investor Indemnitors are intended third-party beneficiaries of this Subsection 5.9 and shall have the right, power and authority to enforce the provisions of this Subsection 5.9 as though they were a party to this Agreement.
1.9Right to Conduct Activities. [***]
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1.10Harassment Policy. The Company is subject to and shall maintain (i) a Code of Conduct governing appropriate workplace behavior and (ii) an Anti-Harassment and Discrimination Policy prohibiting discrimination and harassment at the Company.
1.11Termination of Covenants. The covenants set forth in this Section 5, except for Subsections 5.7, 5.8, 5.9 and 5.10 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a Deemed Liquidation Event, as such term is defined in the Certificate of Incorporation, whichever event occurs first.
6.Miscellaneous.
1.1Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; or (iii) after such transfer, holds at least [***] shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Subsection 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall, as a condition to the applicable transfer, establish a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
1.2Governing Law. This Agreement shall be governed by the internal law of the State of Delaware, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.
1.3Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
1.4Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
1.5Notices.
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(a)All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 6.5.
(b)Consent to Electronic Notice. Each Investor consents to the delivery of any stockholder notice pursuant to the Delaware General Corporation Law (the “DGCL”), as amended or superseded from time to time, by electronic transmission pursuant to Section 232 of the DGCL (or any successor thereto) at the electronic mail address or the facsimile number as on the books of the Company. To the extent that any notice given by means of electronic transmission is returned or undeliverable for any reason, the foregoing consent shall be deemed to have been revoked until a new or corrected electronic mail address has been provided, and such attempted electronic notice shall be ineffective and deemed to not have been given. Each Investor agrees to promptly notify the Company of any change in such stockholder’s electronic mail address, and that failure to do so shall not affect the foregoing.
1.6Amendments and Waivers. Any term of this Agreement may be amended, modified or terminated and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company and [***]; provided that the Company may in its sole discretion waive compliance with Subsection 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.12(c) shall be deemed to be a waiver); and provided further that any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party. Notwithstanding the foregoing, (a) this Agreement may not be amended, modified or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, modification, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 4 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction), (b) Subsections 3.1 and 3.2, Section 4 and any other section of this Agreement applicable to the Major Investors (including this clause (b) of this Subsection 6.6) may not be amended, modified, terminated or waived without the written consent of the holders of at least a majority of the Registrable Securities then outstanding and held by the Major Investors and (c) the rights of a Relevant Stockholder under Subsection 3.3 may not be amended, modified, terminated or waived without the written consent of the Relevant Stockholder. Notwithstanding the foregoing, Schedule A hereto may be amended by the Company from time to time to add transferees of any Registrable Securities in compliance with the terms of this Agreement without the consent of the other parties; and Schedule A hereto may also be amended by the Company after the date of this Agreement without the consent of the other parties to add information regarding any additional Investor who becomes a party to this Agreement in accordance with Subsection 6.9. The Company shall give prompt notice of any amendment, modification or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, modification, termination, or waiver. Any amendment, modification, termination, or waiver effected in accordance with this Subsection 6.6 shall be binding on all parties hereto,
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regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
1.7Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
1.8Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
1.9Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of Series B Preferred Stock after the date hereof, whether pursuant to the Purchase Agreement or otherwise, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.
1.10Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.
1.11Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL
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NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
1.12Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or non-defaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
1.13No Presumption against Drafter. The parties have participated jointly in negotiating and drafting this agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
SONDE HEALTH, INC.
By: /s/ David Liu
Name: David Liu
Title: Chief Executive Officer
Title: Chief Executive Officer
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
PURETECH HEALTH LLC
By: /s/ Bharatt Chowrira
Name: Bharatt Chowrira
Title: President
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
/s/[***]
[***]
Signature Page to Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
/s/[***]
[***]
[***]
Signature Page to Amended and Restated Investors’ Rights Agreement
Signature Page to Amended and Restated Investors’ Rights Agreement
SCHEDULE A
Investors
[***]
Exhibit 4.17
Execution Version
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
SONDE HEALTH, INC.
Exhibit 4.17
ACTIVEUS 190549392v.8
TABLE OF CONTENTS
Page
i
ACTIVEUS 190549392v.8
Schedule A - Investors
Schedule B - Key Holders
Exhibit A - Consent of Spouse
Schedule B - Key Holders
Exhibit A - Consent of Spouse
ii
ACTIVEUS 190549392v.8
AMENDED AND RESTATED RIGHT OF FIRST REFUSAL
AND CO-SALE AGREEMENT
AND CO-SALE AGREEMENT
THIS AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (this “Agreement”), is made as of the 25th day of May, 2022 by and among Sonde Health, Inc., a Delaware corporation (the “Company”), the Investors (as defined below) listed on Schedule A and the Key Holders (as defined below) listed on Schedule B.
WHEREAS, each Key Holder is the beneficial owner of the number of shares of Capital Stock (which may be subject to vesting), or of options to purchase Common Stock, set forth opposite the name of such Key Holder on Schedule B;
WHEREAS, the Company, the Key Holders and certain Investors (the “Existing Investors”) previously entered into a Right of First Refusal and Co-Sale Agreement, dated April 9, 2019 (the “Prior Agreement”), in connection with the purchase of shares of Series A-2 Preferred Stock of the Company, par value $0.0001 per share (the “Series A-2 Preferred Stock”);
WHEREAS, the Key Holders, the Existing Investors and the Company desire to induce certain of the Investors to purchase shares of Series B Preferred Stock of the Company, par value $0.0001 per share (“Series B Preferred Stock”), pursuant to that certain Series B Preferred Stock Purchase Agreement dated as of the date hereof by and among the Company and such Investors, as amended from time to time (the “Purchase Agreement”) by amending and restating the Prior Agreement in its entirety to provide the Investors with the rights and privileges as set forth herein.
NOW, THEREFORE, the Company, the Key Holders, and the Investors, including certain of the Existing Investors each hereby agree that the Prior Agreement is hereby amended and restated in its entirety by this Agreement, and the parties hereto further agree as follows:
1.Definitions.
1.1“Affiliate” means, with respect to any specified Investor, any other Investor who directly or indirectly, controls, is controlled by or is under common control with such Investor, including, without limitation, any general partner, managing member, officer, director or trustee of such Investor, or any venture capital fund or registered investment company now or hereafter existing which is controlled by one or more general partners, managing members or investment advisers of, or shares the same management company or investment adviser with, such Investor.
1.2“Board of Directors” means the board of directors of the Company.
1.3“Capital Stock” means (a) shares of Common Stock and Preferred Stock (whether now outstanding or hereafter issued in any context), (b) shares of Common Stock issued or issuable upon conversion of Preferred Stock, and (c) shares of Common Stock issued or issuable upon exercise or conversion, as applicable, of stock options, warrants or other convertible securities of the Company, in each case now owned or subsequently acquired by any Key Holder, any Investor, or their respective successors or permitted transferees or assigns. For purposes of the number of shares of Capital Stock held by an Investor or Key Holder (or any other calculation based thereon), all shares of Preferred Stock shall be deemed to have been converted into Common Stock at the then-applicable conversion ratio.
1.4“Change of Control” means a transaction or series of related transactions in which a person, or a group of related persons, acquires from stockholders of the Company
shares representing more than fifty percent (50%) of the outstanding voting power of the Company.
1.5“Common Stock” means shares of Common Stock of the Company, par value $0.0001 per share.
1.6“Deemed Liquidation Event” shall have the meaning ascribed to such term in the Restated Certificate.
1.7“Investors” means the persons named on Schedule A hereto, each person to whom the rights of an Investor are assigned pursuant to Subsection 6.9, each person who hereafter becomes a signatory to this Agreement pursuant to Subsection 6.11 and any one of them, as the context may require.
1.8“Key Holders” means the persons named on Schedule B hereto, each person to whom the rights of a Key Holder are assigned pursuant to Subsection 3.1, each person who hereafter becomes a signatory to this Agreement pursuant to Subsection 6.9 or 6.17 and any one of them, as the context may require.
1.9“Preferred Stock” means collectively, all shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series B Preferred Stock.
1.10“Proposed Key Holder Transfer” means any assignment, sale, offer to sell, pledge, mortgage, hypothecation, encumbrance, disposition of or any other like transfer or encumbering of any Transfer Stock (or any interest therein) proposed by any of the Key Holders.
1.11“Proposed Transfer Notice” means written notice from a Key Holder setting forth the terms and conditions of a Proposed Key Holder Transfer.
1.12“Prospective Transferee” means any person to whom a Key Holder proposes to make a Proposed Key Holder Transfer.
1.13“Restated Certificate” means the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.
1.14“Right of Co-Sale” means the right, but not an obligation, of an Investor to participate in a Proposed Key Holder Transfer on the terms and conditions specified in the Proposed Transfer Notice.
1.15“Right of First Refusal” means the right, but not an obligation, of each Investor, to purchase up to its pro rata portion (based upon the total number of shares of Capital Stock then held by all Investors) of the Transfer Stock with respect to a Proposed Key Holder Transfer, on the terms and conditions specified in the Proposed Transfer Notice.
1.16“Secondary Refusal Right” means the right, but not an obligation, of the Company to purchase any Transfer Stock not purchased pursuant to the Right of First Refusal on the terms and conditions specified in the Proposed Transfer Notice.
1.17“Series A-1 Preferred Stock” means the Series A-1 Preferred Stock of the Company, par value $0.0001 per share.
1.18“Transfer Stock” means shares of Capital Stock owned by a Key Holder, or issued to a Key Holder after the date hereof (including, without limitation, in connection with any stock split, stock dividend, recapitalization, reorganization, or the like), but does not include
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any shares of Preferred Stock or of Common Stock that are issued or issuable upon conversion of Preferred Stock.
2.Agreement Among the Company, the Investors and the Key Holders.
1.1Right of First Refusal.
(a)Grant. Subject to the terms of Section 3 below, each Key Holder hereby unconditionally and irrevocably grants to the Investors a Right of First Refusal to purchase all or any portion of Transfer Stock that such Key Holder may propose to transfer in a Proposed Key Holder Transfer, at the same price and on the same terms and conditions as those offered to the Prospective Transferee.
(b)Notice. Each Key Holder proposing to make a Proposed Key Holder Transfer must deliver a Proposed Transfer Notice to the Company and each Investor not later than [***] prior to the consummation of such Proposed Key Holder Transfer. Such Proposed Transfer Notice shall contain the material terms and conditions (including price and form of consideration) of the Proposed Key Holder Transfer, a statement including the name and, if different, the ultimate beneficial owner of the Prospective Transferee, and the intended date of the Proposed Key Holder Transfer. To exercise its Right of First Refusal under this Section 2, an Investor must deliver notice to the selling Key Holder and the Company within [***] after delivery of the Proposed Transfer Notice (the “Notice Period”) specifying the number of shares of Transfer Stock to be purchased by said Investor. In the event of a conflict between this Agreement and any other agreement that may have been entered into by a Key Holder with the Company that contains a preexisting right of first refusal, the Company and the Key Holder acknowledge and agree that the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with Subsection 2.1(a) and this Subsection 2.1(b).
(c)Undersubscription of Transfer Stock. If options to purchase have been exercised by the Investors pursuant to Subsection 2.1(b) with respect to some but not all of the Transfer Stock by the end of the Notice Period, then the Company shall, within [***] after the expiration of the Notice Period, send written notice to those Investors who fully exercised their Right of First Refusal within the initial Notice Period (the “Exercising Investors”). Each Exercising Investor shall, subject to the provisions of this Subsection 2.1(c), have an additional option to purchase all or any part of the balance of any such remaining unsubscribed shares of Transfer Stock on the terms and conditions set forth in the Proposed Transfer Notice. To exercise such option, an Exercising Investor must deliver notice to the selling Key Holder and the Company within [***] after the expiration of the Notice Period (the “Undersubscription Notice Period”). In the event there are [***] or more such Exercising Investors that choose to exercise the last-mentioned option for a total number of remaining shares in excess of the number available, the remaining shares available for purchase under this Subsection 2.1(c) shall be allocated to such Exercising Investors pro rata based on the number of shares of Capital Stock such Exercising Investors hold. If the options to purchase the remaining shares are exercised in full by the Exercising Investors, the Company shall immediately notify all of the Exercising Investors and the selling Key Holder of that fact.
(d)Grant of Secondary Refusal Right to Company. Subject to the terms of Section 3 below, each Key Holder hereby unconditionally and irrevocably grants to the Company a Secondary Refusal Right to purchase all or any portion of the Transfer Stock not purchased by the Investors pursuant to the Right of First Refusal pursuant to Subsections 2.1(b) and 2.1(c), as provided in this Subsection 2.1(d). To exercise its Secondary Refusal Right, the Company must deliver a notice to the selling Key Holder within [***] after the expiration of the Undersubscription Notice Period (the “Secondary Exercise Deadline”). In the event of a
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conflict between this Agreement and any other agreement that may have been entered into by a Key Holder with the Company that contains a preexisting right of first refusal, the Company and the Key Holder acknowledge and agree that the terms of this Agreement shall control and the preexisting right of first refusal shall be deemed satisfied by compliance with Subsection 2.1(a), Subsection 2.1(b), Subsection 2.1(c), and this Subsection 2.1(d).
(e)Consideration; Closing. If the consideration proposed to be paid for the Transfer Stock is in property, services or other non-cash consideration, the fair market value of the consideration shall be as determined in good faith by the Board of Directors. If the Company or any Investor cannot for any reason pay for the Transfer Stock in the same form of non-cash consideration, the Company or such Investor may pay the cash value equivalent thereof, as determined in good faith by the Board of Directors and as set forth in the Proposed Transfer Notice. The closing of the purchase of Transfer Stock by the Company and the Investors shall take place, and all payments from the Company and the Investors shall have been delivered to the selling Key Holder, by the later of (i) the date specified in the Proposed Transfer Notice as the intended date of the Proposed Key Holder Transfer; and (ii) [***] after delivery of the Proposed Transfer Notice.
1.2Right of Co-Sale.
(a)Exercise of Right. If any Transfer Stock subject to a Proposed Key Holder Transfer is not purchased pursuant to Subsection 2.1 above and thereafter is to be sold to a Prospective Transferee, each respective Investor may elect to exercise its Right of Co-Sale and participate on a pro rata basis in the Proposed Key Holder Transfer as set forth in Subsection 2.2(b) below and, subject to Subsection 2.2(d), otherwise on the same terms and conditions specified in the Proposed Transfer Notice. Each Investor who desires to exercise its Right of Co-Sale (each, a “Participating Investor”) must give the selling Key Holder written notice to that effect within [***] after the delivery of the Secondary Exercise Deadline described above, and upon giving such notice such Participating Investor shall be deemed to have effectively exercised the Right of Co-Sale.
(b)Shares Includable. Each Participating Investor may include in the Proposed Key Holder Transfer all or any part of such Participating Investor’s Capital Stock equal to the product obtained by multiplying (i) the aggregate number of shares of Transfer Stock subject to the Proposed Key Holder Transfer (excluding shares purchased by the Company or the Participating Investors pursuant to the Right of First Refusal or Secondary Refusal Right) by (ii) a fraction, the numerator of which is the number of shares of Capital Stock owned by such Participating Investor immediately before consummation of the Proposed Key Holder Transfer (including any shares that such Participating Investor has agreed to purchase pursuant to the Right of First Refusal) and the denominator of which is the total number of shares of Capital Stock owned, in the aggregate, by all Participating Investors immediately prior to the consummation of the Proposed Key Holder Transfer (including any shares that all Participating Investors have collectively agreed to purchase pursuant to the Right of First Refusal), plus the number of shares of Transfer Stock held by the selling Key Holder. To the extent one (1) or more of the Participating Investors exercise such right of participation in accordance with the terms and conditions set forth herein, the number of shares of Transfer Stock that the selling Key Holder may sell in the Proposed Key Holder Transfer shall be correspondingly reduced.
(c)Purchase and Sale Agreement. The Participating Investors and the selling Key Holder agree that the terms and conditions of any Proposed Key Holder Transfer in accordance with this Subsection 2.2 will be memorialized in, and governed by, a written purchase and sale agreement with the Prospective Transferee (the “Purchase and Sale Agreement”) with customary terms and provisions for such a transaction, and the Participating Investors and the selling Key Holder further covenant and agree to enter into such Purchase and
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Sale Agreement as a condition precedent to any sale or other transfer in accordance with this Subsection 2.2.
(d)Allocation of Consideration.
(i)Subject to Subsection 2.2(d)(ii), the aggregate consideration payable to the Participating Investors and the selling Key Holder shall be allocated based on the number of shares of Capital Stock sold to the Prospective Transferee by each Participating Investor and the selling Key Holder as provided in Subsection 2.2(b), provided that if a Participating Investor wishes to sell Preferred Stock, the price set forth in the Proposed Transfer Notice shall be appropriately adjusted based on the conversion ratio of the Preferred Stock into Common Stock.
(ii)In the event that the Proposed Key Holder Transfer constitutes a Change of Control, the terms of the Purchase and Sale Agreement shall provide that the aggregate consideration from such transfer shall be allocated to the Participating Investors and the selling Key Holder in accordance with Sections 2.1 and 2.2 of Article IV(B) of the Restated Certificate as if (A) such transfer were a Deemed Liquidation Event and (B) the Capital Stock sold in accordance with the Purchase and Sale Agreement were the only Capital Stock outstanding. In the event that a portion of the aggregate consideration payable to the Participating Investor(s) and selling Key Holder is placed into escrow and/or is payable only upon satisfaction of contingencies, the Purchase and Sale Agreement shall provide that (x) the portion of such consideration that is not placed in escrow and is not subject to contingencies (the “Initial Consideration”) shall be allocated in accordance with Sections 2.1 and 2.2 of Article IV(B) of the Restated Certificate as if the Initial Consideration were the only consideration payable in connection with such transfer, and (y) any additional consideration which becomes payable to the Participating Investor(s) and selling Key Holder upon release from escrow or satisfaction of such contingencies shall be allocated in accordance with Sections 2.1 and 2.2 of Article IV(B) of the Restated Certificate after taking into account the previous payment of the Initial Consideration as part of the same transfer.
(e)Purchase by Selling Key Holder; Deliveries. Notwithstanding Subsection 2.2(c) above, if any Prospective Transferee(s) refuse(s) to purchase securities subject to the Right of Co-Sale from any Participating Investor or Investors or upon the failure to negotiate in good faith a Purchase and Sale Agreement reasonably satisfactory to the Participating Investors, no Key Holder may sell any Transfer Stock to such Prospective Transferee(s) unless and until, simultaneously with such sale, such Key Holder purchases all securities subject to the Right of Co-Sale from such Participating Investor or Investors on the same terms and conditions (including the proposed purchase price) as set forth in the Proposed Transfer Notice and as provided in Subsection 2.2(d)(i); provided, however, if such sale constitutes a Change of Control, the portion of the aggregate consideration paid by the selling Key Holder to such Participating Investor or Investors shall be made in accordance with the first sentence of Subsection 2.2(d)(ii). In connection with such purchase by the selling Key Holder, such Participating Investor or Investors shall deliver to the selling Key Holder any stock certificate or certificates, properly endorsed for transfer, representing the Capital Stock being purchased by the selling Key Holder (or request that the Company effect such transfer in the name of the selling Key Holder). Any such shares transferred to the selling Key Holder will be transferred to the Prospective Transferee against payment therefor in consummation of the sale of the Transfer Stock pursuant to the terms and conditions specified in the Proposed Transfer Notice, and the selling Key Holder shall concurrently therewith remit or direct payment to each such Participating Investor the portion of the aggregate consideration to which each such Participating Investor is entitled by reason of its participation in such sale as provided in this Subsection 2.2(e).
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(f)Additional Compliance. If any Proposed Key Holder Transfer is not consummated within [***] after receipt of the Proposed Transfer Notice by the Company, the Key Holders proposing the Proposed Key Holder Transfer may not sell any Transfer Stock unless they first comply in full with each provision of this Section 2. The exercise or election not to exercise any right by any Investor hereunder shall not adversely affect its right to participate in any other sales of Transfer Stock subject to this Subsection 2.2.
1.3Effect of Failure to Comply.
(a)Transfer Void; Equitable Relief. Any Proposed Key Holder Transfer not made in compliance with the requirements of this Agreement shall be null and void ab initio, shall not be recorded on the books of the Company or its transfer agent and shall not be recognized by the Company. Each party hereto acknowledges and agrees that any breach of this Agreement would result in substantial harm to the other parties hereto for which monetary damages alone could not adequately compensate. Therefore, the parties hereto unconditionally and irrevocably agree that any non-breaching party hereto shall be entitled to seek protective orders, injunctive relief and other remedies available at law or in equity (including, without limitation, seeking specific performance or the rescission of purchases, sales and other transfers of Transfer Stock not made in strict compliance with this Agreement).
(b)Violation of First Refusal Right. If any Key Holder becomes obligated to sell any Transfer Stock to the Company or any Investor under this Agreement and fails to deliver such Transfer Stock in accordance with the terms of this Agreement, the Company and/or such Investor may, at its option, in addition to all other remedies it may have, send to such Key Holder the purchase price for such Transfer Stock as is herein specified and transfer to the name of the Company or such Investor (or request that the Company effect such transfer in the name of an Investor) on the Company’s books any certificates, instruments, or book entry representing the Transfer Stock to be sold.
(c)Violation of Co-Sale Right. If any Key Holder purports to sell any Transfer Stock in contravention of the Right of Co-Sale (a “Prohibited Transfer”), each Participating Investor who desires to exercise its Right of Co-Sale under Subsection 2.2 may, in addition to such remedies as may be available by law, in equity or hereunder, require such Key Holder to purchase from such Participating Investor the type and number of shares of Capital Stock that such Participating Investor would have been entitled to sell to the Prospective Transferee had the Prohibited Transfer been effected in compliance with the terms of Subsection 2.2. The sale will be made on the same terms, including, without limitation, as provided in Subsection 2.2(d)(i) and the first sentence of Subsection 2.2(d)(ii), as applicable, and subject to the same conditions as would have applied had the Key Holder not made the Prohibited Transfer, except that the sale (including, without limitation, the delivery of the purchase price) must be made within [***] after the Participating Investor learns of the Prohibited Transfer, as opposed to the timeframe proscribed in Subsection 2.2. Such Key Holder shall also reimburse each Participating Investor for any and all reasonable and documented out-of-pocket fees and expenses, including reasonable legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Participating Investor’s rights under Subsection 2.2.
3.Exempt Transfers.
1.1Exempted Transfers. Notwithstanding the foregoing or anything to the contrary herein, the provisions of Subsections 2.1 and 2.2 shall not apply (a) in the case of a Key Holder that is an entity, upon a transfer by such Key Holder to its stockholders, members, partners or other equity holders, (b) to a repurchase of Transfer Stock from a Key Holder by the Company at a price no greater than that originally paid by such Key Holder for such Transfer Stock and pursuant to an agreement containing vesting and/or repurchase provisions approved by
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a majority of the Board of Directors, or (c) in the case of a Key Holder that is a natural person, upon a transfer of Transfer Stock by such Key Holder made for bona fide estate planning purposes, either during his or her lifetime or on death by will or intestacy to his or her spouse, including any life partner or similar statutorily-recognized domestic partner, child (natural or adopted), or any other direct lineal descendant of such Key Holder (or his or her spouse, including any life partner or similar statutorily-recognized domestic partner) (all of the foregoing collectively referred to as “family members”), or any other relative/person approved by the Board of Directors, or any custodian or trustee of any trust, partnership or limited liability company for the benefit of, or the ownership interests of which are owned wholly by such Key Holder or any such family members; provided that in the case of clause(s) (a), or (c), the Key Holder shall deliver prior written notice to the Investors of such pledge, gift or transfer and such shares of Transfer Stock shall at all times remain subject to the terms and restrictions set forth in this Agreement and such transferee shall, as a condition to such issuance, deliver a counterpart signature page to this Agreement as confirmation that such transferee shall be bound by all the terms and conditions of this Agreement as a Key Holder (but only with respect to the securities so transferred to the transferee), including the obligations of a Key Holder with respect to Proposed Key Holder Transfers of such Transfer Stock pursuant to Section 2.
1.2Exempted Offerings. Notwithstanding the foregoing or anything to the contrary herein, the provisions of Section 2 shall not apply to the sale of any Transfer Stock (a) to the public in an offering pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (b) pursuant to a Deemed Liquidation Event.
1.3Prohibited Transferees. Notwithstanding the foregoing, no Key Holder shall transfer any Transfer Stock to (a) any entity which, in the determination of the Board of Directors, directly or indirectly competes with the Company; or (b) any customer, distributor or supplier of the Company, if the Board of Directors should determine that such transfer would result in such customer, distributor or supplier receiving information that would place the Company at a competitive disadvantage with respect to such customer, distributor or supplier.
4.Legend. Each certificate, instrument, or book entry representing shares of Transfer Stock held by the Key Holders or issued to any permitted transferee in connection with a transfer permitted by Subsection 3.1 hereof shall be notated with the following legend:
THE SALE, PLEDGE, HYPOTHECATION, OR TRANSFER OF THE SECURITIES REPRESENTED HEREBY IS SUBJECT TO, AND IN CERTAIN CASES PROHIBITED BY, THE TERMS AND CONDITIONS OF A CERTAIN RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT BY AND AMONG THE STOCKHOLDER, THE CORPORATION AND CERTAIN OTHER HOLDERS OF STOCK OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
Each Key Holder agrees that the Company may instruct its transfer agent to impose transfer restrictions on the shares notated with the legend referred to in this Section 4 above to enforce the provisions of this Agreement, and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement at the request of the holder.
5.Lock-Up.
1.1Agreement to Lock-Up. Each Key Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s initial public offering (the “IPO”) and ending on the date specified by the Company and the managing underwriter (such period not to
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exceed [***]) or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (1) the publication or other distribution of research reports; and (2) analyst recommendations and opinions, including, but not limited to, the restrictions contained in applicable FINRA rules, or any successor provisions or amendments thereto), (a) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Capital Stock held immediately prior to the effectiveness of the registration statement for the IPO; or (b) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Capital Stock, whether any such transaction described in clause (a) or (b) above is to be settled by delivery of Capital Stock or other securities, in cash or otherwise. [***]. The underwriters in connection with the IPO are intended third-party beneficiaries of this Section 5 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Key Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the IPO that are consistent with this Section 5 or that are necessary to give further effect thereto.
1.2Stop Transfer Instructions. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the shares of Capital Stock of each Key Holder (and transferees and assignees thereof) until the end of such restricted period.
6.Miscellaneous.
1.1Term. This Agreement shall automatically terminate upon the earlier of [***].
1.2Stock Split. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization affecting the Capital Stock occurring after the date of this Agreement.
1.3Ownership. Each Key Holder represents and warrants that such Key Holder is the sole legal and beneficial owner of the shares of Transfer Stock subject to this Agreement and that no other person or entity has any interest in such shares (other than a community property interest as to which the holder thereof has acknowledged and agreed in writing to the restrictions and obligations hereunder).
1.4Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state and federal courts located in Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state and federal courts located in Delaware and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
WAIVER OF JURY TRIAL: EACH PARTY HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS, THE SECURITIES OR THE SUBJECT MATTER HEREOF OR THEREOF. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
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TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS (INCLUDING NEGLIGENCE), BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS WILL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
1.5Notices.
(a)All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their address as set forth on Schedule A or Schedule B hereof, as the case may be, or to such email address, facsimile number or address as subsequently modified by written notice given in accordance with this Section 6.5. If notice is given to the Company, it shall be sent to [***].
(b)Consent to Electronic Notice. Each Investor and Key Holder consents to the delivery of any stockholder notice pursuant to the Delaware General Corporation Law (the “DGCL”), as amended or superseded from time to time, by electronic transmission pursuant to Section 232 of the DGCL (or any successor thereto) at the electronic mail address or the facsimile number as on the books of the Company. To the extent that any notice given by means of electronic transmission is returned or undeliverable for any reason, the foregoing consent shall be deemed to have been revoked until a new or corrected electronic mail address has been provided, and such attempted electronic notice shall be ineffective and deemed to not have been given. Each Investor and Key Holder agrees to promptly notify the Company of any change in its electronic mail address, and that failure to do so shall not affect the foregoing.
1.6Entire Agreement. This Agreement (including, the Exhibits and Schedules hereto) constitutes the full and entire understanding and agreement between the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties are expressly canceled. Upon the effectiveness of this Agreement, the Prior Agreement shall be deemed amended and restated and superseded and replaced in its entirety by this Agreement, and shall be of no further force or effect.
1.7Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either
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under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
1.8Amendment; Waiver and Termination. This Agreement may be amended, modified or terminated (other than pursuant to Section 6.1 above) and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument executed by (a) the Company, (b) the Key Holders holding [***] and (c) [***]. Any amendment, modification, termination or waiver so effected shall be binding upon the Company, the Investors, the Key Holders and all of their respective successors and permitted assigns whether or not such party, assignee or other shareholder entered into or approved such amendment, modification, termination or waiver. Notwithstanding the foregoing, (i) this Agreement may not be amended, modified or terminated and the observance of any term hereunder may not be waived with respect to any Investor or Key Holder without the written consent of such Investor or Key Holder unless such amendment, modification, termination or waiver applies to all Investors and Key Holders, respectively, in the same fashion, (ii) this Agreement may not be amended, modified or terminated and the observance of any term hereunder may not be waived with respect to any Investor without the written consent of such Investor, if such amendment, modification, termination or waiver would adversely affect the rights of such Investor in a manner disproportionate to any adverse effect such amendment, modification, termination or waiver would have on the rights of the other Investors under this Agreement, (iii) the consent of the Key Holders shall not be required for any amendment, modification, termination or waiver if such amendment, modification, termination or waiver does not apply to the Key Holders, and (iv) Schedule A hereto may be amended by the Company from time to time in accordance with the Purchase Agreement to add information regarding Additional Purchasers (as defined in the Purchase Agreement) without the consent of the other parties hereto. The Company shall give prompt written notice of any amendment, modification or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, modification, termination or waiver. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
1.9Assignment of Rights.
(a)The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
(b)Any successor or permitted assignee of any Key Holder, including any Prospective Transferee who purchases shares of Transfer Stock in accordance with the terms hereof, shall deliver to the Company and the Investors, as a condition to any transfer or assignment, a counterpart signature page hereto pursuant to which such successor or permitted assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the predecessor or assignor of such successor or permitted assignee.
(c)The rights of the Investors hereunder are not assignable without the Company’s written consent (which shall not be unreasonably withheld, delayed or conditioned), except (i) by an Investor to any Affiliate, or (ii) to an assignee or transferee who acquires at least 1,000,000 shares of Capital Stock (as adjusted for any stock combination, stock split, stock dividend, recapitalization or other similar transaction), it being acknowledged and agreed that any such assignment, including an assignment contemplated by the preceding clauses (i) or (ii)
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shall be subject to and conditioned upon any such assignee’s delivery to the Company and the other Investors of a counterpart signature page hereto pursuant to which such assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the assignor of such assignee.
(d)Except in connection with an assignment by the Company by operation of law to the acquirer of the Company, the rights and obligations of the Company hereunder may not be assigned under any circumstances.
1.10Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision.
1.11Additional Investors. Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Series B Preferred Stock after the date hereof, any purchaser of such shares of Series B Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement and thereafter shall be deemed an “Investor” for all purposes hereunder.
1.12Governing Law. This Agreement shall be governed by the internal law of the State of Delaware, without regard to conflict of law principles that would result in the application of any law other than the law of the State of Delaware.
1.13Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
1.14Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
1.15Aggregation of Stock. All shares of Capital Stock held or acquired by Affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate.
1.16Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Investor shall be entitled to specific performance of the agreements and obligations of the Company and the Key Holders hereunder and to such other injunction or other equitable relief as may be granted by a court of competent jurisdiction.
1.17Additional Key Holders. In the event that after the date of this Agreement, the Company issues shares of Common Stock, or options to purchase Common Stock, to any employee or consultant, which shares or options would collectively constitute with respect to such employee or consultant (taking into account all shares of Common Stock, options and other purchase rights held by such employee or consultant) [***] or more of the Company’s then outstanding Common Stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted), the Company shall, as a condition to such issuance, cause such employee or consultant to execute a counterpart signature page hereto as a Key Holder, and such
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person shall thereby be bound by, and subject to, all the terms and provisions of this Agreement applicable to a Key Holder.
1.18Consent of Spouse. If any Key Holder is a natural person married on the date of this Agreement, such Key Holder’s spouse shall execute and deliver to the Company a Consent of Spouse in the form of Exhibit A hereto (“Consent of Spouse”), effective on the date hereof. Notwithstanding the execution and delivery thereof, such consent shall not be deemed to confer or convey to the spouse any rights in such Key Holder’s shares of Transfer Stock that do not otherwise exist by operation of law or the agreement of the parties. If any Key Holder should marry or remarry subsequent to the date of this Agreement, such Key Holder shall within thirty (30) days thereafter obtain his/her new spouse’s acknowledgement of and consent to the existence and binding effect of all restrictions contained in this Agreement by causing such spouse to execute and deliver a Consent of Spouse acknowledging the restrictions and obligations contained in this Agreement and agreeing and consenting to the same.
1.19No Presumption against Drafter. The parties have participated jointly in negotiating and drafting this agreement. In the event that an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
[Signature Pages Follow; Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
SONDE HEALTH, INC.
By: /s/ David Liu
Name: David Liu
Title: Chief Executive Officer
KEY HOLDERS:
Signature: /s/[***]
Name: [***]
Signature: /s/[***]_______________________
Name: [***]
Signature: /s/[***]
Name: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
PURETECH HEALTH LLC
By: /s/ Bharatt Chowrira
Name: Bharatt Chowrira
Title: President
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
[***]
By: [***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/[***]
Name: [***]
Title: [***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
/s/[***]
[***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Right of First Refusal and Co-Sale Agreement as of the date first written above.
INVESTORS:
/s/[***]
[***]
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
Signature Page To Amended and Restated Right Of First Refusal And Co-Sale Agreement
SCHEDULE A
INVESTORS
INVESTORS
| [***] | ||
SCHEDULE B
KEY HOLDERS
KEY HOLDERS
[***]
EXHIBIT A
CONSENT OF SPOUSE
CONSENT OF SPOUSE
I, [_______________________], spouse of [_____________], acknowledge that I have read the Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of May [●], 2022, to which this Consent is attached as Exhibit A (the “Agreement”), and that I know the contents of the Agreement. I am aware that the Agreement contains provisions regarding certain rights to certain other holders of Capital Stock of the Company upon a Proposed Key Holder Transfer of shares of Transfer Stock of the Company which my spouse may own including any interest I might have therein.
I hereby agree that my interest, if any, in any shares of Transfer Stock of the Company subject to the Agreement shall be irrevocably bound by the Agreement and further understand and agree that any community property interest I may have in such shares of Transfer Stock of the Company shall be similarly bound by the Agreement.
I am aware that the legal, financial and related matters contained in the Agreement are complex and that I am free to seek independent professional guidance or counsel with respect to this Consent. I have either sought such guidance or counsel or determined after reviewing the Agreement carefully that I will waive such right.
Dated as of the [__] day of [____________, ______].
Signature
Print Name
Exhibit 4.23
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
EXECUTION VERSION
AKILI INTERACTIVE LABS, INC.
THIRD AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is made as of the 25th day of May, 2021, by and among Akili Interactive Labs, Inc., a Delaware corporation (the “Company”), the holders of the Company’s Series A-1 Preferred Stock, par value $0.0001 per share (the “Series A-1 Preferred Stock”), the holders of the Company’s Series A-2 Preferred Stock, par value $0.0001 per share (the “Series A-2 Preferred Stock”), the holders of the Company’s Series B Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock”), the holders of the Company’s Series C Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”), the holders of the Company’s Series D Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”, and together with the Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the “Preferred Stock”), listed on Schedule A hereto (the “Investors”) and the holders of the Company’s Common Stock, par value $0.0001 per share (the “Common Stock”), or options to purchase Common Stock, listed on the Schedule of Key Holders attached as Schedule B hereto (the “Key Holders”). The Investors and the Key Holders are individually referred to herein as a “Stockholder” and are collectively referred to herein as the “Stockholders” (and, together with the Company, the “Parties”).
RECITALS
WHEREAS, certain of the Investors (the “Existing Investors”) hold shares of the Company’s Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or shares of Common Stock issued upon conversion thereof and possess registration rights, information rights, rights of first offer and other rights pursuant to that certain Amended and Restated Investors’ Rights Agreement dated [***] by and among the Company, certain holders of Common Stock and such Existing Investors (the “Prior Agreement”);
WHEREAS, the Prior Agreement may be amended, and any provision therein waived, with the consent of the Company and the holders of [***] of the outstanding Preferred Stock (as such term is defined in the Prior Agreement);
WHEREAS, the Existing Investors as holders of [***] of the outstanding Preferred Stock (as such term is defined in the Prior Agreement) of the Company desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; and
WHEREAS, certain Investors are parties to that certain Series D Preferred Stock Purchase Agreement of even date herewith by and among the Company and certain of the
Investors (the “Series D Agreement”), which provides that as a condition to the closing of the sale of the Series D Preferred Stock, this Agreement must be executed and delivered by such Investors, Existing Investors holding [***] of the outstanding Preferred Stock (as such term is defined in the Prior Agreement) of the Company, and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company and the Existing Investors hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:
1.Definitions. For purposes of this Agreement:
1.1The term “1934 Act” means the Securities Exchange Act of 1934, as amended.
1.2The term “Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
1.3The term “Affiliate” means, (i) with respect to any specified Person, any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, including, without limitation, any general partner, officer, director, member, manager or stockholder of such Person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or is under common investment management with, such Person, in each case where the term “control” means ownership of at least 50% of the voting securities of an entity [***].
1.4The term “Board” means the Company’s Board of Directors, as constituted from time to time.
1.5The term “Form S-3” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.
1.6The term “Free Writing Prospectus” means a free-writing prospectus, as defined in Rule 405.
1.7The term “Holder” means any Person owning Registrable Securities who is a party to this Agreement.
1.8The term “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.
1.9The term “Person” shall mean any individual, corporation, partnership, trust, limited liability company, association or other entity.
1.10The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.
1.11The term “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) above or any other Common Stock held by a holder of Preferred Stock, excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which such Person’s rights under Section 2 of this Agreement are not assigned. In addition, the number of shares of Registrable Securities outstanding shall equal the aggregate of the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.
1.12The term “Restated Certificate” means the Company’s Amended and Restated Certificate of Incorporation, as amended from time to time.
1.13The term “Rule 144” shall mean Rule 144 under the Act.
1.14The term “Rule 144(b)(1)(i)” shall mean subsection (b)(1)(i) of Rule 144 under the Act as it applies to Persons who have held shares for more than one (1) year.
1.15The term “Rule 405” shall mean Rule 405 under the Act.
1.16The term “SEC” shall mean the Securities and Exchange Commission.
1.17The term “Shares” shall mean any shares of, or securities convertible into or exchangeable or exercisable for any shares of, the Company’s capital stock.
2.Registration Rights.
2.1Request for Registration.
(a)Subject to the conditions of this Section 2.1, if the Company shall receive at any time after the earlier of (i) [***] of the date of this Agreement; or (ii) [***] following the effective date of the Initial Offering, a written request from any Holders of the Registrable Securities (for purposes of this Section 2.1, the “Initiating Holders”), including Neuberger or Temasek for clause (i), that the Company file two (2) registration statements under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least [***], then the Company shall, within [***] of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 2.1, use its commercially reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within [***] of the mailing of the Company’s notice pursuant to this Section 2.1(a).
(b)If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.1, and the Company shall include such information in the written notice referred to in Section 2.1(a). In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by [***] of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to those Initiating Holders holding [***] of the Registrable Securities then held by all Initiating Holders).
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Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Company that marketing factors require a limitation on the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities pro rata based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). In no event shall any Registrable Securities be excluded from such underwriting unless all other securities are first excluded. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.
(c)Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 2.1:
(i)in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or
(ii)after the Company has effected [***] registrations pursuant to this Section 2.1, and such registrations have been declared or ordered effective; or
(iii)during the period starting with the date [***] prior to the Company’s good faith estimate of the date of the filing of and ending on a date [***] following the effective date of a Company initiated registration subject to Section 2.2 below, provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective; or
(iv)if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 2.3 hereof; or
(v)if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than [***] after receipt of the request of the Initiating Holders; provided that such right shall be exercised by the Company not more than [once] in any [***] period.
2.2Company Registration.
(a)If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than (i) a registration relating to a demand pursuant to Section 2.1 of this Agreement, (ii) a registration relating solely to the sale of securities of participants in a Company stock plan, (iii) a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, (iv) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or (v) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within [***] after mailing of such notice by the Company in accordance with Section 5.5 of this
Agreement, the Company shall, subject to the provisions of Section 2.2(c) of this Agreement, use its commercially reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder requests to be registered.
(b)Right to Terminate Registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 2.2 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 2.6 hereof.
(c)Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 2.2 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company (or by other Persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with such underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering. In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall any Registrable Securities be excluded from such offering unless all other stockholders’ securities have been first excluded from the offering. For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, members, retired partners and stockholders of such Holder, or the estates and family members of any such partners, members and retired partners and any trusts for the benefit of any of the foregoing Persons, or any Person who shares an investment advisor with the Holder, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.
2.3Form S-3 Registration. In case the Company shall receive from any Holders of the Registrable Securities (for purposes of this Section 2.3, the “S-3 Initiating Holders”) a written request or requests that the Company effect a registration on Form S-3 covering the registration of Registrable Securities with an anticipated aggregate offering price of at least [***] and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:
(a)promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and
(b)use its commercially reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written
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request given within [***] after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 2.3:
(i)if Form S-3 is not available for such offering by the Holders;
(ii)if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than [***];
(iii)if the Company shall furnish to all Holders requesting a registration statement pursuant to this Section 2.3 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than [***] after receipt of the request of the S-3 Initiating Holders; provided that such right shall be exercised by the Company not more than [***] in any [***] period;
(iv)in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance;
(v)if the Company, within [***] of receipt of the request of such S-3 Initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the SEC within [***] of receipt of such request (other than a registration effected solely to qualify an employee benefit plan or to effect a business combination pursuant to Rule 145), provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective; or
(vi)during the period starting with the date [***] prior to the Company’s good faith estimate of the date of the filing of and ending on a date [***] following the effective date of a Company initiated registration subject to Section 2.2 of this Agreement, provided that the Company is actively employing in good faith its commercially reasonable efforts to cause such registration statement to become effective.
(c)If the S-3 Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.3 and the Company shall include such information in the written notice referred to in Section 2.3(a). The provisions of Section 2.1(b) of this Agreement shall be applicable to such request (with the substitution of Section 2.3 for references to Section 2.1).
(d)Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the S-3 Initiating Holders. Registrations effected pursuant to this Section 2.3 shall not be counted as requests for registration effected pursuant to Section 2.1 of this Agreement.
2.4Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a)
(a)prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of [***] of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to [***] or, if earlier, until the distribution contemplated in the Registration Statement has been completed;
(b)prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;
(c)furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus and any Free Writing Prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;
(d)use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;
(e)in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;
(f)notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such Holder, the Company will, as soon as reasonably practicable, file and furnish to all such Holders a supplement or amendment to such prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made;
(g)cause all such Registrable Securities registered pursuant to this Section 2 to be listed on a national exchange or trading system and on each securities exchange and trading system on which similar securities issued by the Company are then listed;
(h)promptly make available for inspection by the selling Holders, any managing underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such
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underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith; and
(i)provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.
Notwithstanding the provisions of this Section 2, the Company shall be entitled to postpone or suspend, for a reasonable period of time, the filing, effectiveness or use of, or trading under, any registration statement if the Company shall determine that any such filing or the sale of any securities pursuant to such registration statement would in the good faith judgment of the Board:
(i)materially impede, delay or interfere with any material pending or proposed financing, acquisition, corporate reorganization or other similar transaction involving the Company for which the Board has authorized negotiations;
(ii)materially and adversely impair the consummation of any pending or proposed material offering or sale of any class of securities by the Company; or
(iii)require disclosure of material nonpublic information that, if disclosed at such time, would be materially harmful to the interests of the Company and its stockholders; provided, however, that during any such period all executive officers and directors of the Company are also prohibited from selling securities of the Company (or any security of any of the Company’s subsidiaries or affiliates).
In the event of the suspension of effectiveness of any registration statement pursuant to this Section 2.4, the applicable time period during which such registration statement is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement was suspended.
2.5Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.
2.6Expenses of Registration. All expenses other than underwriting discounts, stock transfer taxes and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 2.1, 2.2 and 2.3 of this Agreement, including, without limitation, all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders (not to exceed [***]) shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 2.1 of this Agreement if the registration request is subsequently withdrawn at the request of the Holders of [***] of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration); provided, however, that if at the time of such withdrawal, the Holders have learned
of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 2.1 of this Agreement.
2.7Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
2.8Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 2:
(a)To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages, or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a “Violation”): (i) any untrue or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus, final prospectus, or Free Writing Prospectus contained therein or any amendments or supplements thereto, any issuer information (as defined in Rule 433 of the Act) filed or required to be filed pursuant to Rule 433(d) under the Act or any other document incident to such registration prepared by or on behalf of the Company or used or referred to by the Company, (ii) the omission or alleged omission of a material fact required to be stated in such registration statement, or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, and the Company will reimburse each such Holder, underwriter, controlling Person or other aforementioned Person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, action or proceeding to the extent that it arises out of or is based upon a Violation that occurs in reliance upon, and in conformity with, written information furnished expressly for use in connection with such registration by such Holder, underwriter, controlling Person or other aforementioned Person.
(b)To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling Person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing Persons may become subject, under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934
9
Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any Person intended to be indemnified pursuant to this Section 2.8(b) for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this Section 2.8(b) exceed the gross proceeds from the offering received by such Holder.
(c)Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) for which a party may be entitled to indemnification, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one (1) separate counsel, with the fees and expenses to be paid by the indemnifying party, if (i) representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding, (ii) the indemnifying party does not deliver to the indemnified party within sixty (60) days of receipt of notice of such action or proceeding an acknowledgement that, if the facts as alleged by the claimant in such action or proceeding are true, the indemnifying party would have an indemnity obligation for the expenses, losses, claims, damages and liabilities resulting from such action or proceeding as provided hereunder, (iii) the action or proceeding relates to or arises in connection with any criminal proceeding, action, indictment or allegation, (iv) the indemnified party reasonably believes an adverse determination with respect to the action or proceeding would be detrimental to the reputation or future business prospects of the indemnified party or any of its affiliates or (v) the action or proceeding seeks an injunction or equitable relief against the indemnified party or any of its affiliates. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action or proceeding, if prejudicial to its ability to defend such action or proceeding, shall relieve such indemnifying party of liability to the indemnified party under this Section 2.8 to the extent of such prejudice, but the omission to so deliver written notice to the indemnifying party will not relieve such indemnifying party of any liability that it may have to any indemnified party otherwise than under this Section 2.8.
(d)If the indemnification provided for in this Section 2.8 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, however, that (i) no contribution by any Holder, when combined with any amounts paid by such Holder pursuant to Section 2.8(b), shall exceed the
gross proceeds from the offering received by such Holder and (ii) no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Section 2.8(b), exceed the proceeds from the offering received by such Holder (net of any expenses paid by such Holder). The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e)Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f)The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2 and otherwise.
2.9Reports Under the 1934 Act. With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:
(a)
(b)make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the Initial Offering;
(c)file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and
(d)furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to avail any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.
2.10Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that after such assignment or transfer, holds at least [***] of Registrable Securities (appropriately adjusted for any stock split, dividend, combination or other recapitalization), provided: (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and
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subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 2.12 of this Agreement; and (iii) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.
2.11Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding [***] of the Registrable Securities then held by all Holders, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include any of such securities in any registration filed under Section 2.1, Section 2.2 or Section 2.3 of this Agreement, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities.
2.12“Market Stand-Off” Agreement. Each Stockholder hereby agrees that he, she or it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed [one hundred eighty (***]) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock held immediately prior to the effectiveness of the registration statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 2.12 shall apply only to the Initial Offering, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than [***] stockholders of the Company enter into similar agreements. Provided that PureTech, as defined below, may dispose of shares of Common Stock during the applicable period only after consultation with its outside counsel and only as it deems necessary in its reasonable judgement to comply with the Investment Company Act of 1940 (the “1940 Act”) and provided further that PureTech shall (i) only dispose of so many shares of Common Stock as it deems reasonably necessary in its reasonable judgement to ensure it shall remain compliant with the 1940 Act and (ii) have provided to the lead underwriter in the Initial Offering notice of the intention to make a disposal as contemplated in this Section 2.12 at least two (2) business days prior to such disposal. The underwriters in connection with the Initial Offering are intended third-party beneficiaries of this Section 2.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Stockholder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Initial Offering that are consistent with this Section 2.12 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the securities of each Stockholder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last [***] of the [***] restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the [***] period, the Company announces that it will
release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 2.12 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event).
2.13Legends. Each Stockholder agrees that a legend reading substantially as follows shall be placed on all certificates representing all securities of each Stockholder (and the shares or securities of every other Person subject to the restrictions contained in Section 2.12), as needed:
(a) “THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”
(b) “THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SECURITIES.
(c) Any legend required by applicable state “blue sky” securities laws, rules and regulations.
2.14Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 2: [***]
3.Covenants of the Company.
3.1Delivery of Financial Statements. The Company shall, upon request, deliver to each Investor (or transferee of an Investor) that holds Preferred Stock:
(a)as soon as practicable, but in any event within [***] after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”) and audited and certified by independent public accountants of nationally recognized standing selected by the Company;
(b)as soon as practicable, but in any event within [***]after the end of each of the first three quarters of each fiscal year of the Company, an income statement and a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP);
(c)as soon as practicable, but in any event at least [***] prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such
13
months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and
(d)such other information relating to the financial condition, business or corporate affairs of the Company as such Investor may from time to time reasonably request, provided, however, that the Company shall not be obligated under this subsection (d) or any other subsection of Section 3.1 to provide information (i) that it deems in good faith to be a trade secret or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
(e)Notwithstanding anything else in this Section 3.1 to the contrary, the Company may cease providing the information set forth in this Section 3.1 during the period starting with the date [***] before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 3.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective. If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
3.2Inspection. The Company shall permit each Investor that holds Preferred Stock, at such Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 3.2 to provide access to any information that (i) it reasonably considers to be a trade secret or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
3.3Board Observer. [***]; provided, however, that such representative shall agree to hold in confidence and trust all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of highly confidential proprietary information or a conflict of interest.
3.4Termination of Information, Inspection and Board Observer Rights. The covenants set forth in Sections 3.1, 3.2 and 3.3 shall terminate and be of no further force or effect upon the earlier to occur of (a) immediately before the consummation of the Initial Offering or a SPAC merger, (b) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, or (c) the consummation of a Deemed Liquidation Event, as that term is defined in the Restated Certificate.
3.5Confidentiality. Each Investor agrees that such Investor will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor or make decisions with respect to its investment in the Company) any confidential information obtained from the Company (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.5 by such Investor), (b) is or has been independently developed or conceived by such Investor without use of, or reference to, the Company’s confidential information, or (c) is or has been made known or disclosed to such
Investor by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Investor may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent reasonably necessary to obtain their services in connection with monitoring its investment in the Company; (ii) to any prospective purchaser of any Registrable Securities from such Investor, if such prospective purchaser agrees to be bound by the provisions of this Section 3.5; (iii) to any existing Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Investor in the ordinary course of business, provided that such Investor informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information or such person is bound by agreement to maintain such confidentiality; or (iv) as may otherwise be required by law, regulation, rule, court order or subpoena, provided that such Investor promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure; and provided further, however, that that each Investor shall be responsible to Company for the failure of any person or entity described in clause (i), (ii), or (iii) above to comply with the provisions of this Section 3.5.
3.6Right of First Offer. Subject to the terms and conditions specified in this Section 3.6, the Company hereby grants to each Investor a right of first offer with respect to future issuances by the Company of its Shares (as hereinafter defined). For purposes of this Section 3.6, the term “Investor” includes any Affiliates of an Investor. An Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its Affiliates in such proportions as it deems appropriate.
Each time the Company proposes to issue any additional Shares (“New Shares”), the Company shall first make an offering of such New Shares to each Investor in accordance with the following provisions:
(a)The Company shall deliver a notice in accordance with Section 5.5 (“Notice”) to each Investor stating (i) its bona fide intention to issue such New Shares, (ii) the number of such New Shares to be issued and (iii) the price and terms upon which it proposes to issue such New Shares. If the consideration to be paid by others for the New Shares is not cash, the fair market value of the consideration shall be determined in good faith by the Board and a reasonably detailed explanation of the Board’s determination of such value shall be included in the Notice. All Investors electing to participate in the issuance of the New Shares shall pay the cash equivalent thereof as so determined.
(b)By written notification received by the Company within [***] after the giving of Notice, each Investor may elect to purchase, at the price and on the terms specified in the Notice, up to that portion of such New Shares that equals the proportion that the number of shares of Common Stock that are Registrable Securities issued and held by such Investor (assuming full conversion and exercise of all convertible and exercisable securities then held by such Investor) bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible and exercisable securities then outstanding). The Company shall promptly, in writing, inform each Investor that elects to purchase all the New Shares available to it (a “Fully-Exercising Investor”) of any other Investor’s failure to do likewise. During the [***] period commencing after such information is given, each Fully-Exercising Investor may elect to purchase that portion of the New Shares for which Investors were entitled to subscribe, but which were not subscribed for by the Investors, that is equal to the proportion that the number of Registrable Securities issued and held by such Fully-Exercising Investor bears to the total number of Registrable Securities held by all Fully-Exercising Investors desiring to purchase such unsubscribed New Shares.
(c)If all New Shares that Investors are entitled to obtain pursuant to Section 3.6(b) are not elected to be obtained as provided in Section 3.6(b) hereof, the
15
Company may, during the [***] period following the expiration of the period provided in Section 3.6(b) hereof, offer the remaining unsubscribed portion of such New Shares to any Person or Persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice. If the Company does not enter into an agreement for the sale of the New Shares within such period, or if such agreement is not consummated within [***] of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Shares shall not be offered unless first reoffered to the Investors in accordance with this Section 3.6.
(d)The right of first offer in this Section 3.6 shall not be applicable to (i) the issuance of Series D Preferred Stock pursuant to the Series D Agreement, (ii) Exempted Securities (as such term is defined in the Restated Certificate), and (iii) shares of capital stock issued by the Company in connection with the Initial Offering. In addition to the foregoing, the right of first offer in this Section 3.5 shall not be applicable with respect to any Investor in any subsequent offering of New Shares if (i) at the time of such offering, the Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) of the Act and (ii) such offering of New Shares is otherwise being offered only to accredited investors.
(e)The rights provided in this Section 3.6 may not be assigned or transferred by any Investor, except as provided in the first paragraph of this Section 3.6; provided, however, that (i) an Investor that is an investment fund may assign or transfer such rights to an affiliated investment fund, [***]
(f)The rights set provided in this Section 3.6 shall terminate and be of no further force or effect (i) immediately before the consummation of the Initial Offering or (ii) upon the consummation of a Deemed Liquidation Event (as such term is defined in the Restated Certificate) or a SPAC merger.
4.Voting Provisions.
4.1Agreement to Vote. Each Investor, as a holder of Preferred Stock, hereby agrees on behalf of itself and any transferee or assignee of any such shares of Preferred Stock, to hold all of the shares of Preferred Stock registered in its name and any other securities of the Company now held or subsequently acquired by such Investor in the future (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution for such shares or other securities) (hereinafter collectively referred to as the “Investor Shares”) subject to, and to vote the Investor Shares at a regular or special meeting of stockholders (or by written consent) in accordance with, the provisions of this Agreement. Each Key Holder, as a holder of Common Stock, hereby agrees on behalf of itself and any transferee or assignee of any such shares of Common Stock, to hold all of such shares registered in its name and any other securities of the Company now held or subsequently acquired by such Key Holder in the future (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution for such shares or other securities) (hereinafter collectively referred to as the “Key Holder Shares”) subject to, and to vote the Key Holder Shares at a regular or special meeting of stockholders (or by written consent) in accordance with, the provisions of this Agreement. The Investor Shares and the Key Holder Shares are hereinafter collectively referred to as the “Voting Shares”.
4.2Board Size. Each Stockholder shall vote, or cause to be voted, at a regular or special meeting of stockholders (or by written consent) all Voting Shares owned by such Stockholder (or as to which such Stockholder has voting power) to ensure that the size of the Board shall be set and remain at nine (9) directors; provided, however, that such Board size may be subsequently increased or decreased pursuant to an amendment of this Agreement in accordance with Section 5.7 hereof.
4.3Election of Directors.
(a)In any election of directors of the Company, Stockholders holding Voting Shares shall each vote at any regular or special meeting of stockholders (or by written consent) all Voting Shares then owned by them (or as to which they then have voting power) to elect:
(i)one (a) director nominated by PureTech Health LLC (“PureTech” and a “PureTech Director”), so long as PureTech continues to hold not less than 1,129,098 shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock (appropriately adjusted for any stock split, dividend, combination or recapitalization) who shall initially be Bharatt Chowrira;
[***]
(b)In the absence of any nomination from the Persons with the right to nominate a director as specified above, the director or directors previously nominated by such Persons and then serving shall be reelected if still eligible to serve as provided herein.
(c)To the extent that the application of Section 4.3(a) above shall result in the designation of less than all of the authorized directors, then any remaining directors shall be nominated and elected by the stockholders of the Company entitled to vote thereon in accordance with, and pursuant to, the Restated Certificate.
4.4Removal; Vacancies. Any director of the Company may be removed from the Board in the manner allowed by law and the Restated Certificate and Bylaws, but with respect to any director nominated pursuant to Section 4.3(a) above, only upon the vote or written consent of the Stockholders (or other Persons) entitled to nominate such director. Any vacancy created by the resignation, removal or death of a director elected pursuant to Section 4.3 above shall be filled pursuant to the provisions of Section 4.3.
4.5Failure to Designate a Board Member. In the absence of any designation from the Persons or groups with the right to designate a director as specified above, the director previously designated by them and then serving shall be reelected if willing to serve unless such individual has been removed as provided herein, and otherwise such Board seat shall remain vacant until otherwise filled as provided above.
4.6Vote to Increase Authorized Stock. Each Stockholder agrees to vote or cause to be voted all Voting Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common Stock available for conversion of all of the shares of Preferred Stock outstanding at any given time. Without derogating from the foregoing, and in addition thereto, each Stockholder further agrees to vote or cause to be voted all Voting Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time, upon the reasonable request of the Board, in whatever manner as shall be necessary to increase the number of authorized shares of Series D Preferred Stock to ensure that there will be sufficient shares of Series D Preferred Stock available for the Company to declare and pay the Series D Accruing Dividends (as such term is defined in the Restated Certificate).
4.7Drag Along Right.
(a)Definitions.
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(b)A “Sale of the Company” shall mean either: (a) a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from stockholders of the Company shares representing more than [***] of the outstanding voting power of the Company (a “Stock Sale”) or (b) a transaction that qualifies as a “Deemed Liquidation Event” as defined in the Restated Certificate.
(b)Actions to be Taken.
In the event that [***] approve a Sale of the Company, then each Stockholder hereby agrees with respect to all Shares which it own(s) or over which it otherwise exercises voting or dispositive authority:
(i)in the event such transaction is to be brought to a vote at a stockholder meeting, after receiving proper notice of any meeting of stockholders of the Company, to vote on the approval of a Sale of the Company, to be present, in person or by proxy, as a holder of shares of voting securities, at all such meetings and to be counted for the purposes of determining the presence of a quorum at such meetings;
(ii)to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of such Sale of the Company and in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale of the Company;
(iii)to waive all dissenters’ rights and rights of appraisal under applicable law at any time with respect to such Sale of the Company (in each such case, whether before or after the consummation of the Sale of the Company) and refrain from asserting any claim or commencing any suit (x) challenging the Sale of the Company or this Agreement, or (y) alleging a breach of any fiduciary duty of the Selling Investors or any affiliate or associate thereof (including, without limitation, aiding and abetting breach of fiduciary duty) in connection with the evaluation, negotiation or entry into the Sale of the Company or the consummation of the transactions contemplated thereby;
(iv)to execute and deliver all related documentation and take such other action in support of the Sale of the Company as shall reasonably be requested by the Company or the Requisite Parties (in each such case, whether before or after the consummation of the Sale of the Company);
(v)if the Sale of the Company is structured as a Stock Sale, to sell the same proportion of his, her or its Shares as is being sold by the Requisite Parties;
(vi)not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any Shares owned by such Stockholder or Affiliate in a voting trust or subject any such Shares to any arrangement or agreement with respect to the voting of such Shares, unless specifically requested to do so by the acquirer in connection with the Sale of the Company;
(vii)if the consideration to be paid in exchange for the Shares pursuant to this Section 4 includes any securities and due receipt thereof by any Stockholder would require under applicable law (i) the registration or qualification of such securities or of any Person as a broker or dealer or agent with respect to such securities or (ii) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in
Regulation D promulgated under the Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the Shares; and
(viii)unless, if any portion of the consideration payable to the stockholders of the Company in connection with such transaction consists of securities unlisted on a public stock exchange, then upon receipt from a Stockholder, of written notice that, based on the advice of legal counsel, the payment or distribution of such securities to the Stockholder, would cause the Stockholder to be in violation of any law, regulation, material contractual obligation or written policy of the Stockholder, the Company shall cause the purchase agreement, merger agreement or related transaction documents to provide the Stockholder with certain stockholder rights to the extent necessary to enable the Stockholder to hold such securities without violating such contract or policy, and if the Company is unable to satisfy such requirements, then the Company shall cause to be paid to the Stockholder, in lieu thereof, against surrender of the Company’s shares which would have otherwise been sold by the Stockholder an amount in cash equal to the fair value (as determined in good faith by the Company) of the securities which the Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the capital stock.
(c)Exceptions. Notwithstanding the foregoing, a Stockholder will not be required to comply with Section 4.7(b) above in connection with any proposed Sale of the Company (the “Proposed Sale”) unless the Stockholder shall not be liable for the inaccuracy of any representation or warranty made by any other Person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any identical representations, warranties and covenants provided by all stockholders);
(i)the liability for indemnification, if any, of such Stockholder in the Proposed Sale and for the inaccuracy of any representations and warranties made by the Company or its stockholders in connection with such Proposed Sale, is several and not joint with any other Person (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any identical representations, warranties and covenants provided by all stockholders);
(ii)liability of such Stockholder shall be limited to the amount of consideration otherwise payable to such Stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate, except with respect to claims related to fraud by such Stockholder, the liability for which need not be limited as to such Stockholder;
(iii)upon the consummation of the Proposed Sale, (i) each holder of each series of the Company’s stock will receive the same form of consideration for their shares of such series as is received by other holders in respect of their shares of such same series of stock, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Common Stock will receive the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common Stock, and (iv) the net consideration (i.e. the aggregate consideration less all reductions for purchase price adjustments, indemnification claims and other adjustments) receivable by all holders of the Preferred Stock and Common Stock shall be
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allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Common Stock are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed Sale is a Deemed Liquidation Event) in accordance with the Restated Certificate in effect immediately prior to the Proposed Sale;
(iv)subject to Section 4.7(c)(iv) above, requiring the same form of consideration to be available to the holders of any single class or series of capital stock, if any holders of a series of Preferred Stock or the holders of Common Stock are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such series of Preferred Stock or the holders of Common Stock will be given the same option; provided, however, that nothing in this Section 4.7(c)(v) shall entitle any holder to receive any form of consideration that such holder would be ineligible to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable to the Company’s stockholders;
(v)no Stockholder will be required to agree (unless such Stockholder is an officer or employee of the Company) to any non-competition or non-solicitation agreement; and
(vi)no Stockholder or its Affiliates will be required to amend, extend or terminate any contractual or other relationship with the Company, the acquirer or their respective Affiliates.
4.8Bad Actor Representations and Covenants. Each Stockholder hereby represents and warrants to the Company that such Stockholder has not been convicted of any of the felonies or misdemeanors or has been subject to any of the orders, judgments, decrees or other conditions set forth in Rule 506(d) of Regulation D promulgated by the SEC. Each Stockholder covenants to provide immediate written notice to the Company in the event such Stockholder is convicted of any felony or misdemeanor or becomes subject to any order, judgment, decree or other condition set forth in Rule 506(d) of Regulation D promulgated by the SEC, as may be amended from time to time. Each Stockholder covenants to provide such information to the Company as the Company may reasonably request in order to comply with the disclosure obligations set forth in Rule 506(e) of Regulation D promulgated by the SEC, as may be amended from time to time.
4.9Legend on Share Certificates. Each certificate representing any Voting Shares shall be endorsed by the Company with a legend reading substantially as follows:
“THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE ISSUER) CONTAINING PROVISIONS REGARDING VOTING RIGHTS AND OBLIGATIONS, AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL SUCH VOTING PROVISIONS OF SAID AGREEMENT.”
4.10Covenant of the Company. The Company will not, by any voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be performed by the Company under this Section 4.
4.11No Liability for Election of Recommended Directors. Neither any Party to this Agreement, nor any officer, director, stockholder, partner, employee or agent of any such Party, makes any representation or warranty as to the fitness or competence of the nominee
of any Party hereunder to serve on the Board by virtue of such Party’s execution of this Agreement or by the act of such Party in voting for such nominee pursuant to this Agreement.
4.12Remedies.
(a)Grant of Proxy and Power of Attorney; No Conflicting Agreements. Each Stockholder hereby constitutes and appoints as the proxies of such Stockholder, and hereby grants a power of attorney, to (a) the President of the Company and (b) a stockholder or other Person designated by the Board, and each of them, with full power and substitution, with respect to the matters set forth herein, and hereby authorizes each of them to represent and to vote, if and only if such Stockholder (i) fails to vote or (ii) attempts to vote (whether by proxy, in person or by written consent) in a manner which is inconsistent with the terms of this Agreement, all of such Stockholder’s Voting Shares in the manner provided in Section 4 hereof, and hereby authorizes each of them to take any action necessary to give effect to the provisions contained in Section 4 hereof. Each of the proxy and power of attorney granted in this Section 4.12 is given in consideration of the agreements and covenants of the Parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable until this Agreement terminates pursuant to its terms or this Section 4.12 is amended to remove such grant of proxy and power of attorney in accordance with Section 5.7 hereof. Each Stockholder hereby revokes any and all previous proxies or powers of attorney with respect to such Stockholder’s Voting Shares and shall not hereafter, until this Agreement terminates pursuant to its terms or this Section 4.12 is amended to remove this provision in accordance with Section 5.7 hereof, grant, or purport to grant, any other proxy or power of attorney with respect to such Voting Shares, deposit any of such Voting Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any Person, directly or indirectly, to vote, grant any proxy or power of attorney or give instructions with respect to the voting of any of such Voting Shares, in each case, with respect to any of the matters set forth in this Agreement. [***]
(b)Specific Enforcement. It is agreed and understood that monetary damages would not adequately compensate an injured Party for the breach of this Agreement by any other Party, that this Agreement shall be specifically enforceable, and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each Party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.
(c)Remedies Cumulative. All remedies, either under this Section 3 or by law or otherwise afforded to any Party, shall be cumulative and not alternative.
4.13Directors’ Expenses. The Company shall reimburse the directors on the Board for all reasonable and documented out-of-pocket expenses incurred by them in connection with attendance at all meetings of the Board (including any meetings of committees of the Board) and the board of directors of each of the Company’s subsidiaries (including any meetings of committees thereof) or attending to other matters requested by the Company.
4.14Subsidiary Boards. The Company shall cause the composition of the board of directors of each subsidiary of the Company and of each committee thereof to, where the appropriate individuals are willing to serve, be consistent with the composition of the Board and each corresponding committee thereof.
4.15Committees. [***]
4.16Insurance. To the extent not already obtained, the Company and, to the extent applicable, its subsidiaries shall obtain, within [ninety (90) days] of the date hereof,
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a general liability and directors’ and officers’ liability insurance policies, in each case on terms and conditions that are acceptable to the Board. The Company (and its subsidiaries, to the extent that such subsidiaries obtain such policies) shall maintain such policies in full force and effect at all times.
4.17Stock Sale. No Stockholder shall enter into any transaction or series of related transactions resulting in a Deemed Liquidation Event (as such term is defined in the Restated Certificate) unless the terms of such transaction or transactions provide that the consideration to be paid to the stockholders of the Company is to be allocated in accordance with the preferences and priorities set forth in the Restated Certificate.
4.18[***]h
4.19Matters Requiring Investor Director Approval. The Company hereby covenants and agrees with each of the Stockholders that it shall not, without approval of the Board, [***]
4.20Notice of Board Meetings. [***]
4.21Termination of Covenants. The covenants set forth in this Section 4 (other than those set forth in Section 4.8 and Section 4.11) shall terminate upon the earliest to occur of: (i) immediately before the consummation of the Initial Offering, (ii) a Sale of the Company or a SPAC merger, provided that the provisions of Section 4.7 and Section 4.12 shall continue after the closing of any Sale of the Company to the extent necessary to enforce the provisions of Section 4.7 with respect to such Sale of the Company, and (iii) termination of this Agreement in accordance with Section 5.7.
5.Miscellaneous.
5.1Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities) provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Section 2.12. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
5.2Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware, without regard to its principles of conflicts of laws.
5.3Counterparts. This Agreement may be executed and delivered by facsimile or electronic signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
5.4Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
5.5Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses set forth on the signature pages attached hereto (or at such other addresses as shall be specified by notice given in accordance with this Section 5.5). If notice is sent to the Company, a copy (which shall not constitute notice) shall also be sent to [***].
5.6Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
5.7Entire Agreement; Amendments and Waivers. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof and supersedes all other agreements of the parties hereto relating to the subject matter hereof and thereof (including, without limitation, the Prior Agreement). Any term of this Agreement may be amended, modified or terminated, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the outstanding Series D Preferred Stock which majority must include [***]. Notwithstanding the foregoing, [***]. Any amendment, modification, termination or waiver so effected shall be binding upon all the Parties hereto and all Parties’ respective successors and permitted assigns, whether or not any such Party, successor or assign entered into or approved such amendment, modification, termination or waiver. Notwithstanding the foregoing, any provision hereof may be waived by the waiving Party on such Party’s behalf, without the written consent of any other Party. Notwithstanding the foregoing, (i) this Agreement may not be amended, modified or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion, (ii) no amendment or modification to, or waiver or termination of, this Agreement, (by merger, consolidation or otherwise) shall be effective as to any Investor without that Investor’s written consent if such amendment, modification, waiver or termination would impose or would reasonably be expected to impose, any non-competition or non-solicitation covenant on such Investor or would otherwise restrict, or would reasonably be expected to otherwise restrict, such Investor from conducting any business or commercial activity [***].
5.8Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
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5.9Aggregation of Stock. All Registrable Securities held or acquired by Affiliates (including affiliated venture capital funds) or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
5.10Additional Parties.
(a)Notwithstanding Section 5.7 no consent shall be necessary to add additional Investors as signatories to this Agreement, provided that such Investors have purchased Series D Preferred Stock pursuant to the Series D Agreement, as may be amended from time to time, and have signed a counterpart signature page hereto. Schedule A to this Agreement shall be updated without any action of the Investors to reflect such additional Investors.
(b)In the event that after the date of this Agreement, the Company enters into an agreement with any Person to issue shares of capital stock to such Person (other than to a purchaser of Series D Preferred described in Section 5.10(a) above), following which such Person would hold Shares representing [***] or more of the Company’s then outstanding capital stock (treating for this purpose all shares of Common Stock issuable upon exercise or conversion of all then outstanding options, warrants or convertible securities (whether or not then exercisable or convertible) as outstanding), then (i) the Company shall cause such Person, as a condition precedent to the issuance of such capital stock, to become a party to this Agreement by executing an adoption agreement agreeing to be bound by and subject to the terms of this Agreement as a Key Holder and Stockholder hereunder and thereafter such Person shall be deemed a Key Holder and Stockholder for all purposes under this Agreement and (ii) notwithstanding Section 5.7, no consent shall be necessary to add such Person as a signatory to this Agreement.
5.11Effect on Prior Agreement. Upon the effectiveness of this Agreement, the Prior Agreement automatically shall terminate and be of no further force and effect and shall be amended and restated in its entirety as set forth in this Agreement.
5.12FIRPTA. Upon request of Investor, the Company shall provide (i) a statement (in such form as may be reasonably requested by Investor) conforming to the requirements of Section 1.897-2(h)(1)(i) and 1.1445-2(c)(3)(i) of the Treasury Regulations certifying that interests in the Company do not constitute “United States real property interests” under Section 897(c) of the Internal Revenue Code of 1986, as amended, and (ii) evidence in form and substance satisfactory to Investor that the Company has delivered to the Internal Revenue Service the notification required under Section 1.897-2(h)(2) of the Treasury Regulations.
(Remainder of page intentionally left blank)
IN WITNESS WHEREOF, the parties have executed this Third Amended and Restated Investors’ Rights Agreement as of the date first above written.
COMPANY:
AKILI INTERACTIVE LABS, INC.
By: /s/ W. Edward Martucci, Ph.D.
Name: W. Edward Martucci, Ph.D.
Title: Chief Executive Officer
Address: 125 Broad Street, 5th Floor
Boston, MA 02110
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT FOR AKILI INTERACTIVE LABS, INC.
IN WITNESS WHEREOF, the parties have executed this Third Amended and Restated Investors’ Rights Agreement as of the date first above written.
INVESTORS:
[***]
Exhibit 4.24
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***] FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
Execution Version
AKILI INTERACTIVE LABS, INC.
AMENDED AND RESTATED FIRST REFUSAL AND CO-SALE AGREEMENT
This AMENDED AND RESTATED FIRST REFUSAL AND CO-SALE AGREEMENT (the “Agreement”) is entered into as of the 25th day of May, 2021 by and among AKILI INTERACTIVE LABS, INC., a Delaware corporation (the “Company”), the holders of Common Stock of the Company (the “Common Stock”), or of options to purchase Common Stock, listed on Exhibit A attached hereto (each a “Common Holder” and, together, the “Common Holders”) and the holders of Preferred Stock of the Company (the “Preferred Shares”) listed on Exhibit B attached hereto (each an “Investor” and together, the “Investors”).
RECITALS
WHEREAS, the Company and certain of the Investors are parties to that certain Series D Preferred Stock Purchase Agreement of even date herewith (the “Series D Agreement”), pursuant to which certain of the Investors are purchasing shares of the Company’s Series D Preferred Stock;
WHEREAS, each Common Holder is the beneficial owner of the number of shares of Common Stock or options to purchase Common Stock set forth opposite his/her name on Schedule A attached hereto;
WHEREAS, the Company, certain of the Common Holders and certain of the Investors previously entered into a First Refusal and Co-Sale Agreement, dated January 20, 2016 and an Amended and Restated First Refusal and Co-Sale Agreement, dated [***] (the “Prior Agreement”);
WHEREAS, the parties to the Prior Agreement desire to amend and restate the Prior Agreement in its entirety and accept the rights and obligations created pursuant to this Agreement in lieu of their rights and obligations under the Prior Agreement;
WHEREAS, the stockholders of the Company signatory hereto hold the requisite shares of capital stock in order to amend and restate the Prior Agreement in accordance with the terms thereof (subject to the execution of this Agreement by the Company); and
WHEREAS, each Common Holder wishes to provide further inducement to the Investors to purchase the Preferred Shares.
NOW, THEREFORE, in consideration of the foregoing premises and certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree that the Prior Agreement shall be amended and restated in the entirety by this Agreement and further agree as follows:
1.Definitions.
(a)Affiliate. For purposes of this Agreement, the term “Affiliate” shall mean, (i) with respect to any Person, any other Person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified Person, including, without limitation, any general partner, officer, director or manager of such Person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or is under common investment management with, such Person, (ii) with respect of TLS Beta Pte. Ltd. (“Temasek”), Temasek’s ultimate holding company, Temasek Holdings (Private) Limited (“Temasek Holdings”), and Temasek Holdings’ direct and indirect wholly owned companies whose boards of directors or equivalent governing bodies comprise solely of nominees or employees of (a) Temasek Holdings; (b) Temasek Pte. Ltd; and/or (c) wholly owned direct or indirect subsidiaries of Temasek Pte. Ltd.; (iii) with respect to Edinburgh Worldwide Investment Trust plc, any person that receives, directly or indirectly, investment management or management advisory services from Baillie Gifford & Co. or Baillie Gifford Overseas Limited or any of their affiliates and (iv) with respect to Neuberger Berman Principal Strategies PRIMA Fund LP (“Neuberger”), any person that receives, directly or indirectly, investment management or management advisory services from Neuberger Berman Investment Advisers LLC and/or NB Alternatives Advisers LLC or any successor or affiliated registered investment advisor of such firms.
(b)Delivery. For purposes of this Agreement, the term “Delivery” shall have the meaning set forth in Section 6 below.
(c)Equity Securities. For purposes of this Agreement, the term “Equity Securities” shall mean any securities now or hereafter owned or held by a Common Holder (or a transferee who receives such securities subject to the rights of the Company and the Holders under Section 2.1 and Section 2.2) having voting rights in the election of the Board of Directors of the Company, or any securities evidencing an ownership interest in the Company, or any securities convertible into, exchangeable for or exercisable for any shares of the foregoing.
(d)Holders. For purposes of this Agreement, the term “Holders” shall mean the Investors or persons who have acquired shares from any of such persons or their transferees or assignees in accordance with the provisions of this Agreement.
(e)Person. For purposes of this Agreement, the term “Person” shall mean any individual, corporation, partnership, trust, limited liability company, association or other entity.
(f)Transfer. For purposes of this Agreement, the term “Transfer” shall include any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by bequest, devise or descent, or other transfer or disposition of any kind, including, without limitation, transfers pursuant to divorce or legal separation, transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary, involuntarily or by operation of law, directly or indirectly, of any of the Equity Securities.
2.Agreements Among the Company, the Holders and the Common Holders.
2.1Rights of Refusal.
(a)Transfer Notice. If at any time a Common Holder proposes to Transfer Equity Securities (a “Selling Common Holder”), then the Selling Common Holder shall promptly give the Company and each Holder written notice of the Selling Common Holder’s
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intention to make the Transfer (the “Transfer Notice”). The Transfer Notice shall include (i) a description of the Equity Securities to be Transferred (the “Offered Shares”), (ii) the name(s) and address(es) of the prospective transferee(s), (iii) the purchase price and form of consideration proposed to be paid for the Offered Shares and (iv) the other material terms and conditions upon which the proposed Transfer is to be made. The Transfer Notice shall certify that the Selling Common Holder has received a firm offer from the prospective transferee(s) and in good faith believes a binding agreement for the Transfer is obtainable on the terms set forth in the Transfer Notice. The Transfer Notice shall also include a copy of any written proposal, term sheet or letter of intent or other agreement relating to the proposed Transfer. In the event that the transfer is being made pursuant to the provisions of Section 2.4, the Transfer Notice shall state under which specific clause of Section 2.4 the Transfer is being made.
(b)Company’s Right of First Refusal. The Company shall have an option for a period of [***] from Delivery of the Transfer Notice to elect to purchase the Offered Shares at the same price and subject to the same material terms and conditions as described in the Transfer Notice. The Company may exercise such purchase option and purchase all or any portion of the Offered Shares by notifying the Selling Common Holder in writing before expiration of such [ten (10) day] period as to the number of such shares that it wishes to purchase. If the Company gives the Selling Common Holder notice that it desires to purchase such shares, then payment for the Offered Shares shall be made by check or wire transfer against delivery of the Offered Shares to be purchased at a time and place agreed upon between the parties, which time shall be no later than [***] after Delivery to the Company of the Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third-party transferee(s) or unless the value of the consideration to be paid for the Offered Shares has not yet been established pursuant to Section 2.1(e)(ii). If the Company fails to purchase any or all of the Offered Shares by exercising the option granted in this Section 2.1(b) within the period provided, the remaining Offered Shares shall be subject to the options granted to the Holders pursuant to Section 2.1(c)-(d).
(c)Additional Transfer Notice. Subject to the Company’s option set forth in Section 2.1(b), if at any time the Selling Common Holder proposes a Transfer, then, within [***] after the Company has declined to purchase all, or a portion, of the Offered Shares or the Company’s option to so purchase the Offered Shares has expired, the Selling Common Holder shall give each Holder an “Additional Transfer Notice” that shall include all of the information and certifications required in a Transfer Notice and shall additionally identify the Offered Shares that the Company has declined to purchase (the “Remaining Shares”) and reference the Holders’ rights of first refusal and co-sale rights with respect to the proposed Transfer contained in this Agreement.
(d)Holders’ Right of First Refusal.
(i)Each Holder shall have an option for a period of [***] from the Delivery of the Additional Transfer Notice from the Selling Common Holder set forth in Section 2.1(c) to elect to purchase its respective pro rata share of the Remaining Shares at the same price and subject to the same material terms and conditions as described in the Additional Transfer Notice. Each Holder may exercise such purchase option and purchase all or any portion of its pro rata share of the Remaining Shares (a “Participating Holder” for the purposes of this Section 2.1(d) and Section 2.1(e)), by notifying the Selling Common Holder and the Company in writing, before expiration of the [***] period as to the number of such shares that it wishes to purchase (the “Participating Holder Notice”). Each Holder’s pro rata share of the Remaining Shares shall be a fraction of the Remaining Shares, the numerator of which shall be the number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by such Holder on the date of the Transfer Notice and denominator of which shall be the total number of shares of Common Stock (including shares of Common Stock
3
issuable upon conversion of Preferred Shares) held by all Holders on the date of the Transfer Notice.
(ii)In the event any Holder elects not to purchase its pro rata share of the Remaining Shares available pursuant to its option under Section 2.1(d)(i) within the time period set forth therein, then the Selling Common Holder shall promptly give written notice (the “Overallotment Notice”) to each Participating Holder that has elected to purchase all of its pro rata share of the Remaining Shares (each a “Fully Participating Holder”), which notice shall set forth the number of Remaining Shares not purchased by the other Holders (“Unsubscribed Shares”), and shall offer the Fully Participating Holders the right to acquire the Unsubscribed Shares. Each Fully Participating Holder shall have [***] after Delivery of the Overallotment Notice to deliver a written notice to the Selling Common Holder (the “Participating Holders Overallotment Notice”) of its election to purchase its pro rata share of the Unsubscribed Shares on the same terms and conditions as set forth in the Additional Transfer Notice, which such Participating Holders Overallotment Notice shall also indicate the maximum number of the Unsubscribed Shares that such Fully Participating Holder will purchase in the event that any other Fully Participating Holder elects not to purchase its pro rata share of the Unsubscribed Shares. For the purposes of determining a Fully Participating Holder’s pro rata share of the Unsubscribed Shares under this Section 2.1(d)(ii), the numerator shall be the same as that used in Section 2.1(d)(i) above and the denominator shall be the total number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by all Fully Participating Holders on the date of the Transfer Notice.
(iii)Each Participating Holder shall be entitled to apportion Remaining Shares to be purchased among its partners and Affiliates, provided that such Participating Holder notifies the Selling Common Holder of such allocation.
(e)Payment.
(i)The Participating Holders shall effect the purchase of the Remaining Shares with payment by check or wire transfer against delivery of the Remaining Shares to be purchased at a time and place agreed upon between the parties, which time shall be no later than [***] after Delivery to the Company of the Transfer Notice, unless the Transfer Notice contemplated a later closing with the prospective third-party transferee(s) or unless the value of the consideration to be paid for the Offered Shares has not yet been established pursuant to Section 2.1(e)(ii).
(ii)Should the purchase price specified in the Transfer Notice or Additional Transfer Notice be payable in a form of consideration other than cash or evidences of indebtedness, the Company (and the Participating Holders) shall have the right to pay such purchase price in an amount of cash equal to the fair market value of such consideration. If the Selling Common Holder and the Company (or the Participating Holders) cannot agree on such fair market value within [***] after Delivery to the Company of the Transfer Notice (or the Delivery of the Additional Transfer Notice to the Holders), the valuation shall be made by an appraiser of recognized standing selected by the Selling Common Holder and the Company (or [***] of the Participating Holders) or, if they cannot agree on an appraiser within [***] after Delivery to the Company of the Transfer Notice (or the Delivery of the Additional Transfer Notice to the Holders), each shall select an appraiser of recognized standing and those appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value. The cost of such appraisal shall be shared equally by the Selling Common Holder, on the one hand, and the Company (and, to the extent there are any, the Participating Holders, on the other hand, with that half of the cost to be borne by the Company and the Participating Holders to be apportioned on a pro rata basis based on the number of shares each such party has expressed an interest in purchasing pursuant to this Section 2). If the time for the closing of the
4
Company’s purchase or the Participating Holders’ purchase has expired but the determination of the value of the purchase price offered by the prospective transferee(s) has not been finalized, then such closing shall be held on or prior to the [***] after such valuation shall have been made pursuant to this Section 2.1(e)(ii).
2.2Right of Co-Sale.
(a)To the extent the Company and the Holders do not exercise their respective rights of refusal as to all of the Offered Shares pursuant to Section 2.1, then each Holder (a “Selling Holder” for purposes of this Section 2.2 and Section 2.6) that notifies the Selling Common Holder in writing within [***] after Delivery of the Additional Transfer Notice referred to in Section 2.1(c) shall have the right to participate in such sale of Equity Securities on the same terms and conditions as specified in the Transfer Notice. Such Selling Holder’s notice to the Selling Common Holder shall indicate the number of shares of capital stock of the Company that the Selling Holder desires to sell. To the extent one or more Selling Holders exercise such right of participation in accordance with the terms and conditions of this Section 2.2, the number of shares of Equity Securities that the Selling Common Holder may sell in the Transfer shall be correspondingly reduced.
(b)Each Selling Holder may sell all or any part of that number of shares of Common Stock (or capital stock of the Company convertible into such number of shares of Common Stock) equal in the aggregate to the product obtained by multiplying (i) the aggregate number of shares of Equity Securities covered by the Transfer Notice that have not been subscribed for pursuant to Section 2.1 by (ii) a fraction, the numerator of which is the number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by such Selling Holder on the date of the Transfer Notice and the denominator of which is the total number of shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) owned by the Selling Common Holder and all of the Selling Holders on the date of the Transfer Notice.
(c)Each Selling Holder shall effect its participation in the sale by promptly delivering to the Selling Common Holder for transfer to the prospective purchaser one or more certificates, properly endorsed for transfer, which represent:
(i)the number of shares of Common Stock that such Selling Holder elects to sell; or
(ii)that number of shares of capital stock of the Company that are at such time convertible into the number of shares of Common Stock that such Selling Holder elects to sell; provided, however, that if the prospective third-party purchaser objects to the delivery of shares of capital stock of the Company other than Common Stock, such Selling Holder shall convert such shares of capital stock of the Company into Common Stock and deliver Common Stock as provided in this Section 2.2. The Company agrees to make any such conversion concurrent with the actual transfer of such shares to the purchaser and contingent on such transfer.
(d)The stock certificate or certificates that each Selling Holder delivers to the Selling Common Holder pursuant to Section 2.2(c) shall be transferred to the prospective purchaser in consummation of the sale of the Equity Securities pursuant to the terms and conditions specified in the Transfer Notice, and such Selling Common Holder shall concurrently therewith remit to such Selling Holder that portion of the sale proceeds to which such Selling Holder is entitled by reason of its participation in such sale. To the extent that any prospective purchaser or purchasers prohibits such assignment or otherwise refuses to purchase shares or other securities from a Selling Holder exercising its rights of co-sale hereunder, the
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Selling Common Holder shall not sell to such prospective purchaser or purchasers any Equity Securities unless and until, simultaneously with such sale, the Selling Common Holder shall purchase such shares or other securities from such Selling Holder for the same consideration and on the same terms and conditions as the proposed transfer described in the Transfer Notice.
2.3Non-Exercise of Rights. To the extent that the Company and the Holders have not exercised their rights to purchase the Offered Shares or the Remaining Shares within the time periods specified in Section 2.1 and the Holders have not exercised their rights to participate in the sale of the Remaining Shares within the time periods specified in Section 2.2, the Selling Common Holder shall have a period of [***] from the expiration of such rights in which to sell the Offered Shares or the Remaining Shares, as the case may be, upon terms and conditions (including the purchase price) no more favorable than those specified in the Transfer Notice, to the third-party transferee(s) identified in the Transfer Notice. The Company’s first refusal rights and the Holders’ first refusal rights and co-sale rights shall continue to be applicable to any subsequent disposition of the Offered Shares or the Remaining Shares acquired by the third-party transferee(s) until such rights lapse in accordance with the terms of this Agreement. In the event the Selling Common Holder does not consummate the sale or disposition of the Offered Shares and Remaining Shares within the [***] period from the expiration of these rights, the Company’s first refusal rights and the Holders’ first refusal rights and co-sale rights shall continue to be applicable to any subsequent disposition of the Offered Shares or the Remaining Shares by the Selling Common Holder until such rights lapse in accordance with the terms of this Agreement. Furthermore, the exercise or non-exercise of the rights of the Company and the Holders under this Section 2 to purchase Equity Securities from the Selling Common Holder or participate in sales of Equity Securities by the Selling Common Holder shall not adversely affect their rights to make subsequent purchases from the Selling Common Holder of Equity Securities or subsequently participate in sales of Equity Securities by the Selling Common Holder.
2.4Limitations to Rights of Refusal and Co-Sale. Notwithstanding the provisions of Sections 2.1 and 2.2 of this Agreement, the first refusal rights of the Company and first refusal and co-sale rights of the Holders shall not apply to (i) the Transfer of Equity Securities by a Common Holder for estate planning purposes, either during such Common Holder’s lifetime or on death by will or intestacy to such Common Holder’s spouse or other member of a Common Holder’s immediate family, or to a custodian, trustee (including a trustee of a voting trust), executor or other fiduciary for the account of the Common Holder’s spouse or members of the Common Holder’s immediate family, or to a trust for the Common Holder’s own self, or a charitable remainder trust, (ii) a repurchase of Equity Securities from a Common Holder by the Company at cost and pursuant to an agreement containing vesting and/or repurchase provisions, (iii) any sale of Equity Securities pursuant to the exercise of the bring-along right set forth in Section 4.6 of that certain Second Amended and Restated Investors’ Rights Agreement of even date herewith by and among the Company and the other parties thereto, as may be amended from time to time, (iv) any sale of Equity Securities to the public pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act of 1933, as amended, (v) any pledge of Equity Securities held by a Common Holder made pursuant to a bona fide loan transaction that creates a mere security interest or (vi) any bona fide gift to any charitable organization described in Section 501(c)(3) of the Internal Revenue Code; provided, however, that in the event of any transfer made pursuant to one of the exemptions provided by clause(s) (i) or (vi), (A) the Common Holder shall inform the Holders of such Transfer prior to effecting it and (B) each such transferee or assignee, prior to the completion of the Transfer, shall have executed documents assuming the obligations of Common Holder under this Agreement with respect to the transferred Equity Securities. Such transferred Equity Securities shall remain “Equity Securities” hereunder, and such pledgee, transferee or donee shall be treated as a “Common Holder” for purposes of this Agreement.
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2.5Prohibited Transfers.
(a)Except as otherwise provided in this Agreement, each Common Holder will not sell, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of in any way, all of, any part of or any interest in such Common Holder’s Equity Securities. Any sale, assignment, transfer, pledge, hypothecation or other encumbrance or disposition of Equity Securities not made in conformance with this Agreement shall be null and void, shall not be recorded on the books of the Company and shall not be recognized by the Company.
(b)In the event a Common Holder should sell any Equity Securities in contravention of the co-sale rights of the Holders under Section 2.2 (a “Prohibited Transfer”), the Holders, in addition to such other remedies as may be available at law, in equity or hereunder, shall have the put option provided below under Section 2.5(c), and such Common Holder shall be bound by the applicable provisions of such option.
(c)In the event of a Prohibited Transfer, each Holder shall have the right to sell to the Common Holder making such Prohibited Transfer the type and number of shares of Equity Securities equal to the number of shares each Holder would have been entitled to transfer to the third-party transferee(s) under Section 2.2 hereof had the Prohibited Transfer been effected pursuant to and in compliance with the terms hereof. Such sale shall be made on the following terms and conditions:
(i)The price per share at which the shares are to be sold to the Common Holder shall be equal to the price per share paid by the third-party transferee(s) to the Common Holder in the Prohibited Transfer. The Common Holder shall also reimburse each Holder for any and all fees and expenses, including legal fees and expenses, incurred pursuant to the exercise or the attempted exercise of the Holder’s rights under Section 2.2.
(ii)Within [***] after the later of (A) the date on which the Holder receives notice of the Prohibited Transfer and (B) the date on which the Holder otherwise becomes aware of the Prohibited Transfer, each Holder shall, if exercising the option created hereby, deliver to the Common Holder the certificate or certificates representing shares to be sold, each certificate to be properly endorsed for transfer.
(iii)The Common Holder shall, upon receipt of the certificate or certificates for the shares to be sold by a Holder pursuant to this Section 2.5, pay the aggregate purchase price therefor and the amount of fees and expenses reimbursable under Section 2.5(c)(i) in cash or by other means acceptable to the Holder.
2.6Violation of First Refusal Right. If any Common Holder becomes obligated to sell any Equity Securities to the Company or any Holder under this Agreement and fails to deliver such Equity Securities in accordance with the terms of this Agreement, the Company and/or such Holder may, at its option, in addition to all other remedies it may have, send to such Common Holder the purchase price for such Equity Securities as is herein specified and transfer to the name of the Company or such Holder (or request that the Company effect such transfer in the name of a Holder) on the Company’s books the certificate or certificates representing the Equity Securities to be sold.
2.7Status of Shares. Holders that have exercised their rights to purchase the Offered Shares and/or the Remaining Shares pursuant to Section 2.1 shall acquire the Offered Shares and/or the Remaining Shares free and clear of subsequent rights of first refusal and co-sale rights under this Agreement.
3.Assignments and Transfers; No Third-Party Beneficiaries.
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3.1Assignment of Rights. This Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, their respective successors, assigns and legal representatives, but shall not otherwise be for the benefit of any third party.
3.2Condition to Transfer. Any successor or permitted assignee of any Common Holder, including any prospective transferee who purchases any Equity Securities in accordance with the terms hereof, shall deliver to the Company and the Holders, as a condition to any transfer or assignment, a counterpart signature page hereto pursuant to which such successor or permitted assignee shall confirm their agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the predecessor or assignor of such successor or permitted assignee.
3.3Restrictions on Assignment. The rights of the Holders hereunder are only assignable (a) to any other Holder, (b) to a partner, member or Affiliate of such Holder or (c) to an assignee or transferee who acquires all of the Equity Securities held by a particular Holder or at least [***] shares of Common Stock (including shares of Common Stock issuable upon conversion of Preferred Shares) (as adjusted for stock splits, combinations, dividends, recapitalizations and the like); provided, that any such assignment shall be subject to and conditioned upon any such assignee’s delivery to the Company a counterpart signature page hereto pursuant to which such assignee shall confirm his, her or its agreement to be subject to and bound by all of the provisions set forth in this Agreement that were applicable to the assignor of such assignee. Notwithstanding Section 10 of this Agreement, no consent shall be necessary to update Schedule B to add any such assignee as an “Investor” hereunder.
4.Legend. Each existing or replacement certificate for shares now owned or hereafter acquired by a Common Holder shall bear the following legend upon its face:
“THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND RESTATED FIRST REFUSAL AND CO-SALE AGREEMENT BY AND BETWEEN THE STOCKHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION, AS MAY BE AMENDED AND/OR RESTATED FROM TIME TO TIME. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.”
5.Effect of Change in Company’s Capital Structure. If, from time to time, the Company pays a stock dividend or effects a stock split or other change in the character or amount of any of the outstanding stock of the Company, then in such event any and all new, substituted or additional securities to which a Common Holder is entitled by reason of such Common Holder’s ownership of Equity Securities shall be immediately subject to the rights and obligations set forth in this Agreement with the same force and effect as the stock subject to such rights immediately before such event.
6.Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. The occurrence of the events set forth in clauses (a) through (d) above shall constitute “Delivery” of notice. All notices and other communications
8
shall be sent to the Company at and to the other parties at the addresses set forth on the signature pages and/or Schedule A or Schedule B hereto, as applicable (or at such other addresses as shall be specified by notice given in accordance with this Section 6).
7.Further Instruments and Actions. The parties agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. Each Common Holder agrees to cooperate affirmatively with the Company, the Investors and the Holders to enforce rights and obligations pursuant hereto.
8.Term. This Agreement shall terminate and be of no further force or effect upon [***]
9.Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter hereof and supersedes all other agreements between or among any of the parties with respect to the subject matter hereof, including without limitation the Prior Agreement. This Agreement shall be interpreted under the laws of the State of Delaware without reference to Delaware conflicts of law provisions.
10.Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of [***] Notwithstanding the foregoing, (i) this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Holder without the written consent of such Holder, unless such amendment, termination, or waiver applies to all Holders in the same fashion. [***].
11.Severability. If one or more provisions of this Agreement is held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
12.Attorneys’ Fees. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including, without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
13.Aggregation of Stock. For the purposes of determining the availability of any rights under this Agreement, the holdings of any transferee and assignee of an individual or a partnership who is a spouse, ancestor, lineal descendant or siblings of such individual or partners or retired partners of such partnership or Affiliates of such partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses who acquire Common Stock by gift, will or intestate succession) shall be aggregated together with the individual or partnership, as the case may be, for the purpose of exercising any rights or taking any action under this Agreement.
14.Conflict with Other Rights of First Refusal. Each Common Holder has entered into a stock purchase agreement or stock restriction agreement with the Company on the Company’s standard form (together with any additional stock purchase agreements, stock restriction agreements or option agreements that a Common Holder may enter into with the Company, the “Purchase Agreements”), which agreement contains a right of first refusal provision in favor of the Company. For so long as this Agreement remains in existence, the right of first refusal provisions contained in this Agreement shall supersede the right of first refusal
9
provisions contained in the Common Holder’s Purchase Agreements; provided, however, that the other provisions of the Common Holder’s Purchase Agreements shall remain in full force and effect. If, however, this Agreement shall terminate, the right of first refusal provisions contained in the Common Holder’s Purchase Agreements shall be in full force and effect in accordance with its terms.
15.Additional Investors. Notwithstanding Section 10 of this Agreement, no consent shall be necessary to add additional Investors as signatories to this Agreement and to update Schedule B accordingly, provided that such Investors have purchased Series D Preferred Stock pursuant to the Series D Agreement.
16.Specific Performance. In addition to any and all other remedies that may be available at law in the event of any breach of this Agreement, each Holder shall be entitled to specific performance of the agreements and obligations of the Company, the Common Holder and the other Holders hereunder and to such other injunction or other equitable relief as may be granted by a court of competent jurisdiction.
17.Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered by facsimile, electronic mail (including pdf) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
18.Additional Common Holders. In the event that after the date of this Agreement, the Company issues shares of Common Stock to any officer of the Company or to any other individual, which shares would collectively constitute with respect to such individual (taking into account all shares of Common Stock, options and other purchase rights held by such individual) [***] or more of the Company’s then outstanding Common Stock (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised or converted), the Company shall, as a condition to such issuance, cause such officer of the Company or such other individual to execute a counterpart signature page hereto as a Common Holder, and such person shall thereby be bound by, and subject to, all the terms and provisions of this Agreement applicable to a Common Holder. Notwithstanding Section 10 of this Agreement, no consent shall be necessary to add such additional Common Holders as signatories to this Agreement and update Schedule A accordingly.
19.Effect on Prior Agreement. Upon the effectiveness of this Agreement, the Prior Agreement automatically shall terminate and be of no further force and effect and shall be amended and restated in its entirety as set forth in this Agreement.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
COMPANY:
AKILI INTERACTIVE LABS, INC.
By: /s/ W. Edward Martucci
Name: W. Edward Martucci, Ph.D.
Title: Chief Executive Officer
Address: 125 Broad Street, 5th Floor
Boston, MA 02110
Signature Page to
Amended and Restated First Refusal and Co-Sale Agreement for Akili Interactive Labs, Inc.
Amended and Restated First Refusal and Co-Sale Agreement for Akili Interactive Labs, Inc.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.
INVESTORS:
[***]
Signature Page to
Amended and Restated First Refusal and Co-Sale Agreement for Akili Interactive Labs, Inc.
Amended and Restated First Refusal and Co-Sale Agreement for Akili Interactive Labs, Inc.
S-1
Exhibit 4.25
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT
TABLE OF CONTENTS
Page
i
Schedule A - Schedule of Investors
Schedule B - Schedule of Noteholders
Exhibit A - Form of Noncompetition and Nonsolicitation Agreement
ii
AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (this “Agreement”), is made as of the 1st day of March, 2023, by and among Vedanta Biosciences, Inc., a Delaware corporation (the “Company”) each of the investors listed on Schedule A hereto, each of which is referred to in this Agreement as an “Investor”, each of the noteholders listed on Schedule B hereto, each of which is referred to in this Agreement as a “Noteholder” and each other person who becomes party to this Agreement as a Key Holder pursuant to Section 12.9(c).
RECITALS
WHEREAS, the Investors hold shares of the Company’s Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-2 Preferred Stock and/or Series D Preferred Stock and possess certain rights to cause the Company to register shares of Common Stock issuable to the Investors, to receive certain information from the Company, to participate in future equity offerings by the Company, and certain other rights pursuant to that certain Amended and Restated Investors’ Rights Agreement, dated as of July 14, 2021, as such was amended, by and among the Company and such Investors (the “Prior Agreement”);
WHEREAS, the Investors holding at least [***] of the Preferred Stock outstanding as of the date hereof required to amend the Prior Agreement desire to amend and restate the Prior Agreement in its entirety and to accept the rights created pursuant to this Agreement in lieu of the rights granted under the Prior Agreement;
WHEREAS, the Company and the Noteholders are parties to that certain Secured Convertible Promissory Note Purchase Agreement of even date herewith (as may be amended from time to time, the “Purchase Agreement”) for the purchase and sale of secured convertible promissory notes thereunder (each, a “Note”), and it is a condition to the closing of the sale of the Notes that such Investors and the Company execute and deliver this Agreement adding the Noteholders as party to the Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt and adequacy of which is hereby acknowledged, the Investors hereby agree that the Prior Agreement shall be amended and restated and the parties to this Agreement further agree as follows:
1.Definitions. For purposes of this Agreement:
(i)“Affiliate” means with respect to any specified Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with such Person, including without limitation any general partner, managing member, officer or director of such Person or any venture capital or investment fund now or hereafter existing that is controlled by one or more general partners or managing members of, or shares the same management company with, such Person. [***].
(ii)[***].
(iii)[***].
(iv)“Board” means the board of directors of the Company.
(v)“Code” means the U.S. Internal Revenue Code of 1986, as amended.
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(vi)“Common Stock” means shares of the Company’s common stock, par value $0.0001 per share.
(vii)“Competitor” means [***].
(viii)“Damages” means any loss, damage, claim or liability (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such loss, damage, claim or liability (or any action in respect thereof) arises out of or is based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement of the Company, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) an omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the indemnifying party (or any of its agents or Affiliates) of the Securities Act, the Exchange Act, any state securities law, or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law.
(ix)“Derivative Securities” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including the Notes, options and warrants.
(x)“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(xi)“Excluded Registration” means (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities; or (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered.
(xii)“FOIA Party” means a Person that, in the reasonable determination of the Board, may be subject to, and thereby required to disclose nonpublic information furnished by or relating to the Company under, the Freedom of Information Act, 6 U.S.C. 552 (“FOIA”), any state public records access law, any state or other jurisdiction’s laws similar in intent or effect to FOIA, or any other similar statutory or regulatory requirement.
(xiii)“Form S-1” means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC.
(xiv)“Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the SEC that permits incorporation of substantial information by reference to other documents filed by the Company with the SEC.
(xv)“GAAP” means generally accepted accounting principles in the United States.
(xvi)[***].
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(xvii)[***].
(xviii)“Holder” means an Investor, a Noteholder and any holder of Registrable Securities who is a party to this Agreement.
(xix)“Immediate Family Member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including, adoptive relationships, of a natural person referred to herein.
(xx)“Initiating Holders” means collectively, Holders who properly initiate a registration request under this Agreement.
(xxi)“IPO” means (1) the Company’s first underwritten public offering of its Common Stock under the Securities Act or (2) a SPAC Transaction (as defined in the Restated Certificate (as defined in the Purchase Agreement).
(xxii)“Key Employee” means [***].
(xxiii)“Lead Investor Majority” has the meaning given to it in the Purchase Agreement.
(xxiv)[***].
(xxv)“New Securities” means collectively, equity securities of the Company, whether or not currently authorized, as well as rights, options, or warrants to purchase such equity securities, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable for such equity securities.
(xxvi)“Noteholders” means the holders of Notes set forth in Schedule B.
(xxvii)“Permitted Transferee” means (i) with respect to any Holder that is a discretionary managed fund or its nominee: (A) any partner, member, trustee, manager, beneficiary, shareholder, investor or other participant in such fund which is or whose nominee is the transferor (but only in connection with the dissolution of such fund or any distribution of assets of the fund pursuant to the operation of the fund in the ordinary course), (B) any other fund whose business is managed or advised by the same investment manager as manages or advises the fund which is or whose nominee is the transferor or another investment manager in the same group of companies as such first investment manager, (C) the investment manager who manages the business of the fund which is or whose nominee is the transferor, (D) any directors or employees of such Holder or any of the foregoing or any trust or carried interest or similar partnership in which they or any of them participate and/or (E) any nominee or custodian of the foregoing; (ii) with respect to any Holder that is an investment manager or its nominee: (A) any partner, member, trustee, manager, beneficiary, shareholder, investor or other participant in any investment fund in respect of which the shares to be transferred are held (but only in connection with the dissolution of such investment fund or any distribution of assets of the investment fund pursuant to the operation of the investment fund in the ordinary course), (B) any investment fund whose business is managed by the investment manager who is or whose nominee is the transferor, (C) any other investment manager who manages the business of the investment fund in respect of which the shares are held, (D) any directors or employees of such Holder or any of the foregoing or any trust or carried interest or similar partnership in which they or any of them participate and/or (E) any nominee or
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custodian of the foregoing; (iii) with respect to the Gates Foundation (A) any successor charitable organization of the Gates Foundation from time to time that is a tax-exempt organization as described in Section 501(c)(3) of the Code, or (b) any tax-exempt organization as described in Section 501(c)(3) of the Code controlled by one or more trustees of the Gates Foundation and (iv) with respect to the Magnetar Group: (A) any partner, member, trustee, manager, beneficiary, shareholder, investor or other participant in such entity which is or whose nominee is the transferor (but only in connection with the dissolution of such entity or any distribution of assets of the entity pursuant to the operation of such entity in the ordinary course), (B) any other entity whose business is managed or advised by the same investment manager as manages or advises such entity which is or whose nominee is the transferor or another investment manager in the same group of companies as such first investment manager, (C) the investment manager who manages the business of such entity which is or whose nominee is the transferor, (D) any directors, managers or employees of such Holder or any of the foregoing or any trust or carried interest or similar partnership in which they or any of them participate and/or (E) any nominee or custodian of the foregoing.
(xxviii)“Person” means any individual, corporation, partnership, trust, limited liability company, association or other entity.
(xxix)“Preferred Stock” means collectively, shares of the Company’s Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-2 Preferred Stock and Series D Preferred Stock.
(xxx)“Preferred Director” means [***]
(xxxi)“Registrable Securities” means (i) Common Stock issuable or issued upon conversion of the Preferred Stock and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right, or other security that is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares referenced in clause (i) above; excluding in all cases, however, any Registrable Securities sold by a Person in a transaction in which the applicable rights under this Agreement are not assigned pursuant to Subsection 13.1, and excluding for purposes of Section 2 any shares for which registration rights have terminated pursuant to Subsection 2.13 of this Agreement.
(xxxii)“Registrable Securities then outstanding” means the number of shares determined by adding the number of shares of outstanding Common Stock that are Registrable Securities and the number of shares of Common Stock issuable (directly or indirectly) pursuant to then exercisable and/or convertible securities that are Registrable Securities.
(xxxiii)“Restricted Securities” means the securities of the Company required to be notated with the legend set forth in Subsection 2.12(b) hereof.
(xxxiv)“Rock Springs” means Rock Springs Capital Master Fund LP, Four Pines Master Fund LP, and their Affiliates.
(xxxv)“SEC” means the Securities and Exchange Commission.
(xxxvi)“SEC Rule 144” means Rule 144 promulgated by the SEC under the Securities Act.
(xxxvii)“SEC Rule 145” means Rule 145 promulgated by the SEC under the Securities Act.
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(xxxviii)“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(xxxix)”Selling Expenses” means all underwriting discounts, selling commissions, and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any Holder, except for the fees and disbursements of the Selling Holder Counsel borne and paid by the Company as provided in Subsection 2.6.
(xl)[***]
(xli)[***]
(xlii)“Series A-1 Preferred Stock” means shares of the Company’s Series A-1 Preferred Stock, par value $0.0001 per share.
(xliii)“Series B Preferred Stock” means shares of the Company’s Series B Preferred Stock, par value $0.0001 per share.
(xliv)“Series C Preferred Stock” means shares of the Company’s Series C Preferred Stock, par value $0.0001 per share.
(xlv)“Series C-2 Preferred Stock” means shares of the Company’s Series C-2 Preferred Stock, par value $0.0001 per share.
(xlvi)“Series D Preferred Stock” means shares of the Company’s Series D Preferred Stock, par value $0.0001 per share.
(xlvii)[***].
(xlviii)“Stockholder” means a Holder , a Key Holder, and each other person who becomes party to this Agreement pursuant to Section 12.9.
2.Registration Rights. The Company covenants and agrees as follows:
1.1Demand Registration.
(a)Form S-1 Demand. If at any time after the earlier of (i) [***] after the date of this Agreement or (ii) [***] after the effective date of the registration statement for the IPO, the Company receives a request from Holders of at least [***] of the Registrable Securities then outstanding that the Company file a Form S-1 registration statement with respect to at least [***] of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of Selling Expenses, would exceed [***]), then the Company shall (x) within [***] after the date such request is given, give notice thereof (the “Demand Notice”) to all Holders other than the Initiating Holders; and (y) as soon as practicable, and in any event within [***] after the date such request is given by the Initiating Holders, file a Form S-1 registration statement under the Securities Act covering all Registrable Securities that the Initiating Holders requested to be registered and any additional Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within [***] of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.
(b)Form S-3 Demand. If at any time when it is eligible to use a Form S-3 registration statement, the Company receives a request from Holders of at least [***] of the Registrable Securities then outstanding that the Company file a Form S-3 registration statement with respect to
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outstanding Registrable Securities of such Holders having an anticipated aggregate offering price, net of Selling Expenses, of at least [***], then the Company shall (i) within [***] after the date such request is given, give a Demand Notice to all Holders other than the Initiating Holders; and (ii) as soon as practicable, and in any event within [***] after the date such request is given by the Initiating Holders, file a Form S-3 registration statement under the Securities Act covering all Registrable Securities requested to be included in such registration by any other Holders, as specified by notice given by each such Holder to the Company within [***] of the date the Demand Notice is given, and in each case, subject to the limitations of Subsections 2.1(c) and 2.3.
(c)Notwithstanding the foregoing obligations, if the Company furnishes to Holders requesting a registration pursuant to this Subsection 2.1 a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Board it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Exchange Act, then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than [***] after the request of the Initiating Holders is given; provided, however, that the Company may not invoke this right more than [***] in any [***] period; and provided further that the Company shall not register any securities for its own account or that of any other stockholder during such [***] period other than an Excluded Registration.
(d)The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(a) (i) during the period that is [***] before the Company’s good faith estimate of the date of filing of, and ending on a date that is [***] after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; (ii) after the Company has effected [***] registrations pursuant to Subsection 2.1(a); or (iii) if the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Subsection 2.1(b). The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Subsection 2.1(b) (i) during the period that is [***] before the Company’s good faith estimate of the date of filing of, and ending on a date that is [***] after the effective date of, a Company-initiated registration, provided that the Company is actively employing in good faith commercially reasonable efforts to cause such registration statement to become effective; or (ii) if the Company has effected two registrations pursuant to Subsection 2.1(b) within the [***] period immediately preceding the date of such request. A registration shall not be counted as “effected” for purposes of this Subsection 2.1(d) until such time as the applicable registration statement has been declared effective by the SEC, unless the Initiating Holders withdraw their request for such registration, elect not to pay the registration expenses therefor, and forfeit their right to one demand registration statement pursuant to Subsection 2.6, in which case such withdrawn registration statement shall be counted as “effected” for purposes of this Subsection 2.1(d).
1.2Company Registration. If the Company proposes to register (including, for this purpose, a registration effected by the Company for stockholders other than the Holders) any of its Common Stock under the Securities Act in connection with the public offering of such securities solely for cash (other than in an Excluded Registration), the Company shall, at such time, promptly give each Holder notice of such registration. Upon the request of each Holder given within [***] after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 2.3, cause to be registered all of the Registrable Securities that each such Holder has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 2.2 before the effective date of such registration, whether or not any Holder has elected to include Registrable Securities in such registration. The expenses (other than Selling Expenses) of such withdrawn registration shall be borne by the Company in accordance with Subsection 2.6.
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1.3Underwriting Requirements.
(a)If, pursuant to Subsection 2.1, the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to Subsection 2.1, and the Company shall include such information in the Demand Notice. The underwriter(s) will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder’s Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Subsection 2.4(e)) enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Subsection 2.3, if the managing underwriter advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that otherwise would be underwritten pursuant hereto, and the number of Registrable Securities that may be included in the underwriting shall be allocated among such Holders of Registrable Securities, including the Initiating Holders, in proportion (as nearly as practicable) to the number of Registrable Securities owned by each Holder or in such other proportion as shall mutually be agreed to by all such selling Holders; provided, however, that the number of Registrable Securities held by the Holders to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares.
(b)In connection with any offering involving an underwriting of shares of the Company’s capital stock pursuant to Subsection 2.2, the Company shall not be required to include any of the Holders’ Registrable Securities in such underwriting unless the Holders accept the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine in good faith will not jeopardize the success of the offering by the Company. If the total number of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the number of securities to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. If the underwriters determine in good faith that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be allocated among the selling Holders in proportion (as nearly as practicable to) the number of Registrable Securities owned by each selling Holder or in such other proportions as shall mutually be agreed to by all such selling Holders. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. Notwithstanding the foregoing, in no event shall (i) the number of Registrable Securities included in the offering be reduced unless all other securities (other than securities to be sold by the Company) are first entirely excluded from the offering, or (ii) the number of Registrable Securities included in the offering be reduced below [***] of the total number of securities included in such offering, unless such offering is the IPO, in which case the selling Holders may be excluded further if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the provision in this Subsection 2.3(b) concerning apportionment, for any selling Holder that is a partnership, limited liability company, or corporation, the partners, members, retired partners, retired members, stockholders, and Affiliates of such Holder, or the estates and Immediate Family Members of any such partners, retired partners, members, and retired members and any trusts for the benefit of any of the foregoing Persons, shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate number of Registrable Securities owned by all Persons included in such “selling Holder,” as defined in this sentence.
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1.4Obligations of the Company. Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:
(a)prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its commercially reasonable efforts to cause such registration statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to [***] or, if earlier, until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such [***] period shall be extended for a period of time equal to the period the Holder refrains, at the request of an underwriter of Common Stock (or other securities) of the Company, from selling any securities included in such registration, and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, subject to compliance with applicable SEC rules, such [***] period shall be extended for up to [***], if necessary, to keep the registration statement effective until all such Registrable Securities are sold;
(b)prepare and file with the SEC such amendments and supplements to such registration statement, and the prospectus used in connection with such registration statement, as may be necessary to comply with the Securities Act in order to enable the disposition of all securities covered by such registration statement;
(c)furnish to the selling Holders such numbers of copies of a prospectus, including a preliminary prospectus, as required by the Securities Act, and such other documents as the Holders may reasonably request in order to facilitate their disposition of their Registrable Securities;
(d)use its commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or blue-sky laws of such jurisdictions as shall be reasonably requested by the selling Holders; provided that the Company shall not be required to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(e)in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the underwriter(s) of such offering;
(f)use its commercially reasonable efforts to cause all such Registrable Securities covered by such registration statement to be listed on a national securities exchange or trading system and each securities exchange and trading system (if any) on which similar securities issued by the Company are then listed;
(g)provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and provide a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration;
(h)promptly make available for inspection by the selling Holders, any managing underwriter participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith;
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(i)notify each selling Holder, promptly after the Company receives notice thereof, of the time when such registration statement has been declared effective or a supplement to any prospectus forming a part of such registration statement has been filed; and
(j)after such registration statement becomes effective, notify each selling Holder of any request by the SEC that the Company amend or supplement such registration statement or prospectus.
In addition, the Company shall ensure that, at all times after any registration statement covering a public offering of securities of the Company under the Securities Act shall have become effective, its insider trading policy shall provide that the Company’s directors may implement a trading program under Rule 10b5-1 of the Exchange Act.
1.5Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 2 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as is reasonably required to effect the registration of such Holder’s Registrable Securities.
1.6Expenses of Registration. All expenses (other than Selling Expenses) incurred in connection with registrations, filings, or qualifications pursuant to Section 2, including all registration, filing, and qualification fees; printers’ and accounting fees; fees and disbursements of counsel for the Company; and the reasonable fees and disbursements of one counsel for the selling Holders (“Selling Holder Counsel”), shall be borne and paid by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Subsection 2.1 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all selling Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one registration pursuant to Subsections 2.1(a) or 2.1(b), as the case may be. All Selling Expenses relating to Registrable Securities registered pursuant to this Section 2 shall be borne and paid by the Holders pro rata on the basis of the number of Registrable Securities registered on their behalf.
1.7Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration pursuant to this Agreement as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2.
1.8Indemnification. If any Registrable Securities are included in a registration statement under this Section 2:
(a)To the extent permitted by law, the Company will indemnify and hold harmless each selling Holder, and the partners, members, officers, directors, and stockholders of each such Holder; legal counsel and accountants for each such Holder; any underwriter (as defined in the Securities Act) for each such Holder; and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Damages, and the Company will pay to each such Holder, underwriter, controlling Person, or other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(a) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Company, which consent shall not be unreasonably withheld, nor shall the Company be liable for any Damages to the extent that they arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of any such Holder, underwriter, controlling Person, or other aforementioned Person expressly for use in connection with such registration.
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(b)To the extent permitted by law, each selling Holder, severally and not jointly, will indemnify and hold harmless the Company, and each of its directors, each of its officers who has signed the registration statement, each Person (if any), who controls the Company within the meaning of the Securities Act, legal counsel and accountants for the Company, any underwriter (as defined in the Securities Act), any other Holder selling securities in such registration statement, and any controlling Person of any such underwriter or other Holder, against any Damages, in each case only to the extent that such Damages arise out of or are based upon actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such selling Holder expressly for use in connection with such registration; and each such selling Holder will pay to the Company and each other aforementioned Person any legal or other expenses reasonably incurred thereby in connection with investigating or defending any claim or proceeding from which Damages may result, as such expenses are incurred; provided, however, that the indemnity agreement contained in this Subsection 2.8(b) shall not apply to amounts paid in settlement of any such claim or proceeding if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; and provided further that in no event shall the aggregate amounts payable by any Holder by way of indemnity or contribution under Subsections 2.8(b) and (d) exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of fraud or willful misconduct by such Holder.
(c)Promptly after receipt by an indemnified party under this Subsection 2.8 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification hereunder, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Subsection 2.8, give the indemnifying party notice of the commencement thereof. The indemnifying party shall have the right to participate in such action and, to the extent the indemnifying party so desires, participate jointly with any other indemnifying party to which notice has been given, and to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such action. The failure to give notice to the indemnifying party within a reasonable time of the commencement of any such action shall relieve such indemnifying party of any liability to the indemnified party under this Subsection 2.8, to the extent that such failure materially prejudices the indemnifying party’s ability to defend such action. The failure to give notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Subsection 2.8.
(d)To provide for just and equitable contribution to joint liability under the Securities Act in any case in which either: (i) any party otherwise entitled to indemnification hereunder makes a claim for indemnification pursuant to this Subsection 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case, notwithstanding the fact that this Subsection 2.8 provides for indemnification in such case, or (ii) contribution under the Securities Act may be required on the part of any party hereto for which indemnification is provided under this Subsection 2.8, then, and in each such case, such parties will contribute to the aggregate losses, claims, damages, liabilities, or expenses to which they may be subject (after contribution from others) in such proportion as is appropriate to reflect the relative fault of each of the indemnifying party and the indemnified party in connection with the statements, omissions, or other actions that resulted in such loss, claim, damage, liability, or expense, as well as to reflect any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or allegedly untrue statement of a material fact, or the omission or alleged omission of a material fact, relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, however, that, in any such case (x) no Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement, and (y) no Person guilty of fraudulent misrepresentation (within
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the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Subsection 2.8(d), when combined with the amounts paid or payable by such Holder pursuant to Subsection 2.8(b), exceed the proceeds from the offering received by such Holder (net of any Selling Expenses paid by such Holder), except in the case of willful misconduct or fraud by such Holder.
(e)Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(f)Unless otherwise superseded by an underwriting agreement entered into in connection with the underwritten public offering, the obligations of the Company and Holders under this Subsection 2.8 shall survive the completion of any offering of Registrable Securities in a registration under this Section 2, and otherwise shall survive the termination of this Agreement.
1.9Reports Under Exchange Act. With a view to making available to the Holders the benefits of SEC Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company shall:
(a)make and keep available adequate current public information, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the registration statement filed by the Company for the IPO;
(b)use commercially reasonable efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after the Company has become subject to such reporting requirements); and
(c)furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) to the extent accurate, a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the registration statement filed by the Company for the IPO), the Securities Act, and the Exchange Act (at any time after the Company has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after the Company so qualifies); (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company; and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration (at any time after the Company has become subject to the reporting requirements under the Exchange Act) or pursuant to Form S-3 (at any time after the Company so qualifies to use such form).
1.10Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of [***] of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder to include such securities in any registration unless, under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the number of the Registrable Securities of the Holders that are included; provided that this limitation shall not apply to any additional Investor who becomes a party to this Agreement in accordance with Subsection 12.9 [***].
1.11“Market Stand-off” Agreement. Subject to the provisions of Subsection 12.1, each Holder, to the extent permitted by applicable laws and regulations, hereby agrees that it will not,
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without the prior written consent of the managing underwriter (any such consent received, a “Lock-Up Waiver”), during the period commencing on the date of the final prospectus relating to the registration by the Company for its own behalf of shares of its Common Stock under the Securities Act on a registration statement on Form S-1, and ending on the date specified by the Company and the managing underwriter (such period not to exceed [***]), (i) lend; offer; pledge; sell; contract to sell; sell any option or contract to purchase; purchase any option or contract to sell; grant any option, right, or warrant to purchase; or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable (directly or indirectly) for Common Stock held immediately before the effective date of the registration statement for such offering or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of such securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash, or otherwise; provided that the obligations described in this Subsection 2.11 shall not apply to any transfer that such Holder is required to make in order to comply with laws or regulations applicable to it (including those that have been established in accordance with the UCITS (Undertakings for Collective Investment in Transferable Securities) Directive). [***]. The foregoing provisions of this Subsection 2.11 shall apply only to the IPO and shall not apply to (i) the sale of any shares to an underwriter pursuant to an underwriting agreement, (ii) shares acquired by any Holder in an IPO or subsequent to an IPO in the open market, (iii) the transfer of any shares to any Affiliate or limited partner (or equivalent) of a Holder, provided that such transferee agrees to be bound in writing by the restrictions set forth herein or (iv) the transfer of any shares to any trust for the direct or indirect benefit of the Holder or the immediate family of the Holder, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, and shall be applicable to the Holders only if all officers and directors are subject to the same restrictions and the Company uses commercially reasonable efforts to obtain a similar agreement from all stockholders individually owning more than [***] of the Company’s outstanding Common Stock (after giving effect to conversion into Common Stock of all outstanding Preferred Stock). The Company and PureTech hereby agree, and all of the Investors hereby acknowledge, that PureTech shall, without in any way limiting the obligations of any Investor other than PureTech under this Subsection 2.11, be granted additional exceptions to the application of this Subsection 2.11, as agreed upon in good faith by the Company and PureTech, to the extent reasonably necessary for PureTech to maintain exemption from registration under the Investment Company Act of 1940; provided, however, that to the extent that PureTech is granted any such additional exception, each other Holder shall, unless otherwise determined in writing by a Lead Investor Majority, also be granted an additional such exception so that the same pro rata portion of PureTech’s and each such other Holder’s Registrable Securities will not be subject to the foregoing restrictions of this Subsection 2.11. The underwriters in connection with such registration are intended third-party beneficiaries of this Subsection 2.11 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in connection with such registration that are consistent with this Subsection 2.11 or that are necessary to give further effect thereto.
1.12Restrictions on Transfer.
(a)The Preferred Stock and the Registrable Securities shall not be sold, pledged, or otherwise transferred, and the Company shall not recognize and shall issue stop-transfer instructions to its transfer agent with respect to any such sale, pledge, or transfer, except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. A transferring Holder will cause any proposed purchaser, pledgee, or transferee of the Preferred Stock and the Registrable Securities held by such Holder to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Agreement.
(b)Each certificate, instrument, or book entry representing (i) the Preferred Stock, (ii) the Registrable Securities, and (iii) any other securities issued in respect of the securities referenced in clauses (i) and (ii), upon any stock split, stock dividend, recapitalization, merger, consolidation, or similar event, shall (unless otherwise permitted by the provisions of Subsection 2.12(c)) be notated with a legend substantially in the following form:
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THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, PLEDGED, OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR A VALID EXEMPTION FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THE SECURITIES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
The Holders consent to the Company making a notation in its records and giving instructions to any transfer agent of the Restricted Securities in order to implement the restrictions on transfer set forth in this Subsection 2.12.
(c)The holder of such Restricted Securities, by acceptance of ownership thereof, agrees to comply in all respects with the provisions of this Section 2. Before any proposed sale, pledge, or transfer of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transaction, the Holder thereof shall give notice to the Company of such Holder’s intention to effect such sale, pledge, or transfer. Each such notice shall describe the manner and circumstances of the proposed sale, pledge, or transfer in sufficient detail and, if reasonably requested by the Company, shall be accompanied at such Holder’s expense by either (i) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company, addressed to the Company, to the effect that the proposed transaction may be effected without registration under the Securities Act; (ii) a “no action” letter from the SEC to the effect that the proposed sale, pledge, or transfer of such Restricted Securities without registration will not result in a recommendation by the staff of the SEC that action be taken with respect thereto; or (iii) any other evidence reasonably satisfactory to counsel to the Company to the effect that the proposed sale, pledge, or transfer of the Restricted Securities may be effected without registration under the Securities Act, whereupon the Holder of such Restricted Securities shall be entitled to sell, pledge, or transfer such Restricted Securities in accordance with the terms of the notice given by the Holder to the Company. The Company will not require such a legal opinion or “no action” letter (x) in any transaction in compliance with SEC Rule 144; or (y) in any transaction in which such Holder distributes Restricted Securities to an Affiliate of such Holder for no consideration; provided that each transferee agrees in writing to be subject to the terms of this Subsection 2.12. Each certificate, instrument, or book entry representing the Restricted Securities transferred as above provided shall be notated with, except if such transfer is made pursuant to SEC Rule 144, the appropriate restrictive legend set forth in Subsection 2.12(b), except that such certificate instrument, or book entry shall not be notated with such restrictive legend if, in the opinion of counsel for such Holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act.
1.13Termination of Registration Rights. The right of any Holder to request registration or inclusion of Registrable Securities in any registration pursuant to Subsections 2.1 or 2.2 shall terminate upon the earliest to occur of: [***].
3.Voting Provisions Regarding Board of Directors.
1.1Size of the Board. Each Stockholder agrees to vote, or cause to be voted, all Shares (as defined below) owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that the size of the Board shall be set and remain at eleven (11) directors and so long as at least [***] of the Preferred Stock outstanding as of the date hereof remain outstanding, may be increased only with the written consent of Investors holding a majority of the Preferred Stock then outstanding. For purposes of this Section 3, the term “Shares” shall mean and include any securities of the Company the holders of which are entitled to vote for members of the Board, including without limitation, all shares of Common
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Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series C-2 Preferred Stock and Series D Preferred Stock, by whatever name called, now owned or subsequently acquired by a Stockholder, however acquired, whether through stock splits, stock dividends, reclassifications, recapitalizations, similar events or otherwise.
1.2Board Composition. Each Stockholder agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, the following persons shall be elected to the Board:
(a)Two persons designated by a majority of the holders of the Series A-1 Preferred Stock then outstanding, one of which individuals shall initially be Bennett Shapiro (the “Series A-1 Designees”), and one seat shall be vacant as of the date hereof, for so long as such Stockholders and their Affiliates continue to own beneficially any shares of Series A-1 Preferred Stock.
(b)Two persons designated by a majority of the holders of the Series B Preferred Stock then outstanding, which individuals shall initially be John LaMattina and one vacancy (the “Series B Designees”), for so long as such Stockholders and their Affiliates continue to own beneficially any shares of Series B Preferred Stock.
(c)[***].
(d)[***].
(e)[***].
(f)[***].
(g)[***].
(h)[***].
(i)[***].
To the extent that any of clauses (a) through (i) above shall not be applicable, any member of the Board who would otherwise have been designated in accordance with the terms thereof shall instead be voted upon by all the stockholders of the Company entitled to vote thereon in accordance with, and pursuant to, the Restated Certificate.
1.3Failure to Designate a Board Member. In the absence of any designation from the Persons or groups with the right to designate a director as specified above, the director previously designated by them and then serving shall be reelected if still eligible to serve as provided herein.
1.4Removal of Board Members. Each Stockholder also agrees to vote, or cause to be voted, all Shares owned by such Stockholder, or over which such Stockholder has voting control, from time to time and at all times, in whatever manner as shall be necessary to ensure that:
(a)no director elected pursuant to Subsections 3.2 or 3.3 of this Agreement may be removed from office other than for cause unless (i) such removal is directed or approved by the affirmative vote of the Person, or of the holders of a majority of the shares of stock, entitled under Subsections 3.2 to designate that director; or (ii) the Person(s) originally entitled to designate or approve such director pursuant to Subsections 3.2 is no longer so entitled to designate or approve such director;
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(b)any vacancies created by the resignation, removal or death of a director elected pursuant to Subsections 3.2 or 3.3 shall be filled pursuant to the provisions of this Section 3; and
(c)upon the request of any party entitled to designate a director as provided in Subsection 3.2 to remove such director, such director shall be removed.
All Stockholders agree to execute any written consents required to perform the obligations of this Agreement, and the Company agrees at the request of any party entitled to designate directors to call a special meeting of stockholders for the purpose of electing directors.
1.5No Liability for Election of Recommended Directors. No Stockholder, nor any Affiliate of any Stockholder, shall have any liability as a result of designating a person for election as a director for any act or omission by such designated person in his or her capacity as a director of the Company, nor shall any Stockholder have any liability as a result of voting for any such designee in accordance with the provisions of this Agreement.
