biotechnology technology annual report 2018 venturetec - annual report 2018.pdf · uncertainties...
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New Venturetec Ltd. Chollerstrasse 356300 Zug
phone +41 41 740 25 25fax +41 41 740 25 [email protected]
Annual Report 2018 TechnologyBiotechnology
www.newventuretec.comenter
01 New Venturetec
assurance can be given that any operational development
of the Company or its portfolio is not affecting the price of
the New Venturetec Ltd. shares on the market.
Some of the investees may be in a development stage,
disclosing accumulated deficits and little or no revenues.
Their ability to continue as a going concern may depend on
additional funding. Companies which are in the need of
cash often face unfavourable financing terms to existing
shareholders – in our case New Venturetec Ltd. – which
basically means heavy dilution and unfavourable liquidation
preferences in case of a trade sale. This is only if the com-
pany is able to attract investments in the first place for which
no assurance can be given that this may occur. These
investments offer the opportunity of significant capital
gains, but involve a high degree of business and financial
risks that can result in substantial losses, including the risk
of a total unrecoverability of an investment. The financial
risk management objectives and policy of New Venturetec
Ltd. are to minimize dilution by structuring the initial invest-
ment accordingly. Other protective measures such as liqui-
dation preferences are also part of the Company’s policy.
However, the operational risk remains. Furthermore, the
Company does not hedge any foreign currencies or interest
rate risk exposure.
New Venturetec Ltd. Shareholders should be aware of
the risks which could result in a loss of 100% of the invest-
ment. This is a real possibility. Any investor should only
invest in New Venturetec Ltd. if he can afford the complete
loss of the investment without having to change his
lifestyle.
New Venturetec Ltd. is an investment company investing
in venture portfolio companies which are in their early
development stage, with no history of revenues, earnings
or significant operations, and are subject to all of the risks
inherent in the venture business. Currently, New Venturetec
Ltd. holds two investments in public companies. No invest-
ment in New Venturetec Ltd. shares should be made by any
person who is not in a position to bear the economic risk
including the possibility of the loss of the entire amount of
such investment. The risk is 100%.
Any forward looking statements or projections made
by the Company or its portfolio companies, including those
made in this report, are based on management’s expecta-
tions at the time they are made, and are subject to risks and
uncertainties that may cause actual results to differ materi-
ally from those projected. Specifically, discussions of
possible future growth and development in revenue and
customers are forward looking in nature, and actual results
could differ materially from current expectations. Each of
the portfolio companies’ future results may be impacted by
factors such as technological changes, market acceptance
of the companies’ services and products, ability to grow its
customer base, and competitive market pressures, among
other things.
The shares of New Venturetec Ltd. are listed on the
SIX Swiss Exchange. The price per share is based on supply
and demand on the market. Further, the trading of New
Venturetec Ltd. shares may be rather illiquid. New Ven-
turetec Ltd. does not make a market in its shares and the
Company has no agreement with any market maker. No
Disclaimer
1 New Venturetec
2 Letter to Shareholders
4 New Venturetec Ltd.
5 Information summary
6 Risks
9 Investment approach
11 Investment guidelines
13 Portfolio
22 Valuation of investments
24 Investment performance
25 Corporate governance
36 Compensation report
40 Financial statements
74 Statutory financial statements
86 Annex
Contents
New Venturetec 2
However, Osiris is still working through the challenges
it faced after the restatement announcement in late 2015.
The immense costs are a huge burden. The past few years
seem like a waste. Thanks to the high quality products,
Osiris is still alive and growing. There is a process at work
to change the culture. It’s a must and can be painful and
will require time. There are also risks. Please refer to the risk
section in this report.
Myriad has developed nicely in its efforts to diversify
the product strategy. The company made some good
acquisitions. The future will tell how it will result in financial
terms. Unfortunately management is still selling shares.
New Venturetec Ltd. remains a risky investment with
the possibility of total loss.
Thank for your patience and continued support.
Sincerely yours,
Peter Friedli
Dear Shareholder
Please find herewith the Annual Report 2018 of New
Venturetec Ltd.
New Venturetec Ltd. repor ted a net prof it of
USD 26,055,742 for the financial year ended September
30, 2018. The profit resulted mainly from gains in the
Osiris Therapeutics stock price, which increased from
USD 4.60 to USD 11.10 (+141.30%) and the increase of
Myriad Genetics stock price from USD 36.18 to USD 46.00
(+27.14%).
The stock price of New Venturetec Ltd. increased by
+156.3% year on year, from CHF 1.99 to CHF 5.10.
During the financial year ended September 30, 2018,
New Venturetec Ltd. has dissolved its fully owned subsidiary
Venturetec, Inc. All assets formerly held by Venturetec, Inc.,
including the venture capital investments, have been trans-
ferred to the direct ownership of New Venturetec Ltd. and
as of September 2018, the company newly shows the direct
venture capital investments in its financial statements.
New Venturetec Ltd.’s net profit for the financial year
ended September 30, 2018 is USD 26,055,742 (FYE Sep
2017: Net profit of USD 242,183) or a profit of USD 5.21
per share (FYE Sep 2017: Net profit of USD 0.05 per share).
The average exchange rate CHF/USD the fi nancial year
ended September 30, 2018 was 0.9759 (FYE Sep 2017:
0.9882).
Both portfolio companies, Osiris Therapeutics and
Myriad Genetics, made progress during the reporting
period.
Letter to Shareholders
4New Venturetec
New Venturetec Ltd.
Venture capital can be private or public depending on
the stage of the company. The company naturally evolves
from its inception through generating profits if successful.
Several rounds of financing at different prices are conducted
in most cases.
The proceeds of such financings are used for working
capital to build the business as such companies still generate
losses. A company is out of the venture stage if for six to
eight consecutive quarters a substantial revenue and profit
increase is achieved and the outlook for the coming years
ahead is for sustainable growth. At this stage the company
can be private or public.
The characteristics of a venture capital investment are
typically 100% risk which may result in a complete loss of
the investment, lack of a market for the securities and
longterm investment horizon. Venture capital offers the
possibility to participate in the formation and growth of
companies.
Company
New Venturetec Ltd., Zug (“the Company”) was formed
on July 16, 1997 and incorporated on August 11, 1997 for
the purpose of direct and indirect investments in Swiss and
foreign companies, especially in high risk venture capital
companies in the industries of Biotechnology and Technology.
The Company is domiciled in Zug.
New Venturetec Ltd.’s business objective is to obtain
capital appreciation from well-selected companies that are
at the forefront of the technology and products in their
field.
Investment approach
The investment targets are carefully selected after in-depth
analysis of people, technology and markets of potentially
high quality companies in fields being viewed as of special
interest. Major attention is given to the management, its
capability and commitment. Influence on key management
decisions as well as on strategic planning is executed.
Milestones are being set and management is being
reviewed. Monitoring and control procedures as well as
providing up-to date reports on company progress and
financial situation are an integral part of the investment
management.
Venture Capital
Venture capital investing is the process of building a business
from scratch. The venture capital investments are made
through different forms of securities ranging from common
stock to preferred shares and convertible debt.
To understand risks does not prevent anyone from making losses as the human decision making process cannot be replaced.
5 New Venturetec
Information summary
Company New Venturetec Ltd.
Domicile Zug
Type of securities Bearer Shares
Outstanding shares 5,000,000 Shares
Initial public offering October 17, 1997
Dividend The Company does not intend to pay out any dividends, but rather reinvests
any realized cash from disinvestments
Management fee 1.0% p.a. payable on the quarterly net asset value
Board of Directors Peter Friedli, Chairman
Andreas von Sprecher, Member and Secretary
Michael Endres, Member
Investment Advisor Madison Investment Advisor, Inc.
Auditors KPMG AG, Zurich
Listing SIX Swiss Exchange (Segment Investment Companies)
Security number 703 683
Price information (ticker) Telekurs (NEV), Reuters (NEV.S), Bloomberg (NWV SW Equity)
Reporting Annual report, semi-annual report,
permanent information available on Internet
Outstanding notes convertible CHF 12,000,000, 4% p.a., Life until November 30, 2018
voluntarily convertible into shares of the Company with a conversion price
of CHF 9.50 per share
CHF 1,125,000, 4% p.a., Life until December 31, 2019
voluntarily convertible into shares of the Company with a conversion price
of CHF 9.50 per share
6New Venturetec
Risks
Management, technological risks
The quality of the management of venture companies
included in the portfolio of the Company is crucial for the
success of the investments of the Company. Although the
Company will use its expertise and experience in assessing
the quality of the management, the Company has to fully
rely on the management of the companies contained in the
Company’s investment portfolio.
Furthermore, no assurance can be given that the man-
agement will be successful in handling the technological
risks, which are inherent in projects of startup companies.
Research might not lead to satisfactory results and techno-
logical improvements or changes by competitors might
endanger the successful launch of a product or service.
Currency risks
The Net Asset Value per share is published in US Dollars.
The Company’s investments are usually made in US Dollars.
Any investment in other currencies than the US Dollar might
lead to positive or negative impacts on the Company’s
performance in its annual financial statements, including
its income statement. The Company’s IFRS financial state-
ments are presented in US Dollar. The fluctuation of foreign
currencies could substantially impact the Net Asset Value
per share.
Since the Company’s shares are listed in Swiss francs,
fluctuation in exchange rates between the Swiss franc and
the US Dollar could also materially impact the price of the
Company’s shares. Nevertheless, the Company does not
hedge against these currency risks.
Political, regulatory risks
The value of the Company’s assets may be affected by
uncertainties such as international political developments,
transfer risks, changes in government policies, taxation,
restriction on foreign investment and other developments
in the laws and regulations of the countries in which the
Company’s assets are invested. This is especially the case
in the biotechnology and communications sectors, where
successful launches of products are dependent on govern-
ment approval (such as FDA for biotechnology and FCC for
telecommunications firms).
The risk of venture capital investments is 100%
As briefly outlined earlier, New Venturetec Ltd. offers the
opportunity for capital gains. However, no assurance can
be given that such returns can be realized. The risk of
venture capital investments is 100%. In order for the Com-
pany to be successful in investing in start-up and emerging
companies, it must identify potentially profitable enterprises
at an early stage in their development, a process which is
very difficult even for people with considerable experience
in the venture capital field. Furthermore, the Company is
competing for investment opportunities with a number of
other venture capital firms. The Company may also invest
in businesses which are not start-up or emerging companies,
but which are for various reasons seeking to raise additional
capital without making a public offering of securities.
These reasons can include adverse conditions in the public
securities markets, or a record of earnings and/or growth,
which is less than adequate for a successful public offering
of securities.
Lack of liquidity of investments
Investments will usually consist of securities that are subject
to restrictions on resale as they are acquired from companies
in private placement transactions. Neither the Company
nor any investors, to whom the Company distributes
restricted securities, will be able to sell such restricted
securities to the public unless the sale is registered under
applicable Federal and State securities laws, or unless an
exemption from such registration is available. In connection
with any particular portfolio investment, the Company may
negotiate for rights to require registration under the Act.
No assurance can be given, however, that the Company
will be successful in such negotiations or that registration
will provide adequate means of liquidating such investment.
Currently, New Venturetec Ltd. holds two investments
in public companies.
New Venturetec7
Risks
Financial reporting
The accounting, auditing, financial and disclosure require-
ments and reporting standards of the Company are those
defined in the International Financial Reporting Standards
of the International Accounting Standards Board. The net
asset value is based on estimates of the Company. Investors
should recognize that the monthly calculation is based on
indicative values and may therefore contain only limited
information on the real value of the net assets of the Com-
pany. The difficulties involved in calculating the net asset
value are discussed further on page 22 and note 10.1 on
page 59.
Investment advisor
The Company is advised by Madison Investment Advisory,
Inc., owned by Peter Friedli. The Company uses the ability
of the investment advisor to evaluate investment opportu-
nities and to further develop the Company’s investments.
The investment advisor advises the Board on all investment
decisions for the Company as well as the net asset value
computation. The Board of Directors is responsible for
ensuring the Investment Policy set by the Company are
strictly followed. It should be realized that Peter Friedli is
the key person for both the investment advisor and the
Board of Directors and that between him and the Company
conflicts of interests may arise.
Liquidity risk
New Venturetec Ltd. operates on tight liquidity and has to
generate cash to cover its operational costs and interests.
Further, the Company has liabilities outstanding in the
amount of USD 20,965,314 as per September 30, 2018.
New Venturetec Ltd. does not have any operational income
and consequently the only way to generate liquidity is
through the sale of assets or funding through additional
debt or equity. Please see note 6.3 on page 55 for further
information on the liquidity risk.
Market risks
The markets and individual investment vehicles in which
the Company will primarily invest may prove to be highly
volatile from time to time as a result of market specific risk.
This may be, for example, due to a sudden change in under-
lying economic factors as well as changes in government
policies on taxation or changes in legislation relating to the
level of foreign ownership in companies.
The company’s share price
Considerable price fluctuations in the shares may arise due
to the general position of the investment sector, the
economy as a whole and the financial markets. Such price
fluctuations could have a positive and negative effect on
the share price regardless of the Company’s financial condi-
tion and results of operations.
Patent risks and proprietary rights
The success of the investments will depend largely on the
ability to obtain patents on products to protect trade secrets
and to operate without infringing the proprietary rights of
others.
Legal standards regarding the scope of claims and the
validity of patents, e.g. in the biotechnology market, are
uncertain and evolving. There can be no assurance that the
underlying firms’ patents will provide them with significant
competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patent
owned by the firms. The cost of litigation to uphold the
validity and prevent infringement of a patent is substantial.
8New Venturetec
Risks
In addition, as a greater than 10% shareholder, New
Venturetec Ltd. is further limited as to when it can engage
in purchasing or selling shares of Osiris Therapeutics. New
Venturetec Ltd. is subject to Osiris’ Trading Window and
must clear all purchase and/or sales transactions in the
company’s common stock with either the President & CEO
or the Chief Financial Officer. Osiris’ Trading Window usu-
ally closes 15-days prior to the end of each fiscal quarter
and then reopens on the third Trading Day after the finan-
cial results for the quarter are published, which typically is
35 – 45 days after the fiscal quarter end. The Trading
Window may also close during other times at the discretion
of the company.
Risks of Osiris Therapeutics
Extracts from Osiris Therapeutics 10k Reporting 2017 regard-
ing specific risk factors of the company shall be studied on
Annex I on page 86.
Liquidity of New Venturetec Ltd.’s investment in Osiris Therapeutics
New Venturetec Ltd. directly owns 4,103,301 shares of
Osiris Therapeutics, which represents approx. 12% of the
outstanding shares of Osiris Therapeutics. Based on this
ownership, New Venturetec Ltd. is a reporting person in
respect of Osiris Therapeutics and is subject to reporting
requirements of Section 16 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). New Ven-
turetec Ltd. has reported its transactions and holdings of
Osiris Therapeutics with the United States Securities and
Exchange Commission (SEC) through the filing of Forms 3
and 4, consistently since first becoming a reporting person
following the IPO of Osiris Therapeutics.
The sale by New Venturetec Ltd. of shares of Osiris
Therapeutics common stock requires either registration
under the Securities Act of 1933, as amended (the “Securi-
ties Act”), or that the sale be exempt from registration.
Rule 144 under the Securities Act provides a safe harbor
from registration for sales by a person other than an issuer,
underwriter or dealer. Compliance with Rule 144 requires
compliance with various restrictions set forth in the rule,
including limitations on the number of shares sold in a given
period and the manner in which sales may be completed.
For sales by an affiliate of an issuer, which New Venturetec
Ltd. is presumed to be, Rule 144 provides that the volume
of securities sold during any preceding three-month period
may not exceed the greatest of certain limitations.
Rule 144 also requires, in the case of affiliate sales, that
a Form 144 be filed with the SEC in advance of the sale.
The sale must then take place within 90 days after the filing
of the Form 144. If and when a sale transaction occurs, the
sale must be reported to the SEC by the filing of a Form 4,
within two days.
New Venturetec9
position in a successful or promising entity. The Company
may also be called upon to provide follow-on investments
for reasons such as the provision of additional capital to
enable a portfolio company to fully implement its business
plan, to develop a new line of business or to recover from
unexpected business problems.
Currently, New Venturetec Ltd. holds two investments
in public companies.
Investment process
Any investment decision will be made by the Board of
Directors after careful evaluation of the situation. Using the
expertise of the investment advisor, New Venturetec Ltd.
will diversify its investments in several ways that may, but
need not include diversification among different industries
of interest.
The investments will be acquired in transactions usually
negotiated directly by the Company with the portfolio
company or an affiliate thereof. New Venturetec Ltd. will
seek to structure the terms of the investment in order to
provide for the capital needs and success of the portfolio
company, while at the same time maximizing the Company’s
opportunity of long-term capital appreciation and mini-
mizing adverse risks. An important factor in successful
investing is the proper structuring of the transaction in terms
of the type of security, restrictions on the use of funds,
commitments or rights to provide additional financing,
control and involvement in such a company’s business and
disinvestment strategy. A further aspect is the proper valu-
ation of the potential portfolio companies, and thus, the
pricing of the transaction.
Investment objectives
The objective of New Venturetec Ltd. is to achieve longterm
capital appreciation through equity and debt investments
in startup, emerging and growth companies which the
Company believes offer significant growth opportunities.
We identify successful and promising companies and then
actively work with management over a ten year time
horizon or more.
The investment decisions will be based upon (i) New
Venturetec Ltd.’s ability to identify companies which can
successfully utilize capital at an early stage in their life
cycle, (ii) carefully selected or assessed management
teams, (iii) strategic advice for positioning such companies
in high growth markets and (iv) an influence on the port-
folio companies.
Investments
Investments will typically be structured in negotiated trans-
actions directly with the portfolio company. The securities
acquired will primarily consist of common and preferred
stock or convertibles, a combination of equity and debt
securities and warrants, secured and unsecured debentures,
options and other rights to acquire such securities. Since
some of the investments may be in private firms or restricted
securities of publicly traded enterprises, the resale or
disposition of such investments will generally be restricted
for a period of time. Following its initial investments, the
Company anticipates that it may provide additional or
“followon” funds to portfolio companies. Follow-on invest-
ments may be made pursuant to the rights to acquire
additional securities, or in order to increase the Company’s
Investment approach
10New Venturetec
Long-term investment perspective
An important distinguishing element is our long-term invest-
ment perspective. New Venturetec Ltd. only makes invest-
ments where we believe that we can help the entrepreneur
build a market leader over a five to ten year investment
horizon. We invest with a view towards maintaining our
equity positions for a significant period of time following
an initial public offering. In addition, we may remain active
board members for many years after a company has gone
public.
We are not structured to focus on short-term liquidity.
The structure of New Venturetec Ltd. as an investment
company permits us to pursue long-term investment stra-
tegies in building value and realizing returns. Our invest-
ments and economic incentives are structured with a
long-term view and our assistance to management is always
provided with long-term corporate objectives in mind. This
long-term commitment provides the foundation for success
and plays a key role in our ability to build lasting relationship
with management and shareholders.
We invest into comprehensive technology and markets.
In most cases, the products are at the leading edge as well
as unique and provide a clear advantage to the customer.
The markets are thoroughly analyzed and need to be con-
sidered real and growing, but by no means too futuristic.
There must be a defined need and obvious payback for the
targeted customers. Competition is viewed as healthy and
inspiring. The portfolio companies seek patent applications
and protection of intellectual property to secure a leading
position.
Most important for the success of a portfolio company
is the quality of the management and their entrepreneurial
spirit. Therefore, our main focus in considering an invest-
ment is management. We weight management with 80%
of the investment factors. We invest in people and the
future of such a business. To evaluate people is a timecon-
suming and demanding process. The qualities of a CEO
depend on the specific situation but in essence consist of
key factors that are applicable at all times.
Investment approach
New Venturetec11
Investment guidelines
Investment allocation
The purpose to invest is to build companies over a long
period of time. This might result in a portfolio with only a
few investments, rather than many smaller positions. It
therefore might enhance the risk of a portfolio which
concentrates in a small number of investments.
Leverage
The Company may borrow capital to pursue the investment
objectives.
Hedging
The Company does not hedge any positions, investments,
currencies, interests and the like. The Company does not
do short selling, use of derivative instruments for the pur-
pose of securing its investments or security lending or
borrowing.
Currency
Investments are mainly done in US Dollars. The Company
is not following any defined currency ratios.
Disinvestments
For most positions held by the Company there are legal or
market driven limitations for sale or transfer of the securities,
such as low liquidity in the public market, large positions,
board representations, insider regulations, lock-up’s and
contractual sales limitations. The Company acts in the best
interest of the shareholders to structure and execute
disinvestments together with other shareholders and the
management of the portfolio companies.
Investment objective
The objective of New Venturetec Ltd. is to achieve long-term
capital appreciation through investments in venture
companies which the Company believes offer significant
growth opportunities. These may not be achieved (see also
risks).
Investment policy
The Company invests in venture companies only. The risks
of venture capital investments are 100% (see also risks).
Geographic area
The Company’s investments are predominately in the United
States of America. Exceptional investments may be domi-
ciled in Europe.
Industry focus
The Company invests in companies in the areas of biotech-
nology and technology.
Investment strategy
The Company invests in venture companies in all stages
from seed to late stage. Investments are made mainly in
private but also in public companies and in all classes of
securities, including common and preferred equity, secured
and unsecured debt, convertibles, options, warrants and
combinations thereof. The investment horizon may be up
to 20 years.
New Venturetec 12
Investment guidelines
Change of Investment Guidelines
The Company’s investment guidelines may be changed by
the Board of Directors of the Company at any time in whole
or in part subject to terms and conditions of agreements
and contracts.
Carry of responsibilities
The Board of Directors of the Company is responsible and
has to decide on all investments and disinvestments of the
Company. Madison Investment Advisory, is the investment
advisor for the Board and advises the Board among others
on investment selection and allocation, investment manage-
ment and process, structuring of investments, monitoring
and the disinvestments of investments. Peter Friedli, the
Chairman of the Company is the owner of Madison Invest-
ment Advisory. There may be a conflict of interest due to
the fact that the investment advisor is involved with other
investment companies and represents other investors. The
investment advisor or Peter Friedli may represent the
Company and other investors on the board of directors of
the portfolio companies. As a member of the board he will
represent all shareholders of each company. The investment
advisor may also supply investment banking services to the
portfolio companies and may be compensated for such
services. Such remuneration is explicitly authorized. Peter
Friedli may also invest personally in Portfolio Companies.
Risk
Some of the investees may be in the development stage,
disclosing accumulated deficits and little or no revenues.
Their ability to continue as a going concern may depend on
additional funding which may result in a dilution for holdings
of the Company. These investments are offer the opportu-
nity of significant capital gains, but involve a high degree
of business and financial risk, that can result in a 100% loss
of the investment. The Company may be limited or
restricted to make disinvestments or sell or transfer any
positions at any specific time and thereof risks to lose
momentum or favorable market conditions.
13 New Venturetec
Portfolio
Disclaimer and risk factors
Under the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, companies listed below
caution investors that any forward looking statements or
projections made by the company, including those that may
be made in this report, are based on management’s expec-
tations at the time they are made, and are subject to risks
and uncertainties that may cause actual results to differ
materially from those projected. Specifically, discussions of
possible future growth and development in revenue and
customers are forward looking in nature, and actual results
could differ materially from current expectations. Each of the
below listed companies’ future results may be impacted by
factors such as technological changes, market acceptance of
the company’s services, ability to grow its customer base,
competitive market pressures and general economic envi-
ronment, among other things. Each of the below listed
companies’ future results are also subject to other risk
factors, including those detailed from time to time in the
company’s reports. Despite making these forward-looking
statements, companies undertake no obligation or intention
to update these statements after the date of this report.
Some of the investees may be in a development stage,
disclosing accumulated deficits and little or no revenues.
Their ability to continue as a going concern may depend
on additional funding. Companies which are in the need of
cash often face unfavourable financing terms to existing
shareholders – in our case New Venturetec Ltd. – which
basically means heavy dilution and unfavourable liquidation
preferences in case of a trade sale. This is only if the company
is able to attract investments in the first place for which no
assurance can be given that this may occur. These invest-
ments offer the opportunity of significant capital gains, but
involve a high degree of business and financial risks that
can result in substantial losses, including the risk of a
total unrecoverability of an investment. The financial risk
management objectives and policy of New Venturetec Ltd.
are to minimize dilution by structuring the initial investment
accordingly. Other protective measures such as liquidation
preferences are also part of the Company’s policy. However,
the operational risk remains. Furthermore, the Company
does not hedge any foreign currencies or interest rate risk
exposure.
New Venturetec Ltd. Shareholders should be aware of
the risks which could result in a loss of 100% of the invest-
ment. This is a real possibility.
New Venturetec 14
Portfolio
Our business focuses on using unique tissue preserva-
tion technologies to develop viable human tissue products
designed to improve wound closure and surgical outcomes
for patients and physicians over standard of care alone. We
have built a substantial direct sales force dedicated exclu-
sively to sell our Grafix and Stravix products and entered
into exclusive agreements to market and distribute BIO4
and Cartiform.
Products
All of our current commercialized products are market-
ed as human cells, tissues and cellular and tissue-based
products (“HCT/Ps”), as defined by the United States
Food and Drug Administration (“FDA”), that are regula-
ted solely under Section 361 of the Public Health Service
Act (“361 HCT/Ps”), and consequently, do not require
pre-market approval or licensure from the FDA.
Current Products
Grafix is a product line of several products, Grafix PRIME,
Grafix XC and Grafix CORE, and was initially launched
in 2010. They are cryopreserved amniotic (amnion) or
chorionic (chorion) placental membranes that retain the
extracellular matrix, growth factors, endogenous cells,
including neonatal epithelial cells (in amnion only) mesen-
chymal stem cells, and fibroblasts of the native tissue, all of
which are beneficial in supporting natural wound repair.
Grafix PRIME and Grafix XC (a larger size for surgical appli-
cations) are derived from the amnion and Grafix CORE is
derived from the chorion. The amnion is the innermost
membrane and the chorion is the outermost membrane of
the placenta. Our Grafix products are flexible and confor-
ming wound covers designed for direct application to hard-
to-treat acute and chronic wounds, including but not limited
to diabetic foot ulcers (“DFUs”), venous leg ulcers (“VLUs”),
and burns.
Stravix is a viable cryopreserved human placental tissue,
comprised of amniotic and connective layers of umbilical
tissue that has been developed as a wound cover or
surgical wrap to support soft tissue repair. It retains native
components of the umbilical tissue including the extra-
cellular matrix, growth factors and endogenous viable cells
including epithelial cells, fibroblasts and mesenchymal stem
cells (“MSCs”). Stravix conforms to the site of injury and
requires minimal preparation prior to use. It is thicker and
has a stronger tensile strength than our Grafix products.
Stravix was launched in late 2015.
The following text is an extract from the Osiris Thera-
peutics, Inc. quarterly report for the period ended June
30, 2018 (Form 10Q). The terms “Osiris”, “we”, “us”,
and “our” means Osiris Therapeutics, Inc.
Please see Appendix I on page 86 for information on
the risk of Osiris Therapeutics.
Overview of Osiris
Osiris Therapeutics, Inc. researches, develops, manufac-
tures, markets and sells regenerative medicine products
intended to improve the health and lives of patients and
lower overall healthcare costs. We have achieved commercial
success with products in orthopedics, sports medicine and
wound care, including the Grafix product line, Stravix, BIO4
and Cartiform. We continue to advance our R&D by focus-
ing on innovation in regenerative medicine, including the
development of bioengineered stem cell and tissue-based
products.
We are a fully integrated company, having developed
capabilities in research and development, manufacturing,
marketing and sales of our products. We are focused on
the long-term commercial growth of the Company through
the delivery of differentiated products for use across mul-
tiple fields of medicine with clear value propositions to
patients, healthcare providers and thirdparty payors.
We began operations in 1992 and were a Delaware
corporation until, with the approval of our stockholders,
we reincorporated as a Maryland corporation in May 2010.
Osiris®, Grafix®, GrafixPL®, Grafix CORE®, Grafix
PRIME®, GrafixPL PRIMETM, Grafix XC®, Stravix®, Carti-
form®, Prestige LyotechnologySM, OvationOS®, Ovation™,
TruSkin® and Menvivo™ are trademarks of the Company.
BIO4® is a trademark of Howmedica Osteonics Corp., a
subsidiary of Stryker Corporation (“Stryker”). Any other
trademarks referred to in this Quarterly Report on Form
10-Q are the property of their owners.
Osiris Therapeutics (NASDAQ: OSIR)
www.osiris.com
New Venturetec Ltd. cost USD 24.2 million
New Venturetec Ltd. holding of Osiris Therapeutics approx. 12%
Valuation as of September 30, 2018 USD 45.5 million
% of total investments as of September 30, 2018 86%
15 New Venturetec
Portfolio
BIO4 is a viable bone matrix containing endogenous bone
forming cells including MSCs, osteoprogenitor cells,
osteoblasts, osteoinductive and angiogenic growth factors.
It possesses all four characteristics involved in bone repair
and regeneration: osteoconductive, osteoinductive, osteo-
genic, and angiogenic. BIO4 is an alternative to autograft
(or a graft of tissue from one’s own body) which requires
a procedure of harvesting a patient’s own bone and is
associated with donor site morbidity. Originally branded as
OvationOS and launched in 2014, BIO4 is marketed and
distributed exclusively by a subsidiary of Stryker Corporation
(“Stryker”) under the brand name BIO4 since 2015.
Cartiform is a viable osteochondral allograft that contains
extracellular matrix, chondrogenic factors and endogenous
viable chondrocytes native to the cartilage tissue. The intact
architecture of native cartilage is preserved in Cartiform.
Cartiform is intended to treat osteochondral defects.
Cartiform can fit to any surface contour. Cartiform was
launched in 2012 and is exclusively available through
Arthrex, Inc. (“Arthrex”).
Menvivo was developed for repair of the meniscus follow-
ing partial meniscectomy. Menvivo is processed from
donated human meniscus tissue and maintains the structural
and mechanical properties of the tissue. Extracellular matrix,
biological factors and endogenous viable cells of fresh
meniscal tissue are retained in Menvivo. Although Menvivo
is available to the market as a 361 HCT/P, we have no
current plans to actively distribute this product because the
proper use of this product requires the development of
new implantation techniques and instruments.
TruSkin is a cryopreserved viable skin allograft designed to
address unmet medical needs of chronic wounds, such as
DFUs, VLUs, pressure ulcers, surgical wounds, and wounds
with exposed bone, tendon, joint capsule and muscle.
TruSkin retains the extracellular matrix, growth factors and
endogenous living skin cells of native tissue, making it an
alternative to fresh skin allograft. We introduced TruSkin in
November 2015. Since late 2016, we are no longer actively
distributing it.
Other Product
GrafixPL: In 2017, we announced the development
of Prestige Lyotechnology, a preservation technique
for ambient storage of living tissues. We believe Pres-
tige Lyotechnology will allow for storage and shipment
of living tissue at room temperature. In June 2018,
we reported the validation, testing, and upscaling of
Prestige Lyotechnology for manufacturing of our prod-
ucts and to eliminate the need to preserve and transport
our products at constant ultra-low temperatures. We ex-
pect our GrafixPL PRIME product to be our first commer-
cially available product in the lyopreserved formulation.
We expect the two Grafix and GrafixPL product lines will
be comparably priced, depending on size of the graft,
with list prices ranging from $495 – $3,000.
Sales, Marketing and Distribution
Grafix and Stravix: We currently sell Grafix and Stravix
through the efforts of our internal direct sales and marke-
ting departments, as well as through a small number of
specialty distributors for certain target markets. We focus
our marketing efforts for these products in four specific
channels: hospital outpatient departments, inpatient
surgical procedures, private physician offices, and Depart-
ment of Veteran Affairs (“VA”) and Department of Defense
(“DOD”) hospitals. For our VA and DOD customers, our
products are distributed exclusively through resellers
designated as Service-Disabled, Veteran-Owned Small
Businesses (“SDVOSBs”). SDVOSBs are eligible for
set-asides and other preferences in the federal contracting
process. For the VA, SDVOSBs enter into Federal Supply
Schedule or Strategic Acquisition Center contracts and for
the DOD, SDVOSBs enter into Distribution and Pricing
contracts.
16New Venturetec
Cartiform: In October 2014, we entered into an exclusive
agreement for our cartilage product, Cartiform, with
Arthrex. The agreement with Arthrex provides Arthrex with
exclusive commercial distribution rights to Cartiform. We
are responsible for manufacturing, continued research and
product improvement activities. We collaborate with
Arthrex on the design and conduct of clinical development
programs. The agreement provides for an initial eight-year
exclusive term with automatic renewals of additional two-
year periods. Pursuant to the agreement, Arthrex is entitled
to a certain commission on Cartiform sales.
Portfolio
BIO4: In December 2014, we entered into an exclusive
agreement with Howmedica Osteonics Corp., also referred
to as Stryker Orthopaedics, a subsidiary of Stryker, for the
marketing and distribution of BIO4. We are responsible for
supply, manufacturing, inventory management, shipments
to customers, continued research and product improvement
activities. Stryker is responsible for the sales and marketing
of BIO4 for use in all surgical applications, including spine,
trauma, extremity, cranial, and foot and ankle surgery. We
collaborate with Stryker on the design and conduct of
clinical development programs.
The agreement with Stryker provides for an initial
four-year exclusive term, which commenced on the date of
Stryker’s initial commercial sale of BIO4 in February 2015.
The term may be extended by Stryker for an additional
exclusive period of four years or an additional non-exclusive
period of two years. If Stryker extends the term on an
exclusive basis, it has the option to further extend the term
on an exclusive basis for two more years. We received an
initial exclusivity fee of $5.0 million in 2015 and are entitled
to receive additional fees upon any exercise by Stryker of
its right to extend the initial term, whether on an exclusive
or non-exclusive basis. These additional fees are reduced
on a sliding scale if Stryker meets certain revenue thresholds
during the initial term or if revenue goals are not met as a
result of us not fulfilling our supply obligations. Stryker is
entitled to a certain percentage of sales of allograft services
for BIO4 and has limited early termination rights.
New Venturetec17
Our Business Strategy
Our strategy is focused on executing the following five
critical success factors:
1. Build upon a solid hereditary cancer foundation – In
fiscal year 2018, approximately 65 percent of our
revenue was derived from the sale of products to assess
a patient’s risk for hereditary cancer. Given that this is
our most important market and that we are the world-
wide leader in hereditary cancer testing, we are focused
on maintaining this global leadership position. We are
currently working on expanding professional guidelines
for hereditary cancer testing to expand the addressable
market, and have signed long-term contracts with
commercial insurers to ensure pricing visibility going
forward.
2. Grow new product volume – In fiscal year 2018, volume
from new products outside of hereditary cancer com-
prised greater than two-thirds of our overall volume.
We are currently less than 10 percent penetrated in the
U.S. market with our new products and see significant
opportunity for future revenue growth. We are focused
on further penetrating these markets and believe in the
future our new products could represent the largest
component of our revenue.
3. Expand reimbursement coverage for new products –
Our new tests, in the United States, have insurance
coverage for anywhere from 5% to 90% of the total
addressable market. We are actively working on
demonstrating scientific evidence supporting both
the clinical efficacy and utility of these products to
commercial payers to broaden insurance coverage.
4. Increase RNA kit sales internationally – Outside of the
United States, we are primarily focused on selling kit-
based versions of our RNA expression based tests. We
currently market one RNA expression based test,
EndoPredict, which we acquired through our acquisition
of Sividon Diagnostics. In addition, we are working on
kit based versions of Prolaris and myPath Melanoma
which we also plan to sell in international markets.
The following text is an extract from the Myriad Genetics,
Inc. annual report 2018 for the fiscal year ended June 30,
2018 (Form 10k). The terms “Myriad”, “we”, “us”, and
“our” means Myriad Genetics, Inc.
We are one of the largest specialty molecular diagnostic
laboratories in the world and since our founding in 1992,
have tested over 3.0 million patients. We are headquartered
in Salt Lake City, Utah and generated worldwide revenues
of $772.6 million during our fiscal year ended June 30, 2018.
We are a leading personalized medicine company acting
as a trusted advisor to transform patient lives through
pioneering molecular diagnostics. Through our proprietary
technologies, we believe we are positioned to identify
important disease genes, the proteins they produce, and
the biological pathways in which they are involved to better
understand the genetic basis of human disease. We believe
that identifying these biomarkers (DNA, RNA and proteins)
will enable us to develop novel molecular diagnostic tests
that can provide important information to solve unmet
medical needs.
Our Mission
Our goal is to provide physicians with critical information
to guide the healthcare management of their patients by
addressing four major questions a patient may have about
their healthcare:
– What is the likelihood of my getting a disease?
– Do I have a disease?
– How aggressively should my disease be treated?
– Which therapy will work best to treat my disease?
Over time, we have developed and plan to develop
additional products that answer these important questions
in six medical specialties: oncology, women’s health,
urology, dermatology, autoimmune and neuroscience. We
believe that these commercial channels represent markets
where there is a significant opportunity for high-value
molecular diagnostic tests to positively impact patient care
and drive value for the healthcare system.
Myriad Genetics (NASDAQ: MYGN)
www.myriad.com
New Venturetec Ltd. cost USD 4.7 million
New Venturetec Ltd. holding of Myriad Genetics < 1%
Valuation as of September 30, 2018 USD 7.4 million
% of total investments as of September 30, 2018 14%
Portfolio
New Venturetec 18
tests is approximately $5 billion annually. myRisk Hereditary
Cancer was initially released through an early access launch
that began in September 2013.
BRACAnalysis®
DNA sequencing test for assessing the risk of developing
breast and ovarian cancer. Our BRACAnalysis test is an
analysis of the BRCA1 and BRCA2 genes for assessing a
woman’s risk of developing hereditary breast and ovarian
cancer. A woman who tests positive for a deleterious
mutation with the BRACAnalysis test has up to an 87% risk
of developing breast cancer and up to a 44% risk of
developing ovarian cancer by age 70. As published in the
New England Journal of Medicine, researchers have shown
that pre-symptomatic individuals who have a high risk of
developing breast or ovarian cancer can reduce their risk
by more than 90% with appropriate preventive therapies.
Additionally, BRACAnalysis may be used to assist patients
already diagnosed with breast or ovarian cancer and their
physicians in determining the most appropriate therapeutic
interventions to address their disease.
riskScore™
Clinically validated personalized medicine tool that enhances
our myRisk Hereditary Cancer test. The riskScore test is
clinically validated to predict a woman’s risk of developing
breast cancer using family history, clinical risk factors and
genetic-markers. The proprietary algorithm combines
proprietary single nucleotide polymorphisms (SNP’s) and
clinical factors to provide women with their remaining
lifetime and 5-year risk for developing breast cancer.
BRACAnalysis CDxTM
DNA sequencing test for use as a companion diagnostic with
the PARP inhibitor Lynparza™ (olaparib) currently indicated
for use in identifying ovarian cancer patients with deleterious
or suspected deleterious germline BRCA variants eligible
for treatment with Lynparza™, and as a complementary
diagnostic test in ovarian cancer patients associated with
enhanced progression-free survival (PFS) from Tesaro’s PARP
inhibitor Zejula™ (niraparib) maintenance therapy. Approx-
imately 15% of patients with epithelial ovarian cancer are
BRCA positive.
5. Improve profitability – In the fourth-quarter of fiscal
year 2017 we launched a new operating margin
improvement program called Elevate 2020. The goal
of this program is to identify projects that can lead to
$50 million in incremental operating income by fiscal
year 2020 through leveraging centralized resources,
implementing new technology solutions, executing
strategic sourcing agreements, and focusing on labora-
tory efficiency.
Molecular Diagnostic Testing
Our molecular diagnostic tests are designed to analyze
genes, their expression levels and corresponding proteins
to assess an individual’s risk for developing disease later in
life, accurately diagnose disease, determine a patient’s
likelihood of responding to a particular drug, or disease
recurrence and assess a patient’s risk of disease progression.
Provided with this valuable information, physicians may
more effectively manage their patient’s healthcare.
Below are the descriptions of our molecular diagnostic
tests:
myRisk™ Hereditary Cancer
DNA sequencing test for assessing the risks for hereditary
cancers. Our myRisk Hereditary Cancer test represents the
next generation of our existing hereditary cancer testing
franchise which we anticipate will eventually replace our
current predictive medicine test offerings (BRACAnalysis,
BART, Colaris and Colaris AP, and Melaris) with a single
comprehensive test. myRisk Hereditary Cancer is designed
to determine a patient’s hereditary cancer risk for breast
cancer, ovarian cancer, colon cancer, uterine cancer, mela-
noma, pancreatic cancer, prostate cancer and gastric cancer.
The test analyzes 28 separate genes to look for deleterious
mutations that would put a patient at a substantially higher
risk than the general population for developing one or more
of the above cancers. All 28 genes in the panel are well
documented in clinical literature for the role they play in
hereditary cancer and have been shown to have actionable
clinical interventions for the patient to lower disease risk or
risk of cancer recurrence. The myRisk report presents the
myRisk Genetic Test Result and myRisk Management Tool
that summarizes published management guidelines related
to the patient’s genetic mutation as well as their personal and
family history of cancer. myRisk Hereditary Cancer testing
identifies more mutation carriers than BRAC Analysis® and
COLARIS® combined. We believe the global market for
myRisk Hereditary Cancer and all of our hereditary cancer
Portfolio
New Venturetec19
EndoPredict®
RNA expression test for assessing the aggressiveness of
breast cancer . The EndoPredict test is a next-generation
RNA expression test used to determine which women with
breast cancer would benefit from chemotherapy. EndoPre-
dict predicts the likelihood of metastases to help guide
treatment decisions for chemotherapy and extended
antihormonal therapy. EndoPredict has been shown to
accurately predict recurrence in Her 2-, ER+, node negative
and node positive breast cancer patients with no confusing
intermediate results in 13 published clinical studies with
more than 2,200 patients and is CE marked. We believe the
global market opportunity for EndoPredict is greater than
$600 million annually with the majority of that market
existing in major European countries, Canada, and the
United States.
myPath™ Melanoma
RNA expression test for diagnosing melanoma. Our myPath
Melanoma test is a gene expression based profile that is
performed on biopsy tissue for the purpose of aiding a
dermatopathologist in the diagnosis of melanoma. Every
year in the United States, there are approximately two
million skin biopsies performed specifically for the diagnosis
of melanoma. Approximately 14% of these biopsies are
classified as indeterminate where a dermatopathologist
cannot make a definitive call as to whether the biopsy is
benign or malignant. Outcomes for patients are poor if
melanoma is not caught in early stages with five year
survival rates dropping from 98% for localized to less than
20% for distant stage disease cancer based upon data
from the American Cancer Society. We believe myPath
Melanoma may provide an accurate tool to assist physicians
in correctly diagnosing indeterminate skin lesions. Based
upon three clinical validation studies which were published
in the Journal of Cutaneous Pathology in 2015, Cancer in
2016 and Cancer Epidemiology Biomarkers and Prevention
in 2017, myPath Melanoma has been shown to have a
diagnostic accuracy of 90 to 95 percent.
We believe the global market for myPath Melanoma is
approximately $1 billion annually. myPath Melanoma was
released through an early access launch that began in
November 2013.
GeneSight®
DNA genotyping test to optimize psychotropic drug
selection for neuroscience patients. Our GeneSight test
helps healthcare providers take a personalized approach to
prescribing medicine for patients. Because genes influence
the way a person’s body responds to specific medications,
the medications may not work the same for everyone. Using
DNA gathered with a simple cheek swab, GeneSight
analyzes a patient’s genes and provides individualized
information to help healthcare providers select medications
that better match their patient’s genes. Multiple clinical
studies have shown that when clinicians used GeneSight
to help guide treatment decisions, patients were more
likely to respond to the selected medication compared to
standard of care.
Vectra® DA
Protein quantification test for assessing the disease activity
of rheumatoid arthritis. Our Vectra DA test is a quantitative,
objective multi-biomarker blood test validated to measure
rheumatoid arthritis (RA) disease activity. Vectra DA
assesses multiple mechanisms and pathways associated with
RA disease activity and integrates the concentrations of
12 serum proteins into a single score reported on a scale of
1 to 100. The test may be used throughout the course of a
patient’s disease and provides clinicians with expanded
insight on disease severity and the risk of radiographic
progression.
We believe the global market for Vectra DA is approx-
imately $3 billion annually.
Prolaris®
RNA expression test for assessing the aggressiveness of
prostate cancer. Our Prolaris test is a gene expression assay
that assesses whether a patient is likely to have a slow
growing, indolent form of prostate cancer that can be safely
monitored through active surveillance, or a more aggressive
form of the disease that would warrant aggressive interven-
tion such as a radical prostatectomy or radiation therapy.
The Prolaris test was developed to improve physicians’
ability to predict disease outcome and to thereby optimize
patient treatment. A study published by Urologic Oncology
in June 2018 demonstrated that Prolaris can identify 50%
more patients as suitable for active surveillance without any
change in prostate cancer mortality.
We believe the global market for Prolaris is approxi-
mately $1.5 billion annually.
Portfolio
New Venturetec 20
of total revenue. In addition to the fees received from
analyzing these samples, we also use this information
to create and validate potential molecular diagnostic
tests.
– Privatklinik Dr. Robert Schindlbeck GmbH & Co. KG
(the “Clinic”) located approximately 15 miles from our
European laboratories in Munich, Germany. It is an
internal medicine emergency hospital that is considered
a specialized hospital for internal medicine and hemo-
dialysis.
The Molecular Diagnostic Industry and Competition
The markets in which we compete are rapidly evolving, and
we face competition from multiple public companies, private
companies, and academic/university laboratories for a
number of our laboratory testing services.
In the hereditary cancer testing market we have faced
increased competition since a U.S. Supreme Court decision
in June 2013 invalidated some of the key patent claims
covering our hereditary cancer testing products. These
patents were originally set to begin expiring in 2015 and
beyond. Since this Supreme Court decision, numerous large
reference laboratories, small private laboratories, and
academic/university laboratories have launched competing
hereditary cancer tests. Despite the impact from competi-
tion, we continue to believe we are the world leader in
hereditary cancer testing.
The market for hereditary cancer testing has evolved
dramatically over time. Broad reimbursement coverage for
hereditary cancer tests began emerging in the early 2000s
and coupled with increased public awareness around
genetics and our marketing and promotional efforts, there
has been significant growth in testing volumes. One of the
largest drivers of growth has been increased testing in
asymptomatic patients in the preventive care setting which
now comprise over half of all tests performed in the United
States. We are working to continue to expand awareness
around hereditary cancer testing and expand the number
of patients that qualify for hereditary cancer testing under
medical guidelines and health insurance coverage policies.
myChoice® HRD
Companion diagnostic to measure three modes of homo-
logous recombination deficiency (HRD) including loss of
heterozygosity, telomeric allelic imbalance and largescale
state transitions in cancer cells. Our myChoice HRD test
is the most comprehensive homologous recombination
deficiency test to detect when a tumor has lost the ability
to repair double-stranded DNA breaks, resulting in increased
susceptibility to DNA-damaging drugs such as platinum
drugs or PARP inhibitors. The myChoice HRD score is
a composite of three proprietary technologies: loss of
heterozygosity, telomeric allelic imbalance and large-scale
state transitions. Positive myChoice HRD scores, reflective
of DNA repair deficiencies, are prevalent in all breast
cancer subtypes, ovarian and most other major cancers. In
previously published data, Myriad showed that the myChoice
HRD test predicted drug response to platinum therapy in
certain patients with triplenegative breast and ovarian
cancers. It is estimated that 1.4 million people in the United
States and Europe who are diagnosed with cancers annually
may be candidates for treatment with DNA-damaging
agents.
Tumor BRACAnalysis CDxTM
DNA sequencing test designed to be utilized to predict
response to DNA damaging agents such as platinum based
chemotherapy agents and poly ADP ribose (PARP) inhibitors.
Tumor BRACAnalysis CDx evaluates both germline and
somatic mutations in the BRCA1 and BRCA2 genes giving
a more complete picture of potential loss of DNA repair
ability within the tumor. Approximately 22% of epithelial
ovarian cancer patients will test positive for Tumor
BRACAnalysis CDx.
Pharmaceutical and Clinical Services
Our pharmaceutical and clinical services consist of the
following:
– Through Myriad RBM, we provide biomarker discovery
and pharmaceutical and clinical services to the phar-
maceutical, biotechnology, and medical research
industries utilizing our multiplexed immunoassay tech-
nology. Our technology enables us to efficiently screen
large sets of well-characterized clinical samples from
both diseased and non-diseased populations against
our extensive menu of biomarkers. During the year
ended June 30, 2018, Myriad RBM accounted for 4.0%
Portfolio
New Venturetec21
only laboratory with an FDA approved germline test for this
indication and have received approvals in ovarian and
metastatic breast cancer from the U.S. FDA. We also have
proprietary tests in development including our myChoice
HRD assay which we believe could be even better predictors
of response to PARP inhibitors but are not yet broadly com-
mercially available. We compete in this market based upon
the quality and turnaround time of our testing, our ability
to garner regulatory approvals for new indications, and
based upon our proprietary testing methodologies.
In the urology market, we compete against a small
number of public and private companies for our prostate
cancer prognostic test, Prolaris. We compete in this market
primarily based upon the quality of the clinical data
supporting the test, our first mover advantage in the
marketplace and the strength of our sales support and
customer service.
In the autoimmune market, our Vectra DA test
competes primarily against traditional methodologies for
assessing rheumatoid arthritis disease activity such as a
physician’s clinical assessment of the patient and single
marker laboratory tests such as C-reactive protein (CRP).
We believe we have the most predictive product on the
market to assess rheumatoid arthritis disease activity.
In the neuroscience market, our GeneSight test meets
a significant unmet clinical need and is the leading product
for psychotropic drug selection. It is used by healthcare
providers to help patients who are affected by neuropsy-
chiatric conditions including depression, anxiety, ADHD,
bipolar disorder, schizophrenia, post-traumatic stress disor-
der (PTSD) and other behavioral health conditions, as well
as chronic pain. The test is clinically proven to enhance
medication selection, helping healthcare providers get their
patients on the right medication faster.
In the pharmaceutical and clinical services segment,
our Myriad RBM division competes against other contract
research organizations and academic laboratories for
business from pharmaceutical and research customers.
Another factor influencing the marketplace has been
the advent of next generation sequencing. This has allowed
the transition from single syndrome tests to targeted
pan-cancer panels in a cost effective manner without
sacrificing test accuracy. We launched our first pan-cancer
panel, myRisk Hereditary Cancer, in September, 2013, and
we believe panel based tests will become standard of care
in the marketplace based upon their greater sensitivity at
finding cancer causing mutations. We have presented
multiple studies showing that myRisk Hereditary Cancer
can detect greater than 60 percent more deleterious muta-
tions when compared to our legacy hereditary cancer tests.
We compete in the hereditary cancer testing market
based upon several factors including:
– the analytical accuracy of our tests
– our ability to classify genetic variants in hereditary
cancer genes
– the quality of our sales and marketing for our products
– the quality of our customer service and support
– turnaround time
– Additional information about cancer risks provided by
riskScore; and
– value associated with our test quality
We believe that we have substantial advantages in
terms of our test accuracy and ability to classify variants.
Based on our testing experience of over 2.0 million patients,
and our substantial investments in our variant classification
program, we have compiled a proprietary database of over
50,000 unique genetic variants in the genes tested by
myRisk Hereditary Cancer. We believe this database allows
us to provide more accurate results to patients and return
a variant of unknown significance (VUS) result to patients
less frequently. We have demonstrated that this classifica-
tion advantage leads to lower long-term healthcare costs
and lower utilization of unnecessary healthcare services.
Given our scale relative to other laboratories in the
hereditary cancer testing market, we believe we also have
substantial competitive advantages in terms of cost efficien-
cies and laboratory automation, which leads to faster
turnaround times for our tests.
In the oncology companion diagnostic market, we
currently sell our FDA approved BRACAnalysis CDx test as
a companion diagnostic for the prediction of response to a
class of drugs called PARP inhibitors. Currently we are the
Portfolio
New Venturetec 22
Most important valuation factors
– performance-based terms & structures
– price negotiation and action
– experience and performance of management
– existing tangible and intangible assets
– technology validation
– last paid price
– financial forecasts
– market potential, position within market
– comparison to competitors
The original cost or the subsequent capital increase
price is considered an approximation of the fair value at
the time of the transaction.
Start-up capital: Technology assessment, negotiations
with management, industry comparables and competitors’
bids are the main factors that affect the valuation. Net
asset value calculation at cost, less any write-off deemed
necessary if subsequent performance is below business
plan.
Capital increase: Re-evaluation of technology assess-
ment, negotiations with management, industry compara-
bles and competitors’ bids, achievement of milestones and
business plan guidelines. Net asset value calculation is
principle based on the capital increase price less discount,
if deemed necessary based on the valuation factors listed
below.
Write up: A write up is recognized when a significant
event occurs such as the issuing of a patent, corporate
partnering, increased profitability and achievement of
milestones.
Write down: A write down is recognized when a
significant event occurs such as a permanent impairment
of assets, performance significantly below the business plan
and a change in the valuation of comparable companies.
Furthermore, it has to be taken into consideration that
private companies are not subject to any external (third-
party) valuation procedures, and the intrinsic value may
therefore be difficult to assess. The valuation of the private
investments as shown in the report is made by the Company
according to above guidelines. The valuation may change
from day to day depending on the Company’s development
and market circumstances. However, the risk remains, that
the valuations are not accurate and can change any day.
Risk of venture capital investments
The Company makes investments in a variety of areas
offering the opportunity of significant capital gains, but
which involve a high degree of business and financial risk
that can result in substantial losses, which can be 100%.
Among these are the risks associated with investments in
companies at an early stage of development or with little
or no operating history, companies operating at a loss or
with substantial variations in operating results from period
to period, and companies with the need for additional
capital to support expansion or to achieve or maintain a
competitive position. For a more detailed discussion of the
risks in connection with venture capital investments please
refer to page 6.
Determination of the net asset value
The net asset value per share is a figure which is calculated
on a regular, consistent basis to approximately reflect the
intrinsic value of one share of the Company. The net asset
value is expected to serve as an indicator for the price of
the shares of the Company. The net asset value is calculated
by the Company by dividing the value of the net assets of
the Company (the value of its assets less its liabilities) by
the total number of shares outstanding.
The Company calculates the fair value of every single
investment on a regular basis (at least monthly). The
calculation takes into consideration all assets and liabilities
on a pro rata basis, accrued expenses and accrued income
(e.g. interest on cash, if any) incurred by the Company.
The fair value of New Venturetec Ltd.’s investments is
calculated on the basis of the following principles and
guidelines:
a) Valuation of public companies
For the purpose of the net asset value calculation of public
companies, the closing bid price on the reporting day as
reported by the exchange where the stock is quoted and
traded is used.
b) Valuation of private companies
For the purpose of the fair value calculation of private
companies the following principles apply:
Valuation of investments
23 New Venturetec
Description of valuations
Public companies
Public companies are valued at the closing bid price each
day. The reported valuation is based on the closing price as
of September 30, 2018. These investments are subject to
general stock market conditions.
Osiris Therapeutics (symbol OSIR) and Myriad Gene-
tics (symbol MYGN) are both listed on NASDAQ.
Investment valuation
change in %
01.10.17 – 30.09.18
Public companies
Osiris Therapeutics +141.30%
Myriad Genetics +27.14%
Private Companies
Valuations are based on the company’s status at a given
date.
– Increases in valuations are due to achievements of
milestones, capital increases or other significant positive
business developments.
– Companies valued at cost have generally achieved the
expected milestones.
– Decreases in valuations are generally due to financial
market conditions, unfavorable capital increases and
the company generally being behind plan.
There are currently no private companies in the portfolio.
Valuation of investments
24New Venturetec
October 1, 2017 – September 30, 2018 in CHF NEV Prices
Since IPO & reporting yearInvestment performance
Prices and volumes 2017/2018 2016/2017 2015/2016
High/low share price in CHF (SIX) 5.80/1.81 2.99/1.27 6.90/1.80
High/low net asset value in CHF 6.35/1.42 2.42/0.14 12.59/0.94
Closing share price (SIX) at the end of the period in CHF 5.10 1.99 2.01
Net asset value CHF at the end of the period 6.46 1.07 0.91
Premium/(discount) – 21.05 % 85.98 % 120.88 %
Average daily trading volume 6,887 11,258 6,226
January 1, 2014 – September 30, 2018 in USD and CHFNet Asset Value Performance
NAV Performance
Net asset value total return net Total return Total return
CHF 30.09.2018 USD 30.09.2018
January 1997 28.94 – 77.68 % 20.00 – 67.10 %
Since IPO, Oct. 1997 33.00 – 80.43 % 22.76 – 71.09 %
since capital increase February 1999 39.80 – 83.77 % 27.54 – 76.11 %
Fiscal year 2016/17 1.07 503.64 % 1.10 498.18 %
NAV as per September 30, 2018 6.46 6.58
Based on
Time weightet Return net p.a. / IRR Based on NAV Based on NAV market price
CHF USD CHF
January 1997 – 6.67 % – 4.98 % – 12.11 %
Since IPO, Oct. 1997 – 7.49 % – 5.75 % – 13.13 %
since capital increase February 1999 – 8.84 % – 7.02 % – 14.83 %
0
2
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2014 2015 2016 2017 2018
NAV CHF NAV USD
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O N D J F M A M J J A S
NEV Stock Price (CHF)Net asset value (CHF)Swiss Market Index (right hand scale)
0
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2014 2015 2016 2017 2018
NAV CHF NAV USD
0
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O N D J F M A M J J A S
NEV Stock Price (CHF)Net asset value (CHF)Swiss Market Index (right hand scale)
25 New Venturetec
Corporate governance
companies rather than on the general capital market and
the investors’ sentiment. Any investor should only invest
in New Venturetec Ltd. if he can afford the complete
loss of the investment without having to change his life-
style. Significant risk is involved and the timelines may
exceed the expectations. In addition, the market of New
Venturetec Ltd. shares is very illiquid. The risks of venture
investments are 100%. The total loss of the investment
has to be considered as a realistic possibility.
Structure and shareholders
New Venturetec Ltd.
New Venturetec Ltd. is a holding company established 1997
under Swiss law, domiciled in Zug (ZG). The Company
has dissolved and closed the fully owned subsidiary,
Venturetec Inc., BVI in the second half of its financial year
ending September 30, 2018. The Company is currently
holding investments in two portfolio companies. New
Venturetec Ltd. is listed on the SIX Swiss Exchange (NEV),
ISIN # CH0007036830, Valoren # 703683. As of Septem-
ber 30, 2018 the Company’s market capitalization was
CHF 25,500,000.
Investment advisor
Madison Investment Advisor, Inc., Panama, owned by Peter
Friedli, Chairman of the Board of New Venturetec Ltd., is
the investment advisor of New Venturetec Ltd. The invest-
ment advisor supports and advises the Board on specific
duties with regards to the selection, purchase, sale, structure
and disposal of Company’s investments. The Board and the
Investment Advisor agreed an all-inclusive fee of 1.0% per
annum on the Company’s net asset value as estimated
based on the valuation guidelines of the Company on a
monthly basis. The advisory fee is subject to the retrospec-
tively yearly approval by the annual shareholder meeting
in accordance with the Swiss Ordinance against Excessive
Compensation in Stock Exchange Listed Companies
(“OaEC”). For more details on the investment advisory
agreement see page 30.
The following information completes the Annual Report in
terms of Corporate Governance. New Venturetec Ltd. is
listed on the SIX Swiss Exchange, Symbol NEV, which
requires certain disclosures on this subject. Additional
information can be found in other parts of the report or on
our website www.newventuretec.com.
Company summary
New Venturetec Ltd. is an investment holding company
incorporated in Zurich on August 11, 1997. Since December
2008, New Venturetec Ltd. has its domicile in the canton of
Zug. The Company holds participations in venture companies
in the area of biotechnology which are domiciled in the USA.
The Company’s business objective is to obtain capital
appreciation from well selected companies that are at
the forefront of technology and products in their field.
The management builds positions early enough in leading
technology companies with a long term investment
commitment. These investments bear a high degree of risk.
Venture capital
Venture Capital investing is the process of building a business
from scratch. The investments of venture capital are made
through different forms of securities ranging from common
stock to preferred shares and convertible debt.
Venture capital can be private or public depending on
the stage of the company. The company naturally evolves
from its inception through generating profits if successful.
In most cases several rounds of financing at different prices
are conducted.
The proceeds of such financing are mostly used for
working capital to build the business as such companies still
generate losses. The characteristics of venture investments
are typically of high risk, lack of a market for the securities
and a long-term investment horizon. No assurance can be
given that returns are realized. The risks of venture capital
investments are 100%.
Investing in New Venturetec Ltd.
New Venturetec Ltd. is currently holding investments in two
portfolio companies. The participations are managed to
assure the best possible value creation for its shareholders.
The investment horizon should be 10 years or more. A
shareholder is recommended to follow the development
with interest and base an investment or disinvestment
decision on results of the development of the portfolio
New Venturetec 26
Conditional capital
On December 4, 2013, the annual meeting of shareholders
resolved the creation of conditional capital in the amount
of CHF 10,200,000 consisting of 1,700,000 bearer shares
with par value of CHF 6.00 each. These shares stand in
relation to outstanding convertible notes in the aggregate
amount of CHF 13,125,000 issued by the Company. For
further details on the terms of the conditional capital, which
have been revised on the annual shareholders meeting of
December 1, 2017, please see art. 3a of the articles of
association of New Venturetec Ltd. http://www.newven-
turetec.com/company/articles-of-association
Authorized capital
New Venturetec Ltd. does not have any authorized capital
outstanding.
There is no other authorized or conditional capital
outstanding. Except of the above stated, there was no
change in the capital structure of the Company for the last
three years. No other warrants, options or convertible
securities are outstanding. The outstanding loans and the
convertible notes are described in a separate paragraph
below.
Shares
Each share entitles the holder to one vote at the general
assembly of the Company. There are no shares which carry
preferential rights. Shareholders are entitled to the rights
as set forth in the Swiss Code of Obligation.
Treasury stocks
The Company does not own any of its shares.
Significant shareholders
As of September 30, 2018 the following shareholders filed
a holding of 3% or more of the total outstanding shares to
the Company to SIX Swiss Exchange:
Between 5% and 10%
– Reinhard and Rosa Siegrist, with Georges Mari and
Rossier, Mari & Associates AG, Zürich, all together as
a group represented by Georges Mari, Zürich.
– Alexander and Chantal Biner,
through 4iS Four Eyes AG, St.Gallen
Between 3% and 5%
– RM Strategic Fund
– HERCULIS, Partners “Aries” Fund, Liechtenstein
Please see https://www.six-exchange-regulation.com/en/
home/publications/significant-shareholders.html?
companyId=NEWVENTUR for more detailed information.
Cross-shareholdings
The Company is not aware of any cross-shareholdings that
exceed 3% of the capital shareholdings or voting rights on
both sides.
Capital Structure
The paid-in capital is CHF 30,000,000 consisting of
5,000,000 bearer shares with a par value of CHF 6.00 each.
In the fiscal year 2013/14, the paid-in capital of the New
Venturetec Ltd. was reduced from CHF 62,500,000 to CHF
30,000,000 or from CHF 12.50 per share to CHF 6.00 per
share, by transferring CHF 32,500,000 to the reserves of
additional paid in capital. All shares are fully paid in.
Corporate governance
Portfolio companies
MADISON INVESTMENT
ADVISOR, INC.
InvestmentAdvisory
NEV/SIXSHAREHOLDERS
Agreement
NEW VENTURETEC LTD.
New Venturetec27
Corporate governance
Andreas von Sprecher, member and Secretary, Swiss,
non executive
Andreas von Sprecher is a founding partner at the law firm
Hüppi & von Sprecher since more than 20 years. Prior to
that Andreas von Sprecher worked as an attorney of law.
He is involved in some entrepreneurial projects in the area
of tourism and viniculture. Andreas von Sprecher graduated
in Law at the University of Zurich and has been admitted
to the bar of the Canton of Zurich in 1989.
Andreas von Sprecher is no, and has never been, mem-
ber of the management of New Venturetec Ltd., the
dissolved subsidiary Venturetec, Inc. or Madison Investment
Advisor, Inc., further Andreas von Sprecher or any related
party of Andreas von Sprecher has no and never had any
material business relationship to New Venturetec Ltd.,
Venturetc, Inc. or Madison Investment Advisor other
than being a member of the Board of Directors of New
Venturetec Ltd.
Andreas von Sprecher is Partner at Hüppi & von
Sprecher. He is a member of the Board of Directors of
SHV Interholding AG.
Andreas von Sprecher has been a member of the Board
of Directors since 2002. He is elected until the ordinary
shareholder meeting 2018.
Michael Endres, member, Swiss, non executive
Michael Endres is a senior partner at the law firm HütteLAW
AG since 2005. Prior to that Michael Endres worked as an
attorney of law in different law firms in Zurich and Zug.
Michael Endres acts also as a civil law notary. Michael Endres
graduated in Law at the University of St. Gallen and has
been admitted to the bar of the Canton of Zug in 2001.
Michael Endres is no, and has never been, member of
the management of New Venturetec Ltd., the dissolved
subsidiary Venturetec, Inc. or Madison Investment Advisor,
Inc., further Michael Endres or any related party of Michael
Endres has no and never had any material business relation-
ship to New Venturetec Ltd., Venturetc, Inc. or Madison
Investment Advisor other than being a member of the Board
of Directors of New Venturetec Ltd.
Michael Endres has been a member of the Board of
Directors since 2017. He is elected until the ordinary
shareholder meeting 2018.
Board of Directors
The Board of Directors of New Venturetec Ltd. consists of
two independent members and Peter Friedli. The Board
leads all material aspects of the Company including
investment and disinvestment decisions, general manage-
ment and administrative matters and the delegation thereof,
as well as investor relation and corporate affairs. The Board
periodically discusses the investment holdings of New
Venturetec Ltd. as well as general business issues relating
to its shareholders and investment outlook. Peter Friedli
abstains from voting concerning any business issue between
himself, the investment advisor and New Venturetec Ltd.
Peter Friedli, Chairman, Swiss, executive
Peter Friedli has been a founder and principal of various
venture investment firms since 1986. Peter Friedli has over
30 years of entrepreneurial experience as an independent
investment manager in venture capital and has specialized
in investments predominantly domiciled in the United States
in the areas of biotechnology and technology. He has held
interests in more than 170 venture companies ranging from
start-up to public companies. Peter Friedli possesses an
active involvement in the management of a number of those
companies and also serves on the board of them. Prior to
that, he worked in the field of international management
consulting for service and industrial companies in Europe
and the United States.
Peter Friedli is a director of the portfolio company
Osiris Therapeutics, Inc. Further, Peter Friedli is President
of Madison Investment Advisor, Inc.
Peter Friedli is a founder of New Venturetec Ltd. and
has been a member of the Board of Directors since 1997.
He is elected until the ordinary shareholder meeting 2018.
New Venturetec 28
in the bylaws of the Company (http://www.newventuretec.
com/company/articles-of-association).
For further details on the remuneration of the board of
directors and the management please see the “Compensa-
tion report” on page 36 and note 18.5 on page 71.
Shareholdings
Peter Friedli: holding per September 30, 2017: 103,381
shares through Friedli Corporate Finance GmbH, Zug. No
trading during the reporting period.
Peter Friedli holds through Friedli Corporate Finance
GmbH, Zug, convertible notes issued by the company and
convertible into common shares of New Venturetec Ltd. as
described in note 13 on page 64 and on page 32 below.
Andreas von Sprecher: holding per September 30, 2018:
3,000 shares. No trading during the reporting period.
Andreas von Sprecher holds convertible notes issued
by the company and convertible into common shares of
New Venturetec Ltd. as described in note 13 on page 64
and on page 32 below.
Portfolio company influence
As a member of the Board Peter Friedli represents all share-
holders on the portfolio companies’ board. New Venturetec
Ltd. itself does not have management or strategic influence.
Internal organization
The business of New Venturetec Ltd. requires specific know
how from the members of the Board of Directors which is
covered as follows:
– Investment management, including venture capital
know how in the area of biotechnology and technology,
portfolio consulting and assessments, board participa-
tion, strategic consulting, hiring of management and
corporate finance. This is covered by Peter Friedli
– Management of investment company: Peter Friedli
– Corporate governance: Peter Friedli, Andreas von
Sprecher, Michael Endres
– Legal: Michael Endres
The Board of Directors constitutes itself. It appoints the
Chairman as well as a Secretary. Meetings of the Board of
Directors are convened by the Chairman. Individual mem-
bers of the Board of Directors may, stating their reasons,
demand that the Chairman call a meeting immediately.
Prior to the meetings, the members of the Board of Directors
External board representations
The by-laws of the Company regulate the maximal external
board representations for all members of the board of
directors of the Company in accordance with the Swiss
Ordinance against Excessive Compensation in Stock
Exchange Listed Companies (“OaEC”). Therefore, non of
the members of the Board of directors may take service on
more than 30 other boards of directors of companies not
related to New Venturetec Ltd., of which not more than ten
board seats may be in listed companies.
Elections
The members of the board of directors are individually
elected for one year, the next election will be at the general
meeting of Shareholders in 2018. Board members can be
re-elected.
Board remuneration
The annual Board of Directors fee is CHF 25’000 for
Andreas von Sprecher and CHF 15’000 for Michael Endres.
Peter Friedli is not paid for serving on the Board of Directors.
Effective July 1, 2018, New Venturetec Ltd. entered
into the existing investment advisory agreement which was
concluded between the dissolved subsidiary Venturetec,
Inc. and Madison Investment Advisor, Inc., on October 1,
2014 and renewed with effect October 1, 2017. Madison
Investment Advisor, Inc. is is fully owned by Peter Friedli,
the Chairman of the board of directors of New Venturetec
Ltd. In accordance with the investment advisory agreement,
the fee is determined to an all inclusive fee of 1% per annum
on the Company’s net asset value as estimated based on the
valuation guidelines of the Company on a monthly basis.
The advisory fees for the fiscal year 2017/18 paid or
payable to Madison Investment Advisor are USD 193,647.
Board members never received any stock options, free
shares, social security contributions other than required by
law, or any other compensation or benefits other than the
reported Board of Director’s fee.
In accordance with the Swiss Ordinance against Exces-
sive Compensation in Stock Exchange Listed Companies
(“OaEC”) and the articles of association of the company
all remunerations to members of the Board of Directors and
the management have to be retrospectively approved by
the annual shareholders meeting. No special rulings with
regard to loans or special social benefits for the members
of the Board of Directors or the management are defined
Corporate governance
New Venturetec29
Corporate governance
tion committee has no decision power. The compensation
committee meets once a year for 1 – 2 hours in October or
November. There was one meeting in the reporting period.
Responsibility and risk control
The Board of Director is the Company’s highest governing
body and is also charged with supervising and monitoring
the activities of the management. According to the Swiss
Code of Obligations and the article of association of the
Company the Board of Directors is responsible for the
strategy, direction, supervision and control of the Company
and its management. The Board of Directors of New Ven-
turetec Ltd. is specifically responsible for the investment
strategy and the investment guidelines, organizational
regulations, appointing the management, financial
planning and accounting policies, overall supervision and
the relationship to the shareholders. The Board is further
deciding on all investments and disinvestments of the
Company. Specifically with regard to the supervision and
monitoring the Board of Directors receives regular reports
on the Company’s business, examines the annual report
and semiannual report and the annual and semi-annual
financial statements and examines the reports produced by
the statutory auditors of the Company.
The board of directors may delegate any management
item of New Venturetec Ltd. to one or several members of
the board. The execution of investments or disinvestments
may be delegated to one or several members of the board
of directors or to any third parties in accordance to Art.
716b of the Swiss Code of Obligations, the Swiss Ordinance
against Excessive Compensation in Stock Exchange Listed
Companies (“OaEC”) and the articles of association. New
Venturetec Ltd. entered into an investment advisory agree-
ment with Madison Investment Advisor, Inc. Madison
Investment Advisor advises the Board on any investment
related items including investments and disinvestments and
the monitoring and management of the investees. Further
details on the investment advisory agreement are described
in the management section below. Any transactions which
are related to the investment advisor have to be approved
by the independent members of the Board.
Madison investment advisor informs the Board on the
status of the portfolio companies on a regular basis and as
business requires. The members of the Board and the invest-
ment advisor have regular informal discussions and reviews
on corporate and portfolio matters between the board
meetings.
receive comprehensive documentation on the agenda
items to be discussed at the meeting.
The Board of Directors passes its resolutions by a
majority of votes, whereby the Chairman has the deciding
vote in the event of a tie. The Board of Directors is quorate
when the majority of its members are present at a Board
meeting. Resolutions may also be passed in writing or by
telephonic meetings without a physical meeting of the Board
of Directors being held. Circular resolutions must be
unanimous in order to be valid.
The Board of Directors meets for several hours at least
four times a year or whenever business requires. The mem-
bers of the Board have regular informal discussions and
reviews between the Board meetings. Five meetings of the
Board of Directors took place in the reporting period, all of
them lasted several hours. The full Board of Directors was
present at all meetings.
The Chairman of New Venturetec Ltd. is annually
elected by the annual shareholders meeting in accordance
with the Swiss Ordinance against Excessive Compensation
in Stock Exchange Listed Companies (“OaEC”) and the
articles of association of the company.
Committees
In accordance with the Swiss Ordinance against Excessive
Compensation in Stock Exchange Listed Companies
(“OaEC”) and the articles of association of the company,
the board of directors is supported by a compensation
committee. Based on the business and organizational
structure of the company the Board of directors does not
appoint any other committees.
Compensation committee
The compensation committee consists of two independent
members of the Board of directors, which have been indi-
vidually elected by the ordinary shareholders meeting for
a term of one year until the ordinary shareholders meeting
2018. Members of the compensation committee until the
end of the ordinary shareholders meeting on November 30,
2018 are Andreas von Sprecher and Michael Endres.
The duties of the compensation committee is to support
the Board of directors to define and survey compensation
politic, the compensation rules and the performance goals
for the members of the Board of directors and the manage-
ment and to prepare the proposals for the compensation
of the members of the Board of directors and the manage-
ment to the ordinary shareholders meeting. The compensa-
New Venturetec 30
The key points of the investment advisory agreement are:
– The Company appoints the advisor to advise the Board
of the Company on all aspects of the portfolio invest-
ments of the Company including but not limited to
investment selection, due diligence, investment struc-
ture and contract negotiations, monitoring, disinvest-
ments and reporting.
– The advisor will represent the Company in all relations
with the invested portfolio companies, including
the representation on the Board of Directors of the
portfolio companies. Being a Director of any portfolio
company, the advisor will represent all shareholders of
the portfolio company, consisting with applicable laws
and regulations.
– The advisor shall have the full power of attorney on the
voting and shareholder rights at the portfolio companies
on behalf of the Company, including to sign any
documents or shareholder consents on behalf of the
Company.
– The advisor will regularly report the status or any mate-
rial developments on the invested portfolio companies
to the Board of Directors in compliance with and as
permitted by all applicable laws and regulations.
– The advisor will advise the Board of Directors with regard
to the investment strategy and the investment alloca-
tion of the Company.
– The advisor will support the Board of Directors in all
corporate, administrative and regulatory matters of the
Company.
– The Advisor will support the Board of Directors in
investor relations and communications to the public.
– The advisor will execute the above tasks in a manner
which is consisting with the investment guidelines of
the Company and all applicable laws and regulations.
The investment advisory agreement can be terminated
with one year written notice.
Information and control instruments
The Board of Directors adopted the investment guidelines
of the Company, see page 11. Any transactions which are
related to the investment advisor have to be approved by
the independent members of the Board. Madison Invest-
ment Advisor does not own any shares of New Venturetec
Ltd. nor of any portfolio companies. The Company, the
Board and the management strictly follows the trading and
insider rules of the SIX Swiss Exchange.
In addition to the Company’s comprehensive external
reporting, the Board discusses and reviews the financial
performance, major events at portfolio companies as the
law permits, net asset value of the portfolio and liquidity
planning of New Venturetec Ltd. at every Board meeting.
The Board regularly reviews and discusses the risks on the
portfolio company level, as well as the general financial
risks of New Venturetec Ltd. taking all internal and external
factors into account. Further, all decisions regarding the
investment advisor and Peter Friedli have to be approved
by the independent Board members. For further informa-
tion, please also see “Liquidity risk” on page 31 and “Risk
management” on page 34.
Management
The Board of Directors decides on all material matters of
the Company, including investments and disinvestments,
general corporate and business affairs and regulatory and
administrative matters. No additional management have
been appointed. The Board delegates the executions of
investments, disinvestment and general corporate and
administrative duties to one of the Board members, the
investment advisor or to any third party.
Under a separate investment advisory agreement, New
Venturetec Ltd. appointed Madison Investment Advisor,
Inc. as investment advisor to support and advise the Board
on specific duties with regards to the selection, purchase,
sale, structure and disposal of the Company’s investments.
Madison Investment Advisor also represents the Company
on the investees, including selected representations of New
Venturetec Ltd. on the Board of directors of the portfolio
companies. The investment advisor may execute and
implement resolutions taken by the Board.
Corporate governance
New Venturetec31
Corporate governance
Liquidity risk
New Venturetec Ltd. operates on tight liquidity and has to
generate cash to cover its operational costs and interest.
Further, the Company has liabilities outstanding in the
amount of USD 20,965,314 as per September 30, 2018.
New Venturetec Ltd. does not have any operational income
and consequently the only way to generate liquidity is
through the sale of assets or funding through additional
debt or equity. Please see note 6.3 on page 55 for further
information on the liquidity risk.
Liquidity of New Venturetec Ltd’s investment in Osiris
Therapeutics
New Venturetec Ltd. directly owns 4,103,301 shares of
Osiris Therapeutics, which represents approx. 12% of the
outstanding shares of Osiris Therapeutics. Based on this
ownership, New Venturetec Ltd. is a reporting person in
respect of Osiris Therapeutics and is subject to reporting
requirements of Section 16 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). New Ven-
turetec Ltd. has reported its transactions and holdings of
Osiris Therapeutics with the United States Securities and
Exchange Commission (SEC) through the filing of Forms 3
and 4, consistently since first becoming a reporting person
following the IPO of Osiris Therapeutics.
The sale by New Venturetec Ltd. of shares of Osiris
Therapeutics common stock requires either registration
under the Securities Act of 1933, as amended (the “Secu-
rities Act”), or that the sale be exempt from registration.
Rule 144 under the Securities Act provides a safe harbor
from registration for sales by a person other than an issuer,
underwriter or dealer. Compliance with Rule 144 requires
compliance with various restrictions set forth in the rule,
including limitations on the number of shares sold in a given
period and the manner in which sales may be completed.
For sales by an affiliate of an issuer, which New Venturetec
Ltd. is presumed to be, Rule 144 provides that the volume
of securities sold during any preceding three-month period
may not exceed the greatest of certain limitations.
Rule 144 also requires, in the case of affiliate sales, that
a Form 144 be filed with the SEC in advance of the sale.
The sale must then take place within 90 days after the filing
of the Form 144. If and when a sale transaction occurs, the
sale must be reported to the SEC by the filing of a Form 4,
within two days.
Advisory fees
Effective July 1, 2018, New Venturetec Ltd. has entered as
new contracting party into the existing investment advisory
agreement which was concluded between the dissolved
subsidiary Venturetec, Inc. and Madison Investment Advisor,
Inc. on October 1, 2014 and renewed with effect October
1, 2017. Madison Investment Advisor, Inc. is fully owned
by Peter Friedli, the Chairman of the board of directors of
New Venturetec Ltd. In accordance with the investment
advisory agreement, the fee is determined to an all inclusive
fee of 1% per annum on the Company’s net asset value
as estimated based on the valuation guidelines of the
Company on a monthly basis.
The advisory fees for the fiscal year 2017/18 paid or
payable to Madison Investment Advisor are USD 193,647.
The advisory fee is subject to the retrospectively yearly
approval by the annual shareholder meeting in accordance
with OaEC and the by-laws of the company.
Conflict of interests
Peter Friedli is the Chairman of the Board of Directors of
New Venturetec Ltd. and owner of Madison Investment
Advisor, Inc. Further, Peter Friedli is a Member of the Board
of Osiris Therapeutics, Inc. As such, Peter Friedli represents
all shareholders of each portfolio company. Any related
party transaction is approved by the independent Board
Members of New Venturetec Ltd. or the board of the
portfolio company respectively with Peter Friedli ab staining
from any vote or as directed by corporate counsel. Peter
Friedli may provide investment banking services to port folio
companies if and when needed and may be compensated
for such services. Peter Friedli is explicitly authorized to
conduct investment banking and/or consulting services to
portfolio companies at its own terms if and when needed.
Peter Friedli may be paid for such services by the portfolio
company including if New Venturetec Ltd. invests in said
portfolio company. New Venturetec Ltd. shall not have
the right or claim to such payment. Peter Friedli did also
personally invest in portfolio companies at market terms.
New Venturetec Ltd. benefits from such investments.
Through the effort and services of Peter Friedli for port folio
companies, New Venturetec Ltd. benefits. New Venturetec
Ltd. has also benefited from the loans, which are provided
by Peter Friedli.
Further conflicts may arise in the course of doing
business from time to time.
New Venturetec 32
Principal amount CHF 12,000,000
Interest rate 4% per annum
Life until November 30, 2018
Conversion voluntarily convertible
into shares of the
Company
Conversion price CHF 9.50 per share
Peter Friedli, the chairman of New Venturetec Ltd.
subscribed to CHF 12,000,000 of the Convertible Note
of which CHF 12,000,000 was invested through the
conversion of existing short term debt owed by New
Venturetec Ltd. to Peter Friedli.
Total liabilities owed to related parties per September
30, 2018 are listed in the table below. Please see notes
12 and 18.3 on page 63 and 70 for further details.
None of the loans outstanding are based on accrued
management fees.
Total interests on liabilities owed to related parties in
the reporting period were USD 2,034,102. This amount
includes USD 1,123,730 which reflects the amortization
of the difference between the fair value of the loans
payable and their amortized cost at the time when the
maturity date of the loans were extended (please see
note 18.3 on page 70 for further details).
On March 16, 2017, Peter Friedli and the Company
signed a subordination agreement to address the capital
loss of the company in accordance with Art 725 para. 1 CO.
The total subordinated claim under this agreement
of CHF 18,589,310 is deferred and cannot be repaid as
long as a balance sheet or interim balance sheet audited
in accordance with Swiss Auditing Standards shows that
the Company is not in a situation of a capital loss in
accordance with Art 725 para. 1 CO.
In addition, as a greater than 10% Shareholder, New
Venturetec Ltd. is further limited as to when it can engage
in purchasing or selling shares of Osiris Therapeutics. New
Venturetec Ltd. is subject to Osiris’ Trading Window and
must clear all purchase and/or sales transactions in the
company’s common stock with either the President & CEO
or the Chief Financial Officer. Osiris’ Trading Window
usually closes 15-days prior to the end of each fiscal quarter
and then reopens on the third Trading Day after the finan-
cial results for the quarter are published, which typically is
40 – 45 days after the fiscal quarter end. The Trading
Window may also close during other times at the discretion
of the company.
These restrictions are unrelated and independent of
Peter Friedli’s involvement.
Related party transactions
Loans
On January 22, 2018, New Venturetec Ltd. issued con-
vertible notes with the following terms:
Aggregated principal amount CHF 1,125,000
Interest rate 4% per annum
Life until December 31, 2019
Conversion voluntarily convertible
into shares of the
Company
Conversion price CHF 9.50 per share
Andreas von Sprecher, member of the Board of New
Venturetec Ltd. subscribed to CHF 50,000 of the Con-
vertible Notes.
On April 20, 2018, New Venturetec Ltd. issued a
convertible note with the following terms:
Corporate governance
Liabilities owed to related parties as of September 30, 2018 (excl. accrued interests) Maturity
CHF 6,589,310 Loan paid from Peter Friedli to New Venturetec Ltd.1 4% 30.06.2019
CHF 1,000,000 Loan paid from Peter Friedli to New Venturetec Ltd.1 4% + 3% 31.12.2019
CHF 12,000,000 Convertible note payable to Peter Friedli 4% 30.11.2018
CHF 50,000 Participation of Andreas von Sprecher in the convertible note 2019 4% 31.12.2019
1 Secured by all tangible and intangible assets of New Venturetec Ltd.
New Venturetec33
Corporate governance
Agenda and proposals
The Board of Directors defines the agenda of a shareholder
meeting and publishes it in the Swiss Official Gazette of
Commerce at least 20 days before the shareholder meeting.
Shareholders, who hold shares with an aggregated amount
of at least CHF 1,000,000, have the right to put any item
on the agenda by written request to the Board of Directors.
Such items have to be received by the Board of Directors
in time to follow the rules of the publication of the agenda.
Proposals regarding items, which are not included in the
agenda, can be discussed upon the motion of the share-
holders but not be voted at the shareholder meeting, except
for motions as set forth in the Swiss Code of Obligations.
Change of control and defence measures
Opting-up clause
According to Art. 6 of the Articles of Association of the
Company the opting-up is at 49%. (http://www.newven-
turetec.com/company/articles-of-association).
Auditors
KPMG AG, Zurich act as independent statutory and group
auditors of the Company and have been in this role since
inception. Christoph Gröbli has been the leading auditor on
their behalf since the fiscal year 2015/16. The auditors are
elected for a period of one year by the general assembly.
The remuneration for KPMG for auditing New Venturetec
Ltd.’s IFRS and statutory financial statements for the fiscal
year 2017/18 amounted to CHF 135,000. No non-audit
fees were incurred during the reporting period.
Information instruments of the auditor
The auditors are meeting with the management of the
Company several times and have regular telephonic contact
during the normal course of the annual audit. In the fiscal
year 2017/18 the auditors had two meetings with the board
of directors. The management provides the auditors with all
documents requested. The management informs the auditors
regularly on the development of the portfolio companies
and the business.
Waived and accrued management fee
In 2009, Peter Friedli waived accrued and payable manage-
ment fees in the amount of USD 4,970,034. On August 22,
2011, Peter Friedli waived additional accrued and payable
management fees in the amount of USD 1,297,168. On the
same date, Inflabloc shares with a book value of USD
1,500,000 have been transferred to Peter Friedli against
accrued and due management fees. The Inflabloc shares
had to be written off subsequently. The total amount of
waived and abandoned management fees were USD
7,767,202. This represented the management fee of
approximately seven years.
Peter Friedli owns 103,381 shares of New Venturetec
Ltd. bought at an average price of CHF 33.00. Peter Friedli
never sold any New Venturetec Ltd. shares. On April 20,
2018, Peter Friedli subscribed to the CHF 12,000,000
Convertible Note of which CHF 12,000,000 was invested
through the conversion of existing short term debt owed
by New Venturetec Ltd. to Peter Friedli.
Shareholders’ participation rights
The Company follows the Swiss Code of Obligations regard-
ing the convening of shareholder meetings. New Venturetec
Ltd. does not have any voting restrictions at shareholder
meetings and follows the one share – one vote principle.
There are no restrictions on the participation rights of any
shareholders at the meetings.
Voting
A physical share certificate or a confirmation of a depository
that the shares are held and blocked until the day of the
shareholder meeting allows a shareholder to vote at the
shareholder meeting. Proxy for voting can be given to any
person, who does not have to be a shareholder of the
Company. Proxies for voting given to any depositories are
prohibited in accordance with the Swiss Ordinance against
Excessive Compensation in Stock Exchange Listed Compa-
nies (“OaEC”). The Shareholder Meeting takes decisions
with the majority of the present shareholders, except of
special quorum for certain resolutions as set forth in the
Swiss Code of Obligations. The Article of Association of the
Company does not require higher quorum for any other
resolutions.
New Venturetec 34
FATCA
New Venturetec Ltd. fully comply with the standards of
FATCA of the Internal Revenue Services of the United States
of America.
Market making
New Venturetec Ltd. does not make a market in its shares
and does not own any of its shares and never has. The
Company has no agreement with any market maker. There
are no costs and no liabilities in connection with any market
making activities. Several banks may act periodically as
market makers on their own behalf.
Reporting and Information
Publication
The official publication organ for announcements of the
Company is the Swiss Official Gazette of Commerce.
Financial reporting
New Venturetec Ltd. issues audited annual and unaudited
semiannual financial statements prepared according to
International Financial Reporting Standards (IFRS) and IAS
34. The annual reporting per September 30 and the semi-
annual reporting per March 31.
Investor meetings
The financial results and the status of portfolio companies
are reported at the Ordinary Annual Shareholders’ Meeting
in November/December each year. New Venturetec Ltd.
invites selected portfolio companies to present their com-
pany and business strategy at the shareholders’ meeting.
Price information
New Venturetec Ltd. traded share prices can be retrieved
through electronic channels such as Telekurs (NEV), Reuters
(NEV.S) and Bloomberg (NWV SW Equity).
Risk management
Most of the investees are in a development stage, disclosing
accumulated deficits and little or no revenues. Their ability
to continue as a going concern may depend on additional
funding. Companies which are in the need of cash often face
unfavourable financing terms to existing shareholders – in
our case New Venturetec Ltd. – which basically means heavy
dilution and unfavourable liquidation preferences in case of
a trade sale. This is only if the company is able to attract
investments in the first place for which no assurance can be
given that this may occur. These investments offer the
opportunity of significant capital gains, but involve a high
degree of business and financial risks that can result in sub-
stantial losses, including the risk of a total unrecoverability
of an investment. The financial risk management objectives
and policy of New Venturetec Ltd. are to minimize dilution
by structuring the initial investment accordingly. Other
protective measures such as liquidation preferences are also
part of the Company’s policy. However, the operational risk
remains. Furthermore, the Company does not hedge any
foreign currencies or interest rate risk exposure. The risks of
venture capital investments are 100%. The total loss of the
investment is a realistic possibility.
Liquidity risk
Liquidity risk is the risk that New Venturetec Ltd. will not
be able to meet its financial obligations as they fall due.
New Venturetec Ltd., as a greater than 10% shareholder
of Osiris Therapeutics is subject to certain trade restrictions.
Further, Peter Friedli is Chairman and a member of the Board
of Directors of Osiris Therapeutics and therefore also sub-
ject to certain trade restrictions. These trading restrictions
are also applicable to New Venturetec Ltd. and may have
a negative impact on the liquidity of the Company. For
further details please see “Liquidity of New Venturetec Ltd.’s
investment in Osiris Therapeutics” on page 8.
We have attached risk factors of the main holding of
New Venturetec Ltd., Osiris Therapeutics, for your informa-
tion. Please see Appendix I, page 86. The information is
also publicly available.
Corporate governance
New Venturetec35
Corporate governance
Net asset value and market price – premium / discount
The most common valuation guideline for investment
companies is the net asset value. The net asset value is not
an absolute value. It is an indicator based on guidelines. By
no means does the net asset value represent a “true” value.
The market price is the price paid by the market par-
ticipants. It is a market price determination by demand and
supply. There are times when supply is higher than demand
and vice versa. That simply does not correlate with the
actual business performance of a company on a daily basis
in any significant way. Reasons why somebody may decide
to buy or sell are, in many cases, unrelated or only super-
ficially related to the business performance.
New Venturetec Ltd. offers a participation in a port folio
of young companies, not a trading opportunity. New
Venturetec Ltd. is the wrong vehicle for traders. It is an
opportunity for investors, who understand investing in the
very old fashioned and traditional way. Investing in venture
capital is a longterm commitment with high risks of 100%
losses.
Webpage
The webpage of New Venutretec Ltd. is www.newventure-
tec.com. The webpage contains comprehensive information
on the investment approach and strategy, latest news and
detailed information about the portfolio holdings, including
the latest net asset value report. Additionally, investors may
find information about the portfolio companies, including
a description of their business activity and the links to their
webpages. Press releases and news on New Venturetec Ltd.
can be downloaded from the news section of the webpage
on http://www.newventuretec.com/news/news_2018.
Email-list
Investors can subscribe to the New Venturetec Ltd. mailing
list on www.newventuretec.com/investors/mailing-list.
New Venturetec Ltd. sends all ad hoc publication directly
to the mailing registrants of the mailing list.
Contact information
New Venturetec Ltd.
Chollerstrasse 35
6300 Zug
phone +41 41 740 25 25
www.newventuretec.com
New Venturetec 36
We have audited the remuneration report dated 30 September 2018 of New Venturetec Ltd. for the year ended 30 September 2018. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables labeled “audited” on pages 38 and 39 of the remuneration report.
Responsibility of the Board of Directors
The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance against Excessive compensation in Stock Exchange Listed Companies (Ordinance). The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.
Auditor’s Responsibility
Our responsibility is to express an opinion on the accompanying remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14 – 16 of the Ordinance.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the remuneration report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the remuneration report for the year ended 30 September 2018 of New Venturetec Ltd. complies with Swiss law and articles 14 – 16 of the Ordinance.
KPMG AG
Christoph Gröbli Stefan BilandLicensed Audit Expert Licensed Audit ExpertAuditor in Charge
Zurich, November 2, 2018
for the year ended September 30, 2018 Compensation report
Report of the Statutory AuditorTo the General Meeting of New Venturetec Ltd., Zug
KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich
KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
New Venturetec37
remuneration which is independent from the performance
of the Company and/or a variable compensation which is
related to the total net asset value of the Company. (See
art. 20 of the articles of association on http://www. newven-
turetec.com/company/articles-of-association).
The board of directors is responsible for ensuring that
the compensation process is fair and transparent, and subject
to effective supervision. The chosen compensation process
should serve to provide pay which is in line with the services
provided, as well as appropriate incentives to the individual
members of the board of directors and Management, taking
due account of the longer-term interests of the shareholders
and the Company’s performance.
The compensation committee consists of at least two
members of the board of directors. The shareholders’ meet-
ing elects the members of the compensation committee on
an individual basis for a term of office of one year. The term
of one year is deemed to signify the period from one ordinary
shareholders’ meeting to, and including, the next. Members
whose term of office expires are eligible for immediate
re-election.
The compensation committee elects one of its members
as the chairman of the committee. In case of any vacancies,
the board of directors elect one of its members to the
compensation committee for a term which ends at the
next annual shareholders meeting.
The compensation committee supports the board of
directors with the determination of the compensation prin-
ciples and the supervision thereof, as well as performance
targets if applicable. It further supports the board of direc-
tors with the preparation of proposals to the Shareholders’
Meeting concerning the compensation to be paid to the
board of directors and Management in accordance with
article 20 of the article of association.
The board of directors approves, cancels or change any
contract with the investment advisor, including the fees of
the advisory services. Any members of the board of directors
who might be related to the investment advisors, abstain from
voting on any aspect which are related to the investment
advisor, including the determination of the level of the fees.
All compensation to all the members of the board of
directors, whether directly or indirectly through fees paid to
the investment advisor are subject to retrospective approval
by the annual shareholders meeting in accordance with
article 20 of the article of association.
The following information sets out the information on the
compensation details and the compensation paid to the
member of the board of directors and the management of
New Venturetec Ltd. for the fiscal year 2017/18. The content
and scope of the information provided herein are in accord-
ance with the Swiss Ordinance against Excessive Compensa-
tion in Stock Exchange Listed Companies (“OaEC”) – that
came into effect on January 1, 2014 and the standards on
Corporate Governance issued by the SIX Swiss Exchange.
Introductory note regarding the specific structure of New Venturetec Ltd. as an investment company
New Venturetec Ltd. is a Swiss investment company listed
on the SIX Swiss Exchange. The Company is defined in
accordance with art. 2 para. 3 of the Collective Investment
Schemes Act (CISA). New Venturetec Ltd. is subject to the
supervision and regulation of the SIX Swiss Exchange. New
Venturetec Ltd. is excluded from the regulatory supervision
by FINMA and the regulations from the Collective Invest-
ment Schemes Act (CISA) and has the form and structure
as an investment company to be aligned with certain
provisions of the OaEC et al.
New Venturetec Ltd. is an investment company with
the objective to obtain capital appreciation from investments
in well selected companies that are at the forefront of tech-
nology and products in their field. Beyond this, the Company
does not pursue any other business or operational activities.
Following article 716b of the Swiss Code of Obligations
(“CO”) and article 17 of the articles of association the board
of directors may entrust the management, wholly or in part,
and the representation of the Company to one or several
individual persons, members of the board of directors or
third parties. It may entrust the asset management, wholly
or in part, to a legal person.
The board of directors established a compensation
committee during the fiscal year 2017/18.
Determination principles and authority of compensation
In consideration for the duties, the general administrative
activities and the responsibilities in accordance to the appli-
cable laws and regulations, the members of the board of
directors and the management are entitled to receive a fix
Compensation report
New Venturetec 38
The remuneration to the board of directors and the
management can be made by the Company or any sub-
sidiary of the Company. Nevertheless, any remuneration,
compensation or fee directly or indirectly received by any
member of the board of directors or the management from
New Venturetec Ltd. or its dissolved subsidiary or from the
investment advisor is included in the total compensation to
the board of directors and the management and has to
retrospectively be approved by the annual shareholders
meeting in accordance with article 9 and 20 of the articles
of association. (See http://www.newventuretec.com/
company/articles-of-association).
New Venturetec Ltd. can pay any compensation, remu-
neration or fee to members of the board of directors or the
management prior to the approval by the annual sharehold-
ers meeting. Nevertheless, these payments would be subject
to the retrospectively approval by the annual shareholders
meeting and in case of a rejection by the annual sharehold-
ers meeting have to be paid back to the Company.
Employment contracts with the members of the
management, if any, the investment advisor and possible
contracts with members of the board of directors, which
form the basis of the compensation of the respective mem-
bers, are concluded for a fix term of a maximum of one year
or for an indefinite term with a notice period of a maximum
of twelve months.
Compensation to the board of directors
The individual members of the board of directors receive a
function and task related fix compensation which is defined
upon the discretion of the board of directors. The fix
compensation is paid in cash. Social security contribution
will be paid in accordance to the applicable law. No addi-
tional social securities or other benefits are contributed
to the members of the board of directors. The board of
directors may be entitled to receive reimbursement for
expenditures which are directly related to their duties if
these expenditures are not yet subject the other contracts
or agreements like the investment advisory agreement. The
board of directors as a whole defines the compensation of
its members subject to the approval by the annual share-
holders meeting. Members of the board of directors are not
excluded from voting for their own remuneration.
Compensation of the members of the management
New Venturetec Ltd. does not have a management or any
other employees. The management of the Company is
performed by the board of directors and specific members
of the board of directors. The board of directors is advised
by the investment advisor.
Common provision for the compensation
The board of directors or the management of New Ven-
turetec Ltd. are not entitled to receive any credits or loans
from the company and will not participate in any share
or option based, or any other participation plan of the
Company. (See article 20 of the articles of association on
http://www.newventuretec.com/company/articles-of-
association).
Compensation to the board of directors and the management for the fiscal year 2017/2018 (audited)
(In CHF) Indirect
earnings
from
Gross investment Social security Total
Period salary fix advisor contribution compensation
Peter Friedli, Chairman BoD 1.10.17 – 30.9.18 0 188,980 0 188,980
Andreas von Sprecher, Member BoD 1.10.17 – 30.9.18 25,000 0 1,556 26,556
Michael Endres, Member BoD 1.10.17 – 30.9.18 15,000 0 934 15,934
Compensation report
New Venturetec39
Compensation report
Contractual conditions upon leaving
New Venturetec Ltd.
No member of the board of directors or Management has
a contract with New Venutretec Ltd. which grants them
severance pay should they decide to leave the Company.
Advisory fees
New Venturetec Ltd. entered into an investment advisory
agreement with Madison Investment Advisor, Inc., which
is fully owned by Peter Friedli, the Chairman of the board
of directors of New Venturetec Ltd. In accordance with the
investment advisory agreement, the fee is determined to
an all inclusive fee of 1% per annum on the Company’s net
asset value as estimated based on the valuation guidelines
of the Company on a monthly basis. The advisory fee is
payable to the investment advisor quarterly by the end of
each quarter.
The advisory fees for the fiscal year 2017/18 paid or
payable to Madison Investment Advisor are CHF 188,980
(USD 193,647).
The investment advisory agreement can be terminated
with one year written notice.
The advisory fee is subject to the retrospectively yearly
approval by the annual shareholder meeting in accordance
with OaEC and the by-laws of the company.
Loans or receivables to members of the board of
directors and Management
As at September 30, 2018, there were no loans outstanding
to current or former members of the board of directors or
management, or persons related to them (September 30,
2017: none). No loans were granted during the year ended
September 30, 2018 to current or former members of the
board of directors or Management, or persons related to
them (September 30, 2018: none). As at September 30,
2018, there were no short-term receivable outstanding from
current or former member of the board of directors or
Management, or persons related to them (September 30,
2017: none).
Compensation to related parties
During the fiscal year 2017/2018, the Company paid
CHF 2,665 (USD 2,730) to HütteLAW AG for their legal
services during this period. Michael Endres, member of
the Board of New Venturetec Ltd., is a senior partner at
HüttelLAW AG. No other compensations were paid to
related parties other than described in this compensation
report (previous year: There was no other compensation to
related parties to disclose under this heading).
Compensation to former members of the board of
directors and Management
During the fiscal year 2017/2018, the Company paid
CHF 25,000 to Hans Lerch, former member of the Board of
New Venturetec Ltd., for accrued board member fees for the
period 2016/2017. No other payments were made to former
members of the board of directors or Management during
the 2017/2018 reporting year (previous year: No payments
were made to former members of the board of directors or
Management.).
Compensation to the board of directors and the management for the fiscal year 2016/2017 (audited)
(In CHF) Indirect
earnings
from
Gross investment Social security Total
Period salary fix advisor contribution compensation
Peter Friedli, Chairman BoD 1.10.16 – 30.9.17 0 51,828 0 51,828
Hans Lerch, Vice-Chairman BoD 1.10.16 – 30.9.17 25,000 0 1,562 26,562
Andreas von Sprecher, Member BoD 1.10.16 – 30.9.17 25,000 0 1,562 26,562
40New Venturetec
for the year ended September 30, 2018 Financial statements
Report on the Audit of the Financial Statements (IFRS)
Opinion
We have audited the financial statements of New Venturetec Ltd. (the Company), which comprise the balance sheet as at 30 September 2018 and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant account-ing policies.
In our opinion the financial statements (pages 44 to 72) give a true and fair view of the financial position of the Company as at 30 September 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with article 14 of the Directive on Financial Reporting issued by the SIX Swiss Exchange and with Swiss law.
Basis for Opinion
We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsi-bilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Valuation of investments at fair value through profit or loss
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Statutory Auditor’s ReportTo the General Meeting of New Venturetec Ltd., Zug
New Venturetec41
Financial statements
Valuation of investments at fair value through profit or loss
Key Audit Matters
As set out in note 11, the investments amount to USD 52,906,641 or 98.2% of total assets at September 30, 2018.
The main asset of New Venturetec Ltd. are the investments in Osiris Therapeutics, Inc., and Myriad Genetics, Inc., both quoted on NASDAQ, which are measured at fair value through profit or loss.
Due to the significance of the value of the investments in the financial statements, we consider the valuation of the investments at fair value through profit or loss a key audit matter.
Our response
Our procedures included, amongst others, obtaining an understanding of the Company’s processes and controls around the valuation of the investments.
We tested the valuation of the investments by agreeing the quoted prices of the investments to an independent source, which is different from the source used by the Company. We also involved our valuation specialist to evaluate the reliability of the quoted prices with regards to market liquidity.
We further considered the appropriateness of disclosures in relation to the valuation of the investments in the financial statements.
For further information on the valuation of investments at fair value through profit or loss refer to note 11 to the financial statements on pages 61 to 62.
Other Information in the Annual ReportThe Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the financial statements, the stand-alone financial state-ments of the Company, the remuneration report and our auditor’s reports thereon.
Our opinion on the financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibility of the Board of Directors for the Financial StatementsThe Board of Directors is responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRS, Article 14 of the Directive on Financial Reporting issued by the
SIX Swiss Exchange and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
42New Venturetec
Financial statements
In preparing the financial statements, the Board of Directors is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason-able assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Swiss law, ISAs and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre-sentations, or the override of internal control.
– Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appro-priate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made.
– Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.
– Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our
New Venturetec43
Financial statements
report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We recommend that the financial statements submitted to you be approved.
KPMG AG
Christoph Gröbli Stefan BilandLicensed Audit Expert Licensed Audit ExpertAuditor in Charge
Zurich, November 2, 2018
KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich
KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
44New Venturetec
Financial statements
Balance Sheet
September 30, September 30,
2018 2017
Note USD USD
Assets
Cash and cash equivalents 7 956,756 21,600
Other accounts receivable 8 6,383 6,325
Current accounts with non-consolidated subsidiary 9.2 0 35,627
Current assets 963,139 63,552
Venture capital investments 11.2 52,906,641 0
Investment in non-consolidated subsidiary
at fair value through profit or loss 9/9.1 0 28,062,042
Non-current assets 52,906,641 28,062,042
Total assets 53,869,780 28,125,594
Liabilities and equity
Accrued advisory fees 77,280 0
Other accrued expenses 163,208 178,753
Convertible bonds 14 0 15,959,264
Convertible notes 13/18.3 12,278,526 0
Loans payable to related parties 12/18.3 6,401,723 6,471,413
Current liabilities 18,920,737 22,609,430
Convertible notes 13 1,053,358 0
Loans payable to related parties 12/18.3 991,219 0
Non-current liabilities 2,044,577 0
Total liabilities 20,965,314 22,609,430
Share capital 15 20,785,350 20,785,350
Additional paid-in capital 15 28,784,665 28,784,665
Translation reserve 1,397,499 1,634,566
Conversion options / own equity instruments 14/13 741,767 168,451
Accumulated losses (18,804,815) (45,856,868)
Equity attributable to shareholders of New Venturetec 32,904,466 5,516,164
Total liabilities and equity 53,869,780 28,125,594
Number of shares outstanding 5,000,000 5,000,000
Net asset value per share 6.58 1.10
New Venturetec45
Financial statements
Statement of Comprehensive Income
Year ended Year ended
September 30, September 30,
2018 2017
Note USD USD
Income
Gains on venture capital investments 11.2 4,056,541 0
Profit on investment in non-consolidated subsidiary at fair
value through profit or loss 9.1 24,624,485 0
Interest income on loans and current accounts with
non-consolidated subsidiary 0 20,684
Reversal of impairment of loans to non-consolidated subsidiary 0 3,005,637 1
28,681,026 3,026,321
Expenses
Loss on investment in non-consolidated subsidiary at fair
value through profit or loss 9.1 0 (983,537)
Advisory fees 18.1 (77,734) 0
Interest on loans from related parties 18.3/18.4 (2,034,102) (1,281,535)
Interest on loans from third parties (122,194) (132,238)
Interest on loans and current accounts with non-consolidated subsidiary (16,478) 0
Administration cost (367,517) (386,814)
Net foreign exchange loss (7,259) (14)
(2,625,284) (2,784,138)
Profit before tax 26,055,742 242,183
Income tax 16 0 0
Profit for the period attributable to shareholders 26,055,742 242,183
Other comprehensive income
Items that are or may be reclassified to profit or loss
Translation adjustment (237,067) 15,732
Total items that are or may be reclassified to profit or loss (237,067) 15,732
Other comprehensive income for the year (237,067) 15,732
Total comprehensive income / (loss) for the period
attributable to shareholders 25,818,675 257,915
Weighted average number of shares
outstanding during the year (basic) 5,000,000 5,000,000
Earnings per share (basic) 19 5.21 0.05
Weighted average number of shares
outstanding during the year (diluted) 6,143,950 6,584,737
Earnings per share (diluted) 19 4.39 0.14
1 Relates to the reversal of the impairment adjustment, carried forward as of October 1, 2016, for the loan granted to the fully owned sub-sidiary, Venturetec Inc., net of effects from currency translation. The loan was subject to the capital contribution through conversion of debt as described in Note 9.1.
46New Venturetec
Financial statements
Statement of Changes in Equity for the year ended September 30, 2018 and 2017
Conversion
options/ (Accumu- Total equity
Addtional own equity lated losses)/ attributable to
Share paid-in Translation instruments Retained shareholders of
capital capital reserve (note 13/14) earnings New Venturetec
USD USD USD USD USD USD
Balance as of 01.10.2016 20,785,350 28,784,665 1,618,834 168,451 (46,635,553) 4,721,747
Translation adjustment 0 0 15,732 0 0 15,732
Total other comprehensive
income 0 0 15,732 0 0 15,732
Profit for the period 0 0 0 0 242,183 242,183
Total comprehensive income 0 0 15,732 0 242,183 257,915
Shareholders’contribution 0 0 536,502 1 536,502
Transactions with owners of the
Company 0 0 0 0 536,502 536,502
Balance as of 30.09.2017 20,785,350 28,784,665 1,634,566 168,451 (45,856,868) 5,516,164
Translation adjustment 0 0 (237,067) 0 0 (237,067)
Total other comprehensive
income 0 0 (237,067) 0 0 (237,067)
Profit for the period 0 0 0 0 26,055,742 26,055,742
Total comprehensive income 0 0 (237,067) 0 26,055,742 25,818,675
Forfeiture of conversion options
on convertible bonds 0 0 0 (168,451) 168,451 0
Issue of convertible notes /
conversion option 0 0 0 741,767 0 741,767
Shareholders’ contributions 0 0 0 0 827,860 1 827,860
Transactions with owners of the
Company 0 0 0 573,316 996,311 1,569,627
Balance as of 30.09.2018 20,785,350 28,784,665 1,397,499 741,767 (18,804,815) 32,904,466
1 See Note 18.3 and Note 18.5
New Venturetec47
Financial statements
Cash Flow Statement 1
Year ended Year ended
September 30, September 30,
2018 2017
USD USD
Advisory fees paid (48,916) 0
Payments for general and administrative expenses (92,535) 1,297
Payment received from non-consolidated subsidiary 1,639,513 607,165
Cash provided by operating activities 1,498,062 608,462
Proceeds on disposal of venture capital investments 11.2 438,336 0
Cash transferred from the dissolved non-consolidated subsidiary 9.2 737,815 0
Cash provided by investing activities 1,176,151 0
Increase of loans payable to related parties 12 1,040,582 0
Proceeds from the issue of convertible notes 13 1,170,656 0
Redemption of convertible bonds 14 (3,178,980) 0
Interest paid
– for loans payable to related parties 12 (153,031) 0
– for convertible notes 13 (20,238) 0
– for convertible bonds 14 (617,070) (609,391)
Cash used in financing activities (1,758,081) (609,391)
Net change in cash and cash equivalents 916,132 (929)
Cash and cash equivalents at beginning of year 21,600 22,512
Exchange effect on cash and cash equivalents 19,024 17
Cash and cash equivalents at end of period 956,756 21,600
1 For significant non-cash transactions refer to Note 17
48New Venturetec
Financial statements
Basis of the financial statements
1 Principal activities
New Venturetec Ltd., Zug (“the Company”) was formed on July 16, 1997 and incorporated on August 11, 1997 for the
purpose of direct and indirect investments in Swiss and foreign companies, especially in high risk venture capital companies
in the industries of Biotechnology and Technology. The Company is domiciled in Zug.
2 Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and
comply with Swiss law and the special provisions for investment companies according to the Listing Rules and the Directive
of Financial Reporting of the SIX Swiss Exchange.
3 Judgement involved in the application of accounting policies, management assumptions and estimates
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Classification as an investment entity
Management concluded that New Venturetec Ltd. meets the definition of an investment entity, as the following conditions
are met:
– New Venturetec Ltd. holds multiple investments;
– New Venturetec Ltd.’s business purpose is to invest in securities of any form of Swiss or foreign corporations taking
advantage of particular corporate circumstances with the goal to achieve returns from capital appreciation and invest-
ment income;
– The performance of these investments is measured and evaluated on a fair value basis.
New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred
all assets held by the dissolved subsidiary to its direct ownership during the second half of the financial year ending Sep-
tember 30, 2018. As of September 30, 2018, New Venturetec Ltd. holds directly multiple investments and ownership
interests in the form of shares.
Prior to the dissolution of Venturetec Inc., New Venturetec Ltd. held its investments through Venturetec Inc. Based on the
requirements of IFRS 10, the 100% owned legal subsidiary Venturetec Inc., Tortola was considered to meet the definition
of an investment entity for IFRS purposes, and was required to be fair valued.
Key sources of estimation uncertainty
The determination of fair value for financial assets and liabilities for which there is no observable market price requires the
use of valuation techniques as described in note 5.2. For financial instruments that trade infrequently and have little price
transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration,
uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also note 10.1.
4 Basis of presentation
The financial statements are those of New Venturetec Ltd. The non-consolidated subsidiary Venturetec Inc., was carried as
financial investments at fair value through profit or loss until its dissolution in the second half of the financial year ending
September 30, 2018. The financial statements are presented in USD. They are prepared on a fair value basis for venture
capital investments. Other financial assets and liabilities are stated at amortized cost.
Notes to the financial statements for the year ended September 30, 2018
New Venturetec49
Financial statements
4 Basis of presentation (continued)
4.1 New and revised standards adopted
As of October 1, 2017, the Company adopted also the following new and revised IFRS standards and IFRS interpretations:
Revisions and amendments of Standards and Effective date Interpretations
Recognition of Deferred Tax Assets for Unrealized January 1, 2017
Losses (Amendments to IAS 12)
Disclosure Initiative (Amendments to IAS 7) January 1, 2017
Annual improvements to IFRS 2014-2016 Cycle January 1, 2017
The adoption of the above amendments did not have an impact on the financial statements except for additional disclosures
resulting from IAS 7.
4.2 New standards and interpretations issued but not yet adopted
The following new and revised Standards and Interpretations have been issued but are not yet effective. They have not been
applied early in these financial statements. They have not been applied early in these financial statements.
Planned application by
New Venturetec Ltd. in
Effective date reporting year Remarks
New Standards or Interpretations
IFRS 9, Financial instruments January 1, 2018 Reporting year 2018/19 The company does not expect that
the adoption / implementation of
this standard will have a material
effect to the financial statements
except for additional disclosures.
IFRS 15, Revenue from January 1, 2018 Reporting year 2018/19 The company does not expect that
contracts with customers the adoption / implementation of
this standard will have a material
effect to the financial statements.
IFRS 16, Leases January 1, 2019 Reporting year 2019/20 The company does not expect that
the adoption / implementation of
this standard will have a material
effect to the financial statements.
Revisions and amendments of Standards and Interpretations
none
50New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
5 Summary of significant accounting policies
5.1 Foreign currency translation
Transactions in foreign currencies are translated at the foreign exchange rate at the date of the transaction. Monetary assets
and liabilities in foreign currencies are translated at the foreign exchange rate at the balance sheet date. Foreign exchange
differences arising on translation are recognized in profit or loss.
The functional currency of New Venturetec Ltd. is CHF. Assets and liabilities of the Company are translated to the
presentation currency (USD) at the foreign exchange rates at the balance sheet date. The revenues and expenses are trans-
lated to USD at average rates. Foreign exchange differences arising on this translation are recognized directly in other
comprehensive income (equity) within the translation reserve.
Foreign exchange differences on cash and cash equivalents are presented separately in the cash flow statement.
The following exchange rates were applied:
Spot rate at balance sheet date Average rate for the twelve months ended
30.09.18 30.09.17 30.09.18 30.09.17
1 USD to CHF 0.9816 0.9682 0.9759 0.9882
5.2 Venture capital investments / Determination of fair value
The Company’s investments relate to U.S. venture capital companies.
All venture capital investments are classified as financial assets at fair value through profit or loss. The venture capital
investments are initially measured at fair value on the trade date, excluding transaction costs. Upon initial recognition
attributable transaction costs are recognized in profit or loss when incurred. These investments are subsequently measured
at fair value, with changes in the fair value recognized in profit or loss.
The venture capital investments are stated at fair value on an item by item basis, as determined by the Investment
Advisor and approved by the Board of Directors. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its
absence, the most advantageous market to which the Company has access at that date. Options and similar rights attached
to the investments are also considered in determining fair value.
Currently, New Venturetec Ltd. holds two investments in public companies.
The basis for the fair valuation of investments in public companies is the following:
The fair value of public companies equals the closing bid price on the reporting date as reported by the exchange where
the shares are quoted and traded. Estimated future selling costs are not deducted. The following aspects are excluded from
the determination of fair value:
– Investments may be subject to lock-up agreements during a certain period.
The reliability of the fair value depends on whether one or more buyers would be willing to acquire the entire share held
in the investee at the publicly listed price.
5.3 Dividend income
Dividend income is recognized in profit or loss on the date the Company’s right to receive payments is established. If a
foreign withholding tax is deducted, such amount is recorded separately and shown as income tax expense. For quoted
equity securities, the date of recognition usually equals to the ex-dividend date.
New Venturetec51
Financial statements
5 Summary of significant accounting policies (continued)
5.4 Loans payable
Interest-bearing borrowings are recognized initially at fair value, less any attributable transaction costs. Subsequent to
initial recognition, interest-bearing borrowings are carried at amortized cost using the effective interest method.
5.5 Cash and cash equivalents
Cash and cash equivalents include cash at banks, call money and fixed term deposits with a term of three months or less
from the date of acquisition. They are stated at their amortized cost.
5.6 Other accounts receivable
Other accounts receivable are stated at amortized cost, which equals nominal value for short-term receivables less any
allowance for doubtful debt. Allowances are made for specific known doubtful receivables.
5.7 Income taxes
The Company is taxed as a holding company in the Canton of Zug. Income, including dividend income and capital gains
from its investments, is exempt from taxation at the cantonal and communal level.
For Swiss federal tax purposes, income tax at an effective tax rate of 7.83% is levied. However, dividend income
qualifies for the participation exemption if the related investment represents at least 10% of the other company’s share
capital or has a value of not less than CHF 1 million. The participation exemption is extended to capital gains on the sale of
a substantial investment (i.e. at least 10%), which was held for a minimum holding period of one year and in case the sales
price of the participation exceed its original acquisition cost. The result of the participation exemption pursuant to the
aforementioned requirements is that dividend income and capital gains (except recovered depreciations) are almost fully
exempt from taxation.
Deferred income taxes are recognized at the expected applicable tax rates on any temporary differences, both tax-
able and deductible, between the carrying amount and the tax base of assets and liabilities. In measuring the deferred tax
assets or liabilities, the manner in which New Venuretec Ltd. expects, at the balance sheet date, to recover or settle the
carrying amount of its assets and liabilities is taken into account.
5.8 Derecognition of financial assets and liabilities
The Company derecognizes a financial asset when contractual rights to the cash flows from the asset expire, or it transfers
the right to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and
rewards of ownership of the financial assets are transferred.
The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.
5.9 Convertible bonds and convertible notes
Compound financial instruments issued by the Company comprise convertible bonds and convertible notes denominated
in CHF that can be converted to ordinary shares at the option of the holder. The number of shares to be issued is fixed and
does not vary with changes in fair value.
The liability component of compound financial instruments is initially recognized at the fair value of a similar liability
that does not have an equity conversion option. The equity component is initially recognized at the difference between the
fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attrib-
utable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost
using the effective interest method. The equity component of a compound financial instrument is not remeasured.
Interest related to the financial liability is recognized in profit or loss. On conversion, the financial liability is reclassified
to equity and no gain or loss is recognized.
52New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
5 Summary of significant accounting policies (continued)
5.10 Segmental reporting
IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on infor-
mation used by the chief operating decision-maker. The Investment Advisor is considered to be the chief operating decision-
maker. An operating segment is a group of assets and operations engaged in providing products or services that are subject
to risks and returns that are different from those of other operating segments. The Company invests in venture capital
investments. The investment strategy and the Company’s performance is evaluated on an overall basis and the Company
only invests in companies domiciled in the United States. Thus the sole operating segment of the Company is investing in
venture capital investments. See also note 11 for detailed disclosures.
6 Financial risk management
The Company's investing activities expose it to various types of risk that are associated with the financial instruments and
markets in which it invests:
– market risk, includes currency risk, interest rate risk and equity price risk
– credit risk and
– liquidity risk
This note presents information about the Company’s exposure to each of these risks, the Company’s objectives,
policies and processes for measuring and managing risk.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk manage-
ment framework. All investment decisions for the Company as well as the Net Asset Value computation are made unilater-
ally by the Investment Advisor. The Board of Directors is responsible for ensuring that the Investment Advisor follows the
investment policy set by the Company. However, it should be noted that Peter Friedli is Chairman of the Board of Directors
and acting on behalf of the Investment Advisor and that between him and the Company conflicts of interests may arise.
In order for the Company to be successful in investing in start-up and emerging companies, it must identify potentially
profitable enterprises at an early stage in their development, a process which is very difficult even for people with consider-
able experience in the venture capital field. Furthermore, the Company may compete for investment opportunities with a
number of other venture capital firms. The Company may also invest in businesses which are not start-up or emerging
companies, but which are for various reasons seeking to raise additional capital without making a public offering of securi-
ties. These reasons can include adverse conditions in the public securities markets, or a record of earnings and/or growth,
which is less than adequate for a successful public offering of securities.
6.1 Market risk
Market risk embodies the potential for both loss and gains and includes equity price risk, currency risk and interest rate risk.
The objective of risk management is to manage and control market risk exposures within acceptable parameters, while
optimizing the return on risk.
The objective of New Venturetec Ltd. is to achieve long-term capital appreciation through investments in venture
companies which the Investment Advisor believes offer significant growth opportunities. New Venturetec Ltd. invests in
venture companies. Although the risk of market fluctuation is balanced through the long term investment horizon the risk
of venture capital investments is 100%. The Investment Advisor monitors the capital market and adjusts the Net Asset
Value of the portfolio on a monthly basis.
6.1.1 Equity price risk
Equity price risk is the risk that the fair value of an equity investment will fluctuate as a result of changes in equity prices
(other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual invest-
ment, its issuer or all factors affecting all instruments traded in the market.
New Venturetec53
Financial statements
6 Financial risk management (continued)
6.1 Market risk (continued)
6.1.1 Equity price risk (continued)
As all of the Company’s equity investments are carried at fair value with fair value changes recognized in the income state-
ment, all changes in market conditions will directly affect profit or loss.
The investments offer the opportunity of significant capital gains, but involve a high degree of business and financial
risks that can result in substantial losses, including the risk of a total un-recoverability of an investment. The risk manage-
ment objectives and policy of New Venturetec Ltd. are to minimize dilution by structuring the initial investment accordingly.
Other protective measures such as liquidation preferences are also part of the Company’s policy. However, the operational
risk remains. The risks of venture capital investments are 100%.
Sensitivity analysis
If for Osiris Therapeutics the price quoted as of September 30, 2018 at the NASDAQ would have increased/decreased by
10% with all other variables held constant profit or loss and equity would have been USD 4,555,000 higher/lower (as of
September 30, 2017: USD 1,887,000).
If for Myriad Genetics the price quoted as of September 30, 2018 at the NASDAQ would have increased/decreased by
10% with all other variables held constant profit or loss and equity would have been USD 736,000 higher/lower (as of
September 30, 2017: 724,000).
For a detailed overview of the investment portfolio and its exposure refer to note 11.
6.1.2 Currency risk
The Company's venture capital investments are denominated in USD and the Net Asset Value per share is also published in
US Dollars. Any investment in other currencies than the US Dollar might lead to positive or negative impacts on the Com-
pany’s performance in its annual financial statements, including its statement of comprehensive income. The Company's
functional currency is CHF. The Company does not hedge any foreign currencies.
As of September 30, 2018 and 2017 only the following monetary financial assets and liabilities are denominated in
currencies other than the functional currency of New Venturetec Ltd.:
Cash and cash Intercompany
equivalents borrowings Net exposure
USD USD USD
30.09.2018
New Venturetec Ltd. – USD nominated 630,342 0 630,342
Net exposure 630,342 0 630,342
30.09.2017
New Venturetec Ltd. – USD nominated 6,930 0 6,930
Venturetec Inc. – CHF nominated 40,645 (35,627) 5,018
Net exposure 47,575 (35,627) 11,948
Sensitivity analysis
As of September 30, 2018, a 10 percent strengthening of the USD against the CHF would have increased net profit and
equity by approx. USD 57,600 (as of September 30, 2017: USD 200). A decrease by 10 percent would have had the same
but opposite impact on net profit and equity. This analysis assumes that all other variables, in particular interest rates, remain
constant.
54New Venturetec
Financial statements
6 Financial risk management (continued)
6.1 Market risk (continued)
6.1.3 Interest rate risk
At the reporting date the Company’s interest bearing financial instruments were as follows:
New
Venturetec Venturetec,
Ltd. Inc. Total
USD USD USD
30.09.2018
Loans payable to related parties (7,392,942) 0 (7,392,942)
Convertible notes (13,331,884) 0 (13,331,884)
Fixed rate instruments (20,724,826) 0 (20,724,826)
Cash and cash equivalents 956,756 0 956,756
Variable rate 956,756 0 956,756
30.09.2017
Loans payable to related parties (6,269,231) 0 (6,269,231)
Convertible bonds (15,532,517) 0 (15,532,517)
Fixed rate instruments (21,801,748) 0 (21,801,748)
Cash and cash equivalents 21,600 1,971,809 1,993,409
Variable rate 21,600 1,971,809 1,993,409
Fair value sensitivity analysis for fixed rate instruments
The group’s loans payable and liability portion of the convertible bond are carried at amortized cost. They are therefore not
subject to interest rate risk, given that neither the carrying amount nor the future cash flows will fluctuate because of a
change in market interest rates.
Cash flow sensitivity analysis for variable rate instruments
An increase of 100 basis points in interest rates at the reporting date would have decreased profit and loss by USD 15,000
(prior year: increased USD 20,000). A decrease by 100 basis points would have had the same but opposite impact on profit
and loss. This analysis assumes that all other variables, in particular foreign currency rates, remain constant.
The Company does not hedge any interest rate risk exposure.
Notes to the financial statements for the year ended September 30, 2018
New Venturetec55
Financial statements
6 Financial risk management (continued)
6.2 Credit risk
Credit risk is the risk that a counterparty will fail to discharge an obligation or commitment that it has entered into with the
Company.
As at September 30, 2018, only cash and cash equivalents and other accounts receivables as per following table were
exposed to credit risks. The carrying amounts of these assets represent their maximum credit risk exposure.
New Venturetec Venturetec,
Ltd. Inc. Total
USD USD USD
30.09.2018
Cash and cash equivalents 956,756 0 956,756
Total 956,756 0 956,756
30.09.2017
Cash and cash equivalents 21,600 1,971,809 1,993,409
Total 21,600 1,971,809 1,993,409
Cash and cash equivalents are deposited in banks and financial institution with a rating equivalent to “A” or higher on S&P
ratings.
6.3 Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. Currently most
of the liabilities are due to Peter Friedli and it is not expected that they will be called upon prior to the successful settlement
of venture capital investments. The investments in Osiris and Myriad, as publicly traded companies, could be disposed of
if required. Nevertheless, Peter Friedli is Chairman and a member of the Board of Directors of Osiris Therapeutics and
therefore subject to certain trading restrictions. These trading restrictions are also applicable to New Venturetec Ltd. and
may have a negative impact on the liquidity of the Company.
The following table shows an analysis of the remaining contractual and undiscounted maturities of financial liabilities:
New
Venturetec Venturetec, Less than 3 months 1 year to
Ltd. Inc. Total 3 months to a year 2 years
USD USD USD USD USD USD
30.09.2017
Accrued advisory fees 77,280 0 77,280 77,280 0 0
Other accrued expenses 163,208 0 163,208 163,208 0 0
Loans payable to related parties 7,264,747 0 7,264,747 0 6,331,002 933,745
Convertible notes 13,095,943 0 13,095,943 12,059,728 42,501 993,714
Total 20,601,178 0 20,601,178 12,300,216 6,373,503 1,927,459
30.09.2017
Accrued advisory fees 0 23,687 23,687 23,687 0 0
Other accrued expenses 178,753 0 178,753 178,753 0 0
Loans payable to related parties 7,077,205 0 7,077,205 0 7,077,205 0
Convertible bonds 15,544,309 0 15,544,309 0 15,544,309 0
Total 22,800,267 23,687 22,823,954 202,440 22,621,514 0
56New Venturetec
Financial statements
Notes to the balance sheet
7 Cash and cash equivalents
30.09.2018 30.09.2017
USD USD
Cash at banks 956,756 21,600
Cash and cash equivalents 956,756 21,600
As of September 30, 2018, cash and cash equivalents are mainly held in CHF and USD.
8 Other accounts receivabe
30.09.2018 30.09.2017
USD USD
VAT Receivable 6,383 6,325
Other accounts receivable 6,383 6,325
9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc.
New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred all
assets held by the dissolved subsidiary to its direct ownership during the second half of the financial year ending September
30, 2018. As of September 30, 2018, New Venturetec Ltd. holds all of its venture capital investments directly.
Prior to the dissolution of Venturetec Inc., New Venturetec Ltd. held its investments through Venturetec Inc. Based on
the requirements of IFRS 10, the 100% owned legal subsidiary Venturetec Inc., Tortola was considered to meet the defini-
tion of an investment entity for IFRS purposes, and was to be fair valued and classified as level 2 investment.
9.1 Investment in non-consolidated (dissolved) subsidiary at fair value through profit or loss
This caption previously included the Company's wholly owned and dissolved subsidiary Venturetec Inc, which was dissolved
on Arpil 1, 2018, measured at fair value and classified as level 2 investment. The fair value of the investment in non-con-
solidated subsidiary is determined as the adjusted net assets of that subsidiary as the underlying assets and liabilities carried
in that subsidiary equal or approximate fair value. As the subsidiary holds mostly shares in listed investments, there is no
liquidity discount to be applied.
2017/18 2016/17
USD USD
Opening Balance as of October 1 28,062,042 1
Capital contribution through conversion of debt 0 29,000,000
Profit / (loss) on investment in non-consolidated subsidiary 23,658,007 1 (937,959) 1
Net assets transferred to the direct ownership of New Venturetec Ltd. upon dissolution (51,720,049) 0
Ending balance as at September 30 0 28,062,042
1 Including FX loss on translation of USD 966,478 (Prior year: FX profit of USD 45,578)
Notes to the financial statements for the year ended September 30, 2018
New Venturetec57
Financial statements
9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc. (continued)
9.2 Reconciliation of the fair value of the (dissolved) subsidiary
The following table presents a reconciliation of the fair value of the dissolved Venturetec Inc. as reported by New Venturetec Ltd.
to the underlying assets and liabilities held by the subsidiary and transferred to the direct ownership of New Venturetec Ltd.
Current year values
as transferred to
New Venturetec September 30,
Fair value of Venturetec Inc. Ltd. 2017
USD USD
Venture capital investments 48,897,840 26,111,185
Cash and cash equivalents 737,815 1,971,808
Other accounts receivable 0 53,962
Accrued advisory fees (48,916) (23,687)
Other accrued expenses 0 (15,599)
Current account receivable from / (payable to) New Venturetec Ltd. (shareholder) 2,133,310 (35,627)
Total fair value of subsidiary 51,720,049 1 28,062,042
9.3 Venture capital investments held by the dissolved non-consolidated subsidiary
9.3.1 Movements of cost and changes in fair value, current year
Transferred to
New
Cost Venturetec Cost Fair value
01.10.2017 Additions Disposals Ltd. 30.09.2018 30.09.2018
USD USD USD USD USD USD
Biotechnology
Osiris Therapeutics 24,173,023 0 0 (24,173,023) 0 0
Myriad Genetics 5,868,501 0 (880,200) (4,988,301) 0 0
Total Investments 30,041,524 0 (880,200) (29,161,324) 0 0
Cumulative fair Transferred Cumulative
value to New fair value
adjustments Venturetec adjustments
01.10.2017 Gains Losses Disposals 2 Ltd. 30.09.2018
USD USD USD USD USD USD
Biotechnology
Osiris Therapeutics (5,297,838) 22,568,155 3 0 0 (17,270,317) 0
Myriad Genetics 1,367,499 1,225,952 4 0 (127,252) (2,466,199) 0
Total investments (3,930,339) 23,794,107 0 (127,252) (19,736,516) 0
1 Reflects net assets transferred to the direct ownership of New Venturetec Ltd. upon dissolution.2 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal
of an investment.3 Based on quoted price of the Osiris Therapeutics shares on NASDAQ (OSIR).4 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).
58New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
9 Detailed information on non-consolidated and dissolved subsidiary Venturetec Inc. (continued)
9.3 Venture capital investments held by the dissolved non-consolidated subsidiary (continued)
9.3.2 Movements of cost and changes in fair value, prior year
Cost Cost Fair value
01.10.2016 Additions Disposals 30.09.2017 30.09.2017
USD USD USD USD USD
Biotechnology
Osiris Therapeutics 24,173,023 0 0 24,173,023 18,875,185
Myriad Genetics 5,868,501 0 0 5,868,501 7,236,000
Total Investments 30,041,524 0 0 30,041,524 26,111,185
Cumulative fair Cumulative fair
value value
adjustments adjustments
01.10.2016 Gains Losses Disposals 1 30.09.2017
USD USD USD USD USD
Biotechnology
Osiris Therapeutics (3,820,650) 0 (1,477,188) 2 0 (5,297,838)
Myriad Genetics (1,752,501) 3,120,000 3 0 1,367,499
Total investments (5,573,151) 3,120,000 (1,477,188) 0 (3,930,339)
1 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal of an investment.
2 Based on quoted price of the Osiris Therapeutics shares on Pink OTC Markets Inc. system (OSIR).3 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).
New Venturetec59
Financial statements
10 Financial instruments and fair value
10.1 Fair value information
Fair values are measured using the following fair value hierarchy that reflects the significance of the inputs used in making
the measurements:
– Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.
– Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from
prices). This category includes instruments valued using: quoted market prices in active markets for similar instru-
ments; quoted prices for identical or similar instruments in markets that are considered less than active; or other
valuation techniques where all significant inputs are directly or indirectly observable from market data.
– Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the
valuation technique includes inputs not based on observable data and the unobservable inputs have a significant
effect on the instrument’s valuation.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices
or dealer price quotations.
For all other financial instruments, fair values are determined using valuation techniques.
Valuation techniques to estimate the fair values include net present value and discounted cash flow models, comparison
to similar instruments for which market observable prices exist if applicable, Black-Scholes and polynomial option pricing
models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and risk adjusted
interest rates and other premia used in estimating discount rates. The objective of valuation techniques is to arrive at a fair
value determination that reflects the price of the financial instrument at the reporting date that would have been determined
by market participants acting at arm’s length.
60New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
10 Financial instruments and fair value (continued)
10.2 Categories of financial instruments and fair value
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their
levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not
measured at fair value if the carrying amount is a reasonable approximation of fair value.
30.09.2018 Carrying Fair value
amount Level 1 Level 2 Level 3 Total
USD USD USD USD USD
Cash and cash equivalents 956,756
Total loans and receivables 956,756
Venture capital investments at
fair value through profit or loss 52,906,641 52,906,641 0 0 52,906,641
Total at fair value through profit or loss 52,906,641
Accrued advisory fees 77,280
Other accrued expenses 163,208
Loans payable to related parties 7,392,942 0 0 7,400,924 7,400,924
Convertible notes 13,331,884 0 0 13,341,425 13,341,425
Total financial liabilities at amortized cost 20,965,314
30.09.2017 Carrying Fair value
amount Level 1 Level 2 Level 3 Total
USD USD USD USD USD
Cash and cash equivalents 21,600
Current accounts with non-consolidated
subsidiary 35,627
Total loans and receivables 57,227
Investments in non-consolidated subsidiary
at fair value through profit or loss 28,062,042 0 28,062,042 0 28,062,042
Total at fair value through profit or loss 28,062,042
Other accrued expenses 178,753
Loans payable to related parties 6,471,413 0 0 6,471,413 6,471,413
Convertible bonds 15,959,264 0 0 15,567,145 15,567,145
Total financial liabilities at amortized cost 22,609,430
Due to their short maturity, the carrying amounts of cash and cash equivalents, current accounts with non-consolidated
subsidiary, accrued advisory fees and other accrued expenses approximate fair value.
For the determination of the fair value of the venture capital investments refer to notes 5.2 and 11.
For the determination of the fair value of the investment in non-consolidated subsidiary refer to notes 5.2 and 9.
The fair value of the loans payable to related party and convertible bonds/notes is determined by discounting the future
contractual cash flows. For loans payable to related party and the convertible bonds/notes in the year ended September 30, 2018,
the applied discount factor of 12.2% is determined based on the Capital Asset Pricing Model (CAPM) (Previous year ended
September 30, 2017: 12.9%).
New Venturetec61
Financial statements
11 Venture capital investments, held by New Venturetec Ltd.
11.1 List of venture capital investments
Approximate Approximate
paid-in capital percentage held
30.09.2018 30.09.2017 30.09.2018 30.09.2017
Biotechnology Place of business USD million USD million % %
Osiris Therapeutics USA 284 284 11.9 11.9 1
Myriad Genetics USA 916 852 0.2 0.3 1
As of September 30, 2018, the Company's venture capital investments in early stage companies are primarily in the form
of common or preferred shares. As of September 30, 2017, the Company held its venture capital investments through the
wholly-owned subsidiary Venturetec Inc.
11.2 Movements of cost and changes in fair value
Cost as
transferred from Cost Fair value
Venturetec Inc. 2 Additions Disposals 30.09.2018 30.09.2018
USD USD USD USD USD
Biotechnology
Osiris Therapeutics 41,443,340 0 0 41,443,340 45,546,641
Myriad Genetics 7,454,500 0 (293,425) 7,161,075 7,360,000
Total Investments 48,897,840 0 (293,425) 48,604,415 52,906,641
Cumulative fair
value
Translation adjustments
Gains Losses Disposals 3 adjustments 30.09.2018
USD USD USD USD USD
Biotechnology
Osiris Therapeutics 3,795,602 4 0 0 307,699 4,103,301
Myriad Genetics 260,939 5 0 (144,911) 82,897 198,925
Total investments 4,056,541 0 (144,911) 390,596 4,302,226
1 As of September 30, 2017, the investments were held through the wholly-owned subsidiary Venturetec, Inc.2 The amounts shown as cost reflect the fair value of the transferred items as of the date of the transfers took place (Historical cost as acquired
by the dissolved subsidiary amounted to USD 29,161,324 and cumulative fair value adjustments amounted to USD 19,736,516)3 Generally, a positive amount reflects cumulative loss on disposal of an investment, a negative amount a cumulative realized gain on disposal
of an investment.4 Based on quoted price of the Osiris Therapeutics shares on NASDAQ (OSIR).5 Based on quoted price of the Myriad Genetics shares on NASDAQ (MYGN).
62New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
11 Venture capital investments, held by New Venturetec Ltd. (continued)
11.2 Movements of cost and changes in fair value (continued)
Osiris Therapeutics, Inc. (“Osiris”), New Venturetec's major investment, identified accounting errors during the course of its ongo-
ingreview of its accounting for revenue recognition. This fact was previously disclosed in November 2015 in Osiris' Quarterly Report
on Form 10-Q for the quarter ended September 30, 2015 and its Report on Form 8-K filed with the SEC on November 20, 2015.
The trade of the common stock of Osiris on the NASDAQ Stock Market was suspended at the opening of business on
March, 14,2017 and Osiris common stock was consequently delisted from NASDAQ as a result that Osiris was not current
with its financial statements and therefore SEC filings. The common stock of Osiris was further quoted on the Pink OTC
Markets Inc. system, referred to as the "pink sheets".
On March 27, 2017, Osiris announced that it completed the restatement of its 2014 financial statements by filing an
amended Annual Report on Form 10-K/A for 2014 with the SEC.
On March 28, 2018, Osiris published its financial statements for the years 2015, 2016 and 2017 and filed Form 10-K
with the SEC and consequently brought its SEC filing up to date.
Osiris was re-listed on The Nasdaq Global Market (NASDAQ) on August 1, 2018 and the trading of Osiris's common
stock started same day under the ticker symbol "OSIR".
New Venturetec63
Financial statements
12 Loans payable to related parties
Year ended Year ended
September September
30, 2018 30, 2017
USD USD
Carrying amount of liability carried forward as of October 1 6,471,413 6,634,399
Proceeds from increase of loans 1,040,582 0
Interest paid by New Venturetec Ltd. (153,031) 0
Total changes from financing cash flows 887,551 0
Suspended redemption of convertible bonds and conversion into loan payable to
related parties (non-cash) 12,486,993 1 0
Conversion into convertible note (non-cash) (12,319,200) 1 0
Shareholders' contribution in relation to non-market interest rate (827,860) 2 (536,502) 2
Interest expenses for the current period 1,226,662 867,302
Interest paid by non-consolidated subsidiary (252,539) (382,756)
Interest paid through the offsetting with accounts receivable from related party 0 (133,360)
Currency translation adjustment (280,078) 22,330
Total other changes (non-cash) 33,978 (162,986)
Carrying amount of liability as of the end of the period 7,392,942 6,471,413
Thereof current 6,401,723 6,471,413
Thereof non-current 991,219 0
1 CHF 12,000,000 of the convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec Ltd, is subordinated. In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption of this amount which was due January 23, 2018 and to keep as loan payable by applying same terms. On April 20, 2018, the suspended amount was converted into a convertible note by applying same terms. See notes 13 and 14.
2 Given the current situation of the company, the market interest rate used to value the loans at recognition date or extension of their maturity amounted to 12.2% (Prior year: 12.9%). The difference between the amount lent and the fair value of the loans are recognized as a share-holders’ contribution in equity.
64New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
13 Convertible Notes
List of Convertible Notes as of September 30, 2018
Aggregated principal Date of Interest Conversion
amount issuance rate % Maturity Convertible into shares of the Company price
CHF 1,125,000 22.01.18 4.00 31.12.19 Voluntarily, at the discretion of the holder CHF 9.50 1
CHF 12,000,000 20.04.18 4.00 30.11.18 Voluntarily, at the discretion of the holder CHF 9.50 2
1 Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes
issued January 22, 2018. In accordance with the terms and conditions of the convertible notes, Andreas von Sprecher
has the right to voluntarily convert his holdings into 5,263 shares of New Venturetec Ltd.
2 Peter Friedli, the chairman of New Venturetec Ltd., subscribed to CHF 12,000,000 of the convertible notes issued April
20, 2018. In accordance with the terms and conditions of the convertible notes, Peter Friedli has the right to voluntarily
convert his holdings into 1,263,157 shares of New Venturetec Ltd. The principal amount is subordinated and was drawn
by conversion of debt, resulting from the suspended redemption of convertible bonds due to Peter Friedli. See note 12.
Year ended Year ended
September 30, September 30,
Convertible Notes 2018 2017
USD USD
Carrying amount of liability carried forward as of October 1 0 0
Proceeds from issue of convertible notes (CHF 1,125,000) 1,170,656 0
Interest paid (20,238) 0
Total changes from financing cash flows 1,150,418 0
Issue of convertible notes (CHF 12,000,000), drawn by conversion
of debt (non-cash) 12,319,200 0
Conversion option recognized in equity (741,767) 0
Interest expenses for the current period 719,120 3 0
FX Adjustments (115,087) 0
Total other changes (non-cash) 12,181,466 0
Carrying amount of liability as of the end of the period 13,331,884 0
Thereof current 12,278,526 0
Thereof non-current 1,053,358 0
3 Given the current situation of the company, the market interest rate used to value the loans at recognition date amounted
to 12.2%. The difference between the amount lent and the fair value of the liability component of the convertible notes
on initial recognition has been recognized as a conversion option in equity.
New Venturetec65
Financial statements
14 Convertible Bonds
Year ended Year ended
September 30, September 30,
2018 2017
USD USD
Carrying amount of liability carried forward as of October 1 15,959,264 15,868,991
Interests paid out (617,070) (609,391)
Redemption in cash on due date (3,178,980) 0
Total changes from financing cash flows (3,796,050) (609,391)
Interest expenses for the current period 210,514 662,508
Suspended redemption of convertible bonds and conversion
into loan payable to related parties (non-cash) (12,486,993) 0
FX Adjustments 113,265 37,156
Total other changes (non-cash) (12,163,214) 699,664
Carrying amount of liability as of the end of the period 0 15,959,264
On January 23, 2014, New Venturetec Ltd. issued convertible bonds with the aggregated principal amount of CHF 15,055,000
and an interest rate of 4% per annum. The bonds were convertible at a conversion price of CHF 9.50 per share. The bonds
became payable on January 23, 2018, whereby none of the bonds were converted.
CHF 12,000,000 of the convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec
Ltd, is subordinated. In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption
of this amount due to Peter Friedli and to keep as loan payable by applying same terms. On April 20, 2018, the suspended
amount was converted into a convertible note by applying same terms. See Note 13.
1 Includes principal amount and accrued interests payable on January 23, 2018
66New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
15 Share capital and capital management
15.1 History of changes in share capital
The share capital as of September 30, 2018 of CHF 30,000,000 (USD 20,785,350) consisted of 5,000,000 bearer shares
with a par value of CHF 6.00 each fully paid in.
The conversion options / own equity instruments comprise the amount allocated to the equity component for the
convertible notes issued by New Venturetec Ltd. in January 2018 and April 2018 (see note 13).
Conditional share capital: The share capital may be increased by a maximum amount of CHF 10,200,000 through the
issue of a maximum of 1,700,000 registered shares to be fully paid-in with a nominal value of CHF 6.00 each through the
exercise of conversion or option rights in connection with convertible notes or bonds or similar instruments that are or may
be issued by the Company.
15.2 Significant shareholders
As of September 30, 2018 the following shareholders filed a holding of 3% or more of the total outstanding shares of the
Company to SIX Swiss Exchange:
Between 5% and 10%
– Reinhard and Rosa Siegrist, with Georges Mari and Rossier, Mari & Associates AG, Zurich, all together as a group
represented by Georges Mari, Zurich
– Alexander and Chantal Biner, through 4iS Four Eyes AG, St. Gallen
Between 3% and 5%
– RM Strategic Fund
– HERCULIS Partners “Aries” Fund, Liechtenstein
15.3. Capital management
The objective of the Company is to achieve long term capital appreciation through equity and debt investments in start-up,
emerging and growth companies which the Company believes offer significant growth opportunities. The Company iden-
tifies successful and promising companies and then actively work with management over a five to ten year time horizon.
The investment decisions will be based upon (i) the Company’s ability to identify companies which can successfully
utilize capital at an early stage in their life cycle, (ii) carefully selected or assessed management teams, (iii) strategic advice
for positioning such companies in high growth markets promising to generate public interest at a future date and (iv) an
influence on the portfolio companies.
The Company measures its performance based on the development of its Net Asset Value (NAV). The NAV per share
is a figure which is calculated on a regular, consistent basis to approximately reflect the intrinsic value of one share of the
Company. The NAV is expected to serve as an indicator for the price of the shares of the Company. The NAV per share is
calculated on a monthly basis by dividing the value of the net assets of the Company (the value of its assets less its liabilities)
by the total number of shares outstanding.
It is not the aim of the Company to leverage its equity for the purpose of making investments. Nevertheless, the Com-
pany may carry some debt in order to balance the availability of liquidity and to avoid dilution of its investments. The
Company’s debt financing is primarily provided by Peter Friedli through accrued management fees and accrued performance
fees that were converted into loans payable (see note 18.3) and convertible notes (see note 13).
It is not the Company’s policy to pay out any dividends.
New Venturetec67
Financial statements
Notes to the statement of comprehensive income
16 Income taxes
Year ended Year ended
September 30, September 30,
Reconciliation of income tax calculated with the applicable tax rate: 2018 2017
USD USD
Profit for the year 26,055,742 242,183
Applicable tax rate 7.83% 7.83%
Expected income tax expense (2,040,165) (18,963)
Expenses not deductible for tax purposes (99,858) (30)
Recognition of previously unrecognized tax losses 2,140,023 18,993
Total income tax for the year 0 0
As at September 30, 2018, the Company had USD 52.5 million remaining tax loss carry forwards (September 30, 2017: USD
80.8 million). Unused tax loss carry forward expire within 7 years, i.e. USD 52.5 million on September 30, 2023.
No tax asset on the tax loss carry forward was recognized due to the uncertainty related to the current economic
environment and the high risk related to the venture capital business.
68New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
Note to the cash flow statement
17 Additional information to the cash flow statement
Significant non-cash transactions:
Related to the year ended September 30, 2018
– USD 12,486,993 (CHF 12,000,000) of the convertible bonds which became due January 23, 2018, was suspended
from redemption and was converted into a loan payable to related parties. On April 20, 2018, this loan was converted
into convertible note by the conversion of debt.
– Venture Capital Investments of USD 48,897,840 were transferred from the dissolved non-consolidated subsidiary
to New Venturetec Ltd.
– Current accounts payable to the dissolved non-consolidated subsidiary in the amount of USD 2,133,310 were
offset against redemption of net asset value of the subsidiary in course of its dissolution.
Related to the year ended September 30, 2017
– none
New Venturetec69
Financial statements
Other notes
18 Related parties
18.1 Investment Advisor
Since January 1, 2013, Madison Investment Advisor, Inc., Panama is the investment advisor of New Venturetec Ltd. The
investment advisor supports and advises the Board on specific duties with regards to the selection, purchase, sale, structure
and disposal of the subsidiary’s investments. Starting October 1, 2014, the Board of Directors and the Investment Advisor
agreed to an all inclusive fee of 1.00% of the net asset value per annum without any additional costs to be reimbursed by
the Company. Advisory fees for the investment advisor were recognized in and paid by the non-consolidated subsidiary,
Venturetec, Inc., until June 30, 2018, as Venturetec, Inc, was the contracting partner of the advisory agreement with the
investment advisor. Due to the dissolution of Venturetec Inc., New Venturetec Ltd. entered as new contracting partner into
the advisory agreement effective July 1, 2018. The advisory fees for the investment advisor are recognized in and paid by
New Venturetec Ltd. starting July 1, 2018, which are included within New Venturetec Ltd.’s profit or loss statement.
Peter Friedli is the President and owner of Madison Investment Advisor, Inc., Panama and at the same time is the Chair-
man of the Board of Directors of New Venturetec Ltd. Furthermore, he is also Chairman of the Board of Directors of Osiris
Therapeutics Inc. As Chairman of the Board of Directors of the Investment Advisor of New Venturetec Ltd. and other invest-
ment companies, he may be able to exercise significant influence or control over the Company’s investees.
18.2 Board of Directors
USD 40,998 were accrued as fees to the Board Directors for the period under review and USD 51,235 were paid out related
to accrued fees for prior periods (2017: USD 50,597 accrued and USD 50,597 paid out). These fees are included in the
administration cost, however they were effectively paid
70New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
18 Related parties (continued)
18.3 Loans and convertible notes / bonds payable to related parties
All loans payable to related parties were entered into with Peter Friedli at their issuance date. On August 21, 2018, Peter
Friedli assigned all promissory notes and convertible notes payable by the Company to him to Friedli Corporate Finance
GmbH, Zug with all rights and obligations. Friedli Corporate Finance GmbH is fully owned and controlled by Peter Friedli
and he is the beneficial owner.
Accrued
Loans payable to related parties as of 30.09.2018 Principal Interests Total
USD USD USD
4% secured promissory note 1 4 5 6 4,892,579 51,847 4,944,426
4% secured promissory note 2 4 5 6 1,442,016 15,281 1,457,297
4% + 3% secured promissory note 3 4 5 959,977 31,242 991,219
Total 7,294,572 98,370 7,392,942
Thereof current 6,334,595 67,128 6,401,723
Thereof non-current 959,977 31,242 991,219
Accrued
Loans payable to related parties as of 30.09.2017 Principal Interests Total
USD USD USD
4% secured promissory note 1 4 5 6 4,842,094 156,157 4,998,251
4% secured promissory note 2 4 5 6 1,427,137 46,025 1,473,162
Total 6,269,231 202,182 6,471,413
Accrued
Convertible notes payable to related parties as of 30.09.2018 Principal Interests Total
USD USD USD
4% convertible notes (30.11.18 – current) payable to Peter Friedli 6 12,061,194 217,332 12,278,526
4% convertible notes (31.12.19 – non current) payable to Andreas von Sprecher 46,307 509 46,816
Accrued
Convertible bonds payable to related parties as of 30.09.2017 Principal Interests Total
USD USD USD
4% convertible bonds payable to Peter Friedli 6 12,380,618 340,150 12,720,768
4% convertible bonds payable to Andreas von Sprecher 51,586 1,417 53,003
1 On May 2, 2014, outstanding promissory notes of CHF 2,816,269 and CHF 2,273,041 due to Peter Friedli were
combined and replaced by a 4% secured promissory note due to Peter Friedli in the total amount of CHF 5,089,310,
due on December 31, 2014. The term of the note will be automatically extended by six months on each consecutive
maturity date and the current due date is June 30, 2019. The note can be terminated on each maturity date by either
party upon a 3 months written notice.
2 On April 23, 2015, New Venturetec Ltd. issued a 4% secured promissory note due to Peter Friedli in the amount of CHF
1,500,000, due on December 31, 2015. The term of the note will be automatically extended by six months on each
consecutive maturity date and the current date is June 30, 2019. The note can be terminated on each maturity date by
either party upon a 3 months written notice.
3 On January 22, 2018, New Venturetec Ltd. issued a 4% secured promissory note due to Peter Friedli in the amount of
CHF 1,000,000, due on December 31, 2019, redeemable with an annualized premium of 3% per annum.
New Venturetec71
Financial statements
18 Related parties (continued)
18.3 Loans and convertible notes / bonds payable to related parties (continued)
4 Given the current situation of the company, the market interest rate used to value the loans at the last extension date
amounted to 12.2% (September 30, 2017: 12.9%). The difference between the amount lent and the fair value of the
promissory notes on initial recognition has been recognized as shareholders’ contribution in equity.
5 Secured by all tangible and intangible assets of New Venturetec Ltd.
6 Subject to subordination agreement with regard to the capital loss in the statutory financial statements of New Venturetec
Ltd. in accordance with Art. 725 para. 1 CO. Therefore, Peter Friedli has no right to demand satisfaction from these
collaterals for the duration of the subordination agreement. The subordination agreement is only terminated if
New Venturetec Ltd. is not in the situation of a capital loss in accordance with Art. 725 para. 1 CO anymore. See also
note 20.
18.4 Interests on loans, convertible notes and bonds payable to related parties
During the reporting period under review, interests on loans, convertible notes and bonds payable to related parties were
recorded in profit or loss as follows:
Year ended Year ended
Interests on loans and convertible bonds payable to related parties 30.09.2018 30.09.2017
USD USD
4% secured promissory notes to Peter Friedli 792,344 751,264
4%+3% secured promissory notes to Peter Friedli 78,801 0
4% loan related to suspended redemption due to Peter Friedli 355,519 0
4% convertible note to Peter Friedli 635,214 0
4% convertible note to Andreas von Sprecher 3,729 0
4% convertible bonds to Peter Friedli 167,796 528,071
4% convertible bonds to Andreas von Sprecher 699 2,200
Total interests on loans from related parties 2,034,102 1,281,535
18.5 Related party transactions
– Interest on loans payable and convertible bonds to related parties in the amount of USD 2,034,102 (previous period:
USD 1,281,535) were recognized in the reporting period, whereof USD 900,372 (previous period USD 754,475) was
paid out through either New Venturetec Ltd. or its non-consolidated, dissolved subsidiary. The difference of
USD 1,123,730 (previous period: USD 527,060) reflects the amortization of the difference between the fair value
of the loans payable and their amortized cost at the time when the maturity date of the loans were extended.
See note 18.3.
– USD 40,998 were accrued as fees to the Board Directors for the period under review and USD 51,235 were paid out
related to accrued fees for prior periods (2017: USD 50,597 accrued and USD 50,597 paid out).
– Advisory fees, due to Madison Investment Advisor, in the total amount of USD 193,647 were recognized for the invest-
ment advisor for the year ended September 30, 2018 either in New Venturetec Ltd. (USD 77,734) or its nonconsolidated,
dissolved subsidiary (USD 115,940) (previous period: Total advisory fees USD 69,065, of which USD 52,447 was
due to Madison Investment Advisor).
72New Venturetec
Financial statements
Notes to the financial statements for the year ended September 30, 2018
19 Earnings per Share
The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders
and the weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential
ordinary shares.
Year ended Year ended
September 30, September 30,
2018 2017
USD USD
Proft attributable to ordinary shareholders (basic) 26,055,742 242,183
Interest expenses on convertible bonds, net of tax 929,632 662,508
Profit attributable to ordinary shareholders (diluted) 26,985,374 904,691
Weighted-average number of ordinary shares
– outstanding as of September 30 (basic) 5,000,000 5,000,000
– that would be issued at conversion 1,143,950 1,584,737
Total weighted-average number of ordinary shares (diluted) 6,143,950 6,584,737
Earnings per share (basic) 5.21 0.05
Earnings per share (diluted) 4.39 0.14
20 Subsequent events
The financial statements were authorized for issue by the Board of Directors on November 2, 2018.
The subordination agreement which Peter Friedli and the Company have signed on March 16, 2017, addressing the
capital loss shown in previous years balance sheets, is only terminated if New Venturetec Ltd. is not in the situation of a
capital loss in accordance with Art. 725 para 1 CO anymore which itself needs to be evidenced by an audited financial
statement. As per the audited financial statements as of September 30, 2018, issued as of November 2, 2018, this condition
is met and the subordination agreement will be terminated with effective date November 2, 2018.
On November 2, 2018, Peter Friedli and New Venturetec Ltd. agreed to prolong the CHF 12 million convertible note
with following terms: due December 31, 2019; secured; voluntarily convertible at CHF 9.50 per share; interest rate 4% p.a.;
premium 1% p.a. payable at redemption; if converted no premium.
The Board of Directors is not aware of any further events between September 30, 2018 and November 2, 2018, which
would require adjustment to the carrying amounts of the Company's assets and liabilities as of September 30, 2018 or would
require disclosure under this heading.
74New Venturetec
Statutory financial statements
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of New Venturetec Ltd., which comprise the balance sheet as at 30 September 2018, the income statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion the financial statements (pages 78 to 85) for the year ended 30 September 2018 comply with Swiss law and the company’s articles of incorporation.
Basis for Opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the provisions of Swiss law and the require-ments of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Report on Key Audit Matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Statutory Auditor’s ReportTo the General Meeting of New Venturetec Ltd., Zug
for the year ended September 30, 2018
New Venturetec75
Dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures
Key Audit Matter
New Venturetec Ltd. has dissolved its fully owned sub-sidiary Venturetec Inc., Tortola, and transferred all assets and liabilities of the dissolved subsidiary to its direct ownership during the second half of the financial year ending September 30, 2018.
The non-consolidated subsidiary Venturetec Inc. was carried by New Venturetec Ltd. at historical costs or lower fair value and was subject to several valuation adjust-ments in the past to reflect the decline in the fair value of the subsidiary.
New Venturetec Ltd. applied the same valuation principles to the transferred assets and liabilities as prior Venturetec Inc. The investments in Osiris Therapeutics, Inc., and Myriad Genetics, Inc., both quoted on NASDAQ, are accounted for on a fair value basis. Other transferred financial assets and liabilities of Venturetec Inc. are stated at amortized cost.
Due to the significance of the transaction and the under-lying direct holdings, we consider the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures a key audit matter.
Our response
We inspected the Board Meeting Minutes and Board resolution taken in-light of the dissolution of Venturetec Inc.
We reconciled the transferred assets and liabilities to vouchers and supporting documents, such as quoted prices for the investments, as of transaction date evidenc-ing the transfer from Venturetec Inc. to New Venturetec Ltd.
We received bank confirmations stating the transferred ownership of the NASDAQ quoted shares of Osiris Therapeutics, Inc. and Myriad Genetics, Inc. from Ven-turetec Inc. to New Venturetec Ltd. We also received bank confirmations regarding the investments and bank accounts as per September 30, 2018.
Furthermore, our procedures included, amongst others, obtaining an understanding of the Company’s processes and controls around the valuation of the transferred investments.
We tested the valuation of the investments at year-end by agreeing the quoted prices of the investments to an independent source, which is different from the source used by the Company. We also involved our valuation specialist to evaluate the reliability of the quoted prices with regards to market liquidity.
We further evaluated the appropriateness of disclosures in relation to the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments as well as the presentation of the transaction in the financial statements.
For further information on the dissolution of the non-consolidated subsidiary Venturetec Inc. including valuation of the transferred investments and related disclosures refer to note 4 and note 5 to the financial statements on page 81.
Responsibility of the Board of Directors for the Financial Statements
The Board of Directors is responsible for the preparation of the financial statements in accordance with the provisions of Swiss law and the company’s articles of incorporation, and for such internal control as the Board of Directors deter-mines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Statutory financial statements
76New Venturetec
Statutory financial statements
In preparing the financial statements, the Board of Directors is responsible for assessing the entity’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Financial StatementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reason-able assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with Swiss law and Swiss Auditing Standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepre-sentations, or the override of internal control.
– Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control.
– Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made.
– Conclude on the appropriateness of the Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern.
We communicate with the Board of Directors or its relevant committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Board of Directors or its relevant committee with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors or its relevant committee, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report, unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
New Venturetec77
Statutory financial statements
KPMG AG, Badenerstrasse 172, PO Box, CH-8036 Zurich
KPMG AG is a subsidiary of KPMG Holding AG, which is a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.
Report on Other Legal and Regulatory Requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
We recommend that the financial statements submitted to you be approved.
KPMG AG
Christoph Gröbli Stefan Biland Licensed Audit Expert Licensed Audit Expert Auditor in Charge
Zurich, November 2, 2018
78New Venturetec
Financial statements
Statutory financial statements for the year ended September 30, 2018
Balance sheet
September 30, September 30,
2018 2017
Note CHF CHF
Assets
Cash and cash equivalents 939,151 20,913
Other accounts receivable 3 6,266 6,124
Accounts receivable from investment in subsidiary 0 34,494
Current assets 945,417 61,531
Venture capital investments 4 51,933,159 0
Investment in subsidiary 5 0 27,169,600
Non-current assets 51,933,159 27,169,600
Total assets 52,878,576 27,231,131
Liabilities and equity
Loan payable to related party, interest bearing 6 6,589,310 6,589,310
Convertible notes, interest bearing 7 12,000,000 0
Accrued expenses and deferred income 8 557,206 652,139
Convertible bonds, interest bearing 9 0 15,055,000
Short term liabilities 19,146,516 22,296,449
Loan payable to related party, interest bearing 6 1,000,000 0
Convertible notes, interest bearing 7 1,125,000 0
Long term liabilities 2,125,000 0
Total liabilities 21,271,516 22,296,449
Share capital 10 30,000,000 30,000,000
Legal capital reserves
Reserves from capital contributions 32,500,000 32,500,000
Accumulated losses
Accumulated losses brought forward (57,565,318) (57,805,033)
Net profit for the year 26,672,378 239,715
Shareholders' equity 31,607,060 4,934,682
Total liabilities and shareholders' equity 52,878,576 27,231,131
Statutory financial statements
New Venturetec79
Financial statements
Income statement
Year ended Year ended
September 30, September 30,
2018 2017
Note CHF CHF
Gains on venture capital investments 4 3,958,778 0
Interest income from investment in subsidiary 0 20,440
Reversal of impairment losses on investment in subsidiary 5 24,031,035 0
Reversal of impairment losses on financial assets 0 7,439,310
Total income 27,989,813 7,459,750
Interest expenses 11 (875,900) (865,772)
Foreign exchange losses (7,015) (13)
General and administrative expenses (433,631) (381,918)
Impairment losses on investment in subsidiary 5 0 (5,972,000)
Total expenses (1,316,546) (7,219,703)
Profit before tax 26,673,267 240,047
Direct taxes (889) (332)
Profit after tax 26,672,378 239,715
Statutory financial statements
80New Venturetec
Financial statements
Notes to the statutory financial statements for the year ended September 30, 2018
Statutory financial statements
1 Company information
New Venturetec Ltd., Zug (“the Company”) was formed on July 16, 1997 and incorporated on August 11, 1997 for the
purpose of direct and indirect investments in Swiss and foreign companies, especially in high risk venture capital companies
in the industries of Biotechnology and Technology.
2 Accounting policies
2.1 General principles
These financial statements were prepared according to the provisions of the Swiss Law on Accounting and Financial Reporting
(32nd title of the Swiss Code of Obligations).
The financial line item "investment in subsidiary" in previous year financial statements have been prepared according
to the valuation principle of historical cost. However, impairments were recognised when the useful values of reporting
items permanently fell below their cost values.
The financial line item "venture capital investments" in current year financial statements have been recognized according
to the fair value principle.
2.2 Cash flow statement
As the Company has prepared its financial statements in accordance with the recognised accounting standard IFRS, it has
decided to opt out of preparing a cash flow statement, presenting additional information on interest-bearing liabilities and
audit fees in the notes on a statutory basis.
Information on balance sheet and income statement items
3 Other account receivable
September 30, September 30,
2018 2017
CHF CHF
VAT Receivable 6,266 6,124
Other accounts receivable 6,266 6,124
New Venturetec81
Financial statements
4 Venture capital investments
Year ended Year ended
September 30, September 30,
2018 2017
CHF CHF
Cost as transferred from Venturetec Inc. 48,410,079 1 0
Disposals (435,625) 0
Cost as of the end of the period 47,974,454 0
Gains 3,958,778 0
Losses 0 0
Disposals (73) 0
Cumulative fair value adjustments as of the end of the period 3,958,705 0
Venture capital investments, book value as of the end of the period 51,933,159 0
As of September 30, 2018, New Venturetec Ltd.'s venture capital investments are held in public quoted shares. The Company
currently holds two investments, both quoted at the NASDAQ. The book value reflects their observable market value at
balance sheet date. The adjustment to the market value is recognized in the income statement.
5 Investment in subsidiary
Year ended Year ended
September 30, September 30,
2018 2017
CHF CHF
Book value as of the beginning of the period 27,169,600 5,000,000
Capital contribution through the conversion of debt 0 28,141,600
Impairment profit / (loss) 24,031,035 (5,972,000)
Venture capital investements as transferred to New Venturetec Ltd. (48,410,079) 0
Other assets and liablities as transferred to New Venturetec Ltd. (2,790,556) 0
Investement in subsidiary, book value as of the end of the period 0 27,169,600
New Venturetec Ltd. has dissolved its fully owned subsidiary Venturetec Inc., Tortola, as of April 1, 2018 and transferred all
assets and liabilities held by the dissolved subsidiary to its direct ownership during the second half of the financial year
ending September 30, 2018. As of September 30, 2018, New Venturetec Ltd. holds directly multiple investments and owner-
ship interests in the form of shares.
1 The amount shown as cost reflects the fair value of the assets as at the date the items have been transferred from the dissolved subsidiary. See note 5.
Statutory financial statements
82New Venturetec
Financial statementsStatutory financial statements
Notes to the statutory financial statements for the year ended September 30, 2018
6 Loans payable to related parties, interest bearing
September 30, September 30,
2018 2017
CHF CHF
4% secured promissory note 1 5,089,310 5,089,310
4% secured promissory note 1 1,500,000 1,500,000
4%+3% secured promissory note 2 1,000,000 0
Loan payable to related party 7,589,310 6,589,310
Thereof current 6,589,310 6,589,310
Thereof non-current 1,000,000 0
1 The 4% secured promissory notes are both held by and payable to Peter Friedli through Friedli Corporate Finance GmbH,
Zug. The term of the notes will be automatically extended by six month on each consecutive maturity date and the current
due date is June 30, 2019. The notes can be terminated on each maturity date by either party upon a 3 months written
notice.
Both notes are secured by all tangible and intangible assets of New Venturetec Ltd. However, as at balance sheet date,
the notes due to Friedli are covered by the subordination agreement with regards to the capital loss in accordance with
Art. 725 para. 1 CO. Therefore, Peter Friedli has no right to demand satisfaction from these collaterals for the duration
of the subordination agreement. The subordination agreement is only terminated if New Venturetec Ltd. is not in the
situation of a capital loss in accordance with Art. 725 para. 1 CO anymore. See also note 15.
2 The 4%+3% secured promissory note is held by and payable to Peter Friedli through Friedli Corporate Finance GmbH,
Zug. The note bears a 4% coupons and a 3% premium is payable on maturity date, which is December 31, 2019. The note
is secured by all tangible and intangible assets of New Venturetec Ltd.
7 Convertible notes, interest bearing
List of Convertible Notes as of September 30, 2018
Date of Interest Conversion Aggregated
issuance rate % Maturity Convertible into shares of the Company price principal amount
22.01.18 4.00 31.12.19 Voluntarily, at the discretion of the holder CHF 9.50 CHF 1,125,000 3
20.04.18 4.00 30.11.18 Voluntarily, at the discretion of the holder CHF 9.50 CHF 12,000,000 4
Convertible notes CHF 13,125,000
Thereof current CHF 12,000,000
Thereof non-current CHF 1,125,000
Thereof payable to related persons CHF 12,050,000
3 Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes
issued January 22, 2018. In accordance with the terms and conditions of the convertible notes, Andreas von Sprecher has
the right to voluntarily convert his holdings into 5,263 shares of New Venturetec Ltd.
4 Peter Friedli, the chairman of New Venturetec Ltd., subscribed to CHF 12,000,000 of the convertible notes issued April
20, 2018. In accordance with the terms and conditions of the convertible notes, Peter Friedli has the right to voluntarily
convert his holdings into 1,263,157 shares of New Venturetec Ltd. The principal amount is subordinated and was drawn
by conversion of debt, resulting from the suspended redemption of convertible bonds due to Peter Friedli. See note 9.
New Venturetec83
Financial statements
8 Accrued expenses and deferred income
Year ended Year ended
September 30, September 30,
2018 2 017
CHF CHF
Accrued expenses 160,205 1 173,070 1
Accrued interests 397,001 2 479,069 2
Accrued expenses and deferred income 557,206 652,139
1 thereof payable to governing bodies 100,000 110,0002 thereof payable to related parties 386,251 396,599
9 Convertible bonds, interest bearing
On January 23, 2014, New Venturetec Ltd. issued convertible bonds with the following terms:
– Aggregated principal amount CHF 15,055,000
– Interest rate 4% per annum
– Life 4 years / until January 23, 2018
– Principal amount CHF 5,000
– Conversion Each Bond of CHF 5,000 principal amount is voluntarily convertible into shares
of the Company.
– Conversion price CHF 9.50 per share
The bonds became payable on January 23, 2018, whereby none of the bonds were converted. CHF 12,000,000 of the
convertible bonds, which have been subscribed by Peter Friedli, the chairman of New Venturetec Ltd, is subordinated.
In accordance with the terms of the subordination agreement, it was agreed to suspend the redemption of this amount
due to Peter Friedli and to keep as loan payable by applying same terms. On April 20, 2018, the suspended amount was
converted into a convertible note by applying same terms. See note 7.
Statutory financial statements
84New Venturetec
Statutory financial statements
Notes to the statutory financial statements for the year ended September 30, 2018
10 Share capital and authorized capital
The share capital as of September 30, 2018 in the amount of CHF 30,000,000 consisted of 5,000,000 bearer shares with
a par value of CHF 6.00 each fully paid in (previous year 5,000,000 bearer shares with a par value of CHF 6.00 each, fully
paid in). Contingent share capital: The share capital of the Company may be increased by a maximum amount of
CHF 10,200,000 through the issue of a maximum of 1,700,000 nominal shares to be fully paid-in with a nominal value of
CHF 6.00 each through the exercise of conversion or option rights in connection with notes, bonds or similar instruments
that are or may be issued by the Company.
11 Interest expenses
Year ended Year ended
September 30, September 30,
2018 2017
CHF CHF
Interest expenses on loans to related party (426,462) (263,572)
Interest expenses on convertible notes and bonds (433,357) 1 (602,200) 1
Interest expenses from investment in subsidiary (16,081) 0
Interest expenses (875,900) (865,772)
1 thereof payable to related parties (366,005) (482,000)
New Venturetec85
Statutory financial statements
Other information
12 Full time employees
As of September 30, 2018 and September 30, 2017, the Company does not have any employees.
13 Significant shareholders
At balance sheet date the following shareholders filed a holding of 3% or more of the total outstanding shares to the Com-
pany to SIX Swiss Exchange:
As at September 30, 2018 As at September 30, 2017
Between 5% and 10% Between 5% and 10%
– Reinhard and Rosa Siegrist, with Georges Mari and Rossier, – Reinhard and Rosa Siegrist
Mari & Associates AG, Zurich, all together as a group – Alexander and Chantal Biner, through 4iS
represented by Georges Mari, Zurich Four Eyes AG, St. Gallen
– Alexander and Chantal Biner, through 4iS Four Eyes AG,
St. Gallen
Between 3% and 5% Between 3% and 5%
– RM Strategic Fund – RM Strategic Fund
– HERCULIS Partners “Aries” Fund, Liechtenstein – HERCULIS Partners “Aries” Fund, Liechtenstein
14 Remuneration of, and shares held by the Board of Directors
CHF 40,000 were accrued as fees to the Board Directors for the year under review and CHF 50,000 were paid out related
to accrued fees for prior periods (2017: CHF 50,000 accrued and CHF 50,000 paid). Such fees are due to Andreas von
Sprecher, Member of the Board of New Venturetec Ltd., and Michael Endres, Member of the Board of New Venturetec Ltd.
Peter Friedli, Chairman of the Board of New Venturetec Ltd., was not remunerated for serving on the Board.
Peter Friedli held 103,381 shares and Andreas von Sprecher 3,000 shares of the Company as of September 30, 2018.
No transactions in such shares took place during the year under review.
Peter Friedli, the chairman of New Venturetec Ltd. subscribed to CHF 12,000,000 of the convertible notes. In accordance
with the terms and conditions of the convertible note, Peter Friedli, Chairman of the Board of New Venturetec Ltd. has the
right to voluntarily convert his holdings in the convertible note into 1,263,157 shares of New Venturetec Ltd.
Andreas von Sprecher, member of the Board of New Venturetec Ltd. subscribed to CHF 50,000 of the convertible notes.
In accordance with the terms and conditions of the convertible note, Andreas von Sprecher, member of the Board of New
Venturetec Ltd. has the right to voluntarily convert his holdings in the convertible note into 5,263 shares of New Venturetec Ltd.
15 Events after the balance sheet date
The financial statements were authorized for issue by the Board of Directors on November 2, 2018.
The subordination agreement which Peter Friedli and the Company have signed on March 16, 2017, addressing the
capital loss shown in previous years balance sheets, is only terminated if New Venturetec Ltd. is not in the situation of a
capital loss in accordance with Art. 725 para 1 CO anymore which itself needs to be evidenced by an audited financial
statement. As per the audited financial statements as of September 30, 2018, issued as of November 2, 2018, this condition
is met and the subordination agreement will be terminated with effective date November 2, 2018.
On November 2, 2018, Peter Friedli and New Venturetec Ltd. agreed to prolong the CHF 12 million convertible note
with following terms: due December 31, 2019; secured; voluntarily convertible at CHF 9.50 per share; interest rate 4% p.a.;
premium 1% p.a. payable at redemption; if converted no premium.
The Board of Directors is not aware of any further events between September 30, 2018 and November 2, 2018, which
would require adjustment to the carrying amounts of the Company’s assets and liabilities as of September 30, 2018 or would
require disclosure under this heading.
86New Venturetec
Financial statements
Risk factors of Osiris Therapeutics as per the Osiris Therapeutics annual report 2017The following text is an extract from the Osiris Therapeutics, Inc. annual report for the fiscal year ended December 31,
2017 (Form 10k). The terms “Osiris,” “we,” “us,” and “our” means Osiris Therapeutics, Inc.
Risk FactorsWe are subject to numerous risks and uncertainties. In addition to the other information contained in this report, you
should carefully consider the risks and uncertainties described below. These risks are not the only ones that we may face.
Additional risks not presently known to us or that we currently consider immaterial may also impact our business operations.
Our actual results could differ materially from those anticipated in our forward-looking statements as a result of known and
unknown risks including the risks described below or elsewhere in this report.
Risks Related To Our BusinessOur operating results may fluctuate significantly as a result of a variety of factors, many of which are outside of our
control.
The following factors, among others, may negatively affect our operating results:
– Failure to obtain reimbursement approvals by, and adequate and timely reimbursements from, third-party
payors, such as Medicare and private health plans, for our products;
– Removal of our products from the Federal Supply Schedule or change in the prices that government customers
will pay for our products;
– Our ability to attract and retain key personnel;
– The announcement or introduction of new or improved products by our competitors;
– Our ability to obtain the necessary quantities of human tissue to manufacture our products;
– Our ability to upgrade and develop our systems and infrastructure to accommodate our growth, including
adding more manufacturing capacity to enable us to continue to meet market demand;
– Our ability to manage our relationships with third parties that help us research, develop, manufacture, market and
distribute our products;
– The amount and timing of operating costs and capital expenditures relating to the expansion of our business,
operations and infrastructure;
– Our ability to comply with regulatory requirements related to the marketing, manufacturing and distribution of our
products and product candidates, including FDA regulations; and
– General economic conditions as well as economic conditions specific to the healthcare industry.
We have based our current and future expense levels largely on our investment plans and estimates of future events,
although certain of our expense levels are, to a large extent, fixed. We may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenue relative to our planned
expenditures would have an immediate adverse effect on our business, financial condition and results of operations. Further,
as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service
or marketing decisions that could have a material adverse effect on our business, financial condition and results of opera-
tions. Due to the foregoing factors, among others, our revenue and operating results are and will remain difficult to forecast.
We have a history of operating losses and may not achieve or sustain profitability.
We have incurred losses in each year since our inception (except fiscal years 2009, 2010, 2011, 2013 and 2017), and
may incur additional losses in the future. As of December 31, 2017, we had an accumulated deficit of approximately $242
million. In earlier years, these losses resulted principally from costs incurred in our R&D programs. In recent years, these
losses resulted principally from our growing sales and marketing expenses, primarily due to the expansion of our sales force
which was internalized in 2014, and from our growing general and administrative expenses. Our general and administrative
expenses included approximately $8.1 million and $9.5 million in 2016 and 2017, respectively, related to the Restatement.
We expect to continue to incur significant operating expenses in the foreseeable future as we seek to:
– continue to add sales, operational and financial personnel either through additional employees or outsourcing, consistent
with expanding our operations and improving our internal control over financial reporting;
– expand our manufacturing capacity;
Annex 1
New Venturetec87
Financial statements
– continue to pursue clinical studies for our products to support our reimbursement efforts;
– manage regulatory issues and requirements related to the marketing, manufacturing and distribution of our products
and product candidates, including issues related to FDA regulation and third-party payor reimbursement; and
– maintain, expand and protect our intellectual property.
The extent of our future operating losses or profits is highly uncertain, and we may not achieve or sustain profitability.
If we are unable to achieve and then maintain profitability, the market value of our common stock will decline.
We continue to expand our sales and marketing capabilities, and there can be no assurance that these efforts will result
in significant increases in sales.
Since 2014, we have been engaged in a major initiative to build and expand our internal sales and marketing capabilities.
As a result, we have and are continuing to hire direct sales personnel for certain of our products to allow us to reach new
customers. Due to the unique nature of our products, we spend significant time and resources on recruiting, training, retaining,
motivating and managing our sales personnel. The increased expenses associated with these selling efforts impact our
operating results, and there can be no assurance that we will be successful in significantly increasing sales of our products.
We may have difficulty managing growth in our business, which could have a material adverse effect on our business,
financial condition and results of operations.
As we expand our activities there will be additional demands on our financial, operational and management resources.
To manage the growth of our operations and personnel, we must both modify our existing operational and financial systems,
procedures and controls and implement new systems, procedures and controls. We must also expand our finance, administrative
and operations staff. Management may be unable to hire, train, retain, motivate and manage necessary personnel or to
identify, manage and exploit existing and potential strategic relationships and market opportunities. The failure
to manage growth effectively could have a material adverse effect on our business, financial condition and results of
operations.
Our revenues depend on obtaining coverage and adequate reimbursement from public and private insurers and health
systems.
Our success depends on the extent to which reimbursement for the costs of our products will be available from third-
party payors, such as government health administration authorities, private health insurers, health maintenance organizations
and pharmacy benefit management companies. A significant number of government and private third-party payors currently
do not provide coverage and reimbursement for our products. If we are not successful in obtaining coverage and adequate
reimbursement for our products from more third-party payors, our ability to sell our products will be adversely affected.
Therefore, our ability to grow our revenues is dependent on our ability to meet the requirements for coverage of additional
third-party payors, and to negotiate acceptable reimbursement with such payors once our products have been approved
for coverage. Even if we do succeed in obtaining widespread coverage and adequate reimbursement for our products, future
changes in coverage and reimbursement policies could have a negative impact on our business, financial condition and
results of operations.
Our products may have higher costs than more traditional products, due to the higher cost and complexity associated
with their research, development and production, and the complexity associated with their distribution. This higher cost
andcomplexity can make it more difficult to obtain adequate coverage and reimbursement.
Our products may have higher costs or fees associated with them compared with more traditional products, due to the
higher cost and complexity associated with their research, development and production, and the complexity associated with
their distribution–which requires special handling, storage and shipment procedures and protocols. This, in turn, makes it
more difficult for us to obtain approval for coverage and reimbursement from third-party payors for our products and the
procedures in which they are used, particularly if we cannot demonstrate a favorable cost-benefit relationship. Third-party
payors may also deny coverage because the product has not received approval from the FDA or other government regulators
that they believe is necessary, or they believe that the product is experimental, unnecessary or inappropriate.
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Even though we are not required to conduct clinical trials in order to market our products in the United States, we may
nevertheless be required to conduct one or more clinical studies, and to publish one or more peer reviewed journal articles
supporting the product, before we are able to obtain third- party reimbursement. We may also be required to conduct
additional clinical studies that compare the cost effectiveness of our products to other available therapies before third-
party payors will provide reimbursement. Conducting clinical studies is expensive and results in delays in wide scale
commercialization and reimbursement. In addition, even if our products otherwise meet the requirements for reimbursement,
pricing negotiations with third- party payors may take months or longer and result in significant delay in obtaining approval
for reimbursement.
Coverage and reimbursement policies also sometimes differ depending upon the setting in which the product is to be used.
The use of our products in a hospital setting as part of a surgical or other more extensive procedure may have a coverage and
reimbursement pathway that differs from a use in an outpatient setting for a more narrowly defined procedure. Thus, for example,
the coverage and reimbursement pathway for Grafix – which we expect to be used more often in an outpatient setting – may
differ from that for BIO4 – which we expect to be used more often in an in-patient hospital setting as part of a surgical procedure.
These differences may limit or make coverage and reimbursement more difficult for some products as compared to others, and
influence our product development and marketing efforts in ways that may ultimately prove to be detrimental to our business.
Payors' coverage and reimbursement policies also are subject to change, and the policies in effect at the time a product is marketed
may be different from the policies in place when a coverage and reimbursement strategy was developed.
In addition, third-party payors are increasingly challenging the price and cost-effectiveness of medical products and services,
and many limit coverage and reimbursement for newly approved healthcare products. In particular, third-party payors may limit the
indications for which they will reimburse patients who use our products, or they may not provide reimbursement for our products
separately from the procedures in which they are used, to encourage providers to select products based on cost-effectiveness or
for other reasons. Cost-control initiatives could decrease the price for our products, which would result in lower product revenue
to us.
To continue our commercial expansion, we must convince more physicians that our products are appropriate alternatives
to traditional methods and products and that our products should be used in their procedures.
While many physicians are using our products, we must continue our efforts to convince other physicians that our
products are appropriate alternatives to traditional methods and products. We believe physicians will only adopt our products
if they determine, based on experience, clinical data and published peer reviewed journal articles, that the use of our products
in a particular procedure is a favorable alternative to conventional methods. Physicians may be slow to change their practices
for the following reasons, among others:
– their lack of experience in the field using our products;
– lack of evidence supporting additional patient benefits and our products over conventional methods;
– perceived liability risks generally associated with the use of new products and procedures;
– limited availability of reimbursement from third-party payors;
– the exclusion of our products on the formulary of their affiliated hospital or group purchasing organization ("GPO"),
which would preclude their use of our product; and
– the time that must be dedicated to training physicians on how to use our products.
In addition, hospital acquisition decisions often are affected by physicians' assessments of products. If physicians do
not support adoption of our products or if we are unable to demonstrate favorable long-term clinical data, hospitals may
not use our products, which would significantly reduce our ability to achieve expected revenue.
The potential of our products and products under development may not be realized, including products based on our
Prestige Lyotechnology.
We are continually evaluating the potential of our current products and products under development. Our products are
susceptible to various risks, including undesirable and unintended side effects, inadequate efficacy or other characteristics
that may prevent or limit their commercial use, or if required, pre-marketing approval. We have invested substantial time
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and resources in developing additional products, including products using our novel Prestige Lyotechnology, a proprietary
method to preserve living cells and tissues at room temperatures. Further commercialization of any new products, especially
products based on new technologies, will require additional development, clinical evaluation, significant marketing efforts
and substantial additional investment before they can provide us with any revenue. Despite our efforts, any such products
may not become commercially successful products for a number of reasons, including:
– we may experience delays in our development programs;
– any products that are approved may not be accepted in the marketplace by patients, physicians or payors;
– we may not be able to manufacture any such products in sufficient commercial quantities; and
– rapid technological change may make such products obsolete.
If the potential of our products is not realized, the value of our products, technology and development programs could
be significantly reduced.
Some product development programs are based on novel technologies, such as our Prestige Lyotechnology, which are
inherently risky.
We are subject to the risks of failure inherent in the development of products based on new technologies, such as our
Prestige Lyotechnology. The novel nature of our technology platforms and product candidates creates significant challenges
in regards to product development and optimization, processing and manufacturing, government regulation and/or approval,
third-party reimbursement and market acceptance. Therefore, the pathway to development and commercialization of
our products may be more complex and lengthy than other products. Additionally, tissue-and cell-based products are
subject to donor-to-donor variability, which can make standardization more difficult. As a result, the development and
commercialization pathway for our products is subject to increased uncertainty.
We depend on key personnel.
Our current and future success depends to a significant extent on the skills, experience and efforts of our scientific,
management, technical and sales personnel. None of our employees is employed for a specified term, and we have experienced
significant turnover. Competition for personnel is intense. We may be unable to retain our current personnel or attract or
integrate other qualified scientific, management, technical or sales personnel in the future which could harm our business and
might significantly delay or prevent the achievement of research, development, sales or other business objectives.
We are in a highly competitive and evolving field and face competition from well-established tissue product manufacturers
as well as new market entrants.
Our business is in a very competitive and evolving field. Competition from other companies and from research
andvacademic institutions is intense and widespread, expected to increase, subject to rapid change and could be significantly
affected by new product introductions. The presence of this competition in our market may lead to pricing pressure,
whichvwould limit our ability to sell our products at a price that would make us profitable or prevent us from selling our
products atvall. Our ability to successfully compete will depend on whether we can perfect and protect our intellectual
property rightsvrelated to our technologies as well as to develop new technologies and new applications for our technolo-
gies. Our failure to compete effectively would have a material adverse effect on our business, financial condition and results
of operations.
Our products could become obsolete due to rapid technological change.
The technologies underlying our products are subject to rapid and profound technological change. Competition intensifies
as technical advances in each field are made and become more widely known. We can give no assurance that others will not
develop services, products or processes with significant advantages over the products that we offer or are developing. Any
such occurrence could have a material adverse effect on our business, financial condition and results of operations.
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Many of our competitors have greater resources or capabilities than we have, or may succeed in developing new or
better products more quickly than we do.
In the marketplace, we compete with other companies and organizations that are marketing or developing products
competitive with Grafix, Stravix and our other products and products under development. In many cases, the competing
product or candidate is based on bioengineering or other technologies. Companies competing with our products include,
but are not limited to: Organogenesis Inc., the manufacturer of Apligraf® and Dermagraft®, MiMedx Group, Inc., the
manufacturer of EpiFix®, and Integra LifeSciences Corporation, the manufacturer of Integra, all of which compete with
Grafix and Stravix. BIO4 competes with bone tissue products such as Osteocel® marketed by NuVasive, Inc. and Trinity®
marketed by Orthofix International NV, while Cartiform competes with cartilage allografts such as ProChondrix® marketed
by AlloSource and DeNovo® marketed by Zimmer Biomet Holdings, Inc. In addition to those listed above, we have other
existing and potential competitors developing a variety of products for the same conditions for which we market our
products. Many of our current and potential competitors have greater financial and human resources than we have,
including more experience in R&D and more established marketing and distribution capabilities.
The biotechnology industry is characterized by rapid technological change, resulting in new product introductions and
other technological advancements. Because FDA approval is generally not required for tissue-based products which are not
more than minimally manipulated, competitors might choose to enter this market and produce a substantially similar
product, and we may not be able to prevent the marketing and distribution of any such similar products by others. Should
others produce a substantially similar product or a new product that renders our current or future products obsolete, we
could be subject to increased competition and our potential revenue from distribution of these products may be limited.
Our products are derived from human tissue and therefore have the potential for disease transmission.
Our products consist of human tissue: Grafix is manufactured from human placental tissue; Stravix is manufactured
from human placental tissue comprised of amniotic and connective layers of umbilical tissue; BIO4 is manufactured from
cadaveric donor bone; and Cartiform is manufactured from cadaveric donor cartilage.
The utilization of human tissue creates the potential for transmission of communicable disease, including, but not limited
to, human immunodeficiency virus, Zika virus, viral hepatitis, syphilis, Creutzfeldt-Jakob disease (the human form of "mad
cow" disease) and other viral, fungal or bacterial pathogens. We, and our suppliers of human adult cadaveric bone, cartilage
and placenta tissue are required to comply with federal and state regulations and applicable standards intended to prevent
communicable disease transmission. Although we and our suppliers have strict quality controls over the procurement and
processing of our tissue:
– we can provide no assurance that these quality controls will be adequate;
– we or our suppliers may fail to comply with such regulations and standards;
– even with compliance, our products might nevertheless be viewed by the public as being associated with transmission
of disease; and
– a patient that contracts an infectious disease might assert that the use of our products resulted in disease transmission,
even if the patient became infected through another source.
Any actual or alleged transmission of communicable disease could result in patient claims, litigation, distraction
of management's attention and potentially increased expenses. Further, any failure in screening, whether by us or
other manufacturers of similar products, could adversely affect our reputation, the support we receive from the medical
community and overall demand for our products. As a result, such actions or claims, whether or not directed at us, could
have a material adverse effect on our reputation with our customers and our ability to distribute our products, which could
have a material adverse effect on our business, financial condition and results of operations.
Ethical, legal and other concerns surrounding the use of human tissue may negatively affect public perception of us or
our products, or may result in increased scrutiny of our products and product candidates from a regulatory approval
perspective, thereby reducing demand for our products, restricting our ability to market our products or adversely affecting
the market price for our common stock.
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The commercial success of our products depends in part on general public acceptance of the use of human tissue as a
part of the treatment of human diseases and other conditions. The use of human tissue including placental tissue from
fullterm normal pregnancies, which is discarded otherwise, has been the subject of debate regarding related ethical, legal
and social issues. We do not use embryonic stem cells or fetal tissue, but the public may fail to differentiate our use of adult
tissue, including placental tissue from the use by others of embryonic stem cells or fetal tissue. Ethical concerns have been
raised by some about the use of donated human tissue in a for-profit setting. This could result in a negative perception of
our company or our products.
Future adverse events in the field of cellular-based therapy or changes in public policy could also result in greater
governmental regulation of our products and potential regulatory uncertainty or delay relating to any required testing or
approval.
Our dependence upon human tissue necessary to produce our products may impact our ability to produce these products
on a large scale.
As an accredited and licensed tissue bank, we acquire some of our tissue supply through our own collection efforts. The
remaining portion of our tissue supply is obtained through third-party donor agencies. We and our supplier agencies may
not be able to collect sufficient amounts of tissue to meet the demand. Shortages or disruptions in the supply of human
tissue can adversely impact our ability to fulfill orders, resulting in decreased sales. For example, in 2016, the FDA issued
guidance regarding the Zika virus, which limited our supply of placental tissue for a period of time. Since 2016, we have
added additional donor agencies and initiated our own collection efforts. Nevertheless, there can be no assurance that any
change in guidance from the FDA or future outbreaks of Zika would not hamper our ability to acquire human placental issue
to meet our manufacturing needs.
The availability of donated tissue could also be adversely impacted by public opinion of the donor process as well as
our own reputation in the industry.
Moreover, the use of human tissue as a part of the treatment for human disease and medical conditions has increased
over recent years and continues to increase, creating greater and continually increasing competition and demand for donated
human tissue. Even if we are successful in our efforts to expand our compliment of products, we may not be able to secure
quantities of human tissue sufficient to meet the demand.
We may not be able to process our products in sufficient quantities to meet market demand or expand our market for the
products.
We currently manufacture all of our supply of Grafix and Stravix products at our facility in Columbia, Maryland.
Currently, we outsource manufacturing of all of our supply of BIO4 and Cartiform to Aziyo Biologics. Having a single
manufacturing source for each of our products could limit our distribution capabilities, increase our distribution costs
or cause production delays, any of which can damage our reputation and adversely affect our results of operations. We have
entered into an agreement with another third party to manufacture BIO4 and Cartiform and are in advanced discussions with
the same third party to establish it as a manufacturer of all of our products in order to increase our manufacturing capacity.
A lengthy disruption or shutdown of, or a shortage of supply at, our current manufacturing facilities or the manufacturing
facilities of Aziyo or another outsourced contract manufacturer, whether due to the occurrence of natural disasters, the
need to comply with the requirements of directives from government agencies, such as the FDA, the lack of supply of human
tissue, or otherwise, could have a material adverse effect on our business, financial condition and results of operations.
In addition, our product supply chain and manufacturing infrastructure depends on the performance of a number of
complex contracts between us on the one hand and our suppliers on the other. If any of our suppliers, contract manufacturers
or other service providers cannot or do not perform their contractual obligations, then our production efforts may suffer. If
we cannot or do not perform our contractual obligations, then we may be subject to arbitration, mediation or litigation that
could have a material adverse effect on us.
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Reliance on third parties entails risks to which we would not be subject if we manufactured all of our products and
product components ourselves, including:
– reliance on third parties for regulatory compliance and quality assurance;
– the possible breach of the manufacturing agreement by the third party; and
– the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities,
at a time that is costly or inconvenient for us.
We use or may use third parties to help us develop, manufacture, market and/or distribute our products, and our business
may be impaired if our third-party relationships are unsuccessful.
We have arrangements in place with third parties that help us with certain aspects of our business. Each third party supports
us in differing capacities, including our R&D, human tissue supply, regulatory compliance, tissue procurement, manufacturing,
testing, or marketing and distribution efforts. We are subject to a number of risks associated with our dependence upon our
third-party relationships, including:
– the third parties may not cooperate with us or perform their obligations under our agreements with them;
– we cannot control the quality, amount and timing of the third parties' resources that will be devoted toperforming their
responsibilities under our agreements with them, and they may choose to pursue alternativetechnologies in preference
to those being developed or commercialized with us;
– the third parties may refuse or fail to perform their responsibilities in a timely manner, including breach;
– a third party may terminate its agreement with us for reasons outside our control, and in some cases on limited notice;
– business combinations and changes in a third party's business strategy may adversely affect the third party's willingness
or ability to complete its obligations;
– loss of significant rights to the other party if we fail to meet our obligations under our agreements;
– the ability of a third party to successfully market and promote our products;
– withdrawal of support by the third party following development or acquisition by the third party of competing
products; and
– disagreements with a third party regarding our agreement with such third party or ownership of intellectual property
or other proprietary rights. Due to these factors and other possible events, we could suffer delays or experience
additional costs in the research, development, supply, manufacture, distribution or sale of our products or we may
become involved in litigation or arbitration, which would be time consuming and expensive.
We also rely upon third parties for services and raw materials needed for the manufacture and testing of our products.
In order to produce our products, we require biological media, reagents and other highly specialized materials. This
is in addition to the human tissue donations used to manufacture our products. These items must be manufactured and
supplied to us in sufficient quantities and in compliance with FDA cGTP regulations. To meet these requirements, we either
order from or have entered into supply agreements with firms that manufacture these components to cGTP standards and
testing service agreements to perform the necessary quality testing.
We rely on third-party suppliers, contract manufacturers and service providers and commodity markets to secure raw
materials, parts, components and sub-assembly systems used in our products or to manufacture our products, which expose
us to volatility in the prices and availability of these materials. Some of these suppliers or their sub-suppliers are limited or
sole-source suppliers. Some of these suppliers or their sub-suppliers are located outside of the United States. A disruption
in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or decreased
availability of raw materials or commodities, including as a result of catastrophic events, could have an adverse effect on
our ability to meet our commitments to customers or increase our operating costs. Quality and sourcing issues experienced
by third-party suppliers can also adversely affect the quality of our products and result in liability and reputational harm.
The purchase of components and products from international sources subjects us to extensive U.S. and foreign govern-
mental trade, import, export and customs regulations and laws. If we, our product candidates, or the manufacturing
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facilities for our product candidates or components, fail to comply with applicable regulatory requirements, a regulatory
agency may seize or detain products or refuse to permit the import of products.
Our most significant third-party arrangement is an exclusive agreement with a subsidiary of Stryker for the distribution
of BIO4, and our success with this product depends upon the success of this relationship.
We are party to an exclusive service agreement with Stryker for the commercialization of our viable bone matrix allograft
under the name BIO4. Pursuant to the agreement, Stryker is the exclusive worldwide marketer and distributor of allograft
services for BIO4 for use in surgical applications, including spine, trauma, extremity, cranial and foot and ankle surgery. This
agreement is subject to all of the risks and uncertainties applicable to third-party arrangements generally, including those
described above.
The agreement with Stryker provides for an initial four-year exclusive term, which commenced in 2015. The term may
be extended by Stryker for an additional exclusive period of four years or an additional non-exclusive period of two years.
If Stryker extends the term on an exclusive basis, it has the option to further extend the term on an exclusive basis for two
more years. We received an initial exclusivity fee of $5.0 million and are entitled to receive additional fees upon any exercise
by Stryker of its right to extend the initial term, whether on an exclusive or non-exclusive basis. These additional fees are
reduced on a sliding scale if Stryker meets certain revenue thresholds during the initial term or if revenue goals are not met
as a result of us not fulfilling our supply obligations. Stryker is entitled to a certain percentage of sales of allograft services
for BIO4 and has limited early termination rights. The success of this agreement for us will in part depend upon Stryker's
success in marketing and promoting BIO4.
Stryker has significantly greater resources than we do, and this agreement is not as core to its business as it is to ours.
We rely upon Stryker's continued performance under this agreement, and any determination by Stryker not to proceed or
perform, or any material adverse event that affects Stryker's ability or desire to perform may have a material adverse effect
on our business.
We may also enter into additional third-party agreements in the future. If we fail to maintain our existing or any future
relationships for any reason, we would need to undertake on our own and at our own expense, or find other third parties,
to perform the activities we currently anticipate will be performed by third parties. This may substantially increase our cash
requirements. We may not have the capability or financial capacity to undertake these activities on our own, or we may not
be able to enter third-party relationships on acceptable terms, or at all. This may limit the programs we can pursue and result
in significant delays in the development, sale and manufacture of our products, and may have a material adverse effect on
our business.
We distribute products through distribution arrangements that sometimes involve the consignment of inventory to third
parties, which results in additional risk and uncertainty as to the viability of consigned inventory, inventory accounting
and tax consequences.
We have historically distributed our products either ourselves or through qualified third-party distributors. In some
situations, we store consigned inventory on site in freezers at end-use hospital or clinic facilities. We commercialize Grafix
and Stravix through the efforts of our own direct distribution and marketing staff, as well as through a network of specialty
distributors for certain target markets. BIO4 is sometimes commercialized through a consignment arrangement, and our
agreement with Stryker and the end users includes consignment terms, as does our agreement with Arthrex and the end
users for Cartiform.
Inventory management, revenue recognition, and inventory and receivables accounting are complicated by a consign-
ment arrangement. Because our consigned inventory must be stored at –80° C, it is at risk of thawing, resulting in the total
loss of that inventory, which risk of loss is borne by us. From the revenue recognition perspective, no revenue is recognized
upon the placement of inventory into consignment, as we retain title and maintain the inventory on our balance sheet. For
these products, revenue is recognized when we receive appropriate notification that the product has been used in a surgical
procedure. The Restatement corrected, among other things, errors in our prior revenue recognition related to various
distributor agreements, including several with consigned inventory. If we are unable to track and maintain proper controls
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related to consigned inventory, we could experience difficulty in accurately managing and accounting for these consignment
arrangements and any related tax implications.
We monitor and verify the condition and status of all consigned inventory on at least a quarterly basis at our expense.
We have increased the controls related to consigned inventory, which has increased our operating expenses, and we will
likely incur additional expenses in connection with our future planned improvements in our controls related to consigned
inventory. In addition, the FDA's, The American Association of Tissue Banks' and other accrediting agencies' rules, regulations
or standards require that we monitor our consigned inventory, and require tracking of human tissue and inventory as it
moves through the supply chain.
Moreover, should the FDA or any other regulatory authority determine that we are unable for any reason to continue to
distribute consigned inventory, either on account of the viability of that inventory or because of the withdrawal of necessary
approvals or other qualifications allowing for the distribution and sale of that inventory, the value of that inventory may
have to be completely written off and our balance sheet adjusted accordingly. The complexity of our inventory management,
or the application of rules, regulations and standards to our product inventory, or the occurrence of any of these negative
events, could have an adverse effect on our business, financial condition and results of operations.
We have no control over whether third parties with whom we contract can comply with applicable regulatory requirements.
Our raw material suppliers, contract manufacturers and distributors, and other third parties that we contract with are
subject to many or all of the risks and uncertainties to which we are subject. Similar to us, they are subject to ongoing,
periodic, unannounced inspection by the FDA and corresponding state and foreign agencies or their designees to ensure
strict compliance with applicable regulations and other governmental regulations and corresponding foreign standards.
However, we do not control compliance with these regulations and standards by our suppliers, distributors and other third
parties with which we contract. They might not be able to comply with these regulatory requirements. If they fail to comply
with applicable regulations, the FDA or other regulatory authorities could issue orders of retention, recall, destruction or
cessation of manufacturing, or impose sanctions on us, including fines, injunctions, civil penalties, denial of any required
marketing approval, delays, suspension or withdrawal of approvals, license revocation, product seizures or recalls, operating
restrictions and criminal prosecutions. Any of these actions could significantly and adversely affect the supply and distribution
of our products and could have a material adverse effect on our business, financial condition and results of operations.
In addition to costs incurred in product development and management of the reimbursement processes, we will incur
additional operating expenses in connection with the expansion of our business.
We expect to continue to incur significant operating expenses in connection with our planned expansion of our business
as we seek to:
– continue to develop, expand and support our distribution network of third-party distributors and independent sales
professionals for the distribution of Grafix, BIO4, Cartiform and other products;
– continue to expand and support our internal sales force and marketing capabilities, through the hiring of sales and
marketing professionals and building an internal sales and marketing organization;
– hire or engage additional manufacturing, quality control, quality assurance and management personnel as necessary
to expand our manufacturing operations;
– expand our manufacturing capacity for our products, all of which must be manufactured in an FDA compliant and
validated product manufacturing facility; and
– expand and protect our intellectual property portfolio for our products.
Our ability to scale up our production capabilities for larger quantities of these products remains to be proven. Our costs
in marketing and distributing these products will also increase as production increases.
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Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available
on acceptable terms or at all, especially if we fail to relist our common stock for trading on NASDAQ.
Continued expansion of our business will be expensive and we may seek funds from public and private stock offerings,
borrowings under future credit facilities or other sources. Our capital requirements will depend on many factors, including:
– the revenues generated by sales of our products;
– the costs associated with expanding our sales and marketing efforts;
– the costs associated with the Restatement and the resolution of related legal proceedings;
– the expenses we incur in manufacturing and managing the supply chain for our products;
– the costs of developing and commercializing new products or technologies;
– the cost of maintaining current products as 361 HCT/Ps or obtaining regulatory approval through the BLA regulatory
pathway if any of our products lose their 361 HCT/P status;
– the number and timing of any acquisitions and other strategic transactions;
– the costs associated with capital expenditures; and
– unanticipated general and administrative expenses.
As a result of these factors, we may seek to raise capital, and such capital may not be available on favorable terms,
or at all, especially if we fail to relist our common stock for trading on NASDAQ. Furthermore, if we issue equity or debt
securities to raise capital, our existing stockholders may experience dilution, and the new equity or debt securities may have
rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise capital through
collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products,
potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise
capital on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take
advantage of future opportunities, or respond to competitive pressure, changes in our supplier relationships, or unanticipated
customer requirements. Any of these events could adversely affect our ability to achieve our development and commer-
cialization goals, which could have a material adverse effect on our business, financial condition and results of operations.
If our manufacturing and storage facility is damaged or destroyed, our business and prospects would be negatively
affected.
If our manufacturing and storage facility or the equipment in the facility were to be significantly damaged or destroyed,
we could suffer a loss of some or all of the stored product, raw and other materials and work in process.
We lease 61,203 square feet of space in Columbia, Maryland that houses essentially all of our operations. Currently, we
maintain insurance coverage totaling $21.75 million against damage to our property and equipment, an additional $7.35
million to cover business interruption and extra expenses, including R&D restoration expenses. If we have underestimated
our insurance needs, we will not have sufficient insurance to cover losses above and beyond the limits on our policies.
The use of our products in human subjects may expose us to product liability claims, and we may not be able to obtain
adequate insurance.
We face an inherent risk of product liability claims and only have limited safety data for our products. We derive the
raw materials for our products from human donor sources, the production process is complex and the handling requirements
are specific, all of which increase the likelihood of quality failures and subsequent product liability claims. We may not be
able to obtain or maintain product liability insurance on acceptable terms with adequate coverage, or at all. If we are
unable to obtain insurance, or if claims against us substantially exceed our coverage, then our business could be adversely
impacted. Whether or not we are ultimately successful in any product liability litigation, such litigation could consume
substantial amounts of our financial and managerial resources and could result in, among other things:
– significant awards against us;
– substantial litigation costs;
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– recall of the product;
– injury to our reputation; or
– adverse regulatory action.
Any of these results could have a material adverse effect on our business, financial condition and results of operations.
We may implement a product recall or voluntary market withdrawal, which could significantly increase our costs, damage
our reputation and disrupt our business.
The manufacturing and marketing of our tissue products involve an inherent risk that our tissue products or processes
do not meet applicable quality standