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Risk factors

An investment in Santhera shares ("Shares") involves a high degree of risk. Prospective investors should carefully consider the risks related to any investment in the Shares before making a decision to invest in the Shares. The risks described below are only in summary form and not the only ones applicable to Santhera Pharmaceuticals Holding AG (the "Company") and/or its subsidiaries (together with the Company, the "Group", "Santhera", "we" or "us"). Additional risks not presently known or currently deemed immaterial may also impair the Group's business, results of operations, financial condition or prospects. The realization of one or more of these risks individually or together with other circumstances may have a material adverse effect on the Group's business, results of operations, financial condition or prospects. In addition, each of the risks set out below could adversely affect the trading price of the Shares, and investors in Shares may lose all or a part of their investment.

The order in which the risks are presented below is not intended to indicate the probability of their occurrence or the materiality of the risk.

By issuing these risk factors, we do not promote or solicit any investment in the Shares or related securities.

A. Risks related to our financial position and capital needs

We are an early stage company and have only one marketed product, Raxone® in Leber's hereditary optic neuropathy (LHON), which constitutes a relatively small business opportunity. We have incurred significant losses since our inception and expect to incur substantial losses and negative operating cash flows for the foreseeable future and may never achieve or maintain profitability. 

We may need to obtain substantial additional funding for purposes of our continuing operations and capital expenditures. . Future financing may not be available and may significantly dilute our shareholders (in the case of equity or equity-linked financing) and/or restrict our flexibility to operate (in the case of debt financing).

Our only marketed product, Raxone® in LHON, will not allow us to become profitable and our future profitability, if any, will largely depend on us being able to obtain marketing authorization and pricing and reimbursement approvals for Raxone® in Duchenne muscular dystrophy (DMD) and potentially in other indications.

News on our development and commercialization efforts that we will receive in the future may have a significant and potentially adverse effect on the value of the Group and, as a consequence, the market price of the Shares.

B. Risks related to the discovery and development of our product candidates

We focus our research and development efforts on compounds that target the function of the mitochondria, and our future success depends on the success of this therapeutic approach.

We rely on only two compounds in our development and commercialization efforts. Any factor that may adversely affect our lead compound, idebenone (the active ingredient of Raxone®), may affect our marketed product and our most important product candidates at once.

We spend our resources on certain product candidates and may fail to capitalize on product candidates that may be more profitable or for which there is a greater likelihood of success.

Clinical development is lengthy and expensive process and clinical failure may occur at any stage of clinical development.

If we or our partners experience delays or difficulties in the enrollment of patients in clinical trials, the conduct and completion of clinical trials may be delayed or prevented.

We may not be successful in our efforts to build up our pipeline of product candidates or to spend our limited resources on the most promising product candidates.

We rely and will in the future have to rely on third parties to conduct clinical trials for our product candidates, and if they do not properly and successfully perform their obligations, we may not be able to successfully complete the respective development of our product candidates.

We may not be successful in maintaining existing or establishing and maintaining additional collaborations.

If serious adverse events or undesirable or unacceptable side effects are identified during the development of our product candidates or after commercialization of our product or any future products, we may need to abandon the development of some of our product candidates or withdraw the respective product from the market.

C. Risks related to marketing approval of our product candidates and legal compliance matters

Following clinical development, our product candidates will require marketing authorization. If we are not able to obtain marketing authorization at all, in a timely manner or on acceptable terms for our product candidates, we will not be able to commercialize our product candidates at all or as planned, and our ability to generate revenue will be materially impaired.

Fast track, breakthrough therapy and similar designations for some of our product candidates may not lead to a faster development or regulatory review or approval process, do not increase the likelihood of receiving marketing authorization and may be revoked.

Our product Raxone® in LHON is, and any product candidate for which we may obtain marketing authorization will be, subject to extensive post-marketing regulatory requirements and could be subject to post-marketing restrictions or withdrawal from the market, and we may be subject to penalties if we or the third parties with which we collaborate fail to comply with regulatory requirements or experience unanticipated problems with our products.

Our relationships with customers and third-party payers and our general business operations are and will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm or diminished earnings, among other things.

If we or our third-party contractors or employees fail to comply with environmental, health and safety laws, we could become subject to civil or criminal penalties, other remedial measures or incur costs that could harm our business. 

D. Risks related to the commercialization of our product candidates and marketing and sale of our products

Our product, Raxone® in LHON, and any of our product candidates (if approved) may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for commercial success despite having received marketing authorization.

Off-label and unlicensed uses of currently available idebenone, including its legal or illegal compounding by pharmacists, may adversely affect our revenue from Raxone®.

We have only started to develop our marketing and sales organization, have limited experience in marketing products and do not expect to have significant marketing synergies between our product and our product candidates (if approved). If we are unable to establish and expand our marketing and sales capabilities or enter into distribution agreements with third parties, we may not be able to generate product revenue.

We face substantial competition, which may result in others discovering, developing or commercializing competing products before or more successfully than we do, as well as reducing the price at which we are able to sell our products.

Should we or our distributors be found to have improperly promoted off-label uses, we may become subject to significant liability.

The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain coverage and adequate reimbursement for our product or product candidates (if approved) and price controls could limit our ability to market those products and decrease our ability to generate revenue.

Recently enacted and future healthcare reform legislation involves a high degree of uncertainty and may adversely affect our business.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of our product or any product candidates (if approved).

E. Risks related to market exclusivity rights and intellectual property

Our business model relies on orphan drug exclusivity for our product, Raxone® in LHON, and our current or future clinical product candidates. Orphan drug designation can be difficult to obtain and maintain, and in any event, orphan drug exclusivity provides only limited protection from competition, all of which could limit the potential profitability of our product and product candidates.

Our product, Raxone® in LHON, is not patent protected and we can, if at all, only seek limited patent protection for our product candidates. Even granted patents may not be enforceable, and we may be subject to ownership disputes over patents or other intellectual property.

We have in-licensed our early stage product candidates and other intellectual property from third parties. We could lose our rights to use the licensed intellectual property in the event of termination of or dispute relating to the respective license or if such intellectual property is unenforceable for any reason.

Third-party claims of intellectual property infringement or misappropriation may prevent or delay our development and commercialization efforts.

We enjoy only limited geographical protection with respect to orphan drug designations and patents and may face difficulties in certain jurisdictions, which may diminish the value of intellectual property rights in those jurisdictions.

If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.

We may become involved in lawsuits to protect or enforce our patents and other exclusivity rights, which could be expensive, time-consuming, and unsuccessful.

F. Risks related to manufacturing, employment matters, operations, managing growth, corporate structure and financial reporting

We have no manufacturing capabilities or capacity of our own and rely on third parties for production of Raxone® and our secondary compound, omigapil. Our dependence on these third parties has the potential to adversely affect our business, results of operations or financial condition.

The compounds we use are complex and difficult to manufacture. Only a handful of manufacturers are able to manufacture these compounds, and our manufacturers may experience production problems.

If we lose the services of any member of the top management or other key members of our management, scientific or commercial staff or if we fail to attract and retain key scientific or other personnel, we may be unable to successfully develop and commercialize our product candidates or market our current product or future products.

We will need to grow the size and capabilities of our organization, and we may experience difficulties in managing this growth. 

Our and our partners' computer systems may fail or suffer security breaches, which could result in a material disruption of our product development programs. 

G. Risks related to general economic and financial market conditions

Changes in the macro-economic environment and political developments in Europe, the United States and elsewhere may have a material adverse effect on the Group and may reduce the value of the Shares.

We are exposed to currency fluctuation risks and other financial risks.

H. Risks related to the Shares

The market price of the Shares has been and will be volatile.

Future sales of a substantial number of Shares or derivative instruments by us or our investors could negatively affect the market price of the Shares.

We do not expect to pay dividends in the foreseeable future.

If securities or industry analysts do not publish research or publish inaccurate research or unfavorable research about our business, the price of the Shares and trading volume could decline.

Our articles of association provide for an opting out of the mandatory tender offer rules. As a result, our shareholders would not have the possibility to sell their Shares in the event that a shareholder or group of shareholders acquires more than 33 1/3% of the voting rights in the Company. Also, the minimum price rules would not be applicable in any voluntary public tender offer for Shares in the Company.