1.6No “Bad Actor” Designees. Each Person with the right to designate or participate in the designation of a director as specified above hereby represents and warrants to the Company that, to such Person’s knowledge, none of the “bad actor” disqualifying events described in Rule 506(d)(1)(i)-(viii) promulgated under the Securities Act (each, a “Disqualification Event”), is applicable to such Person’s initial designee named above except, if applicable, for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable. Any director designee to whom any Disqualification Event is applicable, except for a Disqualification Event as to which Rule 506(d)(2)(ii) or (iii) or (d)(3) is applicable, is hereinafter referred to as a “Disqualified Designee”. Each Person with the right to designate or participate in the designation of a director as specified above hereby covenants and agrees (A) not to designate or participate in the designation of any director designee who, to such Person’s knowledge, is a Disqualified Designee and (B) that in the event such Person becomes aware that any individual previously designated by any such Person is or has become a Disqualified Designee, such Person shall as promptly as practicable take such actions as are necessary to remove such Disqualified Designee from the Board and designate a replacement designee who is not a Disqualified Designee.
4.Information.
1.1Delivery of Financial Statements. The Company shall deliver to each Holder who so requests, provided that the Board has not reasonably determined that such Holder is a Competitor:
(a)as soon as practicable, but in any event within [***] after the end of each fiscal year of the Company (i) a balance sheet as of the end of such year, (ii) statements of income and of cash flows for such year and (iii) a statement of stockholders’ equity as of the end of such year, all such financial statements audited and certified by independent public accountants selected by the Company;
(b)as soon as practicable, but in any event within [***] after the end of each quarter of each fiscal year of the Company, unaudited statements of income and cash flows for such fiscal quarter, an unaudited balance sheet and a statement of stockholders’ equity as of the end of such fiscal quarter, and an up-to-date capitalization table in sufficient detail so as to permit the Holders to calculate their respective percentage of equity ownership in the Company;
(c)such other information relating to the financial condition, annual budget, business, prospects, or corporate affairs of the Company as any Holder may from time to time reasonably request; provided, however, that the Company shall not be obligated under this Subsection 4.1 to provide information (i) that the Company reasonably determines in good faith to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in a form acceptable to the Company); or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel; and
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(d)as soon as practicable, but in any event [***] before the end of each fiscal year, budget and business plan for the next fiscal year (such budget and business plan that is approved by the Board is collectively referred to herein as the “Budget”), approved by the Board and prepared on a [***] basis, including balance sheets, income statements, and statements of cash flow for such [***] and, promptly after prepared, any other budgets or revised budgets prepared by the Company.
If, for any period, the Company has any subsidiary whose accounts are consolidated with those of the Company, then in respect of such period, the financial statements delivered pursuant to the foregoing sections shall be the consolidated and consolidating financial statements of the Company and all such consolidated subsidiaries.
Notwithstanding anything else in this Subsection 4.1 to the contrary, the Company may cease providing the information set forth in this Subsection 4.1 during the period starting with the date [***] before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Subsection 4.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.
1.2Inspection Rights. The Company shall permit each Holder who so requests, provided that the Board has not reasonably determined that such Holder is a Competitor, at such Holder’s expense, to visit and inspect the Company’s properties; examine its books of account and records; and discuss the Company’s affairs, finances, and accounts with its officers, during normal business hours of the Company as may be reasonably requested by the Holder; provided, however, that the Company shall not be obligated pursuant to this Subsection 4.2 to provide access to any information that it reasonably and in good faith considers to be a trade secret or confidential information (unless covered by an enforceable confidentiality agreement, in form acceptable to the Company) or the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.
1.3Observer Rights.
(a) [***].
(b) [***].
1.4Termination of Information Rights. The covenants set forth in Subsections 4.1, 4.2 and 4.3 shall terminate and be of no further force or effect [***].
1.5Confidentiality. Each Holder agrees that such Holder will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor its investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement (including notice of the Company’s intention to file a registration statement), unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Subsection 4.5 by such Holder), (b) is or has been independently developed or conceived by the Holder without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Holder by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that an Holder may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring and/or making decisions with respect to its investment in the Company; (ii) to any prospective purchaser of any Note(s) and/or Registrable Securities from such Holder, if such prospective purchaser agrees to be bound by the provisions of this Subsection 4.5; (iii) to any Affiliate, partner, member, stockholder, or wholly owned subsidiary of such Holder in the ordinary course of business, provided that such Holder informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; or (iv) as may otherwise be
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required by law, provided that the Holder promptly notifies the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure.
5.Rights to Future Stock Issuances.
1.1Right of First Offer. Subject to the terms and conditions of this Subsection 5.1 and applicable securities laws, if the Company proposes to offer or sell any New Securities, the Company shall first offer such New Securities to each Holder. A Holder shall be entitled to apportion the right of first offer hereby granted to it, in such proportions as it deems appropriate, among (i) itself, (ii) its Affiliates and (iii) its beneficial interest holders, such as limited partners, members or any other Person having “beneficial ownership,” as such term is defined in Rule 13d-3 promulgated under the Exchange Act, of such Holder (“Holder Beneficial Owners”); provided that each such Affiliate or Holder Beneficial Owner (x) is not a Competitor or FOIA Party, unless such party’s purchase of New Securities is otherwise consented to by the Board, (y) agrees to enter into this Agreement (provided that any Competitor or FOIA Party shall not be entitled to any rights as an Holder under Subsections 4.1, 4.2 and 5.1 hereof), and (z) agrees to purchase at least such number of New Securities as are allocable hereunder to the Holder holding the fewest number of Preferred Stock and any other Derivative Securities.
(a)The Company shall give notice (the “Offer Notice”) to each Holder, stating (i) its bona fide intention to offer such New Securities, (ii) the number of such New Securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such New Securities.
(b)By notification to the Company within [***] after the Offer Notice is given, each Holder may elect to purchase or otherwise acquire, at the price and on the terms specified in the Offer Notice, up to that portion of such New Securities which equals the proportion that the Common Stock then held by such Holder (including all shares of Common Stock then issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held by such Holder) bears to the total Common Stock of the Company then outstanding (assuming full conversion and/or exercise, as applicable, of all Preferred Stock and other Derivative Securities). At the expiration of such [***] period, the Company shall promptly notify each Holder that elects to purchase or acquire all the shares available to it (each, a “Fully Exercising Holder”) of any other Holder’s failure to do likewise. During the [***] period commencing after the Company has given such notice, each Fully Exercising Holder may, by giving notice to the Company, elect to purchase or acquire, in addition to the number of shares specified above, up to that portion of the New Securities for which Holders were entitled to subscribe but that were not subscribed for by the Holders which is equal to the proportion that the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of Preferred Stock and any other Derivative Securities then held, by such Fully Exercising Holder bears to the Common Stock issued and held, or issuable (directly or indirectly) upon conversion and/or exercise, as applicable, of the Preferred Stock and any other Derivative Securities then held, by all Fully Exercising Holders who wish to purchase such unsubscribed shares. The closing of any sale pursuant to this Subsection 5.1(b) shall occur within the later of [***] of the date that the Offer Notice is given and the date of initial sale of New Securities pursuant to Subsection 5.1(c).
(c)If all New Securities referred to in the Offer Notice are not elected to be purchased or acquired as provided in Subsection 5.1(b), the Company may, during the [***] period following the expiration of the periods provided in Subsection 5.1(b), offer and sell the remaining unsubscribed portion of such New Securities to any Person or Persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Offer Notice. If the Company does not enter into an agreement for the sale of the New Securities within such period, or if such agreement is not consummated within [***] of the execution thereof, the right provided hereunder shall be deemed to be revived and such New Securities shall not be offered unless first reoffered to the Holder s in accordance with this Subsection 5.1.
(d)The right of first offer in this Subsection 5.1 shall not be applicable to (i) Exempted Securities (as defined in the Restated Certificate); (ii) shares of Common Stock issued in the IPO; and (iii) the issuance of Notes pursuant to the Purchase Agreement.
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1.2Termination. The covenants set forth in Subsection 5.1 shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a distribution of the proceeds of a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
6.Additional Covenants.
1.1Insurance. If the Board deems it appropriate, the Company shall use its commercially reasonable efforts to maintain, from financially sound and reputable insurers, Directors and Officers liability insurance and term “key-person” insurance on [***], in an amount and on terms and conditions satisfactory to the Board, until such time as the Board determines that such insurance should be discontinued. The key-person policy shall name the Company as loss payee, and neither policy shall be cancelable by the Company without prior approval by the Board. [***].
1.2Employee Agreements. The Company will cause each person now or hereafter employed by it or by any subsidiary (or engaged by the Company or any subsidiary as a consultant/independent contractor) with access to confidential information and/or trade secrets to enter into a nondisclosure and proprietary rights assignment agreement in the form attached hereto as Exhibit A. The Company shall cause each grant of equity securities to its employees to be subject to (i) vesting of shares over a four (4) year period, with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or service, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months, subject to acceleration provisions and/or alternative vesting schedules approved by the Board, and (ii) a market stand-off provision substantially similar to that in Section 2.11. Without the prior approval by the Board, the Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, any stock purchase, stock restriction or option agreement with any existing employee or service provider if such amendment would cause it to be inconsistent with this Section 6.2. In addition, unless otherwise approved by the Board, the Company (x) shall not offer or allow any acceleration of vesting, and (y) shall retain (and not waive) a “right of first refusal” on employee transfers until the Company’s IPO and shall have the right to repurchase unvested shares at cost upon termination of employment of a holder of restricted stock (if any).
1.3Board Matters. The Company shall reimburse the nonemployee directors for all reasonable out-of-pocket travel expenses incurred (consistent with the Company’s travel policy) in connection with attending meetings of the Board (or any applicable committee thereof). Each Preferred Director shall be entitled in such person’s discretion to be a member of any committee of the Board other than committees constituted under criteria of independence or disinterestedness unmet by such Preferred Director.
1.4Expenses of Counsel. In the event of a transaction which is a Sale Transaction (as defined in the Note), the reasonable fees and disbursements, not to exceed $[***], of one counsel for some or all of the Lead Investors (“Investor Counsel”), in their capacities as stockholders and/or noteholders (as applicable), shall be borne and paid by the Company. At the outset of considering a transaction which, if consummated would constitute a Sale Transaction, the Company shall obtain the ability to share with the Investor Counsel (and such counsel’s clients) and shall share the confidential information (including, without limitation, the initial and all subsequent drafts of memoranda of understanding, letters of intent and other transaction documents and related noncompete, employment, consulting and other compensation agreements and plans) pertaining to and memorializing any of the transactions which, individually or when aggregated with others would constitute the Sale Transaction. The Company shall be obligated to share (and cause the Company’s counsel and investment bankers to share) such materials when distributed to the Company’s executives and/or any one (1) or more of the other parties to such transaction(s). In the event that Investor Counsel deems it appropriate, in its reasonable discretion, to enter into a joint defense (or common interest) agreement or other arrangement to enhance the ability of the parties to protect their communications and other reviewed materials under the attorney client privilege, the Company shall, and shall direct its counsel to, execute and deliver to Investor Counsel and its clients such an agreement in form and substance reasonably acceptable to
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Investor Counsel and the Company’s counsel. In the event that one (1) or more of the other party or parties to such transactions require the clients of Investor Counsel to enter into a confidentiality agreement and/or joint defense (or common interest) agreement in order to receive such information, then the Company shall share whatever information can be shared without entry into such agreement and shall, at the same time, in good faith work expeditiously to enable Investor Counsel and its clients to negotiate and enter into the appropriate agreement(s) without undue burden to the clients of Investor Counsel.
1.5Indemnification Matters. The Company hereby acknowledges that one or more of the Preferred Directors nominated to serve on the Board by (or with the participation of) one or more Investors may have certain rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Lead Investors and certain of their Affiliates (collectively, the “Investor Indemnitors”). The Company hereby agrees (a) that it is the indemnitor of first resort (i.e., its obligations to any such Preferred Director are primary and any obligation of the Investor Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by such Preferred Director are secondary), (b) that it shall be required to advance the full amount of expenses incurred by such Preferred Director and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement by or on behalf of any such Preferred Director to the extent legally permitted and as required by the Restated Certificate or the Bylaws of the Company (or any agreement between the Company and such Preferred Director), without regard to any rights such Preferred Director may have against the Investor Indemnitors, and, (c) that it irrevocably waives, relinquishes and releases the Investor Indemnitors from any and all claims against the Investor Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Investor Indemnitors on behalf of any such Preferred Director with respect to any claim for which such Preferred Director has sought indemnification from the Company shall affect the foregoing and the Investor Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Preferred Director against the Company. The Preferred Directors and the Investor Indemnitors are intended third-party beneficiaries of this Section 6.5 and shall have the right, power and authority to enforce the provisions of this Section 6.5 as though they were a party to this Agreement.
1.6Successor Indemnification. If the Company or any of its successors or assignees consolidates with or merges into any other Person and is not the continuing or surviving corporation or entity of such consolidation or merger, then to the extent necessary, proper provision shall be made so that the successors and assignees of the Company assume the obligations of the Company with respect to indemnification of members of the Board as in effect immediately before such transaction, whether such obligations are contained in the Company’s Bylaws, the Restated Certificate, or elsewhere, as the case may be.
1.7Right to Conduct Activities. [***].
1.8FCPA. The Company represents that it shall not (and shall not permit any of its subsidiaries or affiliates or any of its or their respective directors, officers, managers, employees, independent contractors, representatives or agents to) promise, authorize or make any payment to, or otherwise contribute any item of value to, directly or indirectly, to any third party, including any Non-U.S. Official (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), in each case, in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. The Company further represents that it shall (and shall cause each of its subsidiaries and affiliates to) cease all of its or their respective activities, as well as remediate any actions taken by the Company, its subsidiaries or affiliates, or any of their respective directors, officers, managers, employees, independent contractors, representatives or agents in violation of the FCPA, the U.K. Bribery Act, or any other applicable anti-bribery or anti-corruption law. Upon request, the Company agrees to provide responsive information and/or certifications concerning its compliance with applicable anti-corruption laws. The Company shall promptly notify each Holder if the Company becomes aware of any Enforcement Action (as defined in the Purchase Agreement). The Company shall, and shall cause any direct or indirect subsidiary or entity controlled by it, whether now in existence or formed in the future, to comply with the FCPA.
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1.9Stock Plan Amendments. At each of the closings following the Initial Closing pursuant to the Purchase Agreement, the aggregate number of shares of Common Stock reserved for issuance under the 2020 Employee, Director and Consultant Equity Incentive Plan, as amended (the “Plan”), shall be proportionally increased above 2,981,823 shares (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations) based on the principal amount of the Notes to be issued and sold at the applicable closing, up to 4,576,988 shares (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations) for all closings (including the Initial Closing) in the aggregate so that the number of shares of Common Stock reserved for issuance at each Closing equals (and in no event shall exceed) 14% of the fully diluted capitalization. The Company shall not create, adopt, amend, terminate or repeal the Plan or any other equity (or equity-linked) compensation plan (except for immaterial amendments without dilutive or other economic effect that are approved by the Board) without the prior written consent of the holders of a majority in voting power of the Company’s outstanding preferred stock and common stock, voting together as a single class.
1.10Termination of Covenants. The covenants set forth in this Section 6, except for Subsection 6.4, 6.5, 6.6 and 6.7, shall terminate and be of no further force or effect (i) immediately before the consummation of the IPO, (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Exchange Act, or (iii) upon a distribution of the proceeds of a Deemed Liquidation Event, as such term is defined in the Restated Certificate, whichever event occurs first.
7.Vote to Increase Authorized Common Stock. Each Investor agrees to vote or cause to be voted all Shares owned by such Investor, or over which such Investor has voting control, from time to time and at all times, in whatever manner as shall be necessary to increase the number of authorized shares of Common Stock from time to time to ensure that there will be sufficient shares of Common Stock available for conversion of all of the shares of Preferred Stock outstanding (or that would be outstanding upon conversion of the Notes) at any given time.
8.Drag-Along Right.
1.1Actions to be Taken. In the event that (i) the Lead Investor Majority (the “Selling Investors”) and (ii) the Board approve a Sale Transaction (which approval of the Selling Investors must be in writing), specifying that this Section 8 shall apply to such transaction, then, subject to satisfaction of each of the conditions set forth in Section 8.2 below, each Stockholder and the Company hereby agree:
(a)if such transaction requires stockholder approval, with respect to all Shares that such Stockholder owns or over which such Stockholder otherwise exercises voting power, to vote (in person, by proxy or by action by written consent, as applicable) all Shares in favor of, and adopt, such Sale Transaction and to vote in opposition to any and all other proposals that could reasonably be expected to delay or impair the ability of the Company to consummate such Sale Transaction;
(b)if such transaction is a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from stockholders of the Company shares representing more than fifty percent (50%) of the outstanding voting power of the Company (collectively, a “Stock Sale”), to sell the same proportion of shares of capital stock of the Company beneficially held by such Stockholder as is being sold by the Selling Investors to the Person to whom the Selling Investors propose to sell their Shares, and, except as permitted in Section 8.2 below, on the same terms and conditions as the other stockholders of the Company;
(c)to execute and deliver all related documentation and take such other action in support of the Sale Transaction as shall reasonably be requested by the Company or the Selling Investors in order to carry out the terms and provision of this Section 8, including, without limitation, executing and delivering instruments of conveyance and transfer, and any purchase agreement, merger agreement, any associated indemnity agreement, or escrow agreement, any associated voting, support, or
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joinder agreement, consent, waiver, governmental filing, share certificates duly endorsed for transfer (free and clear of impermissible liens, claims and encumbrances), and any similar or related documents;
(d)not to deposit, and to cause their Affiliates not to deposit, except as provided in this Agreement, any Shares owned by such party or Affiliate in a voting trust or subject any Shares to any arrangement or agreement with respect to the voting of such Shares, unless specifically requested to do so by the acquirer in connection with the Sale Transaction;
(e)to refrain from (i) exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect to such Sale of the Company, or (ii) asserting any claim or commencing any suit (x) challenging the Sale Transaction or this Agreement, or (y) alleging a breach of any fiduciary duty of the Selling Investors or any affiliate or associate thereof (including, without limitation, aiding and abetting breach of fiduciary duty) in connection with the evaluation, negotiation or entry into the Sale Transaction, or the consummation of the transactions contemplated thereby;
(f)if the consideration to be paid in exchange for the Shares pursuant to this Section 8 includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Shares which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Board) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the Shares; and
(g)in the event that the Selling Investors, in connection with such Sale Transaction, appoint a stockholder representative (the “Stockholder Representative”) with respect to matters affecting the Stockholder under the applicable definitive transaction agreements following consummation of such Sale Transaction, (x) to consent to (i) the appointment of such Stockholder Representative, (ii) the establishment of any applicable escrow, expense or similar fund in connection with any indemnification or similar obligations, and (iii) the payment of such Stockholder’s pro rata portion (from the applicable escrow or expense fund or otherwise) of any and all reasonable fees and expenses to such Stockholder Representative in connection with such Stockholder Representative’s services and duties in connection with such Sale Transaction and its related service as the representative of the Stockholders, and (y) not to assert any claim or commence any suit against the Stockholder Representative or any other Stockholder with respect to any action or inaction taken or failed to be taken by the Stockholder Representative, within the scope of the Stockholder Representative’s authority, in connection with its service as the Stockholder Representative, absent fraud, bad faith, gross negligence or willful misconduct.
1.2Conditions. Notwithstanding anything to the contrary set forth herein, a Stockholder will not be required to comply with Section 8.1 above in connection with any proposed Sale Transaction (the “Proposed Sale”), unless:
(a)any representations and warranties to be made by such Stockholder in connection with the Proposed Sale are limited to representations and warranties related to authority, ownership and the ability to convey title to such Shares, including, but not limited to, representations and warranties that (i) the Stockholder holds all right, title and interest in and to the Shares such Stockholder purports to hold, free and clear of all liens and encumbrances, (ii) the obligations of the Stockholder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Stockholder have been duly executed by the Stockholder and delivered to the acquirer and are enforceable (subject to customary limitations) against the Stockholder in accordance with their respective terms; and (iv) neither the execution and delivery of documents to be entered into by the Stockholder in connection with the transaction, nor the performance of the Stockholder obligations thereunder, will cause
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a breach or violation of the terms of any agreement to which the Stockholder is a party, or any law or judgment, order or decree of any court or governmental agency that applies to the Stockholder;
(b)such Stockholder is not required to agree (unless such Stockholder is a Company officer or employee) to any restrictive covenant in connection with the Proposed Sale (including, without limitation, any covenant not to compete or covenant not to solicit customers, employees or suppliers of any party to the Proposed Sale) or any release of claims other than a release in customary form of claims arising solely in such Stockholder’s capacity as a stockholder of the Company;
(c)such Stockholder and its Affiliates are not required to amend, extend or terminate any contractual or other relationship with the Company, the acquirer or their respective Affiliates, except that the Stockholder may be required to agree to terminate the investment-related documents between or among such Stockholder, the Company and/or other stockholders of the Company;
(d)the Stockholder is not liable for the breach of any representation, warranty or covenant made by any other Person in connection with the Proposed Sale, other than the Company (except to the extent that funds may be paid out of an escrow established to cover breach of representations, warranties and covenants of the Company as well as breach by any stockholder of any of identical representations, warranties and covenants provided by all stockholders);
(e)liability shall be limited to such Stockholder’s applicable share (determined based on the respective proceeds payable to each Stockholder in connection with such Proposed Sale in accordance with the provisions of the Restated Certificate) of a negotiated aggregate indemnification amount that applies equally to all Stockholders but that in no event exceeds the amount of consideration otherwise payable to such Stockholder in connection with such Proposed Sale, except with respect to claims related to fraud by such Stockholder, the liability for which need not be limited as to such Stockholder;
(f)upon the consummation of the Proposed Sale (i) each holder of each class or series of the capital stock of the Company will receive the same form of consideration for their shares of such class or series as is received by other holders in respect of their shares of such same class or series of stock, (ii) each holder of a series of Preferred Stock will receive the same amount of consideration per share of such series of Preferred Stock as is received by other holders in respect of their shares of such same series, (iii) each holder of Common Stock will receive the same amount of consideration per share of Common Stock as is received by other holders in respect of their shares of Common Stock, and (iv) unless waived pursuant to the terms of the Restated Certificate and as may be required by law, the aggregate consideration receivable by all holders of the Preferred Stock and Common Stock shall be allocated among the holders of Preferred Stock and Common Stock on the basis of the relative liquidation preferences to which the holders of each respective series of Preferred Stock and the holders of Common Stock are entitled in a Deemed Liquidation Event (assuming for this purpose that the Proposed Sale is a Deemed Liquidation Event) in accordance with the Company’s Restated Certificate in effect immediately prior to the Proposed Sale; provided, however, that, notwithstanding the foregoing provisions of this Section 8.2(f), if the consideration to be paid in exchange for the Shares held by a Stockholder pursuant to this Section 8.2(f) includes any securities and due receipt thereof by any Stockholder would require under applicable law (x) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities; or (y) the provision to any Stockholder of any information other than such information as a prudent issuer would generally furnish in an offering made solely to “accredited investors” as defined in Regulation D promulgated under the Securities Act, the Company may cause to be paid to any such Stockholder in lieu thereof, against surrender of the Shares held by the Stockholder, which would have otherwise been sold by such Stockholder, an amount in cash equal to the fair value (as determined in good faith by the Board) of the securities which such Stockholder would otherwise receive as of the date of the issuance of such securities in exchange for the Shares held by the Stockholder; and
(g)subject to clause (f) above requiring the same form of consideration to be available to the holders of any single class or series of capital stock, if any holders of any capital stock of
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the Company are given an option as to the form and amount of consideration to be received as a result of the Proposed Sale, all holders of such capital stock will be given the same option; provided, however, that nothing in this Section 8.2(g) shall entitle any holder to receive any form of consideration that such holder would be ineligible to receive as a result of such holder’s failure to satisfy any condition, requirement or limitation that is generally applicable to the Company’s stockholders.
9.Restrictions on Sales of Control of the Company. No Stockholder shall be a party to any Stock Sale unless (a) all holders of Preferred Stock are allowed to participate in such transaction(s) and (b) the consideration received pursuant to such transaction(s) is allocated among the parties thereto in the manner specified in the Restated Certificate in effect immediately prior to the Stock Sale (as if such transaction(s) were a Deemed Liquidation Event), unless the holders of at least the requisite percentage required to waive treatment of the transaction(s) as a Deemed Liquidation Event pursuant to the terms of the Restated Certificate elect to allocate the consideration differently by written notice given to the Company at least 10 days prior to the effective date of any such transaction or series of related transactions.
10.Remedies.
1.1Covenants of the Company. The Company agrees to use its best efforts, within the requirements of applicable law, to ensure that the rights granted under Sections 3, 7, 8 and 9 of this Agreement (collectively, the “VA Provisions”) are effective and that the parties enjoy the benefits of the provisions of such sections of this Agreement. Such actions include, without limitation, the use of the Company’s best efforts to cause the nomination and election of the directors as provided in this Agreement.
1.2Irrevocable Proxy and Power of Attorney. Each party to this Agreement hereby constitutes and appoints as the proxies of the party and hereby grants a power of attorney to the Chief Executive Officer of the Company, and a designee of the Selling Investors, and each of them, with full power of substitution, with respect to the matters set forth herein, including, without limitation, votes regarding the size and composition of the Board pursuant to Section 3 hereof, votes to increase authorized shares pursuant to Section 7 hereof and votes regarding any Sale Transaction pursuant to Section 8 hereof, and hereby authorizes each of them to represent and vote, if and only if the party (i) fails to vote, or (ii) attempts to vote (whether by proxy, in person or by written consent), in a manner which is inconsistent with the terms of this Agreement, any of such party’s Shares in favor of the election of persons as members of the Board determined pursuant to and in accordance with the terms and provisions of this Agreement or the increase of authorized shares or approval of any Sale Transaction pursuant to and in accordance with the terms and provisions of this Agreement or to take any action reasonably necessary to effect the VA Provisions. The power of attorney granted hereunder shall authorize the Chief Executive Officer of the Company, and a designee of the Selling Investors, and each of them, to execute and deliver the documentation referred to in Section 8.1 on behalf of any party failing to do so within five (5) business days of a request by the Company. Each of the proxy and power of attorney granted pursuant to this Section 10.2 is given in consideration of the agreements and covenants of the Company and the parties in connection with the transactions contemplated by this Agreement and, as such, each is coupled with an interest and shall be irrevocable unless and until all of the VA Provisions terminate or expire pursuant to Section 11 hereof. Each party hereto hereby revokes any and all previous proxies or powers of attorney with respect to the Shares and shall not hereafter, unless and until all of the VA Provisions terminate or expire pursuant to Section 11 hereof, purport to grant any other proxy or power of attorney with respect to any of the Shares, deposit any of the Shares into a voting trust or enter into any agreement (other than this Agreement), arrangement or understanding with any person, directly or indirectly, to vote, grant any proxy or give instructions with respect to the voting of any of the Shares, in each case, with respect to any of the matters set forth herein.
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11.Term of VA Provisions. The VA Provisions shall be effective as of the date hereof and shall continue in effect until and shall terminate upon the earliest to occur of (a) the consummation of the Company’s first underwritten public offering of its Common Stock (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or an SEC Rule 145 transaction); and (b) the consummation of a Sale Transaction and distribution of proceeds to or escrow for the benefit of the Stockholders in accordance with the Restated Certificate, provided that the provisions of Section 8 hereof will continue after the closing of any Sale Transaction to the extent necessary to enforce the provisions of Section 8 with respect to such Sale Transaction.
12.Miscellaneous.
1.1Successors and Assigns. The rights under this Agreement may be assigned (but only with all related obligations) by a Holder to a transferee of Registrable Securities that (i) is an Affiliate of a Holder; (ii) is a Holder’s Immediate Family Member or trust for the benefit of an individual Holder or one or more of such Holder’s Immediate Family Members; (iii) after such transfer, holds at least 100,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, and other recapitalizations); or (iv) is a Permitted Transferee; provided, however, that (x) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee and the Registrable Securities with respect to which such rights are being transferred; and (y) such transferee agrees in a written instrument delivered to the Company to be bound by and subject to the terms and conditions of this Agreement, including the provisions of Subsection 2.11. For the purposes of determining the number of shares of Registrable Securities held by a transferee, the holdings of a transferee (1) that is an Affiliate or stockholder of a Holder; (2) who is a Holder’s Immediate Family Member; or (3) that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member shall be aggregated together and with those of the transferring Holder; provided further that all transferees who would not qualify individually for assignment of rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices, or taking any action under this Agreement. The terms and conditions of this Agreement inure to the benefit of and are binding upon the respective successors and permitted assignees of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and permitted assignees any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. Notwithstanding anything in the contrary contained in this Subsection 12.1, a Holder shall be permitted to make any such transfer that is required in order for such Holder to comply with laws or regulations applicable to it (including those that have been established in accordance with the UCITS (Undertakings for Collective Investment in Transferable Securities) Directive).
1.2Governing Law. This Agreement shall be governed by the internal law of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law.
1.3Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including pdf or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
1.4Titles and Subtitles. The titles and subtitles used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.
1.5Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or (i) personal delivery to the party to be notified; (ii) when sent, if sent by electronic mail or facsimile during the recipient’s normal business hours, and if not sent during normal business hours, then on the
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recipient’s next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) business day after the business day of deposit with a nationally recognized overnight courier, freight prepaid, specifying next-day delivery, with written verification of receipt. All communications shall be sent to the respective parties at their addresses as set forth on Schedule A or Schedule B hereto, or to the principal office of the Company and to the attention of the Chief Executive Officer, in the case of the Company, or to such email address, facsimile number, or address as subsequently modified by written notice given in accordance with this Subsection 12.5. If notice is given to the Company, a copy shall also be sent to [***].
1.6Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, and either retroactively or prospectively) only with the written consent of the Company, the holders of [***] of the Preferred Stock, voting together as a single class on an as converted basis, then outstanding, [***]; (x) the Company may in its sole discretion waive compliance with Subsection 2.12(c) (and the Company’s failure to object promptly in writing after notification of a proposed assignment allegedly in violation of Subsection 2.12(c) shall be deemed to be a waiver); (xi) any provision hereof may be waived by any waiving party on such party’s own behalf, without the consent of any other party; (xii) [***] Notwithstanding the foregoing, this Agreement may not be amended or terminated and the observance of any term hereof may not be waived with respect to any Investor without the written consent of such Investor, unless such amendment, termination, or waiver applies to all Investors in the same fashion (it being agreed that a waiver of the provisions of Section 5 with respect to a particular transaction shall be deemed to apply to all Investors in the same fashion if such waiver does so by its terms, notwithstanding the fact that certain Investors may nonetheless, by agreement with the Company, purchase securities in such transaction). The Company shall give prompt notice of any amendment or termination hereof or waiver hereunder to any party hereto that did not consent in writing to such amendment, termination, or waiver. Any amendment, termination, or waiver effected in accordance with this Subsection 12.6 shall be binding on all parties hereto, regardless of whether any such party has consented thereto. No waivers of or exceptions to any term, condition, or provision of this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such term, condition, or provision.
1.7Severability. In case any one or more of the provisions contained in this Agreement is for any reason held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and such invalid, illegal, or unenforceable provision shall be reformed and construed so that it will be valid, legal, and enforceable to the maximum extent permitted by law.
1.8Aggregation of Stock. All shares of Registrable Securities held or acquired by Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement and such Affiliated persons may apportion such rights as among themselves in any manner they deem appropriate. For the avoidance of doubt, all shares of capital stock held or acquired by AXA IM, AXA Opportunities Fund and any of their Affiliates shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.
1.9Additional Holders.
(a)Notwithstanding anything to the contrary contained herein, if the Company issues additional shares of the Company’s Preferred Stock after the date hereof, any purchaser of such shares of Preferred Stock may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement, and thereafter shall be deemed an “Investor” for all purposes hereunder. No action or consent by the Investors shall be required for such joinder to this Agreement by such additional Investor, so long as such additional Investor has agreed in writing to be bound by all of the obligations as an “Investor” hereunder.
(b)Notwithstanding anything to the contrary contained herein, if the Company issues additional Notes after the date hereof, any purchaser of such Notes may become a party to this Agreement by executing and delivering an additional counterpart signature page to this Agreement,
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and thereafter shall be deemed a “Noteholder” for all purposes hereunder. No action or consent by the Investors or Noteholders shall be required for such joinder to this Agreement by such additional Noteholder, so long as such additional Noteholder has agreed in writing to be bound by all of the obligations as a “Noteholder” hereunder
(c)In the event that after the date of this Agreement, the Company enters into an agreement with any Person to issue shares of capital stock to such Person (other than to a purchaser of Preferred Stock described in Section 12.9(a) above or to a purchaser of Notes described in Section 12.9(b) above), following which such Person shall hold Shares constituting one percent (1%) or more of the then outstanding capital stock of the Company (treating for this purpose all shares of Common Stock issuable upon exercise of or conversion of outstanding options, warrants or convertible securities, as if exercised and/or converted or exchanged), then, the Company shall cause such Person (each such Person, a “Key Holder”), as a condition precedent to entering into such agreement, to become bound by the VA Provisions by executing an instrument, in a form approved by the Board, agreeing to be bound by and subject to the terms of the VA Provisions as a Key Holder and Stockholder and thereafter such person shall be deemed a Key Holder and Stockholder for all purposes under the VA Provisions.
1.10Entire Agreement. This Agreement (including any Schedules and Exhibits hereto) constitutes the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and any other written or oral agreement relating to the subject matter hereof existing between the parties is expressly canceled. Notwithstanding the foregoing, however, each Investor and Noteholder (a) acknowledges receipt of a copy of the relevant provisions of the Note and of the Purchase Agreement, and (b) in the event of a Maturity Conversion (as defined in the Note), agrees to execute and deliver such amendments and/or restatements (in each case, whether one or more) of this Agreement, and to take such other and further actions (including, without limitation, to vote, or cause to be voted, all Shares and Notes owned by such Person, or over which such Person has voting control, from time to time and at all times, and in whatever manner), as the Lead Investor Majority may reasonably request in order to effectuate the provisions of clauses (iii), (iv) and (v) of Section 4(e) of the Note.
1.11Dispute Resolution. The parties (a) hereby irrevocably and unconditionally submit to the jurisdiction of the state courts of Delaware and to the jurisdiction of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding arising out of or based upon this Agreement, (b) agree not to commence any suit, action or other proceeding arising out of or based upon this Agreement except in the state courts of Delaware or the United States District Court for the District of Delaware, and (c) hereby waive, and agree not to assert, by way of motion, as a defense, or otherwise, in any such suit, action or proceeding, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court.
Each party will bear its own costs in respect of any disputes arising under this Agreement. Each of the parties to this Agreement consents to personal jurisdiction for any equitable action sought in the U.S. District Court for the District of Delaware or any court of the State of Delaware having subject matter jurisdiction.
1.12Delays or Omissions. No delay or omission to exercise any right, power, or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power, or remedy of such nonbreaching or nondefaulting party, nor shall it be construed to be a waiver of or acquiescence to any such breach or default, or to any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, whether under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above
VEDANTA BIOSCIENCES, INC.
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
PURETECH HEALTH LLC
By:/s/ Bharatt Chowrira
Name: Bharatt Chowrira
Title: President
Name: Bharatt Chowrira
Title: President
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Address: [***]
Name: [***]
Title: [***]
Address: [***]
[***]
By: [***]
By: [***]
By: /s/ [***]
Name: [***]
Title: [***]
Address: [***]
Name: [***]
Title: [***]
Address: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
[***]
By: [***]
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
[***]
By: [***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Title: [***]
Address: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: [***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Its: [***]
Name: [***]
Its: [***]
Address: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
INVESTORS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Email: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
NOTEHOLDERS:
[***]
By: /s/ [***]
Name: [***]
Title: [***]
[***]
By: /s/ [***]
Name: [***]
Title: [***]
Signature Page to Vedanta Biosciences, Inc. – Amended and Restated Investors’ Rights Agreement
ACTIVE/119579555.22 | ||
SCHEDULE A
Investors
Investors
[***]
ACTIVE/119579555.22 | ||
SCHEDULE B
Noteholders
Noteholders
[***]
ACTIVE/119579555.22 | ||
EXHIBIT A
Form of Noncompetition and Nonsolicitation Agreement
Form of Noncompetition and Nonsolicitation Agreement
[***]
ACTIVE/119579555.22 | ||
Exhibit 4.36
CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL.
Execution Version
Royalty Purchase Agreement
By and Between
PureTech Health LLC, as the Seller, and
Solely for purposes of Article 4 and Section 10.13, PureTech Health PLC, as the Seller Parent, on the one hand
and
Royalty Pharma Investments 2019 ICAV, as the Buyer, on the other hand
Dated as of March 22, 2023
Table of Contents
Page
-i- | ||||||||
Table of Contents
(continued)
Page
-ii- | ||||||||
Table of Contents
(continued)
Page
Index of Exhibits
Exhibit A: Seller’s Wire Transfer Instructions
Exhibit B: Form of Bill of Sale
Exhibit C: Form of Licensee Instruction Letter
Exhibit D-1: Form of Bilateral Common Interest and Joint Privilege Agreement
Exhibit D-2: Form of Trilateral Common Interest and Joint Privilege Agreement
Exhibit E: Form of Escrow Agreement
Exhibit F: License Agreement
Exhibit G: Form of Assumption Agreement
Exhibit H: Additional Covenants
-iii- | ||||||||
ROYALTY PURCHASE AGREEMENT
This ROYALTY PURCHASE AGREEMENT, dated as of March 22, 2023 (this “Agreement”), is made and entered into by and between PureTech Health LLC, a Delaware limited liability company (the “Seller”), and solely for purposes of Article 4 and Section 10.13, PureTech Health PLC, a company incorporated under the laws of England and Wales (the “Seller Parent”), on the one hand; and Royalty Pharma Investments 2019 ICAV, an Irish collective asset-management vehicle (the “Buyer”), on the other hand. Unless otherwise defined in this Agreement, capitalized terms have the meanings ascribed to them in Section 1.1 below.
RECITALS:
WHEREAS, pursuant to the License Agreement, the Seller granted to Licensee a license with respect to the Licensed Patents to exploit the Licensed Products, and Licensee, in partial consideration thereof, agreed to pay specified royalties to the Seller with respect to Net Sales of the Licensed Products; and
WHEREAS, the Buyer desires to purchase the Purchased Royalty from the Seller, and the Seller desires to sell the Purchased Royalty to the Buyer.
NOW THEREFORE, in consideration of the representations, warranties, covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Seller and the Buyer hereby agree as follows:
Article 1
DEFINED TERMS AND RULES OF CONSTRUCTION
DEFINED TERMS AND RULES OF CONSTRUCTION
Section 1.1Definitions. As used in this Agreement, the following terms shall have the following meanings:
“Additional Purchase Price Payment” is defined in Section 2.1(b).
“Affiliate” means, with respect to any particular Person, any other Person directly or indirectly, and whether by contract or otherwise, controlling, controlled by or under common control with such Person. For purposes of this definition, the word “control” (including, with correlative meaning, the terms “controlled by” or “under common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting securities of such entity, or by contract or otherwise. For the avoidance of doubt, Licensee shall not be considered an “Affiliate” of the Seller.
“Agreement” is defined in the preamble.
“Applicable Percentage” means, on a calendar year-by-calendar year basis, 100%, until the portion of aggregate Purchased Royalties received by the Buyer with respect to Net Sales of Licensed Products occurring during such calendar year equals at least $60,000,000, and thereafter 33.33% with respect to Net Sales of Licensed Products occurring during such calendar year after the occurrence of the Net Sales which resulted in such $60,000,000 in Purchased Royalties received by the Buyer.
“Bankruptcy Laws” means, collectively, bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer or other similar laws affecting the enforcement of creditors’ rights generally.
“Bilateral Common Interest and Joint Privilege Agreement” means that certain common interest and joint privilege agreement, dated as of the Closing Date, executed by the Seller and the Buyer, substantially in the form attached hereto as Exhibit D-1.
“Bill of Sale” is defined in Section 3.2.
“Business Day” means any day other than (i) a Saturday or Sunday or (ii) a day on which banking institutions located in New York or Massachusetts are permitted or required by applicable law or regulation to remain closed.
“Buyer” is defined in the preamble.
“Buyer Indemnified Parties” is defined in Section 8.1(a).
“Closing” is defined in Section 3.1.
“Closing Date” means the date on which the Closing occurs.
“Confidential Information” is defined in Section 7.1.
“Contracts” is defined in Section 4.9(a).
“Credit Event” means any insolvency, bankruptcy, receivership, assignment for the benefit of creditors, similar proceeding, or financial distress of Licensee, as a result of which Licensee fails to pay, or is delayed in paying, all or a portion of the Royalty.
“Disclosing Party” is defined in Section 7.1.
“Disclosure Schedule” means the Disclosure Schedule, dated as of the date hereof, delivered to the Buyer by the Seller concurrently with the execution of this Agreement.
“Eli Lilly Agreement” means that certain License Agreement by and between Eli Lilly and Company and Licensee dated May 9, 2012.
“Escrow Account” means the escrow account created pursuant to the Escrow Agreement.
“Escrow Agent” means US. Bank National Association, as escrow agent.
“Escrow Agreement” means that certain escrow agreement, dated as of the Closing Date, executed by the Seller, the Buyer and the Escrow Agent, substantially in the form attached hereto as Exhibit E.
“Existing Confidentiality Agreement” is defined in Section 7.3.
“FDA” means the U.S. Food and Drug Administration, or a successor federal agency thereto in the United States.
“FDA Approval of an NDA” means the FDA’s approval of an NDA, including all licenses, registrations, and pricing or reimbursement approvals, that are necessary for the sale and marketing of a pharmaceutical product in the United States.
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“FDA Approval of an NDA or sNDA” means the FDA’s approval of an NDA or sNDA, including all licenses, registrations, and pricing or reimbursement approvals, that are necessary for the sale and marketing of a pharmaceutical product in the United States.
“First Commercial Sale” means the first commercial sale in an arms’ length transaction of KarXT to a Third Party by Licensee or any of its Affiliates or (sub)licensees in any country worldwide following receipt of applicable regulatory approval of KarXT in such country. For clarity, First Commercial Sale shall not include any distribution or other sale solely for patient assistance, named patient use, compassionate use, or test marketing programs or non-registrational studies or similar programs or studies where KarXT is supplied without charge or at the actual manufacturing cost thereof (without allocation of indirect costs or any markup).
“Guaranteed Obligations” is defined in Section 10.13.
“Governmental Entity” means any: (i) nation, principality, republic, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (ii) federal, state, local, municipal, foreign or other government; (iii) governmental or quasi-governmental authority of any nature (including any governmental division, subdivision, department, agency, bureau, branch, office, commission, council, board, instrumentality, officer, official, representative, organization, unit, body or other entity and any court, arbitrator or other tribunal); (iv) multi-national organization or body; or (v) individual, body or other entity exercising, or entitled to exercise, any executive, legislative, judicial, administrative, regulatory, police, military or taxing authority or power of any nature.
“In-License” means an agreement with a Third Party pursuant to which such Third Party grants a license to the counterparty under such Third Party’s intellectual property.
“Indemnified Party” is defined in Section 8.2.
“Indemnifying Party” is defined in Section 8.2.
“Initial Purchase Price” means $100,000,000.
“Judgment” means any judgment, order, writ, injunction, citation, award or decree of any nature.
“Karuna Product Patents” means any and all Patents, other than the Licensed Patents, owned or in-licensed by Licensee or its Affiliates that claim or cover the Licensed Product, including all Patents listed at any time after the date hereof in the Orange Book for a Licensed Product.
“KarXT” means the oral modulator of muscarinic receptors referred to by Licensee as of the date hereof as xanomeline-trospium, KarXT (xanomeline-trospium) or KarXT and being evaluated by Licensee as of the date hereof in Phase 3 clinical trials as both a monotherapy and adjunctive therapy for the treatment of schizophrenia and as a monotherapy for the treatment of psychosis in Alzheimer’s disease.
“Knowledge of the Seller” means the actual knowledge of Daphne Zohar, Chief Executive Officer, Bharatt Chowrira, PhD, JD, President and Chief Business, Finance and Operating Officer, Eric Elenko, PhD, Chief Innovation and Strategy Officer, Anita Terpstra, PhD, JD, Senior Vice President and Head, Intellectual Property, and Charles Sherwood, Esq., Associate General Counsel, after reasonable due inquiry; provided that “reasonable due inquiry” shall not include any requirement to contact or correspond with any Person that is not an Affiliate or employee of the Seller.
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“License Agreement” means (i) that certain Exclusive Patent License Agreement by and between the Seller (f/k/a PureTech Ventures, LLC) and Licensee dated March 4, 2011, as amended by Amendment No. 1 to Exclusive Patent License Agreement dated February 1, 2013, Amendment No. 2 to Exclusive Patent License Agreement dated February 25, 2015, and Amendment No. 3 to Exclusive Patent License Agreement dated July 31, 2015, as may be further amended and/or restated from time to time as permitted under this Agreement, and (ii) any New License Agreement, as may be further amended and/or restated from time to time.
“License Agreement Correspondence” means copies of all:
(a)reports provided to the Seller by Licensee as of the date hereof pursuant to Section 4.1 of the License Agreement;
(b)sublicenses granted by Licensee and received by the Seller pursuant to Section 2.2 of the License Agreement;
(c)agreements between the Seller and Licensee (or their Affiliates) relating to the License Agreement, including any development, manufacturing, services, or pharmacovigilance agreements;
(d)audit records or reports provided by Licensee to the Seller under Section 4.4 of the License Agreement;
(e)patent prosecution updates provided by Licensee to the Seller under Section 5.1 or 5.3 of the License Agreement;
(f)patent infringement notices provided by either Licensee or the Seller under Section 6.1 of the License Agreement;
(g)patent enforcement or defense updates provided by either Licensee or the Seller under Section 6.2 or 6.3 of the License Agreement;
(h)updates regarding Third Party infringement claims provided by either Licensee or the Seller; and
(i)other material communications between Licensee and the Seller since January 1, 2020 relating to the License Agreement, the Royalty, the Licensed Patents, or the Licensed Products.
“Licensed Patents” shall have the meaning ascribed to the term Patent Rights in Section 1.5 of the License Agreement.
“Licensed Product” shall (i) have the meaning ascribed to the term Licensed Product in Section 1.3 of the License Agreement, and (ii) in the case of a New Arrangement entered into by the Seller in accordance with the terms hereof, the analogous term for “licensed product” or any comparable concept as defined in the applicable New License Agreement, including, for clarity, in each case ((i) and (ii)), KarXT.
“Licensee” means (i) Karuna Therapeutics, Inc. (f/k/a Karuna Pharmaceuticals, Inc.), a Delaware corporation, and any successor entity thereto, and (ii) any licensee party to any New License Agreement.
“Licensee Instruction Letter” is defined in Section 3.3.
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“Lien” means any mortgage, lien, pledge, charge, adverse claim, security interest, encumbrance or restriction of any kind, including any restriction on use, transfer or exercise of any other attribute of ownership of any kind.
“Loss” means any and all Judgments, damages, losses, claims, costs, liabilities and expenses, including reasonable fees and out-of-pocket expenses of counsel.
“Material Adverse Effect” means (i) a material adverse effect on the legality, validity or enforceability of any provision of this Agreement, (ii) a material adverse effect on the ability of the Seller to perform any of its obligations hereunder, (iii) a material adverse effect on the rights or remedies of the Buyer hereunder other than any such material adverse effect that results from compliance with any directions of the Buyer, (iv) a material adverse effect on the rights of the Seller under the License Agreement related to the Royalty, or (v) an adverse effect in any material respect on the timing, amount or duration of the payments to be made to the Buyer in respect of any portion of the Purchased Royalty or the right of the Buyer to receive such payments [***].
“NDA” means a New Drug Application as described in 21 C.F.R. § 314.50 submitted to the FDA in the United States with respect to a pharmaceutical product.
“Net Sales” shall have the meaning ascribed to the term Net Sales in Section 1.4 of the License Agreement.
“New Arrangement” is defined in Section 6.12(a)(ii).
“New License Agreement” is defined in Section 6.11.
“Orange Book” means the then-current edition of the FDA publication “Approved Drug Products with Therapeutic Equivalence Evaluations.”
“Patents” means all patents and patent applications and all substitutions, divisions, continuations, continuations-in-part, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal or extension (including any supplementary protection certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all counterparts and equivalents of any of the foregoing in any country or jurisdiction.
“Payment Triggering Event” is defined in Section 2.1(b).
“Permitted Liens” means any (i) mechanic’s, materialmen’s, and similar liens for amounts not yet due and payable, (ii) statutory liens for Taxes not yet due and payable or for Taxes that the taxpayer is contesting in good faith, and (iii) any liens created, permitted or required by this Agreement in favor of the Buyer or its Affiliates.
“Permitted Reduction” means a Royalty Reduction pursuant to Section 3.2(b) of the License Agreement, excluding any such Royalty Reduction that is a withholding of Tax as a result of any action by the Seller, such as an assignment or re-domiciliation by the Seller, or any failure on the part of the Seller to comply with applicable law.
“Person” means any individual, firm, corporation, company, partnership, limited liability company, trust, joint venture, association, estate, trust, Governmental Entity or other entity, enterprise, association or organization.
5
“Prime Rate” means the prime rate published by The Wall Street Journal, from time to time, as the prime rate.
“Pro-Rata Portion” means, on a calendar year-by-calendar year basis, (i) with respect to the Buyer, 100%, until the portion of aggregate Purchased Royalties received by the Buyer with respect to Net Sales of Licensed Products occurring during such calendar year equals at least $60,000,000, and thereafter 33.33% with respect to Net Sales of Licensed Products occurring during such calendar year after the occurrence of the Net Sales which resulted in such $60,000,000 in Purchased Royalties received by the Buyer, and (ii) with respect to the Seller, 0%, until the portion of aggregate Purchased Royalties received by the Buyer with respect to Net Sales of Licensed Products occurring during such calendar year equals at least $60,000,000, and thereafter 66.67% with respect to Net Sales of Licensed Products occurring during such calendar year after the occurrence of the Net Sales which resulted in such $60,000,000 in Purchased Royalties received by the Buyer.
“Proceeds” means any amounts actually recovered by the Seller as a result of any settlement or resolution of any actions, suits, proceedings, claims or disputes related to (i) the License Agreement, (ii) the Licensed Patents, or (iii) any Licensed Product, in each case ((i), (ii) and (iii)), related to or involving the Royalty.
“Purchase Price” means, collectively, the Initial Purchase Price and any Additional Purchase Price Payments.
“Purchased Royalty” means, for each calendar quarter during the term of this Agreement, an amount payable to the Buyer equal to the amount of all Royalties with respect to Net Sales of Licensed Products occurring during such calendar quarter multiplied by the Applicable Percentage.
“PureTech In-Licenses” means any and all In-Licenses to which the Seller is a party pursuant to which the Seller has in-licensed any of the Licensed Patents from a Third Party.
“Receiving Party” is defined in Section 7.1.
“Representative” means, with respect to any Person, (i) any direct or indirect stockholder, member or partner of such Person and (ii) any manager, director, officer, employee, agent, advisor or other representative (including attorneys, accountants, consultants, bankers, financial advisors and actual and potential lenders and investors) of such Person.
“Retained Royalty” means that portion of the Royalty retained by the Seller that is not the Purchased Royalty.
“Royalty” means (i) any and all payments or amounts payable to the Seller under Section 3.1(a) of the License Agreement; (ii) any and all payments or amounts payable to the Seller under the License Agreement in lieu of such payments or amounts described in the foregoing clause (i); (iii) any and all payments or amounts payable to the Seller under Sections 4.4 (solely to the extent related to amounts due under Section 3.1(a) of the License Agreement), 6.4(ii) or 6.4(iii) (for any actions brought or defended by Licensee under Section 6.2 or 6.3 of the License Agreement), and 11.3(b) of the License Agreement; (iv) any and all payments or amounts payable to the Seller under Section 11.1 (solely to the extent related to any payments or amounts described under clauses (i) through (iii) and (v) through (vii) of this definition) of the License Agreement); (v) the share of any recovery payments or amounts payable to, or obtained and retained by, the Seller from an action brought by the Seller under Sections 6.2 or 6.3 of the License Agreement pursuant to the last sentence of Section 6.4 of the License Agreement (excluding reimbursement for any expenses incurred in such action); (vi) any and all amounts
6
payable to the Seller under Section 7.1 of the License Agreement to the extent such payments relate to the Royalty or Net Sales of the Licensed Products; and (vii) any and all interest payments to the Seller under Section 3.2(c) of the License Agreement assessed on any payments or amounts described in the foregoing clauses (i) through (vi).
Notwithstanding the immediately above definition, the term “Royalty” shall exclude: (w) any and all payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, (x) any payments or amounts of the types described in clauses (iii) through (vii) of this definition above which relate to or are in lieu of any payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, (y) any payments or amounts payable by Licensee to the Seller not related to the Royalty or the Licensed Product, and (z) any indemnity payments to the Seller and its Affiliates under Section 7.1 of the License Agreement that are not related to the Royalty or Net Sales of the Licensed Products.
“Royalty Reduction” is defined in Section 4.9(k).
“Royalty Reports” means the quarterly reports deliverable by Licensee pursuant to Sections 4.1(c) and 4.2 of the License Agreement.
“Seller” is defined in the preamble.
“Seller Indemnified Parties” is defined in Section 8.1(b).
“Seller Monetization Transaction” means, with respect to the Retained Royalty and/or any and all payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, (i) any sale, assignment or other transfer of all or a portion of the Seller’s and/or its Affiliates’ right, title and interest in, to and under such Retained Royalty and/or payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, (ii) any synthetic royalty or other monetization transaction, in each case secured by a Lien on, or providing for payments from and based on the cash flows generated by, the Seller’s and/or its Affiliates’ right, title and interest in such Retained Royalty and/or payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, or (iii) any debt financing where the collateral includes any portion of the Retained Royalty, the payments or amounts payable to the Seller under Section 3.1(b) or 3.1(c) of the License Agreement, the Licensed Patents, or any “proceeds” (as defined in the UCC) if any of the foregoing constitute a material portion of the collateral, including if such collateral is combined with similar collateral for other products, product candidates, intellectual property and proceeds; provided that the following shall not be a Seller Monetization Transaction: (x) any debt financing secured by a Lien on all or substantially all assets of the Seller and its material subsidiaries, on a consolidated basis and (y) a sale or transfer contemplated in clause (i) to an Affiliate in accordance with Section 10.3 so long as such Affiliate does not engage in a Seller Monetization Transaction.
“Seller Parent” is defined in the preamble.
“sNDA” means a Supplemental New Drug Application as described in 21 C.F.R. § 314.70 submitted to the FDA in the United States with respect to a pharmaceutical product.
“Tax” or “Taxes” means any U.S. federal, state, local or non-U.S. income, gross receipts, license, payroll, employment, excise, severance, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.
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“Third Party” means any Person other than the Buyer, the Seller or any of their respective Affiliates.
“Trilateral Common Interest and Joint Privilege Agreement” means a common interest and joint privilege agreement among the Seller, Licensee, and the Buyer substantially in the form attached hereto as Exhibit D-2.
“UCC” means Article 9 of the New York Uniform Commercial Code, as in effect from time to time.
Section 1.2Certain Interpretations. Except where expressly stated otherwise in this Agreement, the following rules of interpretation apply to this Agreement:
(a)“either” and “or” are not exclusive and “include,” “includes” and “including” are not limiting and shall be deemed to be followed by the words “without limitation;”
(b)“extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase does not mean simply “if;”
(c)“hereof,” “hereto,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement;
(d)references to a Person are also to its permitted successors and assigns;
(e)definitions are applicable to the singular as well as the plural forms of such terms;
(f)unless otherwise indicated, references to an “Article”, “Section” or “Exhibit” refer to an Article or Section of, or an Exhibit to, this Agreement, and references to a “Schedule” refer to the corresponding part of the Disclosure Schedule;
(g)references to “$” or otherwise to dollar amounts refer to the lawful currency of the United States;
(h)provisions referring to matters that would or could have, or would or could reasonably be expected to have, or similar phrases, shall be deemed to have such result or expectation with or without the giving of notice or the passage of time, or both;
(i)for covenants that are to be undertaken “reasonably,” such actions (or inactions) shall take into account Buyer’s and Seller’s relative economic interests in the matter and the relative economic impact of the applicable action (or inaction) on such interests;
(j)references to this Agreement include the Bill of Sale, the Disclosure Schedule, the Bilateral Common Interest and Joint Privilege Agreement, the Escrow Agreement, and the Licensee Instruction Letter; and
(k)references to a law include any amendment or modification to such law and any rules and regulations issued thereunder, whether such amendment or modification is made, or issuance of such rules and regulations occurs, before or after the date of this Agreement.
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Section 1.3Headings. The table of contents and the descriptive headings of the several Articles and Sections of this Agreement and the Exhibits and Schedules are for convenience only, do not constitute a part of this Agreement and shall not control or affect, in any way, the meaning or interpretation of this Agreement.
Article 2
PURCHASE, SALE AND ASSIGNMENT OF THE PURCHASED ROYALTY
PURCHASE, SALE AND ASSIGNMENT OF THE PURCHASED ROYALTY
Section 1.1Closing; Purchase Price.
(a)Upon the terms and subject to the conditions of this Agreement, at the Closing, the Seller shall sell, transfer, assign and convey to the Buyer, and the Buyer shall purchase, acquire and accept from the Seller, free and clear of all Liens (other than Permitted Liens), all of the Seller’s right, title and interest in and to the Purchased Royalty. The purchase price to be paid at the Closing to the Seller for the sale, transfer, assignment and conveyance of the Seller’s right, title and interest in and to the Purchased Royalty to the Buyer is the Initial Purchase Price. At the Closing, the Buyer shall pay the Seller the Initial Purchase Price by wire transfer of immediately available funds to one or more accounts specified by the Seller on Exhibit A.
(b)Following the Closing, upon the occurrence of each of the following events (each a “Payment Triggering Event”), the Buyer shall make a cash payment (each an “Additional Purchase Price Payment”) to the Seller in the amount corresponding to such Payment Triggering Event:
| # | PAYMENT TRIGGERING EVENT | ADDITIONAL PURCHASE PRICE PAYMENT AMOUNT | ||||||
| 1 | [***] | $[***] | ||||||
| 2 | [***] | $[***] | ||||||
| 3 | [***] | $[***] | ||||||
| 4 | [***] | [***] | ||||||
| 5 | [***] | $[***] | ||||||
| 6 | [***] | $[***] | ||||||
| 7 | [***] | $[***] | ||||||
| 8 | [***] | $[***] | ||||||
| 9 | [***] | $[***] | ||||||
| TOTAL | $400,000,000 | |||||||
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(c)The Seller hereby agrees and acknowledges that: (i) the Additional Purchase Price Payments are contingent payment obligations of the Buyer and there can be no assurance regarding the occurrence of any of the Payment Triggering Events; and (ii) the Buyer shall have no obligation or liability with respect to any Additional Purchase Price Payment unless and until the corresponding Payment Triggering Event has occurred. Any Additional Purchase Price Payment owed to the Seller by the Buyer in accordance with Section 2.1(b) shall be paid to the Seller by wire transfer of immediately available funds to the account(s) specified by the Seller on Exhibit A (or such other account(s) as specified by the Seller in a writing delivered to the Buyer in accordance with Section 10.1) within [***] ([***]) Business Days following the occurrence of a Payment Triggering Event; provided that with respect to Payment Triggering Event #4, such payment shall be made within [***] ([***]) Business Days after Buyer’s receipt of the Purchased Royalties attributable to Net Sales that occur within the twelfth calendar quarter ending after the First Commercial Sale). For clarity, only one Additional Purchase Price Payment shall be due hereunder with respect to each Payment Triggering Event; no Additional Purchase Price Payment shall be payable for subsequent or repeated achievements of any Payment Triggering Events. Each party hereto further agrees and acknowledges that the other party hereto shall have the right to offset, reduce or withhold any amounts otherwise due and payable hereunder solely to the extent determined to be owed by such party to the other party hereunder pursuant to a final determination of a court of competent jurisdiction.
(d)The parties hereto further agree that: (i) the aggregate Additional Purchase Price Payments payable by the Buyer hereunder shall not exceed $400,000,000 and (ii) the total Purchase Price payable to the Seller by the Buyer hereunder (inclusive of the Initial Purchase Price and, if required to be paid under this Agreement, all of the Additional Purchase Price Payments) shall in no event exceed $500,000,000 in the aggregate.
Section 1.2No Assumed Obligations; Excluded Assets. Notwithstanding any provision in this Agreement to the contrary, the Buyer is purchasing, acquiring and accepting only the Purchased Royalty, and is not assuming any liability or obligation of the Seller of whatever nature, whether presently in existence or arising or asserted hereafter, under the License Agreement or otherwise. Except as specifically set forth herein in respect of the Purchased Royalty purchased, acquired and accepted hereunder, the Buyer does not, by such purchase, acquisition and acceptance, acquire any other contract rights of the Seller under the License Agreement or otherwise or any other assets of the Seller. For the avoidance of doubt and notwithstanding anything herein to the contrary, nothing in this provision limits any other obligation of the Buyer under this Agreement, including without limitation any indemnity obligations of the Buyer.
Section 1.3True Sale. It is the intention of the parties hereto that the sale, transfer, assignment and conveyance contemplated by this Agreement be, and is, a true, complete, absolute and irrevocable sale, transfer, assignment and conveyance by the Seller to the Buyer of all of the Seller’s rights, title and interests in and to the Purchased Royalty and the Seller relinquishes all title and control over the Purchased Royalty upon such sale, transfer, assignment and conveyance. Neither the Seller nor the Buyer intends the transactions contemplated by this Agreement to be, or for any purpose characterized as, a loan from the Buyer to the Seller or to any of the Seller’s Affiliates, or a pledge, a security interest, a financing transaction or a borrowing. It is the intention of the parties hereto that the beneficial interest in and title to the Purchased Royalty and any “proceeds” (as defined in the UCC) thereof shall not be part of the Seller’s estates in the event of the filing of a petition by or against the Seller under any Bankruptcy Laws. Each of the Seller and the Buyer hereby waives, to the maximum extent permitted by applicable law, any right to contest or otherwise assert that the sale contemplated by this Agreement does not constitute a true, complete, absolute and irrevocable sale, transfer, assignment and conveyance by the Seller to the Buyer of all of the Seller’s right, title and interest in and to the Purchased Royalty under applicable law, which waiver shall, to the maximum
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extent permitted by applicable law, be enforceable against the Seller in any bankruptcy or insolvency proceeding relating to the Seller or its subsidiaries. Accordingly, the Seller shall treat the sale, transfer, assignment and conveyance of the Purchased Royalty as a sale of an “account” or a “payment intangible” (as appropriate) in accordance with the UCC, and the Seller hereby authorizes the Buyer to file financing statements (and continuation statements with respect to such financing statements when applicable) naming the Seller as the debtor and/or seller and the Buyer as the secured party and/or buyer in respect of the Purchased Royalty. Not in derogation of the foregoing statement of the intent of the parties hereto in this regard, and for the purposes of providing additional assurance to the Buyer in the event that, despite the intent of the parties hereto, the sale, transfer, assignment and conveyance contemplated hereby is hereafter held not to be a sale, the Seller does hereby grant to the Buyer a security interest in and to all right, title and interest of the Seller, in, to and under the Purchased Royalty and any “proceeds” (as defined in the UCC) thereof as security for all of the Seller’s obligations hereunder, including the payment of the Purchased Royalty, and the Seller does hereby authorize the Buyer, from and after the Closing, to file such financing statements (and continuation statements with respect to such financing statements when applicable) in such manner and such jurisdictions as are necessary or appropriate to perfect such security interest.
Article 3
CLOSING
CLOSING
Section 1.1Closing; Payment of Purchase Price.
The purchase and sale of the Purchased Royalty shall take place remotely via the exchange of documents and signatures on the date hereof or such other place, time and date as the parties hereto may mutually agree (the “Closing”). At the Closing, the Buyer shall deliver (or cause to be delivered) payment of the Initial Purchase Price to the Seller by wire transfer of immediately available funds to one or more accounts specified by the Seller on Exhibit A.
Section 1.2Bill of Sale. At the Closing, upon confirmation of the receipt of the Initial Purchase Price, each of the Seller and the Buyer shall deliver to the other party hereto a duly executed bill of sale evidencing the sale, transfer, assignment and conveyance of the Purchased Royalty, substantially in the form attached hereto as Exhibit B (the “Bill of Sale”).
Section 1.3Licensee Instruction. At the Closing, the Seller shall deliver to the Buyer and Licensee an instruction letter, in the form attached hereto as Exhibit C (the “Licensee Instruction Letter”), duly executed by the Seller, instructing Licensee to pay the Royalty directly to the Escrow Account.
Section 1.4Bilateral Common Interest and Joint Privilege Agreement. At the Closing, each of the Seller and the Buyer shall deliver to the other party hereto a duly executed counterpart of the Bilateral Common Interest and Joint Privilege Agreement.
Section 1.5Escrow Agreement. At the Closing, each of the Seller and the Buyer shall deliver to the other party hereto a duly executed counterpart of the Escrow Agreement, and the Escrow Agent shall deliver to the parties hereto a duly executed counterpart of the Escrow Agreement.
Section 1.6Form W-9. At the Closing, the Seller shall deliver to the Buyer a valid, properly executed IRS Form W-9 certifying that the Seller is a corporation for U.S. federal income tax purposes and is exempt from U.S. federal withholding tax and “backup” withholding tax with respect to the Purchase Price.
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Section 1.7Form W-8BEN-E. At the Closing, the Buyer shall deliver to the Seller a valid, properly executed IRS Form W-8BEN-E certifying that the Buyer is exempt from U.S. federal withholding tax with respect to any and all royalty payments in respect of the Purchased Royalty pursuant to an income tax treaty to which the United States is a party.
Section 1.8Additional Documents. At the Closing, the Seller shall deliver to the Buyer the document attached as Appendix 1 to Exhibit H, duly and properly executed by the Seller.
Article 4
SELLER’S AND SELLER PARENT’S REPRESENTATIONS AND WARRANTIES
SELLER’S AND SELLER PARENT’S REPRESENTATIONS AND WARRANTIES
Except as set forth in the Disclosure Schedule, each of the Seller and the Seller Parent represents and warrants to the Buyer that as of the Closing Date:
Section 1.1Existence; Good Standing. The Seller is a limited liability company, duly formed, validly existing and in good standing under the laws of the State of Delaware. The Seller Parent is a public limited company duly incorporated, validly existing and in good standing under the laws of England and Wales. Each of the Seller and the Seller Parent is duly licensed or qualified to do business and is in limited liability company or corporate, as applicable, good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned, leased or operated by it makes such licensing or qualification necessary, except where the failure to be so licensed or qualified and in limited liability company or corporate, as applicable, good standing has not and would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
Section 1.2Authorization. Each of the Seller and the Seller Parent has all requisite corporate or limited liability company power and authority to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary corporate or limited liability company action on the part of the Seller and the Seller Parent.
Section 1.3Enforceability. The Agreement has been duly executed and delivered and constitutes a valid and binding obligation of the Seller and the Seller Parent enforceable against each in accordance with its terms, except as such enforceability may be limited by applicable Bankruptcy Laws or general principles of equity (whether considered in a proceeding in equity or at law).
Section 1.4No Conflicts. The execution, delivery and performance by the Seller and the Seller Parent of this Agreement and the consummation of the transactions contemplated hereby do not and shall not (i) contravene or conflict with the organizational documents of the Seller or the Seller Parent, (ii) contravene or conflict with or constitute a material default under any law or Judgment binding upon or applicable to the Seller or the Seller Parent, (iii) contravene or conflict with or constitute a default under the License Agreement or (iv) contravene or conflict with or constitute a material default under any other material contract or material agreement binding upon or applicable to the Seller or the Seller Parent.
Section 1.5Consents. Except for the consents that have been obtained on or prior to the Closing or filings required by the federal securities laws or stock exchange rules, no consent, approval, license, order, authorization, registration, declaration or filing with or of any
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Governmental Entity or other Person is required to be done or obtained by the Seller in connection with (i) the execution and delivery by the Seller of this Agreement, (ii) the performance by the Seller of its obligations under this Agreement or (iii) the consummation by the Seller of any of the transactions contemplated by this Agreement.
Section 1.6No Litigation. There is no action, suit, claim, investigation or proceeding pending or, to the Knowledge of the Seller, threatened, including before any Governmental Entity, against or involving the Seller or any of its Affiliates, or any of their respective properties or assets that, individually or in the aggregate, would be reasonably be expected to result in a Material Adverse Effect or which questions the validity of this Agreement or the transactions contemplated hereby or any action taken or to be taken pursuant hereto.
Section 1.7Compliance with Laws. Neither the Seller nor any of its Affiliates is in violation of, and to the Knowledge of the Seller, neither the Seller nor any of its Affiliates is under investigation with respect to nor has the Seller or any of its Affiliates been threatened to be charged with or given notice of any violation of, any law or Judgment applicable to the Seller or any of its Affiliates, which violation would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
Section 1.8No Undisclosed Events or Circumstances. No event or circumstance has occurred or exists with respect to the Seller, its Affiliates, or their respective businesses, properties, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Seller but which has not been so publicly announced or disclosed and which, individually or in the aggregate, would constitute a Material Adverse Effect.
Section 1.9License Agreement. Attached hereto as Exhibit F is a true, correct and complete copy of the License Agreement. The Seller has delivered to the Buyer true, correct and complete copies of all License Agreement Correspondence.
(a)No Other Agreements. Except as set forth on Schedule 4.9(a)(i) of the Disclosure Schedule, the License Agreement is the only agreement, instrument, arrangement, modification, waiver or understanding (collectively, “Contracts”) between the Seller (or any predecessor or Affiliate thereof), on the one hand, and Licensee (or any predecessor or Affiliate thereof), on the other hand, relating to the subject matter thereof. Except as set forth on Schedule 4.9(a)(ii) of the Disclosure Schedule, there are no other Contracts between the Seller (or any predecessor or any Affiliate thereof), on the one hand, and any other Person, including Licensee (or any predecessor or Affiliate thereof), on the other hand, that relate to the License Agreement, any Licensed Patent, a Licensed Product (including the development or commercialization thereof), or the Royalty. Except as set forth on Schedule 4.9(a)(iii) of the Disclosure Schedule, to the Knowledge of the Seller, the License Agreement and the Eli Lilly Agreement are the only material Contracts between Licensee (or any predecessor or Affiliate thereof), on the one hand, and any other Person, on the other hand, relating to KarXT (including the development or commercialization thereof). Except as set forth on Schedule 4.9(a)(iv) of the Disclosure Schedule, there is no proposal to amend or waive any provision of the License Agreement in any manner that (i) would result in a breach of this Agreement or (ii) would otherwise reasonably be expected to have a Material Adverse Effect. No executed, draft or proposed Contract between the Seller (or any predecessor or any Affiliate thereof), on the one hand, and any other Person, including Licensee (or any predecessor or Affiliate thereof), on the other hand, contains any provision, term or condition that would reasonably be expected to result in a Material Adverse Effect.
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(b)Licenses/Sublicenses. Except as set forth on Schedule 4.9(b) of the Disclosure Schedule, to the Knowledge of the Seller, there are no licenses or sublicenses entered into by Licensee (or any predecessor or Affiliate thereof) or any other Person in respect of Licensee’s rights and obligations under the License Agreement (including any Licensed Patents). Except as set forth on Schedule 4.9(b) of the Disclosure Schedule, the Seller has not received any notice from Licensee pursuant to Section 2.2 or 6.6 of the License Agreement.
(c)Validity and Enforceability of License Agreement; No Breaches or Defaults; No Repudiation. The License Agreement is legal, valid, binding, enforceable, and in full force and effect, except as such enforceability may be limited by applicable Bankruptcy Laws or general principles of equity (whether considered in a proceeding in equity or at law). The License Agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms, immediately following the consummation of the transactions contemplated by this Agreement, except as such enforceability may be limited by applicable Bankruptcy Laws or general principles of equity (whether considered in a proceeding in equity or at law). Neither the Seller nor, to the Knowledge of the Seller, Licensee is, or has at any time been, in material breach under the License Agreement or material default thereunder, and, to the Knowledge of the Seller, no event has occurred that would constitute such a breach, or permit termination, modification, or acceleration, under the License Agreement. No party to the License Agreement has repudiated any provision of the License Agreement and the Seller has not received any notice in connection with the License Agreement challenging the validity, enforceability or interpretation of any provision of such agreement, including the obligation to pay any portion of the Royalty without set-off of any kind.
(d)Licensed Product. KarXT is a Licensed Product under the License Agreement, and to the Knowledge of the Seller, there are no other Licensed Products being researched, developed or commercialized by or on behalf of Licensee under the License Agreement. Licensee and its Affiliates are required to pay the royalties under Section 3.1(a) of the License Agreement on all Net Sales of any Licensed Products by or on behalf of them and any of their (sub)licensees. The Seller has the right to receive the Royalty for so long as Licensee, one of its Affiliates or any of its or their (sub)licensees is selling any Licensed Product during the Term (as defined in Section 1.9 of the License Agreement).
(e)No Liens or Assignments by the Seller. The Seller has not, except for Permitted Liens and as contemplated hereby, conveyed, assigned or in any other way transferred or granted any Liens upon or with respect to all or any portion of its right, title and interest in and to the Royalty, any Licensed Patent or the License Agreement.
(f)No Waivers or Releases. Except as set forth on Schedule 4.9(f) of the Disclosure Schedule, the Seller has not granted any material waiver under the License Agreement and has not released Licensee, in whole or in part, from any of its material obligations under the License Agreement.
(g)No Termination. The Seller has not (i) given Licensee any notice of termination of the License Agreement (whether in whole or in part) or any notice expressing any intention to terminate the License Agreement or (ii) received any notice of termination of the License Agreement (whether in whole or in part) or any notice expressing any intention to terminate the License Agreement. To the Knowledge of the Seller, no event has occurred that would give rise to the expiration or termination of, or either the Seller or Licensee having the right to terminate, the
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License Agreement, including a breach of any of the obligations set forth in Section 2.4 of the License Agreement.
(h)Payments Made. The Seller has timely received from Licensee the full amount of the payments due and payable under the License Agreement, to the extent such amounts have come due.
(i)No Assignments by Licensee. The Seller has not consented to any assignment, delegation or other transfer by Licensee or any of its predecessors of any of their rights or obligations under the License Agreement, and, to the Knowledge of the Seller, Licensee has not assigned or otherwise transferred or granted any Lien upon or with respect to any of its rights or obligations under the License Agreement.
(j)No Indemnification Claims. The Seller has not notified Licensee or any other Person of any claims for indemnification under the License Agreement nor has the Seller received any claims for indemnification under the License Agreement.
(k)No Royalty Reductions. To the Knowledge of the Seller, the amount of the Royalty due and payable under Section 3.1(a) of the License Agreement is not subject to any claim by Licensee alleging a right of set-off, counterclaim, credit, reduction or deduction by contract or otherwise, including as permitted by Section 3.2(b) of the License Agreement, or otherwise against the Royalty (each, a “Royalty Reduction”). To the Knowledge of the Seller, no event or condition exists that would reasonably be expected to permit Licensee to claim, or have the right to claim, a Royalty Reduction.
(l)No Notice of Infringement, Enforcement or Defense. The Seller has not received any written notice from, or given any written notice to, Licensee pursuant to Section 6.1, 6.2 or 6.3 of the License Agreement.
(m)Audits. The Seller has not initiated, pursuant to Section 4.4 of the License Agreement or otherwise, any inspection or audit of books of accounts or other records pertaining to Net Sales, the calculation of royalties or other amounts payable to the Seller under the License Agreement.
(n)In-Licenses. There are no PureTech In-Licenses.
Section 1.10Title to Purchased Royalty. The Seller has good and marketable title to the Purchased Royalty, free and clear of all Liens (other than Permitted Liens). Upon payment of the Initial Purchase Price by the Buyer, the Buyer will acquire, subject to the terms and conditions set forth in this Agreement and the License Agreement, good and marketable title to the Purchased Royalty, free and clear of all Liens (other than Permitted Liens).
Section 1.11Intellectual Property.
(a)Schedule 4.11(a) of the Disclosure Schedule lists all Licensed Patents. The Seller is the sole owner of, and has sole interest in, all of the Licensed Patents. Schedule 4.11(a) of the Disclosure Schedule specifies as to each of the Licensed Patents: the jurisdiction in which such patent has issued or such patent application has been filed, its patent number and/or application number, and its issue and filing dates.
(b)Except as set forth in Schedule 4.11(b) of the Disclosure Schedule, there are no pending or, to the Knowledge of the Seller, threatened, litigations, interferences, reexamination, oppositions or like procedures involving any Licensed Patents or, to the Knowledge of the Seller, Karuna Product Patents.
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(c)All of the issued Licensed Patents are in full force and effect and have not lapsed, expired or otherwise terminated, and, to the Knowledge of the Seller, all Licensed Patents and Karuna Product Patents are valid and enforceable. The Seller has not received any written notice relating to the lapse, expiration or other termination of any of the Licensed Patents, or any written legal opinion that alleges that any of the issued Licensed Patents are invalid or unenforceable.
(d)To the Knowledge of the Seller, there is no Person who is or claims to be an inventor under any of the Licensed Patents who is not a named inventor thereof.
(e)The Seller has not, and, to the Knowledge of the Seller, Licensee has not, received any written notice of any claim by any Person (i) challenging the inventorship or ownership of, the rights of the Seller or Licensee, as applicable, in and to, or the patentability, validity or enforceability of, any Licensed Patent, or (ii) asserting that the development, manufacture, importation, sale, offer for sale or use of any Licensed Product infringes any patent rights or other intellectual property rights of such Person.
(f)To the Knowledge of the Seller, the discovery and development of the Licensed Products did not and does not infringe, misappropriate or otherwise violate any patent rights or other intellectual property rights owned by any other Person, other than the Karuna Product Patents. Neither the Seller nor, to the Knowledge of the Seller, Licensee, has in-licensed any Patents or other intellectual property rights covering the manufacture, use, sale, offer for sale or import of the Licensed Products.
(g)To the Knowledge of the Seller, the manufacture, use, marketing, sale, offer for sale, importation or distribution of the Licensed Products has not and will not, infringe, misappropriate or otherwise violate any patent rights or other intellectual property rights owned by any other Person, other than the Karuna Product Patents.
(h)To the Knowledge of the Seller, no Person has infringed, misappropriated or otherwise violated, or is infringing, misappropriating or otherwise violating, any of the Licensed Patents.
(i)All required maintenance fees, annuities and like payments with respect to the Licensed Patents for which the Seller controls the prosecution and maintenance in accordance with Article 5 of the License Agreement, and to the Knowledge of the Seller, with respect to all other Licensed Patents, have been paid timely.
(j)No Third Party has a binding contractual right to prosecute any Licensed Patents on behalf of Licensee. Licensee has not elected not to prosecute any of the Licensed Patents pursuant to Section 5.3 of the License Agreement. The Seller does not own, in-license or otherwise control or have rights to any Patents that are necessary or useful for the research, development, manufacture, use, marketing, sale, offer for sale, importation or distribution of the Licensed Products and are not licensed to Licensee under the License Agreement, including by reversion pursuant to Section 5.3 of the License Agreement.
Section 1.12UCC Representation and Warranties. The Seller’s exact legal name is, and for the immediately preceding seven (7) years has been, “PureTech Health LLC”. The Seller is, and for the prior seven (7) years has been, formed in the State of Delaware.
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Section 1.13Brokers’ Fees. There is no investment banker, broker, finder, financial advisor or other intermediary who has been retained by or is authorized to act on behalf of the Seller who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
Section 1.14Taxes. The Seller has not received any notice from Licensee of any intention to withhold or deduct any material tax from future payments to the Seller. There are no existing Liens for taxes on the Royalty (or any portion thereof), other than Permitted Liens. There are no material Tax audits or investigations (and the Seller has not been informed or notified of any pending material Tax audits or investigations) with respect to any payment made to the Seller under the License Agreement. To the knowledge of the Seller, the arrangement under the License Agreement is not treated as a partnership for U.S. tax purposes and the Seller has never taken the position for U.S. federal income or other tax purposes that the arrangement under the License Agreement is treated as such. The Seller has never received an IRS Schedule K-1 or other U.S. tax form reporting that the Seller is a partner in a partnership as a result of being a party to the License Agreement.
Section 1.15No Implied Representations and Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE 4, THE SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESSED OR IMPLIED, AT LAW OR IN EQUITY, INCLUDING WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND ANY SUCH REPRESENTATIONS OR WARRANTIES ARE HEREBY EXPRESSLY DISCLAIMED. THE BUYER ACKNOWLEDGES THAT, EXCEPT AS SPECIFICALLY PROVIDED IN THIS ARTICLE 4 AND THE DISCLOSURE SCHEDULES, THE SELLER HAS ASSUMED NO RESPONSIBILITIES OF ANY KIND WITH RESPECT TO ANY ACT OR OMISSION OF LICENSEE WITH RESPECT TO THE DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE, DISTRIBUTION, MARKETING OR OTHER ACTIVITIES OF LICENSEE WITH RESPECT TO ANY OF THE LICENSED PRODUCTS.
Article 5
BUYER’S REPRESENTATIONS AND WARRANTIES
BUYER’S REPRESENTATIONS AND WARRANTIES
The Buyer represents and warrants to the Seller that as of the Closing Date:
Section 1.1Existence; Good Standing. The Buyer is an Irish collective asset-management vehicle that is duly organized, validly existing and in good standing under the laws of the Republic of Ireland.
Section 1.2Authorization. The Buyer has the requisite right, power and authority to execute, deliver and perform its obligations under this Agreement. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly authorized by all necessary action on the part of the Buyer.
Section 1.3Enforceability. This Agreement has been duly executed and delivered by an authorized person of the owner trustee of the Buyer and constitutes the valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms, except as may be limited by applicable Bankruptcy Laws or by general principles of equity (whether considered in a proceeding in equity or at law).
Section 1.4No Conflicts. The execution, delivery and performance by the Buyer of this Agreement and the consummation of the transactions contemplated hereby do not
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and shall not (i) contravene or conflict with the organizational documents of the Buyer, (ii) contravene or conflict with or constitute a material default under any law or Judgment binding upon or applicable to the Buyer or (iii) contravene or conflict with or constitute a default under any material contract or other material agreement binding upon or applicable to the Buyer.
Section 1.5Consents. Other than the filing of financing statement(s) in accordance with Section 2.3 or filings required by federal securities laws or stock exchange rules, no consent, approval, license, order, authorization, registration, declaration or filing with or of any Governmental Entity or other Person is required to be done or obtained by the Buyer in connection with (i) the execution and delivery by the Buyer of this Agreement, (ii) the performance by the Buyer of its obligations under this Agreement, or (iii) the consummation by the Buyer of any of the transactions contemplated by this Agreement.
Section 1.6No Litigation. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Buyer, threatened, including before any Governmental Entity, to which the Buyer is a party that would, if determined adversely, reasonably be expected to prevent or materially and adversely affect the ability of the Buyer to perform its obligations under this Agreement.
Section 1.7Financing. The Buyer has sufficient cash on hand to pay the Purchase Price. The Buyer acknowledges that its obligations under this Agreement are not contingent on obtaining financing.
Section 1.8Brokers’ Fees. There is no investment banker, broker, finder, financial advisor or other intermediary who has been retained by or is authorized to act on behalf of the Buyer who might be entitled to any fee or commission in connection with the transactions contemplated by this Agreement.
Article 6
COVENANTS
COVENANTS
Section 1.1Disclosures. Except for a press release previously approved in form and substance by the Seller and the Buyer or any other public announcement using substantially the same text as such press release or any other public disclosure permitted under this Agreement following the Closing, neither the Buyer nor the Seller shall, and each party hereto shall cause its respective Representatives, Affiliates and Affiliates’ Representatives not to, issue a press release or other public announcement or otherwise make any public disclosure with respect to this Agreement or the subject matter hereof without the prior written consent of the other party hereto (which consent shall not be unreasonably withheld, conditioned or delayed), except as may be required by applicable law or stock exchange rule (in which case the party hereto required to make the press release or other public announcement or disclosure shall allow the other party hereto reasonable time to comment on such press release or other public announcement or disclosure in advance of such issuance to the extent permitted to do so or reasonably practicable under the circumstances).
Section 1.2Payments Received In Error.
(a)Commencing on the Closing Date and at all times thereafter, if any payment of any portion of the Purchased Royalty is made to the Seller, the Seller shall pay such amount to the Buyer, promptly (and in any event within [***] ([***]) Business Days) after the receipt thereof, by wire transfer of immediately available funds to an account designated in writing by the Buyer. The Seller shall notify the Buyer of such wire transfer and provide
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reasonable details regarding the Purchased Royalty payment so received by the Seller. The Seller agrees that, in the event any payment of the Purchased Royalty is paid to the Seller, the Seller shall (i) until paid to the Buyer, hold such payment received in trust for the benefit of the Buyer and (ii) have no right, title or interest in such payment and that it shall not pledge or otherwise grant any security interest therein.
(b)Commencing on the Closing Date and at all times thereafter, if any payment due under the License Agreement that does not constitute any payment of any portion of the Purchased Royalty is made to the Buyer, the Buyer shall pay such amount to the Seller, promptly (and in any event within [***] ([***]) Business Days) after the receipt thereof, by wire transfer of immediately available funds to an account designated in writing by the Seller. The Buyer shall notify the Seller of such wire transfer and provide reasonable details regarding the erroneous payment so received by the Buyer. The Buyer agrees that, in the event any payment due under the License Agreement that does not constitute the Purchased Royalty is paid to the Buyer, the Buyer shall (i) until paid to the Seller, hold such payment received in trust for the benefit of the Seller and (ii) have no right, title or interest in such payment and that it shall not pledge or otherwise grant any security interest therein.
Section 1.3Royalty Reduction. If Licensee exercises any Royalty Reduction against any payment of the Purchased Royalty other than for a Permitted Reduction, then the Seller shall promptly (and in any event within [***] ([***]) Business Days) following the payment of the Purchased Royalty affected by such Royalty Reduction) make a true-up payment to the Buyer such that the Buyer receives the full amount of such Purchased Royalty payments that would have been payable to the Buyer had such Royalty Reduction not occurred.
Section 1.4Interest on Overdue Payments. If either party hereto fails to pay on or before the due date any amount which is payable to the other party hereto under this Agreement, such other party may, after giving at least [***] ([***]) days’ prior written notice of such failure to pay to the party that failed to pay, charge interest on that amount from the due date until payment is made in full at a rate per annum equal to four percent (4%) over the Prime Rate (or, if less, the maximum amount permitted by applicable law).
Section 1.5Royalty Reports; Communications with Licensee.
(a)Promptly (and in any event within [***] ([***]) Business Days) following the receipt by the Seller of (i) any Royalty Report or other reports under Section 4.1 of the License Agreement, (ii) any notices under Section 13.1 of the License Agreement or other material communications between Licensee and the Seller relating to the Royalty, the Licensed Patents, or the Licensed Products, or (iii) any other material notice or communications related to the License Agreement that would reasonably be expected (individually or in the aggregate) to have a Material Adverse Effect, the Seller shall furnish a true, correct and complete copy of any such written notice or communication or a reasonably detailed written summary of any such oral notice or communication to the Buyer.
(b)The Seller shall not, without the Buyer’s prior written consent (not to be unreasonably withheld, conditioned or delayed) or as expressly permitted under Section 6.14(c)(i)(B) of this Agreement, send any written notice or written correspondence to Licensee under or in connection with the License Agreement (i) that is (A) related to the Royalty, (B) related to the Licensed Patents (other than immaterial written correspondence, the subject matter of which is not related to the filing, prosecution, maintenance, defense or enforcement of such Licensed Patents), or (C) material and related to the Licensed Products; or (ii) that would reasonably be expected (individually or in the aggregate) to have a Material Adverse Effect. The Seller shall send any written notice or written correspondence reasonably requested by the Buyer to Licensee related to the Licensed Patents, the Licensed Products or the Royalty.
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(c)Not in derogation of the foregoing clauses (a) and (b), promptly (and in any event within [***] ([***]) Business Days) following the receipt by the Seller of copies of all (i) sublicenses granted by Licensee and received by Seller pursuant to Section 2.2 of the License Agreement, or (ii) agreements between the Seller and Licensee (or their Affiliates) relating to the License Agreement, including any development, manufacturing, services, or pharmacovigilance agreements, the Seller shall furnish a true, correct and complete copy of the same to the Buyer.
(d)After the Closing, the Seller shall (i) execute the Trilateral Common Interest and Joint Privilege Agreement and (ii) use commercially reasonably efforts to obtain from Licensee (x) an agreement to send Royalty Reports directly to both the Seller and the Buyer, and (y) Licensee’s signature to the Trilateral Common Interest and Joint Privilege Agreement.
Section 1.6Inspections and Audits of Licensee. If either party hereto desires to cause an audit or inspection by an independent public accounting firm under Section 4.4 of the License Agreement to be made for the purpose of determining the correctness of the Royalty paid under the License Agreement, then the Seller and the Buyer agree to consult in good faith with each other in connection therewith. Following such consultation the Seller may, and if requested by the Buyer, shall, to the extent permitted under Section 4.4 of the License Agreement, cause such an inspection or audit to be made. The Seller shall, for purposes of Section 4.4 of the License Agreement, select such independent public accounting firm as reasonably designated by the Buyer for such purpose. The party hereto requesting hereunder that such an inspection or audit be made shall pay the expenses associated therewith (including the fees and expenses of such independent public accounting firm designated for such purpose); provided, however, that, if, following the completion of such an inspection or audit requested by the Buyer hereunder, the Licensee reimburses the Seller for the expenses of such inspection or audit pursuant to Section 4.4 of the License Agreement, the Seller shall promptly (and in any event within [***] ([***]) Business Days) following receipt by the Seller of such reimbursement remit the amount of such reimbursement to the Buyer to the extent that the Buyer paid such expenses. The Seller shall deliver to the Buyer a copy of the results of any inspection or audit conducted pursuant to Section 4.4 of the License Agreement within [***] ([***]) Business Days following the Seller’s receipt thereof, with, if applicable, information redacted that the Seller reasonably determines is not relevant for determining the correctness of the Royalty made under the License Agreement.
Section 1.7Amendment of License Agreement.
(a)The Seller shall not, without the Buyer’s prior written consent (not to be unreasonably withheld, conditioned or delayed), (i) amend, modify, supplement or restate (or consent to any amendment, modification, supplement or restatement of) any provision of the License Agreement, or (ii) enter into any Contract having the effect of the foregoing.
(b)With respect to any provision of the License Agreement related to the Licensed Patents, the Licensed Products or the Royalty, the Seller shall (if reasonably instructed by the Buyer) (a) use commercially reasonable efforts to amend, modify, supplement or restate such provision and (b) agree to any amendment, modification, supplement or restatement of such provision proposed or requested by the Licensee; provided, however, that (in the case of both (a) and (b)) such amendment, modification, supplement or restatement does not (i) relate to a reduction of any milestone payments or sublicense income payments under Section 3.1(b) or 3.1(c) of the License Agreement or the Seller’s rights and remedies to collect such amounts, or (ii) impose on the Seller any additional obligations or liabilities other than those existing in the License Agreement as of the date hereof or created pursuant to a subsequent amendment, modification, supplement or restatement entered into by the Seller in accordance with this Section 6.7(b).
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(c)Promptly, and in any event within [***] ([***]) Business Days, following receipt by the Seller of any final amendment, modification, supplement or restatement of the License Agreement, any consent to any amendment, modification, supplement or restatement of any provision of the License Agreement, or any Contract having the effect of the foregoing, the Seller shall furnish a copy of the same to the Buyer.
Section 1.8Assignment of License Agreement and Licensed Patents.
(a)The Seller shall not, without the Buyer’s prior written consent (such consent to be granted or withheld in the sole discretion of the Buyer), sell, assign or otherwise transfer all or any portion of its interest under the License Agreement (including any of its rights or obligations thereunder) to any Person, including by contract, operation of law, merger, change of control, or otherwise, except in connection with (i) an assignment of this Agreement in its entirety in accordance with Section 10.3 to an assignee permitted thereunder or (ii) a Seller Monetization Transaction that (x) is permitted by and undertaken in accordance with this Agreement and (y) would not otherwise adversely affect the ability of the Seller to perform any of its obligations hereunder.
(b)The Seller shall not, without the Buyer’s prior written consent (such consent to be granted or withheld in the sole discretion of the Buyer), sell, assign or otherwise transfer all or any portion of its interest in the Licensed Patents to any Person, including by contract, operation of law, merger, change of control, or otherwise, except in connection with an assignment of this Agreement in its entirety in accordance with Section 10.3 to an assignee permitted thereunder.
Section 1.9Maintenance of License Agreement. The Seller shall comply in all material respects with its obligations under the License Agreement and shall not take any action or forego any action that would reasonably be expected to constitute a material breach thereof or default thereunder. Promptly, and in any event within [***] ([***]) Business Days, after receipt of any (written or oral) notice from Licensee of an alleged breach or default under the License Agreement, the Seller shall give notice thereof to the Buyer, including delivering the Buyer a copy of any such written notice or a detailed written summary of any such oral notice. The Seller shall consult with the Buyer regarding such alleged breach or default and shall act as reasonably instructed by the Buyer to cure any breaches or defaults and shall give written notice within [***] ([***]) Business Days to the Buyer upon curing any such breach or default. The Seller shall not without the Buyer’s prior written consent (not to be unreasonably withheld, conditioned or delayed) and shall (if reasonably instructed by the Buyer) (i) forgive, release or compromise any amount owed to or becoming owed to the Seller under the License Agreement in respect of the Royalty or (ii) waive any obligation of, or grant any consent to, Licensee under, in respect of or related to the Royalty. The Seller shall not, without the Buyer’s written consent (to be granted or withheld in the Buyer’s sole discretion), enter into any new agreement or legally binding arrangement in respect of the Licensed Products or the Licensed Patents, except in connection with (i) an assignment of this Agreement in its entirety in accordance with Section 10.3 to an assignee permitted thereunder or (ii) a Seller Monetization Transaction that (x) is permitted by and undertaken in accordance with this Agreement and (y) would not otherwise adversely affect the ability of the Seller to perform any of its obligations hereunder.
Section 1.10Enforcement of License Agreement.
(a)Notice of Breaches by Licensee. Promptly (and in any event within [***] ([***]) Business Days) after the Seller becomes aware of a material breach of the License Agreement by Licensee, the Seller shall provide notice of such breach to the Buyer.
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(b)Enforcement of License Agreement. The Seller shall consult with the Buyer regarding the timing, manner and conduct of any enforcement of Licensee’s obligations under the License Agreement or regarding any breach, default or other dispute under the License Agreement or otherwise relating to the Royalty or any purported Royalty Reduction. Following such consultation, the Seller shall, as reasonably instructed by the Buyer, exercise such rights and remedies, whether under the License Agreement or otherwise, relating to any such breach, default or other dispute that would reasonably be expected (individually or in the aggregate) to have a Material Adverse Effect, or that is otherwise related to the Royalty or any Royalty Reduction. The Seller shall employ such counsel, reasonably acceptable to the Seller, as the Buyer may select, and shall provide the Buyer with access to such counsel, in connection with any such dispute regarding any such alleged breach, default or other dispute under the License Agreement. [***] The Seller agrees to keep the Buyer reasonably informed of any actual or alleged breach, default or other dispute related to the License Agreement or the Royalty or any Royalty Reduction and to provide copies as soon as practicable, but in any event within [***] ([***]) Business Days following the Seller’s receipt or delivery of (i) any written notice of any breach or alleged breach of the License Agreement or dispute in connection with the Royalty or any Royalty Reduction and (ii) any and all filings, notices and written communications relating thereto.
(c)Allocation of Proceeds and Costs of Enforcement. Except as otherwise provided herein, each of the Buyer and the Seller shall bear its own fees and expenses incurred in enforcing Licensee’s obligations under the License Agreement pursuant to this Section 6.10. The Proceeds resulting from any enforcement of Licensee’s obligations under the License Agreement shall be applied first to reimburse the Seller and the Buyer for any reasonable and documented expenses incurred by them in connection with such enforcement, with the remainder of the Proceeds distributed (i) between the Buyer and the Seller, according to their respective Pro-Rata Portions, to the extent the breach by Licensee is related to any payment of, or adversely impacted, the Royalty and (ii) otherwise to the Seller for all other breaches by Licensee. The Seller hereby assigns and, if not presently assignable, agrees to assign to the Buyer, the amount of Proceeds due to the Buyer in accordance with this Section 6.10(c).
Section 1.11Termination of License Agreement. Without the prior written consent of the Buyer (such consent to be granted or withheld in the sole discretion of the Buyer), the Seller shall not (i) exercise any right to terminate the License Agreement, in whole or in part, (ii) agree with Licensee to terminate the License Agreement, in whole or in part, (iii) take, or permit any Affiliate or sublicensee to take, any action that would reasonably be expected to give Licensee the right to terminate the License Agreement, in whole or in part, or (iv) take any action, fail to take an action or permit an action to be taken, that would give Licensee the right to terminate the License Agreement under Section 11.2(b) thereof.
Section 1.12New Arrangements.
(a)Without limiting the provisions of this Article 6 or any other rights or remedies the Buyer may have under this Agreement, if the License Agreement is terminated prior to the date on which all Patents within the Licensed Patents have expired or been abandoned:
(i)as reasonably instructed by the Buyer, the Seller will use commercially reasonable efforts to negotiate and enter into a license, assignment or transfer agreement with Licensee for the regulatory filings and approvals, data, know-how, and Patents owned or controlled by Licensee, including a license to the Karuna Product Patents, in each case, that are necessary or useful to research, develop, manufacture, use, market, sell, offer for sale, import or distribute the Licensed Products; and
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(ii)the Buyer shall have the exclusive right to negotiate, or cause the Seller to use commercially reasonable efforts to negotiate and enter into, a license under the Licensed Patents with a Third Party, pursuant to which such Third Party will be granted rights to research, develop, manufacture, use, market, sell, offer for sale, import or distribute the Licensed Products for any purpose that Licensee would have been permitted to research, develop, manufacture, use, market, sell, offer for sale, import or distribute the Licensed Products under the License Agreement, subject to any rights retained by Licensee following such termination pursuant to Section 11.3 of the License Agreement (such license, a “New Arrangement”). The Seller shall provide reasonable assistance to and cooperate with the Buyer, at the Buyer’s cost and expense (including the Buyer’s payment of the Seller’s reasonable and documented attorneys’ fees, if any, in connection therewith), in such efforts as the Buyer shall undertake in connection with the negotiation of, and entry into, such New Arrangement. Any New Arrangement shall (x) not become effective earlier than the effective date of such termination of the License Agreement and (y) not include terms, conditions and limitations that impose any additional obligation or expense on the Seller or that are, in the aggregate, materially less favorable to the Seller and (as a result of the Buyer’s purchase hereunder) the Buyer than those contained in the License Agreement, including with respect to obligations and costs imposed on the Seller, disclaimers of the Seller’s liability, intellectual property ownership and control, indemnification of the Seller, milestone payments, royalty rates and sharing of sublicense income.
(b)Without limiting Section 6.12(a), should the Buyer identify any New Arrangement(s), the Seller agrees to execute and deliver a new license agreement to the applicable Third Party (each, a “New License Agreement”) effectuating such New Arrangement that satisfies the foregoing requirements and contains such other reasonable terms as may be required or customarily included by the Seller and agreed to by the Buyer. Thereafter, each New License Agreement shall be included for all purposes in the definition of “License Agreement” under this Agreement, any payments that are equivalent to the Royalty under such New License Agreement and any rights similar shall be included for all purposes under this Agreement, and the Seller’s and the Buyer’s rights and obligations under this Agreement in respect of the License Agreement shall apply in respect of their rights and obligations under the New License Agreement mutatis mutandis, in each case without any further action by the parties hereto to amend this Agreement or the Bill of Sale.
Section 1.13No Impairment of the Purchased Royalty. Notwithstanding anything herein to the contrary, the Seller shall not (i) enter into or propose or deliver any Contract (or make or propose any amendments, modifications waivers or notices in connection with any Contract) that imposes a Lien upon, or otherwise sells, transfers, hypothecates, assigns, conveys title (in whole or in part), grants any right to, or otherwise disposes of any portion of the Purchased Royalty, or (ii) knowingly take any action or knowingly fail to act in a manner, in each case that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
Section 1.14Enforcement; Defense; Prosecution and Maintenance.
(a)The Buyer and the Seller shall promptly inform each other of any suspected infringement by a Third Party they become aware of with respect to any of the Licensed Patents or any other Patent claiming the composition of matter of, or the method of making or using, any Licensed Product. The Seller shall provide to the Buyer such documentation and information as the Buyer reasonably requests in connection with any such infringement and any action arising therefrom, including communications between Licensee and
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the Seller under Section 6.1 or 6.2 of the License Agreement, in each case as soon as practicable and in any event not less than [***] ([***]) Business Days.
(b)The Seller shall not join or initiate without the prior written consent of the Buyer (not to be unreasonably withheld, conditioned or delayed), and shall (as reasonably instructed by the Buyer) join or initiate, an enforcement action of the Licensed Patents in accordance with, respectively, Sections 6.2(a), 6.2(b) and 6.5 of the License Agreement. The Seller shall not act without the prior written consent of the Buyer (not to be unreasonably withheld, conditioned or delayed), and shall act (as reasonably instructed by the Buyer), as to the timing, manner and conduct of any such enforcement action whether joined or initiated by the Seller. Without limiting Section 6.4 of the License Agreement, to the extent Licensee enforces any of the Licensed Patents in accordance with Section 6.2(a) of the License Agreement together with any other Patents owned or controlled by Licensee, the Seller agrees to, only as reasonably instructed by the Buyer, negotiate in good faith with Licensee and agree to a reasonable allocation of Proceeds as between the Licensed Patents and any other Patents that were subject to such suit. In each such case, the Seller shall obtain and deliver to the Buyer an accounting detailing the Proceeds allocated to the Licensed Patents.
(c)The Seller shall (as reasonably instructed by the Buyer), with respect to any Licensed Patents for which the Seller controls the prosecution and maintenance, (i) (A) take any and all actions, and prepare, execute, deliver and file any and all agreements, documents and instruments, that are reasonably necessary or desirable (x) to diligently prosecute, preserve and maintain any such Licensed Patents, including payment of maintenance fees or annuities on any such Licensed Patents, and (y) to extend the term of any such Licensed Patent or exclusivity period for a Licensed Product (including any patent term extension(s) or supplementary protection certificate(s) with respect to any such Licensed Patent, regulatory exclusivity periods with respect to a Licensed Product, or the like), in each case ((x) and (y)), including to the extent permitted in accordance with Article 5 of the License Agreement, and (B) without limiting the generality of clause (A), undertake the activities set forth on Exhibit H; (ii) prosecute any corrections, substitutions, reissues, reviews, reexaminations and any other forms of patent term restoration of any such Licensed Patents, including to the extent permitted in accordance with Article 5 of the License Agreement; (iii) diligently enforce and defend any such Licensed Patents, including by bringing any legal action for infringement in accordance with Section 6.14(b) and defending any counterclaim of invalidity or unenforceability or action of a Third Party for declaratory judgment of non-infringement or non-interference, including to the extent permitted in accordance with Sections 6.3 and 6.5 of the License Agreement; and (iv) not disclaim or abandon, or fail to take any action necessary or desirable to prevent the disclaimer or abandonment (including through lack of enforcement against Third Party infringers) of, any such Licensed Patents, including to the extent permitted in accordance with Article 5 of the License Agreement. [***]
(d)Promptly (and in any event within [***] ([***]) Business Days) following the receipt by the Seller of any (i) patent prosecution updates provided by Licensee to the Seller under Section 5.1 or 5.3 of the License Agreement, or (ii) patent defense updates provided by Licensee to the Seller under Section 6.2 or 6.3 of the License Agreement, the Seller shall furnish a true, correct and complete copy of the same to the Buyer. The Seller agrees to use its commercially reasonable efforts to obtain from Licensee, and deliver to the Buyer, on an annual basis, a complete and accurate docket report for all Licensed Patents; provided that if the Seller is unable to obtain such a docket report from Licensee in any given year, the Seller shall deliver a complete and accurate, to the best of the Seller’s knowledge, docket report for all Licensed Patents.
(e)The Buyer shall have the right to participate in any action, suit or other proceeding or any material meeting or material discussion relating to the infringement, legality,
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validity or enforceability of the Licensed Patents, including any counterclaim, settlement discussions or meetings. The parties hereto shall enter into the Bilateral Common Interest and Joint Privilege Agreement at the Closing in accordance with Section 3.4, and the Seller acknowledges and agrees that it will not object to the Buyer participating in such action, suit or other proceeding or such meeting or discussion and will not assert that such participation could adversely affect the maintenance by the Seller of any applicable attorney-client privilege.
Section 1.15Further Assurances. After the Closing, the Seller and the Buyer agree to execute and deliver such other documents, certificates, agreements and other writings and to take such other actions as may be reasonably necessary in order to give effect to the transactions contemplated by this Agreement.
Section 1.16Tax Matters.
(a)Notwithstanding anything to the contrary in this Agreement, the Seller and the Buyer shall treat the transactions contemplated by this Agreement as a sale of the Purchased Royalty for United States federal, state, local and non-U.S. Tax purposes. Accordingly, (i) any and all Purchased Royalty payments made pursuant to the License Agreement after the Closing Date shall be treated as income of the Buyer and (ii) any and all amounts remitted by the Seller to the Buyer after the Closing Date pursuant to Section 6.2(a) shall be treated as received by the Seller as agent for the Buyer, in each case for United States federal, state, local and non-U.S. Tax purposes. The parties hereto shall cooperate to effect the foregoing treatment for United States federal, state, local and non-U.S. Tax purposes in the event that, notwithstanding the Licensee Instruction Letter, Licensee, any Sublicensee (as defined in the License Agreement) or any other Person makes any future remittance of Purchased Royalty payments to the Seller which the Seller must remit to the Buyer pursuant to Section 6.2(a). The parties hereto agree to cooperate with one another and use reasonable efforts (including in the case of the Seller, to use commercially reasonable efforts to cause Licensee) to reduce, mitigate and eliminate tax withholding or similar obligations in respect of any Royalty payments, including assisting one another to claim the benefits of any applicable tax treaty or other available reduction or exemption from any such Taxes imposed, and by making claims for refunds of withholding tax; provided, however, that the Seller shall be entitled to deduct or withhold any amounts if it is required to do so by law; provided, further, that Seller shall use reasonable efforts to notify Buyer in advance of any such deduction or withholding.
(b)The parties hereto agree not to take any position that is inconsistent with the provisions of this Section 6.16 on any Tax return or in any audit or other Tax-related administrative or judicial proceeding unless (i) the other party hereto has consented in writing to such actions, (ii) ) the party hereto that contemplates taking such an inconsistent position is required to do otherwise pursuant to a “determination,” within the meaning of Section 1313(a) of the U.S. Internal Revenue Code of 1986, as amended, or (iii) the party hereto that contemplates taking such an inconsistent position has been advised by nationally recognized tax counsel in writing that there is no “reasonable basis” (within the meaning of Treasury Regulation Section 1.6662-3(b)(3)) for the position specified in this Section 6.16. If there is an inquiry by any Governmental Entity of the Seller or the Buyer related to this Section 6.16, the parties hereto shall cooperate with each other in responding to such inquiry in a reasonable manner consistent with this Section 6.16.
(c)From time to time during the term of this Agreement, upon the reasonable request of the Seller, the Buyer shall deliver to the Seller a valid, properly executed IRS Form W-8BEN-E certifying that royalty payments to the Buyer under this Agreement are exempt from U.S. federal withholding tax pursuant to an income tax treaty to which the United States is a party, or other documentation establishing an exemption from or reduction in U.S. withholding taxes. Seller shall deliver a copy of any such IRS Form W-8BEN-E or other documentation
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provided by Buyer to Licensee. The Buyer shall, whenever a lapse in time or change in circumstances renders such documentation expired, obsolete or inaccurate in any respect, deliver to the Seller (to the extent it is legally eligible to do so) an updated IRS Form W-8BEN-E or any successor form or other documentation establishing an exemption from or reduction in U.S. federal withholding tax with respect to royalty payments made under this Agreement.
Section 1.17Seller Monetization Transaction. The Seller shall provide reasonable (and at least [***] ([***]) Business Days’) prior written notice to the Buyer before entering into any contract or arrangement with respect to a Seller Monetization Transaction which relates, in whole or in part, to the Retained Royalty.
Article 7
CONFIDENTIALITY
CONFIDENTIALITY
Section 1.1Confidentiality. Except as provided in this Article 7 or otherwise agreed in writing by the parties, the parties hereto agree that, during the term of this Agreement and for five (5) years thereafter, each party (the “Receiving Party”) shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement (which includes the exercise of any rights or the performance of any obligations hereunder) any information furnished to it by or on behalf of the other party (the “Disclosing Party”) pursuant to the Existing Confidentiality Agreement (as defined below) or this Agreement (such information, “Confidential Information” of the Disclosing Party), except for that portion of such information that:
(a)was already known to the Receiving Party, other than under an obligation of confidentiality, at the time of disclosure by the Disclosing Party;
(b)was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party;
(c)became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in breach of this Agreement;
(d)is independently developed by the Receiving Party or any of its Affiliates, as evidenced by written records, without the use of or reference of the Confidential Information; or
(e)is subsequently disclosed to the Receiving Party on a non-confidential basis by a Third Party without obligations of confidentiality with respect thereto.
Section 1.2Authorized Disclosure.
(a)Either party may disclose Confidential Information with the prior written consent of the Disclosing Party or to the extent such disclosure is reasonably necessary in the following situations:
(i)prosecuting or defending litigation;
(ii)complying with applicable laws and regulations, including regulations promulgated by securities exchanges;
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(iii)complying with a valid order of a court of competent jurisdiction or other Governmental Entity;
(iv)for regulatory, tax or customs purposes;
(v)for audit purposes, provided that each recipient of Confidential Information must be bound by customary obligations of confidentiality and non-use prior to any such disclosure;
(vi)disclosure to its Affiliates and Representatives on a need-to-know basis, provided that each recipient of Confidential Information must be bound by customary obligations of confidentiality and non-use prior to any such disclosure; or
(vii)disclosure to its actual or potential investors and co-investors, and other sources of funding, including debt financing, or potential partners, collaborators or acquirers, and their respective accountants, financial advisors and other professional representatives, provided, that such disclosure shall be made only to the extent customarily required to consummate such investment, financing transaction partnership, collaboration or acquisition and that each recipient of Confidential Information must be bound by customary obligations of confidentiality and non-use prior to any such disclosure.
(b)Notwithstanding the foregoing, in the event the Receiving Party is required to make a disclosure of the Disclosing Party’s Confidential Information pursuant to Section 7.2(a)(i), (ii), (iii) or (iv), it will, except where impracticable, give reasonable advance notice to the Disclosing Party of such disclosure and use reasonable efforts to secure confidential treatment of such information. In any event, the Buyer shall not file any patent application based upon or using the Confidential Information of Seller provided hereunder.
Section 1.3Termination of Confidentiality Agreement. Effective upon the date hereof, that certain Confidential Disclosure Agreement, dated September 20, 2022, between RP Management LLC and the Seller (the “Existing Confidentiality Agreement”) shall terminate and be of no further force or effect, and shall be superseded by the provisions of this Article 7.
Article 8
INDEMNIFICATION
INDEMNIFICATION
Section 1.1General Indemnity. Subject to Section 8.3, from and after the Closing:
(a)the Seller hereby agrees to indemnify, defend and hold harmless the Buyer and its Affiliates and its and their directors, managers, trustees, officers, agents and employees (the “Buyer Indemnified Parties”) from, against and in respect of all Losses suffered or incurred by the Buyer Indemnified Parties to the extent arising out of or resulting from (i) (x) any breach of any of the representations or warranties (in each case, when made) of the Seller in this Agreement, or (y) any breach of any of the covenants or agreements of the Seller in this Agreement; provided, however, that the foregoing clause (i) shall exclude any indemnification to any Buyer Indemnified Party solely to the extent (1) that it has the effect of imposing on the Seller any liability to make payments of or in lieu of the Royalty because of any Credit Event, (2) that it results from the failure of Licensee to perform any of its obligations under the License
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Agreement, unless directly resulting from the breach or default by the Seller of or under the License Agreement or this Agreement, (3) resulting from the gross negligence, willful misconduct, or fraud of any Buyer Indemnified Party, or (4) resulting from acts or omissions of the Seller or any of its Affiliates solely based upon, and in conformity with, the Buyer’s express written instructions; or (ii) the matter set forth on Schedule 4.9(a)(ii) of the Disclosure Schedule and any Losses related to such matter.
(b)the Buyer hereby agrees to indemnify, defend and hold harmless the Seller and its Affiliates and its and their directors, officers, agents and employees (the “Seller Indemnified Parties”) from, against and in respect of all Losses suffered or incurred by the Seller Indemnified Parties to the extent arising out of or resulting from (i) any breach of any of the representations or warranties (in each case, when made) of the Buyer in this Agreement or (ii) any breach of any of the covenants or agreements of the Buyer in this Agreement; provided, however, that the foregoing shall exclude any indemnification to any Seller Indemnified Party solely to the extent (y) resulting from the gross negligence, willful misconduct, or fraud of any Seller Indemnified Party, or (z) resulting from acts or omissions of the Buyer or any of its Affiliates solely based upon, and in conformity with, the Seller’s express written instructions.
Section 1.2Notice of Claims. If either a Buyer Indemnified Party, on the one hand, or a Seller Indemnified Party, on the other hand (such Buyer Indemnified Party on the one hand and such Seller Indemnified Party on the other hand being hereinafter referred to as an ”Indemnified Party”), has suffered or incurred any Losses for which indemnification may be sought under this Article 8, the Indemnified Party shall so notify the other party from whom indemnification is sought under this Article 8 (the “Indemnifying Party”) promptly in writing describing such Loss, the amount or estimated amount thereof, if known or reasonably capable of estimation, and the method of computation of such Loss, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such Loss shall have occurred. If any claim, action, suit or proceeding is asserted or instituted by a Third Party with respect to which an Indemnified Party intends to claim any Loss under this Article 8, such Indemnified Party shall promptly notify the Indemnifying Party of such claim, action, suit or proceeding and tender to the Indemnifying Party the defense of such claim, action, suit or proceeding. A failure by an Indemnified Party to give notice and to tender the defense of such claim, action, suit or proceeding in a timely manner pursuant to this Section 8.2 shall not limit the obligation of the Indemnifying Party under this Article 8, except to the extent such Indemnifying Party is actually prejudiced thereby.
Section 1.3Limitations on Liability. No party hereto shall be liable for any indirect, consequential, punitive, special or incidental damages as a result of any breach or violation of any covenant or agreement of such party (including under this Article 8) in or pursuant to this Agreement. Notwithstanding the foregoing, the Buyer shall be entitled to make indemnification claims, in accordance with the procedures set forth in this Article 8, for Losses that include any portion of the Purchased Royalty that the Buyer was entitled to receive but did not receive timely or at all due to any indemnifiable events under this Agreement, and such portion of the Purchased Royalty shall not be deemed indirect, consequential, punitive, special or incidental damages for any purpose of this Agreement. For the avoidance of doubt, the Seller shall have no liability to the Buyer for any Permitted Reduction or Credit Event.
Section 1.4Third Party Claims. Following the receipt of notice provided by an Indemnified Party pursuant to Section 8.2 of the commencement of any action, suit or proceeding against such Indemnified Party by a Third Party with respect to which such Indemnified Party intends to claim any Loss under this Article 8, an Indemnifying Party shall have the right to defend such claim, at such Indemnifying Party’s expense and with counsel of its choice reasonably satisfactory to the Indemnified Party. If the Indemnifying Party assumes the defense of such claim, the Indemnified Party shall, at the request of the Indemnifying Party, use
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commercially reasonable efforts to cooperate in such defense; provided that the Indemnifying Party shall bear the Indemnified Party’s reasonable out-of-pocket costs and expenses incurred in connection with such cooperation. So long as the Indemnifying Party is conducting the defense of such claim as provided in this Section 8.4, the Indemnified Party may retain separate co-counsel at its expense and may participate in the defense of such claim. The Indemnifying Party shall not consent to the entry of any Judgment or enter into any settlement with respect to such claim without the prior written consent of the Indemnified Party unless such Judgment or settlement (i) provides for the payment by the Indemnifying Party of money as sole relief (if any) for the claimant (other than customary and reasonable confidentiality obligations relating to such claim, Judgment or settlement), (ii) results in the full and general release of the Indemnified Party from all liabilities arising out of, relating to or in connection with such claim and (iii) does not involve a finding or admission of any violation of any law, rule, regulation or Judgment, or the rights of any Person, and has no effect on any other claims that may be made against the Indemnified Party. In the event the Indemnifying Party does not or ceases to conduct the defense of such claim as so provided, (x) the Indemnified Party may defend against, and consent to the entry of any Judgment or enter into any settlement with respect to, such claim in any manner it may reasonably deem to be appropriate, (y) subject to the limitations set forth in Section 8.3, the Indemnifying Party shall reimburse the Indemnified Party promptly and periodically for the reasonable out-of-pocket costs of defending against such claim, including reasonable attorneys’ fees and expenses against reasonably detailed invoices, and (z) the Indemnifying Party shall remain responsible for any Losses the Indemnified Party may suffer as a result of such claim to the full extent provided in this Article 8.
Section 1.5Exclusive Remedy. Except as set forth in Section 10.10, from and after Closing, the rights of the parties hereto pursuant to (and subject to the conditions of) this Article 8 shall be the sole and exclusive remedy of the parties hereto and their respective Affiliates with respect to any claims (whether based in contract, tort or otherwise) resulting from or relating to any breach of the representations, warranties, covenants and agreements made under this Agreement or any certificate, document or instrument delivered hereunder, and each party hereto hereby waives, to the fullest extent permitted under applicable law, and agrees not to assert after Closing, any other claim or action in respect of any such breach. Notwithstanding the foregoing, claims for common law fraud shall not be waived or limited in any way by this Article 8.
Section 1.6Tax Treatment of Indemnification Payments. For all purposes hereunder, any indemnification payments made pursuant to this Article 8 will be treated as an adjustment to the Purchase Price for U.S. federal income tax purposes to the fullest extent permitted by applicable law, except to the extent otherwise required pursuant to a “determination,” within the meaning of Section 1313(a) of the U.S. Internal Revenue Code of 1986, as amended.
Article 9
TERMINATION
TERMINATION
Section 1.1Grounds for Termination. This Agreement may be terminated at any time by mutual written agreement of the Buyer and the Seller.
Section 1.2Automatic Termination. Unless earlier terminated as provided in Section 9.1, this Agreement shall continue in full force and effect until sixty (60) days after the full satisfaction of any amounts due under the License Agreement to the Seller and any payments in respect of the Purchased Royalty due under this Agreement to the Buyer, at which point this
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Agreement shall automatically terminate, except with respect to any rights and obligations that shall have accrued prior to such termination.
Section 1.3Survival. Notwithstanding anything to the contrary in this Article 9, the following provisions shall survive termination of this Agreement: Section 2.3 (True Sale), Section 6.1 (Disclosures), Section 6.2 (Payments Received in Error), Section 6.4 (Interest on Overdue Payments), Section 6.6 (Inspections and Audits of Licensee) (for the period set forth in Section 4.4 of the License Agreement), Article 7 (Confidentiality) (for the period set forth in Section 7.1), Article 8 (Indemnification), this Section 9.3 (Survival) and Article 10 (Miscellaneous). Termination of this Agreement shall not relieve any party hereto of liability in respect of breaches under this Agreement by such party on or prior to termination. In addition, in the event the License Agreement is terminated prior to the date on which all Patents within the Licensed Patents have expired or been abandoned, Section 6.12 (New Arrangements) shall survive the termination of this Agreement.
Article 10
MISCELLANEOUS
MISCELLANEOUS
Section 1.1Notices. All notices and other communications under this Agreement shall be in writing and shall be by email with PDF attachment, courier service or personal delivery to the following addresses, or to such other addresses as shall be designated from time to time by a party hereto in accordance with this Section 10.1:
If to the Seller or the Seller Parent:
PureTech Health LLC
6 Tide Street, 4th Floor
Boston, MA 02210
Attention: President
Email: [***]
With a copy to Legal Department at the above address
And with a copy to:
Sills Cummis & Gross P.C.
One Riverfront Plaza
Newark, NJ 07102
Attention: [***]
Email: [***]
If to the Buyer:
RP Management, LLC
110 E. 59th Street, Suite 3300
New York, New York 10022
Attention: General Counsel
Email: [***]
With a copy to:
Gibson, Dunn & Crutcher LLP
555 Mission Street
San Francisco, CA 94105
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Attention: [***]
Email: [***]
All notices and communications under this Agreement shall be deemed to have been duly given (i) when delivered by hand, if personally delivered, (ii) when received by a recipient, if sent by email, with such receipt to be effective the date acknowledged by such recipient, or (iii) one Business Day following sending within the United States by overnight delivery via commercial one-day overnight courier service.
Section 1.2Expenses. Except as otherwise provided herein, all fees, costs and expenses (including any legal, accounting and banking fees) incurred in connection with the preparation, negotiation, execution and delivery of this Agreement and to consummate the transactions contemplated hereby shall be paid by the party hereto incurring such fees, costs and expenses.
Section 1.3Assignment. The Seller shall not sell, assign or otherwise transfer all or any portion of its interest (including its rights or obligations) under this Agreement to any Person, including by contract, operation of law, merger, change of control, or otherwise, unless in connection therewith (i) such Person acquires all of the Seller’s interest in all of the Licensed Products, Licensed Patents, the License Agreement and this Agreement and (ii) prior to closing any such transaction, the Seller causes such Person to first enter into an assumption agreement with the Buyer in substantially the form attached hereto as Exhibit G in which (x) if such Person is not Licensee, such Person assumes all of the obligations of the Seller to the Buyer under this Agreement, and (y) if such Person is Licensee, Licensee assumes all of the obligations of the Seller to the Buyer hereunder and agrees to pay the Purchased Royalty to the Buyer notwithstanding any subsequent termination of the License Agreement by Licensee. Notwithstanding the foregoing, the Seller may sell, assign or otherwise transfer its right to receive any or all of the Additional Purchase Price Payments under this Agreement to any Person without the written consent of the Buyer; provided that the Seller gives prompt written notice of such sale, assignment or transfer to the Buyer. Following the Closing, the Buyer may assign this Agreement, provided that (1) the Buyer promptly notifies the Seller of such assignment, (2) the Buyer shall not assign this Agreement to any biopharmaceutical company competitor of the Seller without the Seller’s prior written consent, and (3) no such assignment shall relieve the Buyer of its obligations under this Agreement to pay any Additional Purchase Price Payments when due. This Agreement shall be binding upon, inure to the benefit of and be enforceable by, the parties hereto and their respective permitted successors and assigns. Any purported assignment in violation of this Section 10.3 shall be null and void.
Section 1.4Amendment and Waiver.
(a)This Agreement may be amended, modified or supplemented only in a writing signed by each of the parties hereto. Any provision of this Agreement may be waived only in a writing signed by the parties hereto granting such waiver.
(b)No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No course of dealing between the parties hereto shall be effective to amend, modify, supplement or waive any provision of this Agreement.
Section 1.5Entire Agreement. This Agreement, the Exhibits annexed hereto and the Disclosure Schedule constitute the entire understanding between the parties hereto with respect to the subject matter hereof and supersede all other understandings and negotiations with respect thereto.
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Section 1.6No Third Party Beneficiaries. This Agreement is for the sole benefit of the Seller and the Buyer and their permitted successors and assigns and nothing herein expressed or implied shall give or be construed to give to any Person, other than the parties hereto and such successors and assigns, any legal or equitable rights hereunder; except that the Indemnified Parties shall be third party beneficiaries of the benefits provided for in Article 8.
Section 1.7Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction.
Section 1.8JURISDICTION; VENUE.
(a)EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS RESPECTIVE PROPERTY AND ASSETS, TO THE EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK COUNTY, NEW YORK, AND ANY APPELLATE COURT THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, AND THE BUYER AND THE SELLER HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. THE BUYER AND THE SELLER HEREBY AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY APPLICABLE LAW. EACH OF THE BUYER AND THE SELLER HEREBY SUBMITS TO THE EXCLUSIVE PERSONAL JURISDICTION AND VENUE OF SUCH NEW YORK STATE AND FEDERAL COURTS. THE BUYER AND THE SELLER AGREE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THAT PROCESS MAY BE SERVED ON THE BUYER OR THE SELLER IN THE SAME MANNER THAT NOTICES MAY BE GIVEN PURSUANT TO SECTION 10.1 HEREOF.
(b)EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY NEW YORK STATE OR FEDERAL COURT SITTING IN NEW YORK COUNTY, NEW YORK, AND ANY APPELLATE COURT THEREOF. EACH OF THE BUYER AND THE SELLER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(c)EACH PARTY HERETO HEREBY JOINTLY AND SEVERALLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE FOREGOING. EACH OF THE PARTIES HERETO REPRESENTS THAT THIS WAIVER IS KNOWINGLY, WILLINGLY, AND VOLUNTARILY GIVEN.
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Section 1.9Severability. If any term or provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any situation in any jurisdiction, then, to the extent that the economic and legal substance of the transactions contemplated hereby is not affected in a manner that is materially adverse to either party hereto, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect and the enforceability and validity of the offending term or provision shall not be affected in any other situation or jurisdiction.
Section 1.10Specific Performance. Each of the parties hereto acknowledges and agrees that the other parties hereto may be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached or violated. Accordingly, notwithstanding Section 8.5, each of the parties hereto agrees that, without posting bond or other undertaking, the other parties hereto shall be entitled to seek an injunction or injunctions to prevent breaches or violations of the provisions of this Agreement and to seek to enforce specifically this Agreement and the terms and provisions hereof in any action, suit or other proceeding instituted in any court of the United States or any state thereof having jurisdiction over the parties hereto and the matter in addition to any other remedy to which it may be entitled, at law or in equity. Each party hereto further agrees that, in the event of any action for specific performance in respect of such breach or violation, it shall not assert the defense that a remedy at law would be adequate.
Section 1.11Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Copies of executed counterparts transmitted by email or other similar means of electronic transmission, including “PDF,” shall be considered original executed counterparts, provided receipt of such counterparts is confirmed.
Section 1.12Relationships of the Parties. The relationship between the Buyer and the Seller is solely that of purchaser and seller, and neither the Buyer nor the Seller has any fiduciary or other special relationship with the other party hereto or any of its Affiliates. This Agreement is not a partnership or similar agreement, and nothing contained herein shall be deemed to constitute the Buyer and the Seller as a partnership, an association, a joint venture or any other kind of entity or legal form for any purposes, including any Tax purposes. The Buyer and the Seller agree that they shall not take any inconsistent position with respect to such treatment in a filing with any Governmental Entity.
Section 1.13Seller Parent Guarantee. The Seller Parent hereby guarantees to the Buyer the full and timely performance of all of the obligations of the Seller under this Agreement (the “Guaranteed Obligations”). This is a guarantee of performance, and not merely of collection, and the Seller Parent acknowledges and agrees that this guarantee is full and unconditional, and no amendment, modification, release or extinguishment of the Seller’s obligations or liabilities, whether by decree in any bankruptcy proceeding or otherwise, shall affect the continuing validity and enforceability of this guarantee. The Seller Parent hereby waives, for the benefit of the Buyer, (i) any right to require the Buyer, as a condition of performance by the Seller Parent, to proceed in any legal action against the Seller or pursue any other remedies whatsoever and (ii) to the fullest extent permitted by applicable law, any defenses or benefits that may be derived from or afforded by any law that limits the liability of or exonerates guarantors or sureties, other than defense of performance in full of the Guaranteed Obligations. The Seller Parent will reimburse the Buyer for all reasonable and documented out-of-pocket costs and expenses (including court costs and reasonable attorneys’ fees) incurred by the Buyer in connection with the enforcement of its rights under this Section 10.13. If all or any part of any payment to or for the benefit of the Buyer in respect of a Guaranteed Obligation is invalidated, declared to be fraudulent or preferential or set aside and, in each such case, required for any reason to be repaid or paid to a
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trustee, receiver or other Person that is not the Buyer, the Guaranteed Obligations that otherwise would have been satisfied by that payment or partial payment will be revived and will continue in full force and effect as if that payment had not been made. The Seller Parent understands and acknowledges that the Buyer is relying on this guarantee and the representations and warranties of the Seller Parent in Article 4 in entering into this Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Royalty Purchase Agreement to be executed and delivered by their respective representatives thereunto duly authorized as of the date first above written.
PURETECH HEALTH LLC | |||||
| By: | /s/ Bharatt Chowrira | ||||
| Name: Bharatt Chowrira | |||||
| Title: President, PureTech Health | |||||
Solely for purposes of Article 4 and Section 10.13, PURETECH HEALTH PLC By: /s/_Bharatt Chowrira __________________________ Name: Bharatt Chowrira Title: President, PureTech Health | |||||
| ROYALTY PHARMA INVESTMENTS 2019 ICAV | |||||
| By: | RP Management, LLC, its Manager and lawfully appointed attorney | ||||
| By: | /s/ Arthur McGivern | ||||
| Name: Arthur McGivern | |||||
| Title: Executive Vice President, Investments & General Counsel | |||||
[SIGNATURE PAGE TO THE ROYALTY PURCHASE AGREEMENT]
Exhibit 4.37
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED [●], 2023 BY AND AMONG THE COMPANY, THE HOLDERS OF THE NOTES (AS DEFINED BELOW), K2 HEALTHVENTURES LLC, AND ANKURA TRUST COMPANY, LLC.
SECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE
$[●] [●], 2023
Cambridge, MA
For value received, Vedanta Biosciences, Inc., a Delaware corporation (the “Company”), promises to pay to [●] (the “Holder”), or its permitted assigns, in lawful money of the United States of America the principal sum of [●]. Interest shall accrue from the date of this Secured Convertible Promissory Note (this “Note”) on the unpaid principal amount at a rate equal to nine percent (9.0%) based on a 365-day year, which interest shall accrue daily and compound annually. Any capitalized terms not defined herein shall have the meaning as set forth in the Purchase Agreement (as defined below). This Note is subject to the following terms and conditions:
1.Issuance of Notes. This Note is one of a series of Secured Subordinated Convertible Promissory Notes (collectively, the “Notes” and the holders of such Notes, the “Holders”) being issued pursuant to that certain Secured Convertible Promissory Note Purchase Agreement, dated as of [●], 2023, by and among the Company, the Holder and certain other investors listed on Exhibit A thereto (as may be amended from time to time, the “Purchase Agreement”), and is subject to, and the Holder and Company shall be bound by, all the terms, conditions and provisions of the Purchase Agreement. This Note is subordinated to certain other indebtedness of the Company on the terms set forth in that certain Subordination Agreement dated [__________], 2023, by and among the Holder, K2 HealthVentures LLC (“K2”) as administrative agent, Ankura Trust Company, LLC as collateral trustee, and certain other parties (as amended from time to time, the “Subordination Agreement”), if in effect and outstanding at the relevant time.
2.Repayment. If this Note is not earlier converted or repaid, the entire then-outstanding and unpaid principal amount of this Note, together with any accrued but unpaid interest under this Note (the “Outstanding Amount”), shall be due and payable upon the earliest to occur of (i) the later of (x) November 1, 2025 and (y) the date which is sixty (60) days after all amounts owed under or in connection with the K2 Loan Agreement (if then in effect and outstanding) have been paid in full (the “Maturity Date”), (ii) the consummation of a Deemed Liquidation Event (as defined in the Company’s Amended and Restated Certificate of Incorporation in effect at the Initial Closing (the “Current Certificate”)) to the extent the Outstanding Amount is not converted pursuant to Section 4(c) below and after all amounts owed under or in connection with the K2 Loan Agreement (if then in effect and outstanding) have been paid in full, or (iii) the occurrence of an Event of Default (as defined below), when such amounts are declared due and payable by the Holder in accordance with the terms hereof and in accordance with the terms of (and strictly to the extent permitted under) the Subordination Agreement (if then in effect and outstanding). The Notes shall rank pari passu in right of payment with respect to each other Note, and all payments to each of the Holders under the Notes shall be made pro rata among the Holders based upon the aggregate unpaid principal amount of the Notes outstanding immediately prior to any such payment. All payments shall be made in lawful money of the United States of America at such place as the Holder hereof may from time to time designate in writing to the Company. Subject to Section 4 below, interest shall accrue on this Note but shall not be due and payable until the Maturity Date. The Company shall have the right to prepay all or any portion of this Note only with the prior written consent of the Majority Holders, which must include the Lead Investor Majority.
3.Security. The payment obligations of the Company arising under this Note are secured pursuant to the terms of (i) that certain Security Agreement dated as of [●], 2023 by and among the
ACTIVE/122601974.5 | ||
Company, the Collateral Agent (as defined therein) and the Purchasers (as defined therein) (as amended from time to time, the “Security Agreement”) and (ii) that certain Intellectual Property Security Agreement dated as of [●], 2023 by and among the Company, the Collateral Agent (as defined therein) and the Purchasers (as defined therein) (as amended from time to time, the “IP Security Agreement”). Reference hereby is made to the Security Agreement and the IP Security Agreement for a description of the nature and extent of the collateral serving as security for this Note and the rights of the Holder with respect to such security.
4.Conversion.
(a)Certain Definitions.
(i)“K2 Loan Agreement” means that certain Loan and Security Agreement, dated on or about [_______], 2023, by and between, among others, K2 HealthVentures LLC as administrative agent, the Lenders party from time to time party thereto and the Company (as amended, restated, amended and restated, extended, supplemented or otherwise modified from time to time).
(ii)“Outstanding Shares” means the number of shares of the capital stock of the Company deemed to be outstanding as of immediately prior to the applicable Transaction Closing on a fully-diluted, as-converted basis (specifically including all shares of issued and outstanding capital stock, all outstanding options and promised options, any shares reserved for issuance under the Company’s equity incentive plans, as well as any increase to such reserve to be effected in connection with such Transaction Closing and any subsequent closing thereof (whether such increases are effective prior to, in connection with or following the closing thereof) and all securities exercisable or exchangeable for or convertible into shares of the Company’s capital stock, including, but not limited to warrants, convertible notes and other convertible debt instruments, SAFEs and other convertible securities that have the right to convert into shares of the Company’s capital stock, but excluding the Notes.
(iii)“Qualified Equity Financing” means the first bona fide equity financing consummated after the Initial Closing in which the Company sells and issues shares of Preferred Stock resulting in aggregate gross proceeds actually received by the Company of at least $75,000,000 (excluding the Debt, other outstanding indebtedness for borrowed money and other convertible instruments (e.g. SAFEs or other similar instruments)) (the “QEF Threshold Amount”) in a single transaction or series of related transactions.
(iv)“Transaction Closing” means, as applicable, (v) the closing of a Qualified Equity Financing upon which the Company has actually received, in the aggregate at such closing and at all earlier closings of such financing, aggregate gross proceeds of such financing at least equal to the QEF Threshold Amount, (w) the initial closing of an Optional Equity Financing, (x) immediately prior to the effectiveness of a Maturity Conversion (as defined below), (y) the closing of a transaction constituting a Sale Transaction, or (z) the closing of a Qualified Public Offering (as defined in the Current Certificate).
(v)“Valuation Cap Amount” means US $160,000,000.00.
(b)Automatic Conversion Upon a Qualified Financing. Immediately upon the initial closing of a Qualified Equity Financing, the Outstanding Amount shall automatically convert into shares of the Company’s Preferred Stock sold and issued in the Qualified Equity Financing to cash investors (the “Equity Securities”) at a per share conversion equal to the lesser of (i) 80% of the lowest per share price paid for the Equity Securities by the other investors participating in the Qualified Equity Financing and (ii) an amount equal to (y) the Valuation Cap Amount divided by (z) the number of Outstanding Shares. The issuance of the Equity Securities upon conversion of this Note pursuant to this Section 4(b) shall otherwise be on the same terms and conditions provided to the cash investors purchasing Equity Securities in the Qualified Equity Financing.
(c)Optional Conversion Upon Non-Qualified Equity Financing. In the event that, prior to the repayment in full or conversion of this Note, the Company consummates an equity financing, which is not a Qualified Equity Financing (an “Optional Equity Financing”), the entire outstanding Debt with respect to such Notes may, upon the written election of the Lead Investor Majority in connection therewith or anytime thereafter, be converted into shares of the Company’s capital stock sold and issued to cash investors in the Optional Equity Financing at a per share conversion price equal to the lesser of (i) 80% of the lowest per share price paid for the capital stock by the other investors
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ACTIVE/122601974.5 | ||
participating in the Optional Equity Financing and (ii) an amount equal to (y) the Valuation Cap Amount divided by (z) the number of Outstanding Shares. The issuance of the capital stock upon conversion of this Note pursuant to this Section 4(c) shall otherwise be on the same terms and conditions provided to the cash investors purchasing Equity Securities in the Qualified Equity Financing.
(d)Optional Conversion upon Deemed Liquidation Event. If the Company consummates a Deemed Liquidation Event (as defined in the Current Certificate) or a similar change of control transaction (including a transaction or series of related transactions in which a Person, or a group of related Persons, acquires from stockholders of the Company shares representing more than fifty percent (50%) of the outstanding voting power of the Company) (collectively, a “Sale Transaction”) at any time prior to the repayment or conversion of the entire Outstanding Amount, the Holder shall be entitled, in satisfaction of all amounts owed under the Note, to receive the greater of (i) payment equal to 1.5 times the Outstanding Amount as of immediately prior to the closing of such Sale Transaction, or (ii) such amount per share as would have been payable had the Outstanding Amount as of immediately prior to the closing of such Sale Transaction been converted into shares of Common Stock at a per share conversion price equal to (y) the Valuation Cap Amount divided by (z) the number of Outstanding Shares.
(e)Maturity Conversion. Upon the occurrence of an Event of Default or if the Note has not been converted or repaid prior to the Maturity Date, the Holder shall be entitled, upon Holder’s election, to convert the Outstanding Amount of this Note into shares of a newly created series of Preferred Stock at a per share conversion price equal to (i) the Valuation Cap Amount divided by (ii) the number of Outstanding Shares (a “Maturity Conversion”). The shares of such newly created series of Preferred Stock issued pursuant to this Section 4(e) shall have terms which are substantially the same as the Company’s Series D Preferred Stock (or, if (x) the Company issues, in an Option Equity Financing, shares of a newly created series of Preferred Stock for aggregate gross cash proceeds of such Option Equity Financing actually received by the Company (excluding, for the avoidance of doubt, any proceeds from conversion of indebtedness) of not less than $25,000,000, (y) any of the Notes remain outstanding after such Option Equity Financing, and (z) such newly created series of Preferred Stock issued in connection with the Option Equity Financing ranks either senior to or pari passu with the rights, preferences and privileges of the Company’s Series D Preferred Stock, then the shares of the newly created series of Preferred Stock issued pursuant to this Section 4(e) shall have terms which are substantially the same as the newly created series of Preferred Stock issued in connection with the Option Equity Financing (the series of Preferred Stock issued pursuant to this Section 4(e) being referred to herein as the “New Preferred Stock”)), except that (i) such shares shall be senior in all respects to the Series D Preferred Stock and all other Preferred Stock, (ii) such shares shall provide for customary terms and conditions with respect thereto (including reasonable provisions to protect its seniority), (iii) the holders of record of shares of the New Preferred Stock, exclusively and as a separate class, shall be entitled to elect seven (7) directors of the Company, (iv) the provisions of Section 3.3.5 of Article IV, Part B of the Current Certificate as amended and/or restated to reflect the authorization and issuance of the New Preferred Stock shall be modified to delete therefrom the words “or unless such debt security or other indebtedness for borrowed money has received the prior approval of the Board of Directors” and (v) in connection with the issuance of shares of New Preferred Stock upon a Maturity Conversion, the Investors’ Rights Agreement shall be amended by adding thereto a provision substantially similar to Section 5.5 of the National Venture Capital Association’s model form of Investors’ Rights Agreement (as then available at https://nvca.org/model-legal-documents/; the “Model Form”) requiring approval of matters enumerated in such Section 5.5 of the Model Form by a “Requisite Preferred Director Vote”, with the term “Preferred Director” defined for that purpose as meaning any director of the Company elected by the holders of New Preferred Stock as set forth in clause (iii) of this Section 4(e) or designated to serve on the Board of Directors pursuant to clause 3.2(g), (h) or (i) of the Investors’ Rights Agreement, and with the term “Requisite Preferred Director Vote” defined for that purpose as meaning approval of the Board of Directors including the vote of a majority of the Preferred Directors then seated.
(f)Conversion Upon Initial Public Offering. If the Company consummates a Qualified Public Offering at any time prior to the repayment or conversion of the Outstanding Amount, the Outstanding Amount shall automatically convert into shares of Common Stock at a per share conversion price equal to the lesser of (i) 80% of the per share price at which shares of Common Stock are sold to the public in such Qualified Public Offering and (ii) (y) the Valuation Cap Amount divided by (z) the number of Outstanding Shares.
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(g)Mechanics and Effect of Conversion. No fractional shares of the Company’s capital stock will be issued upon conversion of this Note. Upon conversion of this Note pursuant to this Section 4, the Holder shall surrender this Note, duly endorsed, at the principal offices of the Company or any transfer agent of the Company. At its expense, the Company will, as soon as practicable thereafter, issue and deliver to the Holder, at such principal office, a certificate or certificates for the number of shares to which the Holder is entitled upon such conversion, together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Note. Upon conversion of this Note, the Company will be forever released from all of its obligations and liabilities under this Note with regard to that portion of the Outstanding Amount being converted including, without limitation, the obligation to pay such portion of the Outstanding Amount.
(h)No Rights as Stockholder. Without derogation from any of the provisions of the Investors’ Rights Agreement, this Note does not by itself entitle the Holder to any voting rights or other rights as a stockholder of the Company, and in the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Holder shall cause the Holder to be a stockholder of the Company for any purpose.
5.Events of Default. Promptly following the Company becoming aware of an occurrence of any Event of Default, the Company shall furnish to the Holder written notice of the occurrence thereof. The occurrence of any of the following shall constitute an “Event of Default” under this Note:
(a)the Company shall fail to pay Holder in full the Outstanding Amount when due;
(b)the Company, or any of its subsidiaries, fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in the Purchase Agreement, and as to any default under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by the Company be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then the Company shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default.
(c)a Material Adverse Change occurs;
(d)(i) the service of process seeking to attach, by trustee or similar process, any funds of the Company or any of its subsidiaries or of any entity under control of the Company or its subsidiaries on deposit with any bank or other institution at which the Company or any of its subsidiaries maintains Collateral, or (ii) a notice of lien, levy, or assessment is filed against the Company or any of its subsidiaries or their respective assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise);
(e)(i) any material portion of the Company’s or any of its subsidiaries’ assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents the Company or any of its subsidiaries from conducting any part of its business;
(f)(i) the Company or any of its subsidiaries is or becomes Insolvent; (ii) the Company or any of its subsidiaries begins an Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against the Company or any of its subsidiaries and not dismissed or stayed within forty-five (45) days;
(g)there is a default in any agreement to which the Company or any of its subsidiaries is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any indebtedness in an amount in excess of Five Hundred Thousand Dollars ($500,000.00) or that could reasonably be expected to have a Material Adverse Change;
(h)one or more judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Thousand Dollars ($500,000.00) (not covered by independent third-party insurance as to which liability has been accepted by such insurance
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carrier) shall be rendered against the Company or any of its subsidiaries and shall remain unsatisfied, unvacated, or unstayed for a period of ten (10) days after the entry thereof;
(i)the Company’s representations or warranties contained in the Purchase Agreement shall prove to have been incorrect in any material respect when made;
(j)a default or breach occurs under any agreement between the Company or any of its subsidiaries and any creditor of the Company or any of its subsidiaries that signed a subordination, intercreditor, or other similar agreement with Collateral Agent or the Holders, or any creditor that has signed such an agreement with Collateral Agent or the Holders breaches any terms of such agreement;
(k)any Governmental Approval shall have been revoked, rescinded, suspended, modified in an adverse manner, or not renewed in the ordinary course for a full term and such revocation, rescission, suspension, modification or non-renewal has resulted in or could reasonably be expected to result in a Material Adverse Change;
(l)any Lien (as defined in the Security Agreement) created hereunder or by the Transaction Agreements shall at any time fail to constitute a valid and perfected Lien on any of the Collateral purported to be secured thereby, subject to no prior or equal Lien, other than Permitted Liens (as defined in the Security Agreement) which are permitted to have priority in accordance with the terms of this Agreement; provided that such circumstance is not due to Collateral Agent’s failure to file an appropriate continuation financing statement, amendment financing statement or initial financing statement; or
(m)after the initial public offering of any class of equity securities of the Company, the shares of such class of equity securities of the Company are delisted from the primary stock exchange on which they are traded because of failure to comply with continued listing standards thereof or due to a voluntary delisting, or for any other reason, which results in such shares not promptly being listed on any other nationally recognized stock exchange in the United States having listing standards at least as restrictive as the aforementioned primary stock exchange.
6.More Favorable Terms. So long as any portion of the Outstanding Amount is unpaid and outstanding, if after the date hereof the Company issues a convertible promissory note(s) (each, a “Future Note”) to any lender having terms and conditions regarding (a) the conversion of such Future Note or (b) the repayment of such Future Note in connection with a Deemed Liquidation Event or a Sale Transaction, that are, individually or in the aggregate, more favorable than the terms and conditions granted to the Holder hereunder, then this Note shall be deemed to immediately be amended as of the date of the first issuance of such Future Note to reflect substantially equivalent terms and conditions to the Holder hereunder. For purposes of this Section 6, the determination regarding whether any such terms and conditions are more favorable than those granted hereunder shall be made by the Lead Investor Majority in their good faith judgment. Notwithstanding the foregoing, the rights to convert a portion of the outstanding principal amount pursuant to the K2 Loan Agreement shall not be deemed a Future Note for the purposes of this provision.
7.Transfer; Successors and Assigns. This Note and any rights hereunder may not be assigned, conveyed or transferred, in whole or in part, without the prior written consent of the Company; provided, however, that an assignment, conveyance or transfer to an Affiliate (as defined in the Investors’ Rights Agreement) of the Holder shall not be subject to such requirement for prior written consent. The terms and conditions of this Note shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties. Subject to the preceding sentences, this Note may be transferred only upon surrender of the original Note for registration of transfer, duly endorsed, or accompanied by a duly executed written instrument of transfer in form satisfactory to the Company. Thereupon, a new note for the same principal amount and interest will be issued to, and registered in the name of, the transferee. Interest and principal are payable only to the registered holder of this Note.
8.Governing Law. This Note and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.
9.Notices. All notices and other communications given or made pursuant to this Note shall be in writing and shall be deemed effectively given upon the earlier of actual receipt, or (a) personal delivery to the party to be notified, (b) when sent, if sent by electronic mail or facsimile during normal business hours of the recipient, and if not sent during normal business hours, then on the recipient’s next
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business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next business day delivery, with written verification of receipt. All communications shall be sent to (i) to the Company at its corporate headquarters, to the Holder at the address as set forth Exhibit A to the Purchase Agreement, or to such e-mail address, facsimile number or address as subsequently modified by written notice given in accordance with this subsection.
10.Amendments and Waivers. Any term of this Note may be amended or waived only with the written consent of the Company and the Lead Investor Majority, provided that (a) such amendment of this Note does not impose any additional financial liability or funding obligations on the Holder, and (b) in the event that an amendment or waiver (i) adversely affects the obligations or rights of the Holder in a different manner than other Holders by its terms, without reference to the principal amount of this Note, or (ii) would reduce the amount of principal or accrued interest due on the Note (regardless of whether such amendment also applies to other Notes), then such amendment or waiver shall also require the written consent of the Holder. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon the Company, the Holder and each transferee of this Note.
11.Stockholders, Officers and Directors Not Liable. In no event shall any stockholder, officer or director of the Company be liable for any amounts due or payable pursuant to this Note.
12.Usury. If any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.
13.Tax Matters. All payments made by the Company shall be made free and clear of, and without any deduction or withholding of, any taxes, except as otherwise required by applicable law. Upon request, the Holder shall provide the Company with a properly executed IRS Form W-9 or IRS Form W-8 and supporting documentation (if any). In addition, the Company shall pay upon demand any stamp or other taxes, levies or charges of any jurisdiction with respect to the execution, delivery, registration, performance and enforcement of the Note. Upon request by the Collateral Agent, the Company shall furnish evidence reasonably satisfactory to the Collateral Agent that all requisite authorizations and approvals by, and notices to and filings with, governmental authorities and regulatory bodies have been obtained and made and that all requisite taxes, levies and charges have been paid.
14.Register. The Company shall maintain at one of its offices a copy of each assignment and a register for the recordation of the name and address of, and the principal amounts (and stated interest) of the obligations owing to, each Holder from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the parties hereto shall treat each Person whose name is recorded in the Register as a Holder hereunder for all purposes of this Note. The Register shall be available for inspection by any Holder at any reasonable time and from time to time upon reasonable prior notice. The Register is intended to cause the Note to be in “registered form” within the meaning of Section 5f.103-1(c) of the United States Treasury Regulations and within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Internal Revenue Code of 1986, as amended.
Remainder of Page Intentionally Left Blank.
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The Company has caused this Secured Convertible Promissory Note to be issued as of the date first written above.
COMPANY
VEDANTA BIOSCIENCES, INC.
By:
Name: Bernat Olle
Name: Bernat Olle
Title: Chief Executive Officer
AGREED AND ACCEPTED:
HOLDER:
[●]
By:
Name:
Its:
ACTIVE/122601974.5 | ||
Execution Version 10513073.v14 CERTAIN IDENTIFIED INFORMATION HAS BEEN EXCLUDED (INDICATED BY: [***]) FROM THE EXHIBIT BECAUSE IT IS BOTH (I) NOT MATERIAL AND (II) THE TYPE OF INFORMATION THAT THE REGISTRANT CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE OR CONFIDENTIAL. ASSET TRANSFER AGREEMENT by and between SEAPORT THERAPEUTICS, INC., on the one hand, and PURETECH HEALTH LLC, and PURETECH LYT, INC., on the other hand Dated as of April 8, 2024 Exhibit 4.38
Execution Version -i- 10513073.v14 TABLE OF CONTENTS Page ARTICLE I TRANSFER OF ASSETS ...........................................................................................1 1.1 Transfer of Assets ....................................................................................................1 1.2 Excluded Assets .......................................................................................................2 1.3 Assumption of Liabilities .........................................................................................3 1.4 Retained Liabilities ..................................................................................................3 1.5 Consideration ...........................................................................................................3 1.6 Closing; Closing Deliveries .....................................................................................5 1.7 Consents ...................................................................................................................7 1.8 Wrong Pockets .........................................................................................................7 ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURETECH ..............................7 2.1 Organization and Good Standing .............................................................................7 2.2 Authority; No Conflict; Required Filings and Consents ..........................................8 2.3 Taxes ........................................................................................................................9 2.4 Intellectual Property .................................................................................................9 2.5 Contracts. ..............................................................................................................10 2.6 Real Property .........................................................................................................10 2.7 Environmental Matters...........................................................................................10 2.8 Litigation ................................................................................................................11 2.9 Compliance With Laws ..........................................................................................11 2.10 Affiliate Transactions .............................................................................................11 2.11 Suppliers ................................................................................................................11 2.12 Brokers ...................................................................................................................11 2.13 Assets .....................................................................................................................11 2.14 Data Privacy and Security ......................................................................................11 2.15 No Other Representations or Warranties ...............................................................12 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SEAPORT ..............................12 3.1 Organization, Standing and Power ........................................................................12 3.2 Authority; No Conflict; Required Filings and Consents ........................................13 3.3 Brokers ...................................................................................................................13 3.4 Capitalization .........................................................................................................13 3.5 Valid Issuance of Shares ........................................................................................14 3.6 Governmental Consents and Filings ......................................................................14 3.7 Independent Investigation ......................................................................................14 ARTICLE IV ADDITIONAL AGREEMENTS ............................................................................14 4.1 Access to Information ............................................................................................14 4.2 Further Assurances.................................................................................................15 4.3 Tax Matters ............................................................................................................15 4.4 Ownership Transfer ...............................................................................................16 4.5 Monash License ..................................................... Error! Bookmark not defined. 4.6 PureTech License ...................................................................................................16
Execution Version -ii- 10513073.v14 4.7 Protection and Maintenance of Transferred Patents ..............................................17 4.8 Services Agreement ...............................................................................................17 ARTICLE V CONFIDENTIALITY ..............................................................................................18 5.1 Confidentiality .......................................................................................................18 5.2 Authorized Disclosure ...........................................................................................18 5.3 Terms of this Agreement .......................................................................................18 ARTICLE VI INDEMNIFICATION ............................................................................................19 6.1 Indemnification by PureTech .................................................................................19 6.2 Indemnification by Seaport ....................................................................................19 6.3 Indemnification Claims ..........................................................................................20 6.4 Survival ..................................................................................................................21 6.5 Limitations .............................................................................................................21 6.6 Effect of Due Diligence .........................................................................................22 6.7 Indemnification Payments .....................................................................................22 ARTICLE VII DEFINED TERMS; INTERPRETATION ............................................................23 7.1 Definitions..............................................................................................................23 7.2 Interpretation ..........................................................................................................36 ARTICLE VIII MISCELLANEOUS ............................................................................................36 8.1 Notices ...................................................................................................................36 8.2 Entire Agreement; Amendment .............................................................................37 8.3 Third-Party Beneficiaries .......................................................................................38 8.4 Assignment ............................................................................................................38 8.5 Severability ............................................................................................................38 8.6 Counterparts and Signature ....................................................................................38 8.7 Governing Law ......................................................................................................38 8.8 Remedies ................................................................................................................39 8.9 Submission to Jurisdiction .....................................................................................39 8.10 Fees and Expenses .................................................................................................39 8.11 Disclosure Schedule ...............................................................................................40 8.12 Waiver ....................................................................................................................40
Execution Version -iii- 10513073.v14 Schedules: Schedule 1.1(a) Transferred Intellectual Property Schedule 1.1(b) Transferred Contracts Schedule 1.1(c) Inventory Schedule 1.1(d) Regulatory Applications Schedule 1.1(h) Other Assets Schedule 1.2(j) Excluded Assets Schedule 1.3 Assumed Liabilities Schedule 1.6(b)(iii) Required Consents Schedule 7.1 Excluded Contracts Disclosure Schedule Exhibits: Exhibit A Trademark Assignment Exhibit B Patent Assignment Exhibit C Services Agreement Exhibit D PureTech Representation Letter Exhibit E Form of PureTech License
10513073.v14 TABLE OF DEFINED TERMS Terms Reference in Agreement Additional Transfer Documents 1.6(b)(i)(D) Affiliate 7.1 Agreement Preamble Ancillary Agreements 7.1 Assumed Liabilities 1.3 Available 7.1 Books and Records 7.1 Business Recitals Business Day 7.1 Change 7.1 Claim Notice 7.1 Claimed Amount 7.1 Closing 7.1 Closing Date 1.6(a) Code 7.1 Common Stock 3.4(a) Confidential Information 7.1 Consideration 1.5 Contract 7.1 Controlled Affiliate 7.1 Controlling Party 7.1 Damages 6.1 Data Security Incident 7.1 Deferred Consent 1.7 Deferred Item 1.7 Disclosure Schedule Article II Employment Claims 7.1 Environmental Law 7.1 Excluded Assets 1.2 Excluded Contract 7.1 Fundamental Reps 6.4(a) GAAP 7.1 Governmental Entity 7.1 Hazardous Material 7.1 Identified Product Concept 4.7(a) Indebtedness 7.1 Indemnified Party 7.1 Indemnifying Party 7.1 Information Privacy and Security Laws 7.1 Insurance Policies 7.1 Intellectual Property 7.1 IRS 7.1 Law or Laws 7.1
TABLE OF DEFINED TERMS (continued) -v- 10513073.v14 Terms Reference in Agreement Legal Proceeding 7.1 Liability 7.1 Lien or Liens 7.1 Major European Market 7.1 Monash 7.1 Monash License 7.1 Net Income 7.1 Net Sales 7.1 New Seaport Employees 7.1 Non-controlling Party 7.1 Non-CNS Indications 7.1 Order 7.1 Ordinary Course of Business 7.1 Organizational Documents 7.1 Patent 7.1 Party or Parties Preamble Permits 7.1 Person 7.1 Personal Data 7.1 Pre-Closing Tax Period 4.4(a) Preferred Stock 3.4(a) Processing or Processed 7.1 Product 7.1 Product Approval 7.1 Product IND 7.1 Product License Agreement 7.1 Product Licensee 7.1 PureTech Preamble PureTech Benefit Arrangement 7.1 PureTech Data 7.1 PureTech Employee Liabilities 7.1 PureTech Indemnified Party or Parties 6.2 PureTech License 4.7(a) PureTech License Request Notice 4.7(a) PureTech Registrations 2.4(b) PureTech’s Knowledge 7.1 Regulatory Authority 7.1 Regulatory Applications 7.1 Regulatory Documentation 7.1 Release 7.1 Representatives 7.1 Required Consents 1.6(b)(iii) Retained Liabilities 1.4 Retained Tax Liabilities 7.1
TABLE OF DEFINED TERMS (continued) -vi- 10513073.v14 Terms Reference in Agreement Royalty Term 7.1 Seaport Preamble Seaport Glyph Products 7.1 Seaport Indemnified Party or Parties 6.1 [***] [***] Survival Date 6.4 Tax Returns 7.1 Taxes 7.1 Territory 7.1 Third Party 7.1 Third Party Action 7.1 Trademark Assignment 1.6(b)(i)(A) Transaction Costs 7.1 Transferred Assets 1.1 Transferred Contracts 1.1(a) Transferred Intellectual Property 1.1(b) Valid Claim 7.1
10513073.v14 ASSET TRANSFER AGREEMENT THIS ASSET TRANSFER AGREEMENT (this “Agreement”) is entered into as of April 8, 2024, by and among SEAPORT THERAPEUTICS, INC., a Delaware corporation (“Seaport”), on the one hand, and PURETECH HEALTH LLC, a Delaware limited liability company (“PureTech Health”) and PURETECH LYT, INC., a Delaware corporation and a wholly-owned subsidiary of PureTech Health (“PureTech LYT” and together with PureTech Health, “PureTech”), on the other hand. Seaport and PureTech are also referred to herein individually as a “Party” and collectively as the “Parties”. WHEREAS, PureTech desires to transfer and assign to Seaport, and Seaport desires to acquire from PureTech certain assets and rights of PureTech related to the Glyph Technology (as defined below), subject to the assumption by Seaport of certain liabilities, upon the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: ARTICLE I TRANSFER OF ASSETS 1.1 Transfer of Assets. Upon the terms and subject to the conditions set forth herein, at the Closing, PureTech shall contribute, convey, assign, transfer and deliver to Seaport, and Seaport shall acquire and accept from PureTech, all of PureTech’s right, title and interest in, to and under the Transferred Assets, free and clear of any Liens. The contribution, assignment, transfer and delivery of the Transferred Assets by PureTech to Seaport is not revocable by PureTech. For purposes of this Agreement, the term “Transferred Assets” means all of the assets, rights and properties of PureTech existing as of the Closing related to the Glyph Technology or Products, including the following (but in each case excluding the Excluded Assets): (a) all Intellectual Property that Covers, or that is necessary for the Utilization of, the Glyph Technology or Products, including the Transferred Patents set forth on Schedule 1.1(a) (collectively, the “Transferred Intellectual Property”); (b) all rights under the Contracts set forth on Schedule 1.1(b) to which PureTech is party and that relate exclusively or primarily to the Glyph Technology or Products (the “Transferred Contracts”), including the Monash License but excluding any Excluded Contract (it being understood and agreed that, within [***] after the Closing Date, the Parties may, but shall not be obligated to, modify such Schedule 1.1(b) as mutually agreed in writing by the Parties to add to, delete from or modify the list of Contracts contained therein); (c) the Products (and all rights thereto), including all Inventory, including the items set forth on Schedule 1.1(c);
2 10513073.v14 (d) all Product INDs, if any, and any other Regulatory Applications, including the items set forth on Schedule 1.1(d); (e) all Regulatory Documentation; (f) all Books and Records relating to Glyph Technology or Products; (g) supplier and distributor lists related to the Glyph Technology or Products; (h) all equipment and other assets, rights and properties of PureTech listed on Schedule 1.1(h) (and all associated warranties and service contracts, if any); and (i) all goodwill associated with the Transferred Assets. 1.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, the Transferred Assets shall not include any of the Excluded Assets. For purposes of this Agreement, the term “Excluded Assets” means the following assets, rights and properties of PureTech: (a) all cash, short-term investments, deposits, bank accounts, and other cash equivalents, in each case as of the Closing; (b) notes and loans receivable that are payable to PureTech; (c) the Organizational Documents, qualifications to conduct business as a foreign entity, arrangements with registered agents relating to foreign qualifications, taxpayer and other identification numbers, seals, minute books, stock transfer books and other documents relating to the organization and existence of PureTech; (d) all Tax refunds and Tax deposits of PureTech attributable to any Pre- Closing Tax Period and all Tax books and records of PureTech and, for the avoidance of doubt, all tax attributes of PureTech including, without limitation, tax loss carryovers and tax credits; (e) all rights of PureTech in and with respect to the assets associated with any PureTech Benefit Arrangement; (f) any of the rights of PureTech under the Excluded Contracts; (g) all personnel records; (h) all Insurance Policies; (i) all prepayments and prepaid expenses (including prepaid insurance premiums) under Contracts that are Excluded Contracts; and (j) those assets listed on Schedule 1.2(j) (it being understood and agreed that, within [***] after the Closing Date, the Parties may, but shall not be obligated to, modify such Schedule 1.2(j) as mutually agreed in writing by the Parties to add to, delete from or modify the list of Excluded Assets contained therein).
3 10513073.v14 1.3 Assumption of Liabilities. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing, Seaport shall assume and agree to perform, pay, satisfy or discharge when due, the Assumed Liabilities. For purposes of this Agreement, the term “Assumed Liabilities” means those Liabilities arising before the Closing set forth either on Schedule 1.3 or in the Services Agreement and any Liabilities arising on or after the Closing with respect to the Transferred Assets (including the Monash License), other than any Liability in respect of (a) any Liability that does not arise from or relate to the Transferred Assets, or (b) any breach or other violation of a Transferred Contract prior to the Closing. 1.4 Retained Liabilities. Notwithstanding anything to the contrary in this Agreement, the Assumed Liabilities shall not include, and Seaport does not hereby and shall not assume or in any way undertake to perform, pay, satisfy or discharge, the Retained Liabilities, all of which shall be retained by and performed, paid, satisfied or discharged by PureTech as and when due. For purposes of this Agreement, the term “Retained Liabilities” means all Liabilities other than the Assumed Liabilities, including all Transaction Costs, Indebtedness, Retained Tax Liabilities, and all pre-Closing PureTech Employee Liabilities (except as set forth in the Services Agreement) and all other Liabilities in respect of the Products arising prior to the Closing (except to the extent expressly set forth in Section 1.3). 1.5 Consideration. As consideration for the Transferred Assets, Seaport will provide PureTech the following to PureTech: (a) Issuance at Closing. Seaport shall issue and deliver to PureTech LYT for the benefit of PureTech LYT and PureTech Health [***] shares of Seaport’s Series A-1 Preferred Stock and [***] shares of Seaport’s Common Stock (the “Shares”). (b) Post-Closing. (i) Royalty Payments. (A) Rate. During the Royalty Term for each Seaport Glyph Product, Seaport will make tiered royalty payments to PureTech in respect of Annual Net Sales, on a Product-by-Product basis, at the following royalty rates: Annual Net Sales of such Seaport Glyph Product any Calendar Year Royalty Rate Portion of Annual Net Sales less than [***] 3% Portion of Annual Net Sales equal to or greater than [***] up to [***] [***] Portion of Annual Net Sales equal to or greater than [***] up to [***] [***] Portion of Annual Net Sales equal to or greater than [***] up to [***] [***] Portion of Annual Net Sales equal to or greater than [***] 5%
4 10513073.v14 (B) Calculation; Reports; Payment. Royalties on Annual Net Sales of each Seaport Glyph Product in a Calendar Year during the Royalty Term will be paid at the rate applicable to the portion of Net Sales within each of the Annual Net Sales tiers during such Calendar Year. Each payment of royalties shall be accompanied by a statement of the amount of Net Sales invoiced during the applicable Calendar Quarter, containing reasonable detail on a Seaport Glyph Product-by-Seaport Glyph Product and country-by-country basis regarding the calculation of the royalties and the underlying sales data. Royalties will be paid to PureTech within [***] days after the end of the Calendar Quarter in which the corresponding Net Sales was received. (ii) Net Income under Product License Agreements. (A) CNS Products. If Seaport or any of its Controlled Affiliates receives Net Income from a Third Party under a Product License Agreement with respect to any Product directed primarily to CNS Indications (each, a “CNS Product”), or if Seaport or any of its Controlled Affiliates sells or spins out a Controlled Affiliate to a Third Party that has the right to receive Net Income under a Product License Agreement with respect to any CNS Product, then Seaport will pay (or cause to be paid by its Controlled Affiliate) to PureTech an amount equal to [***]. Amounts payable under this Section 1.5(b)(ii)(A) will be paid to PureTech at the same time as the corresponding payment is made to Monash or, if no such payment is due to Monash, within [***] days after receipt by Seaport or its Controlled Affiliates of such Net Income. (B) Non-CNS Products. If Seaport or any of its Controlled Affiliates receives Net Income from a Third Party under a Product License Agreement with respect to any Product directed primarily to Non-CNS Indications (each, a “Non-CNS Product”), then Seaport will pay (or cause to be paid by its Controlled Affiliate) to PureTech an amount equal to [***] percent [***] of such Net Income. Amounts payable under this Section 1.5(b)(ii)(B) will be paid to PureTech at the same time as the required Net Income payment is made to Monash. (iii) Milestone Payments. Seaport shall pay to PureTech the following one-time milestone payments upon the first achievement of the following milestones by the first Seaport Glyph Product to achieve such milestones: First Product Milestones [***] $2,000,000 [***] $4,000,000 [***] $2,000,000 [***] $2,000,000
5 10513073.v14 Seaport shall pay to PureTech the following one-time milestone payments upon the first achievement of the following milestones by the second or any subsequent Seaport Glyph Product to achieve such milestones: Subsequent Product Milestones [***] $1,000,000 [***] $2,000,000 [***] $1,000,000 [***] $1,000,000 Seaport shall pay to PureTech any amounts due under this Section 1.5(b)(iii) on [***] basis, within [***] days after the end of each Calendar Quarter. (iv) [***] (c) Payments Generally. (i) Method of Payment. All cash payments to PureTech under this Agreement shall be made by wire transfer of immediately available funds into an account designated by PureTech. Each cash payment should reference this Agreement and identify the obligation under this Agreement that the payment satisfies. (ii) Payments in U.S. Dollars. All cash payments due under this Agreement shall be payable in United States dollars, without deduction, defense, offset or counterclaim for any reason. Conversion of foreign currency to U.S. dollars shall be made at the conversion rate existing in the United States (as reported in The Wall Street Journal) for the last working day of the applicable calendar quarter to which such payment relates. Such payments shall be without deduction of exchange, collection or other charges. (iii) Late Payments. Any payments by Seaport that are not paid on or before the date such payments are due under this Agreement shall bear interest at [***] percent [***] per month or the maximum amount permitted by Law, whichever is less. 1.6 Closing; Closing Deliveries. (a) Closing. The Closing shall take place on the date hereof (the “Closing Date”) remotely by electronic exchange of documents and signatures. The Closing shall be effective as of 12:00:01 a.m. Eastern Time on the Closing Date. (b) Deliveries by PureTech. Upon the terms and subject to the conditions contained herein, at the Closing, PureTech shall deliver (or cause to be delivered) to Seaport (or one or more of its subsidiaries designated by Seaport) the following:
6 10513073.v14 (i) Conveyance Documents. (A) a Trademark Assignment in the form attached hereto as Exhibit A (the “Trademark Assignment”), duly executed by PureTech; (B) a Patent Assignment in the form attached hereto as Exhibit B (the “Patent Assignment”), duly executed by PureTech; (C) a Transition Services Agreement in the form attached hereto as Exhibit C (the “Services Agreement”), duly executed by PureTech; (D) such other instruments of transfer, conveyance and assignment as Seaport may reasonably request in order to effect the sale, transfer, conveyance and assignment to Seaport of all right, title and interest in and to the Transferred Assets free and clear of all Liens (the “Additional Transfer Documents”), in each case duly executed by PureTech; (ii) PureTech Representation Letter. A PureTech Representation Letter in the form attached hereto as Exhibit D, duly executed by PureTech Health and PureTech LYT; (iii) Required Consents. Evidence that all the consents set forth in Schedule 1.6(b)(iii) (the “Required Consents”) have been obtained or made, as applicable; (iv) IRS Form W-9. An IRS Form W-9 duly executed by PureTech (or PureTech’s owner, if PureTech is a disregarded entity for U.S. federal income tax purposes) certifying that such PureTech is a U.S. person; (v) Monash Consent. That certain Consent To Release Upon Assignment relating to the Monash License, duly executed by PureTech Health; (vi) Books and Records. The Books and Records relating to Glyph Technology or Products [***]; and (vii) Other Documents. All other consents, certificates, documents, instruments and other items required to be delivered by PureTech pursuant to the Ancillary Agreements or that are reasonably necessary to give effect to the transactions contemplated hereby or to vest in Seaport good and valid title in and to the Transferred Assets free and clear of all Liens. (c) Deliveries by Seaport. Upon the terms and subject to the conditions contained herein, at the Closing, Seaport shall deliver to PureTech: (i) Consideration. Seaport shall cause the Shares to be transferred into a brokerage account in accordance with the deposit account instructions provided by PureTech to Seaport prior to the Closing Date;
7 10513073.v14 (ii) Services Agreement. The Services Agreement, duly executed by Seaport; and (iii) Monash Consent. That certain Consent To Release Upon Assignment relating to the Monash License, duly executed by Seaport. 1.7 Consents. Notwithstanding anything in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign or transfer any contract, authorization, license or permit or any claim, right or benefit arising thereunder or resulting therefrom, if (x) an attempted assignment or transfer thereof, without the consent of a third party thereto or of the issuing Governmental Entity would constitute a breach thereof and (y) such consent is not obtained prior to the Closing (such contract, authorization, license or permit, claim, right or benefit, a “Deferred Item”). If an agreement to assign or transfer a Deferred Item, other than any Deferred Item that is the subject of a Required Consent (a “Deferred Consent”), is not obtained, or if an attempted assignment or transfer thereof would be ineffective or would affect the rights thereunder so that Seaport would not receive all such rights, then, in each such case, (i) the Deferred Item shall be withheld from sale pursuant to this Agreement, (ii) from and after the Closing, PureTech will use its Reasonable Commercial Efforts to obtain such consent as soon as practicable after the Closing, and (iii) until such Deferred Consent is obtained, PureTech shall provide to Seaport the benefits under such Deferred Item. In particular, in the event that any such Deferred Consent is not obtained prior to the Closing, then Seaport and PureTech shall enter into such arrangements (including subleasing or subcontracting if permitted) to provide to the Parties hereto substantially the same economic and operational equivalent of obtaining such Deferred Consent and assigning or transferring such contract, authorization, license or permit, including enforcement by PureTech for the benefit of Seaport of all claims or rights arising thereunder, and the performance by Seaport of the obligations thereunder. 1.8 Wrong Pockets. (a) If, after the Closing, Seaport or any of its Controlled Affiliates possesses any Excluded Asset, Seaport shall, or shall cause its Controlled Affiliates to, transfer such asset to PureTech at no cost to PureTech. (b) If, after the Closing, PureTech or any of its Controlled Affiliates possesses any Transferred Asset, PureTech shall, or shall cause their Controlled Affiliates to, transfer such asset to Seaport at no cost to Seaport. ARTICLE II REPRESENTATIONS AND WARRANTIES OF PURETECH PureTech represents and warrants to Seaport that the statements contained in this Article II are true and correct as of the date of this Agreement, except as set forth in the disclosure schedule delivered by PureTech to Seaport and dated as of the date of this Agreement (the “Disclosure Schedule”). 2.1 Organization and Good Standing. PureTech Health is a limited liability company and PureTech LYT is a corporation, in each case duly organized, validly existing and in good
8 10513073.v14 standing under the Laws of the State of Delaware. PureTech is duly qualified to conduct business and is in limited liability company or corporate and Tax good standing under the Laws of each jurisdiction in which the nature of PureTech’s businesses or the ownership or leasing of its properties requires such qualification or Tax good standing. PureTech has all requisite power and authority (corporate and other) to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. PureTech has made available to Seaport complete and accurate copies of PureTech’s Organizational Documents. PureTech is not in default under or in violation of any provision of its Organizational Documents. 2.2 Authority; No Conflict; Required Filings and Consents. (a) PureTech has all requisite limited liability company or corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to perform its obligations hereunder and thereunder. The execution and delivery by PureTech of this Agreement and the Ancillary Agreements to which it is a party and the performance by PureTech of this Agreement and the consummation by PureTech of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary limited liability company or corporate action on the part of PureTech. This Agreement and the Ancillary Agreements to which it is a party have been or will be as of the Closing Date duly and validly executed and delivered by PureTech and constitute or will constitute valid and binding obligations of PureTech, enforceable against it in accordance with its terms. (b) Neither the execution and delivery by PureTech of this Agreement or any Ancillary Agreement to which it is a party, nor the performance by PureTech of its obligations hereunder or thereunder, nor the consummation by PureTech of the transactions contemplated hereby or thereby, will (i) conflict with or violate any provision of the Organizational Documents of PureTech, each as amended or restated to date, (ii) require any notice to or filing with, or any permit, authorization, consent or approval of, any Governmental Entity, (iii) except as set forth in Section 2.2(b) of the Disclosure Schedule, conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party the right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of Indebtedness, Lien or other arrangement to which PureTech is a party or by which PureTech is bound or to which any of the assets of PureTech are subject, (iv) result in the imposition of any Lien upon any assets of PureTech (including any Transferred Asset) or (v) violate any Order applicable to PureTech or any of its properties or assets, except in the case of the foregoing clauses (iii) or (iv) for such notices, consents and waivers that, if not obtained or made, and such conflicts, breaches, defaults, accelerations, terminations, modifications, cancellations, Liens and violations that, individually or in the aggregate, have not been and would not reasonably be expected to be material to PureTech, the Products or the Transferred Assets. (c) No consent, approval, license, permit, Order or authorization of, or registration, declaration, notice or filing with, any Governmental Entity is required in connection with the execution and delivery by PureTech of this Agreement or any Ancillary Agreement to which PureTech is a party, or the consummation by PureTech of the transactions contemplated by this Agreement or any Ancillary Agreement.
9 10513073.v14 2.3 Taxes. (a) PureTech has properly filed on a timely basis all material Tax Returns that it was required to file, and all such Tax Returns are true, correct and complete in all material respects and were prepared in compliance with all applicable Laws. PureTech has paid on a timely basis all Taxes that were due and payable, whether or not shown on any Tax Return. (b) PureTech has duly withheld or collected all Taxes that PureTech is or was required by Law to withhold or collect and, to the extent required, has properly paid such Taxes to the appropriate Governmental Entity, and PureTech has complied with all information reporting and backup withholding requirements, including the maintenance of required records with respect thereto, in connection with amounts paid to PureTech employee, independent contractor, creditor, or other third party. (c) No examination or audit or other action of or relating to any Tax Return of PureTech by any Governmental Entity is currently in progress or, to PureTech’s Knowledge, threatened or contemplated. No deficiencies for Taxes of PureTech have been claimed or proposed in writing or assessed by any Governmental Entity. PureTech has not been informed in writing by any jurisdiction in which PureTech did not file a Tax Return that the jurisdiction believes that PureTech was required to file any Tax Return that was not filed or is subject to Tax in such jurisdiction. PureTech has not (i) waived any statute of limitations with respect to Taxes or agreed to extend the period for assessment or collection of any Taxes, which waiver or extension is still in effect, (ii) requested any extension of time within which to file any Tax Return, which Tax Return has not yet been filed, or (iii) executed or filed any power of attorney with any taxing authority, which is still in effect. (d) There are no Liens with respect to Taxes upon any of the Acquired Assets, other than with respect to Taxes not yet due and payable. (e) None of the Acquired Assets are United States real property interests within the meaning of Section 897(c)(1) of the Code. (f) None of the Acquired Assets include an interest in any joint venture, partnership, or other arrangement that is treated as a partnership for federal income Tax purposes. 2.4 Intellectual Property. (a) The Transferred Intellectual Property constitutes all Intellectual Property used by PureTech in, or developed by PureTech during, the conduct or operation of the Glyph Technology or Products, as currently conducted and operated, as conducted and operated since [***], and as currently planned by PureTech to be conducted and operated in the future. PureTech is the sole and exclusive owner or exclusive licensee of, and has good title to, all of the Transferred Intellectual Property, free and clear of all Liens, and PureTech has the right to transfer all right, title and interest in all Transferred Intellectual Property to Seaport. (b) Except for the Monash License, no Intellectual Property used in or related to the Glyph Technology or Products is licensed by PureTech from any third party. PureTech
10 10513073.v14 has not licensed or granted any rights under or to the Transferred Intellectual Property to any third party in effect as of the date hereof. All registrations and applications for Transferred Intellectual Property (the “PureTech Registrations”) are listed on Section 2.4(b) of the Disclosure Schedule and all such PureTech Registrations have been duly filed or registered (as applicable) with the applicable Governmental Entity and properly maintained in all material respects, including the timely submission of all necessary filings and payment of fees in accordance with the legal and administrative requirements in the appropriate jurisdictions, and have not lapsed or expired. To PureTech’s Knowledge, all PureTech Registrations are valid and enforceable. (c) PureTech has a policy that requires each Person employed or retained by PureTech as a consultant or independent contractor who contributed to the creation or development of any of the Transferred Intellectual Property to enter into a valid and enforceable written agreement covering confidentiality and assignment of inventions and pursuant to which the rights to such contributions are assigned to PureTech, and PureTech has secured such agreements, a form of which has been furnished to Seaport, and agrees to assign to Seaport the ownership of any Glyph IP under such agreements. No current or former employee, officer, director, stockholder, consultant or independent contractor of PureTech has any right, title, claim or interest in, to or under any Transferred Intellectual Property that has not been exclusively assigned and transferred to PureTech. 2.5 Contracts. (a) Section 2.5(a) of the Disclosure Schedule lists each of the Contracts that relate to the Transferred Assets and to which PureTech or any Controlled Affiliate is a party. (b) PureTech has delivered to Seaport a complete and accurate copies of each Transferred Contract (as amended to date). With respect to each Transferred Contract: (x) the Transferred Contract is legal, valid, binding and enforceable and in full force and effect against PureTech or any Controlled Affiliate that is the party thereto and, to PureTech’s Knowledge, against each other party thereto; (y) the Transferred Contract will continue to be legal, valid, binding and enforceable and in full force and effect against PureTech or any Controlled Affiliate that is the party thereto and, to PureTech’s Knowledge, against each other party thereto immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (z) neither PureTech, any Controlled Affiliate nor, to the Knowledge of PureTech, any other party, is, in any material respect, in breach or violation of, or default under, any such Transferred Contract, and no event has occurred, is pending or, to the Knowledge of PureTech, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute any such breach or default by PureTech, any Controlled Affiliate or, to the Knowledge of PureTech, any other party under such Transferred Contract. 2.6 Real Property. None of the Transferred Assets include owned real property, leased real property, subleased real property or other real property occupancy agreement. 2.7 Environmental Matters. To PureTech’s Knowledge, PureTech and each Controlled Affiliate of PureTech is, and at all times has been, in substantial compliance with all applicable Environmental Laws relating to the Transferred Assets and the Products, which compliance includes obtaining, maintaining and complying with all permits, licenses, approvals,
11 10513073.v14 and authorizations required under Environmental Laws in connection with the Products. To PureTech’s Knowledge, none of PureTech or its Controlled Affiliate is subject to any Liability arising from the Release or threatened Release of any Hazardous Materials into the environment or any failure to comply with any Environmental Law relating to the Transferred Assets. 2.8 Litigation. There is no Legal Proceeding pending or, to PureTech’s Knowledge, threatened against PureTech or its Controlled Affiliates relating to the Transferred Assets. There are no judgments or outstanding Orders against or with respect to any of the Transferred Assets, the Products, PureTech or its Controlled Affiliates or any current or former officers, directors, employees, consultants, agents or stockholders of PureTech or its Controlled Affiliates (in their respective capacities as such). There is no Legal Proceeding initiated by PureTech or its Controlled Affiliates, or which PureTech or its Controlled Affiliates has commenced preparations to initiate, against any other Person relating to the Transferred Assets. 2.9 Compliance With Laws. To PureTech’s Knowledge, PureTech and each Controlled Affiliate of PureTech has been and is in compliance in all material respects, is not in material violation of and has not received any written notice alleging any material violation with respect to, any applicable Law with respect to the Products or the Transferred Assets. 2.10 Affiliate Transactions. No Affiliate of PureTech other than Seaport, directly or indirectly, (a) owns any property or right, tangible or intangible, which is used in the Products, (b) has any claim or cause of action against PureTech or any Controlled Affiliate relating to the Transferred Assets, or (c) is a party to any Contract relating to the Transferred Assets. 2.11 Suppliers. Section 2.11 of the Disclosure Schedule sets forth a list of [***]. No supplier set forth in Section 2.11 of the Disclosure Schedule has indicated in writing within the past year that it will stop, decrease the rate of, or modify in any material respect the pricing, terms or conditions with respect to, supplying materials, products or services, as applicable, to PureTech relating to the Products, other than any such modifications or adjustments set forth in the Contract relating thereto. 2.12 Brokers. No agent, broker, investment banker, financial advisor or other firm or Person is or shall be entitled, as a result of any action, agreement or commitment of PureTech or any of its Affiliates, to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with any of the transactions contemplated by this Agreement. 2.13 Assets. PureTech or its Controlled Affiliates, as applicable, are the sole, exclusive, true and lawful owners, licensees or lessees, as the case may be, of, and have good and marketable title to, or a valid and enforceable leasehold or license interest in or other legal, valid and enforceable right to use, all of the Transferred Assets, free of all Liens. Upon the Closing, Seaport will become the true and lawful owner, licensee or lessee, as the case may be, of, and will receive good and valid title to or a valid and enforceable leasehold or license interest in or other legal, valid and enforceable right to use, the Transferred Assets, free and clear of all Liens. No Transferred Asset is owned by any Person that is not PureTech or a Controlled Affiliate of PureTech. 2.14 Data Privacy and Security.
12 10513073.v14 (a) To PureTech’s Knowledge, PureTech and its Controlled Affiliates have for the past two years complied in all material respects with all applicable Information Privacy and Security Laws, all of PureTech Privacy Policies, and all their contractual obligations to any Person regarding privacy data security, or the Processing of Personal Data. (b) PureTech requires third parties that Process Personal Data on behalf of PureTech or its Controlled Affiliates to (i) comply with applicable Information Privacy and Security Laws; and (ii) take reasonable steps to protect and secure Personal Data from unauthorized access, use, disclosure or Processing. (c) PureTech and its Controlled Affiliates have not received any notice in writing of any claims, audits, investigations (including investigations by regulatory authorities or any data protection authorities), or allegations of violations of Information Privacy and Security Laws by PureTech or any Controlled Affiliate of PureTech or with respect to Personal Data Processed by, or under the control of, PureTech or any Controlled Affiliate of PureTech, and, to PureTech’s Knowledge, there are no facts or circumstances that could form the basis for any such claims, audits, investigations, or allegations. (d) To PureTech’s Knowledge, for the past two years, PureTech and its Controlled Affiliates and no third party acting on their behalf each have not suffered or incurred a Data Security Incident relating to the Transferred Assets that would result in a material adverse effect on PureTech or such Controlled Affiliates. For the past two years, PureTech and its Controlled Affiliates has not been notified of, or been required to notify, any Person of any Data Security Incident relating to the Transferred Assets. 2.15 No Other Representations or Warranties. Except for the representations and warranties contained in this Article II, neither PureTech nor any other Person has made or makes any other express or implied representation or warranty, whether written or oral, on behalf of PureTech, including any representation or warranty as to the accuracy or completeness of any information regarding the Transferred Assets furnished or made available to Seaport and its Representatives or as to the future revenue, profitability or success of the Transferred Assets, or any representation or warranty arising from statute or otherwise in law. Unless the subject of any express representation and warranty set forth in this Article II, the Transferred Assets are being assigned and transferred by PureTech to Seaport as is, where is, without representation, warranty or recourse to PureTech. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SEAPORT Seaport represents and warrants to PureTech that the statements contained in this Article III are true and correct as of the date of this Agreement and will be true and correct as of the Closing as though made as of the Closing: 3.1 Organization, Standing and Power. Seaport is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware. Seaport has all
13 10513073.v14 requisite power and authority (corporate and other) to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. 3.2 Authority; No Conflict; Required Filings and Consents. (a) Seaport has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by Seaport of this Agreement and the consummation by Seaport of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of Seaport. This Agreement has been duly and validly executed and delivered by Seaport and constitutes a valid and binding obligation of Seaport, enforceable against it in accordance with its terms. (b) Neither the execution and delivery by Seaport of this Agreement, nor the performance by Seaport of its obligations hereunder, nor the consummation by Seaport of the transactions contemplated hereby, will (i) conflict with or violate any provision of the charter or By-laws of Seaport, (ii) require on the part of Seaport any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (iii) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any party any right to accelerate, terminate, modify or cancel, or require any notice, consent or waiver under, any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of Indebtedness, Lien or other agreement to which Seaport is a party or by which it is bound or to which any of its assets are subject, or (iv) violate any Order applicable to Seaport or any of its properties or assets, except in the case of the foregoing clauses (iii) and (iv) for such notices, consents and waivers that, if not obtained or made, and such conflicts, breaches, defaults, accelerations, terminations, modifications, cancellations and violations that, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on the ability of Seaport to consummate the transactions contemplated by this Agreement. (c) No consent, approval, license, permit, Order or authorization of, or registration, declaration, notice or filing with, any Governmental Entity is required by or with respect to Seaport in connection with the execution and delivery of this Agreement by Seaport or the consummation by Seaport of the transactions contemplated by this Agreement. 3.3 Brokers. No agent, broker, investment banker, financial advisor or other firm or Person is or shall be entitled, as a result of any action, agreement or commitment of Seaport or any of its Affiliates, to any broker’s, finder’s, financial advisor’s or other similar fee or commission in connection with any of the transactions contemplated by this Agreement. 3.4 Capitalization. (a) The authorized capital of Seaport consists, immediately prior to the Closing, of: (i) [***] shares of common stock, [***] par value per share (the “Common Stock”), [***] shares of which are issued and outstanding immediately prior to the Closing.
14 10513073.v14 (ii) [***] shares of preferred stock, [***] par value per share (the “Preferred Stock”), of which [***] shares have been designated Series A-1 Preferred Stock, none of which are issued and outstanding immediately prior to the Closing. The rights, privileges and preferences of the Preferred Stock are as stated in the Amended and Restated Certificate of Incorporation of Seaport and as provided by the Delaware General Corporation Law. (iii) All of the outstanding shares of capital stock have been duly authorized, are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws. (b) Seaport has obtained valid waivers of any rights of all other Persons to purchase any of the Shares covered by this Agreement. 3.5 Valid Issuance of Shares. The Shares, when issued, sold and delivered in accordance with the terms and for the consideration set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer under applicable state and federal securities laws and liens or encumbrances created by or imposed by PureTech. Subject to the filings described in Section 3.6 below, the Shares will be issued in compliance with all applicable federal and state securities laws. 3.6 Governmental Consents and Filings. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority is required on the part of Seaport in connection with the consummation of the transactions contemplated by this Agreement, except for filings pursuant to applicable securities laws, which have been made or will be made in a timely manner. 3.7 Independent Investigation. Seaport has conducted its own independent investigation, review and analysis of the business, results of operations, prospects, and condition (financial or otherwise) of the Transferred Assets and the Products, and acknowledges that it has been provided adequate access to the personnel, properties, assets, premises, books and records, and other documents and data of PureTech for such purpose. Seaport acknowledges and agrees that (a) in making its decision to enter into this Agreement and to consummate the transactions contemplated hereby, Seaport has relied solely upon its own investigation and the express representations and warranties of PureTech set forth in Article II of this Agreement; and (b) neither Seaport nor any other Person has made any representation or warranty as to the Transferred Assets, the Products or this Agreement, except as expressly set forth in Article II of this Agreement. ARTICLE IV ADDITIONAL AGREEMENTS 4.1 Access to Information. For [***] after Net Sales is invoiced or Net Income is received, Seaport shall keep complete and accurate records pertaining to the applicable revenue invoiced or received, in sufficient detail to permit PureTech to confirm the accuracy of all payments made hereunder. PureTech shall have the right to cause an independent, certified public accountant to audit such records to confirm Seaport’s payments pursuant to Section
15 10513073.v14 1.5(b); provided, however, that such auditor shall execute a confidentiality agreement with Seaport in customary form and shall only disclose to PureTech whether Seaport paid PureTech the correct amounts pursuant to Section 1.5(b) during the audit period and if not, any information necessary to explain the source of the discrepancy. If such audit determines that Seaport paid PureTech less than the amount properly due and such determination is not subject to a good faith dispute, then Seaport shall promptly pay to PureTech an amount equal to such underpayment, and if the amount underpaid exceeds the lesser of [***] or [***] percent [***] of the amount actually due over the audited period, Seaport shall also reimburse PureTech for the reasonable costs of such audit (including the fees and expenses of the certified public accountant). In the event such audit determines that Seaport paid PureTech more than the amount properly due in respect of any quarter, then PureTech shall promptly issue a refund to Seaport of such overpayment. Such audits may be exercised [***] and [***] with respect each payment period, within [***] after the payment period to which such records relate, upon reasonable advance notice to Seaport and during normal business hours. 4.2 Further Assurances. Each of Seaport and PureTech shall use their respective commercially reasonable efforts to take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and cause the fulfillment at the earliest practicable date of all of the conditions to the other Party’s obligations to consummate the transactions contemplated by this Agreement, including the delivery of any and all documents, certificates and agreements. In case at any time after the Closing, any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will cooperate with the other and take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request. 4.3 Tax Matters. (a) PureTech shall be responsible for and shall pay all Taxes of PureTech for all periods and all Taxes that relate to the Transferred Assets that were incurred in or are attributable to any taxable period (or portion thereof) ending on or before the Closing Date. PureTech shall prepare and file their Tax Returns for all periods and all Tax Returns that relate to the Transferred Assets for any Taxable periods ending on or before the Closing Date. Such returns will be prepared and filed in accordance with applicable Law and in a manner consistent with past practices. (b) Notwithstanding any other provision in this Agreement or the Ancillary Agreements, all transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement and the Ancillary Agreements shall be borne [***] percent [***] by PureTech and [***] percent [***] by Seaport. The Party required by Law shall file all necessary Tax Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable Law, the other Party will join in the execution of any such Tax Returns and other documentation. (c) Any real property, personal property or similar Taxes applicable to the Transferred Assets for a taxable period that includes but does not end on the Closing Date shall be paid by Seaport or PureTech, as applicable, and such Taxes shall be apportioned between
16 10513073.v14 Seaport and PureTech based on the number of days in the portion of the taxable period that ends on the Closing Date (the “Pre-Closing Tax Period”) and the number of days in the entire taxable period. PureTech shall pay Seaport an amount equal to any such Taxes payable by Seaport which are attributable to the Pre-Closing Tax Period, and Seaport shall pay PureTech an amount equal to any such Taxes payable by PureTech which are not attributable to the Pre-Closing Tax Period. Such payments shall be made on or prior to the Closing Date or, if later, on the date such Taxes are due (or thereafter, promptly after request by Seaport or PureTech if such Taxes are not identified by Seaport or PureTech on or prior to the Closing Date). (d) PureTech shall provide commercially reasonable cooperation with Seaport and make any filings reasonably and timely requested by Seaport to obtain any available Tax clearance certificates in connection with the transactions contemplated pursuant to this Agreement. 4.4 Ownership Transfer. Promptly following Closing, to the extent necessary to transfer ownership to Seaport of all Regulatory Applications filed with Regulatory Authorities, the Parties shall execute and deliver to such Regulatory Authorities such documents as shall be required to accomplish such transfer. 4.5 [***] 4.6 PureTech License. (a) PureTech may from time to time request that Seaport grant it a license under the Glyph IP to Utilize products (excluding the Existing Products and any product within a Field Exception as defined under the Monash License so long as the Field Exception continues to be excluded from the Field as defined under the Monash License) directed to Non-CNS Indications by providing Seaport with written notice requesting such a license and identifying the specific products or product concepts (each, an “Identified Product Concept”) that PureTech desires to Utilize (such notice, a “PureTech License Request Notice”). If PureTech provides such notice to Seaport and the Identified Product Concept(s) are Available, the Parties will enter into a license agreement pursuant to which Seaport will grant PureTech rights under the Glyph IP to Utilize such Identified Product Concept(s) for Non-CNS Indications (each, a “PureTech License”). Each PureTech License will be substantially in the form attached hereto as Exhibit E with changes only to conform the Licensed Products definition to the Identified Product Concept(s) unless the Parties otherwise mutually agree. For the avoidance of doubt, PureTech will not be required to make any payment to Seaport under any PureTech License, other than those payments required to be made to Monash under the Monash License with respect to the Licensed Products or Identified Product Concept under such PureTech License. For clarity, the payment obligations set forth in Section 1.5(b) will not apply to any product commercialized by or on behalf of PureTech, PureTech’s Affiliates (other than Seaport and Seaport’s Controlled Affiliates) or any sublicensee of PureTech or PureTech’s Affiliates (other than Seaport and Seaport’s Controlled Affiliates). [***]. (b) Upon PureTech’s request and subject to a technology transfer plan agreed to between the Parties, Seaport will use good faith efforts to provide PureTech with services as necessary to transfer any know-how within the Glyph IP or any material data and information
17 10513073.v14 within the Transferred Assets related to the licensed Glyph IP to the extent reasonably required to enable PureTech to develop the Identified Product Concepts. PureTech will reimburse Seaport for its costs of providing such technology transfer on a reasonable fee-for-services basis based on market FTE rates for the applicable categories of Seaport personnel. (c) Upon PureTech’s request set forth in the PureTech License Request Notice, Seaport agrees to negotiate in good faith a license on commercially reasonable terms to any Intellectual Property other than the Glyph IP that: (i) is owned or controlled (with the ability to grant a license) by Seaport or any of its Controlled Affiliates; (ii) relates to the subject matter of the Glyph IP; and (iii) is necessary or reasonably useful for PureTech to Utilize the Identified Product Concept(s) for Non-CNS Indications. (d) PureTech’s right to request a PureTech License pursuant to this Section 4.7 will terminate upon a Change of Control of Seaport. 4.7 Protection and Maintenance of Transferred Patents. After the Closing, Seaport will be solely responsible for all patent prosecution and maintenance activities with respect to the Transferred Patents, provided that, during the period in which PureTech’s right to request the PureTech License is in effect and continuing for any period in which any PureTech License is in effect: (i) Seaport will (a) provide PureTech with copies of all material filings and material formal correspondences relating to the Transferred Patents to and from the United States Patent and Trademark Office and any other patent office (including copies of each patent application, office action, response to office action, request for terminal disclaimer, and request for reissue or reexamination of any patent or patent application) at least [***] Business Days in advance of any material filing, (b) consider in good faith any input provided by PureTech regarding the prosecution and maintenance of the Transferred Patents, and (c) consult with PureTech prior to material decisions with respect to the prosecution and maintenance of the Transferred Patents; and (ii) to the extent that any Transferred Patents solely cover products subject to the PureTech License, the PureTech License will provide that PureTech will have the first right to prosecute and maintain such Transferred Patents. In addition, Seaport must obtain PureTech’s prior written consent to any decision regarding prosecution or enforcement of the Transferred Patents to the extent such decision would be reasonably likely to materially and adversely impact PureTech’s rights under this Agreement or any PureTech License. If PureTech does not respond to any materials provided by Seaport, any consent request, or any action or inaction suggested by Seaport with respect to prosecution and maintenance of the Transferred Patents within [***] Business Days, PureTech will be deemed not to have any comments regarding such information and materials and will be deemed to have provided consent to any such action or inaction. 4.8 Services Agreement. Pursuant to the Services Agreement, PureTech shall (and shall cause its Affiliates to, as applicable) provide services to Seaport and its Controlled Affiliates as set forth in the Services Agreement to transition the Transferred Assets to Seaport. All Intellectual Property to the extent directly related to the Glyph Technology invented, developed, generated, acquired or reduced to practice by or on behalf of PureTech as part of the services provided in connection with the Services Agreement will be owned by Seaport and shall constitute Glyph IP. PureTech agrees to assign to Seaport the ownership of any such Glyph IP invented, developed, generated, acquired or reduced to practice as part of the services provided in connection with the Services Agreement.
18 10513073.v14 ARTICLE V CONFIDENTIALITY 5.1 Confidentiality. Except to the extent expressly authorized by this Agreement or otherwise agreed in writing by the other Party, each Party agrees that it shall keep confidential and shall not publish or otherwise disclose and shall not use for any purpose other than as provided for in this Agreement any Confidential Information of the other Party unless such Party can demonstrate by competent proof that such Confidential Information: (a) was already known to it or its Controlled Affiliate, other than under an obligation of confidentiality, at the time of disclosure by the other Party or its Controlled Affiliate; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to it or its Controlled Affiliate; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of it or its Controlled Affiliate in breach of this Agreement; (d) was disclosed to it without any obligation of confidentiality by a Third Party who had a legal right to make such disclosure and who did not obtain such information directly or indirectly from the other Party or its Controlled Affiliate; or (e) was independently discovered or developed by it or its Controlled Affiliate without access to or aid, application or use of Confidential Information, as evidenced by a contemporaneous writing. 5.2 Authorized Disclosure. A Party or its Controlled Affiliate may disclose Confidential Information of the other Party to the extent such disclosure is reasonably necessary to comply with applicable laws, governmental regulations or court orders. In the event such Party or its Controlled Affiliate is legally required to make a disclosure of Confidential Information, such Party shall give reasonable advance notice to the other Party of such required disclosure so that the other Party may seek a protective order or other measure preventing or limiting the required disclosure or if, as between the Parties, only the Party required to make such disclosure is permitted to seek such order or measure, so that the Party required to make such disclosure may reasonably consider doing so at the other Party’s request and expense. 5.3 Terms of this Agreement. The Parties agree that the material financial terms of this Agreement shall be considered confidential information of both Parties and that each Party shall keep such terms confidential unless otherwise agreed by the Parties; provided, however, that either Party may disclose such terms in confidence to any bona fide potential or actual investor, lender, acquiror, licensee and other financial or commercial partner solely for the purpose of evaluating or participating in a potential or actual investment, loan, acquisition, license or collaboration. The Parties will consult with one another and use reasonable efforts to agree on the provisions of this Agreement to be redacted in any filings required to be made by either Party with the Securities and Exchange Commission or as otherwise required by law,
19 10513073.v14 provided that each Party shall have the right to make any required disclosures as it deems necessary in order to comply with applicable laws and regulations, the rules of any stock exchange and other legal requirements. Notwithstanding the foregoing, PureTech shall have the right to disclose publicly the following terms: right to receive development and commercial milestones, sublicense income and tiered royalties in the range of 3-5% of Net Sales. ARTICLE VI INDEMNIFICATION 6.1 Indemnification by PureTech. Subject to the terms and conditions of this Article VI, PureTech covenants and agrees to defend, indemnify and hold Seaport and its Controlled Affiliates, and each of Seaport’s and its Controlled Affiliates’ respective Representatives (individually, a “Seaport Indemnified Party” and collectively, the “Seaport Indemnified Parties”) harmless against, and compensate and reimburse Seaport Indemnified Parties for, any and all losses, damages, Liabilities, fines, fees, penalties, interest, awards, judgments and claims of any kind, including attorneys’ and consultants’ fees and expenses and other legal costs and expenses incurred in prosecution, investigation, remediation, defense or settlement (collectively, “Damages”) incurred or suffered by any Seaport Indemnified Party (regardless of whether such Damages relate to any Third Party Action) resulting from, relating to or constituting: (a) any breach of or inaccuracy in any representation or warranty of PureTech set forth in this Agreement, any Ancillary Agreement or any certificate delivered by or on behalf of PureTech in connection herewith, and any claim asserted by a third party against any Seaport Indemnified Party that, if meritorious, would constitute or give rise to any such breach; (b) any failure to perform any covenant or agreement of PureTech contained in this Agreement or any Ancillary Agreement or other instrument furnished by PureTech to Seaport pursuant to this Agreement or any Ancillary Agreement; (c) any Retained Liabilities; or (d) other than any Assumed Liability, any Liability (including any Liability related to Taxes) imposed upon Seaport or any of its Controlled Affiliates by reason of its status as transferee of, or successor to, the Products or the Transferred Assets (including any Liability imposed upon Seaport or any of its Controlled Affiliates as a result of the failure by PureTech to comply with its obligations under any applicable bulk transfers Laws or Tax clearance certificate requirements under applicable state Tax law). 6.2 Indemnification by Seaport. Subject to the terms and conditions of this Article VI, from and after the Closing, Seaport shall defend, indemnify and hold PureTech and its Controlled Affiliates and each of PureTech’s and its Controlled Affiliates’ respective Representatives (individually, a “PureTech Indemnified Party” and collectively, the “PureTech Indemnified Parties”) harmless against, and compensate and reimburse PureTech Indemnified Parties for, any and all Damages incurred or suffered by any PureTech Indemnified Party (regardless of whether such Damages relate to any Third Party Action) resulting from, relating to or constituting:
20 10513073.v14 (a) any breach of or inaccuracy in any representation or warranty of Seaport contained in this Agreement, any Ancillary Agreement or any certificate delivered by or on behalf of Seaport in connection herewith, and any claim asserted by a third party against any PureTech Indemnified Party that, if meritorious, would constitute or give rise to any such breach; (b) any failure to perform any covenant or agreement of Seaport contained in this Agreement or any Ancillary Agreement or other instrument furnished by Seaport to PureTech pursuant to this Agreement or any Ancillary Agreement; (c) any Liability resulting from Seaport’s failure to comply with the terms of the Monash License from and after the Closing; or (d) any Assumed Liabilities. 6.3 Indemnification Claims. (a) The Indemnified Party shall give written notification to the Indemnifying Party of the commencement of any Third Party Action. Such notification shall be given within 20 days after receipt by the Indemnified Party of notice of such Third Party Action, and shall describe in reasonable detail (to the extent then known by the Indemnified Party) the facts constituting the basis for such Third Party Action and the amount of the claimed damages. No delay or failure on the part of the Indemnified Party in so notifying the Indemnifying Party shall relieve the Indemnifying Party of any Liability hereunder except to the extent of the Indemnifying Party’s rights or defenses are prejudiced, or its Liability increased, as a result of such delay or failure. Following delivery of such notification, the Indemnifying Party shall have the right to assume control of the defense of such Third Party Action with counsel reasonably satisfactory to the Indemnified Party; provided, that, if the Indemnifying Party does not promptly undertake and diligently pursue the defense, the Indemnified Party shall have the right to assume sole control thereof upon delivery of written notice to the Indemnifying Party. The Indemnified Party may, upon written notice to the Indemnifying Party, participate in the defense thereof, at its own expense, through its counsel, who shall be reasonably acceptable to the Indemnifying Party (which right of participation shall be in addition to the right of the Non-controlling Party to be advised and make recommendations set forth below). The Controlling Party shall keep the Non- controlling Party advised of the status of such Third Party Action and the defense thereof and shall consider in good faith recommendations made by the Non-controlling Party with respect thereto. The Non-controlling Party shall furnish the Controlling Party with such information as it may have with respect to such Third Party Action (including copies of any summons, complaint or other pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the Controlling Party in the defense of such Third Party Action. The fees and expenses of counsel to the Indemnified Party with respect to a Third Party Action shall be considered Damages for purposes of this Agreement if (i) the Indemnified Party controls the defense of such Third Party Action pursuant to the terms of this Section 6.3(a) or (ii) the Indemnifying Party assumes control of such defense and the Indemnified Party reasonably concludes, based on independent legal advice, that the Indemnifying Party and the Indemnified Party have conflicting interests such that the Indemnifying Party would be prohibited under applicable legal ethics or disciplinary rules from representing the Indemnified Party in such
21 10513073.v14 Third Party Action. The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any Third Party Action without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, conditioned or delayed; provided that the consent of the Indemnified Party shall not be required if the Indemnifying Party agrees in writing to pay any amounts payable pursuant to such settlement or judgment and such settlement or judgment includes a complete release of the Indemnified Party from further Liability and has no other adverse effect on Seaport Indemnified Party. The Indemnified Party shall not agree to any settlement of, or the entry of any judgment arising from, any such Third Party Action without the prior written consent of the Indemnifying Party. (b) In order to seek indemnification under this Article VI, the Indemnified Party shall deliver a Claim Notice to the Indemnifying Party. (c) Any dispute under this Article VI shall be resolved in accordance with Section 8.8. 6.4 Survival. (a) Unless otherwise specified in this Section 6.4 or elsewhere in this Agreement, all provisions of this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby and shall continue in full force and effect in accordance with their terms until the expiration of the applicable statute of limitations; provided, however, that, except with respect to claims based on fraud, intentional misrepresentation or willful breach, (i) the representations and warranties set forth in Section 2.3 (Taxes) shall expire on the [***] day after the relevant statute of limitations relating to any breach of any such representation or warranty has expired, (ii) the representations and warranties set forth in Sections 2.1 (Organization and Good Standing), 2.2(a) (Authority), 2.2(b)(i) (No Conflict with Organizational Documents), 2.12 (Brokers), 3.1 (Organization, Standing and Power), 3.2(a) (Authority), 3.2(b)(i) (No Conflict with Organizational Documents), and 3.3 (Brokers) shall expire [***] years after the Closing Date (together, the foregoing clauses (i) and (ii), the “Fundamental Reps”) and (iv) all other representations and warranties shall expire on the first (1st) anniversary of the Closing Date (the “General Expiration Date”). (b) If Seaport delivers to PureTech, before expiration of a representation, warranty, covenant or agreement, either a Claim Notice or an Expected Claim Notice based upon a breach of such representation, warranty, covenant or agreement then the applicable representation, warranty, covenant or agreement shall survive until, but only for purposes of, the resolution of the matter covered by such notice. If the legal proceeding or written claim with respect to which an Expected Claim Notice has been given is definitively withdrawn or resolved in favor of Seaport, Seaport shall promptly so notify PureTech. 6.5 Limitations. (a) Notwithstanding anything to the contrary set forth in this Agreement or in any other agreement executed in connection herewith, with respect to claims arising under Section 6.1(a) or 6.2(a), the Indemnifying Party shall not be liable until all Damages suffered by the Indemnified Party equal [***] in the aggregate (at which point the Indemnifying Party shall
22 10513073.v14 become liable for Damages only in excess of that amount); provided that the limitations set forth in this Section 6.5(a) shall not apply to claims based on fraud, intentional misrepresentation or willful breach or the breach of or inaccuracy in any Fundamental Rep. (b) Notwithstanding anything to the contrary contained in Section 6.1, except in the case of fraud, intentional misrepresentation, or willful breach, claims for which shall not be capped, the aggregate amount of Damages that may be recovered by Seaport Indemnified Parties under Section 6.1(a) or by PureTech Indemnified Parties under Section 6.2(a) shall be (i) [***] for breaches of or inaccuracies in any representations or warranties that are not Fundamental Reps, and [***] for breaches of or inaccuracies in Fundamental Reps. (c) For the purposes of determining whether there has been a breach of any representation or warranty requiring PureTech or Seaport to indemnify as provided in Section 6.1(a) or 6.2(a), respectively, and the amount of any Damages with respect thereto, the representations and warranties shall be deemed to have been made without any qualifications or limitations as to materiality or similar qualifiers. (d) Nothing in this Agreement shall limit the Liability of any Person who perpetrated, participated in or had knowledge of fraud. Notwithstanding anything to the contrary set forth in this Agreement, none of the limitations set forth in this Article VI, whether time- based, monetary or otherwise, including the survival periods set forth in Section 6.4 and the limitations set forth in this Section 6.5, shall apply to claims for fraud. (e) EXCEPT WITH RESPECT TO A BREACH OF ARTICLE V, OR A PARTY’S LIABILITY PURSUANT TO SECTION 6.1 OR SECTION 6.2 WITH RESPECT TO LIABILITIES FOR THIRD PARTY CLAIMS, NONE OF THE PARTIES WILL BE LIABLE FOR ANY CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES, ARISING IN ANY WAY OUT OF THIS AGREEMENT OR THE EXERCISE OF ITS RIGHTS HEREUNDER, WHETHER BASED UPON WARRANTY, CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSS. 6.6 Effect of Due Diligence. The rights to indemnification set forth in this Article VI shall not be affected by any investigation conducted by or on behalf of the Party seeking indemnification or any knowledge acquired (or capable of being acquired) by such Party, whether before or after the date of this Agreement, with respect to the inaccuracy or noncompliance with any representation, warranty, covenant or obligation which is the subject of indemnification hereunder. 6.7 Indemnification Payments. All indemnification payments made hereunder shall be treated by all Parties as adjustments to the value of the issuance and payments, if any, made pursuant to Section 1.5 for Tax purposes unless otherwise required by Law.
23 10513073.v14 ARTICLE VII DEFINED TERMS; INTERPRETATION 7.1 Definitions. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below: “Affiliate” means, with respect to a Person, any other Person who is an “affiliate” of that Person within the meaning of Rule 405 promulgated under the Securities Act of 1933, as amended. “Ancillary Agreements” means each the Patent Assignment, the Trademark Assignment, the Additional Transfer Documents and the Services Agreement. “Annual Net Sales” means, with respect to any Seaport Glyph Product, the aggregate, worldwide Net Sales of such Seaport Glyph Product in a single Calendar Year. “Available” means, with respect to any Identified Product Concept, that, as of the date of Seaport’s receipt of the applicable PureTech License Request Notice: (a) such Identified Product Concept is not subject to a license, collaboration or similar arrangement with an independent third party that includes contractual obligations (including an exclusive license, exclusive option, covenant not to sue or noncompete obligation) that will prevent Seaport from granting PureTech the PureTech License with respect to such Identified Product Concept; (b) Seaport is not then actively engaged in bona fide negotiations (as evidenced by a written term sheet that has been delivered by either Seaport or the third party to the other) regarding a potential license, collaboration or similar arrangement with an independent third party that will, if consummated, include contractual obligations (including an exclusive license, exclusive option, covenant not to sue or noncompete obligation) that will prevent Seaport from granting PureTech the PureTech License with respect to such Identified Product Concept; (c) the Identified Product Concept is not then the subject of a bona fide internal research and development program at Seaport that includes prodrug generation and/or preclinical or later stage studies then actively in progress with respect to a particular named product candidate, as evidenced by written records confirming such activities have been in progress for at [***]; and (d) such Identified Product Concept has not been demonstrated (as demonstrated in peer reviewed scientific literature, unpublished data shared under confidentiality with Seaport, or pursuant to internal research by Seaport, Monash, or any of their Controlled Affiliates, in each case based upon a validated pre-clinical model or clinical evidence) or under experimental investigation at Seaport to be potentially useful as a therapeutic for any CNS Indication, with respect to experimental investigation at Seaport as evidenced by written records confirming such activities have been in progress for [***]. “Books and Records” means any and all business records, financial books and records, sales order files, purchase order files, warranty and repair files, supplier lists, customer lists, franchisee, representative and distributor lists, billing and route sheets, mailing lists, studies, surveys, analyses, strategies, plans, forms, designs, diagrams, drawings, specifications, technical data, production and quality control records and formulations, data, databases, user
24 10513073.v14 names, passwords, any information related to customers, suppliers, vendors, consultants, marketing channels, and business partners in any medium, but excluding personnel records. “Business Day” means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions located in Boston, Massachusetts are permitted or required by Law, executive order or governmental decree to remain closed. “Calendar Quarter” means a period of three (3) consecutive months ending on the last day of each March, June, September, or December, respectively, except that the first Calendar Quarter during the Term will begin on the Closing and end on the last day of the Calendar Quarter within which the Closing falls. “Calendar Year” means each period of twelve (12) consecutive months beginning on January 1 and ending on December 31, except that the first Calendar Year starts on the Closing and ends on December 31, 2024. “Change” means any change, event, circumstance or development. “Change of Control” means, with respect to a Person, that a such Person sells, conveys, exclusively licenses or otherwise disposes of all or substantially all of its property or business or merges with or into or consolidates with any other corporation, limited liability company or other entity [***], or if any other transaction occurs which results in (assuming an immediate and maximum exercise/conversion of all derivative securities issued in the transaction) the stockholder(s) of such Person immediately prior to the transaction owning less than 50% of the voting stock of such Person immediately following the transaction; provided, however, that none of the following shall be considered a Change of Control: (a) a merger effected exclusively for the purpose of changing the domicile of a Person, (b) a transaction in which the stockholders of a Person immediately prior to the transaction own 50% or more of the voting stock or equity interests of the surviving corporation or entity (or, if the surviving corporation or entity is a wholly owned subsidiary, its parent) following the transaction (taking into account only stock of such Person held by such stockholders prior to the transaction), or (c) a financing transaction or series of financing transactions as a consequence of which investors acquire from a Person the equity securities or securities convertible into equity securities of such Person, regardless of whether the stockholders of such Person continue to own 50% or more of the voting stock of such Person immediately following the transaction. [***] “Claim Notice” means written notification which contains (a) a description of the Damages incurred or reasonably expected to be incurred by the Indemnified Party and the Claimed Amount of such Damages, to the extent then known, (b) a statement that the Indemnified Party is entitled to indemnification under Article VI for such Damages and a reasonable explanation of the basis therefor, and (c) a demand for payment in the amount of such Damages. “Claimed Amount” means the amount of any Damages incurred or reasonably expected to be incurred by the Indemnified Party in connection with a claim for indemnification pursuant to Section 6.3.
25 10513073.v14 “CNS Indication” means any disease, disorder, or condition primarily affecting or manifesting in the brain, spinal cord, or peripheral nervous system (with the exception of and not including the enteric nervous system), including neurological, psychiatric, neuropsychiatric, pain, mental, and behavioral indications. Without limiting the foregoing, CNS Indications includes all indications within the ICD-10 code range of F01-F99 and G01-99. “CNS Symptoms” means a physiologically expressed symptom primarily manifesting in the brain, spinal cord or peripheral nervous system (with the exception of and not including the enteric nervous system) that is secondary to non-CNS Indications. CNS Indications shall include CNS Symptoms for the purposes of this Agreement. For clarity, indications that do not fall within the first sentence of this definition are not deemed to be CNS Indications by nature of the presence of CNS Symptoms. “Closing” means the closing of the transactions contemplated by this Agreement. “Combination Product” has the meaning set forth in the definition of “Net Sales”. “Code” means the Internal Revenue Code of 1986, as amended. “Confidential Information” means any and all Information that (a) is disclosed by one Party or its Affiliates to the other Party or its Affiliates under or in connection with this Agreement, whether in oral, written, graphic, or electronic form, and (b) concerns the Products, the Monash License (or the inventions disclosed or claimed therein), any Transferred Asset (including the Glyph Technology and the Monash License), which, in the case of the Confidential Information described in this subsection (b), will be deemed Seaport’s Confidential Information notwithstanding any prior access or knowledge by PureTech or any of its Controlled Affiliates, except that any such Confidential Information to the extent primarily relating to any Identified Product Concepts (and not any then-existing Products of Seaport) that is disclosed by PureTech to Seaport in furtherance of exercise of PureTech’s rights with respect to a PureTech License will be deemed PureTech’s Confidential Information notwithstanding any prior access or knowledge by Seaport or any of its Controlled Affiliates. “Contract” means any written or oral agreement, contract, subcontract, settlement agreement, lease, sublease, binding understanding, instrument, note, option, bond, mortgage, indenture, trust document, loan or credit agreement, license, sublicense, insurance policy or legally binding commitment or undertaking of any nature, as in effect as of the date hereof or as may hereinafter be in effect. “Controlled Affiliate” means, with respect to any Person, Affiliates of such Person that are controlled by such Person. For purposes of this definition, the term “control” means as to such Person, direct or indirect ownership of (i) more than fifty percent (50%) in the aggregate of the voting power of all outstanding shares entitled to vote at a general election of directors of such Person, (ii) more than fifty percent (50%) of the equity interests in such Person, or (iii) more than fifty percent (50%) of the assets of such Person. “Controlling Party” means the Party controlling the defense of any Third Party Action.
26 10513073.v14 “Cover” means, with respect to a product or technology and any Intellectual Property, that, but for ownership of or a license under such Intellectual Property, the Utilization of such product or technology by a Person would infringe, violate or misappropriate such Intellectual Property (or, with respect to any claim included in any patent application, would infringe such claim if such patent application were to issue as a patent). “Covers” and “Covered by” have correlating meanings. “Data Security Incident” means any actual, suspected, reported, or claimed breach of security of PureTech Data or any systems, databases, or other locations where PureTech Data is Processed regardless of whether such an incident triggers any notice or reporting obligations under applicable Information Privacy and Security Laws, including any actual, suspected, reported, or claimed (a) unauthorized access to, acquisition of, or Processing of PureTech Data; (b) unauthorized or accidental loss, alteration, disclosure, deletion or destruction of PureTech Data; (c) compromise, intrusion, interference with or unauthorized access to networks, systems, databases, servers, or electronic or other media of PureTech’s internal systems on which PureTech Data is Processed or from which PureTech Data may be accessed; or (d) other event that could compromise the privacy, confidentiality, or integrity of PureTech Data. “Employment Claims” means any and all Legal Proceedings of any kind by any employee, former employee, contractor or former contractor of PureTech or any Controlled Affiliate or, with respect to New Seaport Employees, any Affiliate that in any way arise, in whole or in part, out of employment or a service-providing relationship with PureTech or any Controlled Affiliate or, with respect to New Seaport Employees, any Affiliate through the date hereof (or such later date of employment of the New Seaport Employees), including any termination of employment or a contractual relationship with PureTech or any Controlled Affiliate. “Environmental Law” means any Law or Permit relating to the environment, occupational health and safety, or exposure of persons or property to Hazardous Materials, including any Law, administrative decision or order pertaining to: the presence of or the treatment, storage, disposal, generation, transportation, handling, distribution, manufacture, processing, use, import, export, labeling, recycling, registration, investigation or remediation of Hazardous Materials or documentation related to the foregoing; air, water and noise pollution; groundwater, sediment and soil contamination; the Release, threatened Release, or accidental Release into the environment, the workplace or other areas of Hazardous Materials, including emissions, discharges, injections, spills, escapes or dumping of Hazardous Materials; transfer of interests in, or control of, real property which may be contaminated; community or worker right- to-know disclosures with respect to Hazardous Materials; the protection of biota, wildlife, marine life and wetlands, and endangered and threatened species; storage tanks, vessels, containers, abandoned or discarded barrels and other closed receptacles; and health and safety of employees and other persons. “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. “ERISA Affiliate” means any entity which is, or at any applicable time was within the meaning of Section 414(b), (c), (m) or (o) of the Code, or Section 4001(a)(14) or
27 10513073.v14 (b)(1) of ERISA, or guidance thereunder, a member of (a) a controlled group of corporations, (b) a group of trades or businesses under common control, or (c) an affiliated service group), any of which includes or included PureTech or its Controlled Affiliate. “Excluded Contract” means (i) this Agreement and each of the Ancillary Agreements, (ii) any Contract that is an Organizational Document of PureTech, (iii) any Contract that is an Excluded Asset, (iv) any PureTech Benefit Arrangement and (v) any Contract set forth on Schedule 7.1(a) (it being understood and agreed that, within [***] after the Closing Date, the Parties may, but shall not be obligated to, modify such Schedule 7.1(a) as mutually agreed in writing by the Parties to add to, delete from or modify the list of Contracts contained therein). “Existing Product” means the following product candidates currently being developed by PureTech: (i) LYT-300: Allopregnanolone; (ii) LYT-310: a Cannabidiol; (iii) LYT-320: Agomelatine; (iv) LYT-348 [***]. “FDA” means the U.S. Food and Drug Administration, including all agencies under its control, and any successor agency thereto. “First Commercial Sale” means, with respect to a Seaport Glyph Product in any country, the first sale of such Seaport Glyph Product to a Third Party (excluding Product Licensees and distributors) in such country for distribution, use or consumption after Product Approval has been obtained for such Seaport Glyph Product in such country. First Commercial Sale excludes sales for purposes of testing the Product in a clinical trial and any distribution or other sale at or below cost solely for patient assistance, named patient use, compassionate use, or test marketing programs or non-registrational studies or similar programs or studies. For clarity, First Commercial Sale shall be determined on a Product-by-Product and country-by-country (or region-by-region) basis, as applicable. [***] “GAAP” means United States generally accepted accounting principles, consistently applied. “Glyph IP” means any Intellectual Property (i) within the Transferred Assets or (ii) assigned to Seaport pursuant to the Services Agreement as described in Section 4.8. “Glyph Technology” means all technology related to, and products resulting from, a technology platform designed and exemplified as a glyceride-containing prodrug. Without limiting the foregoing, the Glyph Technology includes (i) all Intellectual Property licensed under the Monash License, and (ii) all Intellectual Property invented, developed, generated, acquired or reduced to practice by or on behalf of PureTech or its Affiliates prior to the Effective Date in the exercise of its rights under the Monash License, including any improvements, modifications or derivates of the Intellectual Property licensed under the Monash License and all products arising out of the use of the Intellectual Property licensed under the Monash License. “Governmental Entity” means any federal, state, local or foreign government or any court, arbitrational tribunal, administrative agency or commission or government authority acting under the authority of the federal or any state, local or foreign government.
28 10513073.v14 “Hazardous Material” means any substance, waste or material that is subject to regulation under any Environmental Law, or has been designated or listed by any Governmental Entity or in or pursuant to any applicable Environmental Law to be radioactive, toxic, a pollutant or contaminant, hazardous or otherwise a danger to health or the environment, including PCBs, asbestos, oil, petroleum and petroleum products (including fractions thereof), urea- formaldehyde, radioactive materials, solid waste, special waste, PFAS (including PFOA and PFOS) and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or defined as a solid or hazardous waste pursuant to the Resource Conservation and Recovery Act of 1976, or regulated under the Occupational Safety and Health Act, or pursuant to analogous state Laws or regulations. “Indebtedness” with respect to any Person means, as of any time of determination, without duplication, the aggregate amount of: (a) all indebtedness or other obligation for borrowed money, (b) all indebtedness evidenced by any note, bond, debenture, mortgage or other debt instrument or debt security or similar instrument, (c) all obligations with respect to leases that would be required to be capitalized or otherwise recorded as finance leases pursuant to GAAP, (d) amounts owing as deferred purchase price of property or services (other than trade payables and any accrued capital expenditures in the ordinary course of business), including, for the avoidance of doubt, any earnouts, seller notes, holdbacks or similar obligations related to past acquisitions, (e) obligations under any performance, surety or similar bond or any letter of credit, but in each case only to the extent drawn or called (and not paid in full or otherwise discharged) and excluding any obligations in respect of undrawn letters of credit, (f) all obligations arising from or under, or otherwise in respect of any unpaid commissions; (g) all obligations secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property associated with the Products; (h) all obligations under conditional sale or other title retention agreements relating to property or assets associated with the Products; (i) all outstanding obligations to current and former equityholders in their capacity as such, including any unpaid dividends or distributions or any unpaid management or advisory fees under any management services or similar agreements with any Affiliate or holder of equity interests of PureTech that are associated with the Products; and (j) all obligations with respect to government assistance programs that are subject to clawbacks or other mandatory repayments (whether or not such terms are triggered prior to the date of determination); (k) with respect to any indebtedness of a type described in clauses (a) through (j) above of any Person that is guaranteed by PureTech or that is secured by any of the Transferred Assets; (l) for clauses (a) through (k) above, all accrued and unpaid interest thereon, if any, and any fees, costs, expenses or other payment obligations associated with any required repayment of such indebtedness on the date hereof; provided, however, that Indebtedness shall not include any Retained Liability. “Indemnified Party” mean a Seaport Indemnified Party or a PureTech Indemnified Party, as applicable, that is eligible for indemnification under the terms of Article VIII hereof. “Indemnifying Party” mean Seaport or PureTech, as applicable, that is obligated to provide indemnification under the terms of Article VI hereof.
29 10513073.v14 “Information” means any and all information, results and data whatsoever, in any tangible or intangible form, including without limitation, inventions, practices, methods, techniques, specifications, formulations, formulae, copyrights, software, knowledge, know-how, skill, experience, trade secrets, ideas, concepts, processes, protocols, materials, samples, analytical and quality control data, any other results of experimentation and testing, studies, procedures, drawings, and legal information and descriptions, and all intellectual property rights therein. “Information Privacy and Security Laws” means: any and all applicable Laws concerning the Processing of Personal Data, including, to the extent applicable, the Federal Trade Commission (FTC) Act, as applied or interpreted by the FTC; the Children’s Online Privacy Protection Act (COPPA) and the FTC’s COPPA rule; the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and all applicable HIPAA rules and regulations; state data protection Laws, including Massachusetts 201 CMR 17.00: Standards for the Protection of Personal Information of Residents of the Commonwealth; state data breach notification Laws; state privacy and consumer protection Laws; and all other applicable privacy, data security, data protection, and consumer protection laws of any jurisdiction. “Insurance Policies” means all insurance policies carried by PureTech or for the benefit of PureTech or the Products. “Intellectual Property” means any and all intellectual property rights and other similar proprietary rights in any jurisdiction, whether registered or unregistered, whether owned or held for use under license, including all rights and interests pertaining to or deriving from (1) Patents, trademarks, service marks, trade names, domain names, copyrights, designs and trade secrets, (2) applications for and registrations of such Patents, including reexaminations, extensions and counterparts claiming priority therefrom, inventions, invention disclosures, discoveries and improvements, whether or not patentable, trademarks, service marks, trade names, domain names, copyrights and designs, (3) proprietary or confidential processes, formulae, methods, schematics, technology, know-how and computer software programs and applications, including data files, source code, object code and software-related specifications and documentation, and (4) other tangible or intangible proprietary or confidential information and materials, including proprietary databases and data compilations, in each case, including any registrations of, applications to register, and renewals and extensions of, any of the foregoing with or by any Governmental Entity in any jurisdiction. “IRS” means the Internal Revenue Service. “Inventory” means: (a) the entire inventory of Products and the drug substances or active pharmaceutical ingredient (API) for Products, including any non-GMP and GMP materials used in the manufacture of Products; and (b) any reagents, cell lines, biological or chemical materials, samples or other materials used exclusively or primarily in research or development of Products; in each case ((a) and (b)) that is owned or held for use by PureTech or any of its Affiliates. “Law” means any United States federal, state or local or foreign law, common law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation, or any
30 10513073.v14 decree, order, injunction, rule, judgment, consent of or by any Governmental Entity, or any Permit or similar right granted under any of the foregoing, or any similar provision having the force or effect of law. “Legal Proceeding” means any action, suit, proceeding (including administrative proceeding), claim, complaint, hearing, information request, notice of violation, arbitration, inquiry or investigation of or before any Governmental Entity or before any arbitrator. “Liability” means any debt, loss, damage, adverse claim, fine, fee, penalty, Tax, expense, liability or obligation of any kind, whether direct or indirect, known or unknown, asserted or unasserted, accrued or unaccrued, absolute, contingent, matured or unmatured, liquidated or unliquidated, disputed or undisputed, due or to become due and whether in contract, tort, strict liability or otherwise, and including all costs and expenses relating thereto including all fees, disbursements and expenses of legal counsel, experts, engineers and consultants and costs of investigation. “Lien” means any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of Law), other than (a) mechanic’s, material men’s and similar liens for amounts not yet due and payable arising in the Ordinary Course of Business of the applicable PureTech and not material to PureTech, the Products or the Acquired Assets and (b) liens for Taxes, assessments or other governmental charges not yet due and payable or not yet delinquent (or which may be paid without interest or penalties) and for which adequate reserves have been established. “Major European Market” means France, Germany, Italy, Spain or the United Kingdom. “Monash” has the meaning set forth in the definition of “Monash License”. “Monash License” means that certain License Agreement between Monash University, ABN 12 377 614 012, a body politic and corporate constituted in accordance with the Monash University Act 2009 of Wellington Road, Clayton, Victoria, Australia 3800 (“Monash”) and PureTech, dated August 1, 2017, as amended. “Net Income” means [***] “Net Sales” means [***] “New Seaport Employees” means the employees of PureTech and its Controlled Affiliates that leave employment with those employers directly to become employees of Seaport and its Controlled Affiliates. “Non-controlling Party” means the Party not controlling the defense of any Third Party Action. “Non-CNS Indication” means any indication that is not a CNS Indication.
31 10513073.v14 “Order” means any judicial, administrative or arbitral order, award, decree, injunction, lawsuit, proceeding or stipulation. “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice (including with respect to frequency and amount). “Organizational Documents” means with respect to a corporation, the certificate of incorporation or articles of incorporation and bylaws of such corporation; with respect to a general partnership, the partnership agreement establishing such partnership; with respect to a limited liability company, the articles of organization and the operating agreement of such company, with respect to a joint venture, the joint venture agreement establishing such joint venture; with respect to a limited partnership, the limited partnership agreement and certificate of limited partnership for such entity; with respect to a trust, the instrument establishing such trust; and with respect to any other entity, any charter document or other document executed, adopted, approved, ratified or filed in connection with the formation, creation, constitution or organization of such entity. “Patent” means: (i) any patent, patent application or utility models (including any provisional application, priority application, or international applications) in any country or multinational jurisdiction (including any converted application, continuation, continuation-in- part, continued prosecution application or divisional of any such application, any reissue, renewal, extension, registration, confirmation, revalidation, restoration, substitution, reexamination, supplementary protection certificate, pediatric exclusivity period or the like of any such patent); (ii) any foreign equivalent of any patent or patent application described in clause (i); and (iii) all rights of priority in any of the foregoing. “Permit” means any federal, state or local, domestic or foreign governmental consent, approval, order, authorization, permit, concession, registration, franchise, license or similar right. “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Entity or other entity. “Personal Data” means any data or information in any media that relates to an identified or identifiable specific individual, browser, computer or other device, and any other data or information that constitutes personal data, personal information, or personally identifiable information under any applicable Law, including the Information Privacy and Security Laws, and includes a natural person’s first and last name, home or other physical address, telephone number, e-mail address, username and password, photograph, video or audio file that contains a person’s image or voice, Social Security number, driver’s license number, passport number or other government-issued identification number, biometric information, credit or debit card or other financial information, or customer or account number, IP address, cookie information, identification number, location data that relates to an identifiable person, browser, computer or device, and is capable of determining with reasonable specificity the actual physical location of such person, browser, computer or device, an online or other persistent identifier, or one or more factors specific to the physical, physiological, genetic, mental, economic, cultural or social
32 10513073.v14 identity of an individual but only to the extent that any of the foregoing relates to an identified or identifiable specific individual or device. “Processing” or “Processed” means any operation or set of operations or set of operations that is performed upon data or information, whether or not by automatic means, such as collection, recording, organization, structuring, storage, access, acquisition, creation, derivation, recordation, organization, storage, adaptation or alteration, correction, retrieval, maintenance, consultation, use, disclosure, dissemination, transmission, transfer, or otherwise making available, alignment, combination, blocking, storage, restriction, retention, deleting, erasure, or destruction. “Product” means: (a) the Existing Products; and (b) any other pharmaceutical product or product candidate that incorporates or utilizes, or is derived from, Glyph Technology. “Product Approval” means, as applicable, on a jurisdiction by jurisdiction basis, with respect to a given Product, any and all approvals, licenses, registrations or authorizations of the applicable Regulatory Authority necessary for the development, manufacture, packaging, labeling, storage, import, export, marketing, distribution, sale, use or intended use of such Product and reimbursement, if applicable, in and for the relevant jurisdiction, including any Regulatory Application. “Product IND” means any IND(s) for any Product(s), together with all amendments, modifications, supplements and updates thereto. “Product License Agreement” means any agreement pursuant to which Seaport or any of its Controlled Affiliates grants a Third Party (each, a “Product Licensee”) a license (or similar rights) under the Glyph IP to develop and/or commercialize any Product in any country in the Territory, including a license or agreement granting marketing and/or distribution rights with respect to Products to such Third Party; but excluding (i) any agreement pursuant to which Seaport or any of its Controlled Affiliates grants rights to a Third Party to perform development or commercialization activities on behalf of Seaport or its Controlled Affiliates where such persons are compensated at market rates for services rendered, and (ii) any agreement that is entered into as part of, or otherwise results in, a Change of Control. “Product Licensee” has the meaning set forth in the definition of “Product License Agreement”. “PureTech Benefit Arrangement” means any (a) “employee benefit plans,” as defined in Section 3(3) of ERISA, together with plans or arrangements that would be so defined if they were not (i) otherwise exempt from ERISA by Section 3(3) of ERISA or another Section of ERISA or (ii) individually negotiated or applicable only to one individual and (b) any other written or oral benefit arrangement or obligation to provide benefits or compensation for services rendered, in each case within this sentence in respect of any employees, independent contractors, directors, officers or stockholders of PureTech or any Controlled Affiliate, which is sponsored or maintained by PureTech or any Controlled Affiliate or with respect to which PureTech or any Controlled Affiliate has made or is required to make payments, transfers or contributions or has or may have any Liability, directly or through its ERISA Affiliates.
33 10513073.v14 “PureTech Data” means all data and information stored or Processed by or on behalf of PureTech or Controlled Affiliate, including without limitation Personal Data. “PureTech Employee Liabilities” means any (a) Employment Claim and any other Liability for accrued wages, salaries, commissions, bonuses, workers’ compensation, medical or disability benefits, vacation, sick or other paid-time off or comprehensive leave benefits of or relating to the employment or services, or termination of any current or former PureTech employees or consultants or independent contractors of PureTech or any Controlled Affiliate (including any persons who are becoming New Seaport Employees and any employees who are leaving employment with PureTech or its Controlled Affiliates to become engaged by another Affiliate), whether pursuant to any Contract or under any applicable Law or otherwise; (b) Liabilities under any PureTech Benefit Arrangements or any Contracts or other compensatory arrangements with PureTech employees (including any persons who are becoming New Seaport Employees and any employees who are leaving employment with PureTech or its Controlled Affiliates to become engaged by another Affiliate) or with independent contractors or consultants of PureTech or any Controlled Affiliate (including, for the avoidance of doubt, any change in control, severance or similar payments under any Contracts with or PureTech Benefit Arrangements covering such employees); (c) any other Liabilities owing to current or former PureTech employees, consultants or independent contractors of PureTech or any Controlled Affiliate pursuant to their employment or services with or termination from PureTech or any Controlled Affiliate, as the case may be, or (d) any penalties, fines or other expenses resulting from compliance issues with any Laws regulating employment or benefits plus any payroll Taxes of PureTech or its Controlled Affiliates attributable to such Liabilities under clauses (a)-(d), together with any interest or penalties thereon. “PureTech’s Knowledge” means the actual knowledge as of the Effective Date of this Agreement, without having done any investigation, of authorized representatives of PureTech. “Reasonable Commercial Efforts” means commercially reasonable efforts, provided the same shall not require PureTech to initiate any legal action or expend any funds (other than de minimus amounts) that are not reimbursed by Seaport. “Regulatory Authority” means any Governmental Entity regulating the development, manufacture, packaging, labeling, storage, import, export, marketing, distribution, sale, registration, use or intended use of a Product in any country. “Regulatory Applications” means any and all applications, submissions or other filings with a Regulatory Authority seeking approval to Utilize any Product. “Regulatory Documentation” means (i) all correspondence and submissions between PureTech or any of its Affiliates and the FDA or any other applicable Regulatory Authority with respect to Regulatory Applications and Product Approvals for any Product, including any reports, filings, or notices submitted to FDA or other Regulatory Authority to support, maintain or obtain any Product IND or any other Regulatory Applications or Product Approvals; (ii) the annual and periodic reports relating to any Product IND or any other Regulatory Applications for any Products which have been filed by or on behalf of PureTech
34 10513073.v14 with the FDA or other Regulatory Authority, and adverse event reports pertaining to any Product, in each case to the extent in the possession or control of PureTech or any of its Representatives; (iii) all pre-clinical data (including animal data and GLP toxicology data), clinical data, and laboratory records, data and information related to any Product, and any other records and data concerning pre-clinical or clinical studies conducted with respect to any Product; and (iv) any other regulatory applications, submissions, notifications, communications, correspondence, registrations, approvals, drug master files (DMFs) or other filings made to, received from or otherwise conducted with a Regulatory Authority in order to Utilize any Product in any country or jurisdiction, including all Regulatory Applications. “Representatives” means, with respect to any Person, such Person’s officers and directors (or persons holding comparable positions), employees, consultants, independent contractors, subcontractors, leased employees, temporary workers, equityholders, accountants, legal and other representatives, agents, executors, heirs, successors and permitted assigns. “Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Materials). “Retained Tax Liabilities” means (i) any Taxes of PureTech, (ii) any Taxes related to the Acquired Assets that were incurred in or are attributable to any taxable period (or portion thereof) ending on or before the Closing Date, (iii) any Taxes of another person for which PureTech is liable, including, but not limited to Taxes for which PureTech is liable by reason of Treasury Regulations Section 1.1502-6 (or any comparable or similar provision of federal, state, local or foreign Law), being a transferee or successor, any contractual obligation or otherwise, and (iv) any income, transfer, sales, use or other Taxes arising in connection with the consummation of the transactions contemplated by this Agreement (including any income Taxes arising as a result of the transfer by PureTech to Seaport of the Acquired Assets), other than Seaport’s share of transfer and other Taxes pursuant to Section 4.4(b). “Royalty Term” means, with respect to any Seaport Glyph Product in any country, the period commencing on First Commercial Sale of such Seaport Glyph Product in such country and continuing until the later to occur of [***]. “Seaport Glyph Products” means: (a) the Existing Products, whether or not the composition or method of use of which (as specified in the approved Product label in the applicable country) is Covered by a Valid Claim of the Transferred Patents in the country of sale; and (b) any other Product developed or commercialized by or on behalf of Seaport, its Controlled Affiliates or Product Licensees, the composition or method of use of which (as specified in the approved Product label in the applicable country) is Covered by a Valid Claim of the Transferred Patents in the country of sale. [***] “Tax Returns” means any and all reports, returns (including information returns), declarations, or statements relating to Taxes, including any schedule or attachment thereto and
35 10513073.v14 any amendment thereof, filed with or submitted to, or required to be filed with or submitted to, any Governmental Entity in connection with the determination, assessment, collection or payment of Taxes or in connection with the administration, implementation or enforcement of or compliance with any legal requirement relating to any Tax. “Taxes” means any and all taxes, charges, fees, duties, contributions, levies or other similar assessments or Liabilities, including, without limitation, income, gross receipts, corporation, ad valorem, premium, value-added, net worth, capital stock, capital gains, documentary, recapture, alternative or add-on minimum, disability, registration, recording, excise, real property, personal property, sales, use, license, lease, service, service use, transfer, withholding, employment, unemployment, insurance, social security, national insurance, business license, business organization, workers compensation, payroll, profits, severance, stamp, occupation, escheat, windfall profits, customs duties, franchise, estimated and other taxes of any kind whatsoever imposed by the United States of America or any state, local or foreign government, or any agency or political subdivision thereof, and any interest, fines, penalties, assessments or additions to tax imposed with respect to or related to such items. “Territory” means anywhere in the world. “Third Party” means any person or entity other than (a) PureTech or its Controlled Affiliates, or (b) Seaport or its Controlled Affiliates. “Third Party Action” means any Legal Proceeding by a Third Party. “Transaction Costs” means the fees, expenses and disbursements of PureTech and its Representatives incurred in connection with this Agreement and the transactions contemplated hereby, including negotiation, legal, travel and due diligence expenses; provided, however, that Transaction Costs shall not include the fees and expenses of any legal counsel or firm, accounting firm or other experts, vendors or service providers engaged on behalf of Seaport, all of which shall be included in Assumed Liabilities and shall be payable by Seaport promptly after the Closing. “Transferred Patents” means all Patents within the Transferred Assets, including the Patents licensed under the Monash License. The Transferred Patents are listed in Schedule 1.1(a). “Utilize” means, with respect to any Product, to research, develop, manufacture, commercialize or otherwise utilize such Product (including making, having made, using, selling, offering for sale or importing such Product). “Valid Claim” means: (a) a claim of any issued, unexpired patent that has not been revoked or held unenforceable or invalid by a decision of a court or Governmental Entity of competent jurisdiction from which no appeal can be taken, or with respect to which an appeal is not taken within the time allowed for appeal, and that has not been disclaimed or admitted to be invalid or unenforceable through reissue, disclaimer, or otherwise; or (b) a claim of any patent application filed by a Person in good faith that has not been cancelled, withdrawn, or abandoned and that has been pending for no more than [***] from the earliest non-provisional filing date to which the application claims priority, [***].
36 10513073.v14 7.2 Interpretation. Except where expressly stated otherwise in this Agreement, the following rules of interpretation apply to this Agreement: (a) “either” and “or” are not exclusive, the term “or” will be interpreted in the inclusive sense commonly associated with the term “and/or”, and “include,” “includes” and “including” are not limiting; (b) “hereof,” “hereto,” “hereby,” “herein” and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement; (c) “date of this Agreement” refers to the date set forth in the initial caption of this Agreement; (d) “extent” in the phrase “to the extent” means the degree to which a subject or other thing extends, and such phrase does not mean simply “if”; (e) the descriptive headings and table of contents included herein are included for convenience only and shall not affect in any way the meaning or interpretation of this Agreement or any provision hereof; (f) definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (g) references to a contract or agreement mean such contract or agreement as amended or otherwise supplemented or modified from time to time; (h) references to a Person are also to its permitted successors and assigns; (i) references to an “Article,” “Section,” “Exhibit” or “Schedule” refer to an Article or Section of, or an Exhibit or Schedule to, this Agreement; (j) references to “$” or otherwise to dollar amounts refer to the lawful currency of the United States; (k) references to a federal, state, local or foreign Law include any rules, regulations and delegated legislation issued thereunder; (l) references to accounting terms used and not otherwise defined herein have the meaning assigned to them under GAAP; and (m) a term that begins with an initial capital letter, is not defined herein and reflects a different part of speech than a term that begins with an initial capital letter and is defined herein, shall be interpreted in a correlative manner. When reference is made in this Agreement to information that has been “made available” to Seaport, that shall consist of only the information that was (i) contained in PureTech’s electronic data room no later than 5:00 p.m., Eastern time, on the [***] Business Day prior to the date of this Agreement or (ii) delivered to Seaport or its counsel. The language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any Party hereto. No summary of this Agreement prepared by any Party shall affect the meaning or interpretation of this Agreement. If any date on which a Party is required to make a payment or a delivery pursuant to the terms hereof is not a Business Day, then such Party shall make such payment or delivery on the next succeeding Business Day. Time shall be of the essence in this Agreement. ARTICLE VIII MISCELLANEOUS 8.1 Notices. Any notice required or permitted to be given under this Agreement shall be in writing, shall specifically refer to this Agreement, and shall be addressed to the appropriate Party at the address specified below or such other address as may be specified by such Party in writing in accordance with this Section 8.1, and shall be deemed to have been given for all purposes (a) when received, if hand-delivered or sent by a reputable courier service, or (b) five (5) Business Days after mailing, if mailed by first class certified or registered airmail, postage prepaid, return receipt requested. All notices to PureTech shall be addressed as follows:
37 10513073.v14 PureTech Health LLC 6 Tide Street, 4th Floor Boston, MA 02110 Attention: [***] With a copy to (which shall not constitute notice): PureTech Health LLC 6 Tide Street, 4th Floor Boston, MA 02110 Attention: [***] And Sills Cummis & Gross P.C. One Riverfront Plaza Newark, NJ 07102 Attention: [***] Email: [***] All notices to Seaport shall be addressed as follows: Seaport Therapeutics, Inc. 6 Tide Street, 4th Floor Boston, MA 02110 Attention: [***] With a copy to (which shall not constitute notice): Wilmer Cutler Pickering Hale and Dorr LLP 60 State Street Boston, MA 02109 Attention: [***] Email: [***] 8.2 Entire Agreement; Amendment. This Agreement, including the Exhibits hereto, sets forth the complete, final and exclusive agreement and all of the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties hereto with respect to the subject matter hereof and supersedes, as of the Effective Date, all prior and contemporaneous agreements and understandings between the Parties with respect to the subject matter hereof. There are no covenants, promises, agreements, warranties, representations, conditions or understandings, either oral or written, between the Parties with respect to the subject matter of this Agreement other than as are set forth in this Agreement, including the Exhibits. No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by an authorized officer of each Party.
38 10513073.v14 8.3 Third-Party Beneficiaries. This Agreement is not intended to, and shall not, confer upon any other Person any rights or remedies hereunder. 8.4 Assignment. (a) This Agreement and the rights and obligations under this Agreement may not be assigned, delegated, or otherwise transferred, in whole or in part, by operation of law or otherwise, by either Party without the other Party’s express prior written consent; provided, however, that either Party may assign its rights or delegate its obligations under this Agreement without such consent to (a) its Affiliate or (b) its successor in interest in connection with any merger, consolidation, or sale of all or substantially all of the assets of such Party to which this Agreement relates. In the event of such assignment by Seaport that occurs concurrently with or following the grant of a Product License, Seaport (i.e., the original Party to this Agreement) shall remain liable for all payment obligations to PureTech pursuant to Section 1.5(b)(ii) with respect to such Product License to the extent such assignee does not fulfill such payment obligations. In the event of such assignment by Seaport that occurs concurrently with or following a Change of Control, Seaport (i.e., the original Party to this Agreement) shall remain liable for all payment obligations to PureTech pursuant to Section 1.5(b)(iii) with respect to such Change of Control of Seaport to the extent such assignee does not fulfill such payment obligations. (b) Any successor or assignee of rights or obligations permitted hereunder (including payment obligations) shall, in writing to the other Party, expressly assume performance of such rights or obligations. In the case of any permitted assignment or transfer of or under this Agreement, this Agreement shall be binding upon, and inure to the benefit of, the successors, executors, heirs, representatives, administrators and assigns of the Parties hereto and the assigning Party shall remain liable for the obligations of its successor or assignee as set forth herein. Any attempted assignment, delegation, or transfer in violation of the foregoing will be null and void. For clarity, Seaport is free to assign, transfer and grant licenses or other rights to the Transferred Assets in its sole discretion and without the consent of PureTech, and nothing in this Section 8.4 shall be interpreted as a limitation on such assignment, transfer or grant. 8.5 Severability. If any one or more of the provisions of this Agreement is held to be invalid or unenforceable by any court of competent jurisdiction from which no appeal can be or is taken, the provision shall be considered severed from this Agreement and shall not serve to invalidate any remaining provisions hereof. The Parties shall make a good faith effort to replace any invalid or unenforceable provision with a valid and enforceable one such that the objectives contemplated by the Parties when entering this Agreement may be realized. 8.6 Counterparts and Signature. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which shall constitute together the same document. Copies of original signature pages sent by PDF shall have the same effect as signature pages containing original signatures. 8.7 Governing Law. This Agreement (and any claims or disputes arising out of or related hereto or the transactions contemplated hereby or to the inducement of any Party to enter herein, whether for breach of contract, tortious conduct or otherwise and whether predicated on common law, statute or otherwise) shall be governed in all respects, including validity,
39 10513073.v14 interpretation, and effect, by and construed in accordance with the internal Laws of the State of Delaware (including in respect of the statute of limitations or other limitations period applicable to any claim, controversy or dispute) without giving effect to any choice or conflict of Law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of Laws of any jurisdictions other than those of the State of Delaware. 8.8 Remedies. (a) Any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity upon such Party, and the exercise by a Party of any one (1) remedy will not preclude the exercise of any other remedy. (b) The Parties hereto agree that irreparable damage may occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to seek an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, in each case without posting a bond or undertaking, this being in addition to any other remedy to which they are entitled at Law or in equity. Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that (i) the Party seeking such remedy has an adequate remedy at Law or (ii) an award of specific performance is not an appropriate remedy for any reason at Law or equity. 8.9 Submission to Jurisdiction. Each of the Parties to this Agreement (a) consents to submit itself to the exclusive personal jurisdiction of the Court of Chancery of the State of Delaware, New Castle County, or, if that court does not have jurisdiction, a federal court sitting in Wilmington, Delaware in any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, (c) agrees that it shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, (d) agrees not to bring any action or proceeding arising out of or relating to this Agreement or any of the transactions contemplated by this Agreement in any other court, and (e) waives any right it may have to a trial by jury with respect to any action or proceeding arising out of or relating to this Agreement. Each of the Parties hereto waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other Party with respect thereto. Any Party hereto may make service on another Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 8.1. Nothing in this Section 8.9, however, shall affect the right of any Party to serve legal process in any other manner permitted by Law. 8.10 Fees and Expenses. Except as otherwise expressly provided herein, all fees and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such fees and expenses, whether or not the Closing occurs.
40 10513073.v14 8.11 Disclosure Schedule. The Disclosure Schedule shall be arranged in sections corresponding to the numbered sections contained in Article II and in such a way that it is reasonably apparent which representation and warranty in such section such disclosure is intended to qualify and the disclosure with respect to a representation and warranty contained in Article II shall qualify any other representations and warranties in Article II to the extent that it is reasonably apparent on the face of such disclosure that it also qualifies or applies to such other representations and warranties. 8.12 Waiver. No waiver by the Parties of any default, misrepresentation or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No waiver by the Parties of any of the provisions hereof shall be effective unless explicitly set forth in writing and executed by the Party sought to be charged with such waiver. [Remainder of Page Intentionally Left Blank.]
10513073.v14 IN WITNESS WHEREOF, Seaport and PureTech have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above. SEAPORT THERAPEUTICS, INC. By: /s/ Charles Sherwood Name: Charles Sherwood Title: President
10513073.v14 PURETECH: PURETECH HEALTH LLC By: /s/ Bharatt Chowrira Name: Bharatt Chowrira, PhD Title: President PURETECH LYT, INC. By: /s/ Bharatt Chowrira Name: Bharatt Chowrira, PhD Title: President
Exhibit 12.1
Certification
I, Bharatt Chowrira, certify that:
1. | I have reviewed this annual report on Form 20-F of PureTech Health plc; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | ||||
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: | ||||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
(d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and | |||||||
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): | ||||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |||||||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. | |||||||
April 25, 2024 | |||||
| /s/ Bharatt Chowrira | |||||
| Bharatt Chowrira | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Exhibit 12.2
Certification
I, Bharatt Chowrira, certify that:
1. | I have reviewed this annual report on Form 20-F of PureTech Health plc; | ||||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; | ||||
4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: | ||||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||||||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||||||
(c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||||||
(d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and | |||||||
5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): | ||||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and | |||||||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. | |||||||
April 25, 2024 | |||||
| /s/ Bharatt Chowrira | |||||
| Bharatt Chowrira | |||||
| Chief Executive Officer | |||||
| (Principal Financial Officer) | |||||
Exhibit 13.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of PureTech Health plc (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, Bharatt Chowrira, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |||||||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | |||||||
April 25, 2024
| /s/ Bharatt Chowrira | |||||
| Bharatt Chowrira | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Exhibit 13.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of PureTech Health plc (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, Bharatt Chowrira, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |||||||
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | |||||||
April 25, 2024
| /s/ Bharatt Chowrira | |||||
| Bharatt Chowrira | |||||
Chief Executive Officer (Principal Financial Officer) | |||||
PURETECH HEALTH PLC – ANNUAL REPORT AND ACCOUNTS 2023 Exhibit 15.1
BOSTON MA Headquarters PRTC Nasdaq and LSE Directors’ Report 93 Report of the Nomination Committee 98 Report of the Audit Committee 99 Directors’ Remuneration Report 102 Directors’ Remuneration Policy 106 Annual Report on Remuneration 113 Financial statements Independent Auditor’s Report to the Members of PureTech Health plc 123 Consolidated Statements of Comprehensive Income/(Loss) 128 Consolidated Statements of Financial Position 129 Consolidated Statements of Changes in Equity 130 Consolidated Statements of Cash Flows 131 Notes to the Consolidated Financial Statements 133 PureTech Health plc Statement of Financial Position 180 PureTech Health plc Statements of Cash Flows 181 PureTech Health plc Statements of Changes in Equity 182 Notes to the Financial Statements 183 Additional information History and Development of the Company 185 Risk Factor Annex 186 Directors, Secretary and Advisors to PureTech Health plc 224 Overview Highlights of the Year 1 Letter from the Chair 2 Strategic report Letter from the Chief Executive Officer 3 Components of Our Value 7 Capital Allocation Overview 8 Hub-And-Spoke Model 10 PureTech’s Programs 11 ESG report Building and Maintaining a Sustainable Business 22 Governance Risk Management 60 Viability 65 Key Performance Indicators 67 Financial Review 68 Chair’s Overview 81 Board of Directors 82 Management Team 85 The Board 86 Relations with Stakeholders 91
PureTech Health plc Annual Report and Accounts 2023 1 PureTech Health plc (“PureTech Health”, “PureTech” or “the Company”), which is comprised of PureTech and its subsidiaries (together, the “Group”), is a clinical-stage biotherapeutics company dedicated to giving life to new classes of medicine to change the lives of patients with devastating diseases. We have created a broad and deep pipeline through our experienced research and development team and our extensive network of scientists, clinicians and industry leaders that is being advanced both internally and through our Founded Entities1 via our hub-and-spoke model. Our R&D engine has resulted in the development of 29 therapeutics and therapeutic candidates, including two that have received both US FDA clearance and European marketing authorization and a third (KarXT) that has been filed for FDA approval. A number of these programs are being advanced by PureTech as Internal Programs2 or by our Founded Entities in various indications and stages of clinical development, including registration enabling studies. All of the underlying programs and platforms that resulted in this pipeline of therapeutic candidates were initially identified or discovered and then advanced by the PureTech team through key validation points. The common theme across our programs is serious patient need. In many cases, these programs are identified based on previous signals of human efficacy or validated pharmacology, which has enabled us to advance therapeutic candidates with substantially de-risked profiles and robust development rationales. 80 percent of the trials that have been run by PureTech or our Founded Entities have been successful,3 and our probability of clinical success is six times better than the industry average.4 With this track record, we believe we are delivering on our promise to give life to science, advance novel medicines to patients and generate value for shareholders. 1 As of the date of this report, Founded Entities represent companies founded by PureTech in which PureTech maintains ownership of an equity interest and, in certain cases, is eligible to receive sublicense income and royalties on product sales. References in the Strategic Report, ESG Report, Governance section, and Additional Information section to Founded Entities include PureTech’s Seaport Therapeutics, Inc., Gallop Oncology, Inc., Entrega, Inc., Akili Interactive Labs, Inc., Vor Bio, Inc., Sonde Health, Inc., Vedanta Biosciences, Inc., for all dates prior to March 18, 2024, Karuna Therapeutics, Inc., for all dates prior to October 30, 2023, Gelesis, Inc., for all dates prior to December 21, 2023, Follica, Incorporated, and for all dates prior to December 18, 2019, resTORbio. For references and definitions related to PureTech’s Viability Statement, Financial Review, and Financial Statements and related footnotes, please see Footnote 4 to the Consolidated Financial Statements. 2 Internal Programs represent the Company’s current and future therapeutic candidates and technologies that are wholly owned and have not been announced as a Founded Entity. References in the Strategic Report, ESG Report, Governance section, and Additional Information section to Internal Programs include PureTech’s LYT-100. 3 The percentage includes number of successful trials out of all trials run for all therapeutic candidates advanced through at least Phase 1 by PureTech or its Founded Entities from 2009 onward. 4 Calculated based on the aggregate PureTech data including all therapeutic candidates advanced through at least Phase 1 by PureTech or its Founded Entities from 2009 onward and the industry average data. Industry average data measures the probability of clinical trial success of therapeutics by calculating the number of programs progressing to the next phase vs. the number progressing and suspended (Phase 1=52%, Phase 2=29%, Phase 3=52%). BIO, PharmaIntelligence, QLS (2021) Clinical Development Success Rates 2011 -2020. This study did not include therapeutics regulated as devices. 5 PureTech level cash, cash equivalents and short-term investments is a non-IFRS measure. For more information in relation to the PureTech level cash, cash equivalents and short- term investments and Consolidated cash, cash equivalents and short-term investments measures used in this Annual Report, please see pages 69 to 70 of the Financial Review. The balance shown for each year may include short-term investments for any positions that Puretech holds as of each year end. 6 Funding figure includes private convertible notes and public offerings. Funding figure excludes future milestone considerations received in conjunction with partnerships and collaborations. Funding figure does not include gross proceeds due to PureTech following the 2024 post-period acquisition of Karuna by BMS. 7 Number represents figure for the relevant fiscal year only and is not cumulative. H ig hlig hts 2023 $578.4m6,7 Amount of Funding Secured for Founded Entities $327.1m5 Consolidated Cash, Cash Equivalents and Short-term Investments as of Year End Includes cash held at the PureTech level and at Controlled Founded Entities $326.0m5 PureTech Level Cash, Cash Equivalents and Short-term Investments as of Year End Highlights of the Year – 2023 2022: $1.28b 2021: $731.9m 2020: $247.8m 2019: $666.8m 2018: $274.0m 2017: $102.9m 2022: $350.1m 2021: $465.7m 2020: $403.9m 2019: $162.4m 2018: $250.9m 2017: $188.7m 2022: $339.5m 2021: $418.9m 2020: $349.4m 2019: $120.6m 2018: $177.7m 2017: $126.7m
2 PureTech Health plc Annual Report and Accounts 2023 progress despite adverse macroeconomic factors for the industry whilst also providing capital for the Company to return $50 million to shareholders via a share buyback program in addition to the recently proposed $100 million tender offer. I would like to personally thank all of our shareholders for supporting us as we seek to improve patients’ lives. Every decision we make is anchored in our mission to advance treatments for patients that simultaneously create shareholder value, and I’m confident we will see continued success in both areas. On behalf of the Board, I would like to thank Daphne Zohar for her vision, leadership and dedication in founding and building PureTech. Daphne pioneered the hub-and-spoke model to create cutting- edge medicines, assembled a leading team and positioned PureTech for an exciting future and continued growth, and I am confident that our Founded Entity, Seaport Therapeutics, will thrive with her at the helm as Chief Executive Officer. I would also like to welcome Bharatt Chowrira, Ph.D. J.D., into the Chief Executive Officer role at PureTech. A 30-year veteran of the biotech industry, Bharatt has held leadership roles including Chief Executive Officer, Chief Operating Officer and General Counsel in multiple biotech companies, including Auspex Pharmaceuticals Inc., which was acquired by Teva Pharmaceuticals for $3.5 billion, and Sirna Therapeutics, which was acquired by Merck & Co. for $1.1 billion. Bharatt has been a driving force behind PureTech’s achievements since 2017, serving as the Company’s President and Chief Business, Finance and Operating Officer and as a member of the board of directors, and I know our organization will continue to deliver value to patients and shareholders alike under his seasoned leadership. Sincerely, Raju Kucherlapati, Ph.D. Interim Chair April 25, 2024 Since I joined the PureTech Board of Directors, I have witnessed the Company mature its hub-and-spoke business model with a commitment to deliver value to patients and shareholders. Consistent with our founding strategy, the Company has progressed promising programs in various therapeutic areas to inflection points and advanced them either internally or via Founded Entities. This uniquely efficient approach to R&D has enabled the development of a robust pipeline of new medicines, including two that have received FDA clearance and a third that has been filed for FDA approval, all without raising money from the capital markets in six years. This is a true testament to our model. PureTech’s exceptional productivity and capital discipline was exemplified in 2023. The Company embarked on a new phase of clinical expansion by creating two new Founded Entities from its internal work. The launches of Seaport Therapeutics and Gallop Oncology mark an exciting next chapter for PureTech, adding new de-risked specialist opportunities or “spokes” to the PureTech hub-and-spoke model. PureTech’s self-sustaining engine has enabled this continued operational Delivering value Every decision we make is anchored in our mission to advance treatments for patients that simultaneously create shareholder value, and I’m confident we will see continued success in both areas. Raju Kucherlapati, Ph.D. Interim Chair of the Board of Directors Le tt er fr o m th e C ha ir Letter from the Chair
PureTech Health plc Annual Report and Accounts 2023 3 development costs with outside partners. These sector specialists not only enable cost efficiencies by investing capital in the Founded Entities, but also serve as external validation for the programs that we have until then developed in-house. This model ensures that promising new medicines are progressed to patients efficiently while we continue to generate and develop the next wave of novel candidates. It also yields a diversified portfolio, enabling us to have multiple shots on goal for creating shareholder value. Our distinctive approach is powered by three guiding principles: validated efficacy, clear patient benefit and an efficient de-risked path. This R&D model allows us to be more capital efficient, ensures that our interests are aligned with our shareholders and incentivizes us to move our resources to the programs with the greatest probability of success. It also brings in non-dilutive capital, which has resulted in PureTech not needing to raise money from the capital markets in over six years. In fact, nearly $3.8 billion has been raised by our Founded Entities since July 2018, of which 96 percent was from third parties.1 In that time, we have generated tremendous PureTech made remarkable progress in 2023 as we continued to deliver on our mission to give life to new classes of medicine that have the potential to change the lives of patients with devastating diseases. In 2023, we made significant strategic and clinical advancements across our hub-and-spoke R&D model, setting up the Company for growth in 2024 and beyond. Our strategy: A hub-and-spoke model that manages risk in advancing novel medicines for patients and generates value for shareholders At PureTech we pioneered the hub-and- spoke model in biotech. Our “hub” is our core group of people, our proven, innovative R&D engine, and our capabilities at PureTech that are at the center of everything we do. It enables us to identify promising technologies and therapeutic opportunities; unlock their value through innovation; progress them through key de-risking milestones; and then develop them further – either internally or through the creation of a Founded Entity. The Founded Entities are our “spokes,” and they allow us to continue advancing candidates via a focused vehicle while sharing Shaping our future 2023 was a banner year for PureTech, and we are already charting an exciting path forward in 2024. I am proud and very humbled to assume the role of Chief Executive Officer at such a remarkable organization, and I look forward to continuing our transformational work for patients and shareholders. Bharatt Chowrira, Ph.D., J.D. Chief Executive Officer and Member of the Board of Directors 1 Funding figure includes private equity financings, loans and promissory notes, public offerings or grant awards. Funding figure excludes future milestone considerations received in conjunction with partnerships and collaborations. Letter fro m the C hief E xecutive O fficer Letter from the Chief Executive Officer
4 PureTech Health plc Annual Report and Accounts 2023 we continue to deliver on our fundamental goal: advance novel therapeutic solutions to patients battling serious, devastating conditions. Internal Programs: Effective identification and de-risking of the most promising technologies Most of the candidates that we advance internally are centered around a strategy that focuses on established biological principles to promptly progress therapeutics with validated efficacy and clinical signals. This strategy is exemplified through our lead Internal Program, LYT-100, a deuterated form of pirfenidone. Pirfenidone (Esbriet®) is approved for the treatment of idiopathic pulmonary fibrosis (IPF) in the US and other countries, having been shown to slow the decline of lung function and extend life by an average of 2.5 years.7 It is one of two standard of care treatments for IPF, with nintedanib (OFEV®) being the other, yet – despite the proven efficacy – only about 25 percent of IPF patients with this rare, progressive and fatal disease are currently being treated with either standard of care drug, largely due to tolerability issues. LYT-100 is designed to retain the beneficial pharmacology and clinically-validated efficacy of pirfenidone with a highly Our model makes biopharma accessible both to generalist investors compelled by the meaningfulness of medical innovation and upside of cutting-edge R&D as well as to specialists comfortable with evaluating therapeutic opportunities. The former sees aligned incentives within PureTech’s internal activity and broader equity portfolio, through which they are shielded from the volatility of single asset binary outcomes so common in our industry. We have followed our model to success as our programs have matured and our internal capabilities have grown. Importantly, our R&D strategy is not only proven, but it is also scalable and repeatable. Consistent with our founding strategy, we have progressed several programs to inflection points, having sufficiently de-risked their core assets, and at the end of 2023, we added two new Founded Entity “spokes” to the PureTech “hub.” Our newly launched Seaport Therapeutics builds on the success of our Glyph platform and related therapeutic candidates to accelerate the development of new neuropsychiatric medicines in areas of high unmet need. I am also delighted that PureTech has indicated the launch Gallop Oncology™, which builds on the promising clinical and preclinical data generated from our LYT-200 program in hematological malignancies and solid tumors. In creating these focused entities, value, including through the monetization of our stakes in Founded Entities, and have reinvested proceeds in further growing PureTech’s hub-and-spoke business. We have also returned $50 million to shareholders through our share buyback program and recently proposed an additional $100 million return to shareholders via a Tender Offer.2 The Board is committed to evaluating our capital allocation regularly (see page 8 for further details), including assessing opportunities for capital returns to shareholders, subject to future monetization events and the Company’s operational needs. We consistently maintain one of the most impressive track records in the biopharma industry, with a probability of clinical success that is six times higher than the industry average3. More than 80 percent4 of our clinical trials have demonstrated success, and we take great pride in this track record. Across our programs, this has delivered a robust pipeline of new medicines that are poised for growth. This includes 29 new therapeutics and therapeutic candidates generated to date, with two taken from inception at PureTech to U.S. Food and Drug Administration (FDA) and EU regulatory clearances and one – Karuna’s KarXT (xanomeline- trospium) – that has been filed for FDA approval. Case study The KarXT journey at PureTech In addition to transforming the treatment landscape for patients with schizophrenia, Karuna’s success has allowed us to generate approximately $1.1 billion in cash to date5 to fund our operations and fuel our next wave of innovation. This has been realized through the monetization of a portion of our holdings in Karuna, gross proceeds from BMS’ acquisition valued at $293 million as well as a strategic royalty agreement for KarXT with Royalty Pharma. The $500 million transaction with Royalty Pharma, which was announced in March 2023, included $100 million in cash received up front in 2023 and up to $400 million in additional payments contingent on the achievement of certain regulatory and commercial milestones. As part of this transaction, we sold PureTech’s rights to receive a 3 percent royalty from Karuna to Royalty Pharma on sales up to $2 billion annually, after which Royalty will receive 33 percent and PureTech will retain 67 percent of the royalty payments.6 Karuna’s KarXT, invented and advanced by PureTech, is a hallmark for how we create value. Patients living with schizophrenia need new treatment options as current standard-of-care antipsychotics have significant side effects and poor adherence rates. Xanomeline, originally discovered by Eli Lilly, demonstrated clinical efficacy but was shelved due to its side effect profile. PureTech’s team invented and filed patents for a synergistic agonist and antagonist concept (e.g., xanomeline + trospium chloride) that would unlock the efficacy of xanomeline and allow for improved tolerability. Following an exceptionally successful clinical journey, FDA approval for KarXT is anticipated in 2024. If approved, KarXT will deliver the first new mechanism for treating schizophrenia in over 50 years, and - as a result of KarXT’s remarkable innovation story – Bristol Myers Squibb (BMS) acquired Karuna for $14 billion in the March 2024 post-period. Le tt er fr o m th e C hi ef E xe cu ti ve O ffi ce r Letter from the Chief Executive Officer continued p14
PureTech Health plc Annual Report and Accounts 2023 5 KarXT “playbook”, and in 2023 we made the decision to advance several into new Founded Entities. Seaport Therapeutics was born from our Glyph technology platform, which has demonstrated clinical proof-of-concept and has been prolific in producing new therapeutic candidates. The proprietary Glyph platform is designed to enable and enhance oral bioavailability, bypass first-pass metabolism and reduce hepatotoxicity and other side effects to advance active drugs that were previously held back by those limitations. With this technology and candidate portfolio, including SPT-300 (Glyph allopregnanolone; formerly LYT-300), SPT-320 (Glyph agomelatine; formerly LYT-320), and SPT 348 (a prodrug of a non-hallucinogenic neuroplastogen) Seaport’s mission, similar to Karuna’s, is to advance first-and-best-in class therapeutics for patients with anxiety, depression and other neuropsychiatric disorders. The Seaport programs made important advancements at PureTech in 2023, with topline Phase 2a data announced from a proof-of-concept study of SPT-300, a grant received from the U.S. Department of Defense of up to $11.4 million to advance SPT-300 in Fragile X-associated Ataxia Syndrome, and the nomination of SPT-320. In the 2024 post-period, we announced the launch of Seaport with a $100 million9 oversubscribed Series A financing with participation from top tier biotech investors ARCH Venture Partners, Sofinnova Investments and Third Rock Ventures. Seaport will be led by PureTech Founding CEO Daphne Zohar. Following the Series A financing, PureTech holds equity ownership in Seaport of 61.5 percent. We also indicated the intent to launch Gallop Oncology from our LYT-200 (anti-galectin-9) program. We are advancing a differentiated approach to cancer treatment by targeting the pro-tumor mechanisms of galectin-9 for the treatment of hematological malignancies and solid tumors. A large body of preclinical and human data underscores the importance of galectin-9 as a potent oncogenic driver in leukemia cells and an immunosuppressive protein, and LYT-200 has demonstrated direct cytotoxic, anti-leukemic effects through multiple mechanisms as well as anti-tumor efficacy. We’re excited by the data generated to date in acute myeloid leukemia (AML) and high-risk myelodysplastic syndrome (MDS), as well as head and neck cancers. We expect additional data from the ongoing Phase 1b clinical trial for the potential treatment of AML and MDS to be presented in a scientific forum in 2024, as well as additional data from the differentiated pharmacokinetic profile that has translated into favorable tolerability in multiple clinical studies. In fact, we have demonstrated an approximately 50 percent reduction in participants experiencing gastro-intestinal (GI) and central nervous system (CNS)-related adverse events (AEs) in a crossover study of LYT-100 vs. pirfenidone. We believe this profile has the potential to keep patients on treatment longer, enabling more optimal disease management and patient outcomes. Beyond this promising profile, we have also shown that LYT-100 is well-tolerated at exposure levels higher than the FDA-approved dose of pirfenidone, which may enable enhanced efficacy given Phase 3 data with pirfenidone that showed a dose-response effect on forced vital capacity and survival in people with IPF.8 Our goal with the ongoing Phase 2b ELEVATE IPF trial is to validate the ability of LYT-100 to deliver a more tolerable treatment with comparable efficacy to pirfenidone at one dose while also exploring the potential for enhanced efficacy at a higher dose. The trial is fully enrolled, and we look forward to sharing topline results in the fourth quarter of 2024. Founded Entities: Launch of two new Founded Entities; KarXT seeking FDA approval; clinical and commercial progress across the Group We are constantly evaluating our Internal Programs for candidates that can follow the This agreement supplied us with non-dilutive capital in the short-term and has great potential for long-term earnings based on KarXT’s future regulatory and commercial milestones, as well as product sales. We believe KarXT’s journey to regulators benefited from our creation of Karuna as a Founded Entity focused on a specialized asset. Initially, KarXT was part of a diversified portfolio undergoing de-risking within PureTech. Eventually its potential and the forecasted demands of its later-stage clinical journey informed our decision to house Karuna as a stand-alone Founded Entity that could draw the right mix of investors, including specialists, and dedicated personnel and expertise to effectively and efficiently drive its progress. The KarXT story therefore showcases both sides of our value proposition: de-risked portfolio development in-house and specialized asset advancement via Founded Entities. 2 The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. 3 Calculated based on the aggregate PureTech data including all therapeutic candidates advanced through at least Phase 1 by PureTech or its Founded Entities from 2009 onward and the industry average data. Industry average data measures the probability of clinical trial success of therapeutics by calculating the number of programs progressing to the next phase vs. the number progressing and suspended (Phase 1=52%, Phase 2=29%, Phase 3=52%). BIO, PharmaIntelligence, QLS (2021) Clinical Development Success Rates 2011-2020. This study did not include therapeutics regulated as devices. 4 The percentage includes number of successful trials out of all trials run for all therapeutic candidates advanced through at least Phase 1 by PureTech or its Founded Entities from 2009 onward. 5 Represents cash generated to date through sales of KRTX common stock including gross proceeds due to PureTech following Bristol Myers Squibb’s acquisition of Karuna as well as the $100 million in upfront consideration from PureTech’s transaction with Royalty Pharma. 6 PureTech’s agreement with Royalty Pharma is not impacted by the BMS acquisition of Karuna. 7 Fisher, M., Nathan, S. D., Hill, C., Marshall, J., Dejonckheere, F., Thuresson, P., & Maher, T. M. (2017). Predicting Life Expectancy for Pirfenidone in Idiopathic Pulmonary Fibrosis. Journal of Managed Care & Specialty Pharmacy, 23(3-b Suppl), S17 -S24. https://doi.org/10.18553/ jmcp.2017.23.3-b.s17. 8 King, T. E., Bradford, W. Z., Castro- Bernardini, S., Fagan, E. A., Glaspole, I., Glassberg, M. K., Gorina, E., Hopkins, P., Kardatzke, D., Lancaster, L., Lederer, D. J., Nathan, S. D., De Castro Pereira, C. A., Sahn, S. A., Sussman, R., Swigris, J. J., & Noble, P. W. (2014). A Phase 3 Trial of Pirfenidone in Patients with Idiopathic Pulmonary Fibrosis. The New England Journal of Medicine, 370(22), 2083–2092. https:// doi.org/10.1056/nejmoa1402582 9 Includes participation by top tier biotech investors ARCH Venture Partners, Sofinnova Investments and Third Rock Ventures alongside PureTech’s $32 million cash contribution. Following the Series A financing, PureTech holds equity ownership in Seaport of 61.5 percent on a diluted basis. Additionally, as the founder of Seaport, PureTech also has a right to royalty payments on a percentage of net sales of any commercialized product as well as the right under the terms of the license agreement with Seaport to receive milestone payments upon the achievement of certain regulatory approvals and a percentage of sublicense income. Letter from the Chief Executive Officer continued Letter fro m the C hief E xecutive O fficer
6 PureTech Health plc Annual Report and Accounts 2023 our resources and diligently executed on our mission. We retain substantial holdings in both our public and private Founded Entities; are due certain royalties and milestone payments as some of these programs advance; maintain a strong balance sheet to support our existing programs, and Founded Entities, and fuel our future innovation; and we will have returned $150 million to shareholders through our recently completed share buyback program and proposed Tender Offer. These achievements underscore the significant value we have created that has not been fully recognized by the market. I am committed to evaluating ways to unlock and crystalize that value for shareholders and look forward to sharing my vision for the Company’s future growth in the coming months. Thanks to our network of supporters for giving life to science After an extremely productive year, I would like to extend my thanks and appreciation to our dedicated teams – both at PureTech and across our Founded Entities – who play an essential role in driving highly innovative and impactful R&D forward. Your commitment to our cause is inspiring, and I am so grateful to work alongside you in the name of serving patients and our shareholders. I would also like to thank our talented board for their guidance, in addition to our wide network of shareholders, collaborators, and advisors for their continued support of our vision. I also want to express my sincere gratitude to Daphne Zohar for her remarkable leadership since the inception of PureTech and for guiding the Company into this exciting new phase. I am pleased that we will continue to benefit from her entrepreneurial spirit as she drives further value for PureTech in her new role as CEO of Seaport. 2023 was a banner year for PureTech, and we are already charting an exciting path forward in 2024. I am proud and very humbled to assume the role of CEO at such a remarkable organization, and I look forward to continuing our transformational work for patients and shareholders. Bharatt Chowrira, Ph.D., J.D. Chief Executive Officer and Director April 25, 2024 Phase 1b trial in combination with tislelizumab for the potential treatment of advanced solid tumors. Several of our other Founded Entities have made key progress in 2023 as well. As noted, Karuna submitted a New Drug Application to the FDA for KarXT for the treatment of schizophrenia in adult patients, which was accepted and granted a Prescription Drug User Fee Act (PDUFA) date of September 26, 2024. The company was subsequently acquired by BMS for $14 billion. The clinical program expanding the evidence base for KarXT continued with additional positive data reported and two Phase 3 trial initiations in Alzheimer’s disease. At Vedanta, the team administered the initial dose to the first patient for the company’s Phase 2 COLLECTiVE202 clinical trial of VE202 for the management of ulcerative colitis and the program was granted Fast Track designation by the FDA. Vedanta also plans to initiate a Phase 3 clinical trial of VE303 in patients at high risk for recurrent Clostridioides difficile infection in the second quarter of 2024. Vor also made progress in the clinic and announced new clinical data from its Phase 1/2a first-in-human study of trem-cel (VOR33) in patients with AML, titled VBP101. Notably, Akili received U.S. FDA authorization to broaden the label for EndeavorRx®.10 This expansion now includes children aged 13 to 17 years old with attention-deficit/hyperactivity disorder (ADHD), which will increase the eligibility for this treatment and thus double the number of pediatric patients with ADHD who can benefit. Akili also announced plans to transition from a prescription to a non- prescription business model to further increase access. Further to this strategic plan, Akili launched EndeavorOTC®11 for adults with ADHD, following positive results from a clinical trial evaluating EndeavorRx in this population. Finally, Sonde Health increased its sales and growth through establishing partnerships with a variety of providers, health companies, pharmaceutical entities and manufacturers. Entrega also continued its R&D work to advance its core platform for the oral administration of biologics, vaccines and other drugs that are usually not effectively absorbed when administered orally. Our future: Crystalizing value We have successfully grown a pipeline of therapeutics and candidates, carefully allocated 10 EndeavorRx is a digital therapeutic indicated to improve attention function as measured by computer- based testing in children ages 8-17 years old with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue. Patients who engage with EndeavorRx demonstrate improvements in a digitally assessed measure Test of Variables of Attention (TOVA®) of sustained and selective attention and may not display benefits in typical behavioral symptoms, such as hyperactivity. EndeavorRx should be considered for use as part of a therapeutic program that may include clinician-directed therapy, medication, and/or educational programs, which further address symptoms of the disorder. EndeavorRx is available by prescription only. It is not intended to be used as a stand-alone therapeutic and is not a substitution for a child’s medication. The most common side effect observed in children in EndeavorRx’s clinical trials was a feeling of frustration, as the game can be quite challenging at times. No serious adverse events were associated with its use. EndeavorRx is recommended to be used for approximately 25 minutes a day, 5 days a week, over initially at least 4 consecutive weeks, or as recommended by your child’s health care provider. To learn more about EndeavorRx, please visit EndeavorRx.com. 11 EndeavorOTC is a digital therapeutic indicated to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD. EndeavorOTC utilizes the same proprietary technology underlying EndeavorRx, a prescription digital therapeutic indicated to improve attention function in children ages 8-17. EndeavorOTC is available under the U.S. Food and Drug Administration’s current Enforcement Policy for Digital Health Devices for Treating Psychiatric Disorders During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency. EndeavorOTC has not been cleared or authorized by the U.S. Food and Drug Administration for its indications. It is recommended that patients speak to their health care provider before starting EndeavorOTC treatment. No serious adverse events have been reported in any of our clinical studies. To learn more, visit EndeavorOTC.com. Le tt er fr o m th e C hi ef E xe cu ti ve O ffi ce r Letter from the Chief Executive Officer continued
PureTech Health plc Annual Report and Accounts 2023 7 K ey co m p o nents of value 1. Strong Balance Sheet 2. Founded Entity Equity Value 3. Internal Programs 4. Royalties, Milestone and Sublicense Income (e.g., Royalty Pharma Deal, Seaport) 5. Capital Returns 6. People/R&D Engine KEY COMPONENTS OF VALUE
8 PureTech Health plc Annual Report and Accounts 2023 PureTech determines its capital allocation with a measured approach that balances support for its current Internal and Founded Entity Programs and the funding of future innovation, with the goal of maximizing shareholder returns. Key components include: Capital Returns Strategy In 2024, PureTech has proposed a $100 million Tender Offer1. The board will continue to assess ongoing opportunities to improve shareholder returns, including additional capital returns to shareholders from future monetization events, while maintaining a cash runway of at least three years to support our Internal Programs, Founded Entities, future innovation and operational needs. Value impact We believe that periodic capital returns to shareholders are an important acknowledgement of the value created for shareholders that may not be reflected in the share price. We believe the proposed Tender Offer1 is a capital efficient mechanism that maximizes shareholder returns, provides liquidity and reduces the outstanding share count while allowing us to maintain a strong balance sheet. Taxes As a U.S. domiciled taxpayer, the amount of tax that we would owe on any proceeds we may generate between federal and state obligations is in the mid to high 20 percent range; however, the exact amount is dependent upon a number of factors including our ability to claim net operating losses or other losses (e.g., operating losses, capital losses) and utilize R&D credits. We actively work to appropriately manage our tax burden and requirements. We currently anticipate having fairly minimal losses in 2024 as compared to our sizeable gains in the year, especially with respect to Karuna in light of its sale to Bristol Myers Squibb. Further guidance around our anticipated 2024 tax position will be set forth in our 2024 Half Year report. Founded Entities Strategy Balancing costs, benefits, risks and rewards, we may move assets from Internal Programs to Founded Entities. We may continue to make investments into our Founded Entities, such as Seaport, in which we invested $32 million in conjunction with the Series A financing. The decision to contribute capital to a Founded Entity financing is intended to maintain PureTech’s ownership position or minimize dilution of PureTech’s position in a Founded Entity or, in certain circumstances, to help catalyze a financing round that we believe will bring additional long-term value to the company. PureTech may participate in financing rounds for existing Founded Entities as well as newly formed Founded Entities. Value impact Our Founded Entities are a prospective source of non-dilutive capital that enable us to advance potential medicines to patients efficiently, reduce our financial exposure, return capital to shareholders and largely self-fund our operations through future monetization events. Housing our candidates and/or platforms in this structure attracts specialized management teams and defrays cost-intensive late-stage development work while maintaining financial upside potential upon success. Existing programs Strategy Our most advanced internal program is LYT-100, for which we expect Phase 2b data in the fourth quarter of 2024. PureTech anticipates completing the ongoing trial with existing capital. The necessary level of spend for a subsequent Phase 3 trial for LYT-100 will be driven by the required number of patients and exact design, both of which will be informed by the results of the Phase 2b trial and discussions with the FDA. If the data are positive, PureTech anticipates having optionality to pursue third-party funding to support a subsequent trial. Additionally, we intend to develop LYT-200 in our recently created Founded Entity Gallop Oncology. PureTech anticipates funding the continued development of LYT-200 until Gallop Oncology is positioned to raise capital from third party investors at an appropriate juncture. As we have historically demonstrated, if our candidates don’t achieve our pre-specified threshold for advancement early on, we move our resources to areas that we believe are better positioned to add value. Value impact Our development strategy is intended to align our interests with those of our shareholders by pursuing internal de-risking activities to ensure that our assets under development present a demonstrable value proposition. We avoid the bias to continue by establishing a high threshold for further development. Once a program has reached the next key value generating inflection point, we retain the optionality to continue internal development for further value accretion, or we may pursue external funding, collaborations or partnerships to reduce risk and expense while maximizing shareholder value. New innovation Strategy Consistent with our founding hub-and-spoke R&D model, we are continuously sourcing innovations which – with further work – could create significant value. Subject to consultation with our esteemed R&D committee and ultimately our Board, both of which assist us in our rigorous process of vetting potential assets, we anticipate selecting up to two assets or programs per year that require minimal spend to get to a value inflection point and will do so in a capital efficient manner. New innovations may yield assets that could be complementary to our existing programs. Value impact Our innovation engine enables the growth of our portfolio to ensure the next wave of candidates is progressing towards value creating milestones for shareholders. We will continue to examine the overall value created from these initiatives to ensure they are driving shareholder value and consider other mechanisms as appropriate. C ap it al A llo ca ti o n O ve rv ie w 2024 Capital Allocation Overview
PureTech Health plc Annual Report and Accounts 2023 9 C ap ital A llo catio n O verview$573.3 Million PureTech Level Cash, Cash Equivalents & Short-Term Investments as of March 31, 2024 1 The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. 2 Potential to optimize and offset a portion to the extent allowed under US tax code. 2024 Capital Allocation Overview continued Founded Entities Additional funding to retain upside (e.g., $32M in Seaport Series A) U.S. Taxes Mid to high 20% on any proceeds generated; potential to optimize and offset2 New Innovations Up to 2 programs/year Capital Returns $100M Tender Offer1 Existing Programs LYT-100 Phase 2b trial LYT-200 Phase 1b trials
10 PureTech Health plc Annual Report and Accounts 2023 H ub -a nd -S p o ke M o d el Relevant ownership interests for Vedanta and Sonde were calculated on a partially diluted basis (as opposed to a voting basis) as of December 31, 2023, and Seaport as of April 8, 2024, including outstanding shares, options and warrants, but excluding unallocated shares authorized to be issued pursuant to equity incentive plans. PureTech controls Seaport Therapeutics, Inc. and Gallop Oncology, Inc. Akili and Vor ownerships were calculated on a beneficial ownership basis in accordance with SEC rules as of February 21, 2024 and March 15, 2024, respectively. As released on RNS Reach, PureTech announced in October 2023 that it would not be moving forward with the previously contemplated plan of merger with Gelesis. On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under Ch. 7 of Title 11 of the United States bankruptcy code. In April 2024, the Chapter 7 Trustee provided notice that a third party bid to purchase the assets subject to the bankruptcy had been accepted as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of the assets is ultimately approved by the Bankruptcy Court and consummated, it is expected that PureTech could recover a portion of its investment in Gelesis senior secured convertible promissory notes. The ultimate resolution of this matter, any potential recovery, and the associated timing remains uncertain. PURETECH’S HUB-AND-SPOKE MODEL: A PIPELINE OF NEW MEDICINES POISED FOR TREMENDOUS GROWTH LYT-100 Internal Gallop Oncology 100% equity Seaport Therapeutics 61.5% equity Vedanta 36.1% equity Entrega 73.8% equity VOR (Nasdaq: VOR) 3.9% equity Akili (Nasdaq: AKLI) 14.6% equity Karuna Therapeutics Acquired by Bristol Myers Squibb for $14B Sonde 35.2% equity PURETECH’S EXPERIENCED R&D TEAM AND EXTENSIVE NETWORK P17 P18 P14P11 P15 P13 P21 P19 P20
PureTech Health plc Annual Report and Accounts 2023 11 Internal LYT-100 (deupirfenidone) is currently being developed internally at PureTech for the treatment of idiopathic pulmonary fibrosis (IPF), which is a rare, progressive and fatal disease. It has the potential to address multiple underserved diseases, including progressive fibrosing interstitial lung diseases, a group of lung diseases closely related to IPF, as well as other fibrotic conditions where there is human data with pirfenidone that is suggestive of clinical benefit. IPF — LYT-100 is currently being evaluated in ELEVATE IPF, a global, randomized, double-blind, placebo-controlled Phase 2b clinical trial designed to evaluate the efficacy, tolerability, safety and dosing regimen of LYT-100 in patients with IPF compared to placebo. The trial has four arms: placebo, pirfenidone, a dose of LYT-100 with comparable exposure to the FDA-approved dose of pirfenidone and a dose of LYT-100 with a higher level of exposure than the FDA-approved dose of pirfenidone. The primary endpoint is the rate of decline in Forced Vital Capacity (FVC) for the combined LYT-100 arms versus placebo over the 26-week treatment period using a prespecified Bayesian approach. Other key endpoints include tolerability measures, biomarkers and patient- reported outcomes. Both doses of LYT-100 will be compared to pirfenidone, though the trial is not powered to show a statistical difference in efficacy between LYT-100 and pirfenidone. — LYT-100 has shown a 50% reduction in gastro-intestinal related adverse events in a crossover trial versus pirfenidone in healthy older adults. We believe the differentiated tolerability profile of LYT-100 will address one of the key reasons that patients on current standard of care dose reduce, discontinue or switch from otherwise efficacious treatments.2,4 We have also been able to dose LYT-100 at a higher exposure level, potentially enabling improved efficacy. Given this, we believe LYT-100 has the potential to become standard of care and to become a backbone therapy in the treatment for IPF. — In the April 2024 post-period, enrollment was completed in the ELEVATE IPF Phase 2b clinical trial evaluating LYT-100 in patients with IPF. — In October 2023, expanded data were presented at the CHEST Annual Meeting from a completed trial of LYT-100 in healthy older adults, which informed the two doses selected for the ongoing Phase 2b trial. In addition to supporting the improved tolerability of LYT-100 versus the FDA-approved dose of pirfenidone, the data supported the selection of a higher dose of LYT-100 with the potential for improved efficacy that is now being evaluated in ELEVATE IPF. Key milestones achieved and development status — We acquired LYT-100 based on insights gained internally and via unpublished findings through our network of collaborators. LYT-100, which is a deuterated form of pirfenidone, was originally developed by Auspex Pharmaceuticals, Inc. (Auspex), where our Chief Executive Officer, Bharatt Chowrira, Ph.D., J.D., served as Chief Operating Officer. Auspex (now a wholly-owned subsidiary of Teva Pharmaceuticals), pioneered the deuteration technology and successfully developed deutetrabenazine (Austedo®), the first FDA-approved deuterated drug. — Pirfenidone (Esbriet®) is approved for the treatment of IPF in the U.S. and other countries. It has been shown to slow the decline of lung function and research suggests it extends life by approximately 2.5 years in patients with IPF.1 It is one of two standard of care treatments for IPF, along with nintedanib (OFEV®). Only about 25% of IPF patients are currently being treated with either standard of care drug,2 yet combined sales of Esbriet and Ofev in 2022 were more than $4 billion, representing a significant market opportunity in IPF and other fibrotic lung diseases.3 LYT-100 is designed to retain the beneficial pharmacology and clinically-validated efficacy of pirfenidone with a highly differentiated pharmacokinetic profile that has translated into favorable tolerability in multiple clinical studies and has the potential to keep patients on treatment longer to enable more optimal disease management. Program discovery process by the PureTech team LYT-100 — Topline results from ELEVATE IPF are expected in Q4 2024. A streamlined development program is planned using the same endpoints that have supported past approvals. Pending positive clinical and regulatory feedback, the program will advance into a Phase 3 trial. We believe the results of the Phase 2b trial, together with a Phase 3 trial, could serve as the basis for registration in the U.S. and other geographies. Expected milestones Internal Program
12 PureTech Health plc Annual Report and Accounts 2023 — As of December 31, 2023, the LYT-100 patent portfolio includes 32 active patents acquired from Auspex, which provide broad coverage of compositions of matter, formulations and methods of use for deuterated pirfenidone, including the LYT-100 deupirfenidone compound. This IP estate comprises six issued U.S. patents and 26 patents issued in 23 foreign jurisdictions, which are expected to expire in 2028 and may be extended by up to five years. In addition, we have in-licensed one U.S. patent and one U.S. patent application from Auspex directed to formulations of deuterated pirfenidone, both of which expire in 2035, and also filed additional patent applications on deupirfenidone, including nine (9) pending U.S. patent applications, 17 foreign applications and three (3) international PCT applications directed to the use of deuterated pirfenidone, including LYT-100, for the treatment of a range of conditions. Any issued patents claiming priority to these applications are expected to expire in 2039 through 2044, exclusive of possible patent term adjustments or extensions. Intellectual property 1 Fisher, M., Nathan, S. D., Hill, C., Marshall, J., Dejonckheere, F., Thuresson, P., & Maher, T. M. (2017). Predicting Life Expectancy for Pirfenidone in Idiopathic Pulmonary Fibrosis. Journal of Managed Care & Specialty Pharmacy, 23(3-b Suppl), S17 -S24. https://doi. org/10.18553/jmcp.2017.23.3-b.s17. 2 Dempsey, T., Payne, S. C., Sangaralingham, L. R., Yao, X., Shah, N., & Limper, A. H. (2021). Adoption of the Antifibrotic Medications Pirfenidone and Nintedanib for Patients with Idiopathic Pulmonary Fibrosis. Annals of the American Thoracic Society, 18(7), 1121–1128. https://doi.org/10.1513/annalsats.202007-901oc 3 Roche 2022 Annual Report and Boehringer Ingelheim 2022 Financial Results 4 Cottin, V., Koschel, D., Günther, A., Albera, C., Azuma, A., Sköld, C. M., Tomassetti, S., Hormel, P., Stauffer, J., Kirchgaessler, K., & Maher, T. M. (2018). Long-term safety of pirfenidone: results of the prospective, observational PASSPORT study. ERJ Open Research, 4(4), 00084–02018. https://doi.org/10.1183/23120541.00084-2018 In te rn al Internal continued
PureTech Health plc Annual Report and Accounts 2023 13 Fo und ed Entities — As of December 31, 2023, the extensive Glyph intellectual property portfolio includes 20 families of patent filings directed to platform technologies which provide expansive coverage for a broad range of novel linker chemistries, as well as product technologies directed to compositions of matter for a wide variety of prodrugs and methods of use for the treatment of various indications, including several CNS-related indications. This intellectual property estate comprises eight (8) families of patent filings that provide exclusive rights to IP that is co-owned or exclusively licensed with Monash University and twelve (12) families of company-owned patent applications covering various aspects of the Glyph prodrug technologies, including compositions of matter, formulations, synthetic processes, and methods of therapeutic uses. Any patents to issue from these patent families are expected to expire in 2035 through 2044, exclusive of possible patent term adjustments or extensions or other forms of exclusivity. PureTech retains the right to develop non-CNS therapies utilizing the Glyph platform, subject to certain contractual constraints. Intellectual property — In December 2023, SPT-320 (Glyph-agomelatine) was nominated as a new therapeutic candidate powered by the Glyph platform. A novel prodrug of agomelatine, SPT-320 is in development for the treatment of GAD. Agomelatine is effective in treating GAD and major depressive disorder (MDD) and offers superior tolerability to standard of care. However, agomelatine has low (~1%) bioavailability due to high first-pass metabolism, resulting in increased liver enzymes in some patients and necessitating frequent liver function monitoring that has held back the drug. SPT-320 uses the Glyph platform to bypass first-pass metabolism by the liver and thus has the potential to reduce liver exposure, hepatotoxicity, and the need for liver function monitoring. — In November 2023, successful topline results from the randomized, proof-of-concept Phase 2a trial of SPT-300 (Glyph-allopregnanolone) were reported. The trial was designed to evaluate the salivary cortisol response in the Trier Social Stress Test, a validated clinical model of anxiety in healthy volunteers. Oral administration of SPT-300 achieved the trial’s primary endpoint of a statistically significant reduction versus placebo in the increase from baseline to peak levels of the stress hormone salivary cortisol (p=0.0001) with a treatment effect size versus placebo of 0.72, measured by Cohen’s d. — In August 2023, it was announced that the U.S. Department of Defense awarded up to $11.4 million to advance SPT-300 for the treatment of Fragile X-associated Tremor/Ataxia Syndrome (FXTAS). Key milestones achieved and development status — With intersecting interests in enabling promising neuropsychiatric drugs to reach their full potential and the emerging science around the lymphatic system, we identified a breakthrough technology being developed at Monash University that had the potential to selectively transport therapeutic molecules through the lymphatic system. — With the Glyph platform, drugs are absorbed like dietary fats through the intestinal lymphatic system and transported into circulation. The Glyph technology has the potential to be widely applied to many therapeutic molecules that have high first-pass metabolism leading to low bioavailability and/or side effects, including hepatotoxicity. We prioritized areas of high unmet patient need where the broad application of treatment options with validated efficacy was untapped due to these issues. The Glyph platform has been refined at PureTech and Seaport to efficiently generate multiple therapeutic candidates within Seaport’s pipeline. Program discovery process by the PureTech team Founded Entities Seaport Therapeutics PureTech Ownership 61.5% equity Seaport Therapeutics is a clinical-stage biopharmaceutical company charting a proven path in neuropsychiatry. Seaport is advancing a clinical-stage pipeline of neuropsychiatric medicines that includes its most advanced therapeutic candidate, SPT-300 (formerly known as LYT-300), an oral prodrug of allopregnanolone, which is being advanced for the treatment of anxious depression, SPT-320 (formerly known as LYT-320), a novel prodrug of agomelatine, which is being advanced for the treatment of Generalized Anxiety Disorder (GAD), and SPT-348, a prodrug of a non-hallucinogenic neuroplastogen, which is in development for the treatment of mood and other neuropsychiatric disorders. Beyond these programs, Seaport has multiple discovery and preclinical programs underway. All of the programs in Seaport’s pipeline are based on the Glyph™ platform, which is designed to enable and enhance oral bioavailability, avoid first-pass metabolism and reduce hepatotoxicity and other side effects to advance active drugs that were previously held back by those limitations. The design and optimization of drug-specific chemistry and pharmacology is tailored for each program. This robust and consistent application of Glyph technology has led to the rapid growth of a robust pipeline of neuropsychiatric medicines. [Portions of this page have been removed]
14 PureTech Health plc Annual Report and Accounts 2023 1 As of 22 March 2023, PureTech has sold its right to receive a 3 percent royalty from Karuna to Royalty Pharma on net sales up to $2 billion annually, after which threshold PureTech will receive 67 percent of the royalty payments and Royalty Pharma will receive 33 percent. Fo un d ed E nt it ie s — In December 2023, Karuna announced they entered into a definitive agreement with BMS under which BMS has agreed to acquire Karuna for $330.00 per share in cash, for a total equity value of $14.0 billion. In the March 2024 post-period, the transaction was completed and Karuna is now a wholly owned subsidiary of BMS. — In November 2023, Karuna announced that the FDA accepted its new drug application for KarXT (xanomeline-trospium) for the treatment of schizophrenia and has granted a Prescription Drug User Fee Act (PDUFA) date of September 26, 2024. — In November 2023, Karuna announced positive results from the Phase 1b trial evaluating the effect of KarXT on 24-hour ambulatory systolic blood pressure in adults with schizophrenia. The primary endpoint in the trial was the change from baseline at week 8 in 24-hour average ambulatory systolic blood pressure. In the trial, KarXT demonstrated a mean change from baseline to week 8 in 24-hour ambulatory systolic blood pressure of -0.59 mmHg. The upper bound of the two-sided 95% confidence interval for the mean change from baseline to week 8 was 1.60 mmHg, thus ruling out a clinically meaningful increase in blood pressure (defined per FDA guidance as ≥3 mmHg change from baseline). Daytime and nighttime systolic blood pressure measurements showed no meaningful change and were generally consistent with the 24-hour average. Additional vital sign measures collected in the trial, including 24-hour average diastolic blood pressure and heart rate, were consistent with prior trials of KarXT in schizophrenia. Further, KarXT was generally well tolerated, with a side effect profile consistent with prior trials in the EMERGENT program. — In March 2023, Karuna announced positive topline results from the Phase 3 EMERGENT-3 trial evaluating the efficacy, safety, and tolerability of KarXT in adults with schizophrenia. The trial met its primary endpoint, with KarXT demonstrating a statistically significant and clinically meaningful 8.4-point reduction in Positive and Negative Syndrome Scale (PANSS) total score compared to placebo (-20.6 KarXT vs. -12.2 placebo; p<0.0001) at Week 5 (Cohen’s d effect size of 0.60). Consistent with prior trials, KarXT demonstrated an early and sustained statistically significant reduction of symptoms from Week 2 (p<0.05) through the end of the trial as assessed by PANSS total score. KarXT also demonstrated reductions in positive and negative symptoms of schizophrenia as measured by PANSS positive and PANSS negative Marder factor subscales. KarXT was generally well tolerated, with a side effect profile substantially consistent with previous trials of KarXT in schizophrenia. Key milestones achieved and development status — We and our collaborators, including leading schizophrenia experts, were excited about efficacy data generated in schizophrenia and Alzheimer’s disease by Eli Lilly with xanomeline, which had notable efficacy stemming from its activation of muscarinic receptors (M1 and M4) but had been held back by gastrointestinal tolerability issues. To overcome this, we invented KarXT, an oral M1/ M4-preferring muscarinic agonist, by combining xanomeline (a muscarinic agonist) with trospium (a peripherally acting muscarinic antagonist that doesn’t cross the blood brain barrier). This enabled the beneficial effects of M1/M4 activation in the brain without the peripheral side effects. We conducted key human tolerability proof-of-concept studies with KarXT that allowed Karuna to advance it further in schizophrenia patients. Karuna licensed the key KarXT intellectual property from PureTech. KarXT has been submitted to the FDA, and – if approved – we will have pioneered the development of the first new class of medicine for schizophrenia in over 50 years. Program discovery process by the PureTech team — In the third quarter of 2023, Karuna initiated the Phase 3 ADEPT-2 and ADEPT-3 trials for psychosis in Alzheimer’s disease (AD). Founded Entities continued Karuna Therapeutics PureTech Ownership PureTech is entitled to milestone payments, royalties and up to $400 million in milestone payments under its agreement with Royalty Pharma.1 Karuna Therapeutics is a wholly owned subsidiary of Bristol Myers Squibb (BMS) driven to create and deliver transformative medicines for people living with psychiatric and neurological conditions. Karuna’s lead candidate KarXT (xanomeline-trospium) is under review by the U.S. Food and Drug Administration (FDA) for the treatment of schizophrenia in adults. KarXT is also being evaluated in Phase 3 clinical trials as a potential adjunctive treatment for schizophrenia and as a potential treatment for psychosis in Alzheimer’s disease. [Portions of this page have been removed]
PureTech Health plc Annual Report and Accounts 2023 15 — Preclinical work demonstrates single agent mechanistic and anti-tumor efficacy of LYT- 200 in multiple animal and patient-derived tumor cell models. AML — In the February 2024 post-period, the U.S. Food and Drug Administration (FDA) granted Orphan Drug Designation to LYT-200 for the treatment of AML. The FDA grants orphan drug designation to novel products for the treatment of conditions affecting fewer than 200,000 persons in the U.S, and it qualifies the company for incentives including tax credits for some clinical trials and eligibility for seven years of market exclusivity in the U.S., if the drug is approved for AML. — In December 2023, it was announced that three dose escalation cohorts had been completed at weekly doses of 2 mg/kg (cohort 1), 4 mg/kg (cohort 2) and 7.5 mg/kg (cohort 3) in the ongoing Phase 1b trial evaluating LYT-200 as a single agent in relapsed/refractory AML and MDS patients. In a heavily pre-treated patient population, the early data demonstrate a favorable safety and tolerability profile of LYT-200 with no dose limiting toxicities. In the first cohort, disease stabilization was observed in two of the five patients treated, with one patient achieving red blood cell transfusion independence. In the second cohort, disease stabilization was observed in two of the four patients treated. In the third cohort, disease stabilization was observed in all four of the patients treated, with a reduction in bone marrow blasts observed in two of the four patients and the clearance of peripheral blasts observed in one patient. Two patients achieved more than 50 percent bone marrow blast reduction, with one of these patients observing an increase in platelet count without transfusions. The fourth cohort, evaluating a weekly regimen of LYT-200 at the 12 mg/kg dose, is still ongoing, and additional data are expected to be shared in a scientific forum. Locally advanced/metastatic solid tumors — In the March 2024 post-period, the FDA granted Fast Track designation for LYT-200 in combination with anti-PD1 therapy for the treatment of recurrent/metastatic head and neck cancers. Fast Track designation is a process designed to streamline the development and accelerate the assessment of drugs that target serious conditions with unmet need. — In December 2023, initial data from the Phase 1 portion of the Phase 1/2 dose escalation and expansion clinical trial of LYT-200 was announced. The initial data were presented at European Society for Medical Oncology meeting and demonstrate a favorable safety profile in all cohorts, including the monotherapy and combination arms with tislelizumab, an anti-PD-1 antibody being developed by BeiGene, and show disease control and suggestion of anti-tumor activity in combination with tislelizumab. In the combination cohort, anti-tumor activity was observed in patients with relapsed or refractory head and neck cancer, a patient population that has historically demonstrated a low response rate to anti-PD-1 agents of around 20 percent and 10 percent with chemotherapy1. Key milestones achieved and development status — With a focus on providing significant therapeutic benefit to cancer patients, we opportunistically identified a foundational immunosuppressive/pro-tumor mechanism(s) involving galectin-9, which was the basis of certain intellectual property that we licensed from New York University prior to its publication in Nature Medicine. Galectin-9 promotes multiple immunosuppressive pathways in the context of solid tumors and blocking galectin-9 results in tumor cell death in the context of AML and other hematological malignancies. High levels of galectin-9 expression in tumor tissue, on leukemia cells as well as in patients’ blood are linked to more advanced disease and worse outcomes. LYT-200 is a fully human IgG4 monoclonal antibody designed to inhibit the activity of galectin-9. We believe that LYT-200 is the most advanced clinical program against this target. It has the potential to be used as a single agent and in combination with other anti-cancer therapies, depending on the cancer type, treatment setting and line of treatment. LYT-200 has also demonstrated direct cytotoxic, anti-leukemic effects through multiple mechanisms, as well as synergy with standard of care in preclinical models. Program discovery process by the PureTech team Fo und ed Entities Founded Entities continued Gallop Oncology 1 Vermorken, J. B., MesíA, R., Rivera, F., Remenár, É., Kawecki, A., Rottey, S., Erfán, J., Zabolotnyy, D., Kienzer, H., Cupissol, D., Peyrade, F., Benasso, M., Vynnychenko, I., De Raucourt, D., Bokemeyer, C., Schueler, A., Amellal, N., & Hitt, R. (2008). Platinum-Based Chemotherapy plus Cetuximab in Head and Neck Cancer. The New England Journal of Medicine, 359(11), 1116–1127. https://doi. org/10.1056/nejmoa0802656 PureTech Ownership 100% equity Gallop Oncology™ is advancing a first-in-class, mechanistically differentiated approach to cancer treatment by targeting a novel, pro-tumor and immunosuppressive molecule. Gallop’s LYT-200 is ananti-galectin-9 monoclonal antibody (mAb) being developed for the treatment of acute myeloid leukemia (AML) and high-risk myelodysplastic syndromes (MDS) and head and neck cancers.
16 PureTech Health plc Annual Report and Accounts 2023 Fo un d ed E nt it ie s [Portions of this page have been removed] — LYT-200 has broad intellectual property coverage for these antibody-based immunotherapy technologies. As of December 31, 2023, there are 15 families of intellectual property within this patent portfolio, including eight families of patent filings that are co-owned with and/or exclusively licensed from New York University which cover antibodies that target galectin-9, including LYT-200, and methods of using these antibodies in various immuno-oncology technologies and treatment methods. In addition, the intellectual property portfolio includes six families of company-owned patent applications covering the use of anti-galectin-9 antibodies in the diagnosis and treatment of various cancers, including solid tumors and hematological cancers and one family of patent applications co-owned with BeiGene directed to combination therapies for the treatment of solid tumors. This intellectual property portfolio comprises four issued U.S. patents which are expected to expire in 2038, 12 pending U.S. patent applications, which if issued, are expected to expire 2037 through 2044, two international PCT applications, 54 pending foreign applications and 12 issued patents in foreign jurisdictions. Intellectual property Founded Entities continued
PureTech Health plc Annual Report and Accounts 2023 17 1 EndeavorRx is a digital therapeutic indicated to improve attention function as measured by computer-based testing in children ages 8-17 years old with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue. Patients who engage with EndeavorRx demonstrate improvements in a digitally assessed measure Test of Variables of Attention (TOVA®) of sustained and selective attention and may not display benefits in typical behavioral symptoms, such as hyperactivity. EndeavorRx should be considered for use as part of a therapeutic program that may include clinician-directed therapy, medication, and/or educational programs, which further address symptoms of the disorder. EndeavorRx is available by prescription only. It is not intended to be used as a stand-alone therapeutic and is not a substitution for a child’s medication. The most common side effect observed in children in EndeavorRx’s clinical trials was a feeling of frustration, as the game can be quite challenging at times. No serious adverse events were associated with its use. EndeavorRx is recommended to be used for approximately 25 minutes a day, 5 days a week, over initially at least 4 consecutive weeks, or as recommended by your child’s health care provider. To learn more about EndeavorRx, please visit EndeavorRx.com. 2 EndeavorOTC is a digital therapeutic indicated to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD. EndeavorOTC utilizes the same proprietary technology underlying EndeavorRx, a prescription digital therapeutic indicated to improve attention function in children ages 8 - 17. EndeavorOTC is available under the U.S. Food and Drug Administration’s current Enforcement Policy for Digital Health Devices for Treating Psychiatric Disorders During the Coronavirus Disease 2019 (COVID-19) Public Health Emergency. EndeavorOTC has not been cleared or authorized by the U.S. Food and Drug Administration for its indications. It is recommended that patients speak to their health care provider before starting EndeavorOTC treatment. No serious adverse events have been reported in any of our clinical studies. To learn more, visit EndeavorOTC.com. — In September 2023, Akili announced its strategic plan to transition from a prescription to a non-prescription business model. The non-prescription model allows Akili to give consumers access to differentiated and clinically-validated technology, while removing the reliance on payers that stand in the way of patients trying to access treatment. — In January 2023, Akili shared topline results of the STARS-ADHD-Adolescents label expansion trial evaluating the efficacy and safety of EndeavorRx in adolescents ages 13-17 with ADHD. The pivotal trial achieved its predefined primary efficacy outcome, showing statistically significant improvement in attentional functioning after four weeks of treatment. Based on these results, Akili announced in December 2023 that it received authorization from the FDA to expand the EndeavorRx label to include older children aged 13-17. This increased age range is expected to more than double the number of pediatric patients with ADHD who are now eligible for EndeavorRx. — In May 2023, Akili shared topline results of the STARS-ADHD-Adult clinical trial evaluating the efficacy and safety of EndeavorRx in adults with ADHD. The results demonstrated attention improved in more than 80 percent of adults with ADHD, and over one-third of participants no longer exhibited an attention deficit following treatment. Improvements in attention were nearly seven times larger than those seen in the pivotal trial that supported EndeavorRx’s FDA authorization for aged 8 to 12 with ADHD. Additionally, nearly half of adults treated with EndeavorRx met a prespecified threshold for clinically meaningful improvement in their quality of life. EndeavorRx treatment was well-tolerated, with minimal side effects and no serious device-related adverse events reported. Based on these results, Akili announced the release of EndeavorOTC in June 2023, and submitted a 510(k) application to the FDA in October for EndeavorOTC as an over-the-counter (OTC) treatment for adults with ADHD. — In the February 2024 post-period, Akili shared positive results from its partner Shionogi’s Phase 3 pivotal trial of its localized version of Akili’s EndeavorRx for pediatric ADHD patients in Japan aged 8 to 17. Shionogi submitted the results of this trial for regulatory approval to Japan’s Pharmaceuticals and Medical Devices Agency in 2024. Key milestones achieved and development status — We engaged with leading neuroscientists and clinicians who had been studying the effects of video games on cognition and the underlying neural processes accessible by sensory stimulation and we collaborated with Dr. Adam Gazzaley, M.D., Ph.D., to translate the underlying academic device into a medical intervention, including overseeing the initial product development and design and the implementation of the initial proof-of-concept studies. — Akili’s FDA-cleared product, EndeavorRx, is based on a patented platform technology exclusively licensed from the University of California, San Francisco. The proprietary platform targets cognitive interference processing while also adapting difficulty automatically in real- time, allowing individuals of wide-ranging ability levels to interact with the product in their homes without the need for physician calibration or additional hardware. Program discovery process by the PureTech team Fo und ed Entities Founded Entities continued Akili PureTech Ownership 14.6% equity Akili is pioneering the development of cognitive treatments through game-changing technologies. Akili’s EndeavorRx®1 is an FDA-cleared digital therapeutic indicated to improve attention function as measured by computer-based testing in children ages 8-17 years old with primarily inattentive or combined-type ADHD, who have a demonstrated attention issue. Akili’s EndeavorOTC®2 is a digital therapeutic indicated to improve attention function, ADHD symptoms and quality of life in adults 18 years of age and older with primarily inattentive or combined-type ADHD. [Portions of this page have been removed]
18 PureTech Health plc Annual Report and Accounts 2023 — In the March 2024 post-period, Vor announced that the FDA had granted Fast Track Designation and Orphan Drug Designation to VCAR33ALLO. — In the January 2024 post-period, Vor announced it has dosed the first patient in VBP301, its Phase 1/2, multicenter, open-label, first-in-human study of VCAR33ALLO in patients with relapsed or refractory AML after standard-of-care transplant or a trem-cel transplant. By using healthy transplant donor cells as the starting material to produce VCAR33ALLO, the CAR-T cells have a more stem-like phenotype, leading to greater potential for expansion, persistence, and anti-leukemia activity compared to a product derived from a patient’s own lymphocytes. — In November 2023, Vor announced updated data from patients treated in VBP101, Vor’s Phase 1/2a multicenter, open-label, first-in-human study of trem-cell in patients with AML. Primary neutrophil engraftment occurred in all seven patients treated to date with trem-cel with a median time to engraftment of 10 days. All three patients treated with Mylotarg (the only anti-CD33 therapy approved by the FDA) experienced hematologic protection from deep cytopenias through repeat doses, suggesting that trem-cel transplants shielded patients’ healthy cells from the on-target toxicity (myelosuppression) typically seen with Mylotarg treatment. The hematological protection exhibited provides support that dose escalation of Mylotarg is warranted and highlights the potential to dose CD33-targeted CAR-T therapy without expected hematologic toxicity. — In August 2023, Vor announced a world-wide non-exclusive license from Editas Medicine for ex-vivo Cas9 gene-edited HSC therapies for the treatment and/or prevention of hematological malignancies. Key milestones achieved and development status — We were interested in approaches to treat hematological malignancies that currently have poor response rates or poor adverse event profiles despite recent advances in cell therapies and targeted therapies. We worked with Vor Bio Scientific Board Chair, Siddhartha Mukherjee, M.D., Ph.D., on key intellectual property, which Vor Bio exclusively in-licensed from Columbia, and on advancing this concept through critical proof-of-concept experiments. Program discovery process by the PureTech team Fo un d ed E nt it ie s Founded Entities continued Vor PureTech Ownership 3.9% equity Vor Bio is a clinical-stage cell and genome engineering company that aims to change the standard of care for patients with blood cancers by engineering hematopoietic stem cells (HSC) to enable targeted therapies post-transplant. Vor’s lead eHSC candidate is tremtelectogene empogeditemcel (trem-cel), formerly VOR33, which is created by genetically modifying healthy donor HSCs in order to remove the CD33 surface target protecting them from a targeted therapy post-transplant. Transplant with trem-cel is designed to replace standard of care transplants for patients suffering from acute myeloid leukemia (AML) and potentially other blood cancers. Trem-cel has the potential to enable powerful targeted therapies in the post-transplant setting including CD33-targeted CAR-T cells. VCAR33ALLO is a CD33-directed CAR-T cell therapy made from healthy cells obtained from the same donor from which the patient was previously transplanted. Vor’s vision is to develop a treatment system for AML where trem-cel is first administered to patients to remove CD33 from their healthy cells, followed by VCAR33ALLO administration to target and kill any remaining cancer cells. [Portions of this page have been removed]
PureTech Health plc Annual Report and Accounts 2023 19 Fo und ed Entities — In October 2023, Vedanta announced the first patient was dosed in the Phase 2 COLLECTiVE202 clinical trial of VE202 for the treatment of ulcerative colitis. Vedanta also announced that the U.S. Food and Drug Administration granted Fast Track designation to VE202. — In October 2023, Vedanta shared additional data from the VE303 Phase 2 CONSORTIUM clinical trial that further explained the biological effects of VE303 associated with prevention of Clostridioides difficile recurrence. VE303 accelerated the restoration of a healthy gut microbiome community and early recovery of key metabolites. Furthermore, among nearly 400 bacterial species detected in trial participants after treatment, species in VE303 were the top predictors of non-recurrence. Vedanta previously announced that the trial met its primary endpoint. — In October 2023, Vedanta shared preclinical data of VE707, which demonstrated that among nearly 100 consortia tested for their ability to reduce intestinal carriage of some of the most common and serious MDROs, VE707 was the most effective at reducing the levels of K. pneumoniae and E. coli in rodent models. Results also demonstrated that a rationally designed, defined consortium of bacteria can decolonize MDROs in animals and can be manufactured efficiently. — In May 2023, Vedanta announced the U.S. FDA granted Fast Track designation to VE303, for the prevention of rCDI. — In April 2023, Vedanta announced a $106.5 million financing to advance its pipeline of defined bacterial consortia therapies. Key milestones achieved and development status — We engaged with leading world-renowned experts in immunology and identified and in- licensed intellectual property to pioneer the concept of therapeutically defined consortia of microbes that could modulate the immune system or treat bacterial infections. Program discovery process by the PureTech team Founded Entities continued Vedanta Biosciences PureTech Ownership 36.1% equity Vedanta is leading the development of a potential new category of oral therapies based on defined consortia of bacteria isolated from the human microbiome and grown from pure clonal banks. Vedanta is a leader in the field with capabilities and deep expertise to discover, develop and manufacture live bacteria-based therapies. Vedanta’s candidates include VE303, a Phase 3-ready therapeutic candidate designed for the prevention of recurrent Clostridioides difficile infection (rCDI), VE202, a Phase 2 therapeutic candidate in development for the treatment of ulcerative colitis and VE707, a preclinical therapeutic candidate being advanced for the prevention of infection and colonization recurrence of several multidrug-resistant organisms (MDROs). [Portions of this page have been removed]
20 PureTech Health plc Annual Report and Accounts 2023 Fo un d ed E nt it ie s Founded Entities continued — In the March 2024 post-period, Sonde announced the publication of a new study that has validated the ability of the company’s mental fitness vocal biomarker (MFVB) platform to reliably distinguish individuals with elevated mental health symptoms. The four-week cohort study revealed a statistically significant correlation between voice-based identification of increased or decreased mental health risk with the results of the M3 Checklist, a clinically validated mental health assessment. The research, published in the peer-reviewed journal Frontiers in Psychiatry, highlights the potential of vocal biomarkers and Sonde’s technology specifically to provide objective data that can complement clinical care and improve self-monitoring for conditions like depression, stress- and trauma-related conditions, and anxiety. — In May 2023, Sonde announced the publication of new research that demonstrates the ability of its respiratory responsive vocal biomarker (RRVB) machine learning model to differentiate patients with COVID-19 from healthy individuals with about 70% accuracy. The peer-reviewed study, which was published in the Journal of Medical Internet Research, suggests the RRVB tool could serve as a pre-screening tool for acute respiratory infection and pave the way for the development of voice-based tools for future disease detection and monitoring applications. — In February 2023, Sonde and the Massachusetts General Hospital Frontotemporal Disorders Unit announced they had been selected by the Massachusetts Artificial Intelligence and Technology Center for Connected Care in Aging & Alzheimer’s Disease (MassAITC) to lead a pilot study focused on leveraging vocal biomarkers for remote detection and monitoring of mild cognitive impairment in the home environment. Funded by MassAITC and the National Institute on Aging, a division of the U.S. National Institutes of Health, the project is part of a $1.7 million grant to explore the use of artificial intelligence and other advanced technologies for in-home care. Specifically, it will evaluate the feasibility of obtaining voice recordings of older individuals in the home environment that can be used to longitudinally monitor speech and memory functions. Key milestones achieved and development status — We identified vocal features as a leading non-invasive source of health data, particularly given the evolving technology landscape where voice interactions with devices are rapidly increasing. We developed novel intellectual property around this concept and helped advance the technology from an academic concept to a commercially focused technology. Program discovery by the PureTech team Sonde PureTech Ownership 35.2% equity Sonde is developing a voice-based artificial intelligence platform that detects changes in the sound of voice that are linked to health conditions – like depression, anxiety and respiratory disease – to provide health tracking and monitoring. [Portions of this page have been removed]
PureTech Health plc Annual Report and Accounts 2023 21 Fo und ed Entities Founded Entities continued — In 2023, Entrega demonstrated increased oral peptide bioavailability of two- to three-fold over standard permeation enhancer formulations. — Entrega continues to advance its platform for the oral administration of biologics, vaccines and other drugs that are otherwise not efficiently absorbed when taken orally. To validate its technology, Entrega generated preclinical proof-of-concept data demonstrating administration of therapeutic peptides into the bloodstream of large animals. Key milestones achieved and development status — We were interested in enabling the oral administration of biologics, which has been a long- standing problem in drug development. We engaged with leading experts in drug administration, including Robert Langer, Sc.D., screened over 100 technologies and the initial platform was licensed from Samir Mitragotri, Ph.D., when he was Professor of Chemical Engineering at UC Santa Barbara (currently Hiller Professor of Bioengineering and Hansjorg Wyss Professor of Biologically Inspired Engineering at Harvard University). We later enhanced this platform with intellectual property developed by our team. Program discovery by the PureTech team Entrega NOTE: The disclosure requirement relating to our Section 172 Statement for inclusion in this report has been incorporated by way of cross reference to Relations with Stakeholders PureTech Ownership 73.8% equity Entrega is focused on the oral administration of biologics, vaccines and other drugs that are otherwise not efficiently absorbed when taken orally. The vast majority of biologic drugs, including peptides, proteins and other macromolecules, are currently administered by injection, which can present challenges for healthcare administration and compliance with treatment regimes. Entrega believes oral administration thus represents an ideal administration approach for this increasingly large class of therapies reshaping many areas of medicine, including the treatment of diabetes and weight loss. Entrega’s technology platform is an innovative approach to oral administration which uses a proprietary, customizable hydrogel dosage form to control local fluid microenvironments in the GI tract in an effort to both enhance absorption and reduce the variability of drug exposure. Peptide therapeutics (e.g., the emerging GLP-1 agonist class) are ideally suited to benefit from Entrega’s approach.
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30 PureTech Health plc Annual Report and Accounts 2023 Our ESG framework continued E SG re p o rt Pa ti en ts As a clinical stage biotherapeutics company, our mission is to address devastating diseases and improve patient health worldwide through innovative medicines. To accomplish this goal consistently and ethically, we focus our sustainability efforts on three key areas that enable patient support: Commitment #1: Addressing unmet medical needs Commitment #2: Ensuring patient safety Commitment #3: Accelerating our R&D engine to unlock new medicines The patient population we aim to create value for is widespread as we explore potentially life-transforming treatments across many serious diseases. We continued to develop our programs in 2023 through the expertise of our dedicated team and in collaboration with our extensive network of scientists, clinicians and industry leaders. For details on our programs, please see pages 10 to 21]. PATIENTS
PureTech Health plc Annual Report and Accounts 2023 31 Our ESG framework continued E SG rep o rt Our initiatives: Our awareness campaign to informs IPF patients and caregivers worldwide of our investigational treatment in development. Our initiative creates inclusive resources to engage both patients and caregivers in clinical trials. In September 2023, we continued our efforts to promote Pulmonary Fibrosis Awareness Month to raise awareness of IPF and to serve as inspiration for our employees. During this month we hosted a lunch and learn with Dr. Lisa Lancaster to understand the evolution of IPF trials and the patient experience. During an employee town hall, members of the Social and Culture Committee led the discussion on IPF and conducted the ‘Pucker Up Challenge”. We also held an all-employee walk in taking steps toward a cure. In February 2023, we celebrated Rare Disease Day in which employees wore stripes to show support for rare diseases such as IPF. The idea is to raise awareness for the over 7,000 rare diseases that impact millions of people globally and to advocate for health equity. In November 2023, we established an educational grant partnership with PF Warriors to advance their awareness, education and clinical research initiatives for pulmonary fibrosis patients. PF Warriors is an international support network delivering vital assistance, education, inspiration and hope to pulmonary fibrosis patients and families. Through such strategic alliances, we aim to empower patient advocacy groups creating real change for those living with PF. Our grant upholds our commitment to foster greater understanding of this disease while accelerating essential efforts to improve patient health outcomes. Consistent with our commitment to improve the care of patients with IPF, we partnered with the Pulmonary Fibrosis Foundation (PFF) in 2023 to help raise awareness of the condition in several ways. We have a strong relationship with PFF, which is the leading patient advocacy organization for the IPF community. They not only provide support and educational resources to the community but are also working to identify effective treatments for IPF. PFF is also a trusted resource and partner to PureTech as we advance LYT-100 through the clinic. We are Committed to the Fight Against Idiopathic Pulmonary Fibrosis (IPF) It’s important to note that the work we do at PureTech every day is in service to the patients we hope to help. Our most advanced therapeutic candidate, LYT-100, is being developed for the potential treatment of conditions involving inflammation and fibrosis, including IPF. IPF is a progressive and life-shortening disorder of the lungs with a median survival rate of 2-5 years.8 8 Fisher, M., Nathan, S. D., Hill, C., Marshall, J., Dejonckheere, F., Thuresson, P., & Maher, T. M. (2017). Predicting Life Expectancy for Pirfenidone in Idiopathic Pulmonary Fibrosis. Journal of Managed Care & Specialty Pharmacy, 23(3-b Suppl), S17 -S24. https://doi.org/10.18553/jmcp.2017.23.3-b.s17 9 GlobalData Epidemiology and Market Size Search. 10 United Kingdom, France, Germany, Italy and Spain 11 Dempsey, T., Payne, S. C., Sangaralingham, L. R., Yao, X., Shah, N., & Limper, A. H. (2021). Adoption of the Antifibrotic Medications Pirfenidone and Nintedanib for Patients with Idiopathic Pulmonary Fibrosis. Annals of the American Thoracic Society, 18(7), 1121–1128. https://doi.org/10.1513/annalsats.202007-901oc E SG rep o rt Patients 2-5 Years Median survival8 >232,000 People are affected by IPF in the US and EU9,10 ~75% IPF patients not on standard of care therapy11 2 FDA approved branded drugs on the market with significant tolerability issue PF WarriorsRare disease day All-Employee walk
32 PureTech Health plc Annual Report and Accounts 2023 E SG re p o rt Patients Pa ti en ts Clinical trial participants are made fully aware of all risks involved prior to participating in a clinical trial. To confirm this, we ensure that every patient has provided informed consent of their willingness to participate through a signed voluntary commitment. Our informed consent requirements are set out in the PureTech Clinical Research Policy. We also rely on the use of human biological specimens to develop our innovative therapies through clinical trials, which require informed consent. Our Human Biological Specimens Policy specifies our commitment to respecting both donors and the specimens they provide and that collecting, obtaining, storing and using human biological samples must be obtained through consent. Our President is responsible for ensuring that PureTech follows all US and applicable international regulatory requirements and standards and applicable bioethics principles. In 2023, there were no FDA sponsored inspections related to clinical trial management and pharmacovigilance that resulted in PureTech receiving Voluntary Action Indicated (VAI) and Official Action Indicated (OAI) from FDA. Bioethics: R&D Our ethical and quality management standards, allow for continuous improvement through R&D, while helping us to maintain high standards of product quality and safety in compliance with relevant regulations at each phase. In 2023, we spent $110.5 million on research and development projects to develop new and innovative therapeutics (see page 73 for details on R&D expenses) As we enhance our R&D strategy, we continue to assess and identify areas for improvement across our clinical trial safety, quality and risk management processes. We have robust policies relating to Good Manufacturing Practices (GMP) and regulatory inspections to reinforce ethics into our processes and we are in the process of implementing additional policies on quality and risk management. Environmental factors remain integral in our R&D as we aim to cut back or remove hazardous chemicals from our R&D procedures. We also stay current on the newest green chemistry advancements and strive to implement eco-friendly design principles. In 2023, we managed to optimize some of our large-scale drug substance processes to replace more hazardous solvents that negatively impact the environment. Commitment #1: Addressing unmet medical needs Our team is dedicated to providing therapeutics for unmet medical needs. We leverage the substantial groundwork laid by the biopharmaceutical industry, which has dedicated decades to discovering novel modalities and proving efficacy in patients. Despite these advancements, barriers have prevented important new medicines from reaching their full potential. Through our unique insights, we aim to realize the full promise of these vital new therapeutics for patients in need. With our cutting-edge R&D efforts, we are targeting these gaps while creating long- term value for both patients and shareholders. Commitment #2: Ensuring patient safety Patient safety remains our utmost priority informing all aspects of our work. Our committed research team, in conjunction with external partners, adheres to strict procedures, processes and guidelines to ensure clinical trial and R&D integrity. Through diligent oversight and responsible development practices, we seek to uphold patient wellbeing at every stage. Delivering Safe Clinical trials We conduct all clinical trials according to the highest standards of ethics and safety. All our trials follow the standards of the International Conference on Harmonization (ICH) Good Clinical Practice guidelines and the World Medical Association (WMA) Declaration of Helsinki on the Ethical Principles for Medical Research Involving Human Subjects. To ensure compliance and rigor in our approach, we seek approval from Independent Ethics Committees and local regulatory authorities on all investigative medicine trials. In addition, our employees who are engaged with clinical trials, either as clinical staff or their designees, are responsible for ensuring full compliance with best clinical practice. When sponsoring an Investigational New Drug (IND) application, we acknowledge our responsibility to both participants and the regulatory agencies who put their trust in us to act responsibly. We have a robust governance framework in place to ensure patient oversight which includes effective policies and protocols such as our Safety Management Plans and Medical Monitoring Plans, which helps us to monitor, review and act on any incidents. All protocols are compliant with ICH E6 (R2) per FDA regulations and most of our studies have Independent Data Safety Monitoring Committees.
PureTech Health plc Annual Report and Accounts 2023 33 Patients Ensuring Drug Efficacy and Safety None of the therapeutic candidates being advanced internally or by PureTech’s Controlled Founded Entities are currently on the market. Therefore, in 2023, PureTech received no FDA warning letters, no products were delayed due to a lack of regulatory approval and no product recalls took place. As we continue to advance our therapeutic candidates towards commercialization, we will continue to practice our clinical protocols diligently to ensure ongoing safety and compliance across our operations and clinical trials. Commitment #3: Accelerating our R&D engine to unlock new medicines R&D has been the bedrock of progress in global health and a key component in the successful discovery and development of our therapeutic candidates. Generating a robust pipeline that has the potential to address millions of patients with unmet medical needs has been made possible through our strong R&D model. We are proud of our model which allows us to fulfill our unyielding commitment to delivering potentially life-changing new therapies for patients in need. We will continue to leverage this model, our scientific insight and our network of scientists, clinicians and industry leaders to unlock new medicines and deliver highly innovative therapeutics for patients. Bioethics: Animal Research Animal research continues to play a vital and irreplaceable part in progressing drug discovery, as it assists scientists in addressing biological uncertainties. PureTech conducts animal testing only when necessary, in line with the FDA Modernization Act 2.0, to further the development of therapeutics and is mandated by regulatory bodies, before human trials of new medications can proceed. We follow the guidelines outlined under the USDA Animal Welfare Act and are dedicated to the human and ethical treatment of animals. Studies involving animals are evaluated and approved by the Executive Team and are carried out at external qualified and certified vendors that fulfil our standards and anticipated practices for animal care, welfare and handling. Whenever we contemplate animal testing, we are devoted to applying the replacement, reduction and refinement of animal studies (3Rs). — Replace We use alternative methods to animal testing wherever possible. — Reduce We use the minimum number of animals in trials. — Refine We minimize pain, suffering and distress, and improve the welfare of animals used in trials. Bioethics: Quality Management We have a robust Quality Management System (QMS) in place to oversee our raw material suppliers. Our QMS consists of various SOPs which describe our controlled processes that result in consistent quality control as per PureTech’s quality system. SOPs include, but are not limited to, the processes relating to the: — Qualification of New Vendors — Qualification of Existing Vendor for New Materials — Management of Changes related to Vendor — Evaluation of Supply for Quality — Change Control — Batch Disposition — Employee Training on New Materials To ensure our QMS is robust and up to date, risk assessment protocol is built into our procedures for vendor audits, vendor oversight, and data integrity for Chemistry, Manufacturing, and Controls (CMC). This allows us to quickly determine vendor risks and accelerate new vendor onboarding to meet business demands.
34 PureTech Health plc Annual Report and Accounts 2023 E SG re p o rt Pe o p le [Portions of this page have been removed] Our employees are predominantly located near our headquarters in Boston, MA, with three individuals based in London. As of December 31, 2023, we had a total of 90 employees. Of these, 47 employees work in R&D roles while 43 are engaged in PureTech’s general and administrative functions.
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36 PureTech Health plc Annual Report and Accounts 2023 E SG re p o rt People Recruitment and Retention As our programs advance and our business rapidly evolves, the PureTech team has evolved with it over the course of years. While the prioritization of our pipeline led to a scale-back of our R&D operations in 2023, our recruitment strategy remains unchanged, as we continue to focus on developing a skilled and diverse pipeline of talent. 2022 2023 Total number of employees 111 90 Year-over-year growth (%) 16.8% (18%) Employee turnover (%) 30.62% 44.1% Pe o p le [Portions of this page have been removed]
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PureTech Health plc Annual Report and Accounts 2023 59 G overnance Governance Our world class Board of Directors provides strong governance
60 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e The execution of the Group’s strategy is subject to a range of risks and uncertainties. As a clinical-stage biotherapeutics company, the Group operates in an inherently high-risk environment. The Group’s strategic approach seeks to aid the Group’s risk management efforts to achieve an effective balancing of risk and reward. Risk assessment, evaluation and mitigation are integral parts of the Group’s management process. The Group, however, also recognizes that ultimately no strategy provides an assurance against loss, as we saw in the current year with Gelesis, which ceased operations and filed a voluntary petition for Chapter 7 bankruptcy liquidation in October 2023. Risks are formally identified by the Board and appropriate internal controls are put in place and tailored to the specific risks to monitor and mitigate them on an ongoing basis. If multiple or an emerging risk event occurs, it is possible that the overall effect of such events would compound the overall effect on the Group. The principal risks that the Board has identified as the key business risks facing the Group are set out in the table below along with the impact and mitigation management plan with respect to each risk. These risks are only a high-level summary of the principal risks affecting our business; any number of these or other risks could have a material adverse effect on the Group or its financial condition, development, results of operations, subsidiary companies and/or future prospects. Further information on the risks facing the Group can be found on pages 186 to 223 which also includes a description of circumstances under which principal and other risks and uncertainties might arise in the course of our business and their potential impact. Risk Impact* Management Plans/Actions 1 Risks related to science and technology failure The science and technology being developed or commercialized by some of our businesses may fail and/or our businesses may not be able to develop their intellectual property into commercially viable therapeutics or technologies. There is also a risk that certain of the businesses may fail or not succeed as anticipated, resulting in significant decline of our value. The failure of any of our businesses could decrease our value. A failure of one of the major businesses could also impact the reputation of PureTech as a developer of high value technologies and possibly make additional fundraising by PureTech or any Founded Entity more difficult or unavailable on acceptable terms at all. Prior to additional steps in the development of any technology, extensive due diligence is carried out that covers all the major business risks, including technological feasibility, competition and technology advances, market size, strategy, adoption and intellectual property protection. A capital efficient approach is employed, which requires the achievement of a level of proof of concept prior to the commitment of substantial capital is committed. Capital deployment is generally tranched to ensure the funding of programs only to their next value milestone. Members of our Board or our management team serve on the board of directors of several of the businesses so as to continue to guide each business’s strategy and to oversee proper execution thereof. We use our extensive network of advisors to ensure that each business has appropriate domain expertise as it develops and executes on its strategy and the R&D Committee of our Board reviews each program at each stage of development and advises our Board on further actions. Additionally, we have a diversified model with numerous assets such that the failure of any one of our businesses or therapeutic candidates would not result in a failure of all of our businesses. Risk management
PureTech Health plc Annual Report and Accounts 2023 61 Risk management continued Risk Impact* Management Plans/Actions 2 Risks related to clinical trial failure Clinical trials and other tests to assess the commercial viability of a therapeutic candidate are typically expensive, complex and time-consuming, and have uncertain outcomes. Conditions in which clinical trials are conducted differ, and results achieved in one set of conditions could be different from the results achieved in different conditions or with different subject populations. If our therapeutic candidates fail to achieve successful outcomes in their respective clinical trials, the therapeutics will not receive regulatory approval and in such event cannot be commercialized. In addition, if we fail to complete or experience delays in completing clinical tests for any of our therapeutic candidates, we may not be able to obtain regulatory approval or commercialize our therapeutic candidates on a timely basis, or at all. A critical failure of a clinical trial may result in termination of the program and a significant decrease in our value. Significant delays in a clinical trial to support the appropriate regulatory approvals could impact the amount of capital required for the business to become fully sustainable on a cash flow basis. We have a diversified model to limit the impact of clinical trial outcomes on our ability to operate as a going concern. We have dedicated internal resources to establish and monitor each of the clinical programs for the purpose of maximising successful outcomes. We also engage outside experts to help create well-designed clinical programs that provide valuable information and mitigate the risk of failure. Significant scientific due diligence and preclinical experiments are conducted prior to a clinical trial to evaluate the odds of the success of the trial. In the event of the outsourcing of these trials, care and attention are given to assure the quality of the vendors used to perform the work. 3 Risks related to regulatory approval The pharmaceutical industry is highly regulated. Regulatory authorities across the world enforce a range of laws and regulations governing the testing, approval, manufacturing, labelling and marketing of pharmaceutical therapeutics. Stringent standards are imposed which relate to the quality, safety and efficacy of these therapeutics. These requirements are a major determinant of the commercial viability of developing a drug substance or medical device given the time, expertise and expense which must be invested. We may not obtain regulatory approval for our therapeutic candidates. Moreover, approval in one territory offers no guarantee that regulatory approval will be obtained in any other territory. Even if therapeutics are approved, subsequent regulatory difficulties may arise, or the conditions relating to the approval may be more onerous or restrictive than we anticipate. The failure of one of our therapeutics to obtain any required regulatory approval, or conditions imposed in connection with any such approval, may result in a significant decrease in our value. We manage our regulatory risk by employing highly experienced clinical managers and regulatory affairs professionals who, where appropriate, will commission advice from external advisors and consult with the regulatory authorities on the design of our preclinical and clinical programs. These experts ensure that high-quality protocols and other documentation are submitted during the regulatory process, and that well-reputed contract research organizations with global capabilities are retained to manage the trials. We also engage with experts, including on our R&D Committee, to help design clinical trials to help provide valuable information and maximize the likelihood of regulatory approval. Additionally, we have a diversified model with numerous assets such that the failure to receive regulatory approval or subsequent regulatory difficulties with respect to any one therapeutic would not adversely impact all of our therapeutics and businesses. G overnance
62 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Risk management continued Risk Impact* Management Plans/Actions 4 Risks related to therapeutic safety There is a risk of adverse reactions with all drugs and medical devices. If any of our therapeutics are found to cause adverse reactions or unacceptable side effects, then therapeutic development may be delayed, additional expenses may be incurred if further studies are required, and, in extreme circumstances, it may prove necessary to suspend or terminate development. This may occur even after regulatory approval has been obtained, in which case additional trials may be required, the approval may be suspended or withdrawn or require product labels to include additional safety warnings. Adverse events or unforeseen side effects may also potentially lead to product liability claims against us as the developer of the therapeutics and sponsor of the relevant clinical trials. These risks are also applicable to our Founded Entities and any trials they conduct or therapeutic candidates they develop. Adverse reactions or unacceptable side effects may result in a smaller market for our therapeutics, or even cause the therapeutics to fail to meet regulatory requirements necessary for sale of the therapeutic. This, as well as any claims for injury or harm resulting from our therapeutics, may result in a significant decrease in our value. Safety is our top priority in the design of our therapeutics. We conduct extensive preclinical and clinical trials which test for and identify any adverse side effects. Despite these steps and precautions, we cannot fully avoid the possibility of unforeseen side effects. To mitigate the risk further we have insurance in place to cover product liability claims which may arise during the conduct of clinical trials. 5 Risks related to therapeutic profitability and competition We may be unable to sell our therapeutics profitably if reimbursement from third-party payers – such as private health insurers and government health authorities – is restricted or not available. If, for example, it proves difficult to build a sufficiently strong economic case based on the burden of illness and population impact. Third-party payers are increasingly attempting to curtail healthcare costs by challenging the prices that are charged for pharmaceutical therapeutics and denying or limiting coverage and the level of reimbursement. Moreover, even if the therapeutics can be sold profitably, they may not be adopted by patients and the medical community. Alternatively, our competitors – many of whom have considerably greater financial and human resources – may develop safer or more effective therapeutics or be able to compete more effectively in the markets targeted by us. New companies may enter these markets and novel therapeutics and technologies may become available which are more commercially successful than those being developed by us. These risks are also applicable to our Founded Entities and could result in a decrease in their value. The failure to obtain reimbursement from third party payers, and competition from other therapeutics, could significantly decrease the amount of revenue we may receive from therapeutic sales for certain therapeutics. This may result in a significant decrease in our value. We engage reimbursement experts to conduct pricing and reimbursement studies for our therapeutics to ensure that a viable path to reimbursement, or direct user payment, is available. We also closely monitor the competitive landscape for our therapeutics and therapeutic candidates and adapt our business plans accordingly. Not all therapeutics that we are developing will rely on reimbursement. Also, while we cannot control outcomes, we seek to design studies to generate data that will help support potential reimbursement.
PureTech Health plc Annual Report and Accounts 2023 63 G overnance Risk management continued Risk Impact* Management Plans/Actions 6 Risks related to intellectual property protection We may not be able to obtain patent protection for some of our therapeutics or maintain the secrecy of their trade secrets and know-how. If we are unsuccessful in doing so, others may market competitive therapeutics at significantly lower prices. Alternatively, we may be sued for infringement of third-party patent rights. If these actions are successful, then we would have to pay substantial damages and potentially remove our therapeutics from the market. We license certain intellectual property rights from third parties. If we fail to comply with our obligations under these agreements, it may enable the other party to terminate the agreement. This could impair our freedom to operate and potentially lead to third parties preventing us from selling certain of our therapeutics. The failure to obtain patent protection and maintain the secrecy of key information may significantly decrease the amount of revenue we may receive from therapeutic sales. Any infringement litigation against us may result in the payment of substantial damages by us and result in a significant decrease in our value. We spend significant resources in the prosecution of our patent applications and maintenance of our patents, and we have in-house patent counsel and patent group to help with these activities. We also work with experienced external attorneys and law firms to help with the protection, maintenance and enforcement of our patents. Third party patent filings are monitored to ensure the Group continues to have freedom to operate. Confidential information (both our own and information belonging to third parties) is protected through use of confidential disclosure agreements with third parties, and suitable provisions relating to confidentiality and intellectual property exist in our employment and advisory contracts. Licenses are monitored for compliance with their terms. 7 Risks related to enterprise profitability We expect to continue to incur substantial expenditure in further research and development activities. There is no guarantee that we will become operationally profitable, and, even if we do so, we may be unable to sustain operational profitability. The strategic aim of the business is to generate profits for our shareholders through the commercialization of technologies through therapeutic sales, strategic partnerships and sales of businesses or parts thereof. The timing and size of these potential inflows are uncertain. Should revenues from our activities not be achieved, or in the event that they are achieved but at values significantly less than the amount of capital invested, then it would be difficult to sustain our business. We retain significant cash in order to support funding of our Founded Entities and our Internal Programs. We have close relationships with a wide group of investors and strategic partners to ensure we can continue to access the capital markets and additional monetization and funding for our businesses. Additionally, our Founded Entities are able to raise money directly from third party investors and strategic partners. 8 Risks related to hiring and retaining qualified employees and key personnel We operate in complex and specialized business domains and require highly qualified and experienced management to implement our strategy successfully. We and many of our businesses are located in the United States which is a highly competitive employment market. Moreover, the rapid development which is envisaged by us may place unsupportable demands on our current managers and employees, particularly if we cannot attract sufficient new employees. There is also the risk that we may lose key personnel. The failure to attract highly effective personnel or the loss of key personnel would have an adverse impact on our ability to continue to grow and may negatively affect our competitive advantage. The Board regularly seeks external expertise to assess the competitiveness of the compensation packages of its senior management. Senior management continually monitors and assesses compensation levels to ensure we remain competitive in the employment market. We maintain an extensive recruiting network through our Board members, advisors and scientific community involvement. We also employ an executive as a full- time in-house recruiter and retain outside recruiters when necessary or advisable. Additionally, we are proactive in our retention efforts and include incentive-based compensation in the form of equity awards and annual bonuses, as well as a competitive benefits package. We have a number of employee engagement efforts to strengthen our PureTech community.
64 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Risk management continued Risk Impact* Management Plans/Actions 9 Risks related to business, economic or public health disruptions Business, economic, financial or geopolitical disruptions or global health concerns could seriously harm our development efforts and increase our costs and expenses. Broad-based business, economic, financial or geopolitical disruptions could adversely affect our ongoing or planned research and development activities. Global health concerns, such as a further pandemic, or geopolitical events, like the ongoing consequences of the armed conflicts, could also result in social, economic, and labor instability in the countries in which we operate or the third parties with whom we engage. We consider the risk to be increasing since the prior year and note further risks associated with the banking system and global financial stability. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including the suppliers, clinical trial sites, regulators, providers of financial services and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns or geopolitical events such as these ones could disproportionately impact the hospitals and clinical sites in which we conduct any of our current and/or future clinical trials, which could have a material adverse effect on our business and our results of operation and financial impact. We regularly review the business, economic, financial and geopolitical environment in which we operate. It is possible that we may see further impact as a result of current geopolitical tensions. We monitor the position of our suppliers, clinical trial sites, regulators, providers of financial services and other third parties with whom we conduct business. We develop and execute contingency plans to address risks where appropriate.
G overnance PureTech Health plc Annual Report and Accounts 2023 65 Viability PureTech Health plc Viability Statement In accordance with the UK Corporate Governance Code (Governance Code) published in July 2018, the Directors have assessed the prospects of the Company with respect to the December 31, 2023 financial position. Based on current projections, the Directors believe that the Company has sufficient available funding to extend operations into at least 2027. This period is deemed appropriate having assessed the financial health as of December 31, 2023. We expect our Wholly-Owned Programs3 to significantly progress during this period and for key Controlled Founded Entities2 to reach significant development milestones over the period of the assessment. As we advance our Wholly-Owned Programs and Controlled Founded Entities, our future decisions will be driven by the data of our programs. Our current projections are consistent with our disciplined R&D approach to advance our Wholly-Owned Programs and Controlled Founded Entities through the development process and not commit resources to further development unless specific thresholds for advancement are met. The Directors have evaluated our cash and cash equivalents and short-term investment of $327.1 million as of December 31, 2023, the gross proceeds of $292.7 million that we received from the Bristol Myers Squibb ("BMS") acquisition of Karuna in March 2024, and our proposed capital return of $100.0 million by way of a repurchase of ordinary shares to our shareholders announced in March 2024, against plausible scenarios. The Directors have determined that these amounts are sufficient to support our existing and newly launched Founded Entities1 (Seaport Therapeutics and Gallop Oncology), and our strategy around creating and supporting other Founded Entities, should they require it. Additionally, the Directors have determined that these amounts are also sufficient for the advancement of our Wholly-Owned Programs, to provide reasonable returns for our shareholders and to fund the Company’s operating costs into at least 2027. The Directors' review has considered all of the principal and emerging risks identified and focused on the pathway to regulatory approval of each therapeutic candidate being developed within our Wholly-Owned Programs as well as those of our Founded Entities. The Directors reviewed the near-term liquidity and considered funding plans of our Wholly-Owned Programs and Founded Entities and the near-term capital returns to our shareholders in our assessment of long-term cash flow projections. It should be noted that the majority of funding has been allocated to support the Company’s strategy around Founded Entities, alongside the advancement of the Wholly-Owned Programs which could become Founded entities themselves. The Directors confirm that they have a reasonable expectation that we will continue to operate and meet our obligations as they become due over the period of the assessment. In making this statement, the Directors carried out a robust assessment of the principal and emerging risks, including those that would threaten our business model, future performance, solvency or liquidity and evaluated plausible scenarios that included these risks. This assessment was made in consideration of our strong financial position, current strategy, and management of principal and emerging risks. The following facts support the Directors’ view of the viability: — We have a cash, cash equivalents and short-term investments position of $327.1 million as of December 31, 2023. Our cash position was strengthened in March 2024 when we received gross proceeds of $292.7 million from the BMS acquisition of Karuna. — In March 2024, we announced a proposed capital return of $100.0 million to our shareholders by way of a tender offer. This announcement reflects the Board’s commitment to evaluate its capital allocation regularly, including the assessment of opportunities for capital returns to our shareholders, subject to the Company’s operational needs. — Our cash, cash equivalents and short-term investments are highly liquid and readily available. — We have control over the spending and strategic direction of our Wholly-Owned Programs and Controlled Founded Entities. — Our business model is structured so that we are not reliant on the successful outcomes of any one therapeutic or technology within the Wholly-Owned Programs, or any Founded Entities. In addition, the fact that our Wholly-Owned Programs and Founded Entities (with the exception of Akili) are currently in the research and development stage means that these therapeutics, technologies and entities are not reliant on cash inflows from product sales or services during the period of this assessment. This also means that we are not highly susceptible to conditions in one or more market sectors in this time frame. The utilization of existing cash, cash equivalents and short- term investments to advance these therapeutics, technologies and entities is within our control, and the spending and investment decisions are largely discretionary. Therefore, there is management control on reducing discretionary spending if unforeseen liquidity risks arise. Although engaging with collaboration partners is highly valuable from a validation and, in some cases, funding perspective, we are not solely reliant on cash flows from such sources over the period of assessment. Further, the Directors have considered milestone and royalty funding based on existing collaboration and partnership arrangements, milestone payments from the Royalty Purchase Agreement with Royalty Pharma, the ability of the Wholly- Owned Programs and each Controlled Founded Entity to enter into new collaboration agreements, all of which could be expected to generate cash in-flows but were not included in the assessment.
G ov er na nc e 66 PureTech Health plc Annual Report and Accounts 2023 The Directors note that our ownership stakes in the Founded Entities are expected to be illiquid in nature, with the exception of our ownership stakes in entities which are publicly traded on Nasdaq. While we anticipate holding these ownership stakes through the achievement of significant milestones or other events, we will continue to be diligent in exploring monetization opportunities after key value accretion has occurred similar to the execution of the sale of 1,750,000 common shares of Karuna for an aggregate proceeds of $218.1 million in 2021, the sale of 602,100 common shares of Karuna for an aggregate proceeds of $115.5 million in 2022, the sale of 535,400 common shares of Vor for an aggregate proceeds of $3.3 million in 2022, and the sale of 167,579 common shares of Karuna for an aggregate proceeds of $33.3 million in 2023. We also expect that certain of these Founded Entities may not be successful, and this could result in a loss of the amounts previously invested. For example, Gelesis was listed on the New York Stock Exchange as of December 31, 2022 and was delisted from the New York Stock Exchange in April 2023. On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under the United States bankruptcy code. However, even if certain Founded Entities are not successful, our liquidity is expected to remain sufficient to achieve the remaining milestone events, fund operational costs and provide returns for our shareholders over the period of assessment. The Directors have concluded, based on our strong financial position and readily available cash, cash equivalents and short-term investments, that we are highly likely to be able to fund our infrastructure requirements, advance our Wholly- Owned Programs, including trials in more advanced stages, and contribute amounts necessary for the Founded Entities to reach significant development milestones over the period of the assessment and return capital to our shareholders. Therefore, there is a reasonable expectation that we have adequate resources and will continue to operate and meet our obligations over the period of the assessment. Viability continued 1. Founded Entities are comprised of the entities which the Company incorporated and announced the incorporation as a Founded Entity externally. It includes certain of the Company’s wholly-owned subsidiaries which have been announced by the Company as Founded Entities, Controlled Founded Entities2 and deconsolidated Founded Entities. As of December 31, 2023, deconsolidated Founded Entities included Akili Interactive Labs, Inc., Karuna Therapeutics, Inc., Vor Bio, Inc., Gelesis, Inc., Sonde Health, Inc., and Vedanta Biosciences, Inc. 2. Controlled Founded Entities are comprised of the Company’s consolidated operational subsidiaries that currently have already raised third-party dilutive capital. As of December 31, 2023, Entrega was the only entity under this definition. 3. Wholly-Owned Programs are comprised of the Company’s current and future therapeutic candidates and technologies that are developed by the Company's wholly-owned subsidiaries, whether they were announced as a Founded Entity or not, and will be advanced through with either the Company's funding or non-dilutive sources of financing. As of December 31, 2023, Wholly-Owned Programs were developed by the wholly-owned subsidiaries Alivio Therapeutics, Inc., PureTech LYT, Inc., PureTech LYT 100, Inc. and included primarily the programs LYT-100, LYT-200, LYT-300, and the Glyph platform.
G overnance PureTech Health plc Annual Report and Accounts 2023 67 1 Funding figure includes private convertible notes and public offerings. Funding figure excludes future milestone considerations received in conjunction with partnerships and collaborations. Funding figure does not include gross proceeds received by PureTech following the 2024 post-period acquisition of Karuna by BMS. 2 Number represents figure for the relevant fiscal year only and is not cumulative. Key Performance Indicators – 2023 The key performance indicators (KPIs) below measure our performance against our strategy. As PureTech’s strategy has evolved, new KPIs have replaced older metrics that are no longer representative of our progress. 2022: $1.28b 2021: $731.9m 2020: $247.8m 2019: $666.8m 2018: $274.0m 2017: $102.9m Progress Karuna, Vedanta, and Gelesis raised funds in the form of financings in 2023, including $561.5 million by third party financial and strategic investors. $578.4m1,2 Amount of funding secured for Founded Entities $561.5m (97%) came from third parties 2022: $115.4m 2021: $218.1m 2020: $350.6m 2019: $9.3m Progress A key component of our strategy is to derive value from the equity growth of our Founded Entities. In 2023, we generated cash proceeds of approximately $133.3 million from the sale of equity in one of our Founded Entities and an upfront payment on a royalty transaction for one of our Founded Entities. $133.3m2 Proceeds generated from Founded Entity monetization events 2022: 4 2021: 11 2020: 6 2019: 6 Progress PureTech initiated one clinical trial, Karuna initiated three clinical trials, and Vedanta initiated one clinical trial in 2023. 52 Number of clinical trial initiations 2022: 1 2021: 2 2020: 3 2019: 1 2018: 1 2017: 1 Progress In 2023, we nominated a new therapeutic candidate, LYT-320. LYT-320 is a novel prodrug of agomelatine and the third therapeutic candidate developed from our Glyph™ platform to be advanced toward the clinic. LYT-320 is now being advanced through a newly created Founded Entity, Seaport Therapeutics, as SPT-320. 12 Number of programs created by PureTech 2022: 1 2021: 1 2020: 3 2019: 0 Progress In 2023, we advanced LYT-300 into a Phase 2a clinical trial in acute anxiety. LYT-300 is now being advanced through a newly created Founded Entity, Seaport Therapeutics, as SPT-300. 12 Number of programs advanced internally through clinical phases 2022: 1 2021: 1 2020: 3 2019: 0 Progress PureTech completed one clinical trial, Akili completed two clinical trials, and Karuna completed two clinical trials in 2023. 52 Number of clinical trial readouts
G ov er na nc e 68 PureTech Health plc Annual Report and Accounts 2023 Reporting Framework You should read the following discussion and analysis together with our Consolidated Financial Statements, including the notes thereto, set forth elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and financing our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including the risks set forth on pages 60 to 64 and in the Additional Information section from pages 186 to 224, our actual results could differ materially from the results described in or implied by these forward-looking statements. Our audited Consolidated Financial Statements as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021, have been prepared in accordance with UK-adopted International Financial Reporting Standards ("IFRSs"). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board ("IASB"). The following discussion contains references to the Consolidated Financial Statements of PureTech Health plc (the "Parent") and its consolidated subsidiaries, together "the Group". These financial statements consolidate PureTech Health plc’s subsidiaries and include the Group’s interest in associates by way of equity method, as well as investments held at fair value. Subsidiaries are those entities over which the Group maintains control. Associates are those entities in which the Group does not have control for financial accounting purposes but maintains significant influence over financial and operating policies. Where the Group has neither control nor significant influence for financial accounting purposes, or when the investment in associates is not in instruments that would be considered equity for accounting purposes, we recognize our holdings in such entity as an investment at fair value with changes in fair value being recorded in the Consolidated Statement of Comprehensive Income/(Loss). For purposes of our Consolidated Financial Statements, each of our Founded Entities1 are considered to be either a “subsidiary", an “associate” or an "investment held at fair value" depending on whether the Group controls or maintains significant influence over the financial and operating policies of the respective entity at the respective period end date, and depending on the form of the investment. For additional information regarding the accounting treatment of these entities, see Note 1. Material Accounting Policies to our Consolidated Financial Statements included in this report. For additional information regarding our operating structure, see “Basis of Presentation and Consolidation” below. Business Background and Results Overview The business background is discussed above from pages 1 to 21, which describes the business development of our Wholly- Owned Programs3 and Founded Entities. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more therapeutic candidates of our wholly-owned or Controlled Founded Entities2, which may or may not occur. Historically, certain of our Founded Entities' therapeutics received marketing authorization from the FDA, but our Wholly-Owned Programs have not generated revenue from product sales to date. Furthermore, our ability to achieve profitability will largely rely on successfully monetizing our investment in founded entities, including the sale of rights to royalties, entering into strategic partnerships, and other related business development activities. We deconsolidated a number of our Founded Entities, specifically Vedanta Biosciences, Inc. ("Vedanta") in March 2023, Sonde Health Inc. ("Sonde") in 2022, Karuna Therapeutics, Inc. ("Karuna"), Vor Biopharma Inc. ("Vor") and Gelesis in 2019, and Akili in 2018. Any deconsolidation affects our financials in the following manner: — our ownership interest does not provide us with a controlling financial interest; — we no longer control the Founded Entity's assets and liabilities, and as a result, we derecognize the assets, liabilities and non-controlling interests related to the Founded Entity from our Consolidated Statement of Financial Position; — we record our retained investment in the Founded Entity at fair value; and — the resulting amount of any gain or loss is recognized in our Consolidated Statement of Comprehensive Income/(Loss). We anticipate our expenses to continue to increase proportionally in connection with execution of our strategy around creating and supporting Founded Entities, as well as the ongoing development activities related mostly to the advancement into late-stage studies of the clinical programs within our Wholly-Owned Programs. We also expect that our expenses and capital requirements will increase in the near to mid-term as we: — continue our research and development efforts; — seek regulatory approvals for any therapeutic candidates that successfully complete clinical trials; and — add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our therapeutic development and potential future commercialization claims. More specifically, we anticipate that our internal research and development spend will increase in the foreseeable future as we may initiate additional clinical studies for our existing therapeutic candidates, evaluate new therapeutic candidates for investment and further development, progress additional therapeutic candidates into the clinic, as well as advance our technology platforms. Financial Review 1. Founded Entities are comprised of the entities which the Company incorporated and announced the incorporation as a Founded Entity externally. It includes certain of the Company’s wholly-owned subsidiaries which have been announced by the Company as Founded Entities, Controlled Founded Entities2 and deconsolidated Founded Entities. As of December 31, 2023, deconsolidated Founded Entities included Akili Interactive Labs, Inc., Karuna Therapeutics, Inc., Vor Bio, Inc., Gelesis, Inc., Sonde Health, Inc., and Vedanta Biosciences, Inc. 2. Controlled Founded Entities are comprised of the Company’s consolidated operational subsidiaries that currently have already raised third-party dilutive capital. As of December 31, 2023, Entrega was the only entity under this definition. 3. Wholly-Owned Programs are comprised of the Company’s current and future therapeutic candidates and technologies that are developed by the Company's wholly-owned subsidiaries, whether they were announced as a Founded Entity or not, and will be advanced through with either the Company's funding or non-dilutive sources of financing. As of December 31, 2023, Wholly-Owned Programs were developed by the wholly-owned subsidiaries Alivio Therapeutics, Inc., PureTech LYT, Inc., PureTech LYT 100, Inc. and included primarily the programs LYT-100, LYT-200, LYT-300, and the Glyph platform.
G overnance PureTech Health plc Annual Report and Accounts 2023 69 In addition, with respect to our Founded Entities’ programs, we anticipate that we will continue to fund a small portion of development costs by strategically participating in such companies’ financings when we believe participation in such financings is in the best interests of our shareholders. The form of any such participation may include investment in public or private financings, collaboration, partnership arrangements, and/or licensing arrangements, among others. Our management and strategic decision makers consider the future funding needs of our Founded Entities and evaluate the needs and opportunities for returns with respect to each of these Founded Entities routinely and on a case-by-case basis. As a result, we need substantial additional funding in the future, following the period described below in the Funding Requirement section, to support our continuing operations and pursue our growth strategy until such time as we can generate sufficient revenue from product sales to support our operations, if ever. Until such time, we expect to finance our operations through a combination of monetization of our interests in our Founded Entities, collaborations with third parties, or other sources. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we are unable to raise capital or enter into such agreements, as and when needed, we may have to delay, scale back or discontinue the development and commercialization of one or more of our wholly-owned therapeutic candidates. Measuring Performance The Financial Review discusses our operating and financial performance, our cash flows and liquidity as well as our financial position and our resources. The results for each period are compared primarily with the results of the comparative period in the prior year. Reported Performance Reported performance considers all factors that have affected the results of our business, as reflected in our Consolidated Financial Statements. Core Performance Core performance measures are alternative performance measures which are adjusted and non-IFRS measures. These measures cannot be derived directly from our Consolidated Financial Statements. We believe that these non-IFRS performance measures, when provided in combination with reported performance, will provide investors, analysts and other stakeholders with helpful complementary information to better understand our financial performance and our financial position from period to period. The measures are also used by management for planning and reporting purposes. The measures are not substitutable for IFRS financial information and should not be considered superior to financial information presented in accordance with IFRS. Cash flow and liquidity PureTech Level cash, cash equivalents and short-term investments Measure type: Core performance Definition: Cash and cash equivalents and short-term investments held at PureTech Health plc and our wholly-owned subsidiaries. Why we use it: PureTech Level cash, cash equivalents and short- term investments is a measure that provides valuable additional information with respect to cash, cash equivalents and short-term investments available to fund the Wholly-Owned Programs and make certain investments in Founded Entities. Recent Developments (subsequent to December 31, 2023 The Group has evaluated subsequent events after December 31, 2023 up to the date of issuance, April 25, 2024, of the Consolidated Financial Statements, and has not identified any recordable or disclosable events not otherwise reported in these Consolidated Financial Statements or notes thereto, except for the following: In January 2024, the Group established two new clinical- stage entities: Seaport Therapeutics ("Seaport") and Gallop Oncology ("Gallop"). Seaport will advance certain central nervous system programs and relevant Glyph intellectual property. Gallop will advance LYT-200 and other galectin-9 intellectual property. As of December 31, 2023, the financial results of these programs were included in the Wholly-Owned Programs segment in the footnotes to the Consolidated Financial Statements. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities. On May 9, 2022, the Group announced the commencement of a $50.0 million share repurchase program the ("Program") of its ordinary shares of one pence each. In February 2024, the Group completed the Program and has repurchased an aggregate of 20,182,863 ordinary shares under the Program. These shares have been held as treasury shares and are being used to settle the vesting of restricted stock units or exercise of options. In March 2024, Karuna was acquired by Bristol Myers Squibb (“BMS”) in accordance with a definitive merger agreement signed in December 2023. The Group received total proceeds of $292.7 million before income tax in exchange for its holding of 886,885 shares of Karuna common stock. In March 2024, the Group announced a proposed capital return of $100.0 million to its shareholders by way of a tender offer (the "Tender Offer"). The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. If the full $100.0 million is not returned, then the Group intends to return any remainder following the completion of the Tender Offer, by way of a special dividend. In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised $100 million in a Series A financing, out of which $32 million was invested by the Group. Following the Series A financing, the Group holds equity ownership in Seaport of 61.5 percent on a diluted basis. In April 2024, the Gelesis' Chapter 7 Trustee provided notice that a third party bid to purchase the assets subject to the bankruptcy had been accepted as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of the assets is ultimately approved by the Bankruptcy Court and consummated, it is expected that PureTech could recover a portion of its investment in Gelesis senior secured convertible promissory notes. The ultimate resolution of this matter, any potential recovery, and the associated timing remain uncertain. The Group has not recorded any amount in its Consolidated Financial Statements related to amounts that may be received as a result of the bankruptcy process. Financial Review continued
G ov er na nc e 70 PureTech Health plc Annual Report and Accounts 2023 Financial Highlights The following is the reconciliation of the amounts appearing in our Consolidated Statement of Financial Position to the Alternative Performance Measure described above: (in thousands) December 31 2023 December 31 2022 Cash and cash equivalents 191,081 149,866 Short-term investments 136,062 200,229 Consolidated cash, cash equivalents and short-term investments 327,143 350,095 Less: cash and cash equivalents held at non-wholly owned subsidiaries (1,097) (10,622) PureTech Level cash, cash equivalents and short-term investments $326,046 $339,473 Basis of Presentation and Consolidation Our Consolidated Financial Information consolidates the financial information of PureTech Health plc, as well as its subsidiaries, and includes our interest in associates and investments held at fair value. Basis for Segmentation Our Directors are our strategic decision-makers. Our operating segments are determined based on the financial information provided to our Directors periodically for the purposes of allocating resources and assessing performance. During the second half of 2023, we changed the financial information that was regularly reviewed by the Directors to allocate resources and assess performance. We have determined each of our Wholly-Owned Programs represents an operating segment, and we have aggregated each of these operating segments into one reportable segment, the Wholly-Owned Programs segment, given the high level of operational and financial similarities across our Wholly-Owned Programs. Each of our Controlled Founded Entities represents an operating segment. We aggregate each Controlled Founded Entity operating segment into one reportable segment, the Controlled Founded Entities segment. For our entities that do not meet the definition of an operating segment, we present this information in the Parent Company & Other column in our segment footnote to reconcile the information in this footnote to our Consolidated Financial Statements. Substantially all of our revenue and profit generating activities are generated within the United States and, accordingly, no geographical disclosures are provided. Following is the description of our reportable segments: Wholly-Owned Programs The Wholly-Owned Programs segment is advancing Wholly- Owned Programs which are focused on treatments for patients with devastating diseases. The Wholly-Owned Programs segment is comprised of the technologies that are wholly-owned and will be advanced through with either the Group's funding or non-dilutive sources of financing. The operational management of the Wholly-Owned Programs segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development. Controlled Founded Entities The Controlled Founded Entities segment is comprised of the Group’s consolidated operational subsidiaries as of December 31, 2023 that either have, or have plans to hire, independent management teams and currently have already raised third- party dilutive capital. These subsidiaries have active research and development programs and either have entered into or plan to seek an equity or debt investment partner, who will provide additional industry knowledge and access to networks, as well as additional funding to continue the pursued growth of the company. The Group’s entities that were determined not to meet the definition of an operating segment are included in the Parent Company and Other column to reconcile the segment information to the financial statements. This column captures activities not directly attributable to the Group’s operating segment and includes the activities of the Parent, corporate support functions and certain research and development support functions that are not directly attributable to a strategic business segment as well as the elimination of intercompany transactions. This column also captures the operating results for our deconsolidated entities through the date of deconsolidation (e.g. Vedanta in 2023 and Sonde in 2022), and accounting for our holdings in Founded Entities for which control has been lost, which primarily represents: the activity associated with deconsolidating an entity when we no longer control the entity (e.g. Vedanta in 2023 and Sonde in 2022), the gain or loss on our investments accounted for at fair value (e.g. our ownership stakes in Karuna, Vor and Akili) and our net income or loss of associates accounted for using the equity method. In January 2024, the Group launched two new Founded Entities (Seaport Therapeutics and Gallop Oncology) to advance certain programs from the Wholly-Owned Programs. Seaport Therapeutics will advance certain central nervous system programs and relevant Glyph intellectual property. Gallop Oncology will advance LYT-200 and other galectin-9 intellectual property. The financial results of these programs were included in the Wholly-Owned Programs segment in the footnotes to the Consolidated Financial Statements as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities. The table below summarizes the entities that comprised each of our segments as of December 31, 2023: Wholly-Owned Programs Segment Ownership Percentage PureTech LYT 100.0% PureTech LYT-100, Inc. 100.0% Alivio Therapeutics, Inc. 100.0% Controlled Founded Entities Segment Entrega, Inc. 77.3% Parent Company and Other3 Follica, LLC 85.4% Gelesis, Inc. —% Sonde Health, Inc.1 40.2% Vedanta Biosciences, Inc.2 47.0% PureTech Health plc 100.0% PureTech Health LLC 100.0% PureTech Securities Corporation 100.0% PureTech Securities II Corporation 100.0% PureTech Management, Inc. 100.0% 1 Sonde Health, Inc was deconsolidated on May 25, 2022. 2 Vedanta Biosciences, Inc. was deconsolidated on March 1, 2023. 3 Includes dormant, inactive and shell entities as well as Founded Entities that were deconsolidated prior to 2023. Financial Review continued
G overnance PureTech Health plc Annual Report and Accounts 2023 71 Components of Our Results of Operations Revenue To date, we have not generated any meaningful revenue from product sales and we do not expect to generate any meaningful revenue from product sales in the near future. We derive our revenue from the following: Contract revenue We generate revenue primarily from licenses, services and collaboration agreements, including amounts that are recognized related to upfront payments, milestone payments, royalties and amounts due to us for research and development services. In the future, revenue may include additional milestone payments and royalties on any net product sales under our licensing agreements. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services and milestone and other payments. Grant Revenue Grant revenue is derived from grant awards we receive from governmental agencies and non-profit organizations for certain qualified research and development expenses. We recognize grants from governmental agencies and non-profit organizations as grant revenue in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that we will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. We evaluate the conditions of each grant as of each reporting date to ensure that we have reasonable assurance of meeting the conditions of each grant arrangement, and it is expected that the grant payment will be received as a result of meeting the necessary conditions. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our wholly-owned and our Controlled Founded Entities’ therapeutic candidates, which include: — employee-related expenses, including salaries, related benefits and equity-based compensation; — expenses incurred in connection with the preclinical and clinical development of our wholly-owned and our Founded Entities’ therapeutic candidates, including our agreements with contract research organizations; — expenses incurred under agreements with consultants who supplement our internal capabilities; — the cost of lab supplies and acquiring, developing and manufacturing preclinical study materials and clinical trial materials; — costs related to compliance with regulatory requirements; and — facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other operating costs. We expense all research costs in the periods in which they are incurred and development costs are capitalized only if certain criteria are met. For the periods presented, we have not capitalized any development costs since we have not met the necessary criteria required for capitalization. Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase for the foreseeable future in connection with our planned preclinical and clinical development activities in the near term and in the future related to our Wholly-Owned Programs and our existing, newly established and future Founded Entities. The successful development of our wholly-owned and our Founded Entities’ therapeutic candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these therapeutic candidates through our funding or in conjunction with our external partners. We are also unable to predict when, if ever, material net cash inflows will commence from our wholly-owned or our Founded Entities’ therapeutic candidates. This is due to the numerous risks and uncertainties associated with developing therapeutics, including the uncertainty of: — progressing research and development of our Wholly- Owned Programs and Founded Entities and continuing to progress our various technology platforms and other potential therapeutic candidates based on previous human efficacy and clinically validated biology within our Wholly- Owned Programs and Founded Entities; — establishing an appropriate safety profile with investigational new drug application; — the success of our Founded Entities and their need for additional capital; — identifying new therapeutic candidates to add to our Wholly- Owned Programs or Founded Entities; — successful enrollment in, and the initiation and completion of, clinical trials; — the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; — establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; — addressing any competing technological and market developments, as well as any changes in governmental regulations; — negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations under such arrangements; — maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how, as well as obtaining and maintaining regulatory exclusivity for our wholly-owned and our Founded Entities’ therapeutic candidates; — continued acceptable safety profile of our therapeutics, if any, following approval; and — attracting, hiring and retaining qualified personnel. A change in the outcome of any of these variables with respect to the development of a therapeutic candidate could mean a significant change in the costs and timing associated with the development of that therapeutic candidate. For example, the FDA, the EMA, or another comparable foreign regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a therapeutic candidate, or we may experience significant trial delays due to patient enrollment or other reasons, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. In addition, we may obtain unexpected results from our clinical trials, and we may elect to discontinue, delay or modify clinical trials of some therapeutic candidates or focus on others. Identifying potential therapeutic candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our wholly- owned and our Founded Entities’ therapeutic candidates, if approved, may not achieve commercial success. Financial Review continued
G ov er na nc e 72 PureTech Health plc Annual Report and Accounts 2023 Finance Income/(Costs) Finance costs consist of loan interest expense, interest expense due to accretion of and adjustment to the sale of future royalties liability as well as the changes in the fair value of certain liabilities associated with financing transactions, mainly preferred share liabilities in respect of preferred shares issued by our non-wholly owned subsidiaries to third parties. Finance income consists of interest income on funds invested in money market funds and U.S. treasuries. Share of Net Income (Loss) of Associates Accounted for Using the Equity Method, Gain on Dilution of Ownership Interest and Impairment of Investment in Associates Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated Financial Statements include our share of the total comprehensive income/(loss) of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When the share of losses exceeds the net investment in the investee, including the investment considered long-term interests, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that we have incurred legal or constructive obligations or made payments on behalf of an investee. We compare the recoverable amount of the investment to its carrying amount on a go-forward basis and determine the need for impairment. When our share in the equity of the investee changes as a result of equity transactions in the investee (related to financing events of the investee), we calculate a gain or loss on such change in ownership and related share in the investee's equity. During the year ended December 31, 2022, we recorded a gain on dilution of our ownership interest in Gelesis. In 2023, we recorded our share of the net loss of Gelesis which reduced the carrying amount of our investment to zero. On October 30, 2023, Gelesis ceased operations and our significant influence in Gelesis ceased. Income Tax The amount of taxes currently payable or refundable is accrued, and deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for realizable loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using substantively enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Net deferred tax assets are not recorded if we do not assess their realization as probable. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in our financial statements in the period that includes the substantive enactment date or the change in tax status. General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility- related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our general and administrative expenses will increase in the future as we support our increased number of consolidated Founded Entities, continued research and development to support our Wholly-Owned Programs and our technology platforms, as well as potential commercialization of our Controlled Founded Entities' portfolio of therapeutic candidates. Total Other Income/(Expense) Gain on Deconsolidation of Subsidiary Upon losing control over a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (“NCI”). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss). Gain/(Loss) on Investments Held at Fair Value Investments held at fair value include both unlisted and listed securities held by us, which include investments in Akili, Karuna, Vor, Vedanta and Sonde and other insignificant investments. We account for investments in convertible preferred shares in accordance with IFRS 9 as investments held at fair value when the preferred shares do not provide their holders with access to returns associated with a residual equity interest. Under IFRS 9, the preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. Realized Gain/(Loss) on Sale of Investments Realized gain/(loss) on sale of investments held at fair value relates to realized differences in the per share disposal price of a listed security as compared to the per share exchange quoted price at the time of disposal. The realized loss in 2021 is attributable to a block sale discount, due to a variety of market factors, primarily the number of shares being transacted was significantly larger than the daily trading volume of the security. The realized loss in 2022 is attributable to the settlement of call options written by the Group on Karuna stock. The amount in 2023 is not significant. Gain/(Loss) on Investments in Notes from Associates Gain/(loss) on investments in notes from associates relates to our investment in the notes from Gelesis and Vedanta. We account for these notes in accordance with IFRS 9 as investments held at fair value, with changes in fair value recognized through the Consolidated Statement of Comprehensive Income/(Loss). The amount in 2023 is primarily attributable to a decrease in the fair value of our notes from Gelesis. On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under the United States bankruptcy code. Other Income (Expense) Other income (expense) consists primarily of gains and losses on financial instruments. In 2022, it relates primarily to the Backstop agreement with Gelesis. Financial Review continued
G overnance PureTech Health plc Annual Report and Accounts 2023 73 Results of Operations The following table, which has been derived from our audited financial statements for the years ended December 31, 2023, 2022 and 2021, included herein, summarizes our results of operations for the periods indicated, together with the changes in those items: Year ended December 31, (in thousands) 2023 2022 2021 Change (2022 to 2023) Change (2021 to 2022) Contract revenue $750 $2,090 $9,979 $(1,340) $(7,889) Grant revenue 2,580 13,528 7,409 (10,948) 6,119 Total revenue 3,330 15,618 17,388 (12,288) (1,770) Operating expenses: General and administrative expenses (53,295) (60,991) (57,199) 7,696 (3,792) Research and development expenses (96,235) (152,433) (110,471) 56,199 (41,962) Operating income/(loss) (146,199) (197,807) (150,282) 51,607 (47,524) Other income/(expense): Gain/(loss) on deconsolidation of subsidiary 61,787 27,251 — 34,536 27,251 Gain/(loss) on investments held at fair value 77,945 (32,060) 179,316 110,006 (211,377) Realized gain/(loss) on sale of investments (122) (29,303) (20,925) 29,180 (8,378) Gain/(loss) on investments in notes from associates (27,630) — — (27,630) — Other income/(expense) (908) 8,131 1,592 (9,038) 6,539 Other income/(expense) 111,072 (25,981) 159,983 137,053 (185,965) Net finance income/(costs) 5,078 138,924 5,050 (133,846) 133,875 Share of net income/(loss) of associates accounted for using the equity method (6,055) (27,749) (73,703) 21,695 45,954 Gain/(loss) on dilution of ownership interest in associate — 28,220 — (28,220) 28,220 Impairment of investment in associates — (8,390) — 8,390 (8,390) Income/(loss) before income taxes (36,103) (92,783) (58,953) 56,680 (33,830) Taxation (30,525) 55,719 (3,756) (86,243) 59,475 Net income/(loss) including non-controlling interest (66,628) (37,065) (62,709) (29,563) 25,644 Net income/(loss) for the year attributable to the Owners of the Group $(65,697) $(50,354) $(60,558) $(15,342) $10,204 Comparison of the Years Ended December 31, 2023 and 2022 Total Revenue Year ended December 31, (in thousands) 2023 2022 Change Contract Revenue: Controlled Founded Entities 750 1,500 (750) Parent Company and Other — 590 (590) Total Contract Revenue 750 2,090 (1,340) Grant Revenue: Wholly-Owned Programs 853 2,826 (1,973) Parent Company and Other 1,727 10,702 (8,975) Total Grant Revenue 2,580 13,528 (10,948) Total Revenue 3,330 15,618 (12,288) Our total revenue was $3.3 million for the year ended December 31, 2023, a decrease of $12.3 million, or 79 percent compared to the year ended December 31, 2022. The decrease was primarily attributable to a decrease of $10.9 million in grant revenue, mainly as a result of inclusion of Vedanta’s activities only for a part of the year through its deconsolidation in March 2023, and a decrease of $2.0 million as a result of decreased grant-related activities. The decrease was also attributed to a decrease of $1.3 million in contract revenue due to the conclusion of certain collaboration agreements, as well as a decrease of $0.6 million due primarily to the discontinuation of royalty revenue from Gelesis as Gelesis ceased operations in October 2023. Financial Review continued
G ov er na nc e 74 PureTech Health plc Annual Report and Accounts 2023 Research and Development Expenses Year ended December 31, (in thousands) 2023 2022 Change Research and Development Expenses: Wholly-Owned Programs $(89,495) $(116,054) $(26,559) Controlled Founded Entities (672) (1,051) (379) Parent Company and Other (6,068) (35,328) (29,260) Total Research and Development Expenses: $(96,235) $(152,433) $(56,199) Our research and development expenses were $96.2 million for the year ended December 31, 2023, a decrease of $56.2 million, or 37 percent compared to the year ended December 31, 2022. The change was primarily attributable to a decrease of $26.6 million in research and development expenses incurred by the Wholly-Owned Programs, out of which $13.1 million is due to prioritization of research and development projects, whereby the Group elected to focus on programs where it believes it has the highest probability of success and reduced efforts in research and clinical stage projects where such probability of success is lower. The program prioritization and reduction in the research activities further resulted in a decrease of $6.3 million in payroll and headcount related costs, and $1.3 million of impairment cost of fixed assets related to write down of lab equipment that was previously used by the research team. In addition, there was a decrease of $12.4 million, mainly in contract manufacturing expenses in the year ended December 31, 2023, as compared to the year ended December 31, 2022, due to the ramp up of clinical manufacturing efforts in the year ended December 31, 2022, in preparation of the start of new clinical studies. These decreases in research and development expenses were partially offset with increases of $4.7 million in consulting fee and outside services. The decrease in research and development expenses was also attributable to a decrease of $29.3 million in the Parent Company and Other as a result of inclusion of Vedanta’s activities only for a part of the year 2023 through its deconsolidation in March 2023, as compared with inclusion of the results for the full year in the year ended December 31, 2022. General and Administrative Expenses Year ended December 31, (in thousands) 2023 2022 Change General and Administrative Expenses: Wholly-Owned Programs $(14,020) $(8,301) $5,720 Controlled Founded Entities (562) (419) 143 Parent Company and Other (38,713) (52,272) (13,559) Total General and Administrative Expenses $(53,295) $(60,991) $(7,696) Our general and administrative expenses were $53.3 million for the year ended December 31, 2023, a decrease of $7.7 million, or 13 percent compared to the year ended December 31, 2022. The change was attributable to a decrease of $13.6 million in Parent Company and Other offset by increases of $5.7 million, and $0.1 million in the Wholly-Owned Programs segment and the Controlled Founded Entities segment, respectively. The decrease in the Parent Company and Other in 2023 was primarily attributable to the inclusion of Vedanta’s activities only for a part of the year 2023 through its deconsolidation in March 2023, as compared with inclusion of the results for the full year in the year ended December 31, 2022, partially offset with an increase in consulting fees related to project evaluation and employee compensation costs. The increases in the Wholly-Owned Programs segment and the Controlled Founded Entities segments were primarily driven by increases, in management fees, charged by the Parent Company during the year ended December 31, 2023 as compared to the year ended December 31, 2022. Total Other Income/(Expense) Total other income was $111.1 million for the year ended December 31, 2023 compared to a loss of $26.0 million for the year ended December 31, 2022, reflecting a change of $137.1 million, or 528%. The increase in other income was primarily attributable to the following: — a gain from investments held at fair value of $77.9 million primarily attributed to an increase in fair value of Karuna shares for the year ended December 31, 2023, compared to a loss of $32.1 million for the year ended December 31, 2022, reflecting an increase in other income of $110.0 million. — a gain from deconsolidation of Vedanta of $61.8 million for the year ended December 31, 2023, compared to a gain from deconsolidation of Sonde of $27.3 million for the year ended December 31, 2022, reflecting an increase in other income of $34.5 million. — a decrease of $29.2 million in realized loss from the sale of investments. These increases in total other income were partially offset by a loss from investments in notes from associates of $27.6 million primarily due to Gelesis ceasing operations in October 2023, for the year ended December 31, 2023, while no such loss occurred during the year ended December 31, 2022, as well as a decrease in other income of $9.0 million due to a gain of $7.6 million in respect of the Gelesis back-stop agreement recorded during the year ended December 31, 2022. Financial Review continued
G overnance PureTech Health plc Annual Report and Accounts 2023 75 Net Finance Income/(Costs) Net finance income was $5.1 million for the year ended December 31, 2023, compared to net finance income of $138.9 million for the year ended December 31, 2022, reflecting a decrease of $133.8 million or 96 percent in net finance Income. The decrease was primarily attributable to the net change in fair value of subsidiaries' financial instrument liabilities: during the year ended December 31, 2023, net change in fair value of subsidiaries' preferred shares, warrant and convertible note liabilities was an income of $2.6 million, while for the year ended December 31, 2022, such change was an income of $137.1 million, primarily related to change in fair value of Vedanta preferred share liabilities, leading to decrease in income of $134.4 million. In addition, the decrease in net finance income is attributable to non-cash interest expenses in the amount of $10.2 million recorded on the sale of future royalties liability, during the year ended December 31, 2023, with no such corresponding expense, or liability, in the year ended December 31, 2022. This decrease in net finance income was partially offset by an increase in interest income in the amount of $10.2 million due to higher interest rates and yields earned on financial assets and a decrease of $0.5 million in contractual interest expense during the year ended December 31, 2023, as compared to the year ended December 31, 2022. Share of Net Income/(loss) of Associates Accounted for Using the Equity Method For the year ended December 31, 2023, the share in net loss of associates reported under the equity method was $6.1 million as compared to the share in net loss of associates of $27.7 million for the year ended December 31, 2022, resulting in a net decrease in loss of $21.7 million. The decrease was primarily attributable to a decrease in Gelesis losses incurred in the year ended December 31, 2023, due to the reduction in the carrying value of our investment to zero. Gain/(Loss) on Dilution of Ownership Interest in Associates and Impairment of Investment in Associates During the year ended December 31, 2022, the Group recorded a gain on dilution of its equity ownership interest in Gelesis of $28.2 million as a result of the completion of the merger with CapStar on January 13, 2022. In addition, during the year ended December 31, 2022, the Group recorded an impairment loss of $8.4 million in respect of its investment in Gelesis. No such gains or impairment was incurred in the year ended December 31, 2023. Taxation Income tax expense was an expense of $30.5 million for the year ended December 31, 2023, as compared to a benefit of $55.7 million for the year ended December 31, 2022, reflecting an increase in income tax expense of $86.2 million. The increase in the income tax expense in the year ended December 31, 2023, was primarily attributable to lower pre-tax loss in the tax consolidated U.S. group, the tax in respect of the sale of future royalties to Royalty Pharma and the impact of derecognizing previously recognized deferred tax assets that are no longer expected to be utilized. For the year ended December 31, 2022, the Group recorded an income tax benefit, primarily attributable to the increase in gains that are non-taxable. For a full reconciliation from the statutory tax rate to the effective tax rate, see Note 27. Taxation to our Consolidated Financial Statements. Comparison of the Years Ended December 31, 2022 and 2021 For the comparison of 2022 to 2021, refer to Part I, Item 5 “Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2022. Material Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with UK-adopted International Financial Reporting Standards ("IFRSs"). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board ("IASB"). In the preparation of these financial statements, we are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates under different assumptions or conditions. Our estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revisions and future periods if the revision affects both current and future periods. While our significant accounting policies are described in more detail in the notes to our Consolidated Financial Statements appearing at the end of this report, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements. See Note 1. Material Accounting Policies to our Consolidated Financial Statements for a further detailed description of our significant accounting policies. Financial instruments We account for our financial instruments according to IFRS 9. In accordance with IFRS 9, we carry certain financial assets and financial liabilities at fair value, with changes in fair value through profit and loss ("FVTPL"). Valuation of these financial instruments includes determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, appropriate discount rate, volatility, and term to exit. In accordance with IFRS 9, when issuing preferred shares in our subsidiaries, we determine the classification of financial instruments in terms of liability or equity. Such determination involves judgement. These judgements include an assessment of whether the financial instruments include any embedded derivative features, whether they include contractual obligations upon us to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party at any point in the future prior to liquidation, and whether that obligation will be settled by exchanging a fixed amount of cash or other financial assets for a fixed number of the Group's equity instruments. Consolidation The Consolidated Financial Statements include the financial statements of the Group and the entities it controls. Based on the applicable accounting rules, we control an investee when we are exposed, or have rights, to variable returns from our involvement with the investee and have the ability to affect those returns through our power over the investee. Therefore an assessment is required to determine whether we have (i) power over the investee; (ii) exposure, or rights, to variable returns from our involvement with the investee; and (iii) the ability to use our power over the investee to affect the amount of our returns. Judgement is required to perform such assessment and it requires that we consider, among others, activities that most significantly affect the returns of the investee, our voting shares, representation on the board, rights to appoint board members and management, shareholders agreements, de facto power and other contributing factors. Financial Review continued
G ov er na nc e 76 PureTech Health plc Annual Report and Accounts 2023 Sale of Future Royalties Liability We account for the sale of future royalties liability as a financial liability, as we continue to hold the rights under the royalty bearing licensing agreement and have a contractual obligation to deliver cash to an investor for a portion of the royalty we receive. Interest on the sale of future royalties liability is recognized using the effective interest rate over the life of the related royalty stream. The sale of future royalties liability and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. Forecasts are updated periodically as new data is obtained. Any increases, decreases or a shift in timing of estimated cash flows require us to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future contractual cash flows that are discounted at the liability’s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense. In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement. Investment in Associates When we do not control an investee but maintain significant influence over the financial and operating policies of the investee, the investee is an associate. Significant influence is presumed to exist when we hold 20 percent or more of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. We evaluate if we maintain significant influence over associates by assessing if we have the power to participate in the financial and operating policy decisions of the associate. Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated Financial Statements include our share of the total comprehensive income or loss of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. When our share of losses exceeds the net investment in an equity accounted investee, including investments considered to be long-term interests ("LTI"), the carrying amount is reduced to zero and recognition of further losses is discontinued except to the extent that we have incurred legal or constructive obligations or made payments on behalf of an investee. To the extent we hold interests in associates that are not providing access to returns underlying ownership interests, the instrument held by us is accounted for in accordance with IFRS 9. Judgement is required in order to determine whether we have significant influence over financial and operating policies of investees. This judgement includes, among others, an assessment whether we have representation on the board of the investee, whether we participate in the policy-making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee, and if there are any transactions between us and the investee. Judgement is also required to determine which instruments we hold in the investee form part of the investment in associates, which is accounted for under IAS 28 and scoped out of IFRS 9, and which instruments are separate financial instruments that fall under the scope of IFRS 9. This judgement includes an assessment of the characteristics of the financial instrument of the investee held by us and whether such financial instrument provides access to returns underlying an ownership interest. Where the Group has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute long-term interests for the purposes of IAS 28. This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments. Recent Accounting Pronouncements For information on recent accounting pronouncements, see Note 2. New Standards and Interpretations to our Consolidated Financial Statements. Cash Flow and Liquidity Our cash flows may fluctuate and are difficult to forecast and will depend on many factors, including: — the expenses incurred in the development of wholly-owned and Controlled Founded Entities' therapeutic candidates; — the revenue, if any, generated by wholly-owned and Controlled-Founded Entities' therapeutic candidates; — the revenue, if any, generated from licensing and royalty agreements with Founded Entities; — the financing requirements of the Wholly-Owned Programs and our Founded Entities; and — the investing activities including the monetization, through sale, of shares held in our public Founded Entities. As of December 31, 2023, we had cash and cash equivalents of $191.1 million and short-term investments of $136.1 million. As of December 31, 2023, we had PureTech Level cash, cash equivalents and short-term investments of $326.0 million. PureTech Level cash, cash equivalents and short-term investments is a non-IFRS measure (for a definition of PureTech Level cash, cash equivalents and short-term investments and a reconciliation with the IFRS number, see the section Measuring Performance earlier in this Financial Review). In March 2024, we received total proceeds of $292.7 million before income tax in exchange for our holding of 886,885 shares of Karuna common stock as a result of the completion of Karuna acquisition by Bristol Myers Squibb (“BMS”). Cash Flows The following table summarizes our cash flows for each of the periods presented: Year ended December 31, (in thousands) 2023 2022 2021 Net cash used in operating activities $(105,917) $(178,792) $(158,274) Net cash provided by (used in) investing activities 68,991 (107,223) 197,375 Net cash provided by (used in) financing activities 78,141 (29,827) 22,727 Net increase (decrease) in cash and cash equivalents $41,215 $(315,842) $61,827 Financial Review continued
G overnance PureTech Health plc Annual Report and Accounts 2023 77 Operating Activities Net cash used in operating activities was $105.9 million for the year ended December 31, 2023, as compared to $178.8 million for the year ended December 31, 2022, resulting in a decrease of $72.9 million in net cash used in operating activities. The decrease in outflows is primarily attributable to our lower operating loss mainly due to a decrease in research and development activities in the Wholly-Owned Programs and Controlled Founded Entities and a decrease of operating cash flows as a result of the deconsolidation of Vedanta on March 1, 2023. Net cash used in operating activities was $178.8 million for the year ended December 31, 2022, as compared to $158.3 million for the year ended December 31, 2021, resulting in an increase of $20.5 million in net cash used in operating activities. The increase in outflows is primarily attributable to our higher operating loss mainly due to an increase in research and development activities in the Wholly-Owned Programs segment, partially offset by the timing of receipts and payments in the normal course of business. Investing Activities Net cash provided by investing activities was $69.0 million for the year ended December 31, 2023, as compared to net cash outflow of $107.2 million for the year ended December 31, 2022, resulting in an increase of $176.2 million in net cash from investing activities. The increase in net cash from investing activities was primarily attributable to increased cash inflow from short-term investment activities (redemptions, net of purchases) amounting to $264.4 million, partially offset by a reduction in proceeds from the sale of investments held at fair value of $85.4 million. Net cash used in investing activities was $107.2 million for the year ended December 31, 2022, as compared to cash inflows of $197,375 for the year ended December 31, 2021, resulting in a decrease of $304.6 million in net cash resulting from investing activities. The decrease in the net cash resulting from investing activities was primarily attributed to a decrease in proceeds from the sale of investments held at fair value of $99.4 million and to the purchase of short-term investments, net of redemptions amounted to $198.7 million for the year ended December 31, 2022. Financing Activities Net cash provided by financing activities was $78.1 million for the year ended December 31, 2023, as compared to net cash used in financing activities of $29.8 million for the year ended December 31, 2022, resulting in an increase of $108.0 million in the net cash provided by financing activities. The increase in the net cash provided by financing activities was primarily attributable to the receipts of $100.0 million upfront payment from Royalty Pharma upon execution of Royalty Purchase Agreement in March 2023, and a $6.8 million decrease in treasury stock purchase in 2023 as compared to 2022. Net cash used in financing activities was $29.8 million for the year ended December 31, 2022, as compared to net cash provided by financing activities of $22.7 million for the year ended December 31, 2021, resulting in a decrease of $52.6 million in the net cash resulting from financing activities. The decrease in the net cash resulting from financing activities was primarily attributable to the fact that in the year ended December 31, 2021, there was an issuance of subsidiary preferred shares of $37.6 million while for the year ended December 31, 2022, there was no such issuance, and due to the treasury share purchases of $26.5 million for the year ended December 31, 2022 while there were no such purchases for the year ended December 31, 2021. This decrease was partially offset by the fact that during the year ended December 31, 2021, there were payments to settle stock based awards of $13.3 million, while for the year ended December 31, 2022, there were no such payments made. Funding Requirements We have incurred operating losses since inception. Based on our current plans, we believe our existing financial assets as of December 31, 2023, will be sufficient to fund our operations and capital expenditure requirements into at least 2027. We expect to incur substantial additional expenditures in the near term to support our ongoing and future activities. We anticipate to continue to incur net operating losses for the foreseeable future to support our existing Founded Entities and newly launched Founded Entities (Seaport Therapeutics and Gallop Oncology), and our strategy around creating and supporting other Founded Entities, should they require it, to reach significant development milestones over the period of the assessment in conjunction with our external partners. We also expect to incur significant costs to advance our Wholly- Owned Programs, to continue research and development efforts, to discover and progress new therapeutic candidates and to fund the Group’s operating costs into at least 2027. Our ability to fund our therapeutic development and clinical operations as well as ability to fund our existing, newly founded and future Founded Entities, will depend on the amount and timing of cash received from planned financings, monetization of shares of public Founded Entities and potential business development activities. Our future capital requirements will depend on many factors, including: — the costs, timing and outcomes of clinical trials and regulatory reviews associated with our wholly-owned therapeutic candidates; — the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property related claims; — the emergence of competing technologies and products and other adverse marketing developments; — the effect on our therapeutic and product development activities of actions taken by the U.S. Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”) or other regulatory authorities; — the number and types of future therapeutics we develop and support with the goal of commercialization; — The costs, timing and outcomes of identifying, evaluating, and investing in technologies and drug candidates to develop as Wholly-Owned Programs or as Founded Entities; and — the success of our Founded Entities and their need for additional capital. A change in the outcome of any of these or other variables with respect to the development of any of our wholly-owned therapeutic candidates could significantly change the costs and timing associated with the development of that therapeutic candidate. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or other committed sources of capital beyond our existing financial assets. Because of the numerous risks and uncertainties associated with the development and commercialization of our wholly-owned therapeutic candidates, we have only a general estimate of the amounts of increased capital outlays and operating expenditures associated with our current and anticipated therapeutic development programs and these may change in the future. Financial Review continued
G ov er na nc e 78 PureTech Health plc Annual Report and Accounts 2023 Financial Position Summary Financial Position As of December 31, (in thousands) 2023 2022 Change Investments held at fair value $317,841 $251,892 $65,949 Other non-current assets 28,930 64,562 (35,632) Non-current assets 346,771 316,454 30,317 Cash and cash equivalents, and short-term investments 327,143 350,095 (22,952) Other current assets 20,059 36,097 (16,039) Current assets 347,201 386,192 (38,991) Total assets 693,973 702,647 (8,674) Lease liability 18,250 24,155 (5,906) Deferred tax liability 52,462 19,645 32,817 Sale of future royalties liability 110,159 — 110,159 Other non-current liabilities 3,501 14,372 (10,871) Non-current liabilities 184,371 58,172 126,199 Trade and other payables 44,107 54,840 (10,733) Notes payable 3,699 2,345 1,354 Preferred shares 169 27,339 (27,170) Other current liabilities 3,394 12,361 (8,967) Current liabilities 51,370 96,885 (45,516) Total liabilities 235,741 155,057 80,684 Net assets 458,232 547,589 (89,358) Total equity $458,232 $547,589 $(89,358) Investments Held at Fair Value Investments held at fair value increased by $65.9 million to $317.8 million as of December 31, 2023. As of December 31, 2023, Investments held at fair value consist primarily of our common share investment in Karuna, Vor and Akili (Akili was in the form of preferred shares until August 2022) and our preferred share investment in Sonde (from May 2022) and Vedanta (from March 2023). The increase is primarily attributed to an increase of $73.5 million in the value of Karuna shares as well as the Group recognizing its investment in the convertible preferred shares of Vedanta in the amount of $20.5 million subsequent to Vedanta being deconsolidated from the Group’s financial statements, partially offset by decreases in fair value of various investments. Cash, Cash Equivalents, and Short-Term Investments Consolidated cash, cash equivalents and short-term investments decreased by $23.0 million to $327.1 million as of December 31, 2023. The decrease is primarily attributed to net cash used in operating activities of $105.9 million, purchase of treasury stock of $19.6 million, purchase of convertible note from associate of $16.9 million, and cash derecognized upon loss of control over Vedanta of $13.8 million, partially offset by proceeds of $33.3 million from sale of Karuna shares during the year ended December 31, 2023, and receipts of $100.0 million upfront payment from Royalty Pharma upon execution of Royalty Purchase Agreement in March 2023. Non-Current Liabilities Non-current liabilities increased by $126.2 million to $184.4 million as of December 31, 2023. The increase was driven by the Group receiving a $100.0 million non-refundable initial payment at the execution of the Royalty Purchase Agreement with Royalty Pharma, which is accounted for as a non-current sale of future royalties liability, as well as the accretion of non-cash interest expense on the sale of future royalties liability, and a $32.8 million increase in our deferred tax liabilities, partially offset by a $10.2 million decrease in long-term loan due to Vedanta being deconsolidated in 2023. Trade and Other Payables Trade and other payables decreased by $10.7 million to $44.1 million as of December 31, 2023. The decrease reflected primarily the deconsolidation of Vedanta and the timing of payments as of December 31, 2023. Preferred Shares Preferred share liability in subsidiaries decreased by $27.2 million as of December 31, 2023. The decrease in the preferred share liability primarily relates to a decrease of $24.6 million due to the deconsolidation of Vedanta during the year ended December 31, 2023. Financial Review continued
G overnance PureTech Health plc Annual Report and Accounts 2023 79 Quantitative and Qualitative Disclosures about Financial Risks Interest Rate Sensitivity As of December 31, 2023, we had cash and cash equivalents of $191.1 million and short-term investments of $136.1 million, while we had PureTech Level cash, cash equivalents and short-term investments of $326.0 million. PureTech Level cash, cash equivalents and short-term investments is a non- IFRS measure (for a definition of PureTech Level cash, cash equivalents and short-term investments and a reconciliation with the IFRS number, see the section Measuring Performance earlier in this Financial review). Our exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation and investments in short duration, high- quality U.S. Treasury Bills and related money market accounts, we do not believe a change in interest rates would have a material effect on the fair market value of our portfolio, and therefore, we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates. Foreign Currency Exchange Risk We maintain our consolidated financial statements in our functional currency, which is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Such foreign currency gains or losses were not material for all reported periods. Controlled Founded Entity Investments We maintain investments in certain Controlled Founded Entities. Our investments in Controlled Founded Entities are eliminated as intercompany transactions upon financial consolidation. We are exposed to a preferred share liability owing to the terms of existing preferred shares and the ownership of Controlled Founded Entities preferred shares by third parties. The liability of preferred shares is maintained at fair value through profit and loss. We view our exposure to third-party preferred share liability as low as of December 31, 2023 as the liability is not significant. Please refer to Note 16. Subsidiary Preferred Shares to our Consolidated Financial Statements for further information regarding our exposure to Controlled Founded Entity investments. Deconsolidated Founded Entity Investments We maintain certain debt or equity holdings in Founded Entities which have been deconsolidated. These holdings are deemed either as investments carried at fair value under IFRS 9 with changes in fair value recorded through profit and loss or as associates accounted for under IAS 28 using the equity method. Our exposure to investments held at fair value and investments in notes from associates was $317.8 million and $4.6 million, respectively, as of December 31, 2023, and we may or may not be able to realize the value in the future. Accordingly, we view the risk as high. Our exposure to investments in associates is limited to the carrying amount of the investment. We are not exposed to further contractual obligations or contingent liabilities beyond the value of initial investment. As of December 31, 2023, Sonde was the only associate, and the carrying amount of the investments in Sonde accounted for under the equity method was $3.2 million. Accordingly, we do not view this risk as high. Equity Price Risk As of December 31, 2023, we held 886,885 common shares of Karuna, 2,671,800 common shares of Vor, and 12,527,477 common shares of Akili. The fair value of our investments in the common shares of Karuna, Vor and Akili was $280.7 million, $6.0 million, and $6.1 million, respectively. The investments in Karuna, Vor and Akili are exposed to fluctuations in the market price of these common shares. The effect of a 10.0 percent adverse change in the market price of Karuna, Vor and Akili common shares as of December 31, 2023, would cause a loss of $29.3 million to be recognized as a component of other income (expense) in our Consolidated Statement of Comprehensive Income/(Loss). However, we view exposure to equity price risk as low due to the definitive merger agreement Karuna entered into with Bristol Myers Squibb ("BMS”) in December 2023 under which Karuna common shares were acquired by BMS for $330 per share in March 2024. See Note 28. Subsequent Events. Liquidity Risk We do not believe we will encounter difficulty in meeting the obligations associated with our financial liabilities that are settled by delivering cash or another financial asset. While we believe our cash and cash equivalents and short-term investments do not contain excessive risk, we cannot provide absolute assurance that in the future, our investments will not be subject to adverse changes or decline in value based on market conditions. Financial Review continued
G ov er na nc e 80 PureTech Health plc Annual Report and Accounts 2023 Credit Risk We maintain an investment portfolio in accordance with our investment policy. The primary objectives of our investment policy are to preserve principal, maintain proper liquidity and meet operating needs. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. We do not own derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments. Credit risk is also the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We are potentially subject to concentrations of credit risk in accounts receivable. Concentrations of credit risk with respect to receivables is owed to the limited number of companies comprising our receivable base. However, our exposure to credit losses is currently low due to relatively low receivable balance, a small number of counterparties and the high credit quality or healthy financial conditions of these counterparties. Foreign Private Issuer Status Owing to our U.S. listing on the Nasdaq Global Market, we report under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as a non-U.S. company with foreign private issuer status. As long as we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including: — the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; — sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; — the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events; and — Regulation FD, which regulates selective disclosures of material information by issuers. Financial Review continued
PureTech Health plc Annual Report and Accounts 2023 81 G overnance Since the Company’s 2023 Annual General Meeting, it has been my pleasure to act in the position of interim Chair, in addition to my role as the Senior Independent Director, to ensure continuity and the maintenance of strong governance practices at PureTech. As part of my expanded role, I have been working with my colleagues on the Nomination Committee and the rest of the Board to identify a suitable successor to our former Chair, Mr. Christopher Viehbacher. This process is ongoing as we work to identify a seasoned candidate with extensive experience in maximising shareholder value. The Nomination Committee, with assistance from the rest of the Board and the Company’s management, has also continued to explore potentially adding another non-executive director to strengthen the Board’s skillsets and reinforce the strong governance that has been a hallmark of the Company’s Board and broader operations. While there is not a firm timeline for the identification of a new Chair and potential additional non- executive director, the Nomination Committee and the Company are conducting a thorough and efficient process to identify the best candidates. The Board looks forward to being able to discuss these matters with our shareholders in connection with our AGM or indeed at any other time during the year. Dr. Raju Kucherlapati, Ph.D. Interim Chair April 25, 2024 Dear Shareholder, I am pleased to introduce our Corporate Governance Report. This Report sets out our governance framework and the work of the Board and its committees. As a Board, we are responsible for ensuring there is an effective governance framework in place. This includes setting the Company’s strategic objectives, ensuring the right leadership and resources are in place to achieve these objectives, monitoring performance, ensuring that sufficient internal controls and protections are in place and reporting to shareholders. An effective governance framework is also designed to ensure accountability, fairness and transparency in the Company’s relationships with all of its stakeholders, whether shareholders, employees, partners, the government or the wider patient community. We believe that good corporate governance is essential for building a successful and sustainable business. The Board is committed to the highest standards of corporate governance and undertakes to maintain a sound framework for our control and management. In this Report, we provide details of that framework. The key constituents necessary to deliver a robust structure are in place and, accordingly, this report includes a description of how the Company has applied the principles and provisions of the Governance Code and how it intends to apply those principles in the future. Chair’s overview “We believe that good corporate governance is essential for building a successful and sustainable business.”
82 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Raju Kucherlapati, Ph.D. Interim Chair of the Board, Senior Independent Director, R&D Committee Member Sharon Barber-Lui Independent Non-Executive Director Sharon Barber-Lui has served as a member of our Board since March 2022 and became the Chair of the Audit Committee in April 2022. Ms. Barber-Lui has been the Chief Financial Officer and Senior Vice President, North America at Teva Pharmaceutical Industries Ltd. since July 2023. Prior to joining Teva, Ms. Barber-Lui worked as Senior Vice President of Global Finance at EQRx and at Merck for over twenty years in roles of advancing responsibility, including most recently as the Head of Portfolio Market Strategy, Operations and Business Analytics from 2019 through 2021 and Chief Financial Officer from 2014 through 2018 for Merck’s U.S. oncology business. Prior to that Ms. Barber-Lui held a number of other roles with Merck including Treasurer of U.S. Region, Head of U.S. Treasury Operations, and Head of Legal Entity Integration and Global Treasury Services, among others. Ms. Barber-Lui began her career as an accountant for KPMG LLP, and she received her bachelor’s degree as well as her M.B.A. from Lehigh University. Ms. Barber-Lui is a member of the American Institute of Certified Public Accountants. She is also the recipient of Merck & Co. Inc.’s Top Talent Designation, Women’s Leadership Recognition and Oncology Women’s Leader Recognition. Raju Kucherlapati, Ph.D., has served as a member of our Board since 2014 and assumed the role of PureTech’s Senior Independent Director as well as the chair of its Nomination Committee as of December 31, 2022. Dr. Kucherlapati has served as interim Chair since the 2023 Annual General Meeting. He has been the Paul C. Cabot professor of Genetics and a professor of medicine at Harvard Medical School since 2001. Dr. Kucherlapati currently serves on the board of directors of KEW Inc. Dr. Kucherlapati previously served on the board of Gelesis Holdings, Inc. until October 2023. He was a founder and former board member of Abgenix (acquired by Amgen for $2.2 billion), Cell Genesys and Millennium Pharmaceuticals (acquired by Takeda for $8.8 billion). He was the first scientific director of the Harvard-Partners Center for Genetics and Genomics. He is a fellow of the American Association for the Advancement of Science and a member of the National Academy of Medicine. Dr. Kucherlapati received his Ph.D. from the University of Illinois. He trained at Yale and has held faculty positions at Princeton University, University of Illinois College of Medicine and the Albert Einstein College of Medicine. He served on the editorial board of the New England Journal of Medicine and was Editor in Chief of the journal Genomics. He was a member of the presidential commission for the study of bioethical issues during the Obama administration. His laboratory at Harvard Medical School is involved in cloning and characterization of human disease genes with a focus on human syndromes with a significant cardiovascular involvement, use of genetic/ genomic approaches to understand the biology of cancer and the generation and characterization of genetically modified mouse models for cancer and other human disorders. His laboratory was a part of the Human Genome Program that was responsible for mapping and sequencing the human genome. Dr. Kucherlapati developed methods for modifying mammalian genes that lead to gene targeting in mice. He has developed many mouse models for human disease, including a large set of models for human colorectal cancer. His laboratory was a part of The Cancer Genome Atlas (TCGA) program that uses genetic/genomic approaches to understand the biology of cancer. He is a promoter of personalized/ precision medicine. PureTech Health is led by a seasoned and accomplished Board of Directors and management team with extensive experience in maximising shareholder value, discovering scientific breakthroughs, and delivering therapeutics to market. Board of Directors (alphabetically)* * The biography for executive director Bharatt Chowrira can be found on page 85.
PureTech Health plc Annual Report and Accounts 2023 83 G overnance Board of Directors continued Kiran Mazumdar-Shaw Independent Non-Executive Director John LaMattina, Ph.D. Independent Non-Executive Director, R&D Committee Member Robert Langer, Sc.D. Co-Founder and Non-Executive Director, R&D Committee Member Christopher Viehbacher Former Chair John LaMattina, Ph.D., has served as a member of our Board since 2009. Dr. LaMattina previously worked at Pfizer in different roles from 1977 to 2007, including vice president of U.S. Discovery Operations in 1993, senior vice president of worldwide discovery operations in 1998, senior vice president of worldwide development in 1999 and president of global research and development from 2003 to 2007. Dr. LaMattina serves on the board of directors of Ligand Pharmaceuticals and Vedanta Biosciences, Inc. Dr. LaMattina previously served on the boards of Immunome Inc. until October 2023 and Zafgen, Inc. until April 2020. He is also a trustee associate of Boston College. During Dr. LaMattina’s leadership tenure, Pfizer discovered and/or developed a number of important new medicines including Tarceva, Chantix, Zoloft, Selzentry and Lyrica, along with a number of other medicines currently in late stage development for cancer, rheumatoid arthritis and pain. He is the author of numerous scientific publications and U.S. patents. Dr. LaMattina received the 1998 Boston College Alumni Award of Excellence in Science and the 2004 American Diabetes Association Award for Leadership and Commitment in the Fight Against Diabetes. He was awarded an Honorary Doctor of Science degree from the University of New Hampshire in 2007. In 2010, he was the recipient of the American Chemical Society’s Earle B. Barnes Award for Leadership in Chemical Research Management. He is the author of “Devalued and Distrusted—Can the Pharmaceutical Industry Restore its Broken Image,” “Drug Truths: Dispelling the Myths About Pharma R&D,” “Pharma and Profits: Balancing Innovation, Medicine, and Drug Prices” and an author of the Drug Truths blog at Forbes. com. Dr. LaMattina received a B.S. in Chemistry from Boston College and received a Ph.D. in Organic Chemistry from the University of New Hampshire. He then moved on to Princeton University as a National Institutes of Health postdoctoral fellow in the laboratory of professor E. C. Taylor. Robert S. Langer, Sc.D., is a co- founder, member of PureTech’s R&D Committee and has served as a member of the board of directors since our founding. Dr. Langer has served as the David H. Koch Institute professor at MIT since 2005. He served as a member of the FDA’s science board from 1995 to 2002 and as its chairman from 1999 to 2002. Dr. Langer serves on the board of directors of Seer Bio and Moderna, Inc. Dr. Langer previously served on the boards of Abpro Korea until February 2024 and Frequency Therapeutics, Inc. until November 2023. until November 2023. Dr. Langer has received over 250 major awards, including the 2006 U.S. National Medal of Science, the Charles Stark Draper Prize in 2002 and the 2012 Priestley Medal. He is also the first engineer to receive the Gairdner Foundation International Award. Dr. Langer has received the Dickson Prize for Science, Heinz Award, Harvey Prize, John Fritz Award, General Motors Kettering Prize for Cancer Research, Dan David Prize in Materials Science, Breakthough Prize in Life Sciences, National Medal of Science, National Medal of Technology and Innovation, Kyoto Prize, Wolf Prize, Albany Medical Center Prize in Medicine and Biomedical Research and the Lemelson-MIT prize. In 2006, he was inducted into the National Inventors Hall of Fame. In January 2015, Dr. Langer was awarded the 2015 Queen Elizabeth Prize for Engineering. Dr. Langer received his bachelor’s degree in Chemical Engineering from Cornell University and his Sc.D. in Chemical Engineering from MIT. Kiran Mazumdar-Shaw has served as a member of our Board since September 2020. Ms. Mazumdar- Shaw has been the executive chairperson of Biocon Limited, which she founded in 1978, since April 2020, and she served as managing director of Biocon Limited from 1995 to 2020. Ms. Mazumdar-Shaw holds key positions in various industry, educational, government and professional bodies globally. She served as a full-term member of the board of trustees of Massachusetts Institute of Technology until June 2023. She has been elected as a member of the prestigious U.S.-based National Academy of Engineering. She also serves as a director on the board of United Breweries Limited, and non- executive director on the board of Narayana Health. Ms. Mazumdar- Shaw previously served as the lead independent member of the board of Infosys Ltd until March 2023. Ms. Mazumdar-Shaw has received two of India’s highest civilian honors, the Padma Shri in 1989 and the Padma Bhushan in 2005. She was also honored with the Order of Australia, Australia’s highest civilian honor in January 2020. In 2016, she was conferred with the highest French distinction – Knight of the Legion of Honour – and in 2014 received the Othmer Gold Medal in 2014 from the U.S.-based Chemical Heritage Foundation for her pioneering efforts in biotechnology. Ms. Mazumdar- Shaw has been ranked as one of the world’s top 20 inspirational leaders in the field of biopharmaceuticals by The Medicine Maker Power List 2020, and she was the winner of EY World Entrepreneur of the Year™ 2020 Award. She was the first woman business leader from India to sign the Giving Pledge, an initiative of the Gates Foundation, committing to give the majority of her wealth to philanthropic causes. She received a bachelor’s degree in science, Zoology Hons., from Bangalore University and a master’s degree in malting and brewing from Ballarat College, Melbourne University. She has been awarded several honorary degrees from other universities globally. Christopher Viehbacher served as a member of our Board from 2015, and as chairman from September 2019 until his retirement from the Board in June 2023. Mr. Viehbacher was appointed President, Chief Executive Officer and a member of the Board of Biogen, Inc. in November 2022. As a result of his appointment, Mr. Viehbacher did not stand for re-election at the Company’s 2023 Annual General Meeting. Prior to his appointment with Biogen, Inc., he had been the managing partner of Gurnet Point Capital from October 2014 to November 2022. Immediately prior to joining Gurnet Point Capital, Mr. Viehbacher served as the chief executive officer and member of the board of directors of Sanofi from December 2008 to October 2014.
84 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Board of Directors continued H. Robert Horvitz, Ph.D.** Board Advisor, R&D Committee Chair Dennis Ausiello, M.D.** Board Advisor, R&D Committee Member Joseph Bolen, Ph.D.** Board Advisor, R&D Committee Member Dennis Ausiello, M.D., is a board advisor and member of the PureTech R&D Committee. He is the Jackson Distinguished Professor of Clinical Medicine and was previously director, emeritus of the M.D./Ph.D. Program at Harvard Medical School. Dr. Ausiello is chairman of medicine, emeritus and director of the Center for Assessment Technology and Continuous Health (CATCH) at Massachusetts General Hospital (MGH). This center is a partnership among MGH, MIT and Harvard University with a mission to develop real-time assessment of human traits in wellness and disease. In partnership with industry, it is creating tools for measurements of traditional and novel phenotypes. Understanding the need for partnerships between the academy and industry, Dr. Ausiello served on the board of directors of Pfizer Pharmaceuticals, where he was their former lead director. He currently serves as a member of the board of directors of Seres Therapeutics, Inc. and Alnylam Pharmaceuticals, Inc. Dr. Ausiello is also a member of the board of directors of several non-public biotech companies and is a consultant to Verily (formerly Google Life Sciences) and Pfizer Pharmaceuticals. Dr. Ausiello is a nationally recognized leader in academic medicine who was elected to the National Academy of Medicine in 1999 and the American Academy of Arts and Sciences in 2003. He has published numerous articles, book chapters and textbooks and has served as an editor of Cecil’s Textbook of Medicine. Dr. Ausiello received his BA from Harvard College and an M.D. from the University of Pennsylvania. Joseph Bolen, Ph.D., is a board advisor and member of the PureTech R&D Committee. He first joined PureTech in October 2015 and served as PureTech’s chief scientific officer from October 2016 through February 2023. Prior to joining PureTech, Dr. Bolen oversaw all aspects of research and development, or R&D, for Moderna, Inc. as president and chief scientific officer from July 2013 to October 2015. Previously, he was chief scientific officer and global head of oncology research at Millennium: The Takeda Oncology Company. Prior to joining Millennium in 1999, Dr. Bolen held senior positions at Hoechst Marion Roussel, Schering- Plough and Bristol-Myers Squibb. Dr. Bolen began his career at the National Institutes of Health, where he contributed to the discovery of a class of proteins known as tyrosine kinase oncogenes as key regulators of the immune system. Dr. Bolen received a B.S. in Microbiology & Chemistry and a Ph.D. in Immunology from the University of Nebraska and conducted his postdoctoral training in Molecular Virology at the Kansas State University Cancer Center. H. Robert Horvitz, Ph.D., is a board observer and Chair of the R&D Committee at PureTech. He received the Nobel Prize in Physiology or Medicine and is the David H. Koch Professor of Biology at Massachusetts Institute of Technology, an investigator of the Howard Hughes Medical Institute, neurobiologist (Neurology) at Massachusetts General Hospital, a member of the MIT McGovern Institute for Brain Research and the MIT Koch Institute for Integrative Cancer Research. He is cofounder of multiple life science companies, including Epizyme (EPZM), Mitobridge (acquired by Astellas) and Idun Pharmaceuticals (acquired by Pfizer) and was a member of the Scientific Advisory Board of the Novartis Institutes for BioMedical Research. Dr. Horvitz was a member of the board of trustees of the Massachusetts General Hospital. He also previously served as Chairman of the Board of Trustees of the Society for Science and the Public and as President of the Genetics Society of America. Dr. Horvitz is a member of the U.S. National Academy of Sciences, the U.S. National Academy of Medicine and the American Philosophical Society and is a foreign member of the Royal Society of London. He is a fellow of the American Academy of Arts and Sciences and of the American Academy of Microbiology. Dr. Horvitz received the U.S. National Academies of Science Award in Molecular Biology; the Charles A. Dana Award for Pioneering Achievements in Health; the Ciba-Drew Award for Biomedical Science; the General Motors Cancer Research Foundation Alfred P. Sloan, Jr. Prize; the Gairdner Foundation International Award; the March of Dimes Prize in Developmental Biology; the Genetics Society of America Medal; the Bristol-Myers Squibb Award for Distinguished Achievement in Neuroscience; the Wiley Prize in the Biomedical Sciences; the Peter Gruber Foundation Genetics Prize; the American Cancer Society Medal of Honor; the Alfred G. Knudson Award of the National Cancer Institute; and the UK Genetics Society Mendel Medal. He has received honorary doctoral degrees from the University of Rome, Cambridge University, Pennsylvania State University and the University of Miami. Daphne Zohar** Founder and Board Advisor Daphne Zohar is a board observer and senior advisor. A founder of PureTech, Ms. Zohar served as chief executive officer and a member of the board of directors since our formation and UK main market listing in 2015 until her departure on April 8, 2024, to become chief executive officer of PureTech founded entity, Seaport Therapeutics, Inc. PureTech’s R&D engine has generated 29 therapeutics and therapeutic candidates, including two (Plenity® and EndeavorRx®) that have received both U.S. Food and Drug Administration clearance and European marketing authorization and a third (KarXT) that has been filed for FDA approval. Ms. Zohar has been recognized as a top leader and innovator in biotechnology by a number of sources, including EY, BioWorld, MIT’s Technology Review, the Boston Globe, and Scientific American. Ms. Zohar serves on the BIO (Biotechnology Innovation Organization) Board. Previously, Ms. Zohar has served on a number of private company boards including Karuna Therapeutics, Inc. (acquired by Bristol Myers Squibb for $14.0 billion). Ms. Zohar received a B.S. from Northeastern University.
PureTech Health plc Annual Report and Accounts 2023 85 G overnance Eric Elenko, Ph.D. President Bharatt Chowrira, Ph.D., J.D. Chief Executive Officer, Member of the Board of Directors Bharatt Chowrira, Ph.D., J.D., has been our chief executive officer since his appointment by the Board on April 8, 2024. He was formerly president and chief business, finance and operating officer since September 2022, president and chief business, legal and operating officer from January 2022 through September 2022 and our president and chief of business and strategy from March 2017 through December 2021. Dr. Chowrira has served as a member of PureTech’s Board since February 2021 and also serves on the board of directors of Seaport Therapeutics, Inc. Prior to joining PureTech, Dr. Chowrira was the president of Synlogic, Inc., a biopharmaceutical company focused on developing synthetic microbiome-based therapeutics, from September 2015 to February 2017, where he oversaw and managed corporate and business development, alliance management, financial, human resources, intellectual property and legal operations. Prior to that, Dr. Chowrira was the chief operating officer of Auspex Pharmaceuticals, Inc. from October 2013 to July 2015, which was acquired by Teva Pharmaceutical Industries Ltd. in the spring of 2015. Previously, he was president and chief executive officer of Addex Therapeutics Ltd., a biotechnology company publicly- traded on the SIX Swiss Exchange, from August 2011 to July 2013. Prior to that Dr. Chowrira held various leadership and management positions at Nektar Therapeutics (chief operating officer), Merck & Co, or Merck (vice president), Sirna Therapeutics (general counsel; acquired by Merck) and Ribozyme Pharmaceuticals (chief patent counsel). Dr. Chowrira previously served on the board of directors of Vedanta Biosciences, Inc. from September 2018 to February 2023, Akili Interactive Labs, Inc. from November 2017 to September 2019 and June 2021 to October 2022, Vor Biopharma from August 2018 to June 2020, and Karuna Therapeutics, Inc. from March 2017 to December 2019. Dr. Chowrira received a J.D. from the University of Denver’s Sturm College of Law, a Ph.D. in Molecular Biology from the University of Vermont College of Medicine, a M.S. in Molecular Biology from Illinois State University and a B.S. in Microbiology from the UAS, Bangalore, India. Eric Elenko, Ph.D., has served as our president since his appointment by the Board on April 8, 2024. Prior to his current role, Dr. Elenko served as chief innovation officer since June 2015 and held various other positions at PureTech prior thereto. While at PureTech, Dr. Elenko has led the development of a number of programs, including Akili Interactive Labs, Inc., Gelesis, Inc., Karuna Therapeutics, Inc. (acquired by Bristol Myers Squibb for $14.0 billion) and Sonde Health, Inc. Dr. Elenko serves on the board of directors of Seaport Therapeutics, Inc. and Sonde Health, Inc. Prior to joining PureTech, Dr. Elenko was a consultant with McKinsey and Company from February 2002 to September 2005, where he advised senior executives of both Fortune 500 and specialty pharmaceutical companies on a range of issues such as product licensing, mergers and acquisitions, research and development strategy and marketing. Dr. Elenko received a B.A. in Biology from Swarthmore College and his Ph.D. in Biomedical Sciences from University of California, San Diego. Management Team (alphabetically)* Robert Lyne Chief Portfolio Officer Charles (Chip) Sherwood, J.D. General Counsel and Company Secretary Robert Lyne is the chief portfolio officer at PureTech. Prior to joining PureTech, Mr. Lyne was the Chief Executive Officer at Arix Bioscience plc, a transatlantic venture capital company focused on investing in innovative biotechnology companies. He began his career as a lawyer at international law firm Bird & Bird LLP in London before moving to Touchstone Innovations, a London listed biotech and technology investor, which was acquired in 2017. He has worked on over 80 venture capital financings in Europe and North America as well as multiple trade exits and IPOs. As an experienced UK plc executive, Mr. Lyne has broad experience formulating and implementing corporate strategy. Mr. Lyne has a B.A. from the University of Oxford and an L.L.B. from Oxford Brookes University. Charles Sherwood, J.D., is the general counsel and company secretary at PureTech, where he leads the company’s corporate legal function, including corporate governance and compliance. Mr. Sherwood also serves on the board of directors of Vedanta Biosciences, Inc. Prior to joining PureTech in August 2021, Mr. Sherwood was the Vice President, Corporate Legal Counsel at Anika Therapeutics, a small-cap NASDAQ-listed biotechnology company. During his time at Anika, Charles built and led the legal department, where he served as a strategic advisor to management and the Board and developed extensive subject matter expertise involving strategic transactions, intellectual property, product and brand marketing, financing and other financial matters and securities compliance and other compliance matters. Mr. Sherwood received a B.A. in economics from Middlebury College and a J.D. from Vanderbilt University Law School. He is admitted to the Massachusetts Bar. ** Dr. Horvitz, Dr. Ausiello, Dr. Bolen, and Ms. Zohar are not members of the PureTech Board. As Board Observers, Dr. Horvitz and Ms. Zohar attend the majority of Board meetings. As Board Advisors, Dr. Ausiello and Dr. Bolen attend select Board meetings. Dr. Horvitz, Dr. Ausiello and Dr. Bolen are also members of PureTech’s R&D Committee, of which Dr. Horvitz is the Chair. *** Julie Krop, M.D., served as chief medical officer at PureTech for the duration of 2023 and departed from the Company on March 31, 2024.
86 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e The Company’s schedule of matters reserved for the Board includes the following matters: — approval and monitoring of our strategic aims and objectives; — approval of the annual operating and capital expenditure budget; — changes to our capital structure, the issue of any of our securities and material borrowings; — approval of the annual report and half-year results statement, accounting policies and practices or any matter having a material impact on our future financial performance; — ensuring a sound system of internal control and risk management; — approving Board appointments and removals, and approving policies relating to directors’ remuneration; — strategic acquisitions; — major disposals of our assets or subsidiaries; — approval of all circulars, prospectuses and other documents issued to shareholders governed by the Financial Conduct Authority’s (FCA) Listing Rules, Disclosure Guidance and Transparency Rules or the City Code on Takeovers and Mergers; — approval of terms of reference and membership of Board committees; — considering and, where appropriate, approving directors’ conflicts of interest; and — approval, subject to shareholder approval, of the appointment and remuneration of the auditors. The schedule of matters reserved to the Board is available on request from the Company Secretary or within the Investors section of our website at www.puretechhealth.com. The Board delegates specific responsibilities to certain committees that assist the Board in carrying out its functions and ensure independent oversight of internal control and risk management. The three principal Board committees (Audit, Remuneration and Nomination) play an essential role in supporting the Board in fulfilling its responsibilities and ensuring that we maintain the highest standards of corporate governance. Each committee has its own terms of reference which set out the specific matters for which delegated authority has been given by the Board. The terms of reference for each of the committees are fully compliant with the provisions of the Governance Code. All of these are available on request from the Company Secretary or within the Investors section of our website at www.puretechhealth.com. Roles and responsibilities of the Board The Board is responsible to shareholders for our overall management as a whole. The main roles of the Board are: — creating value for shareholders; — providing business and scientific leadership; — approving our strategic objectives; — ensuring that the necessary financial and human resources are in place to meet strategic objectives; — overseeing our system of risk management; and — setting the values and standards for both our business conduct and governance matters. The Directors are also responsible for ensuring that obligations to shareholders and other stakeholders are understood and met and that communication with shareholders is maintained. The responsibility of the Directors is collective, taking into account their respective roles as Executive Directors and Non-Executive Directors. All Directors are equally accountable to the Company’s shareholders for the proper stewardship of its affairs and our long- term success. The Board reviews strategic issues on a regular basis. During the past year the Board has played an active role on a variety of strategic initiatives of the Company. Members served as subject matter experts, advised on asset evaluation strategy and reviewed potential transactions. In addition, several members served on an independent transactions committee, led by the interim Chair. As a result, certain members have devoted substantial time and effort to the Company, above and beyond what would typically be expected of Non-Executive Directors. The Board has also exercised control over our performance by agreeing on budgetary and operational targets and monitoring performance against those targets. The Board has overall responsibility for our system of internal controls and risk management. Any decisions made by the Board on policies and strategy to be adopted by us or changes to current policies and strategy are made following presentations by the Executive Director and other members of management, and only after a detailed process of review and challenge by the Board. Once made, the Executive Director and other members of management are fully empowered to implement those decisions. Except for a formal schedule of matters which are reserved for decision and approval by the Board, the Board has delegated our day-to-day management to the Chief Executive Officer who is supported by other members of the senior management team. The schedule of matters reserved for Board decision and approval are those significant to us as a whole due to their strategic, financial or reputational implications. The Board
PureTech Health plc Annual Report and Accounts 2023 87 G overnance The Board continued Senior Independent Director The Company’s Senior Independent Director is Dr. Raju Kucherlapati. A key responsibility of the Senior Independent Director, following the appointment of a permanent Chair, is to be available to shareholders in the event that they may feel it inappropriate to relay views through the Chair or Chief Executive Officer. In addition, the Senior Independent Director is to serve as an intermediary between the rest of the Board and the Chair where necessary. Further, the Senior Independent Director will lead the Board in its deliberations on any matters on which the Chair is conflicted. For the period while Dr. Raju Kucherlapati serves as both interim Chair and Senior Independent Director, any other of the Non-Executive Directors is available to shareholders in the event that they may feel it inappropriate to relay views through the Chair or Chief Executive Officer. In addition, any other of the Non-Executive Directors may be elected by the Board to lead the Board in its deliberations on any matters on which Dr. Raju Kucherlapati is conflicted. The roles of Chair and Chief Executive Officer The Company’s interim Chair is Dr. Raju Kucherlapati. He has served as interim Chair since the 2023 AGM to fulfill the leadership requirements and governance obligations of the role following the resignation of the former Chair. The Nomination Committee is currently conducting a search to identify a new permanent Chair, but such person is not expected to be in place at the time of the 2024 AGM. Until such permanent replacement is appointed as Chair by the Board, Dr. Raju Kucherlapati is serving as interim Chair. There is and will remain a clear division of responsibilities between the Chair and the Chief Executive Officer. The Chair is responsible for the leadership and conduct of the Board and for ensuring effective communication with shareholders. The Chair facilitates the full and effective contribution of Non- Executive Directors at Board and Committee meetings, ensures that they are kept well informed and ensures a constructive relationship between the Executive Directors and Non-Executive Directors. The Chair also ensures that the Board committees carry out their duties, including reporting back to the Board either orally or in writing following their meetings at the next Board meeting. The role of the Chief Executive Officer, Dr. Bharatt Chowrira, is to lead the execution of the Company’s strategy and the executive management of PureTech. She is responsible, among other things, for the development and implementation of strategy and processes which enable us to meet the requirements of shareholders, for delivering the operating plans and budgets for our businesses, for monitoring business performance against key performance indicators (KPIs) and reporting on these to the Board and for providing the appropriate environment to recruit, engage, retain and develop the high-quality personnel needed to deliver our strategy. Board size and composition As of December, 2023, there were seven Directors on the Board: the Non-Executive interim Chair, two Executive Directors and four Non-Executive Directors. Following the departure from the Board of Daphne Zohar on April, 2024 to become chief executive officer of PureTech founded entity, Seaport Therapeutics, Inc., there were six Directors on the Board: the Non-Executive interim Chair, one Executive Director and four Non-Executive Directors. The biographies of these Directors (including the former CEO and the former Chair) are provided on pages 82 to 85. Raju Kucherlapati, Ph.D., assumed the role of PureTech’s Senior Independent Director as well as the chair of its Nomination Committee, effective as of January 1, 2023, following the retirement of Dame Marjorie Scardino. Additionally, Dr. Kucherlapati assumed the role of interim Chair following the conclusion of the term of the former Chair Mr. Christopher Viehbacher on June 13, 2023. There were no other changes to the composition of the Board during 2023. Dr. Raju Kucherlapati will continue as interim Chair until a permanent Chair can be selected and appointed. Dr. Kucherlapati will also continue in his current role of Senior Independent director during this period. While the Company is conducting a search for a new Chair of the Board and considering adding an additional member, it does not anticipate that these activities will be completed by the time of the 2024 AGM. The Company’s policy relating to the terms of appointment and the remuneration of both Executive and Non-Executive Directors is detailed in the Directors’ Remuneration Report on pages 102 to 122. The size and composition of the Board is regularly reviewed by the Nomination Committee to ensure there is an appropriate and diverse mix of skills and experience on the Board. The Board may appoint any person to serve as a Director, either to fill a vacancy or as an addition to the existing Board. Any Director so appointed by the Board shall hold office only until the following AGM and then shall be eligible for election by the shareholders. In accordance with the Governance Code, all of the Directors will be offering themselves for election at the AGM to be held on June 13, 2024, full details of which are set out in the notice of meeting accompanying this Annual Report. Non-Executive Directors The Company’s Non-Executive Directors are Dr. Raju Kucherlapati (interim Chair), Ms. Sharon Barber-Lui, Dr. John LaMattina, Dr. Robert Langer, and Ms. Kiran Mazumdar-Shaw. The Non-Executive Directors provide us with a wide range of skills and experience. Each Non-Executive Director has significant senior level experience as well as an extensive network in each of their own fields, an innovative mindset and independent judgement on issues of strategy, performance and risk, and is well placed to constructively challenge and scrutinize the performance of management. In addition, certain of our Non- Executive Directors also serve as members of one or more boards of directors of our Founded Entities and are key drivers for our Internal Programs.
88 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e The Board continued Board meetings and decisions The Board meets regularly during the year, as well as on an ad hoc basis as required by business need. The Board had 8 scheduled meetings in 2023, and details on attendance are set forth in the table below: Director Number of Board Meetings Attended Raju Kucherlapati 8/8 Sharon Barber-Lui 7/8 John LaMattina 7/8 Robert Langer 8/8 Kiran Mazumdar-Shaw 7/8 Christopher Viehbacher* 1/3 Bharatt Chowrira 8/8 Daphne Zohar 6/8 * Mr. Viehbacher retired from the Company’s Board in June 2023. While each current director was able to attend the vast majority of meetings in 2023, in the event of any unavoidable absence, the impacted Director would review with management the topics and materials to be discussed at the meeting, and provide appropriate feedback to be conveyed at such meeting, as was the case with respect to the meetings any director was unable to attend. Ms. Zohar did not attend certain meetings where she recused herself in light of the topics to be discussed. The Board also acted by unanimous written consent five times in 2023. On occasion it was more expedient for the Board to approve matters, especially administrative matters, by unanimous written consent rather than to convene a meeting for the purpose. Directors were, however, provided with an opportunity to discuss any concerns they had with the written resolution before its issue for signature. At each quarterly meeting of the Board, there was a closed session held in which only the interim Chair and the other Non-Executive Directors participated. In certain meetings held to discuss a specific topic or topics, a closed session was not held due to limited time allocated for such meeting or the nature of the topic being considered. The schedule of Board and Committee meetings each year is, so far as is possible, determined before the commencement of that year and all Directors or, if applicable, all Committee members, are expected to attend each meeting. Supplementary meetings of the Board and/or the Committees are held as and when necessary. Each member of the Board receives in advance of each scheduled meeting detailed Board packages, which include an agenda based upon matters to be addressed and appropriate presentation and background materials. If a Director is unable to attend a meeting due to Independence The Governance Code requires that at least 50 percent of the Board of a UK premium listed company, excluding the Chair, consists of Non-Executive Directors determined by the Board to be independent in character and judgement and free from relationships or circumstances which may affect, or could appear to affect, the Directors’ judgement. The Board regards Ms. Barber-Lui, Dr. Kucherlapati, Dr. LaMattina and Ms. Mazumdar- Shaw as Independent Non-Executive Directors for the purposes of the Governance Code. In reaching this determination, the Board duly considered (i) their directorships and links with other Directors through their involvement in other subsidiary companies; (ii) their equity interests in PureTech and/or the Founded Entities, including equity grants of restricted stock units made to Non-Executive Directors by the Company under its Performance Share Plan; and (iii) in respect of Dr. LaMattina and Dr. Kucherlapati, the length of their tenures as Directors of the Company. The Board is satisfied that the judgement, experience and challenging approach adopted by each of these Directors should ensure that they each make a significant contribution to the work of the Board and its committees. Therefore, the Board has determined that Ms. Barber-Lui, Dr. Kucherlapati, Dr. LaMattina, and Ms. Mazumdar-Shaw are of independent character and judgement, notwithstanding the circumstances described at (i), (ii) and (iii) above. In addition, with respect to Dr. Kucherlapati, the Board has considered his role as interim Chair and determined that such additional responsibilities shall not impact his independence in light of the interim nature of the role and the search underway for a permanent Chair appointee. The Nomination Committee, with assistance from the rest of the Board and the Company’s management, is focused on potentially adding an additional independent non-executive director in order to strengthen the Board’s skillsets and reinforce the strong governance that has been a hallmark of the Company’s Board and broader operations. The Nomination Committee and the Company intend to conduct a thorough and expeditious process to identify the best candidates. Progress updates will be provided in due course. Board support, indemnity and insurance The Company Secretary, Mr. Charles Sherwood, is responsible to the Board for ensuring Board procedures are followed, applicable rules and regulations are complied with and that the Board is advised on governance and relevant regulatory matters. All Directors have access to the impartial advice and services of the Company Secretary. There is also an agreed procedure for Directors to take independent professional advice at the Company’s expense. In accordance with the Company’s Articles of Association and a contractual Deed of Indemnity, the Directors have been granted an indemnity issued by the Company to the extent permitted by law in respect of liabilities incurred to third parties as a result of their office. The indemnity would not provide any coverage where a Director is proved to have acted fraudulently or with wilful misconduct. The Company has also arranged appropriate insurance cover in respect of legal action against its Directors and officers.
PureTech Health plc Annual Report and Accounts 2023 89 G overnance The Board continued Induction, awareness and development In preparation for the Company’s initial public offering (IPO), and upon joining the Board subsequent to the IPO, Directors received an induction briefing from the Company’s legal advisors on their duties and responsibilities as Directors of a publicly quoted company. The Directors also received presentations from the Company’s corporate brokers prior to the IPO. In addition, in order to ensure that the Directors continue to further their understanding of the challenges facing our Founded Entities and Internal Programs, the Board periodically receives the presentations and reports covering the business and operations of each of our Founded Entities as well as its Internal Programs. We have put in place a comprehensive induction plan for any new Directors. This program will be tailored to the needs of each individual Director and agreed with him or her so that he or she can gain a better understanding of us and our businesses. In addition, the Company facilitates sessions as appropriate with our advisors, as well as appropriate governance specialists, to ensure that any new Directors are fully aware of, and understand, their responsibilities and obligations of a publicly quoted company and of the governance framework within which they must operate. Board effectiveness and performance evaluation The Board periodically reviews its effectiveness and performance. The Board seeks the assistance of an independent third-party provider at least once every three years in its evaluation in compliance with the Governance Code, and will otherwise carry out an internally facilitated Board evaluation led by the Senior Independent Director, assisted by the Company Secretary, covering the effectiveness of the Board as a whole, its individual Directors and its Committees. For 2023, internal evaluations of the Board demonstrated that the Board and its Committees fulfil their responsibilities, operate effectively and demonstrate a clear structure and division of responsibilities between the Board and its Committees. The increased quality of Board materials and presentations and advances in the process for evaluating strategic transactions were favourably viewed. The Board will continue to perform internal evaluations to ensure the effectiveness of the Board and ensure alignment with the interests of stakeholders. In addition to the above, the Non-Executive Directors, led by the Senior Independent Director when that person is not also serving as interim Chair, will periodically appraise the permanent Chair’s performance, following which the Senior Independent Director will provide any feedback to the Chair. For the period while the Senior Independent Director also serves as interim Chair, the appraisal of the Interim Chair’s performance will be led by the Non-Executive Directors acting together. The performance of each of the Directors on the Board and the performance of the committees of the Board will be reviewed by the Chair as deemed necessary. The performance of Executive Directors will be reviewed by the Board on an ongoing basis, as deemed necessary, in the absence of the Executive Director under review. Committees of the Board The Board has three principal committees: the Nomination Committee, the Audit Committee and the Remuneration Committee. The composition of the three principal committees exceptional circumstances, he or she will nonetheless receive the meeting materials and discuss the materials with the Chief Executive Officer. The Chair, Chief Executive Officer and senior management team work together to ensure that the Directors receive relevant information to enable them to discharge their duties and that such information is accurate, timely and clear. This information includes quarterly management accounts containing analysis of performance against budget as well as a summary of the operational performance of each of our businesses against its goals. Additional information is provided as appropriate for the topics being addressed at the meeting. At each meeting, the Board receives presentations from the Chief Executive Officer and, by invitation, other members of senior management as required. This ensures that all Directors are in a position to effectively monitor our overall performance, and to contribute to the development and implementation of its strategy. Company Board meetings are held either in our offices in Boston, Massachusetts, U.S., or by videoconference. This practice began during the onset of the COVID-19 pandemic for the safety of the Board and has continued in recent years. The venue of Board meetings varies depending on the schedules and health of our directors. The Board endeavours to hold at least two in-person meetings during the year, as they give members of the Company’s senior management team, as well as the senior management of the Founded Entities, the opportunity to formally present to the Board on new technology development and business strategies. Certain Directors also serve on the boards of directors of our Founded Entities. These Founded Entity boards of directors meet regularly during the year, as well as on an ad hoc basis as required by business need. This service enables the Directors to have deep understanding of the businesses and contribute significantly to the strategy and oversight of these businesses. Directors’ conflicts of interest Each Director has a statutory duty under the Companies Act 2006 (the CA 2006) to avoid a situation in which he or she has or can have a direct or indirect interest that conflicts or may potentially conflict with the interests of the Company. This duty is in addition to the continuing duty that a Director owes to the Company to disclose to the Board any transaction or arrangement under consideration by the Company in which he or she is interested. The Company’s Articles of Association permit the Board to authorize conflicts or potential conflicts of interest. The Board has established procedures for managing and, where appropriate, authorizing any such conflicts or potential conflicts of interest. In deciding whether to authorize any conflict, the Directors must have regard to their general duties under the CA 2006 and their overriding obligation to act in a way they consider, in good faith, will be most likely to promote the Company’s success. In addition, the Directors are able to impose limits or conditions when giving authorization to a conflict or potential conflict of interest if they think this is appropriate. The authorization of any conflict matter, and the terms of any authorization, may be reviewed by the Board at any time. The Board believes that the procedures established to deal with conflicts of interest are operating effectively.
90 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e records are maintained and transactions are recorded accurately and fairly to permit the preparation of financial statements in accordance with IFRS. The Board approves the annual operating budgets and regularly receives details of actual performance measured against the budget. Principal risks and uncertainties Our operations and the implementation of our objectives and strategy are subject to a number of key risks and uncertainties. Principal and emerging risks are formally reviewed by the Board at least annually and appropriate procedures are put in place to monitor and, to the extent possible, mitigate these risks. A summary of the key risks affecting us and the steps taken to manage these risks are set out on pages 60 to 64 and in the Additional Information section from pages 186 to 223. Political expenditure It is the Board’s policy not to incur political expenditure or otherwise make cash contributions to political parties and it has no intention of changing that policy. 2024 Annual General Meeting The Notice of the AGM, which will be held at 4:00 pm BST (11:00 am EDT) on June 13, 2024 at the offices of FTI Consulting at 200 Aldersgate, 200 Aldersgate Street, London EC1A 4HD, is enclosed with this report. Details of the resolutions and the explanatory notes thereto are included with the Notice. To ensure compliance with the Governance Code, the Board proposes separate resolutions for each issue and proxy forms allow shareholders who are unable to attend the AGM to vote for or against or to withhold their vote on each resolution. In addition, to encourage shareholders to participate in the AGM process, the Company proposes to offer electronic proxy voting through the Registrar’s website and through the CREST service. The results of all proxy voting will be published on our website after the AGM. Our website at www.puretechhealth.com is the primary source of information on us. The website includes an overview of our activities, details of our businesses, and details of all of our recent announcements. of the Board and the attendance of the members throughout the year is set out in the respective committee reports contained in this Annual Report. The terms of reference of each committee are available on request from the Company Secretary and within the Investors section of our website at www.puretechhealth.com. Internal Control The Board fully recognizes the importance of the guidance contained in the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. Our internal controls were in place during the whole of 2023 and we are satisfied that we have adequate controls and that our internal control over financial reporting was effective for the year ended December 31, 2023. The Board is responsible for establishing and monitoring internal control systems and for reviewing the effectiveness of these systems. The Board views the effective operation of a rigorous system of internal control as critical to our success; however, it recognizes that such systems are designed to manage rather than eliminate risk of failure and can provide only reasonable and not absolute assurance against material misstatement or loss. The key elements of our internal control system, all of which have been in place during the financial year and up to the date these financial statements were approved, are as follows: Control environment and procedures We have a clear organizational structure with defined responsibilities and accountabilities. It adopts the highest values surrounding quality, integrity and ethics, and these values are communicated clearly throughout the whole organization. Detailed written policies and procedures have been established covering key operating and compliance risk areas. These policies and procedures are reviewed and the effectiveness of the systems of internal control is assessed periodically by the Board. Identification and evaluation of risks The Board actively identifies and evaluates the risks inherent in the business and ensures that appropriate controls and procedures are in place to manage these risks. The Board obtains an update regarding our Internal Programs and all Founded Entities on a regular basis, and reviews our performance and the performance of our Internal Programs and Founded Entities on a quarterly basis. However, the performance and structuring of business units may be reviewed more frequently if deemed appropriate. The key risks and uncertainties we face, as well as the relevant mitigations, are set out on pages 60 to 64 and in the Additional Information section from pages 186 to 223. Information and financial reporting systems We evaluate and manage significant risks associated with the process for preparing consolidated accounts by having in place systems and internal controls that ensure adequate accounting The Board continued
PureTech Health plc Annual Report and Accounts 2023 91 G overnance The Board recognizes its duties under Section 172 of the Companies Act 2006 and continuously has regard to how the Company’s activities and decisions will impact investors, employees, those with whom it has a business relationship, the community and environment and its reputation for high standards of business conduct. In weighing all of the relevant factors, the Board, acting in good faith and fairly between members, makes decisions and takes actions that it considers will best lead to the long- term success of the Company. In accordance with Section 172, it is the responsibility of the Board as a whole to ensure that a satisfactory dialogue takes place and that the Board considers the potential impact on the Company’s key stakeholders when making decisions. The Board is committed to understanding and engaging with shareholders and other key stakeholder groups of the Company in order to maximize value and promote long-term Company success in line with our strategic objectives, as well as to promote and ensure fairness between our stakeholders. The Board believes that appropriate steps and considerations have been taken during the year so that each Director has an understanding of the various key stakeholders of the Company. The Board recognizes its responsibility to contemplate all such stakeholder needs and concerns as part of its discussions, decision-making, and in the course of taking actions and will continue to make stakeholder engagement a top priority in the coming years. During the year, the Board assessed its current activities between the Board and its stakeholders, which demonstrated that the Board actively engages with its stakeholders and takes their various objectives into consideration when making decisions. Stakeholder How we engage Key matters identified Further information Investors – Our shareholders are the owners and investors in our business. We make significant efforts to engage with our shareholders and understand their objectives. We engage with our shareholders through a number of mechanisms to ensure that shareholder views are brought into the boardroom and considered in our decision-making. – The Board’s primary shareholder contact is through the Chief Executive Officer. The Chair, the Senior Independent Director and other Directors, as appropriate, make themselves available for contact with major shareholders and other stakeholders in order to understand their issues and concerns. – Stakeholder engagement will often take place by the Executive Directors and senior management through investor meetings and investor roadshows, including participation at healthcare conferences and participating in fireside chats at those events, with the Board receiving regular updates by way of analysis reports on stakeholder views. – Meetings were held throughout the year with institutional shareholders. Key shareholder publications including the annual report, the full year and half year results announcements and press releases and the information for investors are available on the Company’s website: www.puretechhealth.com. – Our Board keeps its Strategy and Business Model under regular review. During the past year, the Board has engaged to carefully consider its strategy for future growth and development, in particular devoting attention to the future prospects of its business model and its listing venues and the risks and opportunities this would give to the Company’s stakeholders. – The company carefully manages its expenditure and anticipates future capital needs through careful capital management and capital allocation to its Internal Programs and clinical trials as well as opportunities to secure financing from third parties, for example we monetized PureTech’s royalty in Karuna Therapeutics’ KarXT for up to $500 million, with $100 million in cash paid up front. Our Board also carefully considers opportunities for disposal of shares in our Founded Entities, which have generated over $815 million in non-dilutive proceeds to advance our pipeline and growth since 2020. – The Board seeks to ensure appropriate board structure and the Nomination Committee continues to actively evaluate seasoned candidates with extensive experience suitable for a Company of PureTech’s size. – The Board recognizes the importance of Diversity, Equity and Inclusion and is delighted to have a diverse group of leaders at both the Board and Management levels. – Governance Section of ARA (Pages 46 to 101) – ESG Report (Pages 24 to 45) – Karuna proceeds (Page 65) – Remuneration Report (Pages 102 to 122) – PureTech’s Hub-and- Spoke Model (Page 10) Relations with Stakeholders – Section 172 Statement
92 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Stakeholder How we engage Key matters identified Further information Our People – Our employees are crucial to the success of our business and many key decisions made by our Board have an impact on them. It is important to understand the employee perspective and ensure that we maintain an engaged workforce, as we believe that this will lead to better business results. We engage with our employees in various ways to ensure that their voice is heard in the management of our business including: – The conduct of regular town hall meetings, email briefings to employees on key events as well as communication through the company intranet site and an engagement survey – The implementation of regular appraisals and personal development programs – The Board recognizes the importance of an incentivized and engaged workforce, especially in the highly competitive biotechnology cluster of the greater Boston area. While the Board recognized the three methods suggested in the Code for workforce engagement, the Board opted for a more informal approach given the Company’s number of employees. The Board is responsive to the views of employees, and regularly seeks feedback from the Executive Directors on the overall culture of the Company which is aligned to the purpose, values and strategy of the organization. Executive Directors provide insights based on the feedback from routine employee engagement, such as through surveys and Town Hall Meetings. – The Board aims to attract and retain employees. This is attained through a combination of competitive remuneration and benefit packages and an established personal management and development program. This program is implemented with a view to development of the individual in an inclusive environment where employees from diverse backgrounds can thrive. – We are proud to be a company dedicated to giving life to new classes of medicine to improve the lives of patients with devastating diseases and believe we have established a business where our employees are proud to work. – ESG Report (Pages 24 to 45) – Remuneration Report (Pages 102 to 122) – Strategic Report (Pages 3 to 21) Community & Environment – We are committed to supporting the communities in which we operate and the wider public. To that end, we have developed various mechanisms for engagement including: – Internships/partnerships with local universities and programs – Charitable giving – Building Certifications – Therapeutic Focus – We are committed to improving our practices to ensure our business operates on a sustainable basis. In particular, we have created an ESG committee chaired by one of our Non-Executive Directors to guide our sustainability initiatives. Our business operates with low carbon emissions, and we are committed to delivering long-term environmental sustainability. – We partner with local universities and programs to offer paid internship and externship programs, generally within technical fields in our development organization. – The company engages with local community and supports charitable causes. In particular, in 2023, PureTech made charitable contributions to the Pulmonary Fibrosis Foundation, School on Wheels and The Greater Boston Food Bank. – ESG Report (Pages 24 to 45) Suppliers/ Business Partners – Our business model creates value through partnerships and relationships with various key collaborators, and we continually evaluate how to strengthen relationships and arrangements with these institutions and individuals. Our engagement in 2023 included: – Quality updates and quality audits – Meetings with key surgeons to understand/identify potential indications and applications for therapeutics – Partnerships – BeiGene and Eli Lilly – We aim to build clear and reliable supply arrangements with our contract manufacturers for clinical product supply, in particular with an emphasis on quality, especially in relation to a clinical environment. – We seek partnerships with other life sciences organizations to secure non-dilutive funding, access to development opportunities and access to materials for our clinical trials. – PureTech’s Hub-and- Spoke Model (Page 10) – Seaport Therapeutics (Page 13) – Gallop Oncology (Page 15) Relations with Stakeholders – Section 172 Statement continued
PureTech Health plc Annual Report and Accounts 2023 93 G overnance The Company’s issued ordinary share capital comprises a single class of ordinary shares. Details on movements in issued share capital can be found in Note 15 to the financial statements, page 162. Rights of ordinary shares All of the Company’s issued ordinary shares are fully paid up and rank pari passu in all respects and there are no special rights with regard to control of the Company. There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them, which are governed by the Articles of Association and relevant UK legislation. The Directors are not aware of any agreements between holders of the Company’s shares that may result in restrictions on the transfer of securities or in voting rights. Substantial shareholders As of March 31, 2024, the Company had been advised that the shareholders listed below hold interests of 3 percent or more in its ordinary share capital (other than interests of the Directors which are detailed on page 119 of the Directors’ Remuneration Report). Other than as shown, so far as the Company (and its Directors) are aware, no other person holds or is beneficially interested in a disclosable interest in the Company. Shareholder % Invesco Asset Management Limited 23.76 Lansdowne Partners International Limited 8.10 Baillie Gifford & Co 7.65 Vanguard Group 4.24 Patient Capital Management 3.90 Recordati SPA Pharmaceutical Company 3.54 M&G Investment Management, LTD 3.39 Powers of the Directors Subject to the Company’s Articles of Association, UK legislation and any directions given by special resolution, the business of the Company is managed by the Board of Directors. Details of the matters reserved for the Board can be found in the Corporate Governance Report on page 89. Articles of Association The Articles of Association of the Company can only be amended by special resolution at a general meeting of the shareholders. No amendments are proposed at the 2024 AGM. The Directors present their report and the audited consolidated financial statements for the financial year ended December 31, 2023. Certain disclosure requirements for inclusion in this report have been incorporated by way of cross reference to the Strategic Report, the Directors’ Remuneration Report and the ESG Report which should be read in conjunction with this report. The Company was incorporated on May 8, 2015 as a public company limited by shares in the UK and has a registered office situated at 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom. The Company was admitted to the premium listing segment of the Official List of the UK Listing Authority and to trading on the main market of the London Stock Exchange on June 24, 2015. The Company’s American Depository Shares, each representing 10 ordinary shares, began trading on the Nasdaq Global Market on November 16, 2020. Directors The membership of the Board can be found below, and biographical details of the directors can be found on pages 82 to 85 and are deemed to be incorporated into this report. Descriptions of the terms of the directors’ service contracts are set forth on page 112 and page 120 of this report. All current directors shall retire from office and will offer themselves for reappointment by the members at the Company’s upcoming AGM. Details of the interests of directors in the share capital of the Company as of December 31, 2023 are set out in the Annual Report on Remuneration on page 119 and Note 26 to the financial statements, located on page 176. There have been no changes in such interests from December 31, 2023 to March 31, 2024, except as specifically set forth in those sections. Results and dividends We generated a loss for the year ended December 31, 2023 of $60.2 million (2022: Loss of $37.1 million). The Directors do not recommend the payment of a dividend for the year ended December 31, 2023 (2022: nil). Share capital As of December 31, 2023, the ordinary issued share capital of the Company stood at 289,468,159 shares of £0.01 each, including shares issuable upon conversion of outstanding ADSs, with 17,614,428 shares held in treasury by the Company under its ongoing Share Repurchase Program. Details on share capital are set out in Note 15 to the financial statements, page 162. Directors’ Report for the year ended December 31, 2023
94 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e The following have served as Directors of the Company during the 2023 financial year. Name Role Age (as of December 31, 2023) Dr. Raju Kucherlapati Lead Independent Non-Executive Director; Interim Chair 80 Dr. Bharatt Chowrira Chief Executive Officer 58 Dr. Robert Langer Non-Executive Director 75 Dr. John LaMattina Independent Non-Executive Director 73 Ms. Kiran Mazumdar-Shaw Independent Non-Executive Director 70 Ms. Sharon Barber-Lui Independent Non-Executive Director 50 Ms. Daphne Zohar Former Chief Executive Officer (departed the Board in April 2024) 53 Mr. Christopher Viehbacher Former Non-Executive Chair (departed the Board in June 2023) 63 The Directors consider that the Company has, throughout the year ended December 31, 2023, applied the main principles and complied with the provisions set out in the Governance Code with the following exceptions: — Dr. Raju Kucherlapati, the interim Chair, is also Chair of the Nomination Committee when it is dealing with the appointment of a successor, which is not aligned with provision 17 of the Governance Code. In making the determination for maintaining Dr. Kucherlapati as Chair of the Nomination Committee the Board duly considered (i) the interim nature of the role and the search underway for a permanent Chair appointee (ii) his professional background (iii) his tenure on the Board and experience. The Board deemed this to be relevant experience making his role as Chair of Committee in the best interest of the Company’s shareholders. The Board has acknowledged Dr. Kucherlapati’s exemplary leadership during a busy and transformative period for the Company. However, the Directors are also cognizant of the extended tenure of Dr. Kucherlapati’s interim role and are taking affirmative steps to appoint a permanent Chair. These affirmative steps include both interviewing external potential candidates for the role as well as evaluating the skillsets and leadership qualities of its current members. If an external candidate is chosen as permanent Chair, Dr. Kucherlapati is expected to remain a key member of the Company’s Board. — Mr. Christopher Viehbacher, the former Chair, served on the Audit Committee during the year, which is not aligned with provision 24 of the Governance Code. In making the determination for maintaining Mr. Viehbacher as a member of the Audit Committee the Board duly considered (i) his experience as a Chartered Accountant and numerous senior executive positions in his career (ii) his prior service as chair of the Committee and (iii) his departure from the Committee and the Board following the 2023 AGM. The Board deemed this to be recent and relevant financial experience, qualifying him to serve on the Committee. Directors’ liabilities (Directors’ indemnities) As at the date of this report, the Company has granted qualifying third party indemnities to each of its Directors against any liability that attaches to them in defending proceedings brought against them, to the extent permitted by the Companies Act. In addition, Directors and officers of the Company and its Founded Entities have been and continue to be covered by Directors’ and officers’ liability insurance. See further description of indemnity and insurance on page 88. Political donations No political contributions/donations for political purposes were made by the Company or any of our affiliate companies to any political party, politician, elected official or candidate for public office during the financial year ended December 31, 2023 (2022: nil). Significant agreements There are no agreements between the Company or any of our affiliate companies and any of its employees or any Director which provide for compensation to be paid to an employee or a Director for loss of office as a consequence of a takeover of the Company. Compliance with the UK Corporate Governance Code The Directors are committed to a high standard of corporate governance and compliance with the best practice of the UK Corporate Governance Code (Governance Code) published in July 2018. The Governance Code is available at the Financial Reporting Council website at www.frc.org.uk. Directors’ Report for the year ended December 31, 2023 continued
PureTech Health plc Annual Report and Accounts 2023 95 G overnance Subsequent Events Information related to events occurring after December 31, 2023 can be found in Note 28 to the consolidated financial statements. Research and Development Information on our research and development activities can be found in the Strategic Report on pages 11 to 12. Going concern As of December 31, 2023, the directors had a reasonable expectation that we had adequate resources to continue in operational existence into 2027. Annual General Meeting The Notice of the AGM, which will be held at 4:00 pm BST (11:00 am EDT) on June 13, 2024 at the offices of FTI Consulting at 200 Aldersgate, 200 Aldersgate Street, London EC1A 4HD, is enclosed with this report. Details of the resolutions and the explanatory notes thereto are included with the Notice. To ensure compliance with the Governance Code, the Board proposes separate resolutions for each issue and proxy forms allow shareholders who are unable to attend the AGM to vote for or against or to withhold their vote on each resolution. In addition, to encourage shareholders to participate in the AGM process, the Company proposes to offer electronic proxy voting through the Registrar’s website and through the CREST service. The results of all proxy voting will be published on our website after the AGM. The Notice of the Meeting, together with an explanation of the items of business, will be contained in a circular to shareholders to be dated April 25, 2024. Pension schemes Information on the Company’s 401K Plan can be found in the Annual Report on Remuneration on page 107. Further explanation as to how the provisions set out in the Governance Code have been applied by the Company is provided in this Report, the Report of the Nomination Committee and the Report of the Audit Committee. Financial instruments The financial risk management and internal control processes and policies, and exposure to the risks associated with financial instruments can be found in Note 18 to the financial statements and the Corporate Governance section of the Annual Report on page 100. Sustainable development and environmental matters Details of the Company’s policies and performance, as well as disclosures concerning GHG emissions, are provided in the ESG Report on pages 24 to 45. Related party transactions Details of related party transactions can be found in Note 26 of the financial statements on pages 175 to 176. Share buyback At the 2022 AGM and the 2023 AGM, shareholders gave the Company authority to purchase shares from the market up to an amount equal to 10% of the Company’s issued share capital at that time. On May 9, 2022, the Company commenced a $50 million Share Buyback Programme. The Company executed the Programme in two equal tranches, the first of which was completed on October 26, 2022, and the second which was completed on February 7, 2024. Between May 9, 2022, and February 7, 2024, the Company repurchased an aggregate of 20,182,863 ordinary shares under the Share Buyback Programme, which represents approximately 7% of the Company’s issued share capital at the time the programme commenced. The authority granted from the 2022 AGM expired as of the end of the 2023 AGM, and the authority from the 2023 AGM expires as of the earlier of the end of the 2024 AGM or close of business on 15 September 2024. During 2023, 7,683,526 ordinary shares were purchased by the company and held as treasury shares. Such treasury shares do not receive dividend rights and may not exercise voting rights. Future business developments Information on the Company and its Internal Programs and Founded Entities’ future developments can be found in the Strategic Report on pages 11 to 21. Risk and internal controls The principal risks we face are set out on pages 60 to 64 and in the Additional Information section from pages 186 to 223. The Audit Committee’s assessment of internal controls is laid out on page 100. Directors’ Report for the year ended December 31, 2023 continued
96 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Disclosure of information under Listing Rule 9.8.4R For the purposes of LR 9.8.4R, the information required to be disclosed can be found in the sections of the Annual Report and Financial Statements listed in the table below. Listing Rule Requirement Location in Annual Report A statement of the amount of interest capitalized during the period under review and details of any related tax relief. N/A Information required in relation to the publication of unaudited financial information. N/A Details of any long-term incentive schemes. Directors’ Remuneration Report, page 106 Details of any arrangements under which a Director has waived emoluments, or agreed to waive any future emoluments, from the Company. N/A Details of any non-pre-emptive issues of equity for cash. N/A Details of any non-pre-emptive issues of equity for cash by any unlisted major subsidiary undertaking. Directors’ Report, page 93 Details of parent participation in a placing by a listed subsidiary. N/A Details of any contract of significance in which a Director is or was materially interested. N/A Details of any contract of significance between the Company (or one of its subsidiaries) and a controlling shareholder. N/A Details of any provision of services by a controlling shareholder. N/A Details of waiver of dividends or future dividends by a shareholder. N/A Where a shareholder has agreed to waive dividends, details of such waiver, together with those relating to dividends which are payable during the period under review. N/A Board statements in respect of relationship agreement with the controlling shareholder. N/A Transition of auditor During 2023, the Audit Committee oversaw the handover and induction arrangements to ensure a smooth transition for our new auditors. Last year, following a tender offer process, the Audit Committee recommended to the Board the appointment of PricewaterhouseCoopers LLP UK (“PwC”) as the preferred new auditor, replacing KPMG LLP who has served as our auditor since 2015. Based on this recommendation, the Board proposed that PwC be appointed as external auditor of Company, which received shareholder approval at the 2023 AGM Audit Committee, with 99.75% of votes cast in favour of the appointment. Disclosure of information to auditor The Directors who held office at the date of approval of this Directors’ report confirm that: Whistleblowing, anti-bribery and corruption We seek at all times to conduct our business with the highest standards of integrity and honesty. We also have an anti- bribery and corruption policy which prohibits our employees from engaging in bribery or any other form of corruption. In addition, we have a whistleblowing policy under which staff are encouraged to report to the Chief Executive Officer or the President any alleged wrongdoing, breach of a legal obligation or improper conduct by or on the part of us or any of our officers, Directors, employees, consultants or advisors. In the event of a communication to the Executive Directors or others, including via the Company’s Whistleblower hotline, pursuant to these policies, this information will be shared with the Audit Committee who will evaluate the claims and in turn report to the rest of the Board. Directors’ Report for the year ended December 31, 2023 continued
PureTech Health plc Annual Report and Accounts 2023 97 G overnance The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Responsibility statement of the Directors in respect of the annual financial report We confirm that to the best of our knowledge: — the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and — the strategic report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy. By Order of the Board Bharatt Chowrira, Ph.D., J.D. Chief Executive Officer and Director April 25, 2024 — so far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and — the Director has taken all steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the CA 2006. Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parent Company financial statements for each financial year. Under that law they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards and applicable law and have elected to prepare the parent Company financial statements on the same basis. In addition, the Group financial statements are required under the UK Disclosure Guidance and Transparency Rules to be prepared in accordance with the UK-adopted international accounting standards. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of the Group’s profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to: — select suitable accounting policies and then apply them consistently; — make judgements and estimates that are reasonable, relevant and reliable; — state whether they have been prepared in accordance with the UK-adopted international accounting standards; — assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and — use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. Directors’ Report for the year ended December 31, 2023 continued
98 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e might affect, or appear to affect, the Directors’ judgement in their service on the Nomination Committee. While the Board has not deemed Dr. Langer independent for the purposes of overall Board composition, he is independent in the context of his service on the Nomination Committee. The Board duly considered (i) his involvement in other Founded Entities and (ii) the exceptional circumstance that Dr. Langer is a founding Director of the Company. The Board further regards Dr. Kucherlapati as independent on the basis of the Governance Code criteria despite also serving as interim Chair of the Board since June 2023 in light of the criteria listed above and the fact that Dr. Kucherlapati’s appointment as Chair of the Board is temporary in nature. The Nomination Committee meets as required to initiate the selection process of, and make recommendations to, the Board with regard to the appointment of new Directors. During 2023, the Nomination Committee met one time to review the structure, size and composition of the Board in light of the requirements of the Governance Code. Dr. Kucherlapati, Ms. Mazumdar-Shaw and Dr. Langer participated in the meeting. Mr. Viehbacher, the Chief Executive Officer and the President were invited to and attended the meeting. In light of the retirement of Dame Scardino at the end of 2022 and departure of Mr. Viehbacher following the Company’s 2023 AGM, the committee undertook a search to identify a new Board Chair and Director. This thorough search is aimed at replacing these outgoing Directors with individuals of the same stature while focusing on the key skill sets needed to complement the current Board and guide the Company in its continued evolution. The Company will provide updates in due course but does not currently expect that such new Directors will be in place at the time of the 2024 AGM. Diversity policy Diversity within the Company’s Board and the Management Team is essential in maximizing its effectiveness, as it enriches debates, business planning and problem- solving. The Company approaches diversity in its widest sense so as to recruit and develop the best talent available, based on merit and assessed against objective criteria of skills, knowledge, independence and experience as well as other criteria such as gender, age and ethnicity. This approach is also applied to ensuring diversity within the Board and the Remuneration, Audit and Nomination committees. The Company will adhere to a strategy of recruiting individuals who meet these criteria as it searches for additional independent Non-Executive Directors to the Board, as discussed below. The Committee’s primary objective is to ensure that the Company maintains the strongest possible leadership across both the Board and the Management Team.. Information regarding the Company’s diversity efforts can be found in the ESG Report on pages 24 to 45. Board and Committee evaluation Information regarding the evaluation of the Board and its Committees can be found on page 90. Committee responsibilities The Nomination Committee assists the Board in discharging its responsibilities relating to the composition and make-up of the Board and any Committees of the Board. It is also responsible for periodically reviewing the Board’s structure and identifying potential candidates to be appointed as Directors or Committee members as the need may arise. The Nomination Committee is responsible for evaluating the balance of skills, knowledge and experience and the size, structure and composition of the Board and Committees of the Board, retirements and appointments of additional and replacement Directors and Committee members, and makes appropriate recommendations to the Board on such matters. A full copy of the Committee’s Terms of Reference is available on request from the Company Secretary and within the Investor’s section on Company’s website at www.puretechhealth.com. Committee membership The Nomination Committee consisted of Dr. Raju Kucherlapati, who served as the committee’s Chair, Dr. Robert Langer, and Ms. Kiran Mazumdar-Shaw during 2023. The biographies of the Nomination Committee members can be found on pages 82 to 83. The Governance Code requires that a majority of the members of a nomination committee should be independent Non- Executive Directors. In making their determination for the year 2023, the Board regarded Dr. Raju Kucherlapati, Dr. Langer and Ms. Mazumdar- Shaw as meeting the independence criteria set out in the Governance Code as it is applied to their service on the Nomination Committee. In reaching this determination, the Board duly considered (i) their directorships and links with other Directors through their involvement in other Founded Entities; (ii) their equity interests in PureTech Health and/or the Founded EntitiesThe Board also duly considered the extent to which these matters may impact their service on the Nomination Committee. After such consideration, the Board has determined Dr. Langer and Ms. Mazumdar-Shaw to be independent in character and judgement and free from relationships or circumstances which Report of the Nomination Committee Raju Kucherlapati, Ph.D. Chair, Nomination Committee
PureTech Health plc Annual Report and Accounts 2023 99 G overnance in making the independence determination for the interim Chair, Dr. Kucherlapati, the Board considered his (i) his prior service on the Board (ii) relevant leadership positions within the sector and (iii) the interim nature of his role as interim Chair. The Board deemed this to be recent and relevant financial experience, qualifying both Mr. Viehbacher and Dr. Kucherlapati to serve on the Committee. Ms. Barber-Lui has served as Chair of the Committee since April 26, 2022. Ms. Barber-Lui has experience as a Chartered Accountant and has held numerous senior executive positions in her career. The Board has deemed this to be recent and relevant financial experience, qualifying her to be Chair of the Committee. Ms. Barber-Lui has accounting experience, is currently the Chief Financial Officer and Senior Vice President, North America at Teva Pharmaceutical Industries Ltd., a publicly-traded Israeli company (NYSE and TASE: TEVA), and has held a number of senior finance and executive leadership positions in her career. The Board has deemed this to be recent and relevant financial experience qualifying her to be Chair of the Committee. Both Dr. Kucherlapati and Dr. LaMattina have also been deemed to have recent and relevant financial experience qualifying them to serve on the Committee. The Board based this determination based on (i) their numerous senior leadership positions and (ii) their competence in the sector in which the company operates. For Dr. Raju Kucherlapati and Dr. John LaMattina The biographies of the Committee members can be found on pages 82 to 83. The Committee met six times during the year, with Ms. Barber-Lui and Dr. Kucherlapati each attending all six meetings, Mr. Viehbacher attending three of four meetings prior to his departure from the Committee and Dr. LaMattina attending two meetings after replacing Mr. Viehbacher on the Committee. In 2023, the Chief Executive Officer and President were invited to and attended all of the meetings, the prior Auditor was invited to and attended two of the meetings and the current Auditor was invited to and attended three of the meetings. When appropriate, the Committee met with the Auditor without any members of the executive management team being present. Activities during the year During the year, the Audit Committee oversaw the handover and induction arrangements to ensure a smooth transition for our new auditors. Last year, following a tender offer process, the Audit Committee recommended to the Board the appointment of PricewaterhouseCoopers LLP UK (“PwC”) as the preferred new auditor, replacing KPMG LLP who had served as our auditor since 2015. Based on this recommendation, the Board proposed that PwC be appointed as external auditor of the Company, which received shareholder approval at the 2023 AGM Audit Committee, with 99.75% of votes cast in favour of the appointment. The Committee also undertook the normal recurring items, the most important of which are noted below. Committee responsibilities The Audit Committee monitors the integrity of our financial statements and reviews all proposed annual and half-yearly results announcements to be made by us with consideration being given to any significant financial reporting judgements contained in them. The Committee also advises the Board on whether it believes the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. The Committee also considers internal controls and has complied with the provisions of the Competition and Markets Authority Order. Additionally we are in compliance with legal requirements, including the provisions of the, FCA’s Listing Rules, Disclosure Guidance and Transparency Rules, and reviews any recommendations from the Group’s Auditor regarding improvements to internal controls and the adequacy of resources within our finance function. A full copy of the Committee’s Terms of Reference is available on request from the Company Secretary and within the Investor’s section on the Company’s website at www.puretechhealth.com. Committee membership The Committee consists of three independent Non-Executive Directors, Ms. Sharon Barber-Lui, Dr. Raju Kucherlapati and Dr. John LaMattina. Dr. LaMattina replaced Mr. Christopher Viehbacher following his departure from the Committee due to his retirement from the Board on June 13, 2023. The Governance Code requires that the audit committee be comprised of independent Non-Executive Directors, with the chair of the Board refraining from serving on the Committee. In making the determination for maintaining Mr. Viehbacher as a member of the Audit Committee the Board duly considered (i) his experience as a Chartered Accountant and numerous senior executive positions in his career (ii) his prior service as chair of the Committee and (iii) his upcoming departure from the Committee and the Board following the 2023 AGM. Similarly, Report of the Audit Committee Ms. Sharon Barber-Lui Chair, Audit Committee
100 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Going concern At least annually, the Committee considers the going concern principle on which the financial statements are prepared. As a business which seeks to fund the development of its Internal Programs, as well as support its Founded Entities with further capital, the business model is currently inherently cash consuming. As of December 31, 2023, we had sufficient funding to extend operations into 2027 based on the Company’s strategic operating plan. Therefore, while an inability of the Internal Programs and Founded Entities to raise funds through equity financings with outside investors, strategic arrangements, licensing deals or debt facilities may require us to modify our level of capital deployment into our Internal Programs and Founded Entities or to more actively seek to monetize one or more Founded Entities, it would not threaten our viability overall. Compliance The Committee has had a role in supporting our compliance with the Governance Code, which applies to us for the 2023 financial year. The Board has included a statement regarding our longer-term viability on page 65. The Committee worked with management and assessed that there is a robust process in place to support the statement made by the Board. Similarly, the Committee worked with management to ensure that the current processes underpinning its oversight of internal controls provide appropriate support for the Board’s statement on the effectiveness of risk management and internal controls. Risk and internal controls The principal risks we face are set out on pages 60 to 64 and in the Additional Information section from pages 186 to 223. The Committee has directed that management engage in a continuous process to review internal controls around financial reporting and safeguarding of assets. Management has engaged external advisors to complete internal control testing on behalf of management for the 2023 financial year and the results were presented to the Committee. Based on the above, we have satisfied ourselves that we have adequate controls and that our internal control over financial reporting is effective for the year ended December 31, 2023. We have a formal whistleblowing policy. The Committee is satisfied that the policy has been designed to encourage staff to report suspected wrongdoing as soon as possible, to provide staff with guidance on how to raise those concerns, and to ensure staff that they should be able to raise genuine concerns without fear of reprisals, even if they turn out to be mistaken. Significant issues considered in relation to the financial statements The Committee considered, in conjunction with management and the external auditor, the significant areas of estimation, judgement and possible error in preparing the financial statements and disclosures, discussed how these were addressed and approved the conclusions of this work. The principal areas of focus in this regard were the determination of the accounting treatment for the sale of future royalties, and valuation of Level 3 financial instruments, including those related to Vedanta Biosciences and Sonde Health. Accounting treatment for the sale of future royalties An area of judgment in our financial statements and, therefore audit risk, relates to the determination of the appropriate accounting treatment for the Royalty Agreement, which at year end resulted in a sale of future royalty liability of $110.2 million. We considered the pertinent terms and underlying economics of the agreement in determining the appropriate accounting treatment. Valuation of financial instruments An area of judgement in our financial statements and, therefore audit risk, relates to the valuation of investments held at fair value that do not have a quoted active market price which at year end had a carrying value totaling $25 million (2022 – $11 million). We considered the underlying economics of the valuations and sought external expertise in determining the appropriate valuation of the financial investments. These valuations rely, in large part, on the capital structure, values of recent transactions and market movement. These values also determine the amount of gain (loss) on the financial instruments. The Committee believes that we considered the pertinent terms and underlying economics of each of the financial instruments, as well as the advice of external experts, and as such concluded that the financial Instruments were appropriately recorded. Regulatory compliance Ensuring compliance for FCA regulated businesses also represents an important control risk from the perspective of the Committee. We engage with outside counsel and other advisors on a regular basis to ensure compliance with legal requirements. Review of Annual Report and Accounts and Half- yearly Report The Committee carried out a thorough review of our 2023 Annual Report and Accounts and our 2023 Half-yearly Report resulting in the recommendation of both for approval by the Board. In carrying out its review, the Committee gave particular consideration to whether the Annual Report, taken as a whole, was fair, balanced and understandable, concluding that it was. It did this primarily through consideration of the reporting of our business model and strategy, the competitive landscape in which it operates, the significant risks it faces, the progress made against its strategic objectives and the progress made by, and changes in fair value of, its Founded Entities during the year. Report of the Audit Committee continued
PureTech Health plc Annual Report and Accounts 2023 101 G overnance Appointment and independence The Committee advises the Board on the appointment of the external Auditor and on its remuneration both for audit and non-audit work, and discusses the nature, scope and results of the audit with the external Auditor. The Committee keeps under review the cost-effectiveness and the independence and objectivity of the external Auditor. Controls in place to ensure this include monitoring the independence and effectiveness of the audit, a policy on the engagement of the external Auditor to supply non-audit services, and a review of the scope of the audit and fee and performance of the external Auditor. Non-audit work The Committee approves all fees paid to the Auditor for non-audit work. Where appropriate, the Committee sanctions the use of PricewaterhouseCoopers LLP for non-audit services in accordance with our non-audit services policy. During 2023 PwC did not provide any non-audit related services, apart from non-audit fees in connection with access to the firm’s accounting research and disclosure database. Therefore, the ratio of non- audit work to audit work was nil, which the Committee is satisfied does not breach the independence of PricewaterhouseCoopers. Sharon Barber-Lui Chair of Audit Committee April 25, 2024 Internal audit We do not maintain a separate internal audit function. This is principally due to our size, where close control over operations is exercised by a small number of executives. In assessing the need for an internal audit function, the Committee considered the risk assessment performed by management to identify key areas of assurance and the whole system of internal financial and operational controls. The Company achieves internal assurance by performing the risk assessment of the key areas of assurance and maintaining related key internal controls, as well as engaging external advisors to perform internal control testing, as described above. External audit We have engaged PricewaterhouseCoopers LLP (UK) as our Auditor since 2023. The current audit partner is Sam Taylor who has been our audit partner since June 2023. The effectiveness of the external audit process is dependent on appropriate risk identification. In November 2023, the Committee discussed the Auditor’s audit plan for 2023. This included a summary of the proposed audit scope and a summary of what the Auditor considered to be the most significant financial reporting risks facing us together with the Auditor’s proposed audit approach to these significant risk areas. The main areas of audit focus for the year were (a) Valuation of financial instruments and (b) the accounting model for the sale of a future royalty liability. Report of the Audit Committee continued
102 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e strategic plan. The Remuneration Committee also recommends and monitors the level and structure of remuneration for senior management. The Remuneration Committee shall, in consultation with the interim Chairman and/or the Chief Executive Officer, determine the total individual remuneration package of each Executive Director, including share awards. The Remuneration Committee shall also have regard to current information for remuneration in other companies of comparable scale and complexity and can appoint remuneration consultants to assist in such process. The Remuneration Committee also has responsibility to review the design of all share incentive plans and determine awards under such plans. A full copy of the Remuneration Committee’s Terms of Reference is available on request from the Company Secretary and within the Investors section of the Company’s website at www.puretechhealth.com. Committee membership The Remuneration Committee consists of Dr. LaMattina, Dr. Kucherlapati and Ms. Mazumdar-Shaw, with Dr. LaMattina serving as Chair of the Committee. The biographies of the Committee members can be found on pages 82 to 83. The Committee met three times during the year, with each Committee member in attendance for all three meetings. The Committee also acted by unanimous written consent seven times during the year. During 2023, the Chief Executive Officer and the President were invited to all of the meetings, with Ms. Zohar attending two of the three meetings and Dr. Chowrira attending all three meetings. However, no Executive Director was permitted to participate in discussions or decisions about his or her personal remuneration. Our Remuneration Policy The success of PureTech depends on the motivation and retention of our highly skilled workforce with significant expertise across a range of science and technology disciplines, as well as our highly-experienced management team and seasoned Directors. PureTech’s Remuneration Policy is therefore an important part of our business strategy. Our guiding principle is to provide market competitive remuneration packages, including with respect to cash compensation in the form of base salary, annual bonuses and benefits as well as share based compensation, benchmarked against data generated from our local markets to enable us to put together and retain a top tier team. The Directors’ Remuneration Policy was approved by shareholders at the 2021 AGM with 83.9% support, and the Remuneration Report was approved by shareholders at the 2023 AGM with 95.5% support. At the 2023 AGM, we also received 96.8% support for a proposal for a new Performance Share Plan to help us better manage the potential dilution from equity incentives, a critically important part of our overall compensation program. The Committee is grateful for this level of investor support, which clearly indicates that shareholders are sympathetic to our approach of balancing UK standards on remuneration with practices designed to ensure that PureTech can remain competitive against U.S. peer companies in the biopharma sector. The Directors’ Remuneration Report is split into three sections, namely: — This Annual Statement: summarizing and explaining the major decisions on Directors’ remuneration in the year; — The Directors’ Remuneration Policy: setting out the framework for remuneration for our Directors on pages 106 to 112; and — The Annual Report on Remuneration: setting out the implementation of the Remuneration Policy in the year ended December 31, 2023 and the intended implementation for the year ending December 31, 2024 on pages 113 to 122. The current Directors’ Remuneration Policy was last approved at the 2021 AGM, and such approval is effective until the December 31, 2024. We are asking shareholders to approve a new Remuneration Policy at the 2024 AGM by way of a binding vote. The Directors’ Remuneration Report (excluding that part of the report containing the Directors’ Remuneration Policy on pages 106 to 112) and is also subject to a shareholder vote at this year’s AGM. The vote to approve the Directors’ Remuneration Report is advisory only and does not affect the actual historical remuneration paid to any individual Director. We will also be asking shareholders to approve a separate AGM proposal to amend the Performance Share Plan (“PSP”) to align with the new Policy. Committee responsibilities The Remuneration Committee’s primary purpose is to assist the Board in determining the Company’s remuneration policies. The Remuneration Committee has the responsibility for setting the remuneration policy for all Executive Directors and the Chairman of the Company, including pension rights and compensation payments, and in determining such policy must take into account all factors which it deems necessary including regulatory requirements, with the objective of attracting, retaining and motivating executive management having regard to views of shareholders and stakeholders and the risk appetite of the Company and alignment to the Company’s long term goals and Directors’ Remuneration Report for the year ended December 31, 2023 Dr. John LaMattina Chair, Remuneration Committee
PureTech Health plc Annual Report and Accounts 2023 103 G overnance In the interests of providing a suitably competitive package for PureTech’s leaders which is relevant in the local context, the new Policy introduces certain time-vesting restricted shares into the long-term incentive structure for the Executive Directors. Under this approach, 50 percent of the total long-term equity component will remain as performance shares, with the remaining 50 percent being comprised of time-vesting restricted shares. To ensure ongoing competitiveness, total grant levels will remain unchanged, so that the Chief Executive Officer’s award under this new structure will be up to 300 percent of salary in performance shares and 300 percent in time-vesting restricted shares. For any other Executive Directors, the grant levels will be up to 150 percent in performance shares and 150 percent in time-vesting restricted shares. The vesting of the performance shares will continue to be subject to the satisfaction of challenging performance conditions over a three-year period, with a significant proportion linked to TSR. The time-vesting restricted shares will vest subject to continued employment, albeit with a requirement that the Remuneration Committee is satisfied with Company and individual performance over the vesting period. The time-vesting restricted shares will vest in three equal annual instalments commencing one year from the initial grant date, in line with common U.S. practice. Both performance and time-vesting restricted shares will remain subject to a two-year post-vesting holding period. Vesting provisions with respect to time-vesting restricted shares may be altered at the discretion of the Remuneration Committee, provided that the vesting periods are not shorter than what is described previously. We recognise that the introduction of time-vesting restricted shares is a significant change to the incentive construct. However, it results in a hybrid approach which is directly in line with market practice in the sector, and helps us provide our leaders with compensation packages which are more competitive in the local context, while also putting the business in a better position to attract the very best talent going forward. One other change we are making to the Remuneration Policy relates to Non-Executive Director compensation. Currently, Non- Executive Directors receive a mixture of cash and ordinary shares in PureTech. The fee levels payable to date have been significantly below the levels typically payable for experienced Non- Executive Directors at U.S. companies in our sector. Given the Board’s policy of appointing high calibre Directors who can add considerable value based on their knowledge and experience, we intend to address the current market shortfall in two ways. First, over the course of 2024 we will be reviewing the level of cash compensation, to ensure that it is consistent with the very significant contributions made by the Non-Executive Directors. Full details of any changes will be disclosed in next year’s Directors’ Remuneration Report. Second, the new Remuneration Ahead of the requirement to seek shareholder approval for a new Directors’ Remuneration Policy at the 2024 AGM, the Remuneration Committee has reviewed whether any changes are required, taking into account the evolution of the business and, in particular, the ongoing pressures in what remains a very competitive U.S. market for talent. At the same time, the Committee recognizes the need for remuneration practices to broadly align with UK standards and the expectations of UK investors. We have sought to develop a package which remains consistent with the principles of the UK Corporate Governance Code and best practice. The key aims of the Remuneration Policy and the Code principles to which they relate are as follows: — promote our long-term success (Code principle: Proportionality); — attract, retain and motivate high caliber senior management and focus them on the delivery of our long-term strategic and business objectives (Proportionality, alignment to culture and risk); — be simple and understandable, both externally and internally (Clarity, simplicity, predictability and proportionality); — achieve consistency of approach across senior management to the extent appropriate and informed by relevant market benchmarks (Clarity and alignment to culture); and — encourage widespread equity ownership across the executive team to ensure a long-term focus and alignment of interest with shareholders (Alignment to culture, risk). The new Remuneration Policy continues many of the features of the existing Policy, including with respect to fixed remuneration, annual bonuses and shareholding guidelines. We are, however, making an important change to long-term equity incentive provision for the Executive Directors. Currently, the Executive Directors receive annual grants of performance shares at levels of up to 600 percent of base salary for the Chief Executive Officer and up to 300 percent of base salary for any other Executive Directors. The shares vest subject to the achievement of performance conditions over a three-year period, with a subsequent two-year post-vesting holding period. While this focus on performance shares is consistent with normal practice for UK-listed companies, it is unusual for U.S. companies in the biopharma sector, where restricted stock and stock options are significantly more common. PureTech competes for talent with other companies based in the biotech cluster around Boston, and we face increasing challenges to retain key people in a local market where competitor organizations are offering large equity grants to senior employees without long-term performance conditions. Directors’ Remuneration Report continued
104 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Directors’ Remuneration Report continued in a bonus payment of 100% of base salary to be awarded to the Executive Directors. The Committee is of the view that this is appropriate in recognizing the Executive Directors’ achievements in 2023. See highlights of 2023 on pages 1 to 6. In relation to the PSP, PureTech’s performance over the last three financial years was very strong in terms of the achievement of strategic objectives despite such performance not translating to growth in the Company’s share price. Overall, the share price declined from an average price of 285 pence during the last three months of 2020 to an average price of 164 pence during the last three months of 2023. However, strong strategic performance over the three-year performance period resulted in PSP awards granted to the executive management team, including the two Executive Directors, in 2021 vesting at a level of 35.3 percent after the end of the 2023 financial year. Full details of payments to the Executive Directors in 2023 can be found later in this report. As part of the Remuneration Committee’s review of overall compensation arrangements in the Fall of 2023, and taking into account multi-year periods compared to Executive Directors of U.S. and UK companies of a similar size to PureTech, the Committee concluded that a significant deficiency existed, and determined to make significant lump sum benefits payments to the Executive Directors to align with allowances often provided to other Executive Directors in both the U.S. and the UK. These allowances, related to housing and transportation, had not been provided to Executive Directors of PureTech since PureTech’s IPO in 2015 and the Committee felt that it was appropriate to address this important competitive element that would typically be part of an overall compensation regime. As a result, we agreed to make two payments to the then serving Chief Executive Officer, with the first $1.5 million paid in 2023 and the second $1.0 million paid in early 2024. A one-time $1.0 million payment was also made to the then serving President for the same reasons in early 2024. Full details of the payments are set out in the Directors’ Remuneration Report. We recognize that payments of this nature are relatively unusual, but they are considered to be in shareholders’ interests as they ensure that we are fairly compensating our senior team in a manner consistent with common practice for other leaders in our sector, taking into account a period of under-reward in earlier years. As noted, the Remuneration Committee periodically considers the overall mix of benefits provided to all employees, including senior management team members, and does not currently anticipate making similar benefits payments in the near term. The Committee believes the Remuneration Policy operated as intended during the year and that remuneration outcomes are appropriate, taking into account outcomes throughout the business, company and individual performance and the stakeholder experience. Policy provides more flexibility in the way Non-Executive Directors can be paid, by increasing the equity element of the fee from $50,000 to up to $150,000. The full Directors’ Remuneration Policy is set out on pages 106 to 112. Amendment to Performance Share Plan The purpose of the separate proposal to amend the performance share plan is to align the plan document with the remuneration policy being proposed at the upcoming AGM. This amendment will facilitate an important element of our overall compensation program and aligns with our historic approach of balancing UK standards on remuneration with practices designed to ensure that PureTech can remain competitive against U.S. peer companies in the biopharma sector. Performance and reward in 2023 During 2023, PureTech delivered strong execution and achievement of key strategic and financial goals, which has been reflected in the annual bonus outcome. The Company delivered substantial growth and generated momentum to support future growth in the coming years as our balance sheet, Founded Entities equity and royalty stakes, and Internal Programs position PureTech with the strength to build substantial value for shareholders in the current environment. This growth is due in large part to (i) significant development and advancement of our Internal Programs and activities initiated or progressed to potentially bring these innovative therapies to market, (ii) monetization of PureTech’s royalty in Karuna Therapeutics’ KarXT for up to $500 million, with $100 million in cash paid up front, (iii) completion of various strategic sourcing and strategic planning initiatives with the forward looking goal to enhance shareholder value, (iv), substantial development and expansion of the Company’s intellectual property portfolio and (v) key support provided to the Founded Entities as their businesses progress and, in certain cases, execute key transactions or financings. This increase in value, together with management’s operational performance at PureTech and within Internal Programs and Founded Entities, resulted in the Remuneration Committee approving 75% of the target performance goals. In line with our standard approach, the Committee then reviewed the overall performance of the Company and the individual Executive Directors before determining the final bonus payout. The Committee considered operational performance, the overall growth of the business during the year, the extent to which the target performance goals had in some cases been exceeded and the individual contributions of the Executive Directors. Following this exercise, the Committee determined that a bonus equal to 75% of target (or 37.5% of base salary) was to be awarded to the Executive Directors. The Committee focused on the monetization of the KarXT royalty as an exceptional achievement, and also considered at length the successful activities of certain Founded Entities and the value created for PureTech thereby, especially Karuna in light of its sale to Bristol Myers Squibb. Following this exercise of review, the Committee determined to exercise discretion to increase the bonus payment from 75% of target to 200% of target. This resulted
PureTech Health plc Annual Report and Accounts 2023 105 G overnance Directors’ Remuneration Report continued — For the performance share element, we are retaining a mix of performance measures linked to absolute TSR, relative TSR and key strategic metrics which are tied to business progress over the three-year performance period. We have made a small change to the weightings for these different elements, with the 2024 award set to be based 50 percent on TSR and 50 percent on strategic metrics. — For the Non-Executive Directors, as noted above, our intention is to increase the current equity portion of fees from $50,000 to $150,000, with this additional $100,000 either being awarded in the form of a higher grant of PureTech ordinary shares or in subsidiary equity, in line with new Remuneration Policy. — Levels of cash compensation for the Non-Executive Directors will be reviewed later in 2024. Remuneration for other Colleagues In addition to matters relating to Executive Directors’ remuneration, the Committee also reviews the compensation policies for the wider employee base, with a particular focus on the use of equity compensation throughout the whole organization. PureTech grants its employees awards of performance shares and restricted shares under the PSP as well as market-value stock options, helping to ensure a degree of competitiveness against other U.S. companies operating in the same sector. Following shareholder approval of the new Performance Share Plan in 2023, we have greater flexibility in operating the plan given the new dilution limits within the plan. As argued last year, we believe that our new approach represents a suitable balance between UK good practice and the commercial realities of operating in a competitive market for talent in our sector in the U.S. Closing comments The Committee is comfortable that the operation of the Policy for 2023 has demonstrated a robust link between performance and reward given the successes recorded during the year and that discretion, where exercised, has been in line with shareholder interests. The Committee believes the new Remuneration Policy, and the proposed operation of the Policy for 2024 is appropriate and continues to strike a suitable balance between UK investor expectations and the realities of operating in a competitive U.S. market. The Committee looks forward to shareholders’ support at the 2024 Annual General Meeting for the advisory resolution covering this Annual Statement and the Annual Report on Remuneration and the separate resolution to approve the new Remuneration Policy. Board changes since the year end As announced on April 9, 2024 in connection with the foundation of Seaport Therapeutics, Inc. (Seaport), our Chief Executive Officer Daphne Zohar left the business with immediate effect to become Chief Executive Officer of Seaport, while also serving as senior adviser and observer to the Board of Directors of PureTech. Ms. Zohar has been paid base salary, benefits and pension up to April 8, 2024, and is not eligible for the 2024 bonus award. However, outstanding PSP awards will continue to vest for the duration of her service as senior advisor and observer to the Board. The two-year post-vesting holding period for PSP awards will continue to apply, and Ms. Zohar is also required to maintain a minimum level of shareholding for at least two years following her departure, in line with the Directors’ Remuneration Policy. There are no compensation payments for loss of office. Full details of 2024 remuneration will be disclosed in next year’s Directors’ Remuneration Report. The compensation package for her successor as Chief Executive Officer, Bharatt Chowrira, is described in the next section. There are no other compensation elements in connection with his appointment as Chief Executive Officer beyond those set out. The year ahead For 2024, the following key decisions have been made in relation to how the Policy will be implemented: — Base salaries for the Executive Director were increased by 3.2 percent, which is in line with the average increase for the general workforce taking into consideration a number of factors, with a primary consideration being the current inflationary pressures in the United States. — Since this decision was taken in relation to base salaries, as noted above there has been a Chief Executive Officer succession. The Committee carefully considered the base salary for Bharatt Chowrira, the new Chief Executive Officer, and determined that this should be $850,000 effective from the date of appointment. This took into account the scope of the role and the appropriate market positioning against key competitors, considering base salary and the other elements of the package. — The annual bonus target and maximum will remain at 50 percent and 100 percent of base salary, respectively and for the new Chief Executive Officer will be based on the blended base salary paid over the year; and — The grants of PSP awards in 2024 will remain at the level of 600 percent of base salary for the Chief Executive Officer, in line with the limits as set out in the Policy. Subject to shareholder approval of the new Remuneration Policy, half of the awards will be granted as performance shares and half as time-vesting restricted shares.
106 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e This part of the Directors’ Remuneration Report sets out the Remuneration Policy for the Executive Directors and has been prepared in accordance with the provisions of the Companies Act 2006, The Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008 and the subsequent amendments, and the UK Listing Authority Listing Rules. In addition, the report has been prepared on a “comply or explain” basis with regard to the UK Corporate Governance Code 2018. This Directors’ Remuneration Policy will be put to a binding shareholder vote at the Company’s AGM on June 13, 2024 and, if approved, is intended to apply for a period of three years from that date. Changes to the Remuneration Policy The policy being brought to shareholders for approval contains the following three changes: — Time-vesting restricted shares are being introduced into the long-term incentive structure for the Executive Directors, with 50 percent of the total long-term equity component remaining as performance shares, and 50 percent being comprised of time- vesting restricted shares. In the interests of ensuring ongoing competitiveness, maximum grant levels will remain unchanged. — The time-vesting restricted shares will vest over three years in three equal annual instalments commencing one year from the initial grant date, subject to continued employment and a Remuneration Committee assessment that individual and company performance has been satisfactory over the vesting period. Both performance and time-vesting restricted shares will remain subject to the same two-year post-vesting holding period as currently applies. — Increasing the annual equity grant of PureTech ordinary shares paid to our Non-Executive Directors from $50,000 to $150,000. In addition, some minor changes to the wording of the Policy have been made in the interests of enhanced clarity. Decision making process for determination, review and implementation of Directors’ Remuneration Policy The Committee reviews the Policy and its operation to ensure it continues to support and align to the business strategy and appropriately reward the Executive Directors and takes into account relevant market practice, regulation and governance developments, institutional investor views and the views of our shareholders. The Committee also has regard to the remuneration arrangements, policies and practices of the workforce as a whole and takes this into account when reviewing Executive Director pay. The Policy is reviewed annually by the Committee. If changes are required, a new policy (or an amendment to the policy) will be put forward to shareholder vote prior to the normal triennial shareholder vote. The Committee consults with shareholders on remuneration proposals and will consider the feedback in finalizing the Policy. The Committee sought the views of major shareholders before confirming the Policy as set out below. Operation of the Policy is considered annually for the year ahead, including metrics for incentives, weightings and targets. The Committee reviews operation for the prior year and considers whether, in light of the strategy, changes are required for the year ahead or if remuneration remains appropriate for the year ahead. Shareholders’ views may be sought depending on the changes proposed. Directors’ Remuneration Policy
PureTech Health plc Annual Report and Accounts 2023 107 G overnance Policy table Element How component supports corporate strategy Operation Maximum Performance targets and recovery provisions Base salary To recognize the market value of the employee and the role. Normally reviewed annually. Salaries are benchmarked periodically primarily against biotech, pharmaceutical and specialty finance companies listed in the U.S. and UK. The committee also considers UK-listed general industry companies of similar size to PureTech as a secondary point of reference. There is no prescribed maximum base salary or annual salary increase. The Committee is guided by the general increase for the broader employee population but may decide to award a lower increase for Executive Directors or indeed exceed this to recognize, for example, an increase in the scale, scope or responsibility of the role and/or to take account relevant market movements. Current salary levels are set out in the Annual Report on Remuneration. Not applicable. Pension To provide a market competitive level of contribution to pension. The company operates a 401k Plan for its U.S. Executive Directors. The operation of the Plan is in line with the operation for all other employees. Under the 401k Plan, Company contributions are capped at the lower of 3 percent of base salary or the maximum permitted by the U.S. IRS ($46,000 for 2024). Not applicable. Benefits To provide a market competitive level of benefits. Includes: housing allowance, transportation allowance, private medical and dental cover, disability, life insurance. Additional benefits may also be provided in certain circumstances, such as those provided to all employees. Cost paid by the company. Not applicable. Annual Bonus Plan (ABP) To drive and reward annual performance of individuals, teams and PureTech. Based on performance during the relevant financial year. Paid in cash. The Committee has discretion to adjust payout levels if it considers the formulaic outcome inappropriate taking into account the underlying financial performance of the Company, share price performance, the investment return to shareholders during the year, and such other factors as it considers appropriate. Up to 100 percent of base salary. Performance period: Normally one year. Payments are normally based on a scorecard of strategic and/or financial measures. Up to 0 percent of salary payable for threshold performance, 50 percent of base salary normally payable for the achievement of ’target’ performance and 100 percent of base salary payable for the achievement of stretch performance. Recovery and withholding provisions are in place. Directors’ Remuneration Policy continued
108 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Element How component supports corporate strategy Operation Maximum Performance targets and recovery provisions Long-term incentives To drive and reward our sustained performance, promote the retention of the leaders of the business and to align executive interests with those of shareholders. The Company can make long- term incentive awards of either performance shares or time- vesting restricted shares. For performance shares, vesting is dependent on the satisfaction of performance targets and continued service. Performance and vesting periods are normally three years. For time-vesting restricted shares, vesting is dependent on continued service and Remuneration Committee confirmation that Company and individual performance has been satisfactory over the vesting period. Vesting normally takes place in three equal annual tranches over a three-year period following grant. All awards will be subject to a two-year post-vesting holding period during which vested shares cannot be sold other than to settle tax. This post-vesting period continues post-cessation of employment. The Committee also has the discretion to adjust vesting levels of performance-related awards to override formulaic outcomes, taking into account similar factors as apply in relation to annual bonus awards, but by reference to the performance period. For the Chief Executive Officer, 600 percent of base salary. This will normally be split 300 percent of base salary in performance shares and 300 percent of base salary in time-vesting restricted shares. For other Executive Directors, 300 percent of base salary. This will normally be split 150 percent of salary in performance shares and 150 percent in time-vesting restricted shares. Participants may benefit from the value of dividends paid over the vesting period to the extent that awards vest. This benefit is delivered in the form of cash or additional shares at the time that awards vest. For performance shares, the performance period is normally three years. Up to 25 percent of a performance share award vests at threshold performance (0 percent vests below this), increasing to 100 percent pro-rata for maximum performance. Normally at least half of any performance share award will be measured against TSR targets with the remainder measured against relevant financial or strategic measures. Performance conditions are agreed by the Committee on an annual basis. For time-vesting restricted shares, there are no performance conditions other than the requirement for the Remuneration Committee to confirm a satisfactory level of Company and individual performance over the vesting period. Recovery and withholding provisions are in place for both performance and time-vesting restricted shares. Share ownership/ Holding Period Further aligns executives with investors, while encouraging employee share ownership. The Committee requires that Executive Directors who participate in a long-term incentive plan operated by the Company retain half of the net shares vesting under any long-term incentive plan until a shareholding requirement is met. Minimum of 400 percent of base salary for the Chief Executive Officer and a minimum of 200 percent of base salary for the other Executive Directors. None. Directors’ Remuneration Policy continued
PureTech Health plc Annual Report and Accounts 2023 109 G overnance Element How component supports corporate strategy Operation Maximum Performance targets and recovery provisions Post- cessation holding period Aligns executives with investors and promotes long-term decision making Executive Directors must hold shares for two years after the date of termination of their employment. Lower of (i) 400 percent of base salary for the Chief Executive Officer and 200 percent of base salary for the other Executive Directors and (ii) the Executive Director’s shareholding at the date that notice is served. None. Non- Executive Directors To provide fee levels and structure reflecting time commitments and responsibilities of each role, in line with those provided by similarly- sized companies and companies operating in our sector. Remuneration provided to Non- Executive Directors is operated in line with the terms set out in the Articles of Association. Cash fees, normally paid on a quarterly basis, are comprised of the following elements: – Base fee. – Additional fees. A portion of the compensation to Non-Executive Directors is in the form of PureTech Health plc ordinary shares. Additional remuneration is payable for additional services to PureTech such as the Chairship of a Committee or membership on a Committee. Additional remuneration is also payable for services provided beyond those services traditionally provided as a director. Taxable benefits may be provided and may be grossed up where appropriate. Any remuneration provided to a Non-Executive Director will be in line with the limits set out in the Articles of Association. The fee levels of the Non- Executive Directors are reviewed on an annual basis. Subject to the limits set out in the Articles of Association, fees may be increased to reflect changes in responsibility or time commitment, and/or to maintain fees at appropriate levels relative to other companies operating in the sector. None. Notes: 1 In the event that the Company elects any non-U.S. Executive Directors, the 401k Plan may not be an appropriate pension arrangement. In such cases an alternative pension arrangement may be offered. Any such arrangement would not be higher than the pension rate operated for the majority of employees in that jurisdiction. 2 For those below Board level, a lower annual bonus opportunity and equity award size may apply. In general, these differences arise from the development of remuneration arrangements that are market competitive for the various categories of individuals, together with the fact that remuneration of the Executive Directors and senior executives places significant emphasis on performance-related pay. 3 The choice of the performance metrics for the annual bonus scheme reflects the Committee’s belief that incentive compensation should be appropriately challenging and linked to the delivery of the Company’s strategy. Further information on the choice of performance measures and targets is set out in the Annual Report on Remuneration. 4 The performance conditions applicable to the performance shares (see Annual Report on Remuneration) are selected by the Remuneration Committee on the basis that they reward the delivery of long-term returns to shareholders and are consistent with the Company’s objective of delivering superior levels of long-term value to shareholders while providing the Company with tools to successfully recruit and retain employees in the U.S. 5 For the avoidance of doubt, the Company reserves the right to honour any commitments entered into in the past with current or former Directors (such as the vesting/exercise of share awards) notwithstanding that these may not be in line with this Remuneration Policy. Details of any payments to former Directors will be set out in the Annual Report on Remuneration as they arise. Directors’ Remuneration Policy continued
110 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Discretions in the policy To ensure the efficient administration of the variable incentive plans outlined above, the Committee will apply certain operational discretions. These include the following: — selecting the participants in the plans on an annual basis; — determining the timing of grants of awards and/or payments; — determining the quantum of awards and/or payments (within the limits set out in the Policy table above); — reviewing performance against LTI performance metrics; — determining the extent of vesting based on the assessment of performance (where relevant); — making the appropriate adjustments required in certain circumstances, for instance for changes in capital structure; — deciding how to settle awards made under the plans, e.g. in cash, shares, nil-cost options or as otherwise permitted under the plan rules; — overriding formulaic outcomes of incentive plans if determined by the Committee not to be reflective of company performance; — determining “good leaver” status for incentive plan purposes and applying the appropriate treatment; further details on the discretion applicable in relation to leavers are set out on page 112; — undertaking the annual review of weighting of performance measures and setting targets for the annual bonus plan and other incentive schemes, where applicable, from year to year; and — discretion, in the event of a change in control of the Company, to determine that time pro-rating shall not apply to outstanding awards. If an event occurs which results in the annual bonus plan or PSP performance conditions and/or targets being deemed no longer appropriate (e.g. material acquisition or divestment), the Committee will have the ability to adjust appropriately the measures and/or targets and alter weightings, provided that the revised conditions are not materially less challenging than the original conditions. Recovery and withholding provisions Recovery and withholding provisions (’’clawback and malus’’) may be operated at the discretion of the Remuneration Committee in respect of awards granted under the Performance Share Plan and in certain circumstances under the Annual Bonus Plan (including where there has been a material misstatement of accounts, or in the event of fraud, gross misconduct or conduct having a materially detrimental effect on the Company’s reputation). The issue giving rise to the recovery and withholding must be discovered within three years of vesting or payment and there is flexibility to recover overpayments by withholding future incentive payments and recovering the amount directly from the employee. In compliance with U.S. Securities and Exchange Commission reporting and Nasdaq listing standards, effective as of November 8, 2023, the Committee has adopted a new Policy for Recovery of Erroneously Awarded Compensation. This new policy requires that the Remuneration Committee clawback excess incentive compensation from executive officers following a required accounting restatement where, based on the restated financials, executives would have missed the portion of the award tied to a specific financial performance metrics. The new policy covers restatements involving the financial measures within the Performance Share Plan and Annual Bonus Plan and is intended to apply in addition to and in concert with the Company’s existing clawback and malus provisions. Directors’ Remuneration Policy continued
Minimum $891,000 Target $5,141,000 Maximum $9,391,000 27% 8% 74% 100% 13% 12% 75% Fixed pay Annual bonus PSP PureTech Health plc Annual Report and Accounts 2023 111 G overnance Reward scenarios The charts below show how the composition of 2024 remuneration for the Chief Executive Officer varies at different levels of performance under the Policy set out above, as a percentage of total remuneration opportunity and as a total value. Executive Director compensation (unaudited) Notes: 1 The minimum performance scenario comprises the fixed elements of remuneration only, including: – Salary for FY2024 as set out in the Annual Report on Remuneration. – Pension in line with policy and estimated benefits for FY2024. Given the special housing and transportation allowance payments are included in 2023 remuneration, they are not included in these charts as It Is not expected that similar payments of this nature will be made in 2024. 2 The On-Target level of bonus is taken to be 50 percent of the maximum bonus opportunity (50 percent of salary). The On-Target level of PSP vesting is assumed to be 50 percent of the face value of the performance share element, i.e. 150 percent of base salary for the CEO, plus 100 percent of the face value of the time-vesting restricted share element, i.e. 300 percent of base salary for the CEO. These values are included in addition to the components/values of Minimum remuneration. 3 Maximum assumes full bonus pay-out (100 percent of base salary) and the full face value of the proposed PSP awards, i.e. 600 percent of base salary for the CEO, in addition to fixed components/values of Minimum remuneration. 4 No share price growth has been factored into the calculations of minimum, target and maximum compensation. An additional maximum scenario has been shown which assumes 50% share price appreciation for the performance-related PSP during the performance period. such appointee that are different than those applicable to the incumbent Executive Directors. A PSP award can be made shortly following an appointment. In addition, the Committee may offer additional cash and/ or share-based elements to replace deferred or incentive pay forfeited by an executive leaving a previous employer if required to facilitate, in exceptional circumstances, the recruitment of the relevant individual. It would seek to ensure, where possible, that these awards would be consistent with awards forfeited in terms of vesting periods, expected value, performance conditions and delivery mechanism. For appointment of an Executive Director who was employed by the Company prior to the appointment, any variable pay element awarded in respect of the prior role may be allowed to pay out according to its terms. In addition, any other ongoing remuneration obligations existing prior to appointment may continue. For any Executive Director appointment, the Committee may agree that the Company will meet certain relocation and/or incidental expenses as appropriate. Approach to recruitment and promotions The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s prevailing approved Remuneration Policy at the time of appointment and take into account the skills and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual. Salary would be provided at such a level as required to attract the most appropriate candidate and may be set initially at or above mid-market level. Additionally, salary may be provided at a below mid-market level on the basis that it may progress towards the mid-market level once expertise and performance has been proven and sustained. The annual bonus and long-term incentive awards would be limited in line with the policy, meaning that bonus opportunity would be limited to 100% of base salary and long-term incentive awards would be limited to 600% (in the case of a new Chief Executive Officer) or to 300% (in the case of a new Executive Director who is not a Chief Executive Officer). Depending on the timing of the appointment, the Committee may deem it appropriate to set annual bonus performance conditions for Directors’ Remuneration Policy continued Chief Executive Officer
112 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e In addition, the Company can pay for any administrative expenses, legal expenses or outplacement services arising from the termination where considered appropriate. External appointments The Board can allow Executive Directors to accept appropriate outside commercial Non-Executive Director appointments provided that the duties and time commitment required are compatible with their duties and time commitment as Executive Directors. Non-Executive Directors Non-Executive Directors are appointed as a Non-Executive Director of the Company by a letter of appointment. These letters usually provide for a notice period of one month from the Company and the Non-Executive Director prior to termination. Consideration of shareholder views The Committee will carefully consider shareholder feedback received in relation to the AGM each year. This feedback, plus any additional feedback received during any meetings from time to time, is then considered as part of the annual review of the Remuneration Policy. The Company will seek to engage directly with major shareholders and their representative bodies should any material changes be proposed to the Remuneration Policy or its implementation. Details of votes cast for and against the resolutions to approve the Remuneration Policy and the prior year’s remuneration report and any matters discussed with shareholders during the year will be set out in the Annual Report on Remuneration. The Company consulted with shareholders in early 2024, in relation to new Remuneration Policy. Consideration of our employment conditions generally To ensure a coherent cascade of the Remuneration Policy throughout the organization, no element of remuneration is operated solely for Executive Directors and all elements of remuneration provided to the Executive Directors are generally operated for other employees, including participation in stock- based incentive plans. In addition, the Committee considers the general base salary increase for the broader employee population when determining the annual salary increases for the Executive Directors. The Remuneration Committee has general responsibility for determining pay for senior management as well as Executive Directors. Employees (other than senior executives) have not been consulted in respect of the design of our Remuneration Policy, although the Committee will keep this under review. The Remuneration Committee seeks employee feedback with respect to the overall compensation policies and practices from the Executive Directors and other members of Management, who provide insights based on information gathered through routine employee engagement. Service contracts Executive Directors’ service contracts do not provide for liquidated damages, longer periods of notice on a change of control of the Company or additional compensation on an Executive Director’s cessation of employment with us, except as discussed below. The Committee’s Policy is to offer service contracts for Executive Directors with notice periods of no more than 12 months, and typically between 60 to 180 days. Service contracts provide for severance pay following termination in the case that employment is terminated by the Company without ‘cause’, or by the employee for ‘good reason’. In this case severance pay as set out in the contract is no greater than 12-months’ base salary and is aligned to the duration of any restrictive covenants placed on the employee. Service contracts may also provide for the continuation of benefits but for no longer than a 12-month period post termination. Service contracts also provide for the payment of international tax in non-U.S. jurisdictions if applicable to the Executive Director. They also can provide for garden leave and, if required by applicable law, the recovery and withholding of incentive payments. Service contracts are available for inspection at the company’s registered office. Policy on termination of employment The Policy on termination is that the Company does not make payments beyond its contractual obligations and the commitments entered into as part of any incentive plan operated by the Company. In addition, Executive Directors will be expected to mitigate their loss. The Committee ensures that there have been no unjustified payments for failure. An Executive Director may be eligible for an annual bonus payment for the final year in which that Director served as an employee, provided that they are deemed to be a ’good leaver’. If so, any such annual bonus payment will be subject to performance testing and a pro-rata reduction will normally be applied based on the time served during the relevant financial year. The default treatment for any share-based entitlements under the PSP is that any unvested outstanding awards lapse on cessation of employment. However, in certain prescribed circumstances, or at the discretion of the Remuneration Committee, ’good leaver’ status can be applied. In these circumstances, a participant’s awards will vest subject to the satisfaction of the relevant performance criteria (for performance share awards) and, ordinarily, on a time pro-rated basis, with the balance of the awards lapsing. The two-year post vest holding period will usually continue to apply. The Committee has discretion to permit the early vesting at the date of cessation of employment, again based on performance (for performance share awards) and ordinarily on a time pro-rated basis. Directors’ Remuneration Policy continued
PureTech Health plc Annual Report and Accounts 2023 113 G overnance Implementation of the Remuneration Policy for the year ending December 31, 2024 Base salary The Committee reviewed the base salary levels for the Executive Directors in early 2024 and an increase of 3.2 percent was awarded. This increase was in line the average increase for the general workforce, which was largely driven by cost of living considerations in the US. Following this annual increase, Dr. Chowrira’s base salary was increased as part of his appointment as Chief Executive Officer in April 2024. 2023 Base salary 2024 Base salary Bharatt Chowrira* Chief Executive Officer $575,050 $850,000 Daphne Zohar** Former Chief Executive Officer $719,883 $742,920 * Dr. Chowrira’s base salary for 2024 increased upon execution of his new employment agreement to reflect his appointment as Chief Executive Officer on April 8, 2024. ** A pro rata portion of Ms. Zohar’s 2024 compensation was paid prior to her resignation from the Company on April 8, 2024. Pension We will continue to contribute under the 401k Plan subject to the maximum set out in the Policy table. Benefits Benefits provided will continue to include housing allowance, transportation allowance, private medical, disability and dental cover. As explained in the Annual Statement from the Chair of the Remuneration Committee, benefits payments related to housing and transportation allowance of $1.0 million were made to both the Chief Executive Officer and the former Chief Executive Officer in early 2024, though those payments are reflected in the 2023 Single Total Figure of Remuneration for each Director set forth below. Additional payments of this type are not expected in 2024. Annual bonus For 2024, the operation of the annual bonus plan will be similar to the plan’s operation in 2023. The maximum annual bonus will continue to be 100 percent of base salary for the Executive Director based on the blended base salary paid over the year. The 2024 annual bonus will be based on development goals and strategic development of our Internal Programs, financial and capital markets based goals. The performance metrics and targets will be disclosed in the FY2024 Annual Report and Accounts given that they are commercially sensitive at the current time. Long-term incentives Awards under the PSP will be made to the Executive Director in 2024. As explained in the Annual Statement from the Chair of the Remuneration Committee, subject to shareholder approval of the new Remuneration Policy at the AGM, the Chief Executive Officer will receive a performance share award with a face value of 300 percent of base salary and a restricted share award with a face value of 300 percent of base salary. The performance share awards will be subject to the performance conditions described below, measured over the three-year period ended 31 December 2026. As a clinical-stage therapeutics company, the Company believes that TSR is an appropriate and objective measure of the Company’s performance. In addition, measuring TSR on both an absolute and relative basis rewards our management team for absolute value creation for our shareholders whilst also incentivizing outperformance of the market. To provide a balance to the TSR performance conditions that is more directly based on Management’s long term strategic performance, TSR is complemented by measures linked to strategic delivery. There will be a robust assessment of the achievement of the strategic targets over the three year period with full disclosure in the Directors’ Remuneration Report following the end of the performance period. Further detail of the performance conditions is set out below: — 30 percent of the performance shares under award will vest based on the achievement of absolute TSR targets. — 20 percent of the performance shares under award will vest based on the achievement of a relative TSR performance condition, 10 percent each against two benchmarks (explained below). — 50 percent of the performance shares under award will vest based on the achievement of strategic targets. The change in the weightings between TSR and strategic targets reflects the nature of the business and the critical importance of meeting specific milestones and developing the portfolio of companies within which PureTech has an interest. Annual Report on Remuneration
114 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e The minimum performance target for the absolute TSR portion of the performance share award will be TSR equal to 10 percent per annum, whilst the maximum target will be TSR equal to 20 percent per annum. Relative TSR will be measured against the constituent companies in the FTSE 250 Index (excluding Investment Trusts) and the MSCI Europe Health Care Index (each benchmark applying to 10 percent of the performance share award, respectively). The minimum performance target will be achievement of TSR equal to the median company in the Index and the maximum performance target will be achievement of upper quartile TSR performance. 25 percent of each element of the TSR targets will vest for threshold performance. Strategic measures will be based on the achievement of milestones and other qualitative measures of performance over the performance period. Strategic targets will be set at the outset based on development of Internal Programs, financial achievements, including monetization of Founded Entities, product pipeline growth, operational excellence, strategic development or transaction related goals and other shareholder value enhancing metrics in line with our strategic plan. Full disclosure of the measures, weightings and strategic targets will be made retrospectively. The Committee believes that this combination of measures is appropriate. TSR measures the success of our management team in identifying and developing new therapeutics whilst strategic targets help incentivize our management team through the stages which ultimately result in successful therapeutics. Any performance shares which vest will be subject to a two-year post-vesting holding period. The restricted shares to be granted to the Executive Directors will vest subject to continued employment and a Remuneration Committee assessment that Company and individual performance has been satisfactory. In line with normal practice in the United States, vesting will take place in three equal annual tranches over three years. For each tranche there will be a two-year post-vesting holding period. Non-Executive Directors Fees for our Board of Directors have been reviewed for 2024. The level of cash compensation is not being increased for 2024 although, as noted in the Annual Statement from the Chair of the Remuneration Committee, a further review will be undertaken later this year in the interests of ensuring ongoing competitiveness. The Board intends to increase the equity component of compensation from $50,000 to $150,000. Full details will be provided in next year’s Directors’ Remuneration Report. FY2024 Chair fee $125,000 Basic fee $75,000 Equity-based Component $150,000 Additional fees: Chair of a committee $10,000 Membership of a committee $5,000 Membership of a subsidiary board $0 to $10,000 As our Board of Directors consists of leading experts with the experience of successfully developing technologies and bringing them to market, this gives rise to the possibility that the intellectual property we seek to acquire has been developed by one of our Non-Executive Directors and/or that our Non-Executive Directors provide technical or otherwise specialized advisory services to the Company above and beyond the services typically provided by a Non-Executive Director. In such exceptional circumstances, our Remuneration Policy provides us with the flexibility to remunerate them with equity in the relevant subsidiary company as we would any other inventor of the intellectual property or provider of technical advisory services. This practice is in line with other companies in the life sciences sector. If the Company is unable to offer market-competitive remuneration in these circumstances, it risks forfeiting opportunities to obtain intellectual property developed by our Non-Executive Directors and/or foregoing valuable advisory services. The Company believes foregoing such intellectual property and/or advisory services would not be in the long-term interest of our shareholders. Accordingly, subsidiary equity grants may be made to Non-Executive Directors upon the occurrence of the exceptional circumstances set out above. Annual Report on Remuneration continued
PureTech Health plc Annual Report and Accounts 2023 115 G overnance Remuneration for the year ended December 31, 2023 Single total figure of remuneration for each Director (audited) The table below sets out remuneration paid in relation to the 2023 financial year with a comparative figure for the 2022 financial year. There were no exercises of share options by Executive Directors or Non-Executive Directors in either of the 2023 or 2022 financial years. 2023 and 2022 Remuneration Year Basic Salary/Fees Benefits1 Annual Bonus Plan Performance Share Plan (Vested)2 Pension Total Remuneration Total Variable Total Fixed Executive Directors Daphne Zohar 2023 $719,883 $2,539,391 $719,883 $749,970 $9,900 $4,739,027 $1,469,853 $3,269,174 2022 $663,487 $34,846 $298,569 $481,9127 $9,150 $1,487,964 $780,481 $707,483 Bharatt Chowrira 2023 $575,050 $1,030,972 $575,050 $299,453 $9,900 $2,490,425 $874,503 $1,615,922 2022 $530,000 $26,5016 $238,500 $183,7817 $9,150 $987,932 $422,281 $565,651 Non-Executive Directors Sharon Barber-Lui 2023 $135,0005 — — — — $135,000 — $135,000 2022 $115,1235 — — — — $115,123 — $115,123 Raju Kucherlapati 2023 $172,5005 — — — — $172,500 — $172,500 2022 $135,0005 — — — — $135,000 — $135,000 John LaMattina 2023 $137,7505 — — — — $137,750 — $137,750 2022 $145,0005 — — — — $145,000 — $145,000 Robert Langer 2023 $135,0005 — — — — $135,000 — $135,000 2022 $145,0005 — — — — $145,000 — $145,000 Kiran Mazumdar-Shaw 2023 $135,0005 — — — — $135,000 — $135,000 2022 $135,0005 — — — — $135,000 — $135,000 Christopher Viehbacher3 2023 — — — — — — — — 2022 $189,5365 — — — — $189,536 — $189,536 Marjorie Scardino4 2023 — — — — — — — — 2022 $140,0005 — — — — $140,000 — $140,000 TOTAL 2023 $2,010,183 $3,570,363 $1,294,933 $1,049,423 $19,800 $7,944,702 $2,344,356 $5,600,346 TOTAL 2022 $2,198,146 $61,347 $537,069 $665,692 $18,300 $3,480,554 $1,202,761 $2,277,793 Notes: 1 Benefits comprises the following elements: housing allowance, transportation allowance, private medical, disability and dental cover and parking. Benefits payments to the Executive Directors in respect of 2023 include specific payments of $2.5 million to Ms. Zohar and $1.0 million to Dr. Chowrira, as explained in the Annual Statement from the Chair of the Remuneration Committee. 2 The amounts disclosed for 2023 represent the value of the shares underlying the vested 2021 Performance Share Plan awards. Therese awards were valued based on a share price of 199.67 pence and an exchange rate of GBP 1: USD 1.2648, the 3-day average closing price and the 3-day average exchange rate immediately prior to the date of issuance of the vested awards to Executive Directors. The amount of these values attributable to share price appreciation is $nil for both Executive Directors. 3 Mr. Viehbacher declined cash compensation for his services in 2023 and retired from the Board following the 2023 Annual General Meeting. 4 Dame Marjorie Scardino retired from the Board at the conclusion of December 2022. 5 These amounts include the grants of share based remuneration in July 2022 and 2023 in the form of time-vesting restricted stock units with a face value of $50,000. 6 This amount has been updated from the total listed in the 2022 Annual Report and Accounts to reflect an additional approximately $3600 in health-related benefits. 7 These amounts have been updated from those listed in the 2022 Annual Report and Accounts to reflect the actual values paid, which were not known at the date of publication of the 2022 Annual Report and Accounts. Annual Report on Remuneration continued
116 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Annual bonus outcome for 2023 (audited) For the 2023 annual bonus, targets were set for a balanced scorecard at the beginning of the year. The 2023 targets were focused on (i) development goals designed to incentivize the team to continue development of the Company’s Internal Programs, generate valuable clinical data in support of the Company’s Internal Programs, create innovative Internal Programs, publish key results and achieve patent protection for the Company’s Internal Programs; and (ii) strategic goals designed to incentivize the team to complete important deals, execute strategic partnerships, monetize Founded Entity holdings or otherwise strengthen the Company’s balance sheet, strengthen the Company’s investor base and provide support for Founded Entity transactions and financings. In addition, the Remuneration Committee took into account other goals and other achievements by the management team in setting final achievement attainment and fixing bonus payouts. The table below sets out the performance assessment and associated bonus outcomes: Target Goals – Maximum 100 percent Achievement (audited) Performance Measures Category Achievement Percentage of Target Attained Internal Program Development (50%) The Internal Program Development Goals were 70 percent achieved in 2023. The management team’s performance resulted in an achievement outcome of 35 percent which was lower than the pre-specified cap of 50 percent for this category of the goals. A description of performance in 2023 is set out below: The Company expanded enrollment of Phase 2b multiple ascending dose studies for LYT-100 in healthy older adults to support proceeding in IPF, completed studies to support appropriate dosing and design of a pivotal trial in IPF, achieved Phase 1b study results with LYT-200 and generated data to support the initiation of Phase 2 studies of LYT-200 in leukemia and solid tumors, completed a Phase 1 study of LYT-300 to select doses for a Phase 2 study, nominated LYT-320 as an additional therapeutic candidate, generated a key publication in conjunction with a key collaborator and generated several patent allowances and issuances in the U.S. 35% Strategic Goals (50%) The Strategic Goals were 66 percent achieved in 2023. The management team’s performance resulted in an achievement outcome of 33 percent out of a pre-specified cap of 50 percent for this category of the goals. A description of performance in 2023 is set out below: The Company extensively evaluated certain strategic transactions and options to enhance shareholder value, monetized PureTech’s royalty in Karuna Therapeutics’ KarXT for up to $500 million, with $100 million in cash paid up front, considered the further monetization of Founded Entity equity holdings and supported its Founded Entities to achieve certain strategic transactions, financings and grant funding. 33% Other Achievements The management team evidenced further exceptional performance as described below: The Company completed various strategic sourcing initiatives for new programs and strategic transactions, conducted extensive outreach to raise the corporate profile and cultivate new investors and analysts, conducted significant and robust activities to strengthen the Company’s intellectual property portfolio and generated value accretion through the successful activities of certain Founded Entities, especially Karuna in light of its sale to Bristol Myers Squibb. 7% Pre-Specified Maximum Total 75% Accordingly, the Committee determined that the Company had achieved 75 percent of its target goals for 2023, which would equate to a bonus payout at 37.5 percent of base salary. Each of the above target categories are subject to maximum percentage achievement limits capped at 100 percent of the target bonus (i.e. 50 percent of salary). For 2023, the Committee exercised discretion, increasing the bonus payout to 200 percent of target (i.e. 100 percent of base salary) for the reasons set out in the Annual Statement accompanying this report. The Committee determined that payouts at this level are appropriate taking into account the overall performance of the Executive Directors and the achievements set forth above. In exercising discretion, the Committee also considered the monetization of PureTech’s royalty in Karuna Therapeutics’ KarXT for up to $500 million, with $100 million in cash paid up front, and the successful activities of certain Founded Entities and the value created for PureTech thereby, especially Karuna in light of its sale to Bristol Myers Squibb. The Committee believes that such a bonus award is appropriate to reward and retain top management. Annual Report on Remuneration continued
PureTech Health plc Annual Report and Accounts 2023 117 G overnance Long-term incentive awards vesting in respect of the year (audited) The 2021 PSP awards to Executive Directors granted on July 21, 2021 were subject to three-year performance conditions covering the period from January 1, 2021 to December 31, 2023. Following an assessment of the performance conditions, the Remuneration Committee determined that the awards will vest at 35.3 percent of the maximum. The 2022 awards of RSUs to Non-Executive Directors granted on July 22, 2022, vested immediately prior to the 2023 AGM and, with the exception of Mr. Viehbacher, were issued on July 26, 2023. Scheme Basis of award granted Shares awarded Shares vested Shares lapsed Value of vested awards1 Daphne Zohar PSP 2021 600% of salary 840,468 296,965 543,503 $749,9702 Bharatt Chowrira PSP 2021 300% of salary 335,587 118,609 216,978 $299,4532 Raju Kucherlapati PSP 2022 $50,000 21,507 21,507 – $62,9793 John LaMattina PSP 2022 $50,000 21,507 21,507 – $62,9793 Robert Langer PSP 2022 $50,000 21,507 21,507 – $62,9793 Kiran Mazumdar-Shaw PSP 2022 $50,000 21,507 21,507 – $62,9793 Christopher Viehbacher PSP 2022 $50,000 21,507 21,507 – $55,9934 1 The value of the awards attributable to share price appreciation is nil for all Executive Directors and Non-Executive Directors. 2 The shares underlying the vested 2021 Performance Share Plan awards were valued based on a share price of 199.67 pence and an exchange rate of GBP 1: USD 1.2648, the 3-day average closing price and the 3-day average exchange rate immediately prior to the date of issuance of the vested awards to Executive Directors. 3 Represents the value of the 21,507 shares on July 26, 2023, and an exchange rate of GBP 1 : USD 1.2900 at the date of issuance to current Non-executive Directors. 4 Represents the value of the 21,507 shares on August 9, 2023, and an exchange rate of GBP 1 : USD 1.2700 at the date of issuance to the retired Non-executive Director. The outcome of the performance condition relating to the performance based awards granted to the Executive Directors is set out below (audited): Measure and weighting Threshold Maximum Achievement Vesting (% of each element) Absolute TSR (40%) 7% p.a. 15% p.a. (17%) p.a. 0% Total return against FTSE 250 Index (10%) At or above median Upper quartile 10th percentile 0% Total return against MSCI Euro Healthcare Index (10%) At or above median Upper quartile 9th percentile 0% Strategic measures (40%) See description below 35.3% The strategic measures over the three-year period were focused on (i) financial goals (40 percent), (ii) clinical development goals (40 percent), and (iii) other achievements (10 percent). The financial achievements resulted in satisfaction of 35 percent of the vesting of the strategic measures included, among other things, obtaining approximately $815 million for PureTech by monetizing Founded Entity equity, most notably Karuna in light of its sale to Bristol Myers Squibb, the closing of initial public offerings of two Founded Entities and two SPAC transactions for Founded Entities, the execution of several partnership agreements which brought in non-dilutive funding and the completion of certain investor-related activities. The clinical development achievements resulted in satisfaction of 45 percent of the vesting of the strategic measures included, among other things, the successful initiation, enrollment and completion of several Phase 1 and Phase 2 clinical studies for LYT-100 and robust enrollment of the LYT-100 IPF phase 2 study, the advancement of other product candidates within our Internal Programs, the advancement of certain programs at the Company’s Founded Entities, including receipt of U.S. marketing clearances for two programs. The other achievements resulted in satisfaction of 8 percent of the vesting of the strategic measures include the monetization of PureTech’s royalty in Karuna Therapeutics’ KarXT for up to $500 million, with $100 million in cash paid up front, operation of the Company’s Internal Programs within projected timelines and budgets, conducting significant and robust activities to strengthen the Company’s intellectual property portfolio, building out a world-class development organization, the in-licensing and creation of new programs, the issuance of certain intellectual property, and the publication of validating data in top tier peer-reviewed academic journals. Annual Report on Remuneration continued
118 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Long-term incentive awards granted during the year (audited) The following long-term Incentive awards were granted to Executive Directors during 2023: Scheme Basis of award granted Shares awarded (as conditional award of shares) Share price at date of grant1 Face value of award2 % of face value vesting at threshold performance Vesting determined by performance over Daphne Zohar PSP 2023 600% of salary 1,678,971 206.67 pence $4,319,299 25% Three financial years to December 31, 2025Bharatt Chowrira PSP 2023 300% of salary 670,590 206.67 pence $1,725,150 25% 1 The share price at the date of grant is based on the 3-day average closing price immediately prior to the grant of the award. 2 Share awards have been valued based on an exchange rate of GBP 1: USD 1.2448, which was the 3-day average exchange rate immediately prior to the grant of the award. The PSP awards granted in 2023 are subject to (i) achievement of absolute TSR targets (40 percent of the awards), (ii) achievement of TSR targets as compared to TSR performance of the constituent companies in the FTSE 250 Index (excluding Investment Trusts) and the MSCI Europe Health Care Index (20 percent of the awards, 10 percent against each benchmark) and (iii) achievement of targets based on strategic measures (40 percent of the awards), measured over the three year period to December 31, 2025. The minimum performance target for the absolute TSR portion of the award is TSR equal to 7 percent per annum, whilst the maximum target is TSR equal to 15 percent per annum. The minimum performance target for the relative TSR portion of the award is TSR equal to the median of the index, whilst the maximum target will be TSR equal to the upper quartile of the index. Strategic measures are based on the achievement of project milestones and other qualitative measures of performance. Strategic targets have been set based on financial achievements, including monetization of Founded Entities, clinical development progress, product pipeline growth, operational excellence and other shareholder value enhancing metrics in line with our strategic plan. The Committee believes that this combination of measures and the agreed weightings are appropriate. TSR measures the success of our management team in identifying and developing new therapeutics whilst strategic targets help incentivize our management team through the stages which ultimately result in successful therapeutics. Full disclosure of the strategic targets will be made retrospectively. In addition, each Non-Executive Director, with the exception of Mr. Viehbacher, was granted share based remuneration on June 8, 2023, in the form of 17,122 time-vesting restricted stock units. The equity awards granted to our Non-Executive Directors vest in their entirety immediately prior to Company’s 2024 AGM, provided that the Non-Executive Directors continue their service through such date. This share based element is part of the annual fee for Non-Executive Directors and is not subject to performance (audited). Non-Executive Directors Shares awarded1 Face value of award Vesting date Sharon Barber-Lui 17,122 $50,000 June 13, 2024 Raju Kucherlapati 17,122 $50,000 June 13, 2024 John LaMattina 17,122 $50,000 June 13, 2024 Robert Langer 17,122 $50,000 June 13, 2024 Kiran Mazumdar-Shaw 17,122 $50,000 June 13, 2024 Christopher Viehbacher – – – 1 The number of shares awarded are based on the closing price of 235.50 pence and an exchange rate of GBP 1 : USD 1.2439, the 3-day averages immediately prior to the grant of the award. Payments for Loss of Office (audited) There were no payments for Loss of Office during 2023. Annual Report on Remuneration continued
PureTech Health plc Annual Report and Accounts 2023 119 G overnance Payments to past Directors (audited) No payments to past Directors were made during 2023. On April 9, 2024, the Company announced that Daphne Zohar had resigned from her roles as Chief Executive Officer and as a member of the Company’s Board of Directors with immediate effect. Ms. Zohar has been paid base salary, benefits and pension up to April 8, 2024. She will continue to serve as a senior advisor and observer to the Board of Directors of PureTech, during which vesting of PSP awards previously granted will continue for the duration of her service. There is no compensation payable for loss of office and no eligibility for the 2024 bonus award. All PSP awards are still subject to any applicable holding period and the post-employment shareholding policy will apply, requiring a shareholding worth 400 percent of base salary to be retained for two years. Directors’ shareholdings (audited) Executive Directors are required to maintain share ownership equal to a minimum of 400 percent of base salary for the Chief Executive Officer and a minimum of 200 percent of base salary for any other Executive Directors. The current and former Chief Executive Officers both satisfy this requirement, and neither has disposed of any company shares since the Company’s IPO. Post-employment shareholding requirements will apply. The table below sets out current Directors’ shareholdings which are beneficially owned, subject to a performance condition, subject to a service condition and interests of connected persons. Director Directors’ Share Interests Shares Owned Outright Vested But Unexercised Options Options Subject To Service RSUs Subject To Performance Conditions RSUs Subject To Service Conditions Total December 31, 2023 Daphne Zohar1 12,629,5472 — — 3,211,0223 — 15,840,569 Bharatt Chowrira 940,7144 1,762,500 187,500 1,282,4995 — 4,173,213 Sharon Barber-Lui 21,507 — — — 17,1226 38,629 Raju Kucherlapati 2,492,528 — — — 17,1226 2,509,650 John LaMattina7 1,414,530 — — — 17,1226 1,431,652 Robert Langer8 2,976,831 — — — 17,1226 2,993,953 Kiran Mazumdar-Shaw 32,697 — — — 17,1226 49,819 Christopher Viehbacher9 1,078,34310 — — — — 1,078,343 1 A portion of Ms. Zohar’s shareholding in the Company is indirect. As of December 31, 2023, an aggregate of 8,529,547 ordinary shares and 410,000 ADSs are held by (i) the Zohar Family. A portion of Ms. Zohar’s shareholding in the Company is indirect. As of December 31, 2023, an aggregate of 8,529,547 ordinary shares and 410,000 ADSs are held by (i) the Zohar Family Trust I, a U.S.-established trust of which Ms. Zohar is a beneficiary and trustee, (ii) the Zohar Family Trust II, a U.S.-established trust of which Ms Zohar is a beneficiary (in the event of her spouse’s death) and trustee, (iii) Zohar LLC, a U.S.-established limited liability company, and (iv) directly by Ms. Zohar. Ms. Zohar owns or has a beneficial interest in 100 percent of the share capital of Zohar LLC. 2 Includes 410,000 ADSs, which are convertible into 4,100,000 ordinary shares. Does not include 148,482 shares which were issued in March 2024 pursuant to the PSP award granted to Ms. Zohar covering the financial years 2021, 2022 and 2023, the performance conditions related to which were measured as of the close of business on December 31, 2023. As of March 31, 2024, Ms. Zohar owned 12,778,029 shares outright. 3 Includes the following PSP awards, which are subject to performance conditions: 1,532,051 (2022) and 1,678,971 (2023). 4 Does not include 148,482 shares which were issued in March 2024 pursuant to the PSP award granted to Ms. Zohar covering the financial years 2021, 2022 and 2023, the performance conditions related to which were measured as of the close of business on December 31, 2023. As of March 31, 2024, Ms. Zohar owned 12,778,029 shares outright. 5 Includes the following PSP awards, which are subject to performance conditions: 611,909 (2022) and 670,590 (2023). 6 Denotes RSUs, which are subject to continued service, that were granted in June 2023 and vest immediately prior to the 2024 Annual General Meeting. 7 A portion of Dr. LaMattina’s shareholding in the Company is indirect. As of December 31, 2023, an aggregate of 1,414,530 ordinary shares are held by (i) John L LaMattina Revocable Trust, (ii) John L LaMattina 2020-2 GRAT, and (iii) LaMattina Charitable Trust. 8 A portion of Dr. Langer’s shareholding in the Company is indirect. As of December 31, 2023, an aggregate of 2,976,831 ordinary shares are held by (i) Langer Family 2020 Trust and (ii) directly by Dr. Langer. 9 Mr. Viehbacher’s shareholdings reflect his holdings as of the date of his retirement from the Board following the Company’s 2023 AGM. 10 Includes 2,000 ADSs, which are convertible into 20,000 ordinary shares. Annual Report on Remuneration continued
260 240 220 200 180 160 140 120 100 80 60 40 20 0 24 Jun 2015 31 Dec 2016 31 Dec 2015 31 Dec 2017 31 Dec 2018 31 Dec 2019 31 Dec 2020 31 Dec 2021 31 Dec 2023 31 Dec 2022 Va lu e (£ ) ( re b as ed ) Puretech S&P600 Biotechnology NASDAQ Biotechnology 120 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Directors’ service contracts (unaudited) Detail of the service contracts of current Directors is set out below: Executive Directors Notice period Contract date Maximum potential termination payment Potential payment on change of control/liquidation Bharatt Chowrira 90 days April 8, 2024 12 months’ salary (pro- rated target bonus) Nil Contracts for the above Executive Directors will continue until terminated by notice either by the Company or the Executive Director. Non-Executive Directors Notice period Contract date Contract expiration date Sharon Barber-Lui 30 days March 24, 2022 March 24, 2025 Raju Kucherlapati 30 days June 5, 2021 June 5, 2024 John LaMattina 30 days June 5, 2021 June 5, 2024 Robert Langer 30 days June 5, 2021 June 5, 2024 Kiran Mazumdar-Shaw 30 days September 28, 2023 September 28, 2026 The Company and the Non-Executive Directors listed above intend to enter into new contracts prior to their expiration. TSR performance graph (unaudited) The graph below shows the value, by December 31, 2023, of £100 invested in PureTech on the date of Admission (June 24, 2015), compared with the value of £100 invested in the Nasdaq Biotechnology and S&P600 Biotechnology indices on the same date. The Committee considers these to be relevant indices for TSR comparison as they are broad-based measures of the performance of the biotechnology industry. The other points plotted are the values at intervening financial year-ends. Total shareholder return Source: Datastream (Thomson Reuters) Annual Report on Remuneration continued
PureTech Health plc Annual Report and Accounts 2023 121 G overnance This graph shows the value, by December 31, 2023, of £100 invested in PureTech on the date of Admission (June 24, 2015), compared with the value of £100 invested in the Nasdaq Biotechnology and S&P600 Biotechnology indices on the same date. The other points plotted are the values at intervening financial year-ends. Chief Executive Officer’s Remuneration History (unaudited) Year Incumbent Role Single figure of total remuneration Annual bonus pay-out against maximum PSP Vesting against maximum opportunity 2015 Daphne Zohar Chief Executive Officer $955,599 100% n/a 2016 Daphne Zohar Chief Executive Officer $747,634 38.75% n/a 2017 Daphne Zohar Chief Executive Officer $821,898 50% n/a 2018 Daphne Zohar Chief Executive Officer $2,139,870 65% 50% 2019 Daphne Zohar Chief Executive Officer $5,783,682 100% 100% 2020 Daphne Zohar Chief Executive Officer $7,194,841 100% 100% 2021 Daphne Zohar Chief Executive Officer $2,472,800 75% 95.8% 2022 Daphne Zohar Chief Executive Officer $1,487,964 45% 24.2% 2023 Daphne Zohar Chief Executive Officer $4,739,027 100% 35.3% Percentage change in remuneration of Directors and employees (unaudited) The table below shows the change in the Directors’ remuneration compared to the change in remuneration of all of our full-time employees who were employed throughout the same periods: 2022 to 2023 2021 to 2022 2020 to 2021 2019 to 2020 Base salary1 Benefits2 Annual bonus Base salary1 Benefits Annual bonus Base salary1 Benefits Annual bonus Base salary1 Benefits Annual bonus Daphne Zohar (CEO) 8.5% 7187% 141% 6% 4% (36%) 3% 6% (23%) 3% 0% 3% Bharatt Chowrira (President)3 8.5% 3790% 141% 6% (10%) (36%) N/A N/A N/A N/A N/A N/A Sharon Barber-Lui4 17.3% N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Raju Kucherlapati 27.8% N/A N/A (7%) N/A N/A 38.1% N/A N/A 11% N/A N/A John LaMattina (5%) N/A N/A 0% N/A N/A 16% N/A N/A 19% N/A N/A Robert Langer 0% N/A N/A 0% N/A N/A 16% N/A N/A 13% N/A N/A Kiran Mazumdar-Shaw 0% N/A N/A 0% N/A N/A 635% N/A N/A N/A N/A N/A Christopher Viehbacher5 (100%) N/A N/A (3%) N/A N/A 26% N/A N/A 45% N/A N/A Employees6 9% 12% 77% 12% 6% (22%) 9% 7% 1% 8% 16% 14% 1 Base salary amounts for Non-Executive Directors in 2022 and 2023 include grants of share based remuneration in the form of time-vesting restricted stock units with a face value of $50,000. 2 This segment includes: housing allowance, transportation allowance, private medical and dental cover, disability and life insurance. Benefits payments to the Executive Directors in respect of 2023 include specific payments of $2.5 million to Ms. Zohar and $1.0 million to Dr. Chowrira, as explained in the Annual Statement from the Chair of the Remuneration Committee. 3 Joined the Board effective February 2021. 4 Joined the Board effective March 2022. 5 Mr. Viehbacher declined cash compensation for his services in 2023. 6 Does not include employees of Founded Entities. Annual Report on Remuneration continued
122 PureTech Health plc Annual Report and Accounts 2023 G ov er na nc e Relative importance of spend on pay (unaudited) The following table sets out the percentage change in overall spend on pay and distributions to shareholders in 2023 compared to 2022: 2023 2022 % change Staff costs1 $37,913,231 $32,050,089 18.3% Distributions to Shareholders $19,067,6602 $26,359,8513 (27.7%) 1 Excludes non controlled Founded Entities. 2 Represents the value of the 7,683,526 ordinary shares repurchased under the Company’s share repurchase programme during 2023. 3 Represents the value of the 10,595,347 ordinary shares repurchased under the Company’s share repurchase programme during 2022. Details of the Remuneration Committee, advisors to the Committee and their fees The Remuneration Committee consists of Dr. LaMattina, Ms. Mazumdar-Shaw and Dr. Kucherlapati, with Dr. LaMattina serving as the Chair of the Committee. In 2023 the Committee received independent remuneration advice from Korn Ferry (UK) Limited, who was appointed by and is accountable to the Committee. A separate practice within Korn Ferry provides certain other candidate placement services to the Company. The terms of engagement between the Committee and Korn Ferry are available from the Company Secretary on request. The Committee also consults with Executive Directors. However, no Director is permitted to participate in discussions or decisions about their personal remuneration. During the year, fees in respect of remuneration advice from Korn Ferry amounted to £14,012. Korn Ferry is a founder member of the Remuneration Consultants’ Group and complies with its Code of Conduct which sets out guidelines to ensure that its advice is independent and free of undue influence. Statement of voting at general meeting (unaudited) The table below sets out the proxy results of the vote on our Remuneration Report at our 2023 AGM: Resolutions For % Against % Withheld Total votes cast To approve the Directors’ Remuneration Report 208,436,087 95.51% 9,804,137 4.49% 776 218,240,224 The table below sets out the proxy results of the vote on our Remuneration Policy at our 2021 AGM: Resolutions For % Against % Withheld Total votes cast To approve the Directors’ Remuneration Policy 187,285,809 83.90% 35,930,008 16.10% 2,309,748 223,215,817 2024 AGM The Company’s AGM will be held at 4:00 pm BST (11:00 am EDT) on June 13, 2024 at the offices of FTI Consulting at 200 Aldersgate, 200 Aldersgate Street, London EC1A 4HD. Information regarding the voting outcome will be disclosed in next year’s Annual Report on Remuneration. This report has been prepared by the Remuneration Committee and has been approved by the Board. It complies with the UK Companies Act 2006 and related regulations. This report will be put to shareholders for approval at the forthcoming AGM, alongside votes to approve the new Directors’ Remuneration Policy, and (2) amend the performance share plan. On behalf of the Board of Directors Charles Sherwood, J.D. Company Secretary April 25, 2024 Annual Report on Remuneration continued
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126 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts
PureTech Health plc Annual report and accounts 2023 127 Financial statem ents
128 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Note 2023 $000s 2022 $000s 2021 $000s Contract revenue 3 750 2,090 9,979 Grant revenue 3 2,580 13,528 7,409 Total revenue 3,330 15,618 17,388 Operating expenses: General and administrative expenses 8 (53,295) (60,991) (57,199) Research and development expenses 8 (96,235) (152,433) (110,471) Operating income/(loss) (146,199) (197,807) (150,282) Other income/(expense): Gain/(loss) on deconsolidation of subsidiary 5 61,787 27,251 — Gain/(loss) on investments held at fair value 5 77,945 (32,060) 179,316 Realized gain/(loss) on sale of investments 5 (122) (29,303) (20,925) Gain/(loss) on investments in notes from associates 7 (27,630) — — Other income/(expense) (908) 8,131 1,592 Other income/(expense) 111,072 (25,981) 159,983 Finance income/(costs): Finance income 10 16,012 5,799 214 Finance costs – contractual 10 (3,424) (3,939) (4,771) Finance income/(costs) – fair value accounting 10 2,650 137,063 9,606 Finance costs – non cash interest expense related to sale of future royalties 17 (10,159) — — Net finance income/(costs) 5,078 138,924 5,050 Share of net income/(loss) of associates accounted for using the equity method 6 (6,055) (27,749) (73,703) Gain/(loss) on dilution of ownership interest in associates 6 — 28,220 — Impairment of investment in associates 6 — (8,390) — Income/(loss) before taxes (36,103) (92,783) (58,953) Taxation 27 (30,525) 55,719 (3,756) Income/(loss) for the year (66,628) (37,065) (62,709) Other comprehensive income/(loss): Items that are or may be reclassified as profit or loss Equity-accounted associate – share of other comprehensive income (loss) 6 92 (166) — Reclassification of foreign currency differences on dilution of interest — (213) — Total other comprehensive income/(loss) 92 (379) — Total comprehensive income/(loss) for the year (66,535) (37,444) (62,709) Income/(loss) attributable to: Owners of the Group (65,697) (50,354) (60,558) Non-controlling interests (931) 13,290 (2,151) (66,628) (37,065) (62,709) Comprehensive income/(loss) attributable to: Owners of the Group (65,604) (50,733) (60,558) Non-controlling interests (931) 13,290 (2,151) (66,535) (37,444) (62,709) $ $ $ Earnings/(loss) per share: Basic earnings/(loss) per share 11 (0.24) (0.18) (0.21) Diluted earnings/(loss) per share 11 (0.24) (0.18) (0.21) The accompanying notes are an integral part of these financial statements. Consolidated Statement of Comprehensive Income/(Loss) For the years ended December 31
PureTech Health plc Annual report and accounts 2023 129 Financial statem ents Note 2023 $000s 2022 $000s Assets Non-current assets Property and equipment, net 12 9,536 22,957 Right of use asset, net 23 9,825 14,281 Intangible assets, net 13 906 831 Investments held at fair value 5 317,841 251,892 Investment in associates – equity method 6 3,185 9,147 Investments in notes from associates 7 4,600 16,501 Lease receivable – long-term 23 — 835 Other non-current assets 878 10 Total non-current assets 346,771 316,454 Current assets Trade and other receivables 24 2,376 11,867 Income tax receivable 27 11,746 10,040 Prepaid expenses 4,309 11,617 Lease receivable – short-term 23 — 450 Other financial assets 14 1,628 2,124 Short-term investments 24 136,062 200,229 Cash and cash equivalents 24 191,081 149,866 Total current assets 347,201 386,192 Total assets 693,973 702,647 Equity and liabilities Equity Share capital 5,461 5,455 Share premium 290,262 289,624 Treasury stock (44,626) (26,492) Merger reserve 138,506 138,506 Translation reserve 182 89 Other reserve (9,538) (14,478) Retained earnings 83,820 149,516 Equity attributable to the owners of the Group 15 464,066 542,220 Non-controlling interests 20 (5,835) 5,369 Total equity 458,232 547,589 Non-current liabilities Sale of future royalties liability 17 110,159 — Deferred tax liability 27 52,462 19,645 Lease liability, non-current 23 18,250 24,155 Long-term loan 22 — 10,244 Liability for share-based awards 9 3,501 4,128 Total non-current liabilities 184,371 58,172 Current liabilities Deferred revenue 3 — 2,185 Lease liability, current 23 3,394 4,972 Trade and other payables 21 44,107 54,840 Notes payable 19 3,699 2,345 Warrant liability 18 — 47 Preferred shares 16, 18 169 27,339 Current portion of long-term loan 22 — 5,156 Total current liabilities 51,370 96,885 Total liabilities 235,741 155,057 Total equity and liabilities 693,973 702,647 Please refer to the accompanying Notes to the consolidated financial information. Registered number: 09582467. The Consolidated Financial Statements were approved by the Board of Directors and authorized for issuance on April 25, 2024 and signed on its behalf by: Bharatt Chowrira Chief Executive Officer April 25, 2024 The accompanying notes are an integral part of these financial statements. Consolidated Statement of Financial Position As of December 31,
130 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Share Capital Treasury Shares Note Shares Amount $000s Share premium $000s Shares Amount $000s Merger reserve $000s Translation reserve $000s Other reserve $000s Retained earnings/ (accumulated deficit) $000s Total Parent equity $000s Non- controlling interests $000s Total Equity $000s Balance January 1, 2021 285,885,025 5,417 288,978 — — 138,506 469 (24,050) 260,429 669,748 (16,209) 653,539 Net income/(loss) — — — — — — — — (60,558) (60,558) (2,151) (62,709) Total comprehensive income/(loss) for the year — — — — — — — — (60,558) (60,558) (2,151) (62,709) Exercise of stock options 9 1,911,560 27 326 — — — — — — 352 — 352 Revaluation of deferred tax assets related to share-based awards — — — — — — — 615 — 615 — 615 Equity-settled share- based awards 9 — — — — — — — 7,109 — 7,109 6,252 13,361 Settlement of restricted stock units 9 — — — — — — — (10,749) — (10,749) — (10,749) Reclassification of equity settled awards to liability awards — — — — — — — (6,773) — (6,773) — (6,773) Vesting of share- based awards and net share exercise 9 — — — — — — — (2,582) — (2,582) — (2,582) Acquisition of subsidiary non-controlling interest — — — — — — — (9,636) — (9,636) 8,668 (968) NCI exercise of share options in subsidiaries 9 — — — — — — — 5,988 — 5,988 (5,922) 66 Other — — — — — — — — — — (6) (6) Balance December 31, 2021 287,796,585 5,444 289,303 — — 138,506 469 (40,077) 199,871 593,515 (9,368) 584,147 Net income/(loss) — — — — — — — — (50,354) (50,354) 13,290 (37,065) Other comprehensive income/(loss), net — — — — (379) — — (379) — (379) Total comprehensive income/(loss) for the year — — — — — — (379) — (50,354) (50,733) 13,290 (37,444) Deconsolidation of Subsidiary 5 — — — — — — — — — — 11,904 11,904 Exercise of stock options 9 577,022 11 321 — — — — 332 — 332 Purchase of Treasury stock 15 — — — (10,595,347) (26,492) — — — — (26,492) — (26,492) Revaluation of deferred tax assets related to share- based awards — — — — — — — 45 — 45 — 45 Equity-settled share- based awards 9 — — — — — — — 8,856 — 8,856 4,711 13,567 Settlement of restricted stock units 9 788,046 — — — — — — 1,528 — 1,528 — 1,528 NCI exercise of share options in subsidiaries 9 — — — — — — — 15,171 — 15,171 (15,164) 7 Other — — — — — — — — — — (4) (4) Balance December 31, 2022 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 89 (14,478) 149,516 542,220 5,369 547,589 Balance January 1, 2023 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 89 (14,478) 149,516 542,220 5,369 547,589 Net income/(loss) — — — — — — — — (65,697) (65,697) (931) (66,628) Other comprehensive income/(loss) for the period — — — — — — 92 — — 92 — 92 Total comprehensive income/(loss) for the period — — — — — — 92 — (65,697) (65,604) (931) (66,535) Deconsolidation of Subsidiary 5 — — — — — — — — — — (9,085) (9,085) Exercise of stock options 9 306,506 6 638 239,226 530 — — (22) — 1,153 — 1,153 Purchase of Treasury stock 15 — — — (7,683,526) (19,650) — — — — (19,650) — (19,650) Equity-settled share- based awards 9 — — — — — — — 3,348 — 3,348 277 3,625 Settlement of restricted stock units 9 — — — 425,219 986 — — 156 — 1,142 — 1,142 Expiration of share options in subsidiary — — — — — — — 1,458 — 1,458 (1,458) — Other — — — — — — — — — — (6) (6) Balance December 31, 2023 289,468,159 5,461 290,262 (17,614,428) (44,626) 138,506 182 (9,538) 83,820 464,066 (5,835) 458,232 The accompanying notes are an integral part of these financial statements. Consolidated Statement of Changes in Equity For the years ended December 31
PureTech Health plc Annual report and accounts 2023 131 Financial statem ents Note 2023 $000s 2022 $000s 2021 $000s Cash flows from operating activities Income/(loss) for the year (66,628) (37,065) (62,709) Adjustments to reconcile income/(loss) for the period to net cash used in operating activities: Non-cash items: Depreciation and amortization 12, 23 4,933 8,893 7,287 Share-based compensation expense 9 4,415 14,698 13,950 (Gain)/loss on investment held at fair value 5 (77,945) 32,060 (179,316) Realized loss on sale of investments 5 265 29,303 20,925 Gain on dilution of ownership interest in associate 6 — (28,220) — Impairment of investment in associates 6 — 8,390 — Gain on deconsolidation of subsidiary 5 (61,787) (27,251) — Share of net loss of associates accounted for using the equity method 6 6,055 27,749 73,703 Loss on investments in notes from associates 7 27,630 — — Fair value gain on other financial instruments 6, 18 — (8,163) (800) Loss on disposal of assets 318 138 53 Impairment of fixed assets 1,260 — Income taxes, net 27 30,525 (55,719) 3,756 Finance (income)/costs, net 10 (5,078) (138,924) (5,050) Changes in operating assets and liabilities: Trade and other receivables 9,750 (7,734) (617) Prepaid expenses 2,834 (862) (5,350) Deferred revenue (283) 2,123 (1,407) Trade and other payables 21 3,844 22,033 8,338 Other 1,374 359 (103) Income taxes paid (150) (20,696) (27,766) Interest received 14,454 3,460 214 Interest paid (1,701) (3,366) (3,382) Net cash used in operating activities (105,917) (178,792) (158,274) Cash flows from investing activities: Purchase of property and equipment 12 (70) (2,176) (5,571) Proceeds from sale of property and equipment 865 — 30 Purchases of intangible assets 13 (175) — (90) Investment in associates 6 — (19,961) — Purchase of investments held at fair value 5 — (5,000) (500) Sale of investments held at fair value 5 33,309 118,710 218,125 Purchase of short-term note from associate — — (15,000) Repayment of short-term note from associate — 15,000 — Purchase of Convertible Note from associate 7 (16,850) (15,000) — Cash derecognized upon loss of control over subsidiary (see table below) 5 (13,784) (479) — Purchases of short-term investments (178,860) (248,733) — Proceeds from maturity of short-term investments 244,556 50,000 — Receipt of payment of sublease — 415 381 Net cash provided by (used in) investing activities 68,991 (107,223) 197,375 Cash flows from financing activities: Receipt of cash from sale of future royalties 17 100,000 — — Issuance of subsidiary preferred Shares 16 — — 37,610 Issuance of Subsidiary Convertible Note — 393 2,215 Payment of lease liability 23 (3,338) (4,025) (3,375) Exercise of stock options 1,153 332 352 Settlement of restricted stock unit equity awards — — (10,749) Vesting of restricted stock units and net share exercise — — (2,582) NCI exercise of stock options in subsidiary — 7 66 Purchase of treasury stock 15 (19,650) (26,492) — Acquisition of a non-controlling Interest of a subsidiary — — (806) Other (23) (41) (5) Net cash provided by (used in) financing activities 78,141 (29,827) 22,727 Net increase (decrease) in cash and cash equivalents 41,215 (315,842) 61,827 Cash and cash equivalents at beginning of year 149,866 465,708 403,881 Cash and cash equivalents at end of year 191,081 149,866 465,708 Supplemental disclosure of non-cash investment and financing activities: Purchase of intangible assets not yet paid in cash 25 — Settlement of restricted stock units through issuance of equity 1,142 1,528 — Purchase of property, plant and equipment against trade and other payables — — 1,841 Leasehold improvements purchased through lease incentives (deducted from Right of Use Asset) — — 1,010 Conversion of subsidiary convertible note into preferred share liabilities — — 25,797 Consolidated Statement of Cash Flows For the years ended December 31
132 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Consolidated Statements of Cash Flows continued For the years ended December 31 Supplemental disclosure of non-cash investment and financing activities (continued): Assets, Liabilities and non-controlling interests in deconsolidated subsidiary 2023 $000s 2022 $000s Trade and other receivables (702) — Prepaid assets (3,516) — Property, plant and equipment, net (8,092) — Right of use asset, net (2,477) — Trade and other Payables 15,078 1,407 Deferred revenue 1,902 — Lease liabilities (including current potion) 4,146 — Long-term loan (including current portion) 15,446 — Subsidiary notes payable — 3,403 Subsidiary preferred shares and warrants 24,568 15,853 Other assets and liabilities, net (323) 123 Non-controlling interest 9,085 (11,904) 55,115 8,882 Investment retained in deconsolidated subsidiary 20,456 18,848 Gain on deconsolidation (61,787) (27,251) Cash in deconsolidated subsidiary 13,784 479 The accompanying notes are an integral part of these financial statements.
PureTech Health plc Annual report and accounts 2023 133 Financial statem ents1. Material Accounting Policies Description of Business PureTech Health plc (the “Parent”) is a public company incorporated, domiciled and registered in the United Kingdom (“UK”). The registered number is 09582467 and the registered address is 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom. The Parent and its subsidiaries are together referred to as the “Group”. The Parent company financial statements present financial information about the Parent as a separate entity and not about its Group. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these group financial statements. Basis of Presentation The consolidated financial statements of the Group (the "Consolidated Financial Statements") are presented as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021. The Consolidated Financial Statements have been approved by the Directors on April 25, 2024, and are prepared in accordance with UK-adopted International Financial Reporting Standards ("IFRSs"). The Consolidated Financial Statements also comply fully with IFRSs as issued by the International Accounting Standards Board ("IASB"). UK-adopted IFRSs differs in certain respects from IFRSs as issued by the IASB. However, the differences have no impact for the periods presented. For presentation of the Consolidated Statement of Comprehensive Income/(Loss), the Group uses a classification based on the function of expenses, rather than based on their nature, as it is more representative of the format used for internal reporting and management purposes and is consistent with international practice. Certain amounts in the Consolidated Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts. Basis of Measurement The Consolidated Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investments held at fair value, investments in notes from associates and liabilities classified as fair value through the profit or loss. Use of Judgments and Estimates In preparing the Consolidated Financial Statements, management has made judgements, estimates and assumptions that affect the application of the Group’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis. Significant estimation is applied in determining the following: — Financial instruments valuations (see Note 18. Financial Instruments): In accordance with IFRS 9, the Group carries certain financial assets and financial liabilities at fair value, with changes in fair value through profit and loss ("FVTPL"). Valuation of the aforementioned financial instruments (assets and liabilities) includes making significant estimates, specifically determining the appropriate valuation methodology and making certain estimates such as the future expected returns on the financial instrument in different scenarios, appropriate discount rate, volatility, and term to exit. Significant judgement is also applied in determining the following: — Whether financial instruments should be classified as liability or equity (see Note 16. Subsidiary Preferred Shares.). The judgement includes an assessment of whether the financial instruments include contractual obligations of the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party, and whether those obligations could be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. Further information about these critical judgements and estimates is included below under Financial Instruments. — Whether the power to control investees exists (see Note 5. Investments Held at Fair Value and Note 6. Investments in Associates and accounting policy with regard to Subsidiaries below). The judgement includes an assessment of whether the Group has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement with the investee; and (iii) the ability to use its power over the investee to affect the amount of its own returns. The Group considers among others its voting shares, shareholder agreements, ability to appoint board members, representation on the board, rights to appoint management, de facto control, investee dependence on the Group, etc. If the power to control the investee exists, it consolidates the financial statements of such investee in the Consolidated Financial Statements of the Group. Upon issuance of new shares in an investee and/or a change in any shareholders or governance agreements, the Group reassesses its ability to control the investee based on the revised voting interest, revised board composition and revised subsidiary governance and management structure. When such new circumstances result in the Group losing its power to control the investee, the investee is deconsolidated. On March 1 2023 Vedanta was deconsolidated. Although the Group holds 47% of the voting rights and the other shareholders are widely dispersed, the Group does not have de facto control because the investor rights agreement stipulates that the relevant activities of Vedanta are directed by Vedanta's Board and the Group does not control Vedanta's Board decision making. Voting rights are not the dominant factor for directing Vedanta's relevant activities. Notes to the Consolidated Financial Statements (Amounts in thousands, except share and per share data, or exercise price and conversion price)
134 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 1. Accounting policies continued — Whether the Group has significant influence over financial and operating policies of investees in order to determine if the Group should account for its investment as an associate based on IAS 28 or a financial instrument based on IFRS 9. (refer to Note 5. Investments Held at Fair Value and Note 6. Investments in Associates ). This judgement includes, among others, an assessment whether the Group has representation on the board of directors of the investee, whether the Group participates in the policy making processes of the investee, whether there is any interchange of managerial personnel, whether there is any essential technical information provided to the investee and if there are any transactions between the Group and the investee. — Upon determining that the Group does have significant influence over the financial and operating policies of an investee, if the Group holds more than a single instrument issued by its equity-accounted investee, judgement is required to determine whether the additional instrument forms part of the investment in the associate, which is accounted for under IAS 28 and scoped out of IFRS 9, or it is a separate financial instrument that falls in the scope of IFRS 9. This judgement includes an assessment of the characteristics of the financial instrument of the investee held by the Group and whether such financial instrument provides access to returns underlying an ownership interest. — When the Group has other investments in an equity accounted investee that are not accounted for under IAS 28, judgement is required in determining if such investments constitute long-term interests ("LTI") for the purposes of IAS 28. This determination is based on the individual facts and circumstances and characteristics of each investment, but is driven, among other factors, by the intention and likelihood to settle the instrument through redemption or repayment in the foreseeable future, and whether or not the investment is likely to be converted to common stock or other equity instruments. After considering the individual facts and circumstances of the Group’s investment in its associate's preferred stock in the manner described above, including the long-term nature of such investment, the ability of the Group to convert its preferred stock investment to an investment in common shares and the likelihood of such conversion, the Group concluded that such investment was considered a long term interest. — In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement (refer to Note 17. Sale of Future Royalties Liability). As of December 31, 2023, the Group had cash and cash equivalents of $191,081 and short-term investments of $136,062. Considering the Group’s financial position as of December 31, 2023, and its principal risks and opportunities, the Group prepared a going concern analysis covering a period of at least the twelve-month period from the date of signing the Consolidated Financial Statements ("the going concern period") utilizing realistic scenarios and applying a severe but plausible downside scenario. Even under the downside scenario, the analysis demonstrates the Group continues to maintain sufficient liquidity headroom and continues to comply with all financial obligations. The Board of Directors believe the Group and the Parent is adequately resourced to continue in operational existence for at least the twelve-month period from the date of signing the Consolidated Financial Statements. Accordingly, the Board of Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements and the PureTech Health plc Financial Statements. Basis of consolidation The Consolidated Financial Statements as of December 31, 2023 and 2022, and for each of the years ended December 31, 2023, 2022 and 2021, comprises PureTech Health plc and its consolidated subsidiaries. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Subsidiaries As used in these financial statements, the term subsidiaries refers to entities that are controlled by the Group. Under applicable accounting rules, the Group controls an entity when it is exposed to, or has the rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights, board representation, shareholders' agreements, ability to appoint board of directors and management, de facto control and other related factors. The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. Losses applicable to the non- controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 135 Financial statem ents A list of all current and former subsidiaries organized with respect to classification as of December 31, 2023, and the Group’s total voting percentage, based on outstanding voting common and preferred shares as of December 31, 2023, 2022 and 2021, is outlined below. All current subsidiaries are domiciled within the United States and conduct business activities solely within the United States. Voting percentage at December 31, through the holdings in 2023 2022 2021 Subsidiary Common Preferred Common Preferred Common Preferred Subsidiary operating companies Alivio Therapeutics, Inc.2 — 100.0 — 100.0 — 100.0 Entrega, Inc. (indirectly held through Enlight)2 — 77.3 — 77.3 — 77.3 PureTech LYT, Inc. (formerly Ariya Therapeutics, Inc.)2 — 100.0 — 100.0 — 100.0 PureTech LYT 100, Inc.2 — 100.0 — 100.0 — 100.0 PureTech Management, Inc.3 100.0 — 100.0 — 100.0 — PureTech Health LLC3 100.0 — 100.0 — 100.0 — Deconsolidated former subsidiary operating companies Sonde Health, Inc.2,5 — 40.2 — 40.2 — 51.8 Akili Interactive Labs, Inc.2,6 14.6 — 14.7 — — 26.7 Gelesis, Inc.1,2 — — 22.8 — 4.8 19.7 Karuna Therapeutics, Inc.2,6 2.3 — 3.1 — 5.6 — Vedanta Biosciences, Inc.2, 4 — 47.0 — 47.0 — 48.6 Vedanta Biosciences Securities Corp. (indirectly held through Vedanta)2, 4 — 47.0 — 47.0 — 48.6 Vor Biopharma Inc.2,6 3.9 — 4.1 — 8.6 — Nontrading holding companies Endra Holdings, LLC (held indirectly through Enlight)2 86.0 — 86.0 — 86.0 — Ensof Holdings, LLC (held indirectly through Enlight)2 86.0 — 86.0 — 86.0 — PureTech Securities Corp.2 100.0 — 100.0 — 100.0 — PureTech Securities II Corp.2 100.0 — 100.0 — 100.0 — Inactive subsidiaries Appeering, Inc.2 — 100.0 — 100.0 — 100.0 Commense Inc.2 — 99.1 — 99.1 — 99.1 Enlight Biosciences, LLC2 86.0 — 86.0 — 86.0 — Ensof Biosystems, Inc. (held indirectly through Enlight)2 57.7 28.3 57.7 28.3 57.7 28.3 Follica, LLC 2 28.7 56.7 28.7 56.7 28.7 56.7 Knode Inc. (indirectly held through Enlight)2 — 86.0 — 86.0 — 86.0 Libra Biosciences, Inc.2 — 100.0 — 100.0 — 100.0 Mandara Sciences, LLC2 98.3 — 98.3 — 98.3 — Tal Medical, Inc.2 — 100.0 — 100.0 — 100.0 1 On October 30, 2023, Gelesis ceased operations and filed a voluntary petition for relief under the United States bankruptcy code. See Note 6. Investments in Associates for details. 2 Registered address is Corporation Trust Center, 1209 Orange St., Wilmington, DE 19801, USA. 3 Registered address is 2711 Centerville Rd., Suite 400, Wilmington, DE 19808, USA. 4 On March 1, 2023, the Group lost control over Vedanta and Vedanta was deconsolidated from the Group’s financial statements, resulting in only the profits and losses generated by Vedanta through the deconsolidation date being included in the Group’s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5. Investments Held at Fair Value for further details about the accounting for the investments in Vedanta subsequent to deconsolidation. 5 On May 25, 2022, the Group lost control over Sonde and Sonde was deconsolidated from the Group’s financial statements, resulting in only the profits and losses generated by Sonde through the deconsolidation date being included in the Group’s Consolidated Statement of Comprehensive Income/(Loss). See Notes 5. Investments Held at Fair Value and 6. Investments in Associates for further details about the accounting for the investments in Sonde subsequent to deconsolidation. 6 See Notes 5. Investments Held at Fair Value and 6. Investments in Associates for additional discussion on the Group's investment held in Akili, Karuna and Vor. 7 Follica became inactive during 2023. Change in Subsidiary Ownership and Loss of Control Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Where the Group loses control of a subsidiary, the assets and liabilities are derecognized along with any related non-controlling interest (“NCI”). Any interest retained in the former subsidiary is measured at fair value when control is lost. Any resulting gain or loss is recognized as profit or loss in the Consolidated Statement of Comprehensive Income/(Loss). Associates As used in these financial statements, the term associates are those entities in which the Group has no control but maintains significant influence over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of an entity, unless it can be clearly demonstrated that this is not the case. The Group evaluates if it maintains significant influence over associates by assessing if the Group has the power to participate in the financial and operating policy decisions of the associate. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
136 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Application of the Equity Method to Associates Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost, or if recognized upon deconsolidation, they are initially recorded at fair value at the date of deconsolidation. The Consolidated Financial Statements include the Group’s share of the total comprehensive income or loss of equity accounted investees, from the date that significant influence commences until the date that significant influence ceases. To the extent the Group holds interests in associates that are not providing access to returns underlying ownership interests, the instrument is accounted for in accordance with IFRS 9 as investments held at fair value. When the Group’s share of losses exceeds its equity method investment in the investee, losses are applied against long-term interests, which are investments accounted for under IFRS 9. Investments are determined to be long-term interests when they are long-term in nature and in substance they form part of the Group's net investment in that associate. This determination is impacted by many factors, among others, whether settlement by the investee through redemption or repayment is planned or likely in the foreseeable future, whether the investment can be converted and/or is likely to be converted to common stock or other equity instrument and other factors regarding the nature of the investment. Whilst this assessment is dependent on many specific facts and circumstances of each investment, typically conversion features whereby the investment is likely to convert to common stock or other equity instruments would point to the investment being a long-term interest. Similarly, where the investment is not planned or likely to be settled through redemption or repayment in the foreseeable future, this would indicate that the investment is a long-term interest. When the net investment in the associate, which includes the Group’s investments in other long-term interests, is reduced to nil, recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an investee. The Group has adopted the amendments to IAS 28 Investments in Associates that addresses the dual application of IAS 28 and IFRS 9 when equity method losses are applied against long-term interests. The amendments provide the annual sequence in which both standards are to be applied in such a case. The Group has applied the equity method losses to the long-term interests presented as part of Investments held at fair value subsequent to remeasuring such investments to their fair value at balance sheet date. Sale of Future Royalties Liability The Group accounts for the sale of future royalties liability as a financial liability, as it continues to hold the rights under the royalty bearing licensing agreement and has a contractual obligation to deliver cash to an investor for a portion of the royalty it receives. Interest on the sale of future royalties liability is recognized using the effective interest rate over the life of the related royalty stream. The sale of future royalties liability and the related interest expense are based on the Group’s current estimates of future royalties expected to be paid over the life of the arrangement. Forecasts are updated periodically as new data is obtained. Any increases, decreases or a shift in timing of estimated cash flows require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future contractual cash flows that are discounted at the liability’s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense. Financial Instruments Classification The Group classifies its financial assets in the following measurement categories: — Those to be measured subsequently at fair value either through other comprehensive income "FVOCI", or through profit or loss "FVTPL", and — Those to be measured at amortized cost. The classification depends on the Group’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses are recorded in profit or loss. Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at FVTPL, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets that are carried at FVTPL are expensed. Impairment The Group assesses on a forward-looking basis the expected credit losses associated with its debt instruments carried at amortized cost. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognized from initial recognition of the receivables. Financial Assets The Group’s financial assets consist of cash and cash equivalents, investments in debt securities, trade and other receivables, notes, restricted cash deposits and investments in equity securities. The Group’s financial assets are virtually all classified into the following categories: investments held at fair value, notes, trade and other receivables, short-term investments and cash and cash equivalents. The Group determines the classification of financial assets at initial recognition depending on the purpose for which the financial assets were acquired. Investments held at fair value are investments in equity instruments. Such investments consist of the Group's minority interest holdings where the Group has no significant influence or preferred share investments that are not providing access to returns underlying ownership interests and are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. These financial assets are initially measured at fair value and subsequently re-measured at fair value at each reporting date. The Group has elected to record the changes in fair values for the financial assets falling under this category through profit and loss. Please refer to Note 5. Investments Held at Fair Value. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 137 Financial statem ents Changes in the fair value of financial assets at FVTPL are recognized in other income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss) as applicable. The notes from an associate, since their contractual terms do not consist solely of cash flow payments of principal and interest on the principal amount outstanding, are initially and subsequently measured at fair value, with changes in fair value recognized through profit and loss. Cash and cash equivalents consist of demand deposits with banks and other financial institutions and highly liquid instruments with original maturities of three months or less at the date of purchase. Cash and cash equivalents are carried at cost, which approximates their fair value. Short-term investments consist of short-term US treasury bills that are held to maturity. The contractual terms consist solely of payment of the principal and interest and the Group's business model is to hold the treasury bills to maturity. As such, such short- term investments are recorded at amortized cost. As of balance sheet date, amortized cost approximated the fair value of such short-term investments. Trade and other receivables are non-derivative financial assets with fixed and determinable payments that are not quoted on active markets. These financial assets are carried at the amounts expected to be received less any expected lifetime losses. Such losses are determined taking into account previous experience, credit rating and economic stability of counterparty and economic conditions. When a trade receivable is determined to be uncollectible, it is written off against the available provision. As of balance sheet date, the Group did not record any such expected lifetime losses related to the outstanding trade and other receivable balances. Trade and other receivables are included in current assets, unless maturities are greater than 12 months after the end of the reporting period. Financial Liabilities The Group’s financial liabilities primarily consist of trade and other payables, and preferred shares. The majority of the Group’s subsidiaries have preferred shares and certain notes payable with embedded derivatives, which are classified as current liabilities. When the Group has preferred shares and notes with embedded derivatives that qualify for bifurcation, the Group has elected to account for the entire instrument as FVTPL after determining under IFRS 9 that the instrument qualifies to be accounted for under such FVTPL method. The Group derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire. Equity Instruments Issued by the Group Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions, in accordance with IAS 32: 1. They include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavorable to the Group; and 2. Where the instrument will or may be settled in the Group’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Group’s own equity instruments or is a derivative that will be settled by the Group exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the financial instrument is classified as a financial liability. Where the instrument so classified takes the legal form of the Group’s own shares, the amounts presented in the Group's shareholders' equity exclude amounts in relation to those shares. Changes in the fair value of liabilities at FVTPL are recognized in net finance income /(costs) in the Consolidated Statement of Comprehensive Income/(Loss) as applicable. IFRS 15, Revenue from Contracts with Customers The standard establishes a five-step principle-based approach for revenue recognition and is based on the concept of recognizing an amount that reflects the consideration for performance obligations only when they are satisfied and the control of goods or services is transferred. The majority of the Group’s contract revenue is generated from licenses and services, some of which are part of collaboration arrangements. Management reviewed contracts where the Group received consideration in order to determine whether or not they should be accounted for in accordance with IFRS 15. To date, the Group has entered into transactions that generate revenue and meet the scope of either IFRS 15 or IAS 20 Accounting for Government Grants. Contract revenue is recognized at either a point-in-time or over time, depending on the nature of the performance obligations. The Group accounts for agreements that meet the definition of IFRS 15 by applying the following five step model: — Identify the contract(s) with a customer – A contract with a customer exists when (i) the Group enters into an enforceable contract with a customer that defines each party’s rights regarding the goods or services to be transferred and identifies the payment terms related to those goods or services, (ii) the contract has commercial substance and, (iii) the Group determines that collection of substantially all consideration for goods or services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. — Identify the performance obligations in the contract – Performance obligations promised in a contract are identified based on the goods or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other resources that are readily available from third parties or from the Group, and are distinct in the context of the contract, whereby the transfer of the goods or services is separately identifiable from other promises in the contract. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
138 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts — Determine the transaction price – The transaction price is determined based on the consideration to which the Group will be entitled in exchange for transferring goods or services to the customer. To the extent the transaction price includes variable consideration, the Group estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Group’s judgement, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. — Allocate the transaction price to the performance obligations in the contract – If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis. — Recognize revenue when (or as) the Group satisfies a performance obligation – The Group satisfies performance obligations either over time or at a point in time as discussed in further detail below. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised good or service to a customer. Revenue generated from services agreements (typically where licenses and related services were combined into one performance obligation) is determined to be recognized over time when it can be determined that the services meet one of the following: (a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs; (b) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. It was determined that the Group has contracts that meet criteria (a), since the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs. Therefore revenue is recognized over time using the input method based on costs incurred to date as compared to total contract costs. The Group believes that in research and development service type agreements using costs incurred to date represents the most faithful depiction of the entity’s performance towards complete satisfaction of a performance obligation. Revenue from licenses that are not part of a combined performance obligation are recognized at a point in time due to the licenses relating to intellectual property that has significant stand-alone functionality and as such represent a right to use the entity's intellectual property as it exists at the point in time at which the license is granted. Royalty income received in respect of licensing agreements when the license of intellectual property is the predominant item in the arrangement is recognized as the related third-party sales in the licensee occur. Amounts that are receivable or have been received per contractual terms but have not been recognized as revenue since performance has not yet occurred or has not yet been completed are recorded as deferred revenue. The Group classifies as non- current deferred revenue amounts received for which performance is expected to occur beyond one year or one operating cycle. Grant Revenue The Group recognizes grants from governmental agencies as grant revenue in the Consolidated Statement of Comprehensive Income/(Loss), gross of the expenditures that were related to obtaining the grant, when there is reasonable assurance that the Group will comply with the conditions within the grant agreement and there is reasonable assurance that payments under the grants will be received. The Group evaluates the conditions of each grant as of each reporting date to ensure that the Group has reasonable assurance of meeting the conditions of each grant arrangement and that it is expected that the grant payment will be received as a result of meeting the necessary conditions. The Group submits qualifying expenses for reimbursement after the Group has incurred the research and development expense. The Group records an unbilled receivable upon incurring such expenses. In cases in which the grant revenue is received prior to the expenses being incurred or recognized, the amounts received are deferred until the related expense is incurred and/or recognized. Grant revenue is recognized in the Consolidated Statement of Comprehensive Income/(Loss) at the time in which the Group recognizes the related reimbursable expense for which the grant is intended to compensate. Functional and Presentation Currency The Consolidated Financial Statements are presented in United States dollars (“US dollars”). The functional currency of all members of the Group is the U.S. dollar. The Group's share in foreign exchange differences in associates were reported in other comprehensive income/(loss). Foreign Currency Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on remeasurement are recognized in the Consolidated Statement of Comprehensive Income/(Loss). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Share Capital Ordinary shares are classified as equity. The Group's equity is comprised of share capital, share premium, merger reserve, other reserve, translation reserve, and retained earnings/accumulated deficit. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 139 Financial statem ents Treasury Shares Treasury shares are recognized at cost and are deducted from shareholders' equity. No gain or loss is recognized in profit and loss for the purchase, sale, re-issue or cancellation of the Group's own equity shares. Property and Equipment Property and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Assets under construction represent leasehold improvements and machinery and equipment to be used in operations or research and development activities. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. Depreciation is calculated using the straight-line method over the estimated useful life of the related asset: Laboratory and manufacturing equipment 2-8 years Furniture and fixtures 7 years Computer equipment and software 1-5 years Leasehold improvements 5-10 years, or the remaining term of the lease, if shorter Depreciation methods, useful lives and residual values are reviewed at each balance sheet date. Intangible Assets Intangible assets, which include purchased patents and licenses with finite useful lives, are carried at historical cost less accumulated amortization, if amortization has commenced. Intangible assets with finite lives are amortized from the time they are available for their intended use. Amortization is calculated using the straight-line method to allocate the costs of patents and licenses over their estimated useful lives. Research and development intangible assets, which are still under development and have accordingly not yet obtained marketing approval, are presented as In-Process Research and Development (IPR&D). The cost of IPR&D represents upfront payments as well as additional contingent payments based on development, regulatory and sales milestones related to certain license agreement where the Group licenses IP from a third party. These milestones are capitalized as the milestone is triggered. See Note 25. Commitments and Contingencies. IPR&D is not amortized since it is not yet available for its intended use, but it is evaluated for potential impairment on an annual basis or more frequently when facts and circumstances warrant. Impairment of Non-Financial Assets The Group reviews the carrying amounts of its property and equipment and intangible assets at each reporting date to determine whether there are indicators of impairment. If any such indicators of impairment exist, then an asset’s recoverable amount is estimated. The recoverable amount is the higher of an asset’s fair value less cost of disposal and value in use. The Group’s IPR&D intangible assets are not yet available for their intended use. As such, they are tested for impairment at least annually. An impairment loss is recognized when an asset’s carrying amount exceeds its recoverable amount. For the purposes of impairment testing, assets are grouped at the lowest levels for which there are largely independent cash flows. If a non- financial asset instrument is impaired, an impairment loss is recognized in the Consolidated Statement of Comprehensive Income/(Loss). Investments in associates are considered impaired if, and only if, objective evidence indicates that one or more events, which occurred after the initial recognition, have had an impact on the future cash flows from the net investment and that impact can be reliably estimated. If an impairment exists, the Group measures an impairment by comparing the carrying value of the net investment in the associate to its recoverable amount and recording any excess as an impairment loss. See Note 6. Investments in Associates for impairment recorded in respect of an investment in associate during the year ended December 31, 2022. Employee Benefits Short-Term Employee Benefits Short-term employee benefit obligations are measured on an undiscounted basis and expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Group has a present legal or constructive obligation due to past service provided by the employee, and the obligation can be estimated reliably. Defined Contribution Plans A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in the periods during which related services are rendered by employees. Share-based Payments Share-based payment arrangements, in which the Group receives goods or services as consideration for its own equity instruments, are accounted for as equity-settled share-based payment transactions (except certain restricted stock units – see below) in accordance with IFRS 2, regardless of how the equity instruments are obtained by the Group. The grant date fair value of employee share-based payment awards is recognized as an expense with a corresponding increase in equity over the requisite service period related to the awards. The amount recognized as an expense is adjusted to reflect the actual number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market conditions, the grant date fair value is measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
140 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Certain restricted stock units are treated as liability settled awards starting in 2021. Such awards are remeasured at every reporting date until settlement date and are recognized as compensation expense over the requisite service period. Differences in remeasurement are recognized in profit and loss. The cumulative cost that will ultimately be recognized in respect of these awards will equal to the amount at settlement. The fair value of the awards is measured using option pricing models and other appropriate models, which take into account the terms and conditions of the awards granted. Development Costs Expenditures on research activities are recognized as incurred in the Consolidated Statement of Comprehensive Income/(Loss). In accordance with IAS 38, development costs are capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, the Group can demonstrate its ability to use or sell the intangible asset, the Group intends to and has sufficient resources to complete development and to use or sell the asset, and it is able to measure reliably the expenditure attributable to the intangible asset during its development. The point at which technical feasibility is determined to have been reached is, generally, when regulatory approval has been received where applicable. Management determines that commercial viability has been reached when a clear market and pricing point have been identified, which may coincide with achieving meaningful recurring sales. Otherwise, the development expenditure is recognized as incurred in the Consolidated Statement of Comprehensive Income/(Loss). As of balance sheet date, the Group has not capitalized any development costs. Provisions A provision is recognized in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation due to a past event that can be reliably measured, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. Leases The Group leases real estate for use in operations. These leases have lease terms of approximately 10 years. The Group includes options that are reasonably certain to be exercised as part of the determination of the lease term. The group determines if an arrangement is a lease at inception of the contract in accordance with guidance detailed in IFRS 16. Right-of-use (ROU) assets represent the Group’s right to use an underlying asset for the lease term and lease liabilities represent the Group's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of the lease payments over the lease term. As most of the Group's leases do not provide an implicit rate, the Group used its estimated incremental borrowing rate, based on information available at commencement date, in determining the present value of future payments. The Group’s leases are virtually all leases of real estate. The Group has elected to account for lease payments as an expense on a straight-line basis over the life of the lease for: — Leases with a term of 12 months or less and containing no purchase options; and — Leases where the underlying asset has a value of less than $5,000. The right-of-use asset is depreciated on a straight-line basis and the lease liability gives rise to an interest charge. Finance Income and Finance Costs Finance income consists of interest income on funds invested in money market funds and U.S. treasuries. Finance income is recognized as it is earned. Finance costs consist mainly of loan, notes and lease liability interest expenses, interest expense due to accretion of and adjustment to sale of future royalties liability as well as the changes in the fair value of financial liabilities carried at FVTPL (such changes can consist of finance income when the fair value of such financial liabilities decreases). Taxation Tax on the profit or loss for the year comprises current and deferred income tax. In accordance with IAS 12, tax is recognized in the Consolidated Statement of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity. Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets with respect to investments in associates are recognized only to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 141 Financial statem ents Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Fair Value Measurements The Group’s accounting policies require that certain financial assets and certain financial liabilities be measured at their fair value. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: — Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. — Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). — Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). The Group recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. The carrying amount of cash and cash equivalents, accounts receivable, restricted cash, deposits, accounts payable, accrued expenses and other current liabilities in the Group’s Consolidated Statement of Financial Position approximates their fair value because of the short maturities of these instruments. Operating Segments Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The CODM reviews discrete financial information for the operating segments in order to assess their performance and is responsible for making decisions about resources allocated to the segments. The CODM has been identified as the Group’s Board of Directors. 2. New Standards and Interpretations The Group has applied the following amendments for the first time for its annual reporting period commencing January 1, 2023: — IFRS 17 Insurance Contracts — Definition of Accounting Estimates (Amendments to IAS 8) — Deferred Tax related to Assets and Liabilities Arising from a Single Transaction (Amendments to IAS 12) The amendments listed above did not have any impact on the amounts recognized in prior and current periods and are not expected to significantly affect the future periods. Certain new accounting standards, amendments to accounting standards and interpretations have been published that are not mandatory for December 31, 2023 reporting periods and have not been early adopted by the Group. These standards, amendments or interpretations are not expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions. 1. Accounting policies continued Notes to the Consolidated Financial Statements continued
142 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 3. Revenue Revenue recorded in the Consolidated Statement of Comprehensive Income/(Loss) consists of the following: For the years ended December 31, 2023 $ 2022 $ 2021 $ Contract revenue 750 2,090 9,979 Grant revenue 2,580 13,528 7,409 Total revenue 3,330 15,618 17,388 All amounts recorded in contract revenue were generated in the United States. For the years ended December 31, 2023, 2022 and 2021, contract revenue includes royalties received from an associate in the amounts of zero, $509 and $231, respectively. Substantially all of the Group’s contracts related to contract revenue for the years ended December 31, 2023, 2022 and 2021 were determined to have a single performance obligation which consists of a combined deliverable of license of intellectual property and research and development services. Therefore, for such contracts, revenue is recognized over time based on the input method which the Group believes is a faithful depiction of the transfer of goods and services. Progress is measured based on costs incurred to date as compared to total projected costs. Payments for such contracts are primarily made up-front on a periodic basis. During the year ended December 31, 2021, the Group received a $6,500 payment from Imbrium Therapeutics, Inc. following the exercise of the option to acquire an exclusive license for the Initial Product Candidate, as defined in the agreement. Since the license transferred was a right to use license, revenue from the option exercise was recognized at a point in time upon transfer of the license, which occurred during the year ended December 31, 2021. Disaggregated Revenue The Group disaggregates contract revenue in a manner that depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Group disaggregates revenue based on contract revenue or grant revenue, and further disaggregates contract revenue based on the transfer of control of the underlying performance obligations. Timing of contract revenue recognition For the years ended December 31, 2023 $ 2022 $ 2021 $ Transferred at a point in time – Licensing Income — 527 6,809 Transferred over time 750 1,563 3,171 750 2,090 9,979 Customers over 10% of revenue 2023 $ 2022 $ 2021 $ Customer A 750 1,500 1,500 Customer B — — 7,250 Customer C — 509 — 750 2,009 8,750 Accounts receivables represent rights to consideration in exchange for products or services that have been transferred by the Group, when payment is unconditional and only the passage of time is required before payment is due. Accounts receivables do not bear interest and are recorded at the invoiced amount. Accounts receivables are included within trade and other receivables on the Consolidated Statement of Financial Position. The accounts receivables related to contract revenue were $555 and $606 as of December 31, 2023 and 2022, respectively. Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 143 Financial statem ents 4. Segment Information Basis for Segmentation The Directors are the Group’s chief operating decision-makers. The Group’s operating segments are determined based on the financial information provided to the Board of Directors periodically for the purposes of allocating resources and assessing performance. During the second half of 2023, the Group changed the financial information that was regularly reviewed by the Board of Directors to allocate resources and assess performance. The Group has determined each of its Wholly-Owned Programs represents an operating segment and the Group has aggregated each of these operating segments into one reportable segment, the Wholly-Owned Programs segment, given the high level of operational and financial similarities across its Wholly-Owned Programs. Each of the Group’s Controlled Founded Entities represents an operating segment. The Group aggregates each Controlled Founded Entity operating segment into one reportable segment, the Controlled Founded Entities segment. For the Group’s entities that do not meet the definition of an operating segment, the Group presents this information in the Parent & Other column in its segment footnote to reconcile the information in this footnote to the Consolidated Financial Statements. Substantially all of the Group’s revenue and profit generating activities are generated within the United States and, accordingly, no geographical disclosures are provided. The Group has retroactively recast its fiscal year 2022 and 2021 results on the new basis for comparability. Following is the description of the Group's reportable segments: Wholly-Owned Programs The Wholly-Owned Programs segment is advancing Wholly-Owned Programs which are focused on treatments for patients with devastating diseases. The Wholly-Owned Programs segment is comprised of the technologies that are wholly-owned and will be advanced through with either the Group's funding or non-dilutive sources of financing. The operational management of the Wholly-Owned Programs segment is conducted by the PureTech Health team, which is responsible for the strategy, business development, and research and development. Controlled Founded Entities The Controlled Founded Entities segment is comprised of the Group’s consolidated operational subsidiaries as of December 31, 2023 that either have, or have plans to hire, independent management teams and currently have already raised third-party dilutive capital. These subsidiaries have active research and development programs and either have entered into or plan to seek an equity or debt investment partner, who will provide additional industry knowledge and access to networks, as well as additional funding to continue the pursued growth of the entity. The Group’s entities that were determined not to meet the definition of an operating segment are included in the Parent Company and Other column to reconcile the information in this footnote to the financial statements. This column captures activities not directly attributable to the Group's operating segments and includes the activities of the Parent, corporate support functions and certain research and development support functions that are not directly attributable to a strategic business segment as well as the elimination of intercompany transactions. This column also captures the operating results for the deconsolidated entities through the date of deconsolidation (e.g. Vedanta in 2023 and Sonde in 2022) and accounting for the Group's holdings in Founded Entities for which control has been lost, which primarily represents: the activity associated with deconsolidating an entity when the Group no longer controls the entity (e.g. Vedanta in 2023 and Sonde in 2022), the gain or loss on the Group's investments accounted for at fair value (e.g. the Group's ownership stakes in Karuna, Vor and Akili) and the Group's net income or loss of associates accounted for using the equity method. (The term "Founded Entities" refers to entities which the Company incorporated and announced the incorporation as a Founded Entity externally. It includes certain of the Company’s wholly-owned subsidiaries which have been announced by the Company as Founded Entities, Controlled Founded Entities and deconsolidated Founded Entities.) In January 2024, the Group launched two new Founded Entities to advance certain programs from the Wholly-Owned Programs segment. Refer to Note 28. Subsequent Events for detail. The financial results of these programs were included in the Wholly- Owned Programs segment as of December 31, 2023 and 2022 and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities. The Group’s Board of Directors reviews segment performance and allocates resources based upon revenue and operating loss as well as the funds available for each segment. The Board of Directors do not review any other information for purposes of assessing segment performance or allocating resources. Notes to the Consolidated Financial Statements continued
144 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts For the year ended December 31, 2023 Wholly-Owned Programs $ Controlled Founded Entities $ Parent Company & Other $ Consolidated $ Contract revenue — 750 — 750 Grant revenue 853 — 1,727 2,580 Total revenue 853 750 1,727 3,330 General and administrative expenses (14,020) (562) (38,713) (53,295) Research and development expenses (89,495) (672) (6,068) (96,235) Total operating expense (103,516) (1,233) (44,781) (149,530) Operating income/(loss) (102,662) (483) (43,054) (146,199) Income/expenses not allocated to segments Other income/(expense): Gain on deconsolidation of subsidiary 61,787 Gain/(loss) on investment held at fair value 77,945 Realized loss on sale of investments (122) Gain/(loss) on investment in notes from associates (27,630) Other income/(expense) (908) Total other income/(expense) 111,072 Net finance income/(costs) 5,078 Share of net income/(loss) of associates accounted for using the equity method (6,055) Income/(loss) before taxes (36,103) As of December 31, 2023 Available Funds Cash and cash equivalents 2,140 675 188,266 191,081 Short-term Investments — — 136,062 136,062 Consolidated cash, cash equivalents and short-term investments 2,140 675 324,328 327,143 4. Segment information continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 145 Financial statem ents For the year ended December 31, 2022 Wholly-Owned Programs $ Controlled Founded Entities $ Parent Company & Other $ Consolidated $ Contract revenue — 1,500 590 2,090 Grant revenue 2,826 — 10,702 13,528 Total revenue 2,826 1,500 11,292 15,618 General and administrative expenses (8,301) (419) (52,272) (60,991) Research and development expenses (116,054) (1,051) (35,328) (152,433) Total Operating expenses (124,355) (1,470) (87,600) (213,425) Operating income/(loss) (121,529) 30 (76,308) (197,807) Income/expenses not allocated to segments Other income/(expense): Gain on deconsolidation 27,251 Gain/(loss) on investment held at fair value (32,060) Realized loss on sale of investments (29,303) Other income/(expense) 8,131 Total other income/(expense) (25,981) Net finance income/(costs) 138,924 Share of net income/(loss) of associate accounted for using the equity method (27,749) Gain on dilution of ownership interest in associate 28,220 Impairment of investment in associates (8,390) Income/(loss) before taxes (92,783) As of December 31, 2022 Available Funds Cash and cash equivalents 7,306 823 141,737 149,866 Short-term Investments — — 200,229 200,229 Consolidated cash, cash equivalents and short-term investments 7,306 823 341,966 350,095 4. Segment information continued Notes to the Consolidated Financial Statements continued
146 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts For the year ended December 31, 2021 Wholly-Owned Programs $ Controlled Founded Entities $ Parent Company & Other $ Consolidated $ Contract revenue 8,129 1,500 350 9,979 Grant revenue 1,253 — 6,156 7,409 Total revenue 9,382 1,500 6,506 17,388 General and administrative expenses (8,673) (365) (48,161) (57,199) Research and development expenses (65,444) (918) (44,108) (110,471) Total operating expense (74,118) (1,284) (92,269) (167,671) Operating income/(loss) (64,736) 216 (85,763) (150,282) Income/expenses not allocated to segments Other income/(expense): Gain/(loss) on investment held at fair value 179,316 Realized loss on sale of investments (20,925) Other income/(expense) 1,592 Other income/(expense) 159,983 Net finance income/(costs) 5,050 Share of net income/(loss) of associate accounted for using the equity method (73,703) Income/(loss) before taxes (58,953) 5. Investments Held at Fair Value Investments held at fair value include both unlisted and listed securities held by the Group. These investments, which include interests in Akili, Vor, Karuna, Sonde, Vedanta, Gelesis and other insignificant investments, are initially measured at fair value and are subsequently re-measured at fair value at each reporting date with changes in the fair value recorded through profit and loss. Activities related to such investments during the periods are shown below: Investments held at fair value $ Balance as of January 1, 2022 493,888 Investment in Sonde preferred shares - Sonde deconsolidation 11,168 Sale of Karuna and Vor shares (118,710) Loss realised on sale of investments as a result of written call option (29,303) Investment in Akili common shares 5,000 Gelesis Earn-out Shares received in the SPAC exchange 14,214 Exchange of Gelesis preferred shares to Gelesis common shares (92,303) Loss – change in fair value through profit and loss (32,060) Balance as of December 31, 2022 and January 1, 2023 251,892 Investment in Vedanta preferred shares – Vedanta deconsolidation 20,456 Investment in Gelesis 2023 Warrants 1,121 Sale of Karuna shares (33,309) Loss realised on sale of investments (265) Gain – change in fair value through profit and loss 77,945 Balance as of December 31, 2023 317,841 4. Segment information continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 147 Financial statem ents Vedanta On March 1, 2023, Vedanta issued convertible debt to a syndicate of investors. The Group did not participate in this round of financing. As part of the issuance of the debt, the convertible debt holders were granted representation on Vedanta's Board of Directors and the Group lost control over the Vedanta Board of Directors and the power to direct the relevant Vedanta activities. Consequently, Vedanta was deconsolidated on March 1, 2023 and its results of operations are included in the Consolidated Financial Statements through the date of deconsolidation. Following deconsolidation, the Group has significant influence over Vedanta through its voting interest in Vedanta and its remaining representation on Vedanta's Board of Directors. However, the Group only holds convertible preferred shares in Vedanta that do not provide their holders with access to returns associated with a residual equity interest, and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss. Under IFRS 9, the preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. Upon deconsolidation, the Group derecognized its assets, liabilities and non-controlling interest in respect of Vedanta and recorded its aforementioned investment in Vedanta at fair value. The deconsolidation resulted in a gain of $61,787. As of the date of deconsolidation, the investment in Vedanta convertible preferred shares held at fair value amounted to $20,456. During the year ended December 31, 2023, the Group recognized a loss of $6,303 for the changes in the fair value of the investment in Vedanta that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Vedanta is $14,153 as of December 31, 2023. Karuna Karuna was deconsolidated in March 2019. During 2019, Karuna completed its IPO and the Group lost its significant influence in Karuna. The shares held in Karuna are accounted for as an investment held at fair value under IFRS 9. 2021 On February 9, 2021, the Group sold 1,000,000 common shares of Karuna for $118,000. On November 9, 2021, the Group sold an additional 750,000 common shares of Karuna for $100,125. As a result of the aforementioned sales, the Group recorded a loss of $20,925, attributable to blockage discount included in the sales price, in realized gain/(loss) on sale of investments within the Consolidated Statement of Comprehensive Income/(Loss). 2022 On August 8, 2022, the Group sold 125,000 shares of Karuna common stock. In addition, the Group wrote a series of call options entitling the holders thereof to purchase up to 477,100 Karuna common stock at a set price, which were exercised in full in August and September 2022. Aggregate proceeds to the Group from all aforementioned transactions amounted to $115,457, net of transaction fees. As a result of the aforementioned sales, the Group recorded a loss of $29,303, attributable to the exercise of the aforementioned call options, in realized gain/(loss) on sale of investment within the Consolidated Statement of Comprehensive Income/(Loss). 2023 During the three months ended December 31, 2023, the Group sold 167,579 shares of Karuna common stock with aggregate proceeds of $33,309, net of transaction fees. During the years ended December 31, 2023, 2022, and 2021 the Group recorded gains of $107,079, $134,952, $109,987, respectively for the changes in the fair value of the Karuna investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). As of December 31, 2023, the Group held 886,885 shares or 2.3 percent of total outstanding Karuna common stock. In December 2023, Karuna entered into a definitive merger agreement with Bristol Myers Squibb ("BMS") under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024. See Note 28. Subsequent Events. The fair value of the Group’s investment in Karuna is $280,708 as of December 31, 2023. Vor Vor was deconsolidated in February 2019. As the Group did not hold common shares in Vor upon deconsolidation and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value with changes in fair value recorded in the Consolidated Statement of Comprehensive Income/(Loss). 2021 On January 8, 2021, the Group participated in the second closing of Vor’s Series B preferred share financing. For consideration of $500, the Group received an additional 961,538 Series B preferred shares. On February 9, 2021, Vor closed its initial public offering (the "IPO") of 9,828,017 shares of its common stock at a price of $18.00 per share. Subsequent to the closing, the Group held 3,207,200 shares of Vor common stock, representing 8.6 percent of Vor common stock. 2022 In August and December 2022, the Group sold an aggregate of 535,400 shares of Vor common stock for aggregate proceeds of $3,253. During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $11,756, a loss of $16,247, and a gain of $3,903, respectively, for the changes in the fair value of the investment that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Vor is $6,012 as of December 31, 2023. 5. Investments Held at Fair Value continued Notes to the Consolidated Financial Statements continued
148 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Gelesis Gelesis was deconsolidated in July 2019. The common stock held in Gelesis was accounted for under the equity method, while the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 and were treated as financial assets held at fair value, with changes to the fair value of the instruments recorded through the Consolidated Statement of Comprehensive Income/(Loss). Please refer to Note 6. Investments in Associates for information regarding the Group's investment in Gelesis as an associate. 2021 During the year ended December 31, 2021, as the equity method based investment in Gelesis was reduced to zero previously, the Group allocated a portion of its share in the net loss in Gelesis of $73,703, to its preferred share and warrant investments in Gelesis, which were considered to be long-term interests in Gelesis. 2022 On January 13, 2022, Gelesis completed its business combination with Capstar Special Purpose Acquisition Corp ("Capstar"). As part of the business combination, all shares in Gelesis, common and preferred, including the shares held by the Group, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (hereinafter "Gelesis Earn-out Shares"). In addition, the Group invested $15,000 in the class A common shares of Capstar as part of the Private Investment in Public Equity ("PIPE") transaction that took place immediately prior to the closing of the business combination and an additional approximately $4,961, as part of the Backstop agreement signed with Capstar on December 30, 2021 (See Note 6. Investments in Associates). Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol "GLS" on January 14, 2022. The exchange of the preferred stock (including warrants) for common stock (including common stock warrants) represents an additional investment in Gelesis equity investment. The Group recorded the changes in fair value of the preferred stock and warrants through the date of the exchange upon which the preferred shares and warrants were derecognized and recorded as an additional investment in Gelesis equity interest. All equity method losses allocated in prior periods against the investment in Gelesis held at fair value were reclassified to include within the equity method investment in Gelesis and were offset against the gain on dilution of interest. As part of the aforementioned exchange, the Group received 4,526,622 Gelesis Earn-out Shares, which were valued on the date of the exchange at $14,214. The Group accounted for such Gelesis Earn-out Shares under IFRS 9 as investments held at fair value with changes in fair value recorded through profit and loss. 2023 In February and May 2023, as part of Gelesis' issuance of senior secured promissory notes to the Group, Gelesis also issued to the Group (i) warrants to purchase 23,688,047 shares of Gelesis common stock with an exercise price of $0.2744 per share (ii) warrants to purchase 192,307,692 shares of Gelesis common stock at an exercise price of $0.0182 per share and (iii) warrants to purchase 43,133,803 shares of Gelesis common stock at an exercise price of $0.0142 per share. These warrants expire five years after issuance and are collectively referred to as the Gelesis 2023 Warrants. The Gelesis 2023 Warrants were recorded at their initial fair value of $1,121 and then subsequently re-measured to fair value through the profit and loss. As of December 31, 2023, the fair value of the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023. During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $1,264, a loss of $18,476 and a gain of $34,566, respectively, related to the change in the fair value of these instruments that was included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). Sonde On May 25, 2022, Sonde completed a Series B preferred share financing, which resulted in the Group losing control over Sonde and the deconsolidation of Sonde. Therefore, the results of operations of Sonde are included in the Consolidated Financial Statements through the date of deconsolidation. Upon deconsolidation, the Group derecognized its assets and liabilities and non-controlling interest in respect of Sonde and recorded its aforementioned investments in Sonde at fair value. The deconsolidation resulted in a gain of $27,251. As of the date of deconsolidation, the investment in Sonde preferred shares held at fair value amounted to $11,168. Following deconsolidation, the Group had significant influence in Sonde through its 48.2% voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares have the same terms as common stock and provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The convertible Preferred A-2 and B shares do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value with changes in fair value recorded in profit and loss. Under IFRS 9, the A-2 and B preferred share investments are categorized as debt instruments that are presented at fair value through profit and loss because the amounts receivable do not represent solely payments of principal and interest. During the years ended December 31, 2023 and 2022, the Group recognized a loss of $994, and a gain of $235, respectively, for the changes in the fair value of the investment in Sonde that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the Group’s investment in Sonde is $10,408 as of December 31, 2023. 5. Investments Held at Fair Value continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 149 Financial statem ents Akili Akili was deconsolidated in 2018. At time of deconsolidation, as the Group did not hold common shares in Akili and the preferred shares it held did not have equity-like features. Therefore, the preferred shares held by the Group fell under the guidance of IFRS 9 and were treated as a financial asset held at fair value and changes to the fair value of the preferred shares were recorded through the Consolidated Statement of Comprehensive Income/(Loss), in accordance with IFRS 9. On May 25, 2021, Akili completed its Series D financing for gross proceeds of $110,000 in which Akili issued 13,053,508 Series D preferred shares. The Group did not participate in this round of financing and as a result, the Group's interest in Akili was reduced from 41.9 percent to 27.5 percent. On August 19, 2022, Akili Interactive merged with Social Capital Suvretta Holdings Corp. I, a special purpose acquisition company. The combined company's securities began trading on August 22, 2022 on the Nasdaq Stock Market under the ticker symbol "AKLI". As part of this transaction, the Akili Interactive shares held by the Group were exchanged for the common stock of the combined company's securities as well as unvested common stock ("Akili Earnout Shares") that will vest when the share price exceeds certain thresholds. In addition, as part of a PIPE transaction that took place concurrently with the closing of the transaction, the Group purchased 500,000 shares for a total consideration of $5,000. Following the closing of the aforementioned transactions, the Group holds 12,527,477 shares of the combined entity and 1,433,914 Akili Earn-out Shares, with fair value amounted to $6,422 as of December 31, 2023. During the years ended December 31, 2023, 2022 and 2021, the Group recognized a loss of $8,681, a loss of $131,419, and a gain of $32,151, respectively, for the changes in the fair value of the investment in Akili that were included in gain/(loss) on investments held at fair value within the Consolidated Statement of Comprehensive Income/(Loss). 6. Investments in Associates Gelesis Gelesis was founded by the Group and raised funding through preferred shares financings as well as issuances of warrants and loans. As of July 1, 2019, Gelesis was deconsolidated from the Group’s financial statements. Upon deconsolidation, the preferred shares and warrants held by the Group fell under the guidance of IFRS 9 Financial Instruments and were treated as financial assets held at fair value and the investment in common shares of Gelesis was subject to IAS 28 Investment in Associates as the Group had significant influence over Gelesis. 2021 Due to the Group's share in the losses of Gelesis, in 2020, the Group's investment in Gelesis accounted for under the equity method was reduced to zero. Since the Group had investments in Gelesis warrants and preferred shares that were deemed to be long-term interests, the Group continued recognizing its share in Gelesis losses while applying such losses to its preferred share and warrant investment in Gelesis accounted for as an investment held at fair value. In 2021, total investment in Gelesis, including the long-term interests, was reduced to zero. Since the Group did not incur legal or constructive obligations or made payments on behalf of Gelesis, the Group discontinued recognizing equity method losses in 2021. As of December 31, 2021, unrecognized equity method losses amounted to $38,101, which included $709 of unrecognized other comprehensive loss. During 2021, due to exercise of stock options into common shares in Gelesis, the Group's equity interest in Gelesis was reduced from 47.9 percent at December 31, 2020 to 42.0 percent as of December 31, 2021. The gain resulting from the issuance of shares to third parties and the resulting reduction in the Group's share in the accumulated deficit of Gelesis under the equity method was fully offset by the unrecognized equity method losses. Backstop agreement – 2022 and 2021 On December 30, 2021, the Group signed a Backstop agreement with Capstar and had committed to acquire Capstar class A common shares at $10 per share immediately prior to the closing of the business combination between Gelesis and Capstar, in case, the Available Funds, as defined in the agreement, were less than $15,000. According to the Backstop agreement, if the Group had to acquire any shares under the agreement, the Group would receive an additional 1,322,500 class A common shares of Capstar at no additional consideration. The Group determined that such agreement meets the definition of a derivative under IFRS 9 and as such should be recorded at fair value with changes in fair value recorded through profit and loss. The derivative was initially recorded at fair value adjusted to defer the day 1 gain equal to the difference between the fair value of $11,200 and transaction price of zero on the effective date of the Backstop agreement and as such was initially recorded at zero. The deferred gain was amortized over the period from the effective date until settlement date, January 13, 2022. During the years ended December 31, 2022 and 2021, the Group recognized income of $10,400 and $800, respectively, for the amortization of the deferred gain. During the year ended December 31, 2022, the Group recognized a loss of $2,776 in respect of the decrease in the fair value of the derivative until the settlement date, resulting in a net gain of $7,624 recorded during the year ended December 31, 2022 in respect of the Backstop agreement. The gain was included in other Income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss). The fair value of the derivative on the settlement date in the amount of $8,424 represents an additional investment in Gelesis as part of the SPAC transaction described below. On January 13, 2022, as part of the conclusion of the aforementioned Backstop agreement, the Group acquired 496,145 class A common shares of Capstar for $4,961 and received an additional 1,322,500 class A common shares of Capstar for no additional consideration. 5. Investments Held at Fair Value continued Notes to the Consolidated Financial Statements continued
150 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 2022 Share exchange – Capstar On January 13, 2022, Gelesis completed its business combination with Capstar. As part of the business combination, all shares in Gelesis, common and preferred, including the shares held by the Group, were exchanged for common shares of the merged entity and unvested common shares that will vest upon the stock price of the new combined entity reaching certain target prices (the "Gelesis Earn-out Shares"). In addition, the Group invested $15,000 in the class A common shares of Capstar as part of the PIPE transaction that took place immediately prior to the closing of the business combination and an additional $4,961, as part of the Backstop agreement described above. Pursuant to the business combination, Gelesis became a wholly-owned subsidiary of Capstar and Capstar changed its name to Gelesis Holdings, Inc., which began trading on the New York Stock Exchange under the ticker symbol "GLS" on January 14, 2022. Following the closing of the business combination, the PIPE transaction, the settlement of the aforementioned Backstop agreement with Capstar, and the exchange of all preferred shares in Gelesis to common shares in the new combined entity, the Group holds 16,727,582 common shares of Gelesis Holdings Inc., which was equal to approximately 23.2% of Gelesis Holdings Inc's outstanding common shares at the time of the exchange. Due to the Group's significant equity holding and voting interest in Gelesis, the Group continued to maintain significant influence in Gelesis and as such continued to account for its Gelesis equity investment under the equity method. Gelesis was deemed to be the acquirer in Gelesis Holdings Inc. and the financial assets and financial liabilities in Capstar were deemed to be acquired by Gelesis in consideration for the shares held by Capstar legacy shareholders. As such, the Group did not revalue the retained investment in Gelesis but rather treated the exchange as a dilution of its equity interest in Gelesis from 42.0 percent as of December 31, 2021 to 22.8 percent as of January 13, 2022 (including warrants that provide its holders access to returns associated with equity holders). After considering the aforementioned additional investments, the exchange of the preferred stock, previously accounted for as an investment held at fair value, to common stock (and representing an additional equity investment in Gelesis), the earn-out shares received in Gelesis (see Note 5. Investments Held at Fair Value) and the offset of previously unrecognized equity method losses, the net gain recorded on the dilution of interest amounted to $28,255. Impairment Following Gelesis’ decline in its market price in 2022 and its lack of liquidity, the Group recorded an impairment loss of $8,390 as of December 31, 2022 in respect of its investment in Gelesis. The recoverable amount of the investment in Gelesis was $4,910 as of December 31, 2022, which was determined based on fair value less costs to sell (which were estimated to be insignificant). Fair value was determined based on level 1 of the fair value hierarchy as Gelesis shares were traded on an active market as of December 31, 2022. The impairment loss was presented separately in the Consolidated Statement of Comprehensive Income/(loss) for the year ended December 31, 2022 in the line item impairment of investment in associates. 2023 During the year ended December 31, 2023, the Group entered into agreements with Gelesis to purchase senior secured convertible promissory notes and warrants for shares of Gelesis common stock (see Note 7. Investment in Notes from Associates). The warrants to purchase shares of Gelesis common stock represented potential voting rights to the Group and it is therefore necessary to consider whether they were substantive. If these potential voting rights were substantive and the Group had the practical ability to exercise the rights and take control of greater than 50% of Gelesis common stock, the Group would be required to consolidate Gelesis under the accounting standards. In February 2023, the Group obtained warrants to purchase 23,688,047 shares of Gelesis common stock (the “February Warrants”) at an exercise price of $0.2744 per share. The exercise of the February Warrants was subject to the approval of the Gelesis stockholders until May 1, 2023. On May 1, 2023, stockholder approval was no longer required for the Group to exercise the February Warrants. The potential voting rights associated with the February Warrants were not substantive as the exercise price of the February Warrants was at a significant premium to the fair value of the Gelesis common stock. In May 2023, the Group obtained warrants to purchase 235,441,495 shares of Gelesis common stock (the “May Warrants”). The May Warrants were exercisable at the option of the Group and had an exercise price of either $0.0182 or $0.0142. The May Warrants were substantive as the Group would have benefited from exercising such warrants since their exercise price was at the money or at an insignificant premium over the fair value of the Gelesis common stock. However, that benefit from exercising the May Warrants only existed for a short period of time because in June 2023, the potential voting rights associated with the May Warrants were impacted by the terms and conditions of the Merger Agreement as described below and were no longer substantive. 6. Investments in Associates continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 151 Financial statem ents In October 2023, the Group terminated the Merger Agreement with Gelesis and the potential voting rights associated with the May Warrants were not substantive. Also, in October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. A Chapter 7 trustee has been appointed by the Bankruptcy Court who has control over the assets and liabilities of Gelesis, effectively eliminating the authority and powers of the Board of Directors of Gelesis and its executive officers to act on behalf of Gelesis. The assets of Gelesis will be liquidated and Gelesis no longer has any officers or employees. The Group ceased accounting for Gelesis as an equity method investment as it no longer had significant influence in Gelesis. During the year ended December 31, 2023, the Group recorded $4,910 as its share in the losses of Gelesis and the Group’s balance in this equity method investment was zero as of December 31, 2023. Merger Agreement On June 12, 2023, PureTech Health LLC and Caviar Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of PureTech (“Merger Sub”), entered into an agreement (the "Merger Agreement"), pursuant to which Gelesis would merge with and into Merger Sub, with Merger Sub continuing as the surviving company ( the “Merger”). If the Merger had been completed, PureTech would have acquired all issued and outstanding shares of common stock of Gelesis not otherwise held by PureTech, and Gelesis would have become an indirect wholly-owned subsidiary of PureTech. On October 12, 2023, the Group terminated the Merger Agreement. Sonde On May 25, 2022, Sonde completed a Series B preferred share financing. As a result of the aforementioned financing, the Group's voting interest was reduced below 50% and the Group lost its control over Sonde and as such ceased to consolidate Sonde on the date the round of financing was completed. Following deconsolidation, the Group has significant influence in Sonde through its voting interest in Sonde and its remaining representation on Sonde's Board of Directors. The Group's voting interest at date of deconsolidation and as of December 31, 2022 was 48.2% and 40.17%, respectively. The Group holds Preferred A-1, A-2 and B shares. The Preferred A-1 shares, in substance, have the same terms as common stock and as such provide their shareholders with access to returns associated with a residual equity ownership in Sonde. Consequently, the investment in Preferred A-1 shares is accounted for under the equity method. The Preferred A-2 and B shares, however, do not provide their shareholders with access to returns associated with a residual equity interest and as such are accounted for under IFRS 9, as investments held at fair value. The fair value of the Preferred A-1 shares on the date of deconsolidation amounted to $7,716, which is the initial value of the equity method investment in Sonde. During the years ended December 31, 2023 and 2022, the Group recorded losses of $1,052 and $3,443, respectively, related to Sonde's equity method of accounting. As of December 31, 2023, the Sonde equity method investment has a balance of $3,185. The following table summarizes the activity related to the investment in associates balance for the years ended December 31, 2023 and 2022. Investment in Associates $ As of January 1, 2022 — Cash investment in associates 19,961 Additional investment as a result of settling the Backstop agreement (see above) 8,424 Gain on dilution of interest in associate (*) 13,793 Investment in Sonde - deconsolidation 7,680 Share in net loss of associates (27,749) Reversal of equity method losses recorded against LTI (due to decrease in the fair value of such LTI): (4,406) Share in other comprehensive loss of associates (166) Impairment (8,390) As of December 31, 2022 and January 1, 2023 9,147 Share in net loss of associates (6,055) Share in other comprehensive income of associates 92 As of December 31, 2023 3,185 * Gain on dilution of interest was further increased due to the receipt of Gelesis Earn-out Shares accounted for as investments held at fair value (see above). 6. Investments in Associates continued Notes to the Consolidated Financial Statements continued
152 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Summarized financial information The following table summarizes the financial information of Gelesis as of December 31, 2022 and for the years ended December 31, 2022 and 2021, as included in its own financial statements, adjusted for fair value adjustments at deconsolidation and differences in accounting policies. The table also reconciles the summarized financial information to the carrying amount of the Group’s interest in Gelesis. As of December 31, 2023, the Group’s investment in Gelesis is $0 and Gelesis does not represent a significant equity method investment. As a result, such a disclosure for Gelesis is not presented for the year ended December 31, 2023. 2022 $As of and for the year ended December 31, Percentage ownership interest 22.5% Non-current assets 333,040 Current assets 23,495 Non-current liabilities (99,053) Current liabilities (80,010) Non-controlling interests and options issued to third parties (46,204) Net assets (deficit) attributable to shareholders of Gelesis Inc. 131,268 Group's share of net assets (net deficit) 29,504 Goodwill 3,858 Impairment (28,452) Investment in associates 4,910 2022 $ 2021 $ Revenue 25,767 11,185 Loss from continuing operations (100%) (111,567) (271,430) Total comprehensive loss (100%) (112,285) (273,005) Group's share in net losses - limited to net investment amount (*) (24,306) (73,703) Group's share of total comprehensive loss - limited to net investment amount (24,472) (73,703) * For the year ended December 31, 2022, the amount includes $4,406 reversal of equity method losses recorded against long-term Interests ("LTI") due to the decrease in fair value of such LTI. 7. Investment in Notes from Associates Gelesis Unsecured Promissory Note On July 27, 2022, the Group, as a lender, entered into an unsecured promissory note (the "Junior Note") with Gelesis, as a borrower, in the amount of $15,000. The Junior Note bears an annual interest rate of 15% per annum. The maturity date of the Junior Note is the earlier of December 31, 2023 or five business days following the consummation of a qualified financing by Gelesis. Based on the terms of the Junior Note, due to the option to convert to a variable amount of shares at the time of default, the Junior Note is required to be measured at fair value with changes in fair value recorded through profit and loss. As of December 31, 2023 and December 31, 2022 the fair value of the Junior Note was $0 and $16,501, respectively. In the year ended December 31, 2023, the Group recorded a loss of $16,501 for the change in the fair value of the Junior Note which was included in gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/ (Loss). The fair value of the Junior Note was determined to be $0 as of December 31, 2023 as Gelesis has ceased operations and filed for bankruptcy. In the year ended December 31, 2022, the Group recorded interest income of $963 and a gain of $539 for the change in the fair value of the Junior Note which was included in other income/(expense) in the Consolidated Statement of Comprehensive Income/(Loss). 6. Investments in Associates continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 153 Financial statem ents Senior Secured Convertible Promissory Notes During the year ended December 31, 2023, the Group entered into multiple agreements with Gelesis to purchase for $11,850 senior secured convertible promissory notes (the "Senior Notes") and warrants for share of Gelesis common stock. The initial fair value of the Senior Notes was determined to be $10,729 while $1,121 was determined to be the initial fair value of the warrants. The Senior Notes represent debt instruments that are presented at fair value through profit and loss as the amounts receivable do not solely represent payments of principal and interest as the Senior Notes are convertible into Gelesis common stock. The Senior Notes are secured by a first-priority lien on substantially all assets of Gelesis and the guarantors (other than the equity interests in, and assets held by Gelesis s.r.l., a subsidiary of Gelesis, and certain other exceptions). In October 2023, Gelesis ceased operations and filed a voluntary petition for relief under the provisions of Chapter 7 of Title 11 of the United States Bankruptcy Code. Therefore, the Group determined that the fair value of the Senior Notes was $0 as of December 31, 2023 and the Group recorded a loss of $10,729 for the changes in the fair value of the Senior Notes. The loss was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss). Vedanta On April 24, 2023, Vedanta closed the second tranche of its convertible debt for additional proceeds of $18,000, of which $5,000 were invested by the Group. The convertible debt carries an interest rate of 9 percent per annum. The debt has various conversion triggers and the conversion price is established at the lower of 80% of the equity price of the last financing round, or a certain pre- money valuation cap established in the agreement. If the convertible debt is not earlier converted or repaid, the entire outstanding amount of the convertible debt shall be due and payable upon the earliest to occur of (a) the later of (x) November 1, 2025 and (y) the date which is sixty (60) days after all amounts owed under, or in connection with, the loan Vedanta received from a certain investor have been paid in full, or (b) the consummation of a Deemed Liquidation Event (as defined in Vedanta’s Amended and Restated Certificate of Incorporation). Due to the terms of the convertible debt, the investment in such convertible debt is measured at fair value with changes in the fair value recorded through profit and loss. During the years ended December 31, 2023, the Group recorded a loss of $400 for the changes in the fair value of the Vedanta convertible debt which was included in gain/(loss) on investments in notes from associates in the Consolidated Statement of Comprehensive Income/(Loss). Following is the activity in respect of investments in notes from associates during the periods. The fair value of the $4,600 note from associate as of December 31, 2023 is determined using unobservable Level 3 inputs. See Note 18. Financial Instruments for additional information. Investment in notes from associates $ Balance as of January 1, 2022 — Investment In Gelesis notes 15,000 Changes in the fair value of the notes 1,501 Balance as of December 31, 2022 and January 1, 2023 16,501 Investment In Gelesis notes 10,729 Investment in Vedanta convertible debt 5,000 Changes in the fair value of the notes and convertible debt (27,630) Balance as of December 31, 2023 4,600 7. Investment in Notes from Associates continued Notes to the Consolidated Financial Statements continued
154 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 8. Operating Expenses Total operating expenses were as follows: For the years ending December 31, 2023 $ 2022 $ 2021 $ General and administrative 53,295 60,991 57,199 Research and development 96,235 152,433 110,471 Total operating expenses 149,530 213,425 167,671 The average number of persons employed by the Group during the year, analyzed by category, was as follows: For the years ending December 31, 2023 2022 2021 General and administrative 40 57 52 Research and development 56 144 119 Total 96 201 171 The aggregate payroll costs of these persons were as follows: 2023 $ 2022 $ 2021 $For the years ending December 31, General and administrative 24,586 25,322 26,438 Research and development 21,102 36,321 28,950 Total 45,688 61,643 55,388 Detailed operating expenses were as follows: 2023 $ 2022 $ 2021 $For the years ending December 31, Salaries and wages 37,084 41,750 36,792 Healthcare and other benefits 2,599 2,908 2,563 Payroll taxes 1,590 2,286 2,084 Share-based payments 4,415 14,699 13,950 Total payroll costs 45,688 61,643 55,388 Amortization 1,979 3,048 2,940 Depreciation 2,955 5,845 4,347 Total amortization and depreciation expenses 4,933 8,893 7,287 Other general and administrative expenses 25,180 31,600 26,714 Other research and development expenses 73,729 111,288 78,282 Total other operating expenses 98,909 142,888 104,996 Total operating expenses 149,530 213,425 167,671 Please refer to Note 9. Share-based Payments for further disclosures related to share-based payments and Note 26. Related Parties Transactions for management’s remuneration disclosures. Auditor's remuneration: For the years ending December 31, 2023 $ 2022 $ 2021 $ Audit of these financial statements 2,241 1,716 1,183 Audit of the financial statements of subsidiaries — 132 312 Audit of the financial statements of associate** — 814 571 Audit-related assurance services* 445 1,157 1,868 Non-audit related services 9 — — Total 2,695 3,819 3,934 * 2023 - this amount represents assurance service relating to SOX controls work for purposes of the ICFR audit of Form 20-F; 2021 – $468 represents prepaid expenses related to an expected initial public offering of a subsidiary. ** Audit fees of $—, $720 and $500 in respect of financial statements of Gelesis for the years ended December 31, 2023, 2022, and 2021 respectively, are not included within the Consolidated Financial Statements. Fees related to the audit of the financial statements of Gelesis have been disclosed in respect of 2023, 2022, and 2021 as these fees went towards supporting the audit opinion on the Group accounts. Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 155 Financial statem ents 9. Share-based Payments Share-based payments includes stock options, time-based restricted stock units (“RSUs”) and performance-based RSUs in which the expense is recognized based on the grant date fair value of these awards, except for performance-based RSUs to executives that are treated as liability awards where expense is recognized based on reporting date fair value up until settlement date. Share-based Payment Expense The Group's share-based payment expense for the years ended December 31, 2023, 2022 and 2021, was $4,415, $14,699, and $13,950 respectively. The following table provides the classification of the Group’s consolidated share-based payment expense as reflected in the Consolidated Statement of Income/(Loss): Year ended December 31, 2023 $ 2022 $ 2021 $ General and administrative 3,185 8,862 9,310 Research and development 1,230 5,837 4,640 Total 4,415 14,699 13,950 The Performance Share Plan In June 2015, the Group adopted the Performance Stock Plan (the “2015 PSP”). Under the 2015 PSP and subsequent amendments, awards of ordinary shares may be made to the Directors, senior managers and employees, and other individuals providing services to the Group up to a maximum authorized amount of 10.0 percent of the total ordinary shares outstanding. The shares have various vesting terms over a period of service between one and four years, provided the recipient remains continuously engaged as a service provider. The options awards expire 10 years from the grant date. In June 2023 the Group adopted a new Performance Stock Plan (the "2023 PSP") that has the same terms as the 2015 PSP but instituted for all new awards a limit of 10.0 percent of the total ordinary shares outstanding over a five-year period. The share-based awards granted under the PSPs are generally equity-settled (see cash settlements below). As of December 31, 2023, the Group had issued 27,384,777 units of share-based awards under these plans. RSUs RSU activity for the years ended December 31, 2023, 2022 and 2021 is detailed as follows: Number of Shares/Units Weighted Average Grant Date Fair Value (GBP) (*) Outstanding (Non-vested) at January 1, 2021 3,422,582 2.46 RSUs Granted in Period 2,195,133 2.15 Vested (1,176,695) 2.93 Forfeited (808,305) 2.25 Outstanding (Non-vested) at December 31, 2021 and January 1, 2022 3,632,715 1.91 RSUs Granted in Period 4,309,883 1.76 Vested (696,398) 2.80 Forfeited (1,155,420) 2.67 Outstanding (Non-vested) at December 31, 2022 and January 1, 2023 6,090,780 1.74 RSUs Granted in Period 3,679,669 1.28 Vested (716,029) 2.00 Forfeited (1,880,274) 1.94 Outstanding (Non-vested) at December 31, 2023 7,174,146 1.10 * For liability awards - based on fair value at reporting date. Each RSU entitles the holder to one ordinary share on vesting and the RSU awards are generally based on a vesting schedule over a one to three-year requisite service period in which the Group recognizes compensation expense for the RSUs. Following vesting, each recipient will be required to make a payment of one pence per ordinary share on settlement of the RSUs. RSUs granted to the non-executive directors are time-based and equity-settled. The grant date fair value on such RSUs is recognized over the vesting term. RSUs granted to executives are performance-based and vesting of such RSUs is subject to the satisfaction of both performance and market conditions. The performance condition is based on the achievement of the Group's strategic targets. The market conditions are based on the achievement of the absolute total shareholder return (“TSR”), TSR as compared to the FTSE 250 Index, and TSR as compared to the MSCI Europe Health Care Index. The RSU award performance criteria have changed over time as the criteria are continually evaluated by the Group’s Remuneration Committee. The Group recognizes the estimated fair value of performance-based awards with non-market conditions as share-based compensation expense over the performance period based upon its determination of whether it is probable that the performance targets will be achieved. The Group assesses the probability of achieving the performance targets at each reporting period. Cumulative adjustments, if any, are recorded to reflect subsequent changes in the estimated outcome of performance-related conditions. Notes to the Consolidated Financial Statements continued
156 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts The fair value of the performance-based awards with market conditions is based on the Monte Carlo simulation analysis utilizing a Geometric Brownian Motion process with 100,000 simulations to value those shares. The model considers share price volatility, risk-free rate and other covariance of comparable public companies and other market data to predict distribution of relative share performance. Liability settled RSUs classification The RSUs to executives are treated as liability awards as the Group has a historical practice of settling these awards in cash, and as such adjusted to fair value at every reporting date until settlement with changes in fair value recorded in earnings as stock based compensation expense. The Group incurred share-based payment expenses for RSUs of $827 (including $402 expense in respect of RSU liability awards), $1,637 (including $1,131 expense in respect of RSU liability awards), and $1,540 (including $589 expense in respect of RSU liability awards) for the years ended December 31, 2023, 2022 and 2021, respectively. The decrease in the share-based compensation expense in respect of the RSUs for the year ended December 31, 2023, as compared to the year ended December 31, 2022 is due to reduction in the fair value of the liability awards. As of December 31, 2023, the carrying amount of the RSU liability awards was $4,782, $1,281 current; $3,501 non current, out of which $1,283 related to awards that have met all their performance and market conditions. Stock Options Stock option activity for the years ended December 31, 2023, 2022 and 2021, is detailed as follows: Number of Options Wtd Average Exercise Price (GBP) Wtd Average of remaining contractual term (in years) Wtd Average Stock Price at Exercise (GBP) Outstanding at January 1, 2021 10,916,086 1.81 8.38 Granted 5,424,000 3.34 Exercised (2,238,187) 0.70 3.63 Forfeited and expired (687,781) 2.53 Options Exercisable at December 31, 2021 and January 1, 2022 4,773,873 1.42 6.50 Outstanding at December 31, 2021 and January 1, 2022 13,414,118 2.58 8.29 Granted 8,881,000 2.04 Exercised (577,022) 0.50 2.43 Forfeited and expired (3,924,215) 2.89 Options Exercisable at December 31, 2022 and January 1, 2023 6,185,216 2.03 6.21 Outstanding at December 31, 2022 and January 1, 2023 17,793,881 2.31 8.03 Granted 3,120,975 2.22 Exercised (534,034) 1.71 2.46 Forfeited and expired (3,424,232) 2.40 Options Exercisable at December 31, 2023 9,065,830 2.19 6.01 Outstanding at December 31, 2023 16,956,590 2.29 7.20 The fair value of the stock options awarded by the Group was estimated at the grant date using the Black-Scholes option valuation model, considering the terms and conditions upon which options were granted, with the following weighted-average assumptions: At December 31, 2023 2022 2021 Expected volatility 43.69% 41.70% 41.05% Expected terms (in years) 6.16 6.11 6.16 Risk-free interest rate 4.04% 2.13% 1.06% Expected dividend yield — — — Exercise price (GBP) 2.22 2.04 3.34 Underlying stock price (GBP) 2.22 2.04 3.34 These assumptions resulted in an estimated weighted-average grant-date fair value per share of stock options granted during the years ended December 31, 2023, 2022 and 2021 of $1.37, $1.15 and $1.87, respectively. The Group incurred share-based payment expense for the stock options of $3,310, $8,351 and $6,158 for the years ended December 31, 2023, 2022 and 2021, respectively. 9. Share-based Payments continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 157 Financial statem ents For shares outstanding as of December 31, 2023, the range of exercise prices is detailed as follows: Range of Exercise Prices (GBP) Options Outstanding Wtd Average Exercise Price (GBP) Wtd Average of remaining contractual term (in years) 0.01 439,490 — 5.76 1.00 to 2.00 4,989,572 1.54 5.64 2.00 to 3.00 6,664,028 2.25 8.55 3.00 to 4.00 4,863,500 3.33 7.10 Total 16,956,590 2.29 7.20 Subsidiary Plans Certain subsidiaries of the Group have adopted stock option plans. A summary of stock option activity by number of shares in these subsidiaries is presented in the following table: Outstanding as of January 1, 2023 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2023 Entrega 344,500 — — — — — 344,500 Follica 2,776,120 — — (2,170,547) (605,573) — — Vedanta 1,824,576 — — (1,313) (29,607) (1,793,656) — Outstanding as of January 1, 2022 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2022 Entrega 349,500 45,000 — (50,000) — — 344,500 Follica 2,686,120 90,000 — — — — 2,776,120 Sonde 2,049,004 — — — — (2,049,004) — Vedanta 1,991,637 490,506 (400,000) (65,235) (192,332) — 1,824,576 Outstanding as of January 1, 2021 Granted During the Year Exercised During the Year Expired During the Year Forfeited During the Year Deconsolidation During the Year Outstanding as of December 31, 2021 Alivio 3,888,168 197,398 (2,373,750) (506,260) (1,205,556) — — Entrega 962,000 — (525,000) (87,500) — — 349,500 Follica 1,309,040 1,383,080 — (6,000) — — 2,686,120 Sonde 2,192,834 — — (51,507) (92,323) — 2,049,004 Vedanta 1,741,888 451,532 (52,938) (76,491) (72,354) — 1,991,637 The weighted-average exercise prices and remaining contractual life for the options outstanding as of December 31, 2023, were as follows: Outstanding at December 31, 2023 Number of options Weighted- average exercise price $ Weighted- average contractual life outstanding Entrega 344,500 1.91 3.92 There were no grants in 2023 under any of the subsidiary option plans. The weighted average exercise prices for the options granted for the years ended December 31, 2022 and 2021, were as follows: For the years ended December 31, 2022 $ 2021 $ Entrega 0.02 — Follica 1.86 1.86 Vedanta 14.94 19.69 9. Share-based Payments continued Notes to the Consolidated Financial Statements continued
158 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts The weighted average exercise prices for options forfeited during the year ended December 31, 2023, were as follows: Forfeited during the year ended December 31, 2023 Number of options Weighted- average exercise price $ Follica 605,573 1.86 Vedanta 29,607 17.06 The weighted average exercise prices for options exercisable as of December 31, 2023, were as follows: Exercisable at December 31, 2023 Number of Options Weighted- average exercise price $ Exercise Price Range $ Entrega 329,500 1.99 0.02-2.36 There were no subsidiary options exercised during the year ended December 31, 2023. For the years ended December 31, 2023, 2022 and 2021, the subsidiaries incurred share-based payment expense of $277, $4,711 and $6,252, respectively. 10. Finance Income/(Costs), net The following table shows the breakdown of finance income and costs: 2023 $ 2022 $ 2021 $For the years ended December 31, Finance income Interest income from financial assets 16,012 5,799 214 Total finance income 16,012 5,799 214 Finance costs Contractual interest expense on notes payable (1,422) (212) (1,031) Interest expense on other borrowings (363) (1,759) (1,502) Interest expense on lease liability (1,544) (1,982) (2,181) Gain/(loss) on foreign currency exchange (94) 14 (56) Total finance cost – contractual (3,424) (3,939) (4,771) Gain/(loss) from change in fair value of warrant liability 33 6,740 1,419 Gain/(loss) from change in fair value of preferred shares 2,617 130,825 8,362 Gain/(loss) from change in fair value of convertible debt — (502) (175) Total finance income/(costs) – fair value accounting 2,650 137,063 9,606 Total finance costs – non cash interest expense related to sale of future royalties (10,159) — — Finance income/(costs), net 5,078 138,924 5,050 9. Share-based Payments continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 159 Financial statem ents 11. Earnings/(Loss) per Share Basic earnings/(loss) per share is calculated by dividing the Group's net income or loss for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding, net of treasury shares. Diluted EPS is calculated by dividing the Group's net income or loss for the year by the weighted average number of ordinary shares outstanding, net of treasury shares, plus the weighted average number of ordinary shares that would be issued at conversion of all the dilutive potential ordinary shares into ordinary shares. Dilutive effects arise from equity-settled shares from the Group's share-based plans. For the years ended December 31, 2023, 2022 and 2021, the Group incurred a net loss and therefore all outstanding potential securities were considered anti-dilutive. The amount of potential securities that were excluded from the diluted calculation amounted to 1,509,900, 3,134,131 and 6,553,905 shares, respectively. Earnings/(Loss) Attributable to Owners of the Group: 2023 2022 2021 Basic $ Diluted $ Basic $ Diluted $ Basic $ Diluted $ Income/(loss) for the year, attributable to the owners of the Group (65,697) (65,697) (50,354) (50,354) (60,558) (60,558) Weighted-Average Number of Ordinary Shares: 2023 2022 2021 Basic Diluted Basic Diluted Basic Diluted Issued ordinary shares at January 1, 278,566,306 278,566,306 287,796,585 287,796,585 285,885,025 285,885,025 Effect of shares issued & treasury shares purchased (2,263,773) (2,263,773) (3,037,150) (3,037,150) 705,958 705,958 Weighted average number of ordinary shares at December 31, 276,302,533 276,302,533 284,759,435 284,759,435 286,590,983 286,590,983 Earnings/(Loss) per Share: 2023 2022 2021 Basic $ Diluted $ Basic $ Diluted $ Basic $ Diluted $ Basic and diluted earnings/(loss) per share (0.24) (0.24) (0.18) (0.18) (0.21) (0.21) Notes to the Consolidated Financial Statements continued
160 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 12. Property and Equipment Cost Laboratory and Manufacturing Equipment $ Furniture and Fixtures $ Computer Equipment and Software $ Leasehold Improvements $ Construction in process $ Total $ Balance as of January 1, 2022 11,733 1,452 1,329 18,485 8,116 41,115 Additions, net of transfers 390 — 11 412 1,362 2,176 Disposals (118) — — — (77) (195) Deconsolidation of subsidiaries — — (58) — — (58) Reclassifications 1,336 58 137 5,067 (6,598) — Balance as of December 31, 2022 13,341 1,510 1,419 23,964 2,803 43,037 Additions, net of transfers — — — — 87 87 Disposals/Impairment (2,886) — (137) — — (3,023) Deconsolidation of subsidiaries (5,092) (438) (365) (8,799) (2,871) (17,565) Reclassifications — — — — (18) (18) Balance as of December 31, 2023 5,363 1,072 917 15,165 1 22,518 Accumulated depreciation and impairment loss Laboratory and Manufacturing Equipment $ Furniture and Fixtures $ Computer Equipment and Software $ Leasehold Improvements $ Construction in process $ Total $ Balance as of January 1, 2022 (5,686) (663) (1,190) (6,806) — (14,344) Depreciation (2,082) (212) (107) (3,444) — (5,845) Disposals 57 — — — — 57 Deconsolidation of subsidiaries — — 53 — — 53 Balance as of December 31, 2022 (7,711) (875) (1,244) (10,250) — (20,080) Depreciation (892) (162) (45) (1,856) — (2,955) Disposals 543 — 38 — — 581 Deconsolidation of subsidiaries 3,917 339 357 4,858 — 9,472 Balance as of December 31, 2023 (4,142) (698) (894) (7,248) — (12,982) Property and Equipment, net Laboratory and Manufacturing Equipment $ Furniture and Fixtures $ Computer Equipment and Software $ Leasehold Improvements $ Construction in process $ Total $ Balance as of December 31, 2022 5,630 635 174 13,714 2,803 22,957 Balance as of December 31, 2023 1,221 375 23 7,917 1 9,536 Depreciation of property and equipment is included in the general and administrative expenses and research and development expenses in the Consolidated Statement of Comprehensive Income/(Loss). The Group recorded depreciation expense of $2,955, $5,845 and $4,347 for the years ended December 31, 2023, 2022 and 2021, respectively. Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 161 Financial statem ents 13. Intangible Assets Intangible assets consist of licenses of intellectual property acquired by the Group through various agreements with third parties and are recorded at the value of the consideration transferred. Information regarding the cost and accumulated amortization of intangible assets is as follows: Cost Licenses $ Balance as of January 1, 2022 990 Additions 25 Impairment (163) Deconsolidation of subsidiary (21) Balance as of December 31, 2022 831 Additions 200 Impairment (105) Deconsolidation of subsidiaries (19) Balance as of December 31, 2023 906 Accumulated amortization Licenses $ Balance as of January 1, 2022 (3) Amortization (1) Deconsolidation of subsidiary 4 Balance as of December 31, 2022 — Amortization — Deconsolidation of subsidiary — Balance as of December 31, 2023 — Intangible assets, net Licenses $ Balance as of December 31, 2022 831 Balance as of December 31, 2023 906 Substantially all the intangible asset licenses represent in-process-research-and-development assets since they are still being developed and not ready for their intended use. As such, these assets are not amortized but tested for impairment annually. During the year ended December 31, 2023, the Group wrote off two of its research intangible assets for which research was ceased in the amount of $105. During the year ended December 31, 2023, Vedanta, Inc. was deconsolidated and as such, $19 net in intangible assets were derecognized. During the year ended December 31,2022, the Group wrote off one of its research intangible assets for which research was ceased in the amount of $163. During the year ended December 31, 2022, Sonde Health, Inc. was deconsolidated and as such, $18 net intangible assets were derecognized. The Group tested all intangible assets for impairment as of the balance sheet date and concluded that none of such assets were impaired. The Group had negligible amortization expense for the years ended December 31, 2022 and 2021 and no amortization expense for the year ended December 31, 2023. Notes to the Consolidated Financial Statements continued
162 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 14. Other Financial Assets Other financial assets consist primarily of restricted cash reserved as collateral against a letter of credit with a bank that is issued for the benefit of a landlord in lieu of a security deposit for office space leased by the Group. The restricted cash was $1,628 and $2,124 as of December 31, 2023 and 2022, respectively. 15. Equity Total equity for the Group as of December 31, 2023, and 2022, was as follows: December 31, 2023 $ December 31, 2022 $Equity Share capital, £0.01 par value, issued and paid 271,853,731 and 278,566,306 as of December 31, 2023 and 2022, respectively 5,461 5,455 Share premium 290,262 289,624 Treasury shares, 17,614,428 and 10,595,347 as of December 31, 2023 and 2022, respectively (44,626) (26,492) Merger Reserve 138,506 138,506 Translation reserve 182 89 Other reserves (9,538) (14,478) Retained earnings/(accumulated deficit) 83,820 149,516 Equity attributable to owners of the Group 464,066 542,220 Non-controlling interests (5,835) 5,369 Total equity 458,232 547,589 Changes in share capital and share premium relate primarily to incentive options exercises during the period. Shareholders are entitled to vote on all matters submitted to shareholders for a vote. Each ordinary share is entitled to one vote and is entitled to receive dividends when and if declared by the Group’s Directors. On June 18, 2015, the Group acquired the entire issued share capital of PureTech LLC in return for 159,648,387 ordinary shares. This was accounted for as a common control transaction at cost. It was deemed that the share capital was issued in line with movements in share capital as shown prior to the transaction taking place. In addition, the merger reserve records amounts previously recorded as share premium. Other reserves comprise the cumulative credit to share-based payment reserves corresponding to share-based payment expenses recognized through Consolidated Statement of Comprehensive Income/(Loss), settlements of vested stock awards as well as other additions that flow directly through equity such as the excess or deficit from changes in ownership of subsidiaries while control is maintained by the Group. On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program (the "Program") of its ordinary shares of one pence each (the “Ordinary Shares”). The Group executed the Program in two equal tranches. The Group entered into an irrevocable non-discretionary instruction with Jefferies International Limited (“Jefferies”) in relation to the purchase by Jefferies of the Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25,000 for each tranche, and the simultaneous on-sale of such Ordinary Shares by Jefferies to the Group, subject to certain volume and price restrictions. Jefferies made its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Group. Purchases could continue during any close period to which the Group was subject. The instruction to Jeffries could be amended or withdrawn so long as the Group was not in a close period or otherwise in possession of inside information. Any purchases of the Ordinary Shares under the Program were carried out on the London Stock Exchange and could be carried out on any other UK recognized investment exchange in accordance with pre-set parameters and subject to limits prescribed by the Group’s general authority to repurchase the Ordinary Shares granted by its shareholders at its annual general meeting on May 27, 2021, and relevant Rules and Regulations. All Ordinary Shares repurchased under the Program are held in treasury and re-issued for settlement of share-based awards. As of December 31, 2023, the Group had repurchased an aggregate of 18,278,873 Ordinary Shares under the share repurchase program with 7,683,526 shares repurchased in 2023. The Program was completed during the month ended February 2024. As of December 31, 2023, the Group’s issued share capital was 289,468,159 shares, including 17,614,428 shares repurchased under the Program and were held by the Group in treasury. The Group does not have a limited amount of authorized share capital. Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 163 Financial statem ents 16. Subsidiary Preferred Shares Preferred shares issued by subsidiaries often contain redemption and conversion features that are assessed under IFRS 9 in conjunction with the host preferred share instrument. This balance represents subsidiary preferred shares issued to third parties. The subsidiary preferred shares are redeemable upon the occurrence of a contingent event, other than full liquidation of the Group, that is not considered to be within the control of the Group. Therefore these subsidiary preferred shares are classified as liabilities. These liabilities are measured at fair value through profit and loss. The preferred shares are convertible into ordinary shares of the subsidiaries at the option of the holders and are mandatorily convertible into ordinary shares under certain circumstances. Under certain scenarios, the number of ordinary shares receivable on conversion will change and therefore, the number of shares that will be issued is not fixed. As such the conversion feature is considered to be an embedded derivative that normally would require bifurcation. However, since the preferred share liabilities are measured at fair value through profit and loss, as mentioned above, no bifurcation is required. The preferred shares are entitled to vote with holders of common shares on an as converted basis. The fair value of all subsidiary preferred shares as of December 31, 2023 and December 31, 2022, is as follows: 2023 $ 2022 $As of December 31, Entrega 169 169 Follica — 350 Vedanta Biosciences — 26,820 Total subsidiary preferred share balance 169 27,339 As is customary, in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, the holders of subsidiary preferred shares which are outstanding shall be entitled to be paid out of the assets of the subsidiary available for distribution to shareholders and before any payment shall be made to holders of ordinary shares. A merger, acquisition, sale of voting control or other transaction of a subsidiary in which the shareholders of the subsidiary immediately before the transaction do not own a majority of the outstanding shares of the surviving company shall be deemed to be a liquidation event. Additionally, a sale, lease, transfer or other disposition of all or substantially all of the assets of the subsidiary shall also be deemed a liquidation event. As of December 31, 2023 and December 31, 2022, the minimum liquidation preference reflecting the amounts that would be payable to the subsidiary preferred holders upon a liquidation event of the subsidiaries, is as follows: 2023 $ 2022 $As of December 31, Entrega 2,216 2,216 Follica 6,405 6,405 Vedanta Biosciences — 149,568 Total minimum liquidation preference 8,621 158,189 For the years ended December 31, 2023 and 2022, the Group recognized the following changes in the value of subsidiary preferred shares: $ Balance as of January 1, 2022 174,017 Decrease in value of preferred shares measured at fair value – finance costs (income) (130,825) Deconsolidation of subsidiary – (Sonde) (15,853) Balance as of December 31, 2022 27,339 Decrease in value of preferred shares measured at fair value – finance costs (income) (2,617) Deconsolidation of subsidiary – (Vedanta) (24,554) Balance as of December 31, 2023 169 Notes to the Consolidated Financial Statements continued
164 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 17. Sale of Future Royalties Liability On March 4, 2011, the Group entered into a license agreement with Karuna Therapeutics, Inc. (“Karuna”) according to which the Group granted Karuna an exclusive license to research, develop and sell KarXT in exchange for a royalty on annual net sales, development and regulatory milestones and a fixed portion of sublicensing income, if any (hereinafter “License Agreement”). On March 22, 2023, the Group signed an agreement with Royalty Pharma (hereinafter "Royalty Purchase Agreement"), according to which the Group sold Royalty Pharma a partial right to receive royalty payments made by Karuna in respect of net sales of KarXT, if and when received. According to the Royalty Purchase Agreement, all royalties due to the Group under the License Agreement will be paid to Royalty Pharma up until an annual threshold of $60,000, while all royalties above such annual threshold in a given year will be split 33% to Royalty Pharma and 67% to the Group. Under the terms of the Royalty Purchase Agreement, the Group received a non-refundable initial payment of $100,000 at the execution of the Royalty Purchase Agreement and is eligible to receive additional payments in the aggregate of up to an additional $400,000 based on the achievement of certain regulatory and commercial milestones. The Group continues to hold the rights under the License Agreement and has a contractual obligation to deliver cash to Royalty Pharma for a portion of the royalties it receives. Therefore, the Group will continue to account for any royalties and regulatory milestones due to the Group under the License Agreement as revenue in its Consolidated Statement of Comprehensive Income/ (Loss) and record the proceeds from the Royalty Purchase Agreement as a financial liability on its Consolidated Statement of Financial Position. In determining the appropriate accounting treatment for the Royalty Purchase Agreement, management applied significant judgement. The acquisition of Karuna by Bristol Meyers Squibb (NYSE: BMY), which closed on March 18, 2024, had no impact on the Group's rights or obligations under the License Agreement or Royalty Purchase Agreement, each of which remains in full force and effect. In order to determine the amortized cost of the sale of future royalties liability, management is required to estimate the total amount of future receipts from and payments to Royalty Pharma under the Royalty Purchase Agreement over the life of the agreement. The $100,000 liability, recorded at execution of the Royalty Purchase Agreement, will be accreted to the total of these receipts and payments as interest expense over the life of the Royalty Purchase Agreement. These estimates contain assumptions that impact both the amortized cost of the liability and the interest expense that will be recognized in future periods. Additional proceeds received from Royalty Pharma will increase the Group’s financial liability. As royalty payments are made to Royalty Pharma, the balance of the liability will be effectively repaid over the life of the Royalty Purchase Agreement. The estimated timing and amount of royalty payments to and proceeds from Royalty Pharma are likely to change over the life of the Royalty Purchase Agreement. A significant increase or decrease in estimated royalty payments, or a significant shift in the timing of cash flows, will materially impact the sale of future royalties liability, interest expense and the time period for repayment. The Group will periodically assess the expected payments to, or proceeds from, Royalty Pharma, and any such changes in amount or timing of cash flows will require the Group to re-calculate the amortized cost of the sale of future royalties liability as the present value of the estimated future cash flows from the Royalty Purchase Agreement that are discounted at the liability’s original effective interest rate. The adjustment is recognized immediately in profit or loss as income or expense. The following shows the activity in respect of the sale of future royalties liability: Sale of future royalties liability $ Balance as of January 1, 2023 — Amounts received at closing 100,000 Non cash interest expense recognized 10,159 Balance as of December 31, 2023 110,159 Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 165 Financial statem ents 18. Financial Instruments The Group’s financial instruments consist of financial assets in the form of notes, convertible notes and investment in shares, and financial liabilities, including preferred shares. Many of these financial instruments are presented at fair value, with changes in fair value recorded through profit and loss. Fair Value Process For financial instruments measured at fair value under IFRS 9, the change in the fair value is reflected through profit and loss. Using the guidance in IFRS 13, the total business enterprise value and allocable equity of each entity being valued can be determined using a market backsolve approach through a recent arm’s length financing round (or a future probable arm's length transaction), market/asset probability-weighted expected return method ("PWERM") approach, discounted cash flow approach, or hybrid approaches. The approaches, in order of strongest fair value evidence, are detailed as follows: Valuation Method Description Market – Backsolve The market backsolve approach benchmarks the original issue price (OIP) of the company’s latest funding transaction as current value. Market/Asset – PWERM Under a PWERM, the company value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise. Possible future outcomes can include IPO scenarios, potential SPAC transactions, merger and acquisition transactions as well as other similar exit transactions of the investee. Income Based – DCF The income approach is used to estimate fair value based on the income streams, such as cash flows or earnings, that an asset or business can be expected to generate. At each measurement date, investments held at fair value (that are not publicly traded) as well as the fair value of preferred share liabilities, including embedded conversion rights that are not bifurcated, were determined using the following allocation methods: option pricing model (“OPM”), PWERM, or hybrid allocation framework. The methods are detailed as follows: Allocation Method Description OPM The OPM model treats preferred stock as call options on the enterprise’s equity value, with exercise prices based on the liquidation preferences of the preferred stock. PWERM Under a PWERM, share value is based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to the enterprise, as well as the rights of each share class. Hybrid The hybrid method is a combination of the PWERM and OPM. Under the hybrid method, multiple liquidity scenarios are weighted based on the probability of the scenario's occurrence, similar to the PWERM, while also utilizing the OPM to estimate the allocation of value in one or more of the scenarios. Valuation policies and procedures are regularly monitored by the Group. Fair value measurements, including those categorized within Level 3, are prepared and reviewed for reasonableness and compliance with the fair value measurements guidance under IFRS accounting standards. The Group measures fair value using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Fair Value Hierarchy Level Description Level 1 Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. Level 2 Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instruments' valuation. Whilst the Group considers the methodologies and assumptions adopted in fair value measurements as supportable and reasonable, because of the inherent uncertainty of valuation, those estimated values may differ significantly from the values that would have been used had a ready market for the investment existed. Notes to the Consolidated Financial Statements continued
166 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Subsidiary Preferred Shares Liability and Subsidiary Convertible Notes The following table summarizes the changes in the Group’s subsidiary preferred shares and convertible notes liabilities measured at fair value, which were categorized as Level 3 in the fair value hierarchy: Subsidiary Preferred Shares $ Subsidiary Convertible Notes $ Balance at January 1, 2021 118,972 25,000 Value at issuance 37,610 2,215 Conversion to subsidiary preferred shares 25,797 (25,797) Accrued interest – contractual — 867 Change in fair value (8,362) 175 Balance at December 31, 2021 and January 1, 2022 174,017 2,461 Value at issuance — 393 Accrued interest – contractual — 48 Deconsolidation – Sonde (15,853) (3,403) Change in fair value (130,825) 502 Balance at December 31, 2022 and January 1, 2023 27,339 — Change in fair value (2,617) — Deconsolidation – Vedanta (24,554) — Balance at December 31, 2023 169 — The change in fair value of preferred shares and convertible notes liabilities are recorded in finance income/(costs) – fair value accounting in the Consolidated Statement of Comprehensive Income/(Loss). Investments Held at Fair Value Karuna, Vor and Akili Valuation Karuna (Nasdaq: KRTX), Vor (Nasdaq: VOR), Akili (Nasdaq: AKLI) and additional immaterial investments are listed entities on an active exchange, and as such, the fair value as of December 31, 2023, was calculated utilizing the quoted common share price which is categorized as Level 1 in the fair value hierarchy. Vedanta and Sonde As of December 31, 2023, the Group accounts for the following investments under IFRS 9 as investments held at fair value with changes in fair value through the profit and loss: Sonde preferred A-2 and B shares and Vedanta convertible preferred shares (subsequent to the date of deconsolidation). The valuation of the aforementioned investments is categorized as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs to value such assets. During the year ended December 31, 2023, the Group recorded such investments at fair value and recognized a loss of $7,298 for the change in fair value of the investments. In addition, the Group determined that the fair value of its investment in the Gelesis 2023 Warrants was $0 as Gelesis ceased operations in October 2023. The following table summarizes the changes in all the Group’s investments held at fair value, which were categorized as Level 3 in the fair value hierarchy: $ Balance at January 1, 2021 206,892 Cash purchase of Vor preferred shares 500 Reclassification of Vor from level 3 to level 1 (33,365) Gain/(loss) on change in fair value 65,505 Balance at December 31, 2021 239,533 Deconsolidation of Sonde 11,168 Gelesis Earn-out Shares received in the SPAC exchange 14,214 Exchange of Gelesis preferred shares to Gelesis common shares (92,303) Reclassification of Akili to level 1 investment (128,764) Gain/(loss) on change in fair value (31,253) Balance at December 31, 2022 12,593 Deconsolidation of Vedanta - new investment in Vedanta preferred shares 20,456 Investment in Gelesis 2023 Warrants 1,121 Gain/(loss) on changes in fair value (9,299) Balance as of December 31, 2023 24,872 18. Financial Instruments continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 167 Financial statem ents The change in fair value of investments held at fair value is recorded in gain/(loss) on investments held at fair value in the Consolidated Statement of Comprehensive Income/(Loss). At December 31, 2023, the Group’s material investments held at fair value categorized as Level 3 in the fair value hierarchy include the preferred shares of Sonde and Vedanta, with fair value of $10,408 and $14,153, respectively. The significant unobservable inputs used at December 31, 2023 in the fair value measurement of these investments and the sensitivity of the fair value measurements for these investments to changes to these significant unobservable inputs are summarized in the table below. As of December 31, 2023 Investment (Sonde) Measured through Market Backsolve & OPM Unobservable Inputs Input Value Sensitivity Range Investment Fair Value Increase/(Decrease) $ Equity Value 53,242 -5% (464) +5% 463 Time to Liquidity 2.00 -6 Months 39 + 6 Months (42) Volatility 60% -10% 19 +10% (35) As of December 31, 2023 Investment (Vedanta) Measured through Market Backsolve that Leverages a Monte Carlo Simulation Unobservable Inputs Input Value Sensitivity Range Investment Fair Value Increase/(Decrease) $ Equity Value 127,883 -5% (1,416) +5% 1,069 Time to Liquidity 1.23 - 6 Months (3,907) + 6 Months 1,261 Volatility 120% -10% (954) +10% 474 Investments in Notes from Associates As of December 31, 2022, the investment in notes from associates was $16,501 and represents investments the Group made in convertible promissory notes of Gelesis. During the year ended December 31, 2023, the Group invested $10,729 in convertible promissory notes of Gelesis and $5,000 in a convertible note of Vedanta. The Group recorded a loss of $27,630 for the change in fair value of the notes from associates in the gain/(loss) on investments in notes from associates within the Consolidated Statement of Comprehensive Income/Loss. The loss was driven by a reduction in the fair value of the Gelesis convertible promissory notes of $27,230 as Gelesis filed for bankruptcy in October 2023 and a change in the fair value of the Vedanata convertible note of $400. The convertible debt issued by Vedanta was valued using a market backsolve approach that leverages a Monte Carlo simulation. The significant unobservable inputs categorized as Level 3 in the fair value hierarchy used at December 31, 2023, in the fair value measurement of the convertible debt are the same as the inputs disclosed above for Vedanta preferred shares. 18. Financial Instruments continued Notes to the Consolidated Financial Statements continued
168 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Fair Value Measurement and Classification The fair value of financial instruments by category as of December 31, 2023 and 2022: 2023 Carrying Amount Fair Value Financial Assets $ Financial Liabilities $ Level 1 $ Level 2 $ Level 3 $ Total $ Financial assets3: Money Markets1,2 156,705 — 156,705 — — 156,705 Investment in notes from associates 4,600 — — — 4,600 4,600 Investments held at fair value 317,841 — 292,970 — 24,872 317,841 Total financial assets 479,146 — 449,675 — 29,472 479,146 Financial liabilities: Subsidiary preferred shares — 169 — — 169 169 Share-based liability awards — 4,782 — — 4,782 4,782 Total financial liabilities — 4,951 — — 4,951 4,951 1 Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade. 2 Included within cash and cash equivalents. 3 Excluded from the table above are short-term investments of $136,062 that are classified at amortized cost as of December 31, 2023. The cost of these short-term investments approximates current fair value. The Group has a number of financial instruments that are not measured at fair value in the Consolidated Statement of Financial Position. For these instruments the fair values are not materially different from their carrying amounts. 2022 Carrying Amount Fair Value Financial Assets $ Financial Liabilities $ Level 1 $ Level 2 $ Level 3 $ Total $ Financial assets: Money Markets1,2 95,249 — 95,249 — — 95,249 Short-term investments1 200,229 — 200,229 — — 200,229 Note from associate 16,501 — — — 16,501 16,501 Investments held at fair value 251,892 — 239,299 — 12,593 251,892 Trade and other receivables3 11,867 — — 11,867 — 11,867 Total financial assets 575,738 — 534,777 11,867 29,094 575,738 Financial liabilities: Subsidiary warrant liability — 47 — — 47 47 Subsidiary preferred shares — 27,339 — — 27,339 27,339 Subsidiary notes payable — 2,345 — 2,097 248 2,345 Share-based liability awards — 5,932 4,396 — 1,537 5,932 Total financial liabilities — 35,664 4,396 2,097 29,171 35,664 1 Issued by a diverse group of corporations, largely consisting of financial institutions, virtually all of which are investment grade. 2 Included within cash and cash equivalents. 3 Outstanding receivables are owed primarily by government agencies and large corporations, virtually all of which are investment grade. 18. Financial Instruments continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 169 Financial statem ents 19. Subsidiary Notes Payable The subsidiary notes payable are comprised of loans and convertible notes. As of December 31, 2023 and December 31, 2022, the loan in Follica and the convertible notes for Knode and Appeering did not contain embedded derivatives and therefore these instruments continue to be held at amortized cost. The notes payable consist of the following: 2023 $ 2022 $As of December 31, Loans 3,439 2,097 Convertible notes 260 248 Total subsidiary notes payable 3,699 2,345 Loans In October 2010, Follica entered into a loan and security agreement with Lighthouse Capital Partners VI, L.P. The loan is secured by Follica’s assets, including Follica’s intellectual property and bears interest at a rate of 5.0 percent in the interest only period and 12.0 percent in the repayment period. Convertible Notes Convertible Notes outstanding were as follows: Knode $ Appeering $ Sonde $ Total $ January 1, 2022 94 141 2,461 2,696 Gross principal – issuance of notes – financing activity — — 393 393 Accrued interest on convertible notes – finance costs 5 8 48 60 Change in fair value – finance costs — — 502 502 Deconsolidation — — (3,403) (3,403) December 31, 2022 and January 1, 2023 99 149 — 248 Accrued interest on convertible notes – finance costs 5 8 — 13 December 31, 2023 104 156 — 260 On April 6, 2021, and on November 24, 2021, Sonde issued unsecured convertible promissory notes to its existing shareholders for a combined total of $4,329, of which $2,215 were issued to third-party shareholders (and $2,113 were issued to the Group and eliminated in consolidation). In addition, in March 2022, Sonde issued an additional amount of $921, of which $393 were issued to third parties (and $528 issued to the Group and eliminated in consolidation). The notes bore interest at an annual rate of 6.0 percent and were to mature on the second anniversary of the issuance. The notes were to mandatorily convert in a Qualified Financing, as defined in the note purchase agreement, at a discount of 20.0 percent from the price per share in the Qualified Financing. In addition, the notes allowed for optional conversion concurrently with a discount of 20.0 percent from the price per share in the Non Qualified Equity Financing. Upon the completion of the Preferred B round of financing in Sonde on May 25, 2022, the Group lost control in Sonde and all convertible notes were derecognized as part of the deconsolidation – See Note 5. Investments Held at Fair Value. For Sonde convertible notes, since these notes contained embedded derivatives, the notes were assessed under IFRS 9 and the entire financial instruments were elected to be accounted for as FVTPL. The Sonde notes were deconsolidated in May 2022 as described above. Notes to the Consolidated Financial Statements continued
170 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 20. Non-Controlling Interest As of December 31, 2023, non-controlling interests include Entrega and Follica. Ownership interests of the non-controlling interests in these entities as of December 31, 2023 were 11.7 percent, and 19.9 percent, respectively. As of December 31, 2022, non-controlling interests include Entrega, Follica, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent , 19.9 percent, and 12.2 percent, respectively. As of December 31, 2021, non-controlling interests include Entrega, Follica, Sonde, and Vedanta. Ownership interests of the non-controlling interests in these entities were 11.7 percent, 19.9 percent, 6.2 percent and 3.7 percent, respectively. During the year ended December 31, 2023, Vedanta Biosciences, Inc was deconsolidated. During the year ended December 31, 2022, Sonde Health, Inc was deconsolidated. See Note 5. Investments Held at Fair Value. Non-controlling interests include the amounts recorded for subsidiary stock options. On June 11, 2021, the Group acquired the remaining 17.1 percent of the minority non-controlling interests of Alivio (after exercise of all in the money stock options) increasing its ownership to 100.0 percent of Alivio. The consideration for such non-controlling interests amounted to $1,224, to be paid in three equal installments, with the first installment of $408 paid at the effective date of the transaction and two additional installments to be paid upon the occurrence of certain contingent events. The Group recorded a contingent consideration liability of $560 at fair value for the two additional installments, resulting in a total acquisition cost of $968. The excess of the consideration paid over the book value of the non-controlling interest of approximately $9,636 was recorded directly as a charge to shareholders’ equity. The second installment of $408 was paid in July 2021, upon the occurrence of the contingent event specified in the agreement. The contingent consideration liability was adjusted to fair value at the end of each reporting period with changes in fair value recorded in earnings. Changes in fair value of the aforementioned contingent consideration liability were not material. As of December 31, 2022, the remaining contingent liability was reduced to zero as the second contingent event did not occur. On December 1, 2021, option holders in Entrega exercised options into shares of common stock, increasing the NCI interest held from 0.2 percent to 11.7 percent. During 2021, option holders in Vedanta exercised options and increased the NCI interest to 3.7 percent. The exercise of the options resulted in an increase in the NCI share in Entrega and Vedanta shareholder's deficit of $5,887. The amount together with the consideration paid by NCI ($101) amounted to $5,988 and was recorded as a gain directly in shareholders' equity. On February 15, 2022, option holders in Vedanta exercised options into shares of common stock, increasing the NCI interest held from 3.7 percent to 12.2 percent. The exercise of the options resulted in an increase in the NCI share in Vedanta shareholder's deficit of $15,171. The amount together with the consideration paid by NCI ($7) amounted to $15,171 and was recorded as a gain directly in shareholders' equity. 21. Trade and Other Payables Information regarding Trade and other payables was as follows: As of December 31, 2023 $ 2022 $ Trade payables 14,637 26,504 Accrued expenses 28,187 24,518 Income tax payable — 57 Liability for share-based awards 1,281 1,805 Other 3 1,957 Total trade and other payables 44,107 54,840 Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 171 Financial statem ents 22. Long-term loan In September 2020, Vedanta entered into a $15,000 loan and security agreement with Oxford Finance LLC. The loan is secured by Vedanta's assets, including equipment, inventory and intellectual property. The loan bears a floating interest rate of 7.7 percent plus the greater of (i) 30 day U.S. Dollar LIBOR reported in the Wall Street Journal or (ii) 0.17 percent. The loan matures September 2025 and requires interest-only payments prior to 2023. The loan also carries a final fee upon full repayment of 7.0 percent of the original principal, or $1,050. As part of the loan agreement, Vedanta also issued Oxford Finance LLC 12,886 Series C-2 preferred share warrants with an exercise price of $23.28 per share, expiring September 2030. The outstanding loan balance totaled approximately $15,400 as of December 31, 2022. On March 1, 2023, the Group derecognized the loan in connection with Vedanta's deconsolidation. Refer to Note 5. Investments Held at Fair Value. The following table summarizes long-term loan activity for the years ended December 31, 2023 and 2022: Long-term loan 2023 $ 2022 $ Balance at January 1, 15,400 15,118 Accrued interest 363 1,755 Interest paid (300) (1,436) Other (17) (38) Deconsolidation of subsidiary (15,446) — Balance at December 31, — 15,400 The long-term loan is presented as follows in the Statement of Financial Position as of December 31, 2023 and 2022: Long-term loan 2023 $ 2022 $ Current portion of long-term loan — 5,156 Long-term loan — 10,244 Total Long-term loan — 15,400 23. Leases and subleases The activity related to the Group’s right of use asset and lease liability for the years ended December 31, 2023 and 2022 is as follows: Right of use asset, net 2023 $ 2022 $ Balance at January 1, 14,281 17,166 Additions — 163 Depreciation (1,979) (3,047) Deconsolidated (2,477) — Balance at December 31, 9,825 14,281 Total lease liability 2023 $ 2022 $ Balance at January 1, 29,128 32,990 Additions — 163 Cash paid for rent – principal – financing cash flow (3,338) (4,025) Cash paid for rent – interest (1,544) (1,982) Interest expense 1,544 1,982 Deconsolidated (4,146) — Balance at December 31, 21,644 29,128 Depreciation of the right-of-use assets, which virtually all consist of leased real estate, is included in the general and administrative expenses and research and development expenses line items in the Statement of Comprehensive Income/(Loss). The Group recorded depreciation expense of $1,979, $3,047 and $2,938 for the years ended December 31, 2023, 2022 and 2021, respectively. Notes to the Consolidated Financial Statements continued
172 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts The following table details the short-term and long-term portion of the lease liability as of December 31, 2023 and 2022: Total lease liability 2023 $ 2022 $ Short-term portion of lease liability 3,394 4,972 Long-term portion of lease liability 18,250 24,155 Total lease liability 21,644 29,128 The following table details the future maturities of the lease liability, showing the undiscounted lease payments to be paid after the reporting date: 2023 $ Less than one year 4,689 One to two years 4,644 Two to three years 4,419 Three to four years 4,551 Four to five years 4,687 More than five years 2,796 Total undiscounted lease maturities 25,785 Interest 4,141 Total lease liability 21,644 During the year ended December 31, 2019, the Group entered into a lease agreement for certain premises consisting of 50,858 rentable square feet of space located at 6 Tide Street, Boston, Massachusetts. The lease commenced on April 26, 2019 for an initial term consisting of ten years and three months, and there is an option to extend the lease for two consecutive periods of five years each. The Group assessed at the lease commencement date whether it was reasonably certain to exercise the extension options, and deemed such options were not reasonably certain to be exercised. The Group will reassess whether it is reasonably certain to exercise the options only if there is a significant event or significant change in circumstances within its control. On June 26, 2019, the Group executed a sublease agreement with Gelesis. The lease is for 9,446 rentable square feet located on the sixth floor of the Group’s former office at 501 Boylston Street, Boston, Massachusetts. The sublease was set to expire on August 31, 2025, and was determined to be a finance lease. Gelesis ceased operations and filed for bankruptcy on October 30, 2023. As a result, the Group wrote off its receivable in the lease of $1,266 in 2023. On January 23, 2023, the Group executed a sublease agreement with Allonnia, LLC (“Allonnia”). The sublease is for approximately 11,000 rentable square feet located on the third floor of the 6 Tide Street building where the Group’s offices are currently located. Allonnia obtained possession of the premises on February 17, 2023 with a rent commencement date of May 17, 2023. The lease term is two years from the rent commencement date, and Allonnia has the option to extend the sublease for an additional year at the same terms. The annual lease fee is $1,111 per year. The sublease was determined to be an operating lease, and as such, the total lease payments under the sublease agreement are recognized over the lease term on a straight-line basis. In February 2024, Allonnia exercised the option and extended the lease term through May 31, 2026. Rental income recognized by the Group during the year ended December 31, 2023 was $781 which was included in the other income/(expense) line item in the Consolidated Statement of Comprehensive Income/(Loss). In the year ended December 31, 2022, the Group did not recognize any rental income. Notes to the Consolidated Financial Statements continued 23. Leases and subleases continued
PureTech Health plc Annual report and accounts 2023 173 Financial statem ents 24. Capital and Financial Risk Management Capital Risk Management The Group's capital and financial risk management policy is to maintain a strong capital base to support its strategic priorities, maintain investor, creditor and market confidence as well as sustain the future development of the business. The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. To maintain or adjust the capital structure, the Group may issue new shares or incur new debt. The Group has no material externally imposed capital requirements. The Group’s share capital is set out in Note 15. Equity. Management continuously monitors the level of capital deployed and available for deployment in the Wholly-Owned Programs segment and at Founded Entities. The Directors seek to maintain a balance between the higher returns that might be possible with higher levels of deployed capital and the advantages and security afforded by a sound capital position. The Group’s Directors have overall responsibility for the establishment and oversight of the Group's capital and risk management framework. The Group is exposed to certain risks through its normal course of operations. The Group’s main objective in using financial instruments is to promote the development and commercialization of intellectual property through the raising and investing of funds for this purpose. The nature, amount and timing of investments are determined by planned future investment activity. Due to the nature of activities and with the aim to maintain the investors’ funds as secure and protected, the Group’s policy is to hold any excess funds in highly liquid and readily available financial instruments and maintain minimal exposure to other financial risks. The Group has exposure to the following risks arising from financial instruments: Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash and cash equivalents, short-term investments, and trade and other receivables. The Group held the following balances (not including the income tax receivable resulting from overpayment of income taxes as of December 31, 2022. See Note 27. Taxation): 2023 $ 2022 $As of December 31 Cash and cash equivalents 191,081 149,866 Short-term investments 136,062 200,229 Trade and other receivables 2,376 11,867 Total 329,518 361,961 The Group invests its excess cash in U.S. Treasury Bills (presented as short-term investments), and money market accounts, which the Group believes are of high credit quality. Further, the Group's cash and cash equivalents and short-term investments are held at diverse, investment-grade financial institutions. The Group assesses the credit quality of customers on an ongoing basis. The credit quality of financial assets is assessed by historical and recent payment history, counterparty financial position, and reference to credit ratings (if available) or to historical information about counterparty default rates. The Group does not have expected credit losses due to the high credit quality or healthy financial conditions of these counterparties. As of December 31, 2023 and 2022, none of the trade and other receivables were impaired. Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group actively manages its liquidity risk by closely monitoring the maturity of its financial assets and liabilities and projected cash flows from operations, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. Due to the nature of these financial liabilities, the funds are available on demand to provide optimal financial flexibility. The table below summarizes the maturity profile of the Group’s financial liabilities, including subsidiary preferred shares that have customary liquidation preferences, as of December 31, 2023 and 2022, based on contractual undiscounted payments: As of December 31 2023 Carrying Amount $ Within Three Months $ Three to Twelve Months $ One to Five Years $ Total $ (*) Subsidiary notes payable 3,699 3,699 — — 3,699 Trade and other payables 44,107 44,107 — — 44,107 Subsidiary preferred shares (Note 16)1 169 169 — — 169 Total 47,975 47,975 — — 47,975 Notes to the Consolidated Financial Statements continued
174 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts As of December 31 2022 Carrying Amount $ Within Three Months $ Three to Twelve Months $ One to Five Years $ Total $ (*) Long-term loan 15,400 1,838 5,281 11,413 18,531 Subsidiary notes payable 2,345 2,345 — — 2,345 Trade and other payables 54,840 54,840 — — 54,840 Warrants2 47 47 — — 47 Subsidiary preferred shares (Note 16)1 27,339 27,339 — — 27,339 Total 99,971 86,409 5,281 11,413 103,103 1 Redeemable only upon a liquidation or deemed liquidation event, as defined in the applicable shareholder documents. 2 Warrants issued by subsidiaries to third parties to purchase preferred shares. * Does not include payments in respect of lease obligations. For the contractual future payments related to lease obligations, see Note 23. Leases and subleases. Interest Rate Sensitivity As of December 31, 2023, the Group had cash and cash equivalents of $191,081, and short-term investments of $136,062. The Group's exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. The Group has not entered into investments for trading or speculative purposes. Due to the conservative nature of the Group's investment portfolio, which is predicated on capital preservation and investments in short duration, high-quality U.S. Treasury Bills and related money market accounts, a change in interest rates would not have a material effect on the fair market value of the Group's portfolio, and therefore, the Group does not expect operating results or cash flows to be significantly affected by changes in market interest rates. Controlled Founded Entity Investments The Group maintains investments in certain Controlled Founded Entities. The Group’s investments in Controlled Founded Entities are eliminated as intercompany transactions upon financial consolidation. The Group is, however, exposed to a preferred share liability owing to the terms of existing preferred shares and the ownership of Controlled Founded Entities preferred shares by third parties. As discussed in Note 16. Subsidiary Preferred Shares, certain of the Group’s subsidiaries have issued preferred shares that include the right to receive a payment in the event of any voluntary or involuntary liquidation, dissolution or winding up of a subsidiary, including in the event of "deemed liquidation" as defined in the incorporation documents of the entities, which shall be paid out of the assets of the subsidiary available for distribution to shareholders, and before any payment shall be made to holders of ordinary shares. The liability of preferred shares is maintained at fair value through the profit and loss. The Group’s cash position supports the business activities of the Controlled Founded Entities. Accordingly, the Group views exposure to the third party preferred share liability as low. Deconsolidated Founded Entity Investments The Group maintains certain debt or equity holdings in Founded Entities that are deconsolidated. These holdings are deemed either as investments and accounted for as investments held at fair value, or as associates and accounted for under the equity method. The Group's exposure to investments held at fair value is $317,841 as of December 31, 2023, and the Group may or may not be able to realize the value in the future. Accordingly, the Group views the risk as high. The Group’s exposure to investments in associates is limited to the carrying amount of the investment in an associate. The Group is not exposed to further contractual obligations or contingent liabilities beyond the value of the initial investments. Accordingly, the Group does not view this as a high risk. As of December 31, 2023, Sonde is the only associate, and the carrying amount of the investment as associate is $3,185. Equity Price Risk As of December 31, 2023, the Group held 886,885 common shares of Karuna, 2,671,800 common shares of Vor and 12,527,477 common shares of Akili. The fair value of these investments in Karuna, Vor and Akili was $292,831, of which approximately 96% is related to the Karuna common shares. The investments in Karuna, Vor and Akili are exposed to fluctuations in the market price of these common shares. The effect of a 10.0 percent adverse change in the market price of Karuna, Vor and Akili common shares would cause a loss of approximately $29,283 to be recognized as a component of other income (expense) in the Consolidated Statement of Comprehensive Income/ (Loss). However, the Group views exposure to equity price risk as low due to the definitive merger agreement Karuna entered into with Bristol Myers Squibb "BMS") in December 2023 under which Karuna common shares were acquired by Bristol Myers Squibb for $330 per share in March 2024. Foreign Exchange Risk The Group maintains consolidated financial statements in the Group's functional currency, which is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at exchange rates prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income (loss) for the respective periods. Such foreign currency gains or losses were not material for all reported periods. The Group does not currently engage in currency hedging activities since its foreign currency risk is limited, but the Group may begin to do so in the future if and when its foreign currency risk exposure changes. Notes to the Consolidated Financial Statements continued 24. Capital and Financial Risk Management continued
PureTech Health plc Annual report and accounts 2023 175 Financial statem ents 25. Commitments and Contingencies The Group is a party to certain licensing agreements where the Group is licensing IP from third parties. In consideration for such licenses, the Group has made upfront payments and may be required to make additional contingent payments based on developmental and sales milestones and/or royalty on future sales. As of December 31, 2023, certain milestone events have not yet occurred, and therefore, the Group does not have a present obligation to make the related payments in respect of the licenses. Such milestones are dependent on events that are outside of the control of the Group, and many of these milestone events are remote of occurring. As of December 31, 2023 and December 31, 2022, payments in respect of developmental milestones that are dependent on events that are outside the control of the Group but are reasonably possible to occur amounted to approximately $7,371 and $8,666, respectively. These milestone amounts represent an aggregate of multiple milestone payments depending on different milestone events in multiple agreements. The probability that all such milestone events will occur in the aggregate is remote. Payments made to license IP represent the acquisition cost of intangible assets. The Group was a party to certain sponsored research arrangements and is a party to arrangements with contract manufacturing and contract research organizations, whereby the counterparty provides the Group with research and/or manufacturing services. As of December 31, 2023 and 2022, the noncancellable commitments in respect of such contracts amounted to approximately $16,422 and $11,288, respectively. In March 2024, a complaint was filed in Massachusetts District Court against the Group alleging breach of contract with respect to certain payments alleged to be owed to a previous employee of a Group subsidiary based on purported terms of a contract between such individual and the Group. The Group intends to defend itself vigorously though the ultimate outcome of this matter and the timing for resolution remains uncertain. No determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable. The Group is involved from time-to-time in various legal proceedings arising in the normal course of business. Although the outcomes of these legal proceedings are inherently difficult to predict, the Group does not expect the resolution of such legal proceedings to have a material adverse effect on its financial position or results of operations. The Group did not book any provisions and did not identify any contingent liabilities requiring disclosure for any legal proceedings other than already included above for the years ended December 31, 2023 and 2022. 26. Related Parties Transactions Related Party Subleases and Royalties During 2019, the Group executed a sublease agreement with a related party, Gelesis. As of December 31, 2022, the sublease receivable amounted to $1,285. During 2023, the sublease receivable was written down to $0 as Gelesis ceased operations and filed for bankruptcy. The Group recorded $23, $89 and $113 of interest income with respect to the sublease during the years ended December 31, 2023, 2022, and 2021, respectively, which is presented within finance income in the Consolidated Statement of Comprehensive Income/(Loss). The Group received royalties from Gelesis on its product sales. The Group recorded zero, $509, and $231 of royalty revenue during the years ended December 31, 2023, 2022, 2021, respectively, which is presented in contract revenue in the Consolidated Statement of Comprehensive Income/(Loss). Key Management Personnel Compensation Key management includes executive directors and members of the executive management team of the Group (not including non- executive directors). The key management personnel compensation of the Group was as follows for the years ended December 31: 2023 $ 2022 $ 2021 $As of December 31 Short-term employee benefits 9,714 4,162 4,612 Post-employment benefits 41 55 54 Termination Benefits 417 152 — Share-based payment expense 599 2,741 4,045 Total 10,772 7,109 8,711 Short-term employee benefits include salaries, health care and other non-cash benefits. Post-employment benefits include 401K contributions from the Group. Termination benefits include severance pay. Share-based payments are generally subject to vesting terms over future periods. See Note 9. Share-based Payments. As of 12/31/2023, the payable due to the key management employees was $4,732. In addition the Group paid remuneration to non-executive directors in the amounts of $475, $655 and $605 for the years ended December 31, 2023, 2022 and 2021, respectively. Also, the Group incurred $373, $365, and $161 of stock based compensation expense for such non-executive directors for the years ended December 31, 2023, 2022, and 2021, respectively. During the years ended December 31, 2023 and 2022, the Group incurred $46, and $51, respectively, of expenses paid to related parties. Notes to the Consolidated Financial Statements continued
176 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Convertible Notes Issued to Directors Certain related parties of the Group have invested in convertible notes issued by the Group’s subsidiaries. As of December 31, 2023 and December 31, 2022, the outstanding related party notes payable totaled $104 and $99, respectively, including principal and interest. The notes issued to related parties bear interest rates, maturity dates, discounts and other contractual terms that are the same as those issued to outside investors during the same issuances. Directors’ and Senior Managers’ Shareholdings and Share Incentive Awards The Directors and senior managers hold beneficial interests in shares in the following businesses and sourcing companies as of December 31, 2023: Business name (share class) Number of shares held as of December 31, 2023 Number of options held as of December 31, 2023 Number of RSUs held as of December 31, 2023 Ownership interest¹ Directors: Dr Robert Langer Entrega (Common) 250,000 82,500 — 4.09% Dr Raju Kucherlapati Enlight (Class B Common) — 30,000 — 3.00% Dr John LaMattina2 Akili (Common) 56,554 — — 0.07% Vedanta Biosciences (Common) 25,000 15,000 — 0.24% Senior Managers: Dr Bharatt Chowrira Karuna (Common) 5,000 — — 0.01% 1 Ownership interests as of December 31, 2023 are calculated on a diluted basis, including issued and outstanding shares, warrants and options (and written commitments to issue options) but excluding unallocated shares authorized to be issued pursuant to equity incentive plans and any shares issuable upon conversion of outstanding convertible promissory notes. 2 Dr John LaMattina holds convertible notes issued by Appeering in the aggregate principal amount of $50,000. Directors and senior managers hold 23,547,554 ordinary shares and 11.5 percent voting rights of the Group as of December 31, 2023. This amount excludes options to purchase 2,262,500 ordinary shares. This amount also excludes 7,301,547 shares, which are issuable based on the terms of performance based RSU awards granted to certain senior managers covering the financial years 2023, 2022 and 2021, and 102,732 shares, which are issuable to directors immediately prior to the Group's 2024 Annual General Meeting of Stockholders, based on the terms of the RSU awards granted to non-executive directors in 2023. Such shares will be issued to such senior managers and non-executive directors in future periods provided that performance and/or service conditions are met, and certain of the shares will be withheld for payment of customary withholding taxes. Other See Note 7. Investment in Notes from Associates for details on the notes issued by Gelesis and Vedanta to the Group. As of December 31, 2023, the Group has a receivable from Sonde and Vedanta in the amount of $1,569. See Note 6. Investments in Associates for details on the execution and termination of Merger Agreement with Gelesis. 27. Taxation Tax on the profit or loss for the year comprises current and deferred income tax. Tax is recognized in the Consolidated Statement of Comprehensive Income/(Loss) except to the extent that it relates to items recognized directly in equity. For the years ended December 31, 2023, 2022 and 2021, the Group filed a consolidated U.S. federal income tax return which included all subsidiaries in which the Group owned greater than 80 percent of the vote and value. For the years ended December 31, 2023, 2022 and 2021, the Group filed certain consolidated state income tax returns which included all subsidiaries in which the Group owned greater than 50 percent of the vote and value. The remaining subsidiaries file separate U.S. tax returns. Amounts recognized in Consolidated Statement of Comprehensive Income/(Loss): 2023 $ 2022 $ 2021 $For the year ended December 31 Income/(loss) for the year (66,628) (37,065) (62,709) Income tax expense/(benefit) 30,525 (55,719) 3,756 Income/(loss) before taxes (36,103) (92,783) (58,953) Recognized Income Tax Expense/(Benefit): 2023 $ 2022 $ 2021 $For the year ended December 31 Federal – current (2,246) 13,065 22,138 State – current (46) 1,336 109 Total current income tax expense/(benefit) (2,292) 14,401 22,247 Federal – deferred 29,294 (48,240) (15,416) State – deferred 3,523 (21,880) (3,075) Total deferred income tax expense/(benefit) 32,817 (70,120) (18,491) Total income tax expense/(benefit), recognized 30,525 (55,719) 3,756 Notes to the Consolidated Financial Statements continued 26. Related Parties Transactions continued
PureTech Health plc Annual report and accounts 2023 177 Financial statem ents The income tax expense/(benefit) was $30,525, $(55,719) and $3,756 in 2023, 2022 and 2021 respectively. The increase in tax expense for the year ended December 31, 2023 was primarily attributable to a lower pre-tax loss in the tax consolidated U.S. group, the tax in respect of the sale of future royalties to Royalty Pharma and the tax impact of derecognizing previously recognized deferred tax assets that are no longer expected to be utilized. Reconciliation of Effective Tax Rate The Group is primarily subject to taxation in the U.S. A reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows: 2023 2022 2021 For the year ended December 31 $ % $ % $ % US federal statutory rate (7,573) 21.00 (19,486) 21.00 (12,380) 21.00 State taxes, net of federal effect (3,974) 11.01 (8,043) 8.67 (4,484) 7.61 Tax credits (9,167) 25.39 (6,876) 7.41 (5,056) 8.58 Stock-based compensation 589 (1.63) 788 (0.85) 555 (0.94) Finance income/(costs) – fair value accounting (556) 1.54 (28,783) 31.02 (2,017) 3.42 Loss with respect to associate for which no deferred tax asset is recognized 249 (0.69) 1,413 (1.52) 11,542 (19.58) Revaluation of deferred due to rate change — 0.00 (8,856) 9.54 — — Nondeductible compensation 872 (2.42) 300 (0.32) 746 (1.27) Recognition of deferred tax assets and tax benefits not previously recognized (433) 1.20 (184) 0.20 (414) 0.70 Unrecognized deferred tax asset 83,984 (232.63) 17,287 (18.63) 14,375 (24.38) Deconsolidation of subsidiary (17,506) 48.49 (3,572) 3.85 — — Other 1,321 (3.65) 293 (0.32) 889 (1.51) Worthless stock deduction (17,281) 47.87 — — — — 30,525 (84.52) (55,719) 60.05 3,756 (6.37) The Group is also subject to taxation in the UK, but to date, no taxable income has been generated in the UK. Changes in corporate tax rates can change both the current tax expense (benefit) as well as the deferred tax expense (benefit). Deferred Tax Assets and Liabilities Deferred tax assets have been recognized in the U.S. jurisdiction in respect of the following items: 2023 $ 2022 $For the year ended December 31 Operating tax losses 3,849 48,317 Tax credits 2,425 11,101 Share-based payments 5,210 8,423 Capitalized research & development expenditures 39,422 36,084 Investment in Associates — 13,036 Lease liability 5,133 7,143 Sale of future royalties 35,920 — Other temporary differences 1,770 2,957 Deferred tax assets 93,729 127,061 Investments held at fair value (53,411) (47,877) Right of use assets (2,330) (3,519) Property and equipment, net (1,637) (2,348) Investment in Associates (755) — Deferred tax liabilities (58,133) (53,744) Deferred tax assets (liabilities), net 35,596 73,317 Deferred tax liabilities, net, recognized (52,462) (19,645) Deferred tax assets (liabilities), net, not recognized 88,058 92,962 The Group has recognized deferred tax assets due to future reversals of existing taxable temporary differences that will be sufficient to recover the deferred tax assets. Our unrecognized deferred tax assets of $88,058 are primarily related to tax credits, capitalized research & development expenditures and deferred tax asset related to the sale of future royalties to Royalty Pharma. The Group does not believe it is probable that future taxable profit will be available to support the realizability of these unrecognized deferred tax assets. 27. Taxation continued Notes to the Consolidated Financial Statements continued
178 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Unrecognized Deferred Tax Assets Deferred tax assets have not been recognized in respect of the following carryforward losses, credits and temporary differences, because it is not probable that future taxable profit will be available against which the Group can use the benefits therefrom. 2023 $ 2022 $ For the year ended December 31 Gross Amount Tax Effected Gross Amount Tax Effected Deductible temporary difference 353,323 83,741 132,145 33,544 Tax losses 13,681 3,849 219,466 48,317 Tax credits 468 468 11,101 11,101 Total 367,472 88,058 362,712 92,962 Tax Losses and Tax Credits Carryforwards Tax losses and tax credits for which no deferred tax asset was recognized are presented below: As of December 31 2023 $ 2022 $ Gross Amount Tax Effected Gross Amount Tax Effected Tax losses expiring: Within 10 years 4,741 1,284 23,930 5,387 More than 10 years 6,635 1,455 42,822 10,509 Available Indefinitely 2,305 1,110 152,714 32,421 Total 13,681 3,849 219,466 48,317 Tax credits expiring: Within 10 years 43 43 43 43 More than 10 years 425 425 11,058 11,058 Available indefinitely — — — — Total 468 468 11,101 11,101 The Group had U.S. federal net operating losses carry forwards (“NOLs”) of $13,681, $219,466 and $215,400 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire through 2037 with the exception of $2,305 which is not subject to expiration. The Group had U.S. federal research and development tax credits of approximately $1,396, $4,500 and $3,900 as of December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes that expire at various dates through 2043. The Group also had Federal Orphan Drug credits of approximately $930 and $6,100 as of December 31, 2023, and 2022, which are available to offset future taxes that expire at various dates through 2043. A portion of these federal NOLs and credits can only be used to offset the profits from the Group’s subsidiaries who file separate federal tax returns. These NOLs and credits are subject to review and possible adjustment by the Internal Revenue Service. The Group had state net operating losses carry forwards (“NOLs”) of approximately $111,446, $71,700 and $27,900 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxable income. These NOLs expire at various dates beginning in 2030. The Group had Massachusetts research and development tax credits of approximately $98, $600 and $1,300 for the years ended December 31, 2023, 2022 and 2021, respectively, which are available to offset future taxes and expire at various dates through 2038. These NOLs and credits are subject to review and possible adjustment by state taxing authority. Utilization of the NOLs and research and development credit carryforwards may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL and research and development credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively. The Group has performed a Section 382 analysis through December 31, 2023. The results of this analysis concluded that certain net operating losses were subject to limitation under Section 382 of the Internal Revenue Code. None of the Group’s net operating losses which are subject to a Section 382 limitation has been recognized in the financial statements. Tax Balances The tax related balances presented in the Statement of Financial Position are as follows: For the year ended December 31 2023 $ 2022 $ Income tax receivable – current 11,746 10,040 Trade and other payables — (57) Uncertain Tax Positions The Group has no uncertain tax positions as of December 31, 2023. U.S. corporations are routinely subject to audit by federal and state tax authorities in the normal course of business. 27. Taxation continued Notes to the Consolidated Financial Statements continued
PureTech Health plc Annual report and accounts 2023 179 Financial statem ents 28. Subsequent Events The Group has evaluated subsequent events after December 31, 2023, up to the date of issuance, April 25, 2024, of the Consolidated Financial Statements, and has not identified any recordable or disclosable events not otherwise reported in these Consolidated Financial Statements or notes thereto, except for the following: In January 2024, the Group launched two new Founded Entities (Seaport Therapeutics and Gallop Oncology) to advance certain programs from the Wholly-Owned Programs segment. Seaport Therapeutics ("Seaport") will advance certain central nervous system programs and relevant Glyph intellectual property. Gallop Oncology will advance LYT-200 and other galectin-9 intellectual property. The financial results of these programs were included in the Wholly-Owned Programs segment in the footnotes to the Consolidated Financial Statements, as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, 2022 and 2021, respectively. Upon raising dilutive third-party financing, the financial results of these two entities will be included in the Controlled Founded Entities segment to the extent that the Group maintains control over these entities. On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program (the "Program") of its ordinary shares of one pence each. In February 2024, the Group completed the Program and has repurchased an aggregate of 20,182,863 ordinary shares under the Program. These shares have been held as treasury shares and are being used to settle the vesting of restricted stock units or exercise of options. In March 2024, Karuna was acquired by Bristol Myers Squibb (“BMS”) in accordance with a definitive merger agreement signed in December 2023. As a result of this transaction, the Group received total proceeds of $292,672 before income tax in exchange for its holding of 886,885 shares of Karuna common stock. In March 2024, the Group announced a proposed capital return of $100,000 to its shareholders by way of a tender offer (the "Tender Offer"). The Tender Offer is expected to be launched in early May, subject to market conditions and shareholder approval. If the full $100,000 is not returned, then the Group intends to return any remainder following the completion of the Tender Offer, by way of a special dividend. In April 2024, Seaport Therapeutics, the Group's latest Founded Entity, raised $100,000 in a Series A financing, out of which $32,000 was invested by the Group. Following the Series A financing, the Group holds equity ownership in Seaport of 61.5 percent on a diluted basis. In April 2024, the Gelesis' Chapter 7 Trustee provided notice that a third party bid to purchase the assets subject to the bankruptcy had been accepted as a stalking horse bid, subject to Bankruptcy Court approval. If such sale of the assets is ultimately approved by the Bankruptcy Court and consummated, it is expected that PureTech could recover a portion of its investment in Gelesis senior secured convertible promissory notes. The ultimate resolution of this matter, any potential recovery, and the associated timing remain uncertain. The Group has not recorded any amount in its Consolidated Financial Statements related to amounts that may be received as a result of the bankruptcy process. Notes to the Consolidated Financial Statements continued
180 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts 2023 $000s 2022 $000sNote Assets Non-current assets Investment in subsidiary 2 456,864 452,374 Total non-current assets 456,864 452,374 Current assets Other receivables — 57 Cash and cash equivalents 20,425 38,503 Total current assets 20,425 38,560 Total assets 477,289 490,934 Equity and liabilities Equity Share capital 3 5,461 5,455 Share premium 3 290,262 289,624 Treasury stock (44,626) (26,492) Merger reserve 3 138,506 138,506 Other reserve 3 21,596 18,114 Retained earnings – (loss of $3,178 and income of $59,198 for 2023 and 2022, respectively) 3 41,997 45,175 Total equity 453,196 470,382 Current liabilities Trade and other payables 2,033 2,475 Intercompany payables 4 22,061 18,078 Total current liabilities 24,093 20,553 Total equity and liabilities 477,289 490,934 Please refer to the accompanying notes to the PureTech Health plc financial information ("Notes"). Registered number: 09582467. The PureTech Health plc financial statements were approved by the Board of Directors and authorized for issuance on April 25, 2024 and signed on its behalf by: Bharatt Chowrira Chief Executive Officer April 25, 2024 The accompanying Notes are an integral part of these financial statements. Parent Company Statement of Financial Position For the years ended December 31
PureTech Health plc Annual report and accounts 2023 181 Financial statem ents Parent Company Statement of Cash Flows For the years ended December 31 2023 $000s 2022 $000s Cash flows from operating activities Net income (loss) (3,178) 59,198 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Non-cash items: Changes in operating assets and liabilities: Other receivables 57 (57) Intercompany payable 5,135 5,236 Accounts payable and accrued expenses (442) 619 Net cash provided by (used in) operating activities 1,572 64,995 Cash flows from investing activities: Net cash provided by (used in) investing activities — — Cash flows from financing activities: Purchase of treasury stocks (19,650) (26,492) Net cash provided by (used in) financing activities (19,650) (26,492) Net increase (decrease) in cash and cash equivalents (18,078) 38,503 Cash and cash equivalents at beginning of year 38,503 — Cash and cash equivalents at end of year 20,425 38,503 Supplemental disclosure of non-cash investing and financing activities: Increase (decrease) in investment against share-based awards 4,489 10,384 Conversion of intercompany receivable (net of a portion of intercompany payable) into investment — 293,904 Exercise of share-based awards against intercompany receivable/payable 1,153 332 The accompanying notes are an integral part of these financial statements.
182 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts Share Capital Treasury Shares Shares Amount $000s Share Premium $000s Shares Amount $000s Merger Reserve $000s Other Reserve $000s Retained earnings/ (Accumulated deficit) $000s Total equity $000s Balance January 1, 2022 287,796,585 5,444 289,303 — — 138,506 7,730 (14,022) 426,961 Total comprehensive income (loss) for the year — — — — — — — — — Exercise of stock options 577,022 11 321 — — — — — 332 Equity-settled share- based payments — — — — — — 8,856 — 8,856 Settlement of restricted stock units 788,046 — — — — — 1,528 — 1,528 Purchase of treasury stock — — — (10,595,347) (26,492) — — — (26,492) Net Income (loss) — — — — — — — 59,198 59,198 Balance December 31, 2022 289,161,653 5,455 289,624 (10,595,347) (26,492) 138,506 18,114 45,175 470,382 Total comprehensive income (loss) for the year — — — — — — — — — Exercise of stock options 306,506 6 638 239,226 530 — (22) — 1,153 Equity-settled share- based payments — — — — — — 3,348 — 3,348 Settlement of restricted stock units — — — 425,219 986 — 156 — 1,142 Purchase of treasury stock — — — (7,683,526) (19,650) — — — (19,650) Net income (loss) — — — — — — — (3,178) (3,178) Balance December 31, 2023 289,468,159 5,461 290,262 (17,614,428) (44,626) 138,506 21,596 41,997 453,196 The accompanying Notes are an integral part of these financial statements. Parent Company Statement of Changes in Equity For the years ended December 31
PureTech Health plc Annual report and accounts 2023 183 Financial statem ents Notes to the Financial Statements (amounts in thousands, except share and per share data) 1. Accounting policies Basis of Preparation and Measurement The financial statements of PureTech Health plc (the “Parent”) are presented as of December 31, 2023 and 2022, and for the years ended December 31, 2023 and 2022, and have been prepared under the historical cost convention in accordance with international accounting standards in conformity with the requirements of UK-adopted International Financial Reporting Standards ("IFRSs"). The financial statements of PureTech Health plc also comply fully with IFRSs as issued by the International Accounting Standards Board (IASB). A summary of the significant accounting policies that have been applied consistently throughout the year are set out below. Certain amounts in the Parent Company Financial Statements and accompanying notes may not add due to rounding. All percentages have been calculated using unrounded amounts. Functional and Presentation Currency The functional currency of the Parent is United States ("U.S.”) Dollars and the financial statements are presented in U.S. Dollars. Investments Investments are stated at historical cost less any provision for impairment in value, and are held for long-term investment purposes. Provisions are based upon an assessment of events or changes in circumstances that indicate that an impairment has occurred, such as the performance and/or prospects (including the financial prospects) of the investee company being significantly below the expectations on which the investment was based, a significant adverse change in the markets in which the investee company operates, or a deterioration in general market conditions. Impairment If there is an indication that an asset might be impaired, the Parent would perform an impairment review. An asset is impaired if the recoverable amount, being the higher of fair value less cost to sell and value in use, is less than its carrying amount. Value in use is measured based on future discounted cash flows attributable to the asset. In such cases, the carrying value of the asset is reduced to its recoverable amount with a corresponding charge recognized in the profit and loss statement. Dividend Income Dividend received from the Parent's subsidiary is recorded as dividend income in the profit and loss statement. Financial Instruments Currently the Parent does not enter into derivative financial instruments. Financial assets and financial liabilities are recognized and cease to be recognized on the basis of when the related titles pass to or from the Parent company. Share-Based Payments Share-based payment awards granted in subsidiaries to employees, Board of Directors and consultants to be settled in Parent's equity instruments are accounted for as equity-settled share-based payment transactions in accordance with IFRS 2. Restricted stock units granted in subsidiaries to the executives are accounted for as share-based liability awards in accordance with IFRS 2 as they can be cash-settled at PureTech's discretion and have a history of being cash-settled. The grant date fair value of equity-settled share-based payment awards and the settlement date fair value of the share-based liability awards are recognized as an increase to the investment with a corresponding increase in equity. For equity-settled restricted stock units, the grant date fair value is the grant date share price. For share-based liability awards, the fair value at each reporting date is measured using the Monte Carlo simulation analysis considering share price volatility, risk-free rate, and other covariance of comparable public companies and other market data to predict distribution of relative share performance. For stock options, the fair value is measured using an option pricing model, which takes into account the terms and conditions of the options granted. When the subsidiary settles the equity awards other than by the Parent's equity, the settlement is recorded as a decrease in equity against a corresponding decrease to the investment account. 2. Investment in subsidiary $000s Balance at December 31, 2020 161,082 Decrease due to equity-settled share-based payments granted to employees and service providers in subsidiaries (12,996) Balance at December 31, 2021 148,086 Increase due to equity-settled share-based payments granted to employees and service providers in subsidiaries 10,384 Conversion of intercompany receivable (net of a portion of intercompany payable) into investment 293,904 Balance at December 31, 2022 452,374 Increase due to equity-settled share-based payments granted to employees and service providers in subsidiaries 4,489 Balance at December 31, 2023 456,864
184 PureTech Health plc Annual report and accounts 2023 Fi na nc ia l s ta te m en ts PureTech consists of the Parent and its subsidiaries (together, the “Group”). Investment in subsidiary represents the Parent’s investment in PureTech LLC as a result of the reverse acquisition of the Group’s financial statements immediately prior to the Parent’s initial public offering (“IPO”) on the London Stock Exchange in June 2015. PureTech LLC operates in the U.S. as a US- focused scientifically-driven research and development company that conceptualizes, sources, validates and commercializes different approaches to advance the needs of human health. For a summary of the Parent’s indirect subsidiaries, please refer to Note 1 of the Consolidated Financial Statements of the Group. The Parent recognizes in its investment in its operating subsidiary PureTech LLC, share-based payments granted to employees, executives, non-executive directors and service providers in its subsidiary. The decrease in 2021 and increases in investment in subsidiary in 2022 and 2023, respectively, are due to such share-based payments results from the expenses related to the grant of equity-settled share-based awards, as well as settlements and payments of these equity awards by the subsidiary, or settlement of share-based payments through equity by PureTech. 3. Share capital and reserves PureTech Health plc was incorporated with the Companies House under the Companies Act 2006 as a public company on May 8, 2015. On June 24, 2015, the Group authorized 227,248,008 of ordinary share capital at one pence apiece. These ordinary shares were admitted to the premium listing segment of the United Kingdom’s Listing Authority and traded on the Main Market of the London Stock Exchange for listed securities. In conjunction with the authorization of the ordinary shares, the Parent completed an IPO on the London Stock Exchange, in which it issued 67,599,621 ordinary shares at a public offering price of 160 pence per ordinary share, in consideration for $159.3 million, net of issuance costs of $11.8 million. Additionally, the IPO included an over-allotment option equivalent to 15 percent of the total number of new ordinary shares. The stabilization manager provided notice to exercise in full its over-allotment option on July 2, 2015. As a result, the Parent issued 10,139,943 ordinary shares at the offer price of 160 pence per ordinary share, which resulted in net proceeds of $24.2 million, net of issuance costs of $0.8 million. On March 12, 2018, the Group raised approximately $100.0 million, before issuance costs and other expenses, by way of a placing of 45,000,000 placing shares. During the years ended December 31, 2023 and 2022, other reserves increased by $3,482 and $10,384, respectively, primarily due to equity-settled share-based payments granted to employees, the Board of Directors and service providers in subsidiaries. See Note 2 above. Treasury stock On May 9, 2022, the Group announced the commencement of a $50,000 share repurchase program (the "Program") of its ordinary shares of one pence each (the “Ordinary Shares”). The Group executed the Program in two equal tranches. The Group entered into an irrevocable non-discretionary instruction with Jefferies International Limited (“Jefferies”) in relation to the purchase by Jefferies of the Ordinary Shares for an aggregate consideration (excluding expenses) of no greater than $25,000 for each tranche, and the simultaneous on-sale of such Ordinary Shares by Jefferies to the Group. Jefferies made its trading decisions in relation to the Ordinary Shares independently of, and uninfluenced by, the Group. Purchases could continue during any close period to which the Group was subject. The instruction to Jeffries could be amended or withdrawn so long as the Group was not in a close period or otherwise in possession of inside information. Any purchases of the Ordinary Shares under the Program were carried out on the London Stock Exchange and could be carried out on any other UK recognized investment exchange in accordance with pre-set parameters and subject to limits prescribed by the Group’s general authority to repurchase the Ordinary Shares granted by its shareholders at its annual general meeting on May 27, 2021, and relevant Rules and Regulations. All Ordinary Shares repurchased under the Program are held in treasury. As of December 31, 2023, the Group repurchased an aggregate of 18,278,873 Ordinary Shares under the share repurchase program. The Program was completed during the month ended February 2024. 4. Intercompany payables The Parent had a balance due to its operating subsidiary PureTech LLC of $22,061 as of December 31, 2023, which is related to IPO costs and operating expenses. These intercompany payables do not bear any interest and are repayable upon demand. 5. Profit and loss account As permitted by Section 408 of the Companies Act 2006, the Parent’s profit and loss account has not been included in these financial statements. The Parent’s loss for the year was $3,178. 6. Directors’ remuneration, employee information and share-based payments The remuneration of the executive Directors of the Parent company is disclosed in Note 26. Related Parties Transactions, of the Group's Consolidated Financial Statements. Full details of Directors’ remuneration can be found in the audited sections of the Directors’ Remuneration Report. Full detail of the share-based payment charge and the related disclosures can be found in Note 9. Share-based Payments, of the Group's Consolidated Financial Statements. The Parent had no employees during 2023 or 2022. 2. Investment in subsidiary continued Notes to the Financial Statements continued
PureTech Health plc Annual report and accounts 2023 185 Financial statem entsWe were incorporated and registered under the laws of England and Wales with the Registrar of Companies of England and Wales, United Kingdom in May 2015 as “PureTech Health plc.” Our predecessor entity, PureTech Health LLC (the "Predecessor Entity"), commenced formal operations and began engaging in initial sourcing activities in 2004, raising its first financing round greater than $5 million in the same year. The Predecessor Entity was acquired by PureTech Health plc on June 18, 2015 in a reorganization completed in connection with our initial public offering on the London Stock Exchange. The Predecessor Entity is now a wholly- owned subsidiary of PureTech Health plc. Our registered office is situated at 13th Floor, One Angel Court, London, EC2R 7HJ, United Kingdom, and our telephone number is +(1) 617 482 2333. Our U.S. operations are conducted by our wholly-owned subsidiary PureTech Health LLC, a Delaware limited liability company. Our ordinary shares have traded on the main market of the London Stock Exchange since June 2015, and our ADSs have traded on the Nasdaq Global Market since November 2020. Our agent for service of process in the United States is PureTech Health LLC located at 6 Tide Street, Suite 400, Boston, Massachusetts 02210 where our corporate headquarters and laboratories are located. Our website address is http://puretechhealth.com. The reference to our website is an inactive textual reference only, and information contained in, or that can be accessed through our website or any other website cited in this annual report is not part of hereof. History and Development of the Company
186 PureTech Health plc Annual Report and Accounts 2023 A d d it io na l i nf o rm at io n statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may undertake. You should read this Annual Report and Accounts, our associated Annual Report on Form 20-F and the documents that we have filed as exhibits to the Annual Report on 20-F completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. This Annual Report and Accounts and our associated Annual Report on Form 20-F include statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Risks Related to our Financial Position and Need for Additional Capital We are a clinical-stage biotherapeutics company and have incurred significant operating losses since our inception. We may continue to incur significant operating losses for the foreseeable future. Investment in biotechnology, including therapeutic development and medical device development, is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential therapeutic candidate will be unable to demonstrate effectiveness or an acceptable safety profile, gain regulatory approval or certification (where applicable) and become commercially viable. To date, only two of our Founded Entities’ medical devices, Gelesis, Inc.’s Plenity® and Akili Interactive Labs, Inc.’s EndeavorRx®, have received marketing authorization from the U.S. Food and Drug Administration, or the FDA, and have been CE Marked in the European Union, or EU. All of the therapeutic candidates in our Internal Programs and the majority of our Founded Entities’ therapeutic candidates may require substantial additional development time, including extensive clinical research, and resources before we would be able to apply for or receive regulatory clearances, certifications or approvals and begin generating revenue from therapeutic sales. Since our inception, we have invested most of our resources in developing our technology and therapeutic candidates, building our intellectual property portfolio, developing our supply chain, conducting business planning, raising capital and providing general and administrative support for these operations, including with respect to our Founded Entities. We are not operationally profitable and have incurred operating losses in each year since our inception. Our operating losses for the years ended December 31, 2021, 2022 and 2023 were $150.3 million, $197.8 million and $146.2 million, respectively. We have no therapeutics developed in our Internal Programs approved for commercial sale and have not generated any revenues from therapeutic sales, and we and our Founded Entities have financed operations solely through the sale of equity securities, revenue from strategic alliances and government funding and, with respect to certain of our Founded Entities, debt financings. We continue to incur significant research and development, or R&D, and other expenses related to ongoing operations and expect to incur losses for the foreseeable future. We anticipate continued losses for the foreseeable future. Due to risks and uncertainties associated with the development of drugs, biologics and medical devices, we are unable to predict the timing or amount of our expenses, or when we will be able to generate any meaningful revenue or achieve or maintain profitability, if ever. In addition, our expenses could increase beyond our current expectations if we are required by the FDA, the European Medicines Agency, or the EMA, or other comparable foreign regulatory authorities and notified bodies in the EU to perform preclinical studies or clinical trials in addition to those that we currently anticipate, or if there are any delays in any of our or our future collaborators’ clinical trials or the development of our existing therapeutic candidates and any other therapeutic candidates that we may identify. Even if our existing therapeutic candidates or any future therapeutic candidates that we may identify are approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved therapeutic and ongoing compliance efforts. As of December 31, 2023, we had never generated revenue from the therapeutic candidates within our Internal Programs, and we may never be operationally profitable. We may never be able to develop or commercialize marketable therapeutics or achieve operational profitability. Revenue from the sale of any therapeutic candidate for which regulatory clearance, certification, authorization or approval is obtained will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory clearance, certification, authorization or approval, the accepted price for the therapeutic, the ability to obtain reimbursement at any price and whether Our business faces significant risks. You should carefully consider all of the information set forth in this Annual Report and Accounts, including the following risk factors which we face and which are faced by our industry. These risks are not listed in any particular order of priority and are intended to supplement the risks identified elsewhere. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occur. This Annual Report and Accounts and our associated Annual Report on Form 20-F also contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors including the risks described below and elsewhere. All statements contained in this Annual Report and Accounts and our associated Annual Report on Form 20-F, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this Annual Report and Accounts and associated Annual Report on Form 20-F include, among other things, statements about: — our ability to realize value from our Founded Entities, which may be impacted if we reduce our ownership to a minority interest or otherwise cede control to other investors through contractual agreements or otherwise; — the success, cost and timing of our clinical development within our Internal Programs and our Founded Entities, including the progress of, and results from, our Internal Programs’ and Founded Entities’ preclinical and clinical trials of LYT-100, LYT-200, SPT-300 (formerly known as LYT- 300), SPT-310 (formerly known as LYT-310), SPT-320 (formerly known as LYT-320), or our therapeutics candidates, and our technology platforms and other potential therapeutic candidates within our Internal Programs and therapeutic candidates being developed by our Founded Entities; — our ability to obtain and maintain regulatory clearance, certification, authorization, or approval of the therapeutic candidates within our Internal Programs or our Founded Entities, and any related restrictions, limitations or warnings in the label of any of the therapeutic candidates, if cleared, certified, authorized, or approved; — our ability to compete with companies currently marketing or engaged in the development of treatments for indications within our Internal Programs or our Founded Entities are designed to target; — our plans to pursue research and development of other future therapeutic candidates; — the potential advantages of the therapeutic candidates within our Internal Programs and the therapeutic candidates developed by our Founded Entities; — the rate and degree of market acceptance and clinical utility of our therapeutic candidates; — the success of our collaborations and partnerships with third parties; — our estimates regarding the potential market opportunity for the therapeutic candidates within our Internal Programs and the therapeutic candidates being developed by our Founded Entities; — our sales, marketing and distribution capabilities and strategy; — our ability to establish and maintain arrangements for manufacture of the therapeutic candidates within our Internal Programs and therapeutic candidates being developed by our Founded Entities; — our intellectual property position; — our expectations related to the use of capital; — the effect of any pandemic or public health crises, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations; — our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; — the impact of government laws and regulations; and — our competitive position. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. You should refer to the below for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking Risk Factor Annex
PureTech Health plc Annual Report and Accounts 2023 187 Risk Factor Annex continued A d d itio nal info rm atio n Our future funding requirements, both short-term and long-term, will depend on many factors, including, but not limited to: — the time and cost necessary to complete ongoing, planned and future unplanned clinical trials (such term to include clinical studies in these Risk Factors where context requires and the item being studied or subject of a potential study may be regulated as a medical device in the EU), including our ongoing clinical trials for certain of our therapeutic candidates, and potential future clinical trials for certain of our therapeutic candidates; — the outcome, timing and cost of meeting regulatory requirements established by the FDA, the EMA and other comparable foreign regulatory authorities; — the progress, timing, scope and costs of our preclinical studies, clinical trials and other related activities for our ongoing and planned clinical trials, and potential future clinical trials; — the costs of obtaining clinical and commercial supplies of raw materials and drug products for the therapeutic candidates within our Internal Programs, as applicable, and any other therapeutic candidates we may identify and develop; — our ability to successfully identify and negotiate acceptable terms for third-party supply and contract manufacturing agreements with contract manufacturing organizations, or CMOs; — the costs of commercialization activities for any of the therapeutic candidates within our Internal Programs that receive marketing approval, including the costs and timing of establishing therapeutic sales, marketing, distribution and manufacturing capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities; — the amount and timing of sales and other revenues from the therapeutic candidates within our Internal Programs, if approved, including the sales price and the availability of coverage and adequate third-party reimbursement; — the cash requirements of our Founded Entities and our ability and willingness to provide them with financing; — the cash requirements of any future acquisitions or discovery of therapeutic candidates; — the time and cost necessary to respond to technological and market developments, including other therapeutics that may compete with one or more of our Internal Programs or those of our Founded Entities; — the costs of acquiring, licensing or investing in intellectual property rights, therapeutics, therapeutic candidates and businesses; — our ability to attract, hire and retain qualified personnel as we expand R&D and establish a commercial infrastructure; — the costs of maintaining, expanding and protecting our intellectual property portfolio; — the costs of operating as a public company in the United Kingdom, or UK, and the United States, or US, and maintaining listings on both the London Stock Exchange, or the LSE, and The Nasdaq Global Market, or Nasdaq; and — costs associated with any adverse market conditions or other macroeconomic factors. We cannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit or terminate one or more research or development programs or the potential commercialization of any approved therapeutics or be unable to expand operations or otherwise capitalize on business opportunities, as desired, which could materially affect our business, prospects, financial condition and results of operations. Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to current therapeutic candidates or to any future therapeutic candidates on unfavorable terms. To the extent that we or our Founded Entities raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a shareholder. The incurrence of additional indebtedness would result in increased fixed payment obligations and could involve additional restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term, but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or therapeutic candidates, or grant licenses or other rights on unfavorable we own the commercial rights for that territory. Our growth strategy depends on our ability to generate revenue. In addition, if the number of addressable patients is not as anticipated, the indication or intended use cleared, certified, authorized or approved by regulatory authorities or notified bodies is narrower than expected, or the reasonably accepted population for treatment is narrowed by competition, physician choice or treatment guidelines, we may not generate significant revenue from sales of such therapeutics, even if cleared, certified, authorized or approved. Even if we are able to generate revenue from the sale of any cleared, certified, authorized or approved therapeutics, we may not become operationally profitable and may need to obtain additional funding to continue operations. Even if we achieve operational profitability in the future, we may not be able to sustain profitability in subsequent periods. If we are unable to achieve sustained profitability, it would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our R&D pipeline, market the therapeutic candidates within our Internal Programs, if cleared or approved, and pursue or continue our operations. Our prior losses, combined with expected future losses, have had and may continue to have an adverse effect on our shareholders’ equity and working capital. We may require substantial additional funding to achieve our business goals. If we are unable to obtain this funding when needed and on acceptable terms, we could be forced to delay, limit or terminate certain of our therapeutic development efforts. Certain of our Founded Entities will similarly require substantial additional funding to achieve their business goals. Across our Internal Programs and our Founded Entities, we established the underlying platforms that have resulted in the development of 29 therapeutics and therapeutic candidates, including two (Plenity and EndeavorRx) that have received both U.S. FDA and European marketing authorization and a third (KarXT) that has been filed for FDA approval. Developing biotherapeutics is expensive and time-consuming, and with respect to the therapeutic candidates within our Internal Programs, we expect to require substantial additional capital to conduct research, preclinical studies and clinical trials for our current and future programs, establish pilot scale and commercial scale manufacturing processes and facilities, seek regulatory approvals for the therapeutic candidates within our Internal Programs and launch and commercialize any therapeutics for which we receive regulatory approval, including building our own commercial sales, marketing and distribution organization. With respect to our Founded Entities’ programs, we anticipate that we will continue to fund a small portion of development costs by strategically participating in such companies’ financings when doing so would be in the interests of our shareholders. We expect to finance our future cash needs through a combination of public and private equity offerings, debt financings, strategic partnerships, sales of assets and alliances and licensing arrangements, among others. We, and indirectly, our shareholders, may bear the cost of issuing and servicing any such securities and of entering into and maintaining any such strategic partnerships or other arrangements. Because any decision by us to issue debt or equity securities in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future financing transactions. Our management and strategic decision makers have not made decisions regarding the future allocation of certain of our resources among our Founded Entities, but evaluate the needs and opportunities with respect to each of these Founded Entities routinely and on a case-by-case basis. In connection with any collaboration agreements relating to our Internal Programs, we are also responsible for the payments to third parties of expenses that may include milestone payments, license maintenance fees and royalties, including in the case of certain of our agreements with academic institutions or other companies from whom intellectual property rights underlying their respective programs have been in-licensed or acquired. Because the outcome of any preclinical or clinical development and regulatory approval process is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development, regulatory approval or certification process and potential commercialization of our Internal Programs and any future therapeutic candidates we may identify. As of December 31, 2023, we had cash, cash equivalents and short term investments of $326 million at the PureTech Health plc level. Based on current projections, the Directors believe that the company has sufficient available funding to extend operations into at least 2027. However, our operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, sales of assets or programs, other sources, such as strategic collaborations or license and development agreements, or a combination of these approaches. Even if we believe we have sufficient funds for our current or future operating plans, we may opportunistically seek additional capital if market conditions are favorable or if we have specific strategic considerations. Our spending will vary based on new and ongoing therapeutic development and corporate activities.
188 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n share capital of such Founded Entities, similar to other investors who are party to these agreements. In addition, many of our Founded Entities have employee share plans which further dilute our interest in such business. If the affairs of one or more of our Founded Entities were to be conducted or impacted in a manner detrimental to our interests or intentions the value we are able to realize from such entity may be diminished. For example, on October 30, 2023, Gelesis ceased operations and filed a voluntary petition for Chapter 7 bankruptcy liquidation in October 2023. If we were unable to realize our interest in a Founded Entity or suffer dilution of our shareholding, this could have a material adverse effect on our business, financial condition or results of operation and prospects. Our overall value may be dominated by a single or limited number of our Founded Entities. A large proportion of our overall value may at any time reside in a small proportion of our Founded Entities. Accordingly, there is a risk that if one or more of the intellectual property or commercial rights relevant to a valuable business were impaired, this would have a material adverse impact on our overall value. Furthermore, a large proportion of our overall revenue may at any time be the subject of one, or a small number of, licensed technologies. Should the relevant licenses be terminated or expire this would be likely to have a material adverse effect on the revenue received by us. Any material adverse impact on the value of the business of a Founded Entity could, in the situations described above, or otherwise, have a material adverse effect on our business, financial condition, trading performance and/or prospects. We have limited information about and limited control or influence over our Non-Controlled Founded Entities. While we maintain ownership of equity interests in our Non-Controlled Founded Entities, we do not maintain voting control or direct management and development efforts for these entities. Each of these entities are independently managed, and we do not control the clinical and regulatory development of these Non-Controlled Founded Entities’ therapeutic candidates. Any failure by our Non-Controlled Founded Entities to adhere to regulatory requirements, initiate preclinical studies and clinical trials on schedule or to obtain clearances or approvals for their therapeutic candidates could have an adverse effect on our business, financial condition, results of operation and prospects. The information included in this report about our Non-Controlled Founded Entities is based on (i) our knowledge, which may in some cases be limited, (ii) information that is publicly available, including the public filings of SEC reporting companies, such as Vor, Akili and Gelesis, and (iii) information provided to us by our Non-Controlled Founded Entities. Where a date is provided, the information included in this report about our Non-Controlled Founded Entities is as of that date and you should not assume that it is accurate as of any other date. As such, there may be developments at our Non- Controlled Founded Entities of which we are unaware that could have an adverse effect on our business, financial condition, results of operation and prospects. For example, on October 30, 2023, Gelesis ceased operations and filed a voluntary petition for Chapter 7 bankruptcy liquidation in October 2023. Our Founded Entities are difficult to value given that many of their therapeutic candidates are in the development stage. Investments in early-stage companies, particularly privately held entities, are inherently difficult to value since sales, cash flow and tangible asset values are very limited, which makes the valuation highly dependent on expectations of future development, and any future significant revenues would only arise in the medium to longer terms and are uncertain. Equally, investments in companies just commencing the commercial stage are also difficult to value since sales, cash flow and tangible assets are limited, they have only commenced initial receipts of revenues and valuations are still dependent on expectations of future development. There can be no guarantee that our valuation of our Founded Entities will be considered to be correct in light of the early stage of development for many of these entities and their future performance. As a result, we may not realize the full value of our ownership in such Founded Entities which could adversely affect our business and results of operations. For example, on November 15, 2019, resTORbio, Inc., or resTORbio, announced that its lead therapeutic candidate, RTB101, did not meet its primary endpoint in its Phase 3 study and ceased further development leading to a decline in resTORbio’s stock price from $9.27 to $1.09 and our sale of 7,680,700 common shares of resTORbio. As a result of the foregoing, we recognized a total cash loss of approximately $10 million from our initial investment through sale of shares. terms. Any such additional fundraising efforts for us may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize therapeutic candidates that we may identify and pursue. Moreover, such financing may result in dilution to shareholders, imposition of debt covenants and repayment obligations, or other restrictions that may affect our business. In addition, if any of our Founded Entities raises funds through the issuance of equity securities, our shareholders’ indirect equity interest in such Founded Entity could be substantially diminished. If any of our Founded Entities raises additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or these therapeutic candidates or grant licenses on terms that are not favorable to us. If we engage in acquisitions or strategic partnerships, this may increase our capital requirements, dilute our shareholders, cause us to incur debt or assume contingent liabilities and subject us to other risks. We may engage in various acquisitions and strategic partnerships in the future, including licensing or acquiring complementary therapeutics, intellectual property rights, technologies or businesses. Any acquisition or strategic partnership may entail numerous risks, including: — increased operating expenses and cash requirements; — the assumption of indebtedness or contingent liabilities; — the issuance of our equity securities which would result in dilution to our shareholders; — assimilation of operations, intellectual property, therapeutics and therapeutic candidates of an acquired company, including difficulties associated with integrating new personnel; — the diversion of our management’s attention from our existing therapeutic programs and initiatives in pursuing such an acquisition or strategic partnership; — retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships; — risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing therapeutics or therapeutic candidates and regulatory approvals; and — our inability to generate revenue from acquired intellectual property, technology and/or therapeutics sufficient to meet our objectives or even to offset the associated transaction and maintenance costs. In addition, if we undertake such a transaction, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Risks Related to Our Founded Entities Our ability to realize value from our Founded Entities may be impacted if we reduce our ownership or otherwise cede control to other investors through contractual agreements or otherwise. We do not have a majority interest in our Non-Controlled Founded Entities. Our interests may be further reduced as such companies raise capital from third-party investors. In addition, we may agree to contractual arrangements for the funding of further developments by one or more of our Founded Entities. As a result, with respect to our Non-Controlled Founded Entities, we may not be able to exercise control over the affairs of such Founded Entity, including that Founded Entity’s governance arrangements and access to management and financial information. We are also party to agreements with certain of our Founded Entities that contain provisions which could force us to exit from that Founded Entity at a time and/or price determined by other investor(s) (for example, by the exercise of drag-along rights). If we were forced to exit out of a Founded Entity, this could have a material adverse effect on our business, financial condition or results of operations and prospects. In addition, if the affairs of one or more Founded Entities in which we hold a minority stake were to be conducted in a manner detrimental to our interests or intentions, our business, reputation and prospects may be adversely affected. As certain of our Founded Entities have completed equity financings, they have entered into certain agreements with the investors participating in such financings, including us. We are party to voting agreements with Entrega, Inc., or Entrega Sonde Health, Inc., or Sonde and Seaport Therapeutics, Inc. or Seaport; investors’ rights agreements with Akili, Vedanta, Entrega, Sonde, Seaport and Vor Biopharma Inc., or Vor, and stockholders’ agreements with Gelesis, Akili, Vedanta, Entrega, and Sonde, pursuant to which we are subject to certain restrictions on the transfer or sale of shares (e.g., pre-emptive rights or drag-along, tag-along rights or lock up agreements), and we may not be able freely to transfer our interest in such Founded Entities or procure the sale of the entire issued
PureTech Health plc Annual Report and Accounts 2023 189 Risk Factor Annex continued A d d itio nal info rm atio n commercialize therapeutic candidates. We and our Founded Entities, with the exceptions of Gelesis and Akili, currently have no drugs or biologics approved or devices cleared, certified, authorized or approved for sale and have not generated any revenue from sales of drugs, biologics or devices. We cannot guarantee that we or our Founded Entities will be able in the future to develop or successfully commercialize any of our or their therapeutic candidates. Other than Gelesis’ Plenity and Akili’s EndeavorRx, all of our Internal Programs and our Founded Entities’ therapeutic candidates require additional development; management of preclinical, clinical, and manufacturing activities; and/or regulatory clearances, certification, authorization or approvals. In addition, we or our Founded Entities may need to obtain adequate manufacturing supply; build a commercial organization; commence marketing efforts; and obtain coverage and reimbursement before we generate any significant revenue from commercial therapeutic sales, if ever. Many of the therapeutic candidates in our Internal Programs and our Founded Entities’ therapeutic candidates are in early-stage research or translational phases of development, and the risk of failure for these programs is high. We cannot be certain that any of the therapeutic candidates in our Internal Programs or our Founded Entities’ therapeutic candidates will be successful in clinical trials or receive regulatory approval, authorization or clearance. Further, our Internal Programs or our Founded Entities’ therapeutic candidates may not receive regulatory clearance, certification, authorization or approval even if we believe they are successful in clinical trials. If we or our Founded Entities do not receive regulatory clearance, certification, authorization or approval for our or their therapeutic candidates, we may not be able to continue operations, which may result in dissolution, out-licensing the technology or pursuing an alternative strategy. Preclinical development is uncertain. Our preclinical programs may experience delays or may never advance to clinical trials, which would adversely affect our ability to obtain regulatory clearance, authorization or approvals or commercialize these programs on a timely basis or at all, which would have an adverse effect on our business. Certain of our Internal Programs are in the preclinical stage, and their risk of failure is high. Before we can commence clinical trials for a therapeutic candidate, we must complete extensive preclinical testing and studies that support our planned INDs, in the United States, or similar applications in other jurisdictions. We cannot be certain of the timely completion or outcome of our preclinical testing and studies and cannot predict if the FDA or other regulatory authorities will accept our proposed clinical programs or if the outcome of our preclinical testing and studies will ultimately support the further development of our programs. As a result, we cannot be sure that we will be able to submit INDs or similar applications for our preclinical programs on the timelines we expect, if at all, and we cannot be sure that submission of INDs or similar applications will result in the FDA or other regulatory authorities allowing clinical trials to begin. Clinical trials of our or our Founded Entities’ therapeutic candidates may be delayed, and certain programs may never advance in the clinic or may be more costly to conduct than we anticipate, any of which can affect our ability to fund our company and would have a material adverse impact on our platform or our business. Clinical testing is expensive, time-consuming, and subject to uncertainty. We cannot guarantee that any of our ongoing and planned clinical trials will be conducted as planned or completed on schedule, if at all. Moreover, even if these trials are initiated or conducted on a timely basis, issues may arise that could result in the suspension or termination of such clinical trials. A failure of one or more clinical trials can occur at any stage of testing, and our clinical trials may not be successful. Events that may prevent successful or timely initiation or completion of clinical trials include: — inability to generate sufficient preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical trials; — delays in confirming target engagement, patient selection or other relevant biomarkers to be utilized in preclinical and clinical therapeutic candidate development; — delays in reaching a consensus with regulatory agencies as to the design or implementation of our clinical studies; — delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; — delays in identifying, recruiting and training suitable clinical investigators; — delays in obtaining required Institutional Review Board, or IRB, or other reviewing bodies approval or positive opinion at each clinical trial site; Certain of our and our Founded Entities’ therapeutics and therapeutic candidates represent novel therapeutic approaches and negative perception of any therapeutic or therapeutic candidate that we or they develop could adversely affect our ability to conduct our business, obtain and maintain regulatory clearance, authorization or approvals or identify alternate regulatory pathways to market for such therapeutic candidate. Certain of our and our Founded Entities’ therapeutic candidates are considered relatively new and novel therapeutic approaches. Our and their success will depend upon physicians who specialize in the treatment of diseases targeted by our and their therapeutic candidates, prescribing potential treatments that involve the use of our and their therapeutic candidates, if approved, in lieu of, or in addition to, existing treatments with which they are more familiar and for which greater clinical data may be available. Access will also depend on consumer acceptance and adoption of therapeutics that are commercialized. In addition, responses by the U.S., state or foreign governments to negative public perception or ethical concerns may result in new legislation or regulations that could limit our or our Founded Entities’ ability to develop or commercialize any therapeutic candidates, obtain or maintain regulatory approval, identify alternate regulatory pathways to market or otherwise achieve profitability. More restrictive statutory regimes, government regulations or negative public opinion would have an adverse effect on our business, financial condition, results of operations and prospects and may delay or impair the development and commercialization of our or our Founded Entities’ therapeutic candidates or demand for any therapeutics we or they may develop. For example, in the United States and the EU, no therapeutics to date have been approved specifically demonstrating an impact on the microbiome as part of their therapeutic effect. Vedanta is developing a pipeline of microbiome-derived modulators for immune and infectious disease. Microbiome therapies may not be successfully developed or commercialized or gain the acceptance of the public or the medical community. Additionally, adverse events, or AEs, in non-investigational new drug application, or IND, human clinical studies and clinical trials of Vedanta’s therapeutic candidates or in clinical trials of other companies developing similar therapeutics and the resulting publicity, similarly to the AEs publicized with respect to Seres Therapeutics, Inc.’s SER-287 Phase 2 clinical trial, as well as any other AEs in the field of the microbiome, could result in a decrease in demand for any therapeutic that Vedanta may develop. Finally, the FDA, the EMA or other comparable foreign regulatory authorities may lack experience in evaluating the safety and efficacy of therapeutic candidates based on microbiome therapeutics, which could result in a longer than expected regulatory review process, increase expected development costs and delay or prevent potential commercialization of therapeutic candidates. Risks Related to the Clinical Development, Regulatory Review and Approval of our and our Founded Entities’ Therapeutic Candidates Risks Related to Clinical Development The therapeutic candidates within our Internal Programs and most of our Founded Entities’ therapeutic candidates are in preclinical or clinical development, which is a lengthy and expensive process with uncertain outcomes and the potential for substantial delays. We cannot give any assurance that any of our and our Founded Entities’ therapeutic candidates will receive regulatory clearance, authorization or approval, which is necessary before they can be commercialized. Before obtaining marketing clearance, certification, authorization or approval from regulatory authorities or notified bodies for the sale of our or our Founded Entities’ therapeutic candidates, we or our Founded Entities must conduct extensive clinical trials to demonstrate the safety and efficacy, or with respect to biologics, safety, purity and potency, of the therapeutic candidates in humans. To date, we have focused substantially all of our efforts and financial resources on identifying, acquiring, and developing therapeutic candidates, including conducting lead optimization, preclinical studies and clinical trials, and providing general and administrative support for these operations. To date, only two of our Founded Entities’ products, Gelesis’ Plenity and Akili’s EndeavorRx, have received marketing authorization from the FDA, and are CE marked in the EU, and we cannot be certain that any of our internal or our Founded Entities’ other therapeutic candidates will receive regulatory clearance, certification, authorization or approval, the timing of such clearance, certification, authorization or approval, if received, or that clinical trials will progress as planned. Our or our Founded Entities’ inability to successfully complete preclinical and clinical development could result in additional costs to us and negatively impact our ability to generate revenue. Our future success is dependent on our and our Founded Entities’ ability to successfully develop, obtain regulatory clearance, certification, authorization or approval for, and then successfully
190 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services. Under certain circumstances, we may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of our Internal Programs or our Founded Entities’ therapeutic candidates. Delays in the initiation, conduct or completion of any clinical trial of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates will increase our costs, slow down the therapeutic candidate development and approval process and delay or potentially jeopardize our ability to commence therapeutic sales and generate revenue. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. In the event we identify any additional therapeutic candidates to pursue, we cannot be sure that submission of an IDE, IND, CTA, or equivalent application, as applicable, will result in the FDA or comparable foreign regulatory authority allowing clinical trials to begin in a timely manner, if at all. Any of these events could have a material adverse effect on our business, prospects, financial condition and results of operations. In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the EU recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became applicable on January 31, 2022. While the EU Clinical Trials Directive required a separate clinical trial application, or CTA, to be submitted in each member state in which the clinical trial takes place, to both the competent national health authority and an independent ethics committee, the CTR introduces a centralized process and only requires the submission of a single application for multicenter trials. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each member state, leading to a single decision per member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate assessment by each member state with respect to specific requirements related to its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved, clinical study development may proceed. The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the EU Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR. Compliance with the CTR requirements by us and our third-party service providers, such as CROs, may impact our developments plans. It is currently unclear to what extent the UK will seek to align its regulations with the EU. The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation), and after Brexit, EU laws on clinical trials (including the (EU) CTR) are not directly applicable in Great Britain (i.e., the UK excluding Northern Ireland). On January 17, 2022, the UK Medicines and Healthcare products Regulatory Agency, or MHRA, launched an eight- week consultation on reframing the UK legislation for clinical trials, with the aim to streamline clinical trials approvals, enable innovation, enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in clinical trials. The MHRA published its consultation outcome on March 21, 2023 in which it confirmed that it would update the existing legislation. The resulting legislative changes will ultimately determine the extent to which the UK regulations align with the CTR. Under the terms of the Protocol on Ireland and Northern Ireland, provisions of the CTR which relate to the manufacture and import of investigational medicinal products and auxiliary medicinal products currently apply in Northern Ireland. — imposition of a temporary or permanent clinical hold by regulatory agencies for a number of reasons, including after review of an IND or amendment, clinical trial application, or CTA, or amendment, investigational device exemption, or IDE, or supplement, or equivalent application or amendment; as a result of a new safety finding that presents unreasonable risk to clinical trial participants; or a negative finding from an inspection of our clinical trial operations or study sites; — developments in trials for other therapeutic candidates with the same targets or related modalities as our or our Founded Entities’ therapeutic candidates conducted by competitors that raise regulatory or safety concerns about risk to patients of the treatment, or if the FDA or similar foreign authorities find that the investigational protocol or plan is clearly deficient to meet its stated objectives; — difficulties in securing access to materials for the comparator arm of certain of our clinical trials; — delays in identifying, recruiting and enrolling suitable patients to participate in clinical trials, and delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up; — difficulties in finding a sufficient number of trial sites, or trial sites deviating from trial protocol or dropping out of a trial; — difficulty collaborating with patient groups and investigators; — failure by CROs, other third parties, or us to adhere to clinical trial requirements; — failure by CROs, other third parties, or us to perform in accordance with the FDA’s or any other regulatory authority’s current good clinical practices, or GCP, requirements, or regulatory guidelines in other countries; — occurrence of AEs or undesirable side effects or other unexpected characteristics associated with the therapeutic candidate that are viewed to outweigh its potential benefits; — changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; — changes in the standard of care on which a clinical development plan was based, which may require new or additional trials; — the cost of clinical trials of any therapeutic candidates that we may identify and pursue being greater than we anticipate; — clinical trials of any therapeutic candidates that we may identify and pursue producing negative or inconclusive results, which may result in our deciding, or regulators requiring us, to conduct additional clinical trials or abandon therapeutic development programs; — transfer of manufacturing processes to larger-scale facilities operated by a CMO, or by us, and delays or failures by our CMOs or us to make any necessary changes to such manufacturing process; — delays in manufacturing, testing, releasing, validating, or importing/ exporting sufficient stable quantities of therapeutic candidates that we may identify for use in clinical trials or the inability to do any of the foregoing; and — factors we may not be able to control, such as current or potential pandemics or other events that may limit patients, principal investigators or staff or clinical site availability, result in clinical trial protocol deviations, or impact supply of our or our Founded Entities’ therapeutic candidates. Any inability to successfully initiate or complete clinical trials could result in additional costs to us or impair our ability to generate revenue. In addition, if we make manufacturing or formulation changes to our Internal Programs, we may be required to or we may elect to conduct additional preclinical studies or clinical trials to bridge data obtained from our modified therapeutic candidates to data obtained from preclinical and clinical research conducted using earlier versions. Clinical trial delays could also shorten any periods during which our therapeutics have patent protection and may allow our competitors to bring therapeutics to market before we do, which could impair our ability to successfully commercialize therapeutic candidates and may harm our business and results of operations. We could also encounter delays if a clinical trial is suspended or terminated by us, by the data safety monitoring board, or DSMB, or by the FDA or other comparable foreign regulatory authorities, or if the IRBs of the institutions in which such trials are being conducted suspend or terminate the participation of their clinical investigators and sites subject to their review. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a therapeutic candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.
PureTech Health plc Annual Report and Accounts 2023 191 Risk Factor Annex continued A d d itio nal info rm atio n — Furthermore, our or our collaborators’ ability to successfully initiate, enroll and conduct a clinical trial outside the United States is subject to numerous additional risks, including: — difficulty in establishing or managing relationships with CROs and physicians; — differing standards for the conduct of clinical trials; — differing standards of care for patients with a particular disease; — an inability to locate qualified local consultants, physicians and partners; and — the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical and biotechnology therapeutics and treatments. If we have difficulty enrolling sufficient numbers of patients to conduct clinical trials as planned, we may need to delay or terminate clinical trials, either of which would have an adverse effect on our business. Use of the therapeutic candidates within our Internal Programs or the therapeutic candidates being developed by our Founded Entities could be associated with side effects, AEs or other properties or safety risks, which could delay or halt their clinical development, prevent their regulatory clearance, authorization or approval, cause us to suspend or discontinue clinical trials, abandon a therapeutic candidate, limit their commercial potential, if cleared, authorized or approved, or result in other significant negative consequences that could severely harm our business, prospects, operating results and financial condition. As is the case with pharmaceuticals generally, it is likely that there may be side effects and AEs associated with our and our Founded Entities’ drug or biologic therapeutic candidates’ use. Similarly, investigational devices may also be subject to side effects and AEs. Results of our clinical trials or those being conducted by Founded Entities could reveal a high and unacceptable severity and prevalence of side effects or unexpected characteristics. Undesirable side effects caused by these therapeutic candidates could cause us, our Founded Entities or regulatory authorities to interrupt, delay or halt clinical trials and could result in more restrictive labeling or the delay or denial of regulatory clearance, certification, authorization or approval by the FDA, the EMA or other comparable foreign regulatory authorities, or notified bodies (when applicable). The side effects related to the therapeutic candidate could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Moreover, if therapeutic candidates within our Internal Programs are associated with undesirable side effects in preclinical studies or clinical trials or have characteristics that are unexpected, we may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial expectations for the therapeutic candidate if approved. We may also be required to modify or terminate our study plans based on findings in our preclinical studies or clinical trials. Many therapeutic candidates that initially show promise in early-stage testing may later be found to cause side effects that prevent further development. As we work to advance existing therapeutic candidates and to identify new therapeutic candidates, we cannot be certain that later testing or trials of therapeutic candidates that initially showed promise in early testing will not be found to cause similar or different unacceptable side effects that prevent their further development. It is possible that as we test the therapeutic candidates within our Internal Programs in larger, longer and more extensive clinical trials, or as the use of these therapeutic candidates becomes more widespread if they receive regulatory clearance or approval, illnesses, injuries, discomforts and other AEs that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. If such side effects become known later in development or upon approval, if any, such findings may harm our business, financial condition and prospects significantly. Additionally, adverse developments in clinical trials of pharmaceutical, biopharmaceutical or biotechnology therapeutics conducted by others may cause the FDA or other regulatory oversight bodies to suspend or terminate our clinical trials or to change the requirements for approval of any of our Internal Programs. In addition to side effects caused by the therapeutic candidate, the administration process or related procedures also can cause adverse side effects. If any such AEs occur, our clinical trials could be suspended or terminated. If we are unable to demonstrate that any AEs were not caused by the therapeutic candidate, the FDA, the European Commission, the EMA, or other regulatory authorities or bodies could order us to cease further development of, or deny clearance, certification or approval of, a therapeutic candidate for any or all targeted indications. Even if we The results of early-stage clinical trials and preclinical studies may not be predictive of future results. Initial data in clinical trials may not be indicative of results obtained when these trials are completed or in later stage trials. The results of preclinical studies may not be predictive of the results of clinical trials, and the results of any early-stage clinical trials we commence may not be predictive of the results of the later-stage clinical trials. The results of preclinical studies and clinical trials in one set of patients or disease indications, or from preclinical studies or clinical trials that we did not lead, may not be predictive of those obtained in another. In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same therapeutic candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their therapeutic candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval. A number of companies in the pharmaceutical, biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies, and any such setbacks in our clinical development could have a material adverse effect on our business and operating results. Even if early-stage clinical trials are successful, we may need to conduct additional clinical trials of our Internal Programs in additional patient populations or under different treatment conditions before we are able to seek approvals or clearances from the FDA or other comparable foreign regulatory authorities to market and sell these therapeutic candidates. Our failure to obtain marketing authorization for the therapeutic candidates within our Internal Programs would substantially harm our business, prospects, financial condition and results of operations. If we encounter difficulties enrolling patients in clinical trials, our clinical development activities could be delayed or otherwise adversely affected. Identifying and qualifying trial participants to participate in clinical studies is critical to our success. The timing of our clinical studies depends on the speed at which we can recruit trial participants to participate in testing the therapeutic candidates within our Internal Programs. Delays in enrollment may result in increased costs or may affect the timing or outcome of the planned clinical trials, which could prevent completion of these trials and adversely affect our ability to advance the development of the therapeutic candidates within our Internal Programs. If trial participants are unwilling to participate in our studies because of negative publicity from AEs in our trials or other trials of similar therapeutics, or those related to specific therapeutic area, or for other reasons, including competitive clinical studies for similar patient populations, the timeline for recruiting trial participants, conducting studies, and obtaining regulatory approval of potential therapeutics may be delayed. Any delays could result in increased costs, delays in advancing our therapeutic candidate development, delays in testing the effectiveness of the therapeutic candidates within our Internal Programs, or termination of the clinical studies altogether. We may not be able to identify, recruit and enroll a sufficient number of trial participants, or those with required or desired characteristics to achieve diversity in a study, to complete our clinical studies in a timely manner. Patient and subject enrollment is affected by factors including: — the size and nature of a patient population; — the patient eligibility criteria defined in the applicable clinical trial protocols, which may limit the patient populations eligible for clinical trials to a greater extent than competing clinical trials for the same indication; — the size of the study population required for analysis of the trial’s primary endpoints; — the severity of the disease under investigation; — the proximity of patients to a trial site; — the inclusion and exclusion criteria for the trial in question; — the design of the trial protocol; — the ability to recruit clinical trial investigators with the appropriate competencies and experience; — the availability and efficacy of approved medications or therapies for the disease or condition under investigation; — clinicians’ and patients’ perceptions as to the potential advantages and side effects of the therapeutic candidate being studied in relation to other available therapies and therapeutic candidates; — the ability to obtain and maintain patient consents; and — the risk that patients enrolled in clinical trials will not complete such trials, for any reason.
192 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical development process. Most therapeutic candidates that begin clinical trials are never approved by regulatory authorities or notified bodies for commercialization. We may be unable to design and execute a clinical trial to support marketing authorization or certification. We cannot be certain that our clinical trials will be successful. Additionally, any safety concerns observed in any one of our clinical trials in our targeted indications could limit the prospects for regulatory clearances, certification, authorization or approval of our therapeutic candidates in those and other indications, which could have a material adverse effect on our business, financial condition and results of operations. In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA, the EMA or comparable foreign regulatory authorities or notified bodies (when applicable) will interpret the results as we do, and more trials could be required before we submit our therapeutic candidates for clearance, certification or approval. Even if we believe that our and our Founded Entities’ clinical trials and preclinical studies demonstrate the safety and efficacy of our and their therapeutic candidates, only the FDA and other comparable regulatory agencies may ultimately make such determination. No regulatory agency has made any such determination that any of our Internal Programs or those of our Founded Entities are safe or effective for use for any indication. Additionally, we may utilize an “open-label” trial design for some of our future clinical trials. An open-label trial is one where both the patient and investigator know whether the patient is receiving the test article or either an existing approved drug or placebo. Open-label trials are subject to various limitations that may exaggerate any therapeutic effect as patients in open-label studies are aware that they are receiving treatment. Open- label trials may be subject to a “patient bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Patients selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new treatment. In addition, open-label trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of the clinical trials are aware of which patients have received treatment and may interpret the information of the treated group more favorably given this knowledge. The opportunity for bias in clinical trials as a result of open-label design may not be adequately handled and may cause any of our trials that utilize such design to fail or to be considered inadequate and additional trials may be necessary to support future marketing applications. Moreover, results acceptable to support approval in one jurisdiction may be deemed inadequate by another regulatory authority to support regulatory approval in that other jurisdiction. To the extent that the results of the trials are not satisfactory to the FDA, the EMA or comparable foreign regulatory authorities for support of a marketing application, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our Internal Programs. Even if regulatory approval is secured for a therapeutic candidate, the terms of such approval may limit the scope and use of the specific therapeutic candidate, which may also limit its commercial potential. Even if we complete the necessary preclinical studies and clinical trials, the marketing approval and certification process is expensive, time- consuming and uncertain and may prevent us from obtaining clearance, certification, authorization or approvals for the potential commercialization of therapeutic candidates. Any therapeutic candidate we may develop and the activities associated with their development and potential commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, certification, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other comparable foreign regulatory authorities. Failure to obtain marketing authorization or certification for a therapeutic candidate will prevent us from commercializing the therapeutic candidate in a given jurisdiction. For example, although Gelesis and Akili have received marketing authorization for Plenity and EndeavorRx, respectively, from the FDA, and are CE marked in the EU, we and our Founded Entities have not received clearance, certification, authorization or approval to market any of our or their other therapeutic candidates from regulatory authorities in any jurisdiction and it is possible that none of the other therapeutic candidates we and our Founded Entities may seek to develop in the future will ever obtain regulatory clearance, authorization or approval. We have no experience in filing and supporting the applications necessary to gain marketing clearance, certification, authorization or approval and expect to rely on third-party CROs or regulatory consultants to assist us in this process. Securing regulatory clearance, certification, authorization or approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the therapeutic candidate’s safety, can demonstrate that all future serious adverse events, or SAEs, are not therapeutic-related, such occurrences could affect patient recruitment or the ability of enrolled patients to complete the trial. Moreover, if we elect, or are required, to not initiate, delay, suspend or terminate any future clinical trial of any of our Internal Programs, the commercial prospects of such therapeutic candidates may be harmed and our ability to generate therapeutic revenues from any of these therapeutic candidates may be delayed or eliminated. Any of these occurrences may harm our ability to develop other therapeutic candidates, and may harm our business, financial condition and prospects significantly. Additionally, if any of the therapeutic candidates within our Internal Programs or those of our Founded Entities receives marketing authorization, the FDA could impose contraindications or a boxed warning in the labeling of the therapeutic. For any of our drug or biologic therapeutic candidates receiving marketing authorization, the FDA could require us to adopt a risk evaluation and mitigation strategy, or REMS, and could apply elements to assure safe use to ensure that the benefits of the therapeutic outweigh its risks, which may include, among other things, a Medication Guide outlining the risks of the therapeutic for distribution to patients, a requirement that clinicians or health care settings to become certified prior to prescribing and to participate in additional REMS activities, such as training, patient counseling, and monitoring, and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by the therapeutic candidates within our Internal Programs or those of our Founded Entities, once approved, cleared, certified, or authorized, several potentially significant negative consequences could result, including: — regulatory authorities may suspend or withdraw approvals of such therapeutic candidate, or seek an injunction against its manufacture or distribution; — regulatory authorities may require additional warnings in the labeling, including boxed warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the therapeutic; — we or our Founded Entities may be required by the FDA to implement a REMS for a marketed drug or biologic or similar risk mitigation measures by foreign regulatory authorities; — we or our Founded Entities may be required to change the way a therapeutic candidate is administered or conduct additional clinical trials; — we or our Founded Entities may be subject to fines, injunctions or the imposition of civil or criminal penalties; — we or our Founded Entities could be sued and held liable for harm caused to patients; and — our or our Founded Entities’ reputations may suffer. Any of these occurrences could prevent us or our Founded Entities from achieving or maintaining market acceptance of the particular therapeutic candidate, if approved, authorized, cleared, or certified, and may harm our business, financial condition and prospects significantly. Risks Related to Regulatory Review and Approval Our clinical trials may fail to demonstrate substantial evidence of the safety and effectiveness of therapeutic candidates that we may identify and pursue for their intended uses, which would prevent, delay or limit the scope of regulatory clearance, certification, authorization or approval and potential commercialization. Before obtaining regulatory approvals for the commercial sale of any of our drug or biological therapeutic candidates, we must demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that the applicable therapeutic candidate is both safe and effective for use in each target indication, and in the case of our Internal Programs and Founded Entities’ therapeutic candidates regulated as biological therapeutics in the United States, that the therapeutic candidate is safe, pure and potent for use in its targeted indication. Each therapeutic candidate must demonstrate an adequate risk versus benefit profile in its intended patient population and for its intended use. Similarly, before obtaining regulatory clearances, certifications, authorization or approvals for the commercial sale of any of the device therapeutic candidates of our Founded Entities, our Founded Entities may be required to demonstrate through lengthy, complex and expensive preclinical studies and clinical trials that the applicable therapeutic candidate meets the regulatory standard of clearance, certification, authorization or approval—for example, substantial equivalence to a predicate medical device or a reasonable assurance of safety or effectiveness, as applicable—for its intended use.
PureTech Health plc Annual Report and Accounts 2023 193 Risk Factor Annex continued A d d itio nal info rm atio n If we are unable to obtain regulatory clearance, certification, authorization or approval in one or more jurisdictions for any therapeutic candidates that we may identify and develop, our business could be substantially harmed. We cannot commercialize a therapeutic until the appropriate regulatory authorities or notified bodies have reviewed and cleared, certified, authorized or approved the therapeutic candidate. Clearance, certification, authorization or approval by the FDA, the EMA and comparable foreign regulatory authorities and notified bodies is lengthy and unpredictable, and depends upon numerous factors, including substantial discretion of the regulatory authorities and notified bodies. Clearance, certification, authorization or approval policies, regulations, or the type and amount of preclinical or clinical data necessary to gain clearance, authorization or approval may change during the course of a therapeutic candidate’s development and may vary among jurisdictions, which may cause delays in the clearance, certification, authorization or approval or the decision not to clear, certify, authorize or approve an application. Gelesis and Akili have obtained marketing authorization from the FDA for Plenity and EndeavorRx, and are CE marked, respectively, but we and our Founded Entities have not obtained regulatory clearance, authorization or approval for any other therapeutic candidates, and it is possible that our current therapeutic candidates and any other therapeutic candidates which we and our Founded Entities may seek to develop in the future will not ever obtain regulatory clearance, certification, authorization or approval. We cannot be certain that any of our Internal Programs or our Founded Entities’ therapeutic candidates will receive regulatory clearance, certification, authorization or approval or be successfully commercialized even if we or our Founded Entities receive regulatory clearance, certification, authorization or approval. Obtaining marketing clearance, certification, authorization or approval is an extensive, lengthy, expensive and inherently uncertain process, and regulatory authorities and notified bodies may delay, limit or deny clearance, certification, authorization or approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates for many reasons, including but not limited to: — the inability to demonstrate to the satisfaction of the FDA, the EMA or comparable foreign regulatory authorities that the applicable therapeutic candidate is safe, pure, potent or effective as a treatment for our targeted indications or otherwise meets the applicable regulatory standards for clearance, authorization or approval; — the FDA, the EMA or comparable foreign regulatory authorities may disagree with the design, endpoints or implementation of our or our Founded Entities’ clinical trials; — the population studied in the clinical program may not be sufficiently broad or representative to assure safety or efficacy in the full population for which we or our Founded Entities seek clearance, authorization or approval; — the FDA, the EMA or comparable foreign regulatory authorities may require additional preclinical studies or clinical trials beyond those that we or our Founded Entities currently anticipate; — the FDA, the EMA or comparable foreign regulatory authorities may disagree with our or our Founded Entities’ interpretation of data from preclinical studies or clinical trials; — the data collected from clinical trials of therapeutic candidates that we may identify and pursue may not be sufficient to support the submission of an NDA, biologics license application, or BLA, or other submission for regulatory clearance, authorization or approval in the United States or elsewhere; — as applicable, we or our Founded Entities may be unable to demonstrate to the FDA, the EMA or comparable foreign regulatory authorities that a therapeutic candidate’s risk-benefit ratio for its proposed indication is acceptable; — the FDA, the EMA or comparable foreign regulatory authorities may identify deficiencies in the manufacturing processes, test procedures and specifications, or facilities of third-party manufacturers with which we or our Founded Entities contract for clinical and commercial supplies; and — the clearance, certification, authorization or approval policies or regulations of the FDA, the EMA or comparable foreign regulatory authorities may change in a manner that renders the clinical trial design or data insufficient for clearance or approval. The lengthy approval process, as well as the unpredictability of the results of clinical trials and evolving regulatory requirements, may result in our or our Founded Entities’ failure to obtain regulatory clearance, certification, authorization or approval to market therapeutic candidates that we or our Founded Entities may pursue in the United States or elsewhere, which would significantly harm our or our Founded Entities’ business, prospects, financial condition and results of operations. purity, efficacy and potency. Securing regulatory clearance, authorization or approval also requires the submission of information about the therapeutic manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Any therapeutic candidates we or our Founded Entities develop may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing clearance, certification, authorization or approval or prevent or limit commercial use, if cleared, certified, authorized or approved. The process of obtaining marketing clearance, certification, authorization or approval, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if clearance, certification, authorization or approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the therapeutic candidates involved. Changes in marketing authorization policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted therapeutic application, may cause delays in the clearance, authorization, approval or rejection of an application. The FDA, comparable authorities and notified bodies in other countries have substantial discretion in the approval and certification process and may refuse to accept any application or may decide that our data are insufficient for clearance, authorization or approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing approval or certification of a therapeutic candidate. Any marketing approval or certification we ultimately obtain may be limited or subject to restrictions or post-market commitments that render the cleared, certified, authorized or approved therapeutic not commercially viable. If we experience delays in obtaining clearance, certification, authorization or approval or if we fail to obtain clearance, certification, authorization or approval of any therapeutic candidates we may develop, the commercial prospects for those therapeutic candidates may be harmed, and our ability to generate revenues will be materially impaired. We have conducted, and may continue to conduct in the future, clinical trials for therapeutic candidates outside the United States, and the FDA, the EMA and comparable foreign regulatory authorities may not accept data from such trials. We have conducted clinical trials outside of the United States in the past, and may in the future choose to conduct one or more clinical trials outside the United States, including in Europe. For example, we have conducted clinical trials in Australia and are conducting or may conduct clinical trials in additional locations outside the United States, including without limitation Argentina, Australia, Brazil, Bulgaria, Chile, Colombia, Czech Republic, Finland, Georgia, Greece, India, Malaysia, Mexico, Moldova, Philippines, Poland, Romania, Spain, South Africa, South Korea, Thailand, Ukraine, and the United Kingdom. The acceptance of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA, the EMA or any comparable foreign regulatory authority may be subject to certain conditions or may not be accepted at all. For example, in cases where data from foreign clinical trials are intended to serve as the basis for approval of a drug or biologic in the United States, the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) if necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to serve as the sole basis for approval, if the study was not otherwise subject to an IND, the FDA will not accept the data as support for an application for marketing approval unless the study was conducted in accordance with GCP requirements and unless the FDA is able to validate the data from the study through an onsite inspection if deemed necessary. Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the FDA, the EMA or any comparable foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA, the EMA or any comparable foreign regulatory authority does not accept such data, it would result in the need for additional trials, which would be costly and time-consuming and delay aspects of our business plan, and which may result in therapeutic candidates that we may develop not receiving approval, authorization or clearance for commercialization in the applicable jurisdiction.
194 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending. competing products. If successful, such petitions can significantly delay, or even prevent, the approval of a new product. Even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to streamlined product development or earlier approval. Interim, “top-line,” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available or as additional analyses are conducted, and as the data are subject to audit and verification procedures that could result in material changes in the final data. From time to time, we may publish interim, “top-line,” or preliminary data from our clinical studies, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the interim, top-line, or preliminary results that we report may differ from future results of the same studies or trials, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Data from interim analyses of clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim, “top-line,” and preliminary data should be viewed with caution until the final data are available. Material adverse changes between preliminary, “top-line,” or interim data and final data could significantly harm our business prospects. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular therapeutic candidate or therapeutic and our company in general. In addition, the information we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant by you or others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular therapeutic candidate or our business. The complexity of a combination therapeutic that includes a drug or biologic and a medical device presents additional, unique development and regulatory challenges, which may adversely impact our or our Founded Entities’ development plans and our or our Founded Entities’ ability to obtain regulatory clearance, authorization or approval of our Internal Programs or our Founded Entities’ therapeutic candidates. We or our Founded Entities may decide to pursue marketing authorization of a combination therapeutic. A combination therapeutic may include, amongst other possibilities, any drug, device, or biologic that is intended for use with another individually specified drug, device, or biologic, where both are required to achieve the intended use, indication, or effect. Developing and obtaining regulatory clearance, authorization or approval in the United States for combination therapeutics pose unique challenges because such therapeutic candidates involve components that are regulated by the FDA under different types of regulatory requirements, and in the United States by different FDA centers. As a result, such therapeutics raise regulatory, policy and review management challenges. For example, because divisions from both FDA’s Center for Drug Evaluation and Research or Center for Biologics Evaluation and Research and FDA’s Center for Devices and Radiological Health must review submissions concerning therapeutic candidates that are combination therapeutics comprised of drug or biologics and devices, respectively, the regulatory review and clearance, authorization or approval process for these therapeutics may be more complex than would otherwise be required for single-agent therapeutics. In addition, differences in regulatory pathways for each component of a combination therapeutic can impact the regulatory processes for all aspects of therapeutic development and management, including clinical investigation, marketing applications, manufacturing and quality control, adverse event reporting, promotion and advertising, user fees and post-clearance, authorization or approval modifications. Similarly, if applicable, the device components of a combination therapeutic candidate will require any necessary clearances, certifications or approvals or other marketing authorizations in other jurisdictions, which may prove challenging to obtain. Furthermore, clearance, authorization or approval by the FDA in the United States, if obtained, does not ensure approval or certification by regulatory authorities or notified bodies in other countries or jurisdictions. To market any therapeutics outside of the United States, we or our Founded Entities must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and effectiveness. Clinical trials conducted in one country may not be accepted by regulatory authorities or notified bodies in other countries, and regulatory approval or certification in one country does not mean that regulatory approval or certification will be obtained in any other country. Approval and certification processes vary among countries and can involve additional therapeutic testing and validation and additional or different administrative review periods from those in the United States, including additional preclinical studies or clinical trials, as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities or notified bodies in other jurisdictions. In many jurisdictions outside the United States, a therapeutic candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our therapeutics is also subject to approval. Seeking foreign regulatory approval or certification could result in difficulties and costs for us or our Founded Entities and require additional preclinical studies or clinical trials which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our or our Founded Entities’ therapeutics in those countries. The foreign regulatory approval and certification process involves all of the risks associated with FDA approval. We do not have any therapeutics approved for sale in international markets, though two of our Founded Entities, Akili and Gelesis, do. If we or our Founded Entities fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals or certifications in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of our therapeutics will be harmed. If the FDA does not conclude that our therapeutic candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such therapeutic candidates under Section 505(b) (2) are not as we expect, the approval pathway for those therapeutic candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful. We plan to develop one or more therapeutic candidates for which we may plan to seek approval under the 505(b)(2) regulatory pathway. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if applicable to us under the FDCA, would allow an NDA we submit to the FDA to rely in part on data in the public domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the development program for our future therapeutic candidates by potentially decreasing the amount of nonclinical and/or clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional nonclinical studies and/or clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for such therapeutic candidates, and complications and risks associated with such therapeutic candidates, would likely substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than any therapeutic candidates we developed, which could adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that any therapeutic candidates we develop will receive the requisite approval for commercialization. In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2), certain pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to certain requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months or longer depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen
PureTech Health plc Annual Report and Accounts 2023 195 Risk Factor Annex continued A d d itio nal info rm atio n We may not elect or be able to take advantage of any expedited development or regulatory review and approval processes available to therapeutic candidates granted breakthrough therapy or fast track designation by the FDA. We intend to evaluate and continue ongoing discussions with the FDA on regulatory strategies that could enable us or our Founded Entities to take advantage of expedited development pathways for certain of our Internal Programs or our Founded Entities’ therapeutic candidates in the future, although we cannot be certain that our Internal Programs or our Founded Entities’ therapeutic candidates will qualify for any expedited development pathways or that regulatory authorities will grant, or allow us or our Founded Entities to maintain, the relevant qualifying designations. Examples of expedited development pathways that we could pursue include breakthrough therapy and fast track designation. The fast track program is intended to expedite or facilitate the process for reviewing therapeutic candidates that meet certain criteria. Specifically, drugs and biologics are eligible for fast track designation if they are intended, alone or in combination with one or more drugs or biologics, to treat serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs for such diseases or conditions. Fast track designation applies to the combination of the therapeutic candidate and the specific indication for which it is being studied. The sponsor of a fast track therapeutic candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and, once a BLA or NDA is submitted, the application may be eligible for priority review. An NDA or BLA submitted for a Fast Track therapeutic candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to accept sections of the application and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the application. A “breakthrough therapy” is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, where preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For therapeutic candidates that have been designated as breakthrough therapies, increased interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs and biologics designated as breakthrough therapies also receive the same benefits associated with fast track designation, including eligibility for rolling review of a submitted NDA or BLA, if the relevant criteria are met. Even if we believe a particular therapeutic candidate is eligible for breakthrough therapy or fast track designation, we cannot assure you that the FDA would decide to grant it. Breakthrough therapy designation and fast track designation do not change the standards for approval, and there is no assurance that such designation or eligibility will result in expedited review or approval. Thus, even if we or our Founded Entities do receive breakthrough therapy, fast track designation, or other comparable designation, we or our Founded Entities may not experience a faster development process, review or approval compared to conventional FDA procedures. In addition, the FDA may withdraw either breakthrough therapy or fast track designation if it believes that the therapeutic no longer meets the qualifying criteria. Our business may be harmed if we are unable to avail ourselves of these or any other expedited development and regulatory pathways. We may not be able to obtain or maintain orphan drug designation or exclusivity for our therapeutic candidates. Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or if the disease or condition affects more than 200,000 individuals in the United States and there is no reasonable expectation that the cost of developing the drug for the type of disease or condition will be recovered from sales of the product in the United States. The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the United States. A medicinal product can be designated as an orphan if its sponsor can establish that: (1) the product is intended for the diagnosis, prevention or treatment of a life threatening or chronically debilitating condition (2) either (a) such condition affects not more than five in 10,000 persons in the EU when the application is made, or (b) the product, without the benefits derived from the orphan status, would The EU regulates medical devices and medicinal products separately, through different legislative instruments, and the applicable requirements will vary depending on the type of drug-device combination product. For instance, drug-delivery products intended to administer a medicinal product where the medicinal product and the device form a single integral product are regulated as medicinal products in the EU. In such a case, the marketing authorization application must include – where available – the results of the assessment of the conformity of the device part with the EU Medical Devices Regulation contained in the manufacturer’s EU declaration of conformity of the device or the relevant certificate issued by a notified body. If the marketing authorization application does not include the results of the conformity assessment and where for the conformity assessment of the device, if used separately, the involvement of a notified body is required, the EMA or the EU member state competent authority must require the applicant to provide a notified body opinion on the conformity of the device. By contrast, in case of drug-delivery products intended to administer a medicinal product where the device and the medicinal product do not form a single integral product (but are e.g., co- packaged), the medicinal product is regulated in accordance with the rules for medicinal products described above while the device part is regulated as a medical device and will have to comply with all the requirements set forth by the Medical Devices Regulation. Certain modifications to our Founded Entities’ device therapeutics may require new 510(k) clearance or other marketing authorizations or certifications and may require our Founded Entities to recall or cease marketing their therapeutics. Akili and Gelesis received de novo classification for EndeavorRx and Plenity, respectively, from the FDA. Once a medical device is permitted to be legally marketed in the United States pursuant to a 510(k) clearance, de novo classification, or a premarket approval, or PMA, a manufacturer may be required to notify the FDA of certain modifications to the device. Manufacturers determine in the first instance whether a change to a medical device requires a new premarket submission, but the FDA may review any manufacturer’s decision. The FDA may not agree with our Founded Entities’ decisions regarding whether new clearances, authorizations or approvals are necessary. They may make modifications or add additional features in the future that they believe do not require a new 510(k) clearance, de novo marketing authorization, or approval of a PMA or PMA amendments or supplements. If the FDA disagrees with their determinations and requires them to submit new 510(k) notifications, requests for de novo classification, or PMAs (or PMA supplements or amendments) for modifications to their previously cleared or authorized therapeutics for which they have concluded that new clearances, authorization or approvals are unnecessary, they may be required to cease marketing or to recall the modified therapeutic until they obtain clearance, authorization or approval, and they may be subject to significant regulatory fines or penalties. In the EU, devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021 may generally continue to be made available on the market or put into service, provided that the requirements of the transitional provisions are fulfilled. In particular, no substantial change must be made to the device as such a modification would trigger the obligation to obtain a new certification under the EU Medical Devices Regulation and therefore to have a notified body conducting a new conformity assessment of the devices. Once our devices will be certified under the EU Medical Devices Regulation, we must inform the notified body that carried out the conformity assessment of the medical devices that we market or sell in the EU and the EEA of any planned substantial changes to our quality system or substantial changes to our medical devices that could affect compliance with the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation or cause a substantial change to the intended use for which the device has been CE marked. The notified body will then assess the planned changes and verify whether they affect the products’ ongoing conformity with the EU Medical Devices Regulation. If the assessment is favorable, the notified body will issue a new certificate of conformity or an addendum to the existing certificate attesting compliance with the general safety and performance requirements and quality system requirements laid down in the Annexes to the EU Medical Devices Regulation. The notified body may disagree with our proposed changes and product introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business.
196 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Founded Entities may develop, which we expect will require separate regulatory clearance, certification, authorization or approval prior to commercialization. In addition, if safe and effective use of a therapeutic product depends on an in vitro companion diagnostic, the FDA generally will require approval, authorization or clearance of that diagnostic, known as a companion diagnostic, before or at the same time that the FDA approves the therapeutic product. In addition, the FDA has historically required approval of a PMA application for companion diagnostics associated with cancer medications. However, in January 2024, the FDA announced its intention to initiate the process to reclassify into Class II most in vitro diagnostic tests that are currently regulated as Class III medical devices, including certain companion diagnostic in-vitro diagnostics. If such reclassification efforts occur, any companion diagnostics that are the subject of the down-classification may no longer require approval of a PMA application, but rather may be marketed pursuant to the generally less burdensome 510(k) clearance process. However, there is no assurance that any companion diagnostic required for therapeutic candidates within our Internal Programs or those of our Founded Entities will benefit from the reclassification, or that the reclassification, even if it does occur, will result in a shorter timeline to development or marketing of the companion diagnostic. We or our Founded Entities may rely on third parties for the design, development and manufacture of companion diagnostic tests for our Internal Programs’ or our Founded Entities’ therapeutic candidates that may require such tests. If we or our Founded Entities enter into such collaborative agreements, we will be dependent on the sustained cooperation and effort of our future collaborators in developing and obtaining approval for these companion diagnostics. It may be necessary to resolve issues such as selectivity/specificity, analytical validation, reproducibility, or clinical validation of companion diagnostics during the development and regulatory clearance, certification, authorization or approval processes. Moreover, even if data from preclinical studies and early clinical trials appear to support development of a companion diagnostic for a therapeutic candidate, data generated in later clinical trials may fail to support the analytical and clinical validation of the companion diagnostic. We, our Founded Entities and our future collaborators may encounter difficulties in developing, obtaining regulatory clearance, certification, authorization or approval for, manufacturing and commercializing companion diagnostics similar to those we face with respect to the therapeutic candidates within our Internal Programs themselves, including issues with achieving regulatory clearance, certification, authorization or approval, production of sufficient quantities at commercial scale and with appropriate quality standards, and in gaining market acceptance. If we or our Founded Entities are unable to successfully develop companion diagnostics for these therapeutic candidates, or experience delays in doing so, the development of these therapeutic candidates may be adversely affected, these therapeutic candidates may not obtain marketing approval, and we may not realize the full commercial potential of any of these therapeutic candidates that obtain marketing approval. As a result, our business, results of operations and financial condition could be materially harmed. In addition, a diagnostic company with whom we or our Founded Entities contract may decide to discontinue selling or manufacturing the companion diagnostic test that we anticipate using in connection with development and commercialization of our Internal Programs or our Founded Entities’ therapeutic candidates or our relationship with such diagnostic company may otherwise terminate. We or our Founded Entities may not be able to enter into arrangements with another diagnostic company to obtain supplies of an alternative diagnostic test for use in connection with the development and commercialization of our Internal Programs or our Founded Entities’ therapeutic candidates or do so on commercially reasonable terms, which could adversely affect and/or delay the development or commercialization of our or our Founded Entities’ therapeutic candidates. For any cleared, certified, authorized or approved therapeutic, we or our Founded Entities will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we or our Founded Entities may be subject to penalties if we or our Founded Entities fail to comply with regulatory requirements or experience unanticipated problems with the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. Gelesis’ Plenity and Akili’s EndeavorRx are, and any of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates that are cleared, certified, authorized or approved will be, subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record- keeping, conduct of post-marketing studies, and submission of safety, efficacy and other post-market information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities. not generate sufficient return in the EU to justify the necessary investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized for marketing in the EU or, if such method exists, the product will be of significant benefit to those affected by that condition. Orphan drug designation entitles a party to financial incentives, such as tax advantages and user fee waivers. Additionally, if a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same disease or condition for seven years, except in certain circumstances, such as a showing of clinical superiority (i.e., another product is safer, more effective or makes a major contribution to patient care) over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. Competitors, however, may receive approval of different products for the same disease or condition for which the orphan product has exclusivity, or obtain approval for the same product but for a different disease or condition than that for which the orphan product has exclusivity. In the EU, orphan designation must be requested before submitting an MAA. An EU orphan designation entitles a party to incentives such as reduction of fees or fee waivers, protocol assistance, and access to the centralized procedure. Upon grant of a marketing authorization, orphan medicinal products are entitled to ten years of market exclusivity for the approved indication, which means that the competent authorities cannot accept another MAA, or grant a marketing authorization, or accept an application to extend a marketing authorization for a similar medicinal product for the same indication for a period of ten years. The period of market exclusivity is extended by two years for orphan medicinal products that have also complied with an agreed pediatric investigation plan, or PIP. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications. We have obtained orphan drug designation in the United States for LYT- 200 for the treatment of pancreatic cancer and for the treatment of acute myeloid leukemia, and we may also seek orphan drug designation for other of our therapeutic candidates in the future. We may not be the first to obtain regulatory approval of any therapeutic candidate for its orphan- designated disease or condition and may therefore not obtain orphan drug exclusivity. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an disease or condition broader than the orphan-designated disease or condition or may be lost if the FDA later determines that the request for orphan designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition. In the EU, the orphan exclusivity period may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for which it received orphan drug destination, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity or where the prevalence of the condition has increased above the threshold. Additionally, a marketing authorization may be granted to a similar product for the same indication at any time if (i) the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; (ii) the applicant consents to a second orphan medicinal product application; or (iii) the applicant cannot supply enough orphan medicinal product. Orphan drug designation does not ensure that we will receive marketing exclusivity in a particular market, and we cannot assure you that any future application for orphan drug designation with respect to any other therapeutic candidate will be granted. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process. If we or our Founded Entities are unable to successfully validate, develop and obtain regulatory clearance, certification, authorization or approval for companion diagnostic tests for any future drug candidates that require or would commercially benefit from such tests, or experience significant delays in doing so, we or our Founded Entities may not realize the full commercial potential of these drug candidates. In connection with the clinical development of the therapeutic candidates within our Internal Programs or Founded Entities’ therapeutic candidates for certain indications, we or our Founded Entities may work with collaborators to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our drug candidates. To be successful, we, our Founded Entities or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we or our
PureTech Health plc Annual Report and Accounts 2023 197 Risk Factor Annex continued A d d itio nal info rm atio n a high level of protection of health and safety, taking into account the generally acknowledged state of the art. To demonstrate compliance with the general safety and performance requirements, we or our Founded Entities must undergo a conformity assessment procedure, which varies according to the type of medical device and its (risk) classification. Except for low risk medical devices (Class I), where the manufacturer can self-assess the conformity of its products with the general safety and performance requirements (except for any parts which relate to sterility, metrology or reuse aspects), a conformity assessment procedure requires the intervention of a notified body. The notified body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices. If satisfied that the relevant product conforms to the relevant general safety and performance requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE mark to the device, which allows the device to be placed on the market throughout the EU. If we fail to comply with applicable laws and regulations, we would be unable to affix the CE mark to our products, which would prevent us from selling them within the EU. In June 2020, Gelesis received a certification for Plenity as a class III medical device indicated for weight loss in overweight and obese adults with a Body Mass Index of 25-40 kg/m2, when used in conjunction with diet and exercise. Also in June 2020, Akili received a certification for EndeavorRx as a prescription-only digital therapeutic software intended for the treatment of attention and inhibitory control deficits in paediatric patients with ADHD. We or our Founded Entities could also be required to conduct post- marketing clinical trials to verify the safety and efficacy of our or our Founded Entities’ therapeutics in general or in specific patient subsets. If original marketing approval of a drug or biologic was obtained via an accelerated approval pathway, we or our Founded Entities could be required to conduct a successful post-marketing clinical trial to confirm clinical benefit for our or our Founded Entities’ therapeutics. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing clearance, certification, authorization or approval. If a regulatory agency discovers previously unknown problems with a therapeutic, such as AEs of unanticipated severity or frequency, or problems with the facility where the therapeutic is manufactured, or disagrees with the promotion, marketing or labeling of a therapeutic, such regulatory agency may impose restrictions on that therapeutic or us, including requiring withdrawal of the therapeutic from the market. If we or our Founded Entities fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things: — issue warning letters that would result in adverse publicity; — impose civil or criminal penalties; — suspend or withdraw regulatory approvals or certifications; — suspend any of our or our Founded Entities’ ongoing clinical trials; — refuse to approve pending applications or supplements to approved applications submitted by us or our Founded Entities; — impose restrictions on our operations, including closing our CMOs’ facilities; — seize or detain therapeutics; or — require a recall. Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our therapeutics. If regulatory sanctions are applied or if regulatory clearance, authorization or approval is withdrawn, the value of our company and our operating results will be adversely affected. The FDA’s and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory clearance, certification, authorization or approval of the therapeutic candidates within our Internal Program or our Founded Entities’ therapeutic candidates. In addition, the FDA has historically required approval of a PMA application for companion diagnostics associated with cancer medications. However, in January 2024, the FDA announced its intention to initiate the process to reclassify into Class II most in vitro diagnostic tests that are currently regulated as Class III medical devices, including certain companion diagnostic in-vitro diagnostics. If such reclassification efforts occur, any companion diagnostics that are the subject of the down-classification may no longer require approval of a PMA application, but rather may be marketed pursuant to the generally less burdensome 510(k) clearance process. However, there is no assurance that any companion diagnostic required for therapeutic candidates within our Internal Programs or those Manufacturers and manufacturers’ facilities are required to comply with extensive requirements imposed by the FDA, the EMA and other comparable foreign regulatory authorities, including ensuring that quality control and manufacturing procedures conform to current good manufacturing practices, or cGMP, or similar foreign regulations. As such, we and our CMOs are subject to continual review and inspections to assess compliance with cGMP, or similar foreign requirements and adherence to commitments made in any marketing authorization, and any future 510(k), de novo classification, certification, PMA, NDA, BLA or marketing authorization application, or MAA, or equivalent application. We and our CMOs are also subject to requirements pertaining to the registration of our manufacturing facilities and the listing of our and our Founded Entities’ therapeutics and therapeutic candidates with the FDA; continued complaint, adverse event and malfunction reporting; corrections and removals reporting; and labeling and promotional requirements. Accordingly, we and others with whom we work must continue to expend time, money, and effort in all areas of regulatory compliance, including manufacturing, production and quality control. Gelesis’ and Akili’s marketing authorizations and certifications for Plenity and EndeavorRx, respectively, are and any regulatory clearances, certification, authorization or approvals that we may receive for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates will be, subject to limitations on the cleared, certified, authorized or approved indicated uses for which the therapeutic may be marketed and promoted or to the conditions of approval. Any regulatory clearances, certifications, authorizations or approvals that we may receive for the therapeutic candidates within our Internal Programs may contain requirements for potentially costly post-marketing testing, such as Phase 4 clinical trials and surveillance to monitor the safety and efficacy of a drug therapeutic. We are required to report certain adverse reactions and production problems, if any, to the FDA and other comparable foreign regulatory authorities. Any new legislation addressing drug or medical safety issues could result in delays in therapeutic development or commercialization, or increased costs to assure compliance. The FDA and other agencies, including the U.S. Department of Justice, and for certain therapeutics, the Federal Trade Commission, closely regulate and monitor the marketing, labeling, advertising and promotion of therapeutics to ensure that they are manufactured, marketed and distributed only for the cleared, certified, authorized or approved indications and in accordance with the provisions of the cleared, certified, authorized or approved labeling. We are, and will be, required to comply with requirements concerning advertising and promotion for the therapeutic candidates within our Internal Programs, if cleared, certified, authorized or approved. For example, promotional communications with respect to prescription drugs and medical devices are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the therapeutic’s label or labeling. We may not promote our therapeutics for indications or uses for which they do not have approval, certification, authorization or clearance. The holder of a cleared 510(k), de novo classification, certification or an approved NDA, BLA, PMA, MAA or equivalent marketing authorization must submit new or supplemental applications and obtain clearance, authorization or approval for certain changes to the approved therapeutic, therapeutic labeling, or manufacturing process. For example, any modification to Plenity or EndeavorRx that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use could require a new 510(k) clearance, de novo classification, certification or approval of PMA application. Delays in obtaining required clearances, certifications or approvals would harm our ability to introduce new or enhanced therapeutic in a timely manner, which in turn would harm our or our Founded Entities’ future growth. Failure to submit a new or supplemental application and to obtain approval or certification for certain changes prior to marketing the modified therapeutic may require a recall or to stop selling or distributing the marketed therapeutic as modified, and may lead to significant enforcement actions. Subject to the transitional provisions and in order to sell our products in EU member states, our products must comply with the general safety and performance requirements set forth in the new EU Medical Device Regulation (EU) 2017/745, which repeals and replaces the EU Medical Devices Directive. Compliance with these requirements is a prerequisite to be able to affix the European Conformity, or “CE”, mark to our products, without which they cannot be marketed or sold in the EU. All medical devices placed on the market in the EU must meet the general safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation (EU) 2017/745 including the requirement that a medical device must be designed and manufactured in such a way that, during normal conditions of use, it is suitable for its intended purpose. Medical devices must be safe and effective and must not compromise the clinical condition or safety of patients, or the safety and health of users and – where applicable – other persons, provided that any risks which may be associated with their use constitute acceptable risks when weighed against the benefits to the patient and are compatible with
198 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n For any of our products or therapeutic candidates classified as controlled substances, we and our suppliers, manufacturers, contractors, customers and distributors are required to obtain and maintain applicable registrations from state, federal and foreign law enforcement and regulatory agencies and comply with state, federal and foreign laws and regulations regarding the manufacture, use, sale, importation, exportation and distribution of controlled substances. There is a risk that DEA regulations may limit the supply of the compounds used in clinical trials for our therapeutic candidates, and, in the future, the ability to produce and distribute our products in the volume needed to meet commercial demand. Regulations associated with controlled substances govern manufacturing, labeling, packaging, testing, dispensing, production and procurement quotas, recordkeeping, reporting, handling, shipment and disposal. These regulations increase the personnel needs and the expense associated with development and commercialization of therapeutic candidates including controlled substances. The DEA, and some states, conduct periodic inspections of registered establishments that handle controlled substances. Failure to obtain and maintain required registrations or comply with any applicable regulations could delay or preclude us from developing and commercializing our therapeutic candidates containing controlled substances and subject us to enforcement action. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In some circumstances, violations could lead to criminal proceedings. Because of their restrictive nature, these regulations could limit commercialization of any of our products or therapeutic candidates that are classified as controlled substances. The EU legislation does not establish different classes of narcotic or psychotropic substances. However, the United Nations, or UN, Single Convention on Narcotic Drugs of 1961 and the UN Convention on Psychotropic Substances of 1971, or the UN Conventions, codify internationally applicable control measures to ensure the availability of narcotic drugs and psychotropic substances for medical and scientific purposes. The individual EU member states are all signatories to these UN Conventions. All signatories have a dual obligation to ensure that these substances are available for medical purposes and to protect populations against abuse and dependence. The UN Conventions regulate narcotic drugs and psychotropic substances as Schedule I, II, III, IV substances with Schedule II substances presenting the lowest relative risk of abuse among such substances and Schedule I and IV substances considered to present the highest risk of abuse. The UN Conventions require signatories to require all persons manufacturing, trading (including exporting and importing) or distributing controlled substances to obtain a license from the relevant authority. Each individual export or import of a controlled substance must also be subject to an authorization. The obligations provided in the UN Conventions and additional requirements are implemented at national level and requirements may vary from one member state to another. In order to develop and commercialize our products in the EU, we need to comply with the national requirements related to controlled substances which is costly and may affect our development plans in the EU. Risks Related to Manufacturing our Therapeutic Candidates or Those of our Founded Entities Certain of the therapeutic candidates being developed by us or our Founded Entities are novel, complex and difficult to manufacture. We could experience manufacturing problems that result in delays in our development or commercialization programs or otherwise harm our business. The manufacturing processes our CMOs use to produce our and our Founded Entities’ therapeutic candidates are complex and in certain cases novel. Several factors could cause production interruptions, including inability to develop novel manufacturing processes, equipment malfunctions, facility contamination, raw material shortages or contamination, natural disasters, disruption in utility services, human error or disruptions in the operations of our suppliers, including acquisition of the supplier by a third party or declaration of bankruptcy. For example, Vedanta has its own proprietary cGMP manufacturing facilities for certain therapeutic candidates, including VE202, VE303, VE800 and VE416. Creating defined consortia of live microbial therapeutics for these therapeutic candidates is inherently complex, and therefore can be vulnerable to delays. The expertise required to manufacture these therapeutic candidates is unique to Vedanta, and as a result, it would be difficult and time consuming to find an alternative CMO. In addition, manufacturing of clinical supply for certain of our therapeutic candidates is dependent on third party CMOs, and manufacturing such therapeutic candidates is inherently complex. of our Founded Entities will benefit from the reclassification, or that the reclassification, even if it does occur, will result in a shorter timeline to development or marketing of the companion diagnostic. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If these legislative or administrative actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted. Outside of the United States, for instance, the EU pharmaceutical legislation is currently undergoing a complete review process, in the context of the Pharmaceutical Strategy for Europe initiative, launched by the European Commission in November 2020. The European Commission’s proposal for revision of several legislative instruments related to medicinal products (potentially reducing the duration of regulatory data protection, revising the eligibility for expedited pathways, etc.) was published on April 26, 2023. The proposed revisions, remain to be agreed and adopted by the European Parliament and European Council, and the proposals may therefore be substantially revised before adoption, which is not anticipated before early 2026. The revisions may, however, have a significant impact on the biopharmaceutical industry in the long term. The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If, for any of our Internal Programs that are cleared or approved, we are found to have improperly promoted off-label uses of those therapeutics, we may become subject to significant liability. The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription therapeutics, if cleared, authorized or approved. In particular, while the FDA permits the dissemination of truthful and non-misleading information about a cleared, authorized or approved therapeutic, a manufacturer may not promote a therapeutic for uses that are not cleared, authorized or approved by the FDA or such other regulatory agencies as reflected in the therapeutic’s cleared, authorized or approved labeling. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees, corporate integrity agreements or permanent injunctions under which specified promotional conduct must be changed or curtailed. If we cannot successfully manage the promotion of the therapeutic candidates within our Internal Programs, if cleared, authorized or approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition. Certain of our therapeutic candidates may be regulated as controlled substances, the making, use, sale, importation, exportation, and distribution of which are subject to significant regulation by the U.S. Drug Enforcement Administration, or DEA, and other regulatory agencies. We expect that certain of our therapeutic candidates, if approved, will be regulated as controlled substances, which are subject to state, federal, and foreign laws and regulations regarding their manufacture, use, sale, importation, exportation, and distribution. Among other things, controlled substances are regulated under the federal Controlled Substances Act of 1970, or CSA, and regulations of the DEA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use and may not be marketed or sold in the United States. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. Certain of our other therapeutic candidates contain Schedule IV substances, which subjects such therapeutic candidates to additional restrictions regarding their manufacture, shipment, storage, sale and use, depending on the scheduling of the active ingredients, and may limit the commercial potential of any of our therapeutic candidates, if approved. Various states also independently regulate controlled substances. Though state controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule drugs as well. While some states automatically schedule a drug when the DEA does so, in other states there must be rulemaking or a legislative action. State scheduling may delay commercial sale of any controlled substance drug product for which we obtain federal regulatory approval and adverse scheduling could impair the commercial attractiveness of such product. We or our collaborators must also obtain separate state registrations in order to be able to obtain, handle and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.
PureTech Health plc Annual Report and Accounts 2023 199 Risk Factor Annex continued A d d itio nal info rm atio n therapeutic candidate according to specifications previously submitted to the FDA or another regulatory authority. We might be unable to identify manufacturers for long-term clinical and commercial supply on acceptable terms or at all. Manufacturers are subject to ongoing periodic announced and unannounced inspection by the FDA and other governmental authorities to ensure compliance with government regulations. As a result, our third-party manufacturers may be subject to increased scrutiny. If we were to experience an unexpected loss of supply for clinical development or commercialization, we could experience delays in our ongoing or planned clinical trials as our third-party manufacturers would need to manufacture additional quantities of our clinical and commercial supply and we may not be able to provide sufficient lead time to enable our third-party manufacturers to schedule a manufacturing slot, or to produce the necessary replacement quantities. This could result in delays in progressing our clinical development activities and achieving regulatory approval for our therapeutics, which could materially harm our business. The manufacture of pharmaceutical therapeutics is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. We and our contract manufacturers must comply with cGMP or similar foreign regulations and guidelines. Manufacturers of pharmaceutical therapeutics often encounter difficulties in production, particularly in scaling up and validating initial production. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if microbial, viral or other contaminations are discovered in our therapeutics or in the manufacturing facilities in which our therapeutic candidate are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. We cannot assure you that any stability or other issues relating to the manufacture of any of our therapeutic candidates will not occur in the future. Additionally, our manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If our manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, our ability to provide any therapeutic candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require us to commence new clinical trials at additional expense or terminate clinical trials completely. Any adverse developments affecting clinical or potential commercial manufacturing of our therapeutic candidates may result in shipment delays, inventory shortages, lot failures, therapeutic withdrawals or recalls, or other interruptions in the supply of our therapeutic candidates. We may also have to take inventory write-offs and incur other charges and expenses for therapeutic candidates that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. Accordingly, failures or difficulties faced at any level of our supply chain could materially adversely affect our business and delay or impede the development and commercialization of any of our therapeutic candidates and could have a material adverse effect on our business, prospects, financial condition and results of operations. Our or our Founded Entities’ therapeutic candidates must be manufactured in accordance with federal, state and international regulations, and we or our Founded Entities could be forced to recall our or our Founded Entities’ medical devices and therapeutic candidates or terminate production if we or our Founded Entities fail to comply with these regulations. The methods used in, and the facilities used for, the manufacture of medical device therapeutics and therapeutic candidates of our Founded Entities, including Gelesis, Akili, Follica and Sonde, must comply with the FDA’s cGMPs for medical devices, known as the QSR, which is a complex regulatory scheme that covers the procedures and documentation of, among other requirements, the design, testing, validation, verification, complaint handling, production, process controls, quality assurance, labeling, supplier evaluation, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we and our Founded Entities are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA enforces the QSR through, among other oversight methods, periodic announced or unannounced inspections of medical device manufacturing facilities, which may include the facilities of subcontractors, suppliers or CMOs. Our and our Founded Entities’ therapeutics and therapeutic candidates are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing. Some of our and our Founded Entities’ therapeutic candidates include biologics, some of which have physical and chemical properties that cannot be fully characterized. As a result, assays of the finished product may not be sufficient to ensure that the therapeutic candidate is consistent from lot-to-lot or will perform in the intended manner. Accordingly, our CMOs must employ multiple steps to control the manufacturing process to assure that the process is reproducible and the therapeutic candidate is made strictly and consistently in compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result in therapeutic defects or manufacturing failures that result in lot failures, therapeutic recalls, product liability claims or insufficient inventory to conduct clinical trials or supply commercial markets. We or our Founded Entities may encounter problems achieving adequate quantities and quality of clinical-grade materials that meet the FDA, the EMA or other applicable standards or specifications with consistent and acceptable production yields and costs. In addition, the FDA and other foreign regulatory authorities may require us or our Founded Entities to submit samples of any lot of any approved therapeutic together with the protocols showing the results of applicable tests at any time. Under some circumstances, the FDA or other foreign regulatory authorities may require that we or our Founded Entities not distribute a lot until the agency authorizes its release. Slight deviations in the manufacturing process, including those affecting quality attributes and stability, may result in unacceptable changes in the therapeutic that could result in lot failures or therapeutic recalls. Lot failures or therapeutic recalls could cause us or our Founded Entities to delay therapeutic launches or clinical trials, which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects. Our CMOs also may encounter problems hiring and retaining the experienced scientific, quality assurance, quality-control and manufacturing personnel needed to operate our manufacturing processes, which could result in delays in production or difficulties in maintaining compliance with applicable regulatory requirements. Any problems in our CMOs’ manufacturing process or facilities could result in delays in planned clinical trials and increased costs, and could make us a less attractive collaborator for potential partners, including larger biotechnology companies and academic research institutions, which could limit access to additional attractive development programs. Problems in our manufacturing process could restrict our ability to meet potential future market demand for therapeutics. We do not currently have nor do we plan to acquire the infrastructure or capability internally to manufacture our clinical drug supplies for use in the conduct of our clinical trials, and we lack the resources and the capability to manufacture the therapeutic candidates within our Internal Programs on a clinical or commercial scale. Instead, we rely on our third-party manufacturing partners for the production of the active pharmaceutical ingredient, or API, and drug formulation. The facilities used by our third- party manufacturers to manufacture our therapeutic candidates that we may develop must be successfully inspected by the applicable regulatory authorities, including the FDA, after we submit any NDA or BLA to the FDA. We are currently completely dependent on our third-party manufacturers for the production of certain of our therapeutic candidates in accordance with cGMPs or similar foreign requirements, which include, among other things, quality control, quality assurance and the maintenance of records and documentation. Although we have entered into agreements for the manufacture of clinical supplies for such therapeutic candidates, our third-party manufacturers may not perform as agreed, may be unable to comply with these cGMP or similar foreign requirements and with FDA, state and foreign regulatory requirements or may terminate its agreement with us. If any of our third-party manufacturers cannot successfully manufacture material that conforms to our specifications and the applicable regulatory authorities’ strict regulatory requirements, pass regulatory inspection or maintain a compliance status acceptable to the FDA or state or foreign regulatory authorities, our NDAs, BLAs or MAAs will not be approved. In addition, although we are ultimately responsible for ensuring therapeutic quality, we have no direct day-to-day control over our third-party manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel. If our third-party manufacturers are unable to satisfy the regulatory requirements for the manufacture of our therapeutics, if approved, or if our suppliers or third-party manufacturers decide they no longer want to manufacture our therapeutics, we will need to find alternative manufacturing facilities, which would be time-consuming and significantly impact our ability to develop, obtain regulatory approval for or market our therapeutics, if approved. If we are required to change contract manufacturers for any reason, we will be required to show that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations. We will also need to verify, such as through a manufacturing comparability study, that any new manufacturing process or procedure will produce our
200 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Programs or may be unable to do so on terms that are favorable to us or them. We may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our therapeutics effectively or may expose us to legal and regulatory risk by not adhering to regulatory requirements and restrictions governing the sale and promotion of prescription drug therapeutics, including those restricting off-label promotion. If we do not establish commercialization capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing the therapeutic candidates within our Internal Programs, if approved. Even if any current or future therapeutic candidate of ours receives regulatory clearance or approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable. We have never commercialized a therapeutic, and even if any current or future therapeutic candidate of ours is approved by the appropriate regulatory authorities for marketing and sale, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians may be reluctant to take their patients off their current medications and switch their treatment regimen. Further, patients often acclimate to the treatment regime that they are currently taking and do not want to switch unless their physicians recommend switching therapeutics or they are required to switch due to lack of coverage and adequate reimbursement. In addition, even if we are able to demonstrate our Internal Programs’ safety and efficacy to the FDA and other regulators, safety or efficacy concerns in the medical community may hinder market acceptance. Efforts to educate the medical community and third-party payors on the benefits of the therapeutic candidates within our Internal Programs may require significant resources, including management time and financial resources, and may not be successful. The degree of market acceptance of the therapeutic candidates within our Internal Programs, if approved for commercial sale, will depend on a number of factors, including: — the efficacy and safety of the therapeutic; — the potential advantages of the therapeutic compared to competitive therapies; — the prevalence and severity of any side effects; — whether the therapeutic is designated under physician treatment guidelines as a first-, second- or third-line therapy; — our ability, or the ability of any future collaborators, to offer the therapeutic for sale at competitive prices; — the therapeutic’s convenience and ease of administration compared to alternative treatments; — the willingness of the target patient population to try, and of physicians to prescribe, the therapeutic; — limitations or warnings, including distribution or use restrictions contained in the therapeutic’s approved labelling; — the strength of sales, marketing and distribution support; — changes in the standard of care for the targeted indications for the therapeutic; and — availability and adequacy of coverage and reimbursement from government payors, managed care plans and other third-party payors. Sales of medical therapeutics also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by these physicians that the therapeutics are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of therapeutics from treatment guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private insurers will determine that our therapeutic is safe, therapeutically effective and cost effective as compared with competing treatments. If any therapeutic candidates we develop do not achieve an adequate level of acceptance, we may not generate significant therapeutic revenue, and we may not become profitable. Any failure by any current or future therapeutic candidate of ours that obtains regulatory approval to achieve market acceptance or commercial success would adversely affect our business prospects. In addition, any negative perception of one of our Founded Entities or any therapeutic candidates marketed or commercialized by them may adversely affect our reputation in the marketplace or among industry participants and our business prospects. Our or our Founded Entities’ third-party manufacturers may not take the necessary steps to comply with applicable regulations or our or our Founded Entities’ specifications, which could cause delays in the delivery of our therapeutic candidates. In addition, failure to comply with applicable FDA or comparable foreign requirements or later discovery of previously unknown problems with our or our Founded Entities’ therapeutics or therapeutic candidates or manufacturing processes could result in, among other things: warning letters or untitled letters; civil penalties; suspension or withdrawal of approvals or clearances; seizures or recalls of our or our Founded Entities’ therapeutics; total or partial suspension of production or distribution; administrative or judicially imposed sanctions; the FDA’s or foreign regulatory authorities’ refusal to grant pending or future clearances, certifications, authorizations, or approvals for our or our Founded Entities’ therapeutic candidates; clinical holds; refusal to permit the import or export of our or our Founded Entities’ therapeutics or therapeutic candidates; and criminal prosecution of us or our employees. Any of these actions could significantly and negatively impact supply of our or our Founded Entities’ therapeutics or therapeutic candidates. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we or our Founded Entities could lose customers and suffer reduced revenue and increased costs. Risks Related to Commercialization If, in the future, we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any therapeutic candidates we may develop, we may not be successful in commercializing those therapeutic candidates if and when they are approved. We do not have a sales or marketing infrastructure or the capabilities for sale, marketing, or distribution of pharmaceutical therapeutics. To achieve commercial success for any approved therapeutic for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to third parties. In the future, we may choose to build a focused sales, marketing, and commercial support infrastructure to market and sell the therapeutic candidates within our Internal Programs, if and when they are approved. We may also elect to enter into collaborations or strategic partnerships with third parties to engage in commercialization activities with respect to selected therapeutic candidates, indications or geographic territories, including territories outside the United States, although there is no guarantee we will be able to enter into these arrangements even if the intent is to do so. There are risks involved with both establishing our own commercial capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force or reimbursement specialists is expensive and time consuming and could delay any therapeutic launch. If the commercial launch of a therapeutic candidate for which we recruit a sales force and establish marketing and other commercialization capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition commercialization personnel. Factors that may inhibit our efforts to commercialize any approved therapeutic on our own include: — the inability to recruit and retain adequate numbers of effective sales, marketing, reimbursement, customer service, medical affairs, and other support personnel; — the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future approved therapeutics; — the inability of reimbursement professionals to negotiate arrangements for formulary access, reimbursement, and other acceptance by payors; — the inability to price therapeutics at a sufficient price point to ensure an adequate and attractive level of profitability; — restricted or closed distribution channels that make it difficult to distribute our therapeutics to segments of the patient population; — the lack of complementary therapeutics to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive therapeutic lines; and — unforeseen costs and expenses associated with creating an independent commercialization organization. If we enter into arrangements with third parties to perform sales, marketing, commercial support, and distribution services, our therapeutic revenue or the profitability of therapeutic revenue may be lower than if we were to market and sell any therapeutics we may develop internally. In addition, we may not be successful in entering into arrangements with third parties to commercialize the therapeutic candidates within our Internal
PureTech Health plc Annual Report and Accounts 2023 201 Risk Factor Annex continued A d d itio nal info rm atio n costs by limiting coverage and the amount of reimbursement for particular medications. In many countries, the prices of medical therapeutics are subject to varying price control mechanisms as part of national health systems. In general, the prices of medicines under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that we are able to charge for the therapeutic candidates within our Internal Programs. Accordingly, in markets outside the United States, the reimbursement for therapeutics may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits. There is also significant uncertainty related to the insurance coverage and reimbursement of newly approved therapeutics and coverage may be more limited than the purposes for which the medicine is approved by the FDA or comparable foreign regulatory authorities. In the United States, the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S. Department of Health and Human Services. CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare and private payors tend to follow CMS to a substantial degree. No uniform policy of coverage and reimbursement for therapeutics exists among third-party payors and coverage and reimbursement levels for therapeutics can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that may require us to provide scientific and clinical support for the use of our therapeutics to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally novel therapeutics such as ours, as there is no body of established practices and precedents for these new therapeutics. Reimbursement agencies in Europe may be more conservative than CMS. For example, a number of cancer drugs have been approved for reimbursement in the United States and have not been approved for reimbursement in certain European countries. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved therapeutics we may develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize therapeutic candidates, and our overall financial condition. As noted above, in the United States we plan to have various programs to help patients afford our therapeutics, including patient assistance programs and co-pay coupon programs for eligible patients. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates third-party payors for any approved therapeutics that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize therapeutics and our overall financial condition. Increasingly, third-party payors are requiring that pharmaceutical companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical therapeutics. We cannot be sure that reimbursement will be available for any therapeutic candidate that we commercialize and, if reimbursement is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any therapeutic or therapeutic candidate for which we obtain marketing approval. In order to obtain reimbursement, physicians may need to show that patients have superior treatment outcomes with our therapeutics compared to standard of care drugs, including lower-priced generic versions of standard of care drugs. We expect to experience pricing pressures in connection with the sale of any of the therapeutic candidates within our Internal Programs, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new therapeutics. Additionally, we may develop companion diagnostic tests for use with our The incidence and prevalence for target patient populations of our therapeutic candidates have not been established with precision. If the market opportunities for our therapeutic candidates are smaller than we estimate, or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability may be materially adversely affected. The precise incidence and prevalence for all the conditions we aim to address with our therapeutic candidates are unknown and cannot be precisely determined. Our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our therapeutic candidates, are based on beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of these diseases. The total addressable market across all of our therapeutic candidates will ultimately depend upon, among other things, the diagnosis criteria included in the final label for each of our therapeutic candidates approved for sale for these indications, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with our products or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our therapeutic candidates, if the potential target populations are very small, we may never achieve profitability despite obtaining such significant market share. The insurance coverage and reimbursement status of newly-approved therapeutics is uncertain. The therapeutic candidates within our Internal Programs may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business. Failure to obtain or maintain coverage and adequate reimbursement for new or current therapeutics could limit our ability to market those therapeutics and decrease our ability to generate revenue. The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs and other medical therapeutics vary widely from country to country. In the United States, healthcare reform legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a therapeutic before it can be marketed. In many countries, the pricing review period begins after marketing or therapeutic licensing approval is granted. In some foreign markets, pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a therapeutic in a particular country, but then be subject to price regulations that delay our commercial launch of the therapeutic, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the therapeutic in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more therapeutics or therapeutic candidates, even if any therapeutic candidates we may develop obtain marketing approval. Our ability to successfully commercialize our therapeutics and therapeutic candidates also will depend in part on the extent to which coverage and adequate reimbursement for these therapeutics and related treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy therapeutics. Sales of these or other therapeutic candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of the therapeutic candidates within our Internal Programs will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our therapeutics or therapeutic candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and third-party payors have attempted to control
202 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n — the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific intent to violate it; — the federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer or remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; — the federal Physician Payments Sunshine Act, created under the ACA, and its implementing regulations, which require manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the U.S. Department of Health and Human Services, or HHS, under the Open Payments Program, information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician providers (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anaesthetists, anaesthesiologist assistants and certified nurse midwives), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; — federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; — federal price reporting laws, which require manufacturers to calculate and report complex pricing metrics to government programs, where such reported prices may be used in the calculation of reimbursement and/or discounts on approved therapeutics; and — analogous state and foreign laws and regulations, such as state and foreign anti-kickback, false claims, consumer protection and unfair competition laws which may apply to pharmaceutical business practices, including but not limited to, research, distribution, sales and marketing arrangements as well as submitting claims involving healthcare items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government that otherwise restricts payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to file reports with states regarding pricing and marketing information, such as the tracking and reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities; and state and local laws requiring the registration of pharmaceutical sales representatives. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, including compensation of physicians with stock or stock options, could, despite efforts to comply, be subject to challenge under one or more of such laws. Additionally, FDA or foreign regulators may not agree that we have mitigated any risk of bias in our clinical trials due to payments or equity interests provided to investigators or institutions which could limit a regulator’s acceptance of those clinical trial data in support of a marketing application. Moreover, efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, exclusion from participation in Medicare, Medicaid and other federal healthcare programs, integrity and oversight agreements to resolve allegations of non-compliance, contractual damages, reputational harm, diminished profits and future earnings, and curtailment or restructuring of Internal Programs or our Founded Entities’ therapeutic candidates. We, or our Founded Entities or our collaborators may be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement we seek for our Internal Programs or our Founded Entities’ therapeutic candidates, once approved. Even if we or our Founded Entities obtain regulatory approval or clearance for such companion diagnostics, there is significant uncertainty regarding our ability to obtain coverage and adequate reimbursement for the same reasons applicable to our Internal Programs or our Founded Entities’ therapeutic candidates. Medicare reimbursement methodologies, whether under Part A, Part B, or clinical laboratory fee schedule may be amended from time to time, and we cannot predict what effect any change to these methodologies would have on any therapeutic candidate or companion diagnostic for which we receive approval. Risks Related to Compliance with Healthcare Laws If we fail to comply with healthcare laws, we could face substantial penalties and our business, operations and financial conditions could be adversely affected. Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the recommendation and prescription of pharmaceutical therapeutics. Arrangements with healthcare providers, third-party payors and customers can expose pharmaceutical manufacturers to broadly applicable fraud and abuse and other healthcare laws and regulations, including, without limitation, the federal Anti- Kickback Statute and the federal False Claims Act, or the FCA, which may constrain the business or financial arrangements and relationships through which such companies sell, market and distribute pharmaceutical therapeutics. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of ownership, pricing, discounting, marketing and promotion, structuring and commission(s), certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials. The applicable federal and state healthcare laws and regulations laws that may affect our ability to operate include, but are not limited to: — the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Violations are subject to civil and criminal fines and penalties for each violation, plus up to three times the remuneration involved, imprisonment of up to ten years, and exclusion from government healthcare programs. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers, on the one hand, and prescribers, purchasers and formulary managers, on the other; — federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claims Act, which impose criminal and civil penalties, including through civil “qui tam” or “whistleblower” actions, against individuals or entities for, among other things, knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal health care programs that are false or fraudulent; knowingly making or causing a false statement material to a false or fraudulent claim or an obligation to pay money to the federal government; or knowingly concealing or knowingly and improperly avoiding or decreasing such an obligation. Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of false or fraudulent claims. The government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal government alleging violations of the FCA and to share in any monetary recovery;
PureTech Health plc Annual Report and Accounts 2023 203 Risk Factor Annex continued A d d itio nal info rm atio n stop using certain tools and vendors and make other operational changes; we may have to implement alternative data transfer mechanisms under the GDPR and/ or take additional compliance and operational measures; and/ or it could otherwise affect the manner in which we provide our services and could adversely affect our business, operations and financial condition. Companies that must comply with the GDPR and UK GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million under the GDPR and £17.5 million under the UK GDPR or 4% of the annual global revenues of the noncompliant undertaking, whichever is greater. The existence of parallel regimes under the GDPR and UK GDPR, and divergence in respect of implementing or supplementary laws across the EEA and UK in certain areas, means that we could be subject to potentially overlapping or divergent enforcement actions for certain actual or perceived violations. Failure to comply with these laws and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees and other individuals about whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to collect, use and disclose the information. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business. Healthcare legislative measures aimed at reducing healthcare costs may have a material adverse effect on our business and results of operations. The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates or any future therapeutic candidates, restrict or regulate post-approval activities and affect our or our Founded Entities’ ability to profitably sell any therapeutic for which we or our Founded Entities obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our or our Founded Entities’ business in the future by requiring, for example: (i) changes to our manufacturing arrangements; (ii) additions or modifications to therapeutic labeling; (iii) the recall or discontinuation of our therapeutics; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business. In the United States, there have been and continue to be a number of legislative initiatives and judicial challenges to contain healthcare costs. For example, in March 2010, the Affordable Care Act, or the ACA, was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The ACA, among other things, subjects biological therapeutics to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70 percent point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Since the enactment of the ACA, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Payment methodologies may be subject to changes in healthcare legislation and regulatory challenges. For example, in order for a drug therapeutic to receive federal reimbursement under the Medicaid or Medicare Part B programs or to be sold directly to U.S. government agencies, the manufacturer must extend discounts to entities eligible to participate in the 340B drug pricing program. In December 2018, the CMS published a final rule permitting further collections and payments to and from certain ACA qualified health plans and health insurance issuers under the ACA risk adjustment program in response to the outcome of the federal district court litigation regarding the method CMS uses to determine this risk adjustment. Since then, the ACA risk adjustment program payment parameters have been updated annually. our operations, any of which could adversely affect our ability to operate our business and our results of operations. In addition, the approval and commercialization of any of the therapeutic candidates within our Internal Programs outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws. Failure to comply with data protection laws and regulations could lead to government enforcement actions (which could include civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business. We and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws, state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended. Depending on the facts and circumstances, we could be subject to civil, criminal, and administrative penalties if we knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, certain states have adopted data privacy and security laws and regulations, which govern the privacy, processing and protection of health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, the California Consumer Privacy Act of 2018, as amended by the California Privacy Rights Act, or collectively, the CCPA, requires covered businesses that process the personal information of California residents to, among other things: (i) provide certain disclosures to California residents regarding the business’s collection, use, and disclosure of their personal information; (ii) receive and respond to requests from California residents to access, delete, and correct their personal information, or to opt out of certain disclosures of their personal information; and (iii) enter into specific contractual provisions with service providers that process California resident personal information on the business’s behalf. Additional compliance investment and potential business process changes may also be required. Similar laws have passed in other states and are continuing to be proposed at the state and federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition. Further, in the event we decide to conduct clinical trials or continue to enroll subjects in our ongoing or future clinical trials in the European Economic Area, or EEA, or the United Kingdom, UK, we may be subject to additional privacy restrictions. The EU General Data Protection Regulation 2016/679, or GDPR, and the UK General Data Protection Regulation and the Data Protection Act 2018, or the UK GDPR, could impose comprehensive data privacy compliance obligations in relation to our collection and use of personal data, including a principle of accountability and the obligation to demonstrate compliance through policies, procedures, training and audit, as well as regulating cross-border transfers of personal data out of the EEA and the UK. In relation to data transfers from the EEA to the United States, the EU-US Data Privacy Framework, or DPF, was approved by the European Commission in July 2023 as an effective EU GDPR data transfer mechanism to U.S. entities self-certified under the DPF. The UK Extension to the DPF followed in October 2023, as an effective UK GDPR data transfer mechanism to U.S. entities self-certified under the UK Extension to the DPF. In relation to such cross border transfers of personal data, we expect the existing legal complexity and uncertainty regarding international personal data transfers to continue. In particular, we expect the European Commission approval of the current DPF to be challenged and international transfers to the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. As the regulatory guidance and enforcement landscape in relation to data transfers continue to develop, we could suffer additional costs, complaints and/or regulatory investigations or fines; we may have to
204 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n In the EU, similar developments may affect our ability to profitably commercialize our therapeutic candidates, if approved. On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment, or HTA, amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have a phased implementation depending on the concerned products. The Regulation intends to boost cooperation among EU member states in assessing health technologies, including new medicinal products as well as certain high-risk medical devices, and provide the basis for cooperation at the EU level for joint clinical assessments in these areas. It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement. Risks Related to Competition We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer, more advanced or more effective than ours, which may negatively impact our ability to successfully market or commercialize any therapeutic candidates we may develop and ultimately harm our financial condition. The development and commercialization of new drug therapeutics is highly competitive. We may face competition with respect to any therapeutic candidates that we seek to develop or commercialize in the future from major pharmaceutical companies, specialty pharmaceutical companies, and biotechnology companies worldwide. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization. There are a number of major pharmaceutical and biotechnology companies that are currently pursuing the development and commercialization of potential medicines targeting similar treatment areas as we are. If any of our competitors receive FDA or foreign regulatory authorities approval before we do, the therapeutic candidates within our Internal Programs would not be the first treatment on the market, and our market share may be limited. In addition to competition from other companies targeting our target indications, any therapeutics we may develop may also face competition from other types of therapies. Many of our current or potential competitors, either alone or with their strategic partners, have: — greater financial, technical, and human resources than we have at every stage of the discovery, development, manufacture, and commercialization of therapeutics; — more extensive resources for preclinical testing, conducting clinical trials, obtaining regulatory approvals, and in manufacturing, marketing, and selling drug therapeutics; — therapeutics that have been approved or are in late stages of development; and — collaborative arrangements in our target markets with leading companies and research institutions. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize therapeutics that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any therapeutics that we may develop. Furthermore, currently approved therapeutics could be discovered to have application for treatment of our targeted disease indications or similar indications, which could give such therapeutics significant regulatory and market timing advantages over the therapeutic candidates within our Internal Programs. Our competitors may also obtain FDA, EMA or other comparable foreign regulatory approval for their therapeutics more rapidly than we may obtain approval for ours and In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. In August 2011, the Budget Control Act of 2011, among other things, resulted in aggregate reductions of Medicare payments to providers, which went into effect in 2013, and, due to subsequent legislative amendments, will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022, unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012 further reduced Medicare payments to several types of providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. In addition, in March 2021, Congress enacted the American Rescue Plan Act of 2021, which, among other things, eliminated the statutory cap on drug manufacturers’ Medicaid Drug Rebate Program rebate liability, effective January 1, 2024. There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. On August 16, 2022, the Inflation Reduction Act of 2022, or IRA, was signed into law. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with Medicare (beginning in 2026), imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation (first due in 2023), and replaces the Part D coverage gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the Department of Health and Human Services to implement many of these provisions through guidance, as opposed to regulation, for the initial years. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to price negotiations, although the Medicare drug price negotiation program is currently subject to legal challenges. For that and other reasons, it is currently unclear how the IRA will be effectuated. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological therapeutic pricing, including price or patient reimbursement constraints, discounts, restrictions on certain therapeutic access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical therapeutics and which suppliers will be included in their prescription drug and other healthcare programs. Furthermore, there has been increased interest by third-party payors and governmental authorities in reference pricing systems and publication of discounts and list prices. There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our therapeutic. Such reforms could have an adverse effect on anticipated revenue from therapeutic candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop therapeutic candidates. We cannot predict the initiatives that may be adopted in the future. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare and/or impose price controls may adversely affect: — the demand for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, if approved; — our ability to receive or set a price that we believe is fair for our therapeutics; — our ability to generate revenue and achieve or maintain profitability; — the amount of taxes that we are required to pay; and — the availability of capital. Other healthcare reform measures may be adopted in the future, and may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, lower reimbursement, and new payment methodologies. This could lower the price that we receive for any approved therapeutic. Any denial in coverage or reduction in reimbursement from Medicare or other government-funded programs may result in a similar denial or reduction in payments from private payors, which may prevent us from being able to generate sufficient revenue, attain profitability or commercialize the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, if approved. Litigation and legislative efforts to change or repeal the ACA are likely to continue, with unpredictable and uncertain results.
PureTech Health plc Annual Report and Accounts 2023 205 Risk Factor Annex continued A d d itio nal info rm atio n Risks Related to Reliance on Third Parties We are currently party to and may seek to enter into additional collaborations, licenses and other similar arrangements and may not be successful in maintaining existing arrangements or entering into new ones, and even if we are, we may not realize the benefits of such relationships, and it could cause us to expend significant resources and give rise to substantial business risk with no assurance of financial return. We are currently parties to license and collaboration agreements with a number of universities and pharmaceutical companies and expect to enter into additional agreements as part of our business strategy. Establishing strategic collaborations is difficult and time-consuming. Our discussions with potential collaborators may not lead to the establishment of collaborations on favorable terms, if at all. Potential collaborators may reject collaborations based upon their assessment of our financial, regulatory or intellectual property position. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of therapeutic candidates or the generation of sales revenue. The success of our current and any future collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborations are subject to numerous risks, which may include risks that: — collaborators may have significant discretion in determining the efforts and resources that they will apply to collaborations; — collaborators may not pursue development and commercialization of the therapeutic candidates within our Internal Programs or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in their strategic focus due to their acquisition of competitive therapeutics or their internal development of competitive therapeutics, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; — collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial, abandon a therapeutic candidate, repeat or conduct new clinical trials or require a new formulation of a therapeutic candidate for clinical testing; — collaborators could independently develop, or develop with third parties, therapeutics that compete directly or indirectly with our therapeutics or therapeutic candidates; — a collaborator with marketing, manufacturing and distribution rights to one or more therapeutics may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities; — we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; — collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; — disputes may arise between us and a collaborator that cause the delay or termination of the research, development or commercialization of our current or future therapeutic candidates or that results in costly litigation or arbitration that diverts management attention and resources; — collaborations may be terminated, which may result in a need for additional capital to pursue further development or commercialization of the applicable current or future therapeutic candidates; — collaborators may own or co-own intellectual property covering therapeutics that result from our collaboration with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; — disputes may arise with respect to the ownership of any intellectual property developed pursuant to our collaborations; and — a collaborator’s sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings. Additionally, we may seek to enter into additional collaborations, joint ventures, licenses and other similar arrangements for the development or commercialization of the therapeutic candidates within our Internal Programs, due to capital costs required to develop or commercialize the therapeutic candidate or manufacturing constraints. We may not be successful in our efforts to establish such collaborations for the therapeutic candidates within our Internal Programs because our R&D pipeline may be insufficient, the therapeutic candidates within our Internal Programs may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view the therapeutic candidates within our Internal Programs as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity, or collaborators may may obtain orphan therapeutic exclusivity from the FDA for indications that we are targeting, which could result in our competitors establishing a strong market position before we are able to enter the market. Additionally, therapeutics or technologies developed by our competitors may render our potential therapeutic candidates uneconomical or obsolete and we may not be successful in marketing any therapeutic candidates we may develop against competitors. In addition, we could face litigation or other proceedings with respect to the scope, ownership, validity and/or enforceability of our patents relating to our competitors’ therapeutics and our competitors may allege that our therapeutics infringe, misappropriate or otherwise violate their intellectual property. The availability of our competitors’ therapeutics could limit the demand, and the price we are able to charge, for any therapeutics that we may develop and commercialize. The therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates for which we or our Founded Entities intend to seek approval as biologic therapeutics may face competition sooner than anticipated. If we or our Founded Entities are successful in achieving regulatory approval to commercialize any biologic therapeutic candidate we or our Founded Entities develop alone or with collaborators, it may face competition from biosimilar therapeutics. In the United States, certain of the therapeutic candidates within our Internal Programs and our Founded Entities’ therapeutic candidates are regulated by the FDA as biologic therapeutics subject to approval under the BLA pathway. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biologic therapeutics following the approval of an original BLA. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand therapeutic. Under the BPCIA, an application for a biosimilar therapeutic may not be submitted until four years following the date that the reference therapeutic was first licensed by the FDA. In addition, the approval of a biosimilar therapeutic may not be made effective by the FDA until 12 years after the reference therapeutic was first licensed by the FDA. During this 12-year period of exclusivity, another company may still market a competing version of the reference therapeutic if the FDA approves a full BLA for the competing therapeutic containing the sponsor’s own preclinical data and data from adequate and well- controlled clinical trials to demonstrate the safety, purity and potency of their therapeutic. In the EU, upon receiving a marketing authorization, new biological entities generally receive eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a biosimilar application. During the additional two-year period of market exclusivity, a biosimilar marketing authorization can be submitted, and the innovator’s data may be referenced, but no biosimilar product can be marketed until the expiration of the market exclusivity. We believe that any of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates that are approved as a biological therapeutic under a BLA should qualify for the 12- year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider such therapeutic candidates to be reference therapeutics for competing therapeutics, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar therapeutic, once approved, will be substituted for any one of our, our Founded Entities’ or our collaborators’ reference therapeutics in a way that is similar to traditional generic substitution for non-biologic therapeutics is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. If competitors are able to obtain marketing approval for biosimilars referencing any therapeutics that we or our Founded Entities develop alone or with collaborators that may be approved, such therapeutics may become subject to competition from such biosimilars, with the attendant competitive pressure and potential adverse consequences.
206 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n scientific standards. For example, notwithstanding the obligations of a CRO for a trial of one of the therapeutic candidates within our Internal Programs, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial. Moreover, the FDA and comparable foreign regulatory authorities require us to comply with requirements, commonly referred to as GCPs, for conducting, recording and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. The FDA and comparable foreign regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators, clinical trial sites and IRBs. If we or our third-party contractors fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving the therapeutic candidates within our Internal Programs, which would delay the regulatory approval process. We cannot be certain that, upon inspection, the FDA or comparable foreign regulatory authorities will determine that any of our clinical trials comply with GCPs. We are also required to register certain clinical trials and post the results of completed clinical trials on databases including a government-sponsored database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions. Furthermore, the third parties conducting clinical trials on our behalf are not our employees, and except for remedies available to us under our agreements with such contractors, we cannot control whether or not they devote sufficient time, skill and resources to our ongoing development programs. These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug or medical device development activities, which could impede their ability to devote appropriate time to our clinical programs. If these third parties, including clinical investigators, do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may not be able to obtain, or may be delayed in obtaining, regulatory approvals for the therapeutic candidates within our Internal Programs. If that occurs, we will not be able to, or may be delayed in our efforts to, successfully commercialize the therapeutic candidates within our Internal Programs. In such an event, our financial results and the commercial prospects for any therapeutic candidates that we seek to develop could be harmed, our costs could increase and our ability to generate revenues could be delayed, impaired or foreclosed. Our or our Founded Entities’ use of third parties to manufacture the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates and other therapeutic candidates that we or our Founded Entities may develop for preclinical studies and clinical trials may increase the risk that we or our Founded Entities will not have sufficient quantities of our or our Founded Entities’ therapeutic candidates, therapeutics, or necessary quantities of such materials on time or at an acceptable cost. With respect to certain of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, we and certain of our Founded Entities do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture drug supplies for our ongoing clinical trials or any future clinical trials that we or our Founded Entities may conduct, and we and our Founded Entities lack the resources to manufacture any therapeutic candidates on a commercial scale. We rely, and expect to continue to rely, on third-party manufacturers to produce our and certain of our Founded Entities’ therapeutic candidates or other therapeutic candidates that we or our Founded Entities may identify for clinical trials, as well as for commercial manufacture if any therapeutic candidates receive marketing authorization. Any significant delay or discontinuity in the supply of a therapeutic candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay the clinical development and potential regulatory authorization of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, which could harm our business and results of operations. We or our Founded Entities may be unable to identify and appropriately qualify third-party manufacturers or establish agreements with third-party manufacturers or do so on acceptable terms. Even if we or our Founded Entities are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including: — reliance on the third party for sourcing of raw materials, components, and such other goods as may be required for execution of its manufacturing processes and the oversight by the third party of its suppliers; pursue existing or other development-stage therapeutics or alternative technologies in preference to those being developed in collaboration with us. In addition, we face significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming and complex. Further, any future collaboration agreements may restrict us from entering into additional agreements with potential collaborators. We cannot be certain that, following a strategic transaction or license, we will achieve an economic benefit that justifies such transaction. Even if we are successful in our efforts to establish such collaborations, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such collaborations if, for example, development or approval of a therapeutic candidate is delayed, the safety of a therapeutic candidate is questioned or sales of an approved therapeutic candidate are unsatisfactory. Additionally, if we enter into R&D collaborations during the early phases of therapeutic development, success will in part depend on the performance of research collaborators. We will not directly control the amount or timing of resources devoted by research collaborators to activities related to therapeutic candidates. Research collaborators may not commit sufficient resources to our R&D programs. If any research collaborator fails to commit sufficient resources, the preclinical or clinical development programs related to the collaboration could be delayed or terminated. In addition, any potential future collaborations may be terminable by our strategic partners, and we may not be able to adequately protect our rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and commercialization of the therapeutic candidates within our Internal Programs, if approved, and may not conduct those activities in the same manner as we do. Any termination of collaborations we enter into in the future, or any delay in entering into collaborations related to the therapeutic candidates within our Internal Programs, could delay the development and commercialization of the therapeutic candidates within our Internal Programs and reduce their competitiveness if they reach the market, which could have a material adverse effect on our business, financial condition and results of operations. We anticipate relying upon strategic collaborations for marketing and commercializing our existing therapeutic candidates, and we may rely even more on strategic collaborations for R&D of other therapeutic candidates or discoveries. We may sell therapeutic offerings through strategic partnerships with pharmaceutical and biotechnology companies. If we are unable to establish or manage such strategic collaborations on terms favorable to us in the future, our R&D efforts and potential to generate revenue may be limited. If we fail to make required milestone or royalty payments to collaborators or to observe other obligations in agreements with them, the collaborators may have the right to terminate or stop performance of those agreements. Even if we successfully establish new collaborations, these relationships may never result in the successful development or commercialization of therapeutic candidates or the generation of sales revenue. To the extent that we enter into collaborative arrangements, the related therapeutic revenues are likely to be lower than if we directly marketed and sold therapeutics. Such collaborators may also consider alternative therapeutic candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for any future therapeutic candidate. Management of our relationships with collaborators will require: — significant time and effort from our management team; — coordination of our marketing and R&D programs with the marketing and R&D priorities of our collaborators; and — effective allocation of our resources to multiple projects. We rely on third parties to assist in conducting our clinical trials and some aspects of our research and preclinical testing, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials, research, or testing. We currently rely and expect to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct some aspects of research and preclinical testing and clinical trials. Any of these third parties may terminate their engagements with us or be unable to fulfill their contractual obligations. If any of our relationships with these third parties terminate, we may not be able to enter into arrangements with alternative third parties on commercially reasonable terms, or at all. If we need to enter into alternative arrangements, it would delay therapeutic development activities. Further, although our reliance on these third parties for clinical development activities limits our control over these activities, we remain responsible for ensuring that each of our trials is conducted in accordance with the applicable protocol, legal and regulatory requirements and
PureTech Health plc Annual Report and Accounts 2023 207 Risk Factor Annex continued A d d itio nal info rm atio n We and/or our CMOs must supply all necessary documentation, as applicable, in support of a marketing application, such as an NDA, BLA, PMA or MAA, on a timely basis and must adhere to regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our CMOs have never produced a commercially approved pharmaceutical therapeutic and therefore have not obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates or any of our other potential therapeutics. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates or our other potential therapeutics or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee the CMOs, we cannot control the manufacturing process of, and are completely dependent on, our CMO partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the therapeutics may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever. The regulatory authorities or notified bodies (when applicable) also may, at any time following clearance, certification or approval of a therapeutic for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our therapeutic specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business. Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer would need to be qualified. For drug and biologic therapeutics, as applicable, an NDA, BLA supplement or MAA variation, or equivalent foreign regulatory filing, is also required, which could result in further delay. Similarly, for medical devices, a new marketing application or supplement may be required. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines. These factors could cause us or our Founded Entities to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. Furthermore, if our or our Founded Entities’ suppliers fail to meet contractual requirements and we or our Founded Entities are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our or our Founded Entities’ clinical trials may be delayed or we or our Founded Entities could lose potential revenue. Risks Related to Our Intellectual Property Risks Related to Our Intellectual Property Protection If we or our Founded Entities are unable to obtain and maintain sufficient intellectual property protection for our or our Founded Entities’ existing therapeutic candidates or any other therapeutic candidates that we or they may identify, or if the scope of the intellectual property protection we or they currently have or obtain in the future is not sufficiently broad, our competitors could develop and commercialize therapeutic candidates similar or identical to ours, and our ability to successfully commercialize our existing therapeutic candidates and any other therapeutic candidates that we or they may pursue may be impaired. As is the case with other pharmaceutical and biopharmaceutical companies, our success depends in large part on our ability to obtain and maintain protection of the intellectual property we may own solely and jointly with others, particularly patents, in the United States and other countries with respect to our Internal Programs or our Founded Entities’ therapeutic candidates and technology. We and our Founded Entities seek to protect our proprietary position by filing patent applications in the United States and abroad related to our and our Founded Entities’ existing therapeutic candidates, our various proprietary technologies, and any other therapeutic candidates or technologies that we or they may identify. — reliance on the third party for regulatory compliance and quality assurance for the manufacturing activities each performs; — the possible breach of the manufacturing agreement by the third party; — the possible misappropriation of proprietary information, including trade secrets and know-how; and — the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us or our Founded Entities. Furthermore, all of our CMOs are engaged with other companies to supply and/or manufacture materials or therapeutics for such companies, which exposes our manufacturers to regulatory risks for the production of such materials and therapeutics. The facilities used by our contract manufacturers to manufacture our drug, or medical device therapeutic candidates are subject to review by the FDA pursuant to inspections that will be conducted after we submit an NDA, BLA, PMA application or other marketing application to the FDA. We do not control the manufacturing process of, and are to some extent dependent on, our contract manufacturing partners for compliance with the regulatory requirements, known as cGMP requirements for manufacture of drug, biologic and device therapeutics. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or others, we will not be able to secure or maintain regulatory authorization for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates manufactured at these manufacturing facilities. We are subject to similar requirements in foreign jurisdictions. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or another comparable foreign regulatory agency does not approve these facilities for the manufacture of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates or if any agency withdraws its approval in the future, we or our Founded Entities may need to find alternative manufacturing facilities, which would negatively impact our or our Founded Entities’ ability to develop, obtain regulatory authorization or certification for or market the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, if cleared, certified or approved. The therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates may compete with other therapeutic candidates and marketed therapeutics for access to manufacturing facilities. Any performance failure on the part of our or our Founded Entities’ existing or future manufacturers could delay clinical development, marketing approval, certification or commercialization. Our and certain of our Founded Entities’ current and anticipated future dependence upon others for the manufacturing of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates may adversely affect our future profit margins and our ability to commercialize any therapeutic candidates that receive marketing clearance or approval on a timely and competitive basis. If the contract manufacturing facilities on which we and certain of our Founded Entities’ rely do not continue to meet regulatory requirements or are unable to meet our or our Founded Entities’ supply demands, our business will be harmed. All entities involved in the preparation of therapeutic candidates for clinical trials or commercial sale, including our and certain of our Founded Entities’ existing CMOs for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, are subject to extensive regulation. Components of a finished drug or biologic therapeutic approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP, or similar regulatory requirements outside the United States. These regulations govern manufacturing processes and procedures, including recordkeeping, and the implementation and operation of quality systems to control and assure the quality of investigational therapeutics and therapeutics approved for sale. Similarly, medical devices must be manufactured in accordance with QSR and similar foreign requirements. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of Gelesis’ Plenity, Akili’s EndeavorRx, our Founded Entities’ other therapeutic candidates or the therapeutic candidates within our Internal Programs. Our or our Founded Entities’ failure, or the failure of third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us or our Founded Entities, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals or certification, license revocation, suspension of production, seizures or recalls of therapeutic candidates or marketed drugs or devices, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect clinical or commercial supplies of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates.
208 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n therapeutic candidates. While these license agreements are exclusive, they contain provisions pursuant to which the government has certain rights, including march-in rights, to such patents and technologies due to the fact that the research was funded at least in part by the U.S. government. When new technologies are developed with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. These rights may permit the government to disclose our information to third parties and to exercise march-in rights to use or allow third parties to use our technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture therapeutics embodying such inventions in the United States. Any exercise by the government of such rights or by any third party of its reserved rights could harm our competitive position, business, financial condition, results of operations, and prospects. If our or our Founded Entities’ trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected. Our or our Founded Entities’ registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. We and our Founded Entities may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among potential collaborators or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we and our Founded Entities are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. We and our Founded Entities may license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our or our Founded Entities’ trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names. Our or our Founded Entities’ efforts to enforce or protect our proprietary rights related to trademarks, trade names, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our competitive position, business, financial condition, results of operations and prospects. We may not be able to protect our intellectual property rights throughout the world. Filing, prosecuting and defending patents on the therapeutic candidates within our Internal Programs of our Founded Entities’ therapeutic Candidates in all countries throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect or enforce intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we and our Founded Entities may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing therapeutics made using our inventions in and into the United States or other jurisdictions. Competitors may use our and our Founded Entities’ technologies in jurisdictions where we have not obtained patent protection to develop their own therapeutics and may also export infringing therapeutics to territories where we have patent protection, but enforcement is not as strong as that in the United States. These therapeutics may compete with our or our Founded Entities’ therapeutics and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology and pharmaceutical therapeutics, which could make it difficult for us to stop the infringement of our or our Founded Entities’ patents or marketing of Obtaining, maintaining and enforcing pharmaceutical and biopharmaceutical patents is costly, time consuming and complex, and we may not be able to file or prosecute all necessary or desirable patent applications, or maintain, enforce or license patents that may issue from such patent applications, at a reasonable cost or in a timely manner. It is also possible that we could fail to identify patentable aspects of our R&D output before it is too late to obtain patent protection. Although we take reasonable measures, we have systems in place to remind us of filing and prosecution deadlines, and we employ outside firms and rely on outside counsel to monitor patent deadlines, we may miss or fail to meet a patent deadline, including in a foreign country, which could negatively impact our patent rights and harm our competitive position, business, and prospects. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed to third parties. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of our business. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal, technological and factual questions and has in recent years been the subject of much litigation. The standards that the U.S. Patent and Trademark Office, or the USPTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States, or vice versa. There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found, which can prevent a patent from issuing from a pending application or later invalidate or narrow the scope of an issued patent. For example, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or, in some cases, not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our Internal Programs or our Founded Entities’ therapeutic candidates, in whole or in part, or which effectively prevent others from commercializing competitive therapeutic candidates. Even if our patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative therapeutic candidates in a non-infringing manner. In addition, the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical therapeutic candidates to ours, or limit the duration of the patent protection of our Internal Programs or our Founded Entities’ therapeutic candidates. For example, we may be subject to a third- party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, re-examination, inter partes review, post-grant review or interference proceedings challenging our owned or licensed patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our Internal Programs or our Founded Entities’ therapeutic candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize drugs without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current or future therapeutic candidates. Furthermore, our and our Founded Entities’ intellectual property rights may be subject to a reservation of rights by one or more third parties. We are party to a license agreement with New York University related to certain intellectual property underlying our LYT-200 therapeutic candidate, which is subject to certain rights of the government, including march-in rights, to such intellectual property due to the fact that the research was funded at least in part by the U.S. government. We are also party to other license agreements for intellectual property underlying certain of our therapeutic candidates and programs. Additionally, our Founded Entities Akili, Follica, Vedanta, Sonde and Vor, are party to license agreements with academic institutions pursuant to which such Founded Entities have in-licensed certain intellectual property underlying various of their
PureTech Health plc Annual Report and Accounts 2023 209 Risk Factor Annex continued A d d itio nal info rm atio n Risks Related to Our License Arrangements The failure to maintain our licenses and realize their benefits may harm our business. We have acquired and in-licensed certain of our technologies from third parties. We may in the future acquire, in-license or invest in additional technology that we believe would be beneficial to our business. We are subject to a number of risks associated with our acquisition, in-license or investment in technology, including the following: — diversion of financial and managerial resources from existing operations; — failure to successfully negotiate a proposed acquisition, in-license or investment in a timely manner and at a price or on terms and conditions favorable to us; — failure to successfully combine and integrate a potential acquisition into our existing business to fully realize the benefits of such acquisition; — the impact of regulatory reviews on a proposed acquisition, in-license or investment; and — the outcome of any legal proceedings that may be instituted with respect to the proposed acquisition, in-license or investment. If we fail to properly evaluate potential acquisitions, in-licenses, investments or other transactions associated with the creation of new R&D programs or the maintenance of existing ones, we might not achieve the anticipated benefits of any such transaction, we might incur costs in excess of what we anticipate, and management resources and attention might be diverted from other necessary or valuable activities. Our or our Founded Entities’ rights to develop and commercialize our Internal Programs or our Founded Entities’ therapeutic candidates are subject in part to the terms and conditions of licenses granted to us and our Founded Entities by others, and the patent protection, prosecution and enforcement for some of our Internal Programs or our Founded Entities’ therapeutic candidates may be dependent on our and our Founded Entities’ licensors. We and our Founded Entities currently are reliant upon licenses of certain intellectual property rights and proprietary technologies from third parties that are important or necessary to the development of our and our Founded Entities’ proprietary technologies, including technologies related to our Internal Programs and our Founded Entities’ therapeutic candidates. These licenses, and other licenses we and they may enter into in the future, may not provide adequate rights to use such intellectual property and proprietary technologies in all relevant fields of use or in all territories in which we or our Founded Entities may wish to develop or commercialize technology and therapeutic candidates in the future. Licenses to additional third-party proprietary technology or intellectual property rights that may be required for our or our Founded Entities’ development programs may not be available in the future or may not be available on commercially reasonable terms. In that event, we or our Founded Entities may be required to expend significant time and resources to redesign our proprietary technology or therapeutic candidates or to develop or license replacement technology, which may not be feasible on a technical or commercial basis. If we and our Founded Entities are unable to do so, we may not be able to develop and commercialize technology and therapeutic candidates in fields of use and territories for which we are not granted rights pursuant to such licenses, which could harm our competitive position, business, financial condition, results of operations and prospects significantly. In some circumstances, we and our Founded Entities may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain and enforce the patents, covering technology that we or our Founded Entities license from third parties. In addition, some of our or our Founded Entities’ agreements with our licensors require us to obtain consent from the licensor before we can enforce patent rights, and our licensor may withhold such consent or may not provide it on a timely basis. Therefore, we cannot be certain that our licensors or collaborators will prosecute, maintain, enforce and defend such intellectual property rights in a manner consistent with the best interests of our business, including by taking reasonable measures to protect the confidentiality of know-how and trade secrets, or by paying all applicable prosecution and maintenance fees related to intellectual property registrations for any of our Internal Programs or our Founded Entities’ therapeutic candidates and proprietary technologies. We and our Founded Entities also cannot be certain that our licensors have drafted or prosecuted the patents and patent applications licensed to us in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. This could cause us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to develop and commercialize therapeutic candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling competing therapeutics. competing therapeutics in violation of our proprietary rights generally. Proceedings to enforce our or our Founded Entities’ patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our or our Founded Entities’ patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing, and could provoke third parties to assert claims against us or our Founded Entities. We may not prevail in any lawsuits that we or our Founded Entities initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. In some jurisdictions including European Union countries, compulsory licensing laws compel patent owners to grant licenses to third parties. In addition, some countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If we, our Founded Entities or any of our licensors are forced to grant a license to third parties under patents relevant to our or our Founded Entities’ business, or if we, our Founded Entities or our licensors are prevented from enforcing patent rights against third parties, our competitive position may be substantially impaired in such jurisdictions. Our or our Founded Entities’ proprietary rights may not adequately protect our technologies and therapeutic candidates, and do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our or our Founded Entities’ intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our or our Founded Entities’ business, or permit us to maintain our competitive advantage. The following examples are illustrative: — others may be able to make therapeutics that are the same as or similar to the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates but that are not covered by the claims of the patents that we or our Founded Entities own or have exclusively licensed; — others, including inventors or developers of our or our Founded Entities’ owned or in-licensed patented technologies who may become involved with competitors, may independently develop similar technologies that function as alternatives or replacements for any of our or our Founded Entities’ technologies without infringing our intellectual property rights; — we, our Founded Entities or our licensors or our other collaboration partners might not have been the first to conceive and reduce to practice the inventions covered by the patents or patent applications that we or our Founded Entities own or license or will own or license; — we, our Founded Entities or our licensors or our other collaboration partners might not have been the first to file patent applications covering certain of the patents or patent applications that we or they own or have obtained a license, or will own or will have obtained a license; — we, our Founded Entities or our licensors may fail to meet obligations to the U.S. government with respect to in-licensed patents and patent applications funded by U.S. government grants, leading to the loss of patent rights; — it is possible that our or our Founded Entities’ pending patent applications will not result in issued patents; — it is possible that there are prior public disclosures that could invalidate our, our Founded Entities’ or our licensors’ patents; — issued patents that we or our Founded Entities own or exclusively license may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; — our or our Founded Entities’ competitors might conduct R&D activities in countries where we do not have patent rights, or in countries where R&D safe harbor laws exist, and then use the information learned from such activities to develop competitive therapeutics for sale in our major commercial markets; — ownership, validity or enforceability of our, our Founded Entities’ or our licensors’ patents or patent applications may be challenged by third parties; and — the patents of third parties or pending or future applications of third parties, if issued, may have an adverse effect on our business.
210 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts. Our commercial success depends in part on our avoiding infringement of the patents and proprietary rights of third parties. However, our research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or other intellectual property rights owned or controlled by third parties. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, derivation, oppositions, inter partes review and post-grant review before the USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell, if approved, the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. In addition, many companies in the biotechnology and pharmaceutical industries have employed intellectual property litigation as a means to gain an advantage over their competitors. As the biotechnology and pharmaceutical industries expand and more patents are issued, and as we gain greater visibility and market exposure as a public company, the risk increases that our existing therapeutic candidates and any other therapeutic candidates that we or our Founded Entities may identify may be subject to claims of infringement of the patent rights of third parties. There may be other third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our or our Founded Entities’ existing therapeutic candidates and any other therapeutic candidates that we or they may identify. Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued patents that our or our Founded Entities’ existing therapeutic candidates and any other therapeutic candidates that we or they may identify may infringe. In addition, third parties may obtain patents in the future and claim that use of our or our Founded Entities’ technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our or our Founded Entities’ existing therapeutic candidates and any other therapeutic candidates that we or they may identify, any molecules formed during the manufacturing process, or any final therapeutic itself, the holders of any such patents may be able to block our ability to commercialize such therapeutic candidate unless we obtained a license under the applicable patents, or until such patents expire. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our Internal Programs or our Founded Entities’ therapeutic candidates. Furthermore, the scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history and can involve other factors such as expert opinion. Our analysis of these issues, including interpreting the relevance or the scope of claims in a patent or a pending application, determining applicability of such claims to our proprietary technologies or therapeutic candidates, predicting whether a third party’s pending patent application will issue with claims of relevant scope, and determining the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our or our Founded Entities’ ability to develop and market the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. We do not always conduct independent reviews of pending patent applications of and patents issued to third parties. Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our or our Founded Entities’ formulations, processes for manufacture or methods of use, including any combination therapies, the holders of any such patents may be able to block our or our Founded Entities’ ability to develop and commercialize the applicable therapeutic candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all, or it may be non-exclusive, which could result in our competitors gaining access to the same intellectual property. Parties making claims against us or our Founded Entities may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize our or our Founded Entities’ existing therapeutic candidates and any other therapeutic candidates that we may identify. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and employee resources from our business. In the event of a successful claim of infringement against us or our Founded Entities, we In addition, our or our Founded Entities’ licensors may own or control intellectual property that has not been licensed to us and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future therapeutics, if any, the amounts may be significant. The amount of our and our Founded Entities’ future royalty obligations will depend on the technology and intellectual property we and our Founded Entities use in therapeutic candidates that we successfully develop and commercialize, if any. Therefore, even if we or our Founded Entities successfully develop and commercialize therapeutic candidates, we may be unable to achieve or maintain profitability. In addition, we or our Founded Entities may seek to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property rights that are subject to our or our Founded Entities’ existing licenses. Any of these events could have a material adverse effect on our or our Founded Entities’ competitive position, business, financial conditions, results of operations, and prospects. If we or our Founded Entities fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or these agreements are terminated or we or our Founded Entities otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business. We are party to various agreements that we depend on to develop our Internal Programs or our Founded Entities’ therapeutic candidates and various proprietary technologies, and our rights to use currently licensed intellectual property, or intellectual property to be licensed in the future, are or will be subject to the continuation of and our and our Founded Entities’ compliance with the terms of these agreements. For example, under certain of our and our Founded Entities’ license agreements we and our Founded Entities are required to use commercially reasonable efforts to develop and commercialize therapeutic candidates covered by the licensed intellectual property rights, maintain the licensed intellectual property rights, and achieve certain development milestones, each of which could result in termination in the event we or our Founded Entities fail to comply. In spite of our efforts, our or our Founded Entities’ licensors might conclude that we have materially breached our obligations under such license agreements and might therefore terminate the license agreements, thereby removing or limiting our or our Founded Entities’ ability to develop and commercialize therapeutics and technology covered by these license agreements. Moreover, disputes may arise regarding intellectual property subject to a licensing agreement, including: — the scope of rights granted under the license agreement and other interpretation-related issues; — the extent to which our Internal Programs or our Founded Entities’ therapeutic candidates, technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement; — the sublicensing of patent and other rights under our or our Founded Entities’ collaborative development relationships; — our and our Founded Entities’ diligence obligations under the license agreement and what activities satisfy those diligence obligations; — the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our and our Founded Entities’ licensors and us and our Founded Entities and our partners; and — the priority of invention of patented technology. In addition, certain provisions in our and our Founded Entities’ license agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the agreement, either of which could have a material adverse effect on our or our Founded Entities’ business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we or our Founded Entities have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected therapeutic candidates, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations and prospects.
PureTech Health plc Annual Report and Accounts 2023 211 Risk Factor Annex continued A d d itio nal info rm atio n Also, there are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Approved Drug Products with Therapeutic Equivalence Evaluations, or the Orange Book. We or our Founded Entities may be unable to obtain patents covering the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates that contain one or more claims that satisfy the requirements for listing in the Orange Book. Even if we or our Founded Entities submit a patent for listing in the Orange Book, the FDA may decline to list the patent, or a manufacturer of generic drugs may challenge the listing. If or when one of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates is approved and a patent covering that therapeutic candidate is not listed in the Orange Book, a manufacturer of generic drugs would not have to provide advance notice to us of any abbreviated new drug application, or ANDA, filed with the FDA to obtain permission to sell a generic version of such therapeutic candidate. Issued patents covering our Internal Programs or our Founded Entities’ therapeutic candidates could be found invalid or unenforceable if challenged in courts or patent offices. If we, our Founded Entities or one of our licensing partners initiated legal proceedings against a third party to enforce a patent covering one or more of our Internal Programs or our Founded Entities’ therapeutic candidates, the defendant could counterclaim that the patent covering the relevant therapeutic candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/ or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including subject matter eligibility, novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re- examination, post grant review, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in revocation or amendment to our or our Founded Entities’ patents in such a way that they no longer cover our Internal Programs or our Founded Entities’ therapeutic candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our Internal Programs or our Founded Entities’ therapeutic candidates. Such a loss of patent protection could have a material adverse impact on our business. Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our and our Founded Entities’ ability to protect our therapeutics. Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to a patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us and our Founded Entities to be cognizant of the time from invention to filing of a patent application and be diligent in filing patent applications, but circumstances could prevent us from promptly filing patent applications on our inventions. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, we cannot be certain that we, our Founded Entities or our licensors were the first to either (i) file any patent application related to our Internal Programs or our Founded Entities’ therapeutic candidates or (ii) invent any of the inventions claimed in our, our Founded Entities or our licensor’s patents or patent applications. or our Founded Entities may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing therapeutics or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Parties making claims against us or our Founded Entities may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operations, financial condition and prospects. Risks Related to Our Patents Patent terms may be inadequate to protect our competitive position on therapeutic candidates for an adequate amount of time. Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional or international patent application filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering our Internal Programs or our Founded Entities’ therapeutic candidates are obtained, once the patent life has expired, we or our Founded Entities may be open to competition from competitive therapeutics, including generics or biosimilars. Given the amount of time required for the development, testing and regulatory review of new therapeutic candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, our or our Founded Entities’ owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing therapeutics similar or identical to ours. If we or our Founded Entities are not able to obtain patent term extension or non-patent exclusivity in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation, thereby potentially extending the marketing exclusivity term of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, our business may be materially harmed. Depending upon the timing, duration and specifics of FDA marketing approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, one or more of the U.S. patents covering each of such therapeutic candidates or the use thereof may be eligible for up to five years of patent term extension under the Hatch-Waxman Act. The Hatch-Waxman Act allows a maximum of one patent to be extended per new drug application, or NDA, for an FDA approved therapeutic as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of therapeutic approval and only those claims covering such approved drug therapeutic, a method for using it or a method for manufacturing it may be extended. Patent term extension also may be available in certain foreign countries upon regulatory approval of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates. Nevertheless, we or our Founded Entities may not be granted patent term extension either in the United States or in any foreign country because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority could be less than we request. If we or our Founded Entities are unable to obtain patent term extension or restoration, or the term of any such extension is less than our request, the period during which we will have the right to exclusively market our therapeutic may be shortened and our competitors may obtain approval of competing therapeutics following our patent expiration sooner, and our revenue could be reduced, possibly materially. Further, for certain of our and our Founded Entities’ licensed patents, we and our Founded Entities do not have the right to control prosecution, including filing with the USPTO, a petition for patent term extension under the Hatch-Waxman Act. Thus, if one of our or our Founded Entities’ licensed patents is eligible for patent term extension under the Hatch- Waxman Act, we may not be able to control whether a petition to obtain a patent term extension is filed with, or whether a patent term extension is obtained from, the USPTO.
212 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n We and our Founded Entities seek to protect our confidential proprietary information, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and collaborators. These agreements are designed to protect our proprietary information. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our and our Founded Entities’ trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose proprietary information, including trade secrets, and we may not be able to obtain adequate remedies for such breaches. We and our Founded Entities also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our or our Founded Entities’ confidential proprietary information were to be lawfully obtained or independently developed by a competitor, we or our Founded Entities would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our or our Founded Entities’ therapeutics that we consider proprietary. We or our Founded Entities may not be able to obtain adequate remedies in the event of such unauthorized use. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. Trade secrets will also over time be disseminated within the industry through independent development, the publication of journal articles and the movement of personnel skilled in the art from company to company or academic to industry scientific positions. Though our or our Founded Entities’ agreements with third parties typically restrict the ability of our advisors, employees, collaborators, licensors, suppliers, third-party contractors and consultants to publish data potentially relating to our trade secrets, our agreements may contain certain limited publication rights. In addition, if any of our or our Founded Entities’ trade secrets were to be lawfully obtained or independently developed by a competitor, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Despite employing the contractual and other security precautions described above, the need to share trade secrets increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. If any of these events occurs or if we otherwise lose protection for our trade secrets, the value of such information may be greatly reduced and our competitive position, business, financial condition, results of operations, and prospects would be harmed. We or our Founded Entities may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties or that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. As is common in the biotechnology and pharmaceutical industries, we and our Founded Entities employ individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we and our Founded Entities try to ensure that our employees, consultants and independent contractors do not use the proprietary information or know- how of others in their work for us, we or our Founded Entities may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of any of our employee’s former employer or other third parties. Litigation may be necessary to defend against these claims. If we or our Founded Entities fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we or our Founded Entities are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. The America Invents Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our or our Founded Entities’ owned or in-licensed patent applications and the enforcement or defense of our or our Founded Entities’ owned or in-licensed issued patents, all of which could have a material adverse effect on our competitive position, business, financial condition, results of operations, and prospects. In addition, the patent positions of companies in the development and commercialization of pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court and Federal Circuit rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property in the future. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements. Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We and our Founded Entities have systems in place to remind us to pay these fees, and we and our Founded Entities employ outside firms and rely on outside counsel to pay these fees due to the USPTO and non-U.S. patent agencies. However, we and our Founded Entities cannot guarantee that our licensors have similar systems and procedures in place to pay such fees. In addition, the USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which non- compliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business. Risks Related to Confidentiality If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed. We and our Founded Entities consider proprietary trade secrets, confidential know-how and unpatented know-how to be important to our business. We and our Founded Entities may rely on trade secrets and confidential know-how to protect our technology, especially where patent protection is believed by us to be of limited value. However, trade secrets and confidential know-how are difficult to protect, and we have limited control over the protection of trade secrets and confidential know-how used by our licensors, collaborators and suppliers. Because we have relied in the past on third parties to manufacture the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates, because we may continue to do so in the future, and because we expect to collaborate with third parties on the development of our current therapeutic candidates and any future therapeutic candidates we develop, we may, at times, share trade secrets with them. We also conduct joint R&D programs that may require us to share trade secrets under the terms of our R&D partnerships or similar agreements. Under such circumstances, trade secrets and confidential know-how can be difficult to maintain as confidential.
PureTech Health plc Annual Report and Accounts 2023 213 Risk Factor Annex continued A d d itio nal info rm atio n monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our Internal Programs or our Founded Entities’ therapeutic candidates. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects. Risks Related to the COVID-19 Pandemic or Future Public Health Crises The COVID-19 pandemic has impacted, and any future global health crises may in the future impact, our business, including our clinical trials and preclinical studies, and may materially and adversely affect our business in the future. Public health crises such as pandemics or other global emergencies could adversely impact our business and have a material adverse impact on our operations and financial condition and results. We have experienced as a result of COVID-19, and may in the future experience as a result of any future pandemic or global health crises, disruptions that severely impact our business, clinical trials and preclinical studies, including: — delays or difficulties in enrolling patients in our clinical trials; — delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; — delays or disruptions in non-clinical experiments due to unforeseen circumstances at contract research organizations, or CROs, and vendors along their supply chain; — increased rates of patients withdrawing from our clinical trials following enrollment as a result of contracting COVID-19, being forced to quarantine, or not accepting home health visits; — diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; — interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures (particularly any procedures that may be deemed non-essential), which may impact the integrity of subject data and clinical study endpoints; — interruption or delays in the operations of the FDA, comparable foreign regulatory agencies and notified bodies, which may impact review and approval or certification timelines; — interruption of, or delays in receiving, supplies of our therapeutic candidates from our contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems; and — limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials, including because of sickness of employees or their families, the desire of employees to avoid contact with large groups of people, an increased reliance on working from home or mass transit disruptions. The COVID-19 pandemic has had, and any future global health crises may have in the future, an unfavorable impact on global economic conditions, including a decrease in or loss of insurance coverage among individuals in the United States, an increase in unemployment, and other negative impacts. In addition, the trading prices for biopharmaceutical companies have been highly volatile as a result of recent extreme volatility in the global economy, including as a result of the COVID-19 pandemic. As a result, if we require any further capital we may face difficulties raising capital through sales of our ordinary shares or such sales may be on unfavorable terms. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our clinical development operations, the supply chain for our ongoing and planned clinical trials, and the availability of governmental and regulatory authorities to conduct inspections of our clinical trial sites, review materials submitted by us in support of our applications for regulatory approval and grant approval for our therapeutic candidates. Risks Related to Challenges or Lawsuits Related to Intellectual Property We may become involved in lawsuits to protect or enforce our or our Founded Entities’ patents or other intellectual property, which could be expensive, time consuming and unsuccessful. Competitors may infringe our or our Founded Entities’ patents or other intellectual property. Our and our Founded Entities’ ability to enforce our patent or other intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in connection with their therapeutics and services. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s therapeutic or service. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. If we were to initiate legal proceedings against a third party to enforce a patent covering one or more of our Internal Programs or our Founded Entities’ therapeutic candidates, the defendant could counterclaim that the patent covering our or our Founded Entities’ therapeutic candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including subject matter eligibility, novelty, nonobviousness, written description or enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Interference or derivation proceedings provoked by third parties or brought by us or declared by the USPTO may be necessary to determine the priority of inventions with respect to our or our Founded Entities’ patents or patent applications. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms or at all, or if a non-exclusive license is offered and our competitors gain access to the same technology. Our defense of litigation or interference or derivation proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue clinical trials, continue research programs, license necessary technology from third parties, or enter into development partnerships that would help us bring therapeutic candidates to market. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our or our Founded Entities’ confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could adversely impact the price of our ADSs. Furthermore, any of the foregoing could have a material adverse effect on our financial condition, results of operations, and prospects. We and our Founded Entities may be subject to claims challenging the inventorship of our patents and other intellectual property. Our and our Founded Entities’ agreements with employees and our personnel policies provide that any inventions conceived by an individual in the course of rendering services to us shall be our exclusive property. Although our policy is to have all such individuals complete these agreements, we may not obtain these agreements in all circumstances, and individuals with whom we have these agreements may not comply with their terms. The assignment of intellectual property may not be automatic upon the creation of an invention and despite such agreement, such inventions may become assigned to third parties. In the event of unauthorized use or disclosure of our trade secrets or proprietary information, these agreements, even if obtained, may not provide meaningful protection, particularly for our trade secrets or other confidential information. We, our Founded Entities or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, we, our Founded Entities or our licensors may have inventorship disputes arising from conflicting obligations of employees, consultants or others who are involved in developing our Internal Programs or our Founded Entities’ therapeutic candidates. Litigation may be necessary to defend against these and other claims challenging inventorship of our, our Founded Entities’ or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. If we, our Founded Entities or our licensors fail in defending any such claims, in addition to paying
214 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us. If we are unable to continue to attract and retain high quality personnel, our ability to pursue our growth strategy will be limited. We will need to expand our organization and we may experience difficulties in managing this growth, which could disrupt our operations. As we mature, we expect to expand our full-time employee base and to hire more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time toward managing these growth activities. We may not be able to effectively manage the expansion of our operations, which may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional therapeutic candidates. If our management is unable to effectively manage our growth, our expenses may increase more than expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize therapeutic candidates and compete effectively will depend, in part, on our ability to effectively manage any future growth. Because we are developing multiple programs and therapeutic candidates and are pursuing a variety of target indications and treatment modalities, we may expend our limited resources to pursue a particular therapeutic candidate and fail to capitalize on development opportunities or therapeutic candidates that may be more profitable or for which there is a greater likelihood of success. Because we have limited financial and personnel resources, we may forgo or delay pursuit of opportunities with potential target indications or therapeutic candidates that later prove to have greater commercial potential than our current and planned development programs and therapeutic candidates. Our resource allocation decisions may cause us to fail to capitalize on viable commercial therapeutics or profitable market opportunities. Our spending on current and future research and development programs and other future therapeutic candidates for specific indications may not yield any commercially viable future therapeutic candidates. If we do not accurately evaluate the commercial potential or target market for a particular therapeutic candidate, we may be required to relinquish valuable rights to that therapeutic candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such future therapeutic candidates. Additionally, we may pursue additional in-licenses or acquisitions of development-stage assets or programs, which entails additional risk to us. Identifying, selecting and acquiring promising therapeutic candidates requires substantial technical, financial and human resources expertise. Efforts to do so may not result in the actual acquisition or license of a successful therapeutic candidate, potentially resulting in a diversion of our management’s time and the expenditure of our resources with no resulting benefit. For example, if we are unable to identify programs that ultimately result in approved therapeutics, we may spend material amounts of our capital and other resources evaluating, acquiring and developing therapeutics that ultimately do not provide a return on our investment. Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any therapeutic candidates that we may develop. We face an inherent risk of product liability exposure related to the testing of therapeutic candidates in human clinical trials and will face an even greater risk if we commercially sell any therapeutics that we may develop. If we cannot successfully defend ourselves against claims that the therapeutic candidates within our Internal Programs or medicines caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: — decreased demand for any therapeutic candidates or medicines that we may develop; — injury to our reputation and significant negative media attention; — withdrawal of clinical trial participants; — significant costs to defend the related litigation; — substantial monetary awards to trial participants or patients; — loss of revenue; and — the inability to commercialize the therapeutic candidates within our Internal Programs. Risks Related to Our Business and Industry We attempt to distribute our scientific, execution and financing risks across a variety of therapeutic areas, indications, programs and modalities that are driven by our proven innovation and drug development strategy. However, our assessment of, and approach to, risk may not be comprehensive or effectively avoid delays or failures in one or more of our programs. Failures in one or more of our programs could adversely impact other programs and have a material adverse impact on our business, results of operations and ability to fund our business. While we aim to distribute our scientific, execution and financing risks across programs, there may be foreseen and unforeseen risks across the therapeutic candidates within our Internal Programs and programs being developed by our Founded Entities in whole or in part. In addition, if any one or more of our clinical programs encounter safety, tolerability, or efficacy problems, developmental delays, regulatory issues, or other problems, our business could be significantly harmed. As our and certain of our Founded Entities’ therapeutic candidates progress through clinical development, we or others may determine that certain of our risk allocation decisions were incorrect or insufficient, that individual programs or our science in general has technology or biology risks that were unknown or underappreciated, or that we have allocated resources across our programs in such a way that did not maximize potential value creation. All of these risks may relate to our current and future programs sharing similar science and infrastructure, and in the event material decisions in any of these areas turn out to have been incorrect or under-optimized, we may experience a material adverse impact on our business and ability to fund our operations. Our business is highly dependent on the clinical advancement of our programs and our success in identifying potential therapeutic candidates. Delay or failure to advance our programs could adversely impact our business. Over time, our and our Founded Entities’ preclinical and clinical work led us to identify potential synergies across target therapeutic indications, generating a broad portfolio of therapeutic candidates across multiple programs. Even if a particular program is successful in any phase of development, such program could fail at a later phase of development, and other programs within the same therapeutic area may still fail at any phase of development including at phases where earlier programs in that therapeutic area were successful. This may be a result of technical challenges unique to that program or due to biology risk, which is unique to every program. As we progress our programs through clinical development, there may be new technical challenges that arise that cause an entire program or a group of programs within an area of focus to fail. Our future success depends on our ability to retain key employees, directors, consultants and advisors and to attract, retain and motivate qualified personnel. Our ability to compete in the highly competitive biotechnology industry depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. We are highly dependent on the management, R&D, clinical, financial and business development expertise of our executive officers, our directors, as well as the other members of our scientific and clinical teams, including Bharatt Chowrira, our chief executive officer, and Eric Elenko, our President. The loss of the services of any of our executive officers and other key personnel, and our inability to find suitable replacements could result in delays in therapeutic development and our financial condition and results of operations could be materially adversely affected. Furthermore, each of our executive officers may terminate their employment with us at any time. Recruiting and retaining qualified scientific and clinical personnel and, if we progress the development of the therapeutic candidates within our Internal Programs toward scaling up for commercialization, sales and marketing personnel, will also be critical to our success. The loss of the services of our executive officers or other key employees could impede the achievement of research, development and commercialization objectives and seriously harm our ability to successfully implement our business strategy. Furthermore, replacing executive officers and 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 skills and experience required to successfully develop, gain regulatory approval for and commercialize the therapeutic candidates within our Internal Programs. Competition to hire qualified personnel in our industry is intense, and we may be unable to hire, train, retain or motivate these key personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Furthermore, to the extent we hire personnel from competitors, we may be subject to allegations that they have been improperly solicited or that they have divulged proprietary or other confidential information, or that their former employers own their research output. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions.
PureTech Health plc Annual Report and Accounts 2023 215 Risk Factor Annex continued A d d itio nal info rm atio n or data accurately or to disclose unauthorized activities. If we or our Founded Entities obtain FDA or comparable foreign regulatory authorities approval, or notified bodies certification, of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates and begin commercializing those therapeutics in the United States and abroad, our potential exposure under such laws will increase significantly, and our costs associated with compliance with such laws are also likely to increase. In particular, research, sales, marketing, education and other business arrangements in the healthcare industry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of patient recruitment for clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. It is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. Employee litigation and unfavorable publicity could negatively affect our future business. Our employees may, from time to time, bring lawsuits against us regarding injury, creating a hostile work place, discrimination, wage and hour disputes, sexual harassment, or other employment issues. In recent years, there has been an increase in the number of discrimination and harassment claims generally. Coupled with the expansion of social media platforms and similar devices that allow individuals access to a broad audience, these claims have had a significant negative impact on some businesses. Certain companies that have faced employment- or harassment-related lawsuits have had to terminate management or other key personnel, and have suffered reputational harm that has negatively impacted their business. If we were to face any employment-related claims, our business could be negatively affected. If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business. We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste therapeutics. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or therapeutic efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions. Although we maintain product liability insurance, including coverage for clinical trials that we sponsor, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we commence additional clinical trials and if we successfully commercialize any therapeutic candidates. The market for insurance coverage is increasingly expensive, and the costs of insurance coverage will increase as our clinical programs increase in size. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. Litigation against us could be costly and time-consuming to defend and could result in additional liabilities. In March 2024, a complaint was filed against the company alleging breach of contract with respect to certain payments alleged to be owed to a previous employee of a company subsidiary based on purported terms of a contract between such individual and the company. We intend to defend ourselves vigorously though the ultimate outcome of this matter and the timing for resolution remains uncertain. No determination has been made that a loss, if any, arising from this matter is probable or that the amount of any such loss, or range of loss, is reasonably estimable. We may from time to time be subject to additional legal proceedings and claims that arise in the ordinary course of business or otherwise, such as claims brought by third parties in connection with commercial disputes and employment claims made by our current or former employees. Claims may also be asserted by or on behalf of a variety of other parties, including government agencies, patients, or stockholders. We could also be subject to securities class action litigation. In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because biotechnology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business. Any litigation involving us may result in substantial costs, operationally restrict our business, and may divert management’s attention and resources, which may seriously harm our business, overall financial condition, and results of operations. Insurance may not cover existing or future claims, be sufficient to fully compensate us for one or more of such claims, or continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby adversely impacting our results of operations. The increasing use of social media platforms presents new risks and challenges. Social media is increasingly being used to communicate about our and our Founded Entities’ clinical development programs and the diseases our therapeutics are being developed to treat, and we intend to utilize appropriate social media in connection with our commercialization efforts following approval of the therapeutic candidates within our Internal Programs. Social media practices in the biopharmaceutical industry continue to evolve and regulations relating to such use are not always clear. This evolution creates uncertainty and risk of noncompliance with regulations applicable to our business. For example, patients may use social media channels to comment on their experience in an ongoing blinded clinical study or to report an alleged adverse event. When such disclosures occur, there is a risk that we fail to monitor and comply with applicable adverse event reporting obligations or we may not be able to defend our business or the public’s legitimate interests in the face of the political and market pressures generated by social media due to restrictions on what we may say about the therapeutic candidates within our Internal Programs. There is also a risk of inappropriate disclosure of sensitive information or negative or inaccurate posts or comments about us on any social networking website. If any of these events were to occur or we otherwise fail to comply with applicable regulations, we could incur liability, face regulatory actions or incur other harm to our business. Our and our Founded Entities’ employees, independent contractors, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements. We are exposed to the risk of fraud, misconduct or other illegal activity by our employees, independent contractors, consultants, commercial partners and vendors as well as the employees, independent contractors, consultants, commercial partners and vendors of our Founded Entities. Misconduct by these parties could include intentional, reckless and negligent conduct that fails to: comply with the laws of the FDA and comparable foreign regulatory authorities; provide true, complete and accurate information to the FDA and comparable foreign regulatory authorities; comply with manufacturing standards we have established; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information
216 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation and financial results may suffer. In addition, even if we are effective at addressing such concerns, we may experience increased costs as a result of executing upon our sustainability goals that may not be offset by any benefit to our reputation, which could have an adverse impact on our business and financial condition. In addition, this emphasis on environmental, social and other sustainability matters has resulted and may result in the adoption of new laws and regulations, including new reporting requirements. If we fail to comply with new laws, regulations or reporting requirements, our reputation and business could be materially and adversely impacted. We may acquire businesses, or therapeutics or therapeutic candidates, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions. We acquire or in-license businesses or therapeutics from other companies or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture or retain key personnel from the acquired company. We may encounter numerous difficulties in developing, manufacturing and marketing any new therapeutics or therapeutic candidates resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition or license, we will achieve the expected synergies to justify the transaction. Failure to successfully identify, complete, manage and integrate acquisitions could materially and adversely affect our business, financial condition and results of operations and could cause the price of our securities to decline. Changes in funding for the FDA, the SEC and other government agencies could hinder their ability to hire and retain key leadership and other personnel, prevent new therapeutics and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business. The ability of the FDA, foreign regulatory authorities and notified bodies to review and approve or certify new therapeutics or take action with respect to other regulatory matters can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept payment of user fees, and statutory, regulatory, and policy changes. In addition, government funding of the SEC and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. The priorities of the FDA and foreign regulatory authorities may also influence the ability of the FDA and foreign regulatory authorities to take action on regulatory matters, for example the FDA’s and foreign regulatory authorities’ budget and funding levels and ability to hire and retain key personnel. Disruptions at the FDA and foreign regulatory authorities may also slow the time necessary for new drugs to be reviewed and/or approved, or for other actions to be taken, by relevant government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC, have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Similarly, a prolonged government shutdown could prevent the timely review of our patent applications by the USPTO, which could delay the issuance of any U.S. patents to which we might otherwise be entitled. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations. Separately, in response to the global COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, future shutdown as a result of COVID-19 or any other public health crises may lead to inspectional or administrative delays. If a prolonged government shutdown or other disruption occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Future shutdowns or other disruptions could also affect other government agencies such as the SEC, which may also impact our business by delaying review of our public filings, to the extent such review is necessary, and our ability to access the public markets. Cyberattacks or other failures in our telecommunications or information technology systems, or those of our collaborators, contract research organizations, third-party logistics providers, distributors or other contractors or consultants, could result in information theft, data corruption and significant disruption of our business operations. We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology, or IT, systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store, and transmit large amounts of confidential information, including intellectual property, proprietary business information, clinical trial data, and personal information (collectively, “Confidential Information”) of clinical trial participants, employees, and contractors. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such Confidential Information. As use of digital technologies has increased, cyber incidents, including third parties gaining access to employee accounts using stolen or inferred credentials, computer malware (e.g., ransomware), viruses, misconfigurations, “bugs” or other vulnerabilities, malicious code spamming, phishing attacks or other means, and deliberate attacks and attempts to gain unauthorized access to computer systems and networks, have increased in frequency and sophistication. These threats pose a risk to the security of our, our collaborators’, our CROs’, third-party logistics providers’, distributors’ and other contractors’ and consultants’ systems and networks, and the confidentiality, availability and integrity of our data. There can be no assurance that we will be successful in preventing cyberattacks or successfully mitigating their effects. Similarly, there can be no assurance that our collaborators, CROs, third-party logistics providers, distributors and other contractors and consultants will be successful in protecting our clinical and other data that is stored on their systems. We and certain of our service providers are from time to time subject to cyberattacks and security incident. Although to our knowledge we have not experienced any significant system failure, accident or material security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of development programs and business operations. Any cyber attack, data breach or destruction or loss of data could result in a violation of applicable U.S. and international privacy, data protection and other laws, and subject us to litigation and governmental investigations and proceedings by federal, state and local regulatory entities in the United States and by international regulatory entities, resulting in exposure to material civil and/or criminal liability. A security incident could also expose us to risks and could cause management distraction and the obligation to devote significant financial and other resources to mitigate such problems, which would increase our future information security costs, including through organizational changes, deploying additional personnel, reinforcing administrative, physical and technical safeguards, further training of employees, changing third-party vendor control practices, and engaging third-party subject matter experts and consultants and reduce the demand for our technology and services. Any security compromise affecting us, our collaborators, CROs, third-party logistics providers, distributors, and other contractors and consultants, or our industry, whether real or perceived, could harm our reputation, erode confidence in the effectiveness of our security measures and lead to regulatory scrutiny. Further, our general liability insurance and corporate risk program may not cover all potential claims to which we are exposed and may not be adequate to indemnify us for all liability that maybe imposed; and could have a material adverse effect on our business and prospects. For example, the loss of clinical trial data from completed or ongoing clinical trials for any of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates could result in delays in our development and regulatory approval efforts and significantly increase our costs to recover or reproduce the data. The increasing focus on environmental sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results. There has been increasing public focus by investors, patients, environmental activists, the media and governmental and nongovernmental organizations on a variety of environmental, social and other sustainability matters. We may experience pressure to make commitments relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. Expectations regarding the management of environmental, social and governance, or ESG, initiatives continues to evolve rapidly. While we may from time to time engage in various initiatives (including but not limited to voluntary disclosures, policies, or goals) to improve our ESG profile or respond to stakeholder expectations, we cannot guarantee that these initiatives will have the desired effect. If we are not effective in addressing environmental, social and other
PureTech Health plc Annual Report and Accounts 2023 217 Risk Factor Annex continued A d d itio nal info rm atio n — a second referendum on Scottish independence from the United Kingdom; and/or — a snap general election; and — negative consequences from changes in tax laws. In addition, our business strategy incorporates potential international expansion to target patient populations outside the United States. If we or our Founded Entities receive regulatory approval for and commercialize any of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates in patient populations outside the United States, we may hire sales representatives and conduct physician and patient association outreach activities outside of the United States. Doing business internationally involves a number of risks, including, but not limited to: — multiple, conflicting, and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses; — failure by us to obtain and maintain regulatory approvals for the use of our therapeutics in various countries; — additional potentially relevant third-party patent rights; — complexities and difficulties in obtaining protection and enforcing our intellectual property; — difficulties in staffing and managing foreign operations; — complexities associated with managing multiple payor reimbursement regimes, government payors, or patient self-pay systems; — limits in our ability to penetrate international markets; — financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our therapeutics, and exposure to foreign currency exchange rate fluctuations; — natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions; — certain expenses including, among others, expenses for travel, translation, and insurance; and — regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, its books and records provisions, or its anti-bribery provisions. Any of these factors could significantly harm our potential international expansion and operations and, consequently, our results of operations. Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations. Our ability to invest in and expand our business and meet our financial obligations, to attract and retain third-party contractors and collaboration partners and to raise additional capital depends on our operating and financial performance, which, in turn, is subject to numerous factors, including the prevailing economic and political conditions and financial, business and other factors beyond our control, such as the rate of unemployment, the number of uninsured persons in the United States, political influences and inflationary pressures. For example, an overall decrease in or loss of insurance coverage among individuals in the United States as a result of unemployment, underemployment or the repeal of certain provisions of the ACA, may decrease the demand for healthcare services and pharmaceuticals. If fewer patients are seeking medical care because they do not have insurance coverage, we and our Founded Entities may experience difficulties in any eventual commercialization of the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates and our business, results of operations, financial condition and cash flows could be adversely affected. In addition, our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets upon which pharmaceutical and biopharmaceutical companies such as us are dependent for sources of capital. In the past, global financial crises have caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including a reduced ability to raise additional capital when needed on acceptable terms, if at all, and weakened demand for the therapeutic candidates within our Internal Programs. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. Additionally, we maintain the majority of our cash and Furthermore, in the EU, notified bodies must be officially designated to certify products and services in accordance with the EU Medical Devices Regulation. Despite a recent increase in designations, the current number of notified bodies designated under the new Regulation remains significantly lower than the number of notified bodies designated under the previous regime. The current designated notified bodies are therefore facing a backlog of requests as a consequence of which review times have lengthened. This situation may impact the way we are conducting our business in the EU and the EEA and the ability of our notified body to timely review and process our regulatory submissions and perform its audits. We or the third parties upon whom we depend may be adversely affected by a natural disaster and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could have a material adverse effect on our business, financial condition, results of operations and prospects. We will continue to incur increased costs as a result of operating as a U.S.- listed public company, and our management will be required to devote substantial time to new compliance initiatives. As a U.S. public company, and particularly now that we are no longer an emerging growth company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a public company listed only on the LSE. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance. We continue to evaluate these rules and regulations and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. Risks Related to Our International Operations Our international operations may expose us to business, regulatory, political, operational, financial, pricing and reimbursement and economic risks associated with doing business outside of the United States. As a company based in the United Kingdom, our business is subject to risks associated with being organized outside of the United States. While the majority of our operations are in the United States and our functional currency is the U.S. dollar, our future results could be harmed by a variety of international factors, including: — economic weakness, including inflation, or political instability in particular non-U.S. economies and markets; — differing and changing regulatory requirements; — difficulties in compliance with different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance with a wide variety of foreign laws, treaties and regulations; — changes in a specific country’s or region’s political or economic environment, including, but not limited to, the implications of one or more of the following occurring the decision of the United Kingdom: — future activities subject to the terms of the Trade and Cooperation Agreement between the United Kingdom and the European Union effective May 1, 2021, which has not impacted our results to-date;
218 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n The United Kingdom’s withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business, which could reduce the price of our ADSs. Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. On February 27, 2023, the UK Government and the European Commission reached a political agreement on the “Windsor Agreement” which will revise the Protocol on Ireland/ Northern Ireland in order to address some of the perceived shortcomings in its operation. Under the changes, Northern Ireland will be reintegrated under the regulatory authority of the MHRA with respect to medicinal products. The Windsor Framework was approved by the European Union-United Kingdom Joint Committee on March 24, 2023, so the UK government and the EU will enact legislative measures to bring it into law. On June 9, 2023, the MHRA announced that the medicines aspects of the Windsor Framework will apply from January 1, 2025. There could be additional uncertainty and risk around what these changes will mean to our business. It is currently unclear to what extent the UK Government will seek to align its regulations with the EU. The EU laws that have been transposed into UK law through secondary legislation remain applicable in Great Britain, but new legislation such as the (EU) CTR is not applicable in Great Britain. Whilst the EU-UK Trade and Cooperation Agreement, or TCA, includes the mutual recognition of Good Manufacturing Practice, or GMP, inspections of manufacturing facilities for medicinal products and GMP documents issued, it does not contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards. There may be divergent local requirements in Great Britain from the EU in the future, which may impact clinical and development activities that occur in the UK in the future. Similarly, clinical trial submissions in the UK cannot be bundled with those of EU member states within the EMA Clinical Trial Information System, or CTIS, adding further complexity, cost and potential risk to future clinical and development activity in the UK. Significant political and economic uncertainty remains about how much the relationship between the UK and EU will differ as a result of the UK’s withdrawal. These developments, or the perception that any related developments could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and may adversely affect the market price of our ADSs. The uncertainty regarding new or modified arrangements between the UK and other countries following the withdrawal may have a material adverse effect on the movement of personnel, goods, information or data between the UK and members of the EU and the United States, including the interruption of or delays in imports into the UK of goods originating within the EU and exports from the UK of goods originating there. For example, shipments into the UK of medicinal product substance manufactured for us in the EU may be interrupted or delayed and thereby prevent or delay the manufacture in the UK of drug product. Similarly, shipments out of the UK of drug product to the United States or the EU may be interrupted or delayed and thereby prevent or delay the delivery of drug product to clinical sites. Such a situation could hinder our ability to conduct current and planned clinical trials and have an adverse effect on our business. Exchange rate fluctuations may materially affect our results of operations and financial condition. Although we are based in the United Kingdom, our financial statements are denominated in U.S dollars and many of our business activities are carried out with partners outside the U.S. and United Kingdom and these transactions may be denominated in another currency. As a result, our business and the price of our ADSs may be affected by fluctuations in foreign exchange rates not only between the pound sterling and the U.S. dollar, but also the currencies of other countries, which may have a significant impact on our results of operations and cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place. cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position. We are subject to the U.K. Bribery Act 2010, or the Bribery Act, the U.S. Foreign Corrupt Practices Act of 1977 (as amended) (“FCPA”) and other anti-corruption laws, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations. Our operations are subject to anti-corruption laws, including the Bribery Act, the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, and other anti-corruption laws that apply in countries where we do business. These laws generally prohibit us and our employees and intermediaries acting on our behalf from corruptly authorizing, promising, offering, or providing, directly or indirectly, anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. The Bribery Act also prohibits: (i) “commercial” bribery of private parties, in addition to bribery involving domestic or foreign officials; (ii) the acceptance of bribes, as well as the giving of bribes, and (iii) “facilitation payments”, meaning generally low level payments designed to secure or expedite routine governmental actions or other conduct to which persons are already under obligations to perform. The Bribery Act also creates an offence applicable corporate entities for failure to prevent bribery by our employees, officers, directors and other third parties acting on our behalf, to which the only defence is to maintain “adequate procedures” designed to prevent such acts of bribery. In the future, we and our strategic partners may operate in jurisdictions that pose a heightened risk of potential Bribery Act or FCPA violations, and we may participate in collaborations and relationships with third parties whose conduct could potentially subject us to liability under the Bribery Act, FCPA or other anti-corruption laws, even if we do not explicitly authorize or have actual knowledge of such activities. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted. We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United Kingdom and the United States, and authorities in the European Union and its member states, including applicable export control regulations, economic sanctions and embargoes on certain countries, regions, and persons, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws. Compliance with Trade Control Laws regarding the import and export of our products may create delays in the introduction of our products in international markets, and, in some cases, prevent the export of our products to some countries altogether. We have policies and procedures designed to promote compliance with anti-corruption laws and Trade Control laws. However, there is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement, debarment from debarment from government contracts as well as other sanctions and remedial measures, and may also result in collateral litigation. These consequences could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by United Kingdom, United States or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition. In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.
PureTech Health plc Annual Report and Accounts 2023 219 Risk Factor Annex continued A d d itio nal info rm atio n If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our ADS price and trading volume could decline. The trading market for our ADSs and ordinary shares depends in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities or industry analysts cover our company, the trading price for our ADSs and ordinary shares would be negatively impacted. If one or more of the analysts who covers us downgrades our equity securities or publishes incorrect or unfavorable research about our business, the price of our ordinary shares and ADSs would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, or downgrades our securities, demand for our ordinary shares and ADSs could decrease, which could cause the price of our ordinary shares and ADSs or their trading volume to decline. Future sales, or the possibility of future sales, of a substantial number of our securities could adversely affect the price of the shares and dilute shareholders. Sales of a substantial number of our ADSs in the public market could occur at any time, subject to certain restrictions described below. If our existing shareholders sell, or indicate an intent to sell, substantial amounts of our securities in the public market, the trading price of the ADSs could decline significantly and could decline below the original purchase price. As of March 31, 2024, we had 270,209,101 outstanding ordinary shares. Ordinary shares subject to outstanding options under our equity incentive plans and the ordinary shares reserved for future issuance under our equity incentive plans will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. Holders of ADSs are not treated as holders of our ordinary shares. If you purchase an ADS, you will become a holder of ADSs with underlying ordinary shares in a company incorporated under English law. Holders of ADSs are not treated as holders of our ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of our ordinary shares, other than the rights that they have pursuant to the deposit agreement. See “Description of Securities Other Than Equity Securities” in our Annual Report on Form 20-F. Holders of ADSs may be subject to limitations on the transfer of their ADSs and the withdrawal of the underlying ordinary shares. ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the deposit agreement, or for any other reason, subject to the right of ADS holders to cancel their ADSs and withdraw the underlying ordinary shares. Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, ADS holders may not be able to cancel their ADSs and withdraw the underlying ordinary shares when they owe money for fees, taxes and similar charges and when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of ordinary shares or other deposited securities. See “Description of Securities Other Than Equity Securities” in our Annual Report on Form 20-F. ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. The deposit agreement governing the ADSs representing our ordinary shares provides that, to the fullest extent permitted by law, holders and beneficial owners of ADSs irrevocably waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to the ADSs or the deposit agreement. If this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the Risks Related to Our Equity Securities and ADSs The market price of our ADSs has been and will likely continue to be highly volatile, and you could lose all or part of your investment. The market price of our ADSs has been and will likely continue to be volatile. The stock market in general, and the market for biopharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not be able to sell your ADSs at or above the purchase price. The market price for our ADSs may be influenced by many factors, including: — adverse results or delays in our preclinical studies or clinical trials; — reports of AEs or other negative results in clinical trials of third parties’ therapeutic candidates that target the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates’ target indications; — an inability for us to obtain additional funding on reasonable terms or at all; — any delay in submitting an IND, BLA or NDA for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates and any adverse development or perceived adverse development with respect to the FDA’s review of that IND, BLA or NDA; — failure to develop successfully and commercialize the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates; — announcements we make regarding our current therapeutic candidates, acquisition of potential new therapeutic candidates and companies and/ or in-licensing; — failure to maintain our or our Founded Entities’ existing license arrangements or enter into new licensing and collaboration agreements; — failure by us, our Founded Entities or our licensors to prosecute, maintain or enforce our intellectual property rights; — changes in laws or regulations applicable to future therapeutics; — inability to obtain adequate clinical or commercial supply for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates or the inability to do so at acceptable prices; — adverse regulatory decisions, including failure to reach agreement with applicable regulatory authorities on the design or scope of our planned clinical trials; — failure to obtain and maintain regulatory exclusivity for the therapeutic candidates within our Internal Programs or our Founded Entities’ therapeutic candidates; — regulatory approval or commercialization of new therapeutics or other methods of treating our target disease indications by our competitors; — failure to meet or exceed financial projections we may provide to the public or to the investment community; — publication of research reports or comments by securities or industry analysts; — the perception of the pharmaceutical and biotechnology industries by the public, legislatures, regulators and the investment community; — announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our Founded Entities our strategic collaboration partners or our competitors; — disputes or other developments relating to proprietary rights, including patents, litigation matters and our or our Founded Entities’ ability to obtain patent protection for our technologies; — additions or departures of our key scientific or management personnel; — significant lawsuits, including patent or shareholder litigation, against us; — changes in the market valuations of similar companies; — adverse developments relating to any of the above or additional factors with respect to our Founded Entities; — sales or potential sales of substantial amounts of our ADSs; and — trading volume of our ADSs. In addition, companies trading in the stock market in general, and Nasdaq, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance. Since our ADSs were initially sold in November 2020 at a price of $33.00 per ADS, our ADS price has fluctuated significantly. If the market price of our ADSs does not exceed the price at which you acquired them, you may not realize any return on your investment in us and may lose some or all of your investment.
220 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n You may not receive distributions on our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders of ADSs. The depositary for the ADSs has agreed to pay to you any cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, in accordance with the limitations set forth in the deposit agreement, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no obligation to take any other action to permit distribution on the ADSs, ordinary shares, rights or anything else to holders of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it is unlawful or impractical to make them available to you. These restrictions may have an adverse effect on the value of your ADSs. Because we do not have immediate plans to pay any cash dividends on our ADSs, capital appreciation, if any, may be your sole source of gains and you may never receive a return on your investment. Under current English law, a company’s accumulated realized profits must exceed its accumulated realized losses (on a non-consolidated basis) before dividends can be declared and paid. Therefore, we must have sufficient distributable profits before declaring and paying a dividend. We have not paid dividends in the past on our ordinary shares. We have not announced any immediate plans to pay any cash dividends. As a result, capital appreciation, if any, on our ADSs will be your sole source of gains for the foreseeable future, and you would suffer a loss on your investment if you were unable to sell your ADSs at or above the price that you initially paid for them. Investors seeking cash dividends should not purchase our ADSs. Risks Related to Our Corporate Status We are not regulated as an “investment company” under the Investment Company Act of 1940, as amended, or the 1940 Act, and if we were deemed an “investment company” under the 1940 Act, applicable restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business. The 1940 Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. We have not been and do not intend to become regulated as an investment company, and we intend to conduct our activities so that we will not be deemed to be an investment company under the 1940 Act. In order to ensure that we are not deemed to be an investment company, we may be limited in the assets that we may continue to own and, further, may need to dispose of or acquire certain assets at such times or on such terms as may be less favorable to us than in the absence of such requirement. If anything were to happen which would cause us to be deemed to be an investment company under the 1940 Act (such as significant changes in the value of our Founded Entities or a change in circumstance that results in a reclassification of our interests in our Founded Entities for purposes of the 1940 Act), the requirements imposed by the 1940 Act could make it impractical for us to continue our business as currently conducted, which would materially adversely affect our business, results of operations and financial condition. In addition, if we were to become inadvertently subject to the 1940 Act, any violation of the 1940 Act could subject us to material adverse consequences, including potentially significant regulatory penalties and the possibility that certain of our contracts could be deemed unenforceable. As a foreign private issuer, we are exempt from a number of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company. This may limit the information available to holders of ADSs or our ordinary shares. We are a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to U.S. domestic public companies. For example, we are exempt from certain rules under the Exchange Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, while we currently make annual and semi-annual filings with respect to our listing on the LSE, we will not be required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. domestic issuers and will not be required to file quarterly reports on Form 10-Q or current reports on Form 8-K under the Exchange Act. In addition, “foreign private issuers” U.S. Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement. If you or any other holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action, depending on, among other things, the nature of the claims, the judge or justice hearing such claims, and the venue of the hearing. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with the U.S. federal securities laws and the rules and regulations promulgated thereunder. One of our principal shareholders has a significant holding in the company which may give them influence in certain matters requiring approval by shareholders, including approval of significant corporate transactions in certain circumstances. As of March 31, 2024, Invesco Asset Management Limited, or Invesco, held approximately 23.76 percent of our ordinary shares. Accordingly, Invesco may, as a practical matter, be able to influence certain matters requiring approval by shareholders, including approval of significant corporate transactions in certain circumstances. Such concentration of ownership may also have the effect of delaying or preventing any future proposed change in control of the company. The trading price of the ordinary shares could be adversely affected if potential new investors are disinclined to invest in the company because they perceive disadvantages to a large shareholding being concentrated in the hands of a single shareholder. The interests of Invesco and the investors that acquire ADSs may not be aligned. Invesco may make acquisitions of, or investments in, other businesses in the same sectors as us or our Founded Entities. These businesses may be, or may become, competitors of us or our Founded Entities. In addition, funds or other entities managed or advised by Invesco may be in direct competition with us or our Founded Entities on potential acquisitions of, or investments in, certain businesses. In addition, Invesco holds equity interests in certain of our Founded Entities where they may exert direct influence. You will 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 our Annual Report on Form 20-F and the deposit agreement, holders of the ADSs will not be able to exercise voting rights attaching to the ordinary shares represented by the ADSs. Under the terms of the deposit agreement, holders of the ADSs may instruct the depositary to vote the ordinary shares underlying their ADSs. Otherwise, holders of ADSs will not be able to exercise their right to vote unless they withdraw the ordinary shares underlying their ADSs to vote them in person or by proxy in accordance with applicable laws and regulations and our Articles of Association. Even so, ADS holders may not know about a meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of the ADSs, the depositary, upon timely notice from us, will notify ADS holders of the upcoming vote and arrange to deliver our voting materials to them. Upon our request, the depositary will mail to holders a shareholder meeting notice that contains, among other things, a statement as to the manner in which voting instructions may be given. We cannot guarantee that ADS holders will receive the voting materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that it holds our ordinary shares as of the record date set for such meeting and otherwise complies with our Articles of Association. In addition, the depositary’s liability to ADS holders for failing to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result, holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may not have any recourse against the depositary or us if their ordinary shares are not voted as they have requested or if their shares cannot be voted.
PureTech Health plc Annual Report and Accounts 2023 221 Risk Factor Annex continued A d d itio nal info rm atio n are exempt from Regulation FD, which prohibits selective disclosures of material information. Accordingly, there will be less publicly available information concerning our company than there would be if we were not a foreign private issuer. As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards. As a foreign private issuer listed on Nasdaq, we are subject to corporate governance listing standards. However, rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the United Kingdom, which is our home country, may differ significantly from corporate governance listing standards. For example, neither the corporate laws of the United Kingdom nor our articles of association require a majority of our directors to be independent and we could include non-independent directors as members of our nomination and remuneration committee, though a majority is required, and our independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present. Currently, we follow home country practice to the maximum extent possible. Therefore, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers. See “Governance” of this Annual Report and Accounts and “Item 16G—Corporate Governance” of our Annual Report on Form 20-F. We may lose our foreign private issuer status in the future, which could result in significant additional cost and expense. While we currently qualify as a foreign private issuer, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on June 30, 2024. In the future, we would lose our foreign private issuer status if we to fail to meet the requirements necessary to maintain our foreign private issuer status as of the relevant determination date. For example, if more than 50 percent of our securities are held by U.S. residents and more than 50 percent of the members of our executive committee or members of our board of directors are residents or citizens of the United States, we could lose our foreign private issuer status. The regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a foreign private issuer. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive in certain respects than the forms available to a foreign private issuer. We would be required under current SEC rules to prepare our financial statements in accordance with U.S. GAAP, rather than IFRS, and modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to U.S. GAAP will involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers such as the ones described above and exemptions from procedural requirements related to the solicitation of proxies. Risks Related to Our Internal Controls Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, financial condition, results of operations, and stock price and may adversely affect investor confidence in our company and, as a result, the value of our ADSs and your investment. Section 404 of the Sarbanes-Oxley Act requires us to evaluate the effectiveness of our internal controls over financial reporting as of the end of each fiscal year, including a management report assessing the effectiveness of our internal controls over financial reporting, and a report issued by our independent registered public accounting firm on that assessment. Our ability to comply with the annual internal control reporting requirements will depend on the effectiveness of our financial reporting and data systems and controls across our company. We expect these systems and controls to require additional investment as we become increasingly more complex and our business grows. To effectively manage this complexity, we will need to continue to maintain and revise our operational, financial and management controls, and our reporting systems and procedures. Certain weaknesses or deficiencies or failures to implement required new or improved controls, or difficulties encountered in the implementation or operation of these controls, could harm our operating results and cause us to fail to meet our financial reporting obligations, or result in material misstatements in our financial statements, which could adversely affect our business and reduce the value of our ADSs. We previously identified and disclosed a material weakness in our internal control over financial reporting in our Annual Report on Form 20-F for the year ended December 31, 2021. This material weakness has since been remediated, but we may discover additional material weaknesses in our internal control over financial reporting in the future, which we may not successfully remediate on a timely basis or at all. Any failure to remediate any significant deficiencies or material weaknesses identified by us or to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. If we fail to maintain effective internal control over financial reporting, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which could cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets or lead to a decline in the trading price of our securities. We may also be required to restate our financial statements from prior periods. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations, litigation from shareholders and civil or criminal sanctions, which could have a material adverse effect on our business. Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. We are subject to certain reporting requirements of the Exchange Act. Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected. Risks Related to Tax Matters We are treated as a U.S. domestic corporation for U.S. federal income tax purposes. We are treated as a U.S. domestic corporation for U.S. federal income tax purposes under Section 7874(b) of the Internal Revenue Code of 1986, as amended, or the Code. As a result, we are subject to U.S. income tax on our worldwide income and any dividends paid by us (or deemed to be paid by us for U.S. federal income tax purposes) to Non-U.S. Holders (as defined in the discussion under “Taxation in the United States” in our Annual Report on Form 20-F) will generally be subject to U.S. federal income tax withholding at a 30 percent rate or such lower rate as provided in an applicable treaty. Furthermore, PureTech Health plc is also resident for tax purposes in the U.K. and subject to U.K. corporation tax on its worldwide income and gains. Consequently, we may be liable for both U.S. and U.K. income tax, which could have a material adverse effect on our financial condition and results of operations. This discussion of certain U.S. federal income tax risks is subject in its entirety to the summaries set forth in “Certain United Kingdom Tax Considerations” and “Taxation in the United States” in our Annual Report on Form 20-F. Our ability to use our U.S. net operating losses and certain other tax attributes to offset future U.S. taxable income and income tax liabilities may be subject to certain limitations. As of December 31, 2023, we had U.S. federal and state net operating loss carryforwards, or NOLs, of approximately $13.7 million and $111.5 million, respectively, which, subject to the following discussion, are generally available to be carried forward to offset our future taxable income, if any, until such NOLs are used or expire. Our federal NOLs generated in taxable years beginning after December 31, 2017 are not subject to expiration, but may generally only be used to offset 80% of taxable income in years beginning after December 31, 2020. As of December 31, 2023, we also had U.S. federal and state research and development and other tax credit carryforwards of approximately $2.3 million and $0.1 million, respectively, available to reduce our future income tax liabilities, if any. These NOLs and tax credit carryforwards could expire unused, to the extent subject to expiration, and be unavailable to offset future taxable income or income tax liabilities.
222 PureTech Health plc Annual Report and Accounts 2023 Risk Factor Annex continued A d d it io na l i nf o rm at io n Shareholder protections found in provisions under the U.K. City Code on Takeovers and Mergers, or the Takeover Code, will not apply if our securities are no longer admitted to trading on a regulated market or a multilateral trading facility in the United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man and our place of management and control is considered to change to outside the United Kingdom. We are registered as a public limited company incorporated in England and Wales and have our ordinary shares admitted to trading on a regulated market in the United Kingdom (being the main market of the LSE). Accordingly, we are currently subject to the Takeover Code and, as a result, our shareholders are entitled to the benefit of certain takeover offer protections provided under the Takeover Code. The Takeover Code provides a framework within which takeovers of companies are regulated and conducted. If, at the time of a takeover offer, we have de-listed from the main market of the LSE (and do not maintain a listing of securities on any other regulated market or a multilateral trading facility in the United Kingdom or on any stock exchange in the Channel Islands or the Isle of Man) and the Panel on Takeovers and Mergers determine that we do not have our place of central management and control in the United Kingdom, then the Takeover Code may not apply to us and our shareholders would not be entitled to the benefit of the various protections that the Takeover Code affords. In particular, we would not be subject to the rules regarding mandatory takeover bids. The following is a brief summary of some of the most important rules of the Takeover Code: — when any person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares already held by that person and an interest in shares held or acquired by persons acting in concert with him or her) carry 30 percent or more of the voting rights of a company that is subject to the Takeover Code, that person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights in that company to acquire the balance of their interests in the company; — when any person who, together with persons acting in concert with him or her, is interested in shares representing not less than 30 percent but does not hold more than 50 percent of the voting rights of a company that is subject to the Takeover Code, and such person, or any person acting in concert with him or her, acquires an additional interest in shares which increases the percentage of shares carrying voting rights in which he or she is interested, then such person is generally required to make a mandatory offer to all the holders of any class of equity share capital or other class of transferable securities carrying voting rights of that company to acquire the balance of their interests in the company; — a mandatory offer triggered in the circumstances described in the two paragraphs above must be in cash (or be accompanied by a cash alternative) and at not less than the highest price paid within the preceding 12 months to acquire any interest in shares in the company by the person required to make the offer or any person acting in concert with him or her; — in relation to a voluntary offer (i.e. any offer which is not a mandatory offer), when interests in shares representing 10 percent or more of the shares of a class have been acquired for cash by an offeror (i.e., a bidder) and any person acting in concert with it in the offer period and the previous 12 months, the offer must be in cash or include a cash alternative for all shareholders of that class at not less than the highest price paid for any interest in shares of that class by the offeror and by any person acting in concert with it in that period. Further, if an offeror acquires for cash any interest in shares during the offer period, a cash alternative must be made available at not less than the highest price paid for any interest in the shares of that class; — if the offeror acquires an interest in shares in an offeree company (i.e., a target) at a price higher than the value of the offer, the offer must be increased to not less than the highest price paid for the interest in shares so acquired; — the offeree company must obtain competent advice as to whether the terms of any offer are fair and reasonable and the substance of such advice must be made known to all the shareholders, together with the opinion of the board of directors of the offeree company; — special or favorable deals for selected shareholders are not permitted, except in certain circumstances where independent shareholder approval is given and the arrangements are regarded as fair and reasonable in the opinion of the financial adviser to the offeree; In general, under Sections 382 and 383 of the Code, a corporation that undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain shareholders or groups of shareholders over a rolling three year period, is subject to limitations on its ability to utilize its pre-change U.S. federal NOLs and tax credit carryforwards to offset future taxable income and income tax liabilities. Similar rules may apply under state law. Our existing federal NOLs and tax credits may be subject to limitation arising from previous ownership changes. Future changes in our stock ownership, some of which are outside of our control, could result in ownership changes under Sections 382 or 383 of the Code, and our ability to utilize our federal NOLs or tax credit carryforwards could be further limited. Additionally, we may not be able to utilize the NOLs or tax credit carryforwards of our Founded Entities that have been deconsolidated or that will deconsolidate in the future. Furthermore, our ability to utilize NOLs of companies that we have acquired or may acquire in the future may be subject to similar limitations. For these reasons, even if we attain profitability, we may not be able to realize a tax benefit from the use of our NOLs or tax credit carryforwards. We may be unable to use net operating loss and tax credit carryforwards and certain built-in losses to reduce future U.K. tax liabilities. As a U.K. incorporated and tax resident entity, PureTech Health plc is subject to U.K. corporate taxation on its tax-adjusted trading profits. Due to the nature of our business, PureTech Health plc has generated losses since inception and therefore we have not paid any U.K. corporation tax. Subject to numerous utilization criteria and restrictions (including those that limit the percentage of profits that can be reduced by carried forward losses and those that can restrict the use of carried forward losses where there is a change of ownership of more than half the ordinary shares of the company and a major change in the nature, conduct or scale of the trade), we expect these to be eligible for carry forward and utilization against future U.K. operating profits. Future changes to tax laws could materially adversely affect our company and reduce net returns to our shareholders. The tax treatment of the company is subject to changes in tax laws, regulations and treaties, or the interpretation thereof, tax policy initiatives and reforms under consideration and the practices of tax authorities in jurisdictions in which we operate, as well as tax policy initiatives and reforms related to the Organisation for Economic Co-Operation and Development’s, or OECD, Base Erosion and Profit Shifting, or BEPS, Project, the European Commission’s state aid investigations and other initiatives. Such changes may include (but are not limited to) the taxation of operating income, investment income, dividends received or (in the specific context of withholding tax) dividends paid. We are unable to predict what tax reform may be proposed or enacted in the future or what effect such changes would have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices, could affect our financial position and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our shareholders, and increase the complexity, burden and cost of tax compliance. Tax authorities may disagree with our positions and conclusions regarding certain tax positions, resulting in unanticipated costs, taxes or non- realization of expected benefits. A tax authority may disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, HM Revenue & Customs, or HMRC, the Internal Revenue Service or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between certain of our Founded Entities pursuant to our intercompany arrangements and transfer pricing policies, including amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. A tax authority may take the position that material income tax liabilities, interest and penalties are payable by us, in which case, we expect that we might contest such assessment. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable.
PureTech Health plc Annual Report and Accounts 2023 223 Risk Factor Annex continued A d d itio nal info rm atio n — all shareholders must be given the same information; — each document published in connection with an offer by or on behalf of the offeror or offeree must state that the directors of the offeror or the offeree, as the case may be, accept responsibility for the information contained therein; — profit forecasts, quantified financial benefits statements and asset valuations must be made to specified standards and must be reported on by professional advisers; — misleading, inaccurate or unsubstantiated statements made in documents or to the media must be publicly corrected immediately; — actions during the course of an offer by the offeree company, which might frustrate the offer are generally prohibited unless shareholders approve these plans. Frustrating actions would include, for example, lengthening the notice period for directors under their service contract or agreeing to sell off material parts of the target group; — stringent and detailed requirements are laid down for the disclosure of dealings in relevant securities during an offer, including the prompt disclosure of positions and dealing in relevant securities by the parties to an offer and any person who is interested (directly or indirectly) in 1 percent or more of any class of relevant securities; and employees of both the offeror and the offeree company and the trustees of the offeree company’s pension scheme must be informed about an offer. In addition, the offeree company’s employee representatives and pension scheme trustees have the right to have a separate opinion on the effects of the offer on employment appended to the offeree board of directors’ circular or published on a website.
224 PureTech Health plc Annual Report and Accounts 2023 A d d it io na l i nf o rm at io n Broker Jefferies International Limited 100 Bishopsgate London EC2N 4JL United Kingdom Tel: +44 207 029 8000 Registrar ComputerShare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZY United Kingdom Tel: +44 (0)370 707 1147 Solicitors DLA Piper UK LLP 160 Aldersgate Street Barbican, London EC1A 4HT United Kingdom Tel: +44 870 011 1111 Company Registration Number 09582467 Registered Office 13th Floor One Angel Court London EC2R 7HJ United Kingdom Website www.puretechhealth.com Board of Directors Dr. Raju Kucherlapati (Interim Chair and Senior Independent Director) Dr. Bharatt Chowrira (Chief Executive Officer) Dr. Robert Langer (Non-Executive Director) Dr. John LaMattina (Independent Non-Executive Director) Ms. Kiran Mazumdar-Shaw (Independent Non-Executive Director) Ms. Sharon Barber-Lui (Independent Non-Executive Director) Company Secretary Mr. Charles Sherwood Media and Public Relations FTI Consulting, Inc. 200 Aldersgate Street Barbican London EC1A 4HD United Kingdom Tel: +44 203 727 1000 Independent Auditor PricewaterhouseCoopers LLP 3 Forbury Place 23 Forbury Road Reading RG1 3JH United Kingdom Tel: +44 (0) 118 959 7111 Company information Directors, Secretary and Advisors to PureTech
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P ureTech H ealth p lc A nnual rep ort and acco unts 2023 PureTech Health 6 Tide Street Suite 400 Boston MA 02210 Tel: +1 617 482 2333 Email: info@puretechhealth.com
Exhibit 97.1
PURETECH HEALTH PLC POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
PureTech Health plc (the “Company”) has adopted this Policy for Recovery of Erroneously Awarded Compensation (the “Policy”), effective as of November 8, 2023, (the “Effective Date”). Capitalized terms used in this Policy but not otherwise defined herein are defined in Section 11.
1.Persons Subject to Policy
This Policy shall apply to current and former Officers of the Company. Each Officer shall be required to sign an acknowledgment pursuant to which such Officer will agree to be bound by the terms of, and comply with, this Policy; however, any Officer’s failure to sign any such acknowledgment shall not negate the application of this Policy to the Officer.
1.Compensation Subject to Policy
This Policy shall apply to Incentive-Based Compensation received on or after the Effective Date. For purposes of this Policy, the date on which Incentive-Based Compensation is “received” shall be determined under the Applicable Rules, which generally provide that Incentive-Based Compensation is “received” when the relevant Financial Reporting Measure is attained or satisfied, without regard to whether the grant, vesting or payment of the Incentive-Based Compensation occurs thereafter.
1.Recovery of Compensation
In the event that the Company is required to prepare a Restatement, the Company shall recover, reasonably promptly and in accordance with Section 4 below, the portion of any Incentive-Based Compensation that is Erroneously Awarded Compensation, unless the Committee has determined that recovery would be Impracticable. Recovery shall be required in accordance with the preceding sentence regardless of whether the applicable Officer engaged in misconduct or otherwise caused or contributed to the requirement for the Restatement and regardless of whether or when restated financial statements are filed by the Company. For clarity, the recovery of Erroneously Awarded Compensation under this Policy will not give rise to any person’s right to voluntarily terminate employment for “good reason,” or due to a “constructive termination” (or any similar term of like effect) under any plan, program or policy of or agreement with the Company or any of its affiliates.
1.Manner of Recovery; Limitation on Duplicative Recovery
The Committee shall, in its sole discretion, determine the manner of recovery of any Erroneously Awarded Compensation, which may include, without limitation, reduction or cancellation by the Company or an affiliate of the Company of Incentive-Based Compensation or Erroneously Awarded Compensation, reimbursement or repayment by any person subject to this Policy of the Erroneously Awarded Compensation, and, to the extent permitted by law, an offset of the Erroneously Awarded Compensation against other compensation payable by the Company or an affiliate of the Company to such person. Notwithstanding the foregoing, unless otherwise prohibited by the Applicable Rules, to the extent this Policy provides for recovery of Erroneously Awarded Compensation already recovered by the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or Other Recovery Arrangements, the amount of Erroneously Awarded Compensation already recovered by the Company from the recipient of such Erroneously Awarded Compensation may be credited to the amount of Erroneously Awarded Compensation required to be recovered pursuant to this Policy from such person.
Exhibit 97.1
1.Administration
This Policy shall be administered, interpreted and construed by the Committee, which is authorized to make all determinations necessary, appropriate or advisable for such purpose. The Board of Directors of the Company (the “Board”) may re-vest in itself the authority to administer, interpret and construe this Policy in accordance with applicable law, and in such event references herein to the “Committee” shall be deemed to be references to the Board. Subject to any permitted review by the applicable national securities exchange or association pursuant to the Applicable Rules, all determinations and decisions made by the Committee pursuant to the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company and its affiliates, equityholders and employees. The Committee may delegate administrative duties with respect to this Policy to one or more directors or employees of the Company, as permitted under applicable law, including any Applicable Rules.
1.Interpretation
This Policy will be interpreted and applied in a manner that is consistent with the requirements of the Applicable Rules, and to the extent this Policy is inconsistent with such Applicable Rules, it shall be deemed amended to the minimum extent necessary to ensure compliance therewith.
1.No Indemnification; No Liability
The Company shall not indemnify or insure any person against the loss of any Erroneously Awarded Compensation pursuant to this Policy, nor shall the Company directly or indirectly pay or reimburse any person for any premiums for third-party insurance policies that such person may elect to purchase to fund such person’s potential obligations under this Policy. None of the Company, an affiliate of the Company or any member of the Committee or the Board shall have any liability to any person as a result of actions taken under this Policy.
1.Application; Enforceability
Except as otherwise determined by the Committee or the Board, the adoption of this Policy does not limit, and is intended to apply in addition to, any other clawback, recoupment, forfeiture or similar policies or provisions of the Company or its affiliates, including any such policies or provisions of such effect contained in any employment agreement, bonus plan, incentive plan, equity-based plan or award agreement thereunder or similar plan, program or agreement of the Company or an affiliate or required under applicable law (the “Other Recovery Arrangements”). The remedy specified in this Policy shall not be exclusive and shall be in addition to every other right or remedy at law or in equity that may be available to the Company or an affiliate of the Company or is otherwise required by applicable law and regulations.
1.Severability
The provisions in this Policy are intended to be applied to the fullest extent of the law; provided, however, to the extent that any provision of this Policy is found to be unenforceable or invalid under any applicable law, such provision will be applied to the maximum extent permitted, and shall automatically be deemed amended in a manner consistent with its objectives to the extent necessary to conform to any limitations required under applicable law.
1.Amendment and Termination
The Board or the Committee may amend, modify or terminate this Policy in whole or in part at any time and from time to time in its sole discretion. This Policy will
Exhibit 97.1
terminate automatically when the Company does not have a class of securities listed on a national securities exchange or association.
1.Definitions
“Applicable Rules” means Section 10D of the Exchange Act, Rule 10D-1 promulgated thereunder, the listing rules of the national securities exchange or association on which the Company’s securities are listed, and any applicable rules, standards or other guidance adopted by the Securities and Exchange Commission or any national securities exchange or association on which the Company’s securities are listed.
“Committee” means the Remuneration Committee of the Board, provided that, for purposes of determining whether recovery of Incentive-Based Compensation that is Erroneously Awarded Compensation would be Impracticable, “Committee” shall mean the committee of the Board responsible for executive compensation decisions comprised solely of independent directors (as determined under the Applicable Rules), or in the absence of such a committee, a majority of the independent directors serving on the Board.
“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received by a current or former Officer that exceeds the amount of Incentive-Based Compensation that would have been received by such current or former Officer based on a restated Financial Reporting Measure, as determined on a pre-tax basis in accordance with the Applicable Rules.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Financial Reporting Measure” means any measure determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measures derived wholly or in part from such measures, including GAAP, IFRS and non-GAAP/IFRS financial measures, as well as stock or share price and total equityholder return.
“GAAP” means United States generally accepted accounting principles.
“IFRS” means international financial reporting standards as adopted by the International Accounting Standards Board.
“Impracticable” means (a) the direct expenses paid to third parties to assist in enforcing recovery would exceed the Erroneously Awarded Compensation; provided that the Company has (i) made reasonable attempts to recover the Erroneously Awarded Compensation, (ii) documented such attempt(s), and (iii) provided such documentation to the relevant listing exchange or association, (b) to the extent permitted by the Applicable Rules, the recovery would violate the Company’s home country laws pursuant to an opinion of home country counsel; provided that the Company has (i) obtained an opinion of home country counsel, acceptable to the relevant listing exchange or association, that recovery would result in such violation, and (ii) provided such opinion to the relevant listing exchange or association, or (c) recovery would likely cause an otherwise tax-qualified retirement plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of 26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder.
“Incentive-Based Compensation” means, with respect to a Restatement, any compensation that is granted, earned, or vested based wholly or in part upon the attainment of one or more Financial Reporting Measures and received by a person: (a) after such person began service as an Officer; (b) who served as an Officer at any time during the performance period for that compensation; (c) while the Company has a class
Exhibit 97.1
of its securities listed on a national securities exchange or association; and (d) during the applicable Three-Year Period.
“Officer” means each person who serves as an executive officer of the Company, as defined in Rule 10D‑1(d) under the Exchange Act.
“Restatement” means an accounting restatement to correct the Company’s material noncompliance with any financial reporting requirement under securities laws, including restatements that correct an error in previously issued financial statements (a) that is material to the previously issued financial statements or (b) that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Three-Year Period” means, with respect to a Restatement, the three completed fiscal years immediately preceding the date that the Board, a committee of the Board, or the officer or officers of the Company authorized to take such action if Board action is not required, concludes, or reasonably should have concluded, that the Company is required to prepare such Restatement, or, if earlier, the date on which a court, regulator or other legally authorized body directs the Company to prepare such Restatement. The “Three-Year Period” also includes any transition period (that results from a change in the Company’s fiscal year) within or immediately following the three completed fiscal years identified in the preceding sentence. However, a transition period between the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a period of nine to 12 months shall be deemed a completed fiscal year.
ACKNOWLEDGMENT AND CONSENT TO POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
The undersigned has received a copy of the Policy for Recovery of Erroneously Awarded Compensation (the “Policy”) adopted by PureTech Health plc (the “Company”).
For good and valuable consideration, the receipt of which is acknowledged, the undersigned agrees to the terms of the Policy and agrees that compensation received by the undersigned may be subject to reduction, cancellation, forfeiture and/or recoupment to the extent necessary to comply with the Policy, notwithstanding any other agreement to the contrary. To the extent any recovery right under the Policy and any Other Recovery Arrangements (as defined in the Policy) applicable to the undersigned conflicts with any other contractual rights the undersigned may have with the Company or any affiliate, the undersigned understands that the terms of the Policy and the Other Recovery Arrangements shall supersede any such contractual rights.
The undersigned further acknowledges and agrees that the undersigned is not entitled to indemnification in connection with any enforcement of the Policy and expressly waives any rights to such indemnification under the Company’s organizational documents or otherwise.
Exhibit 97.1
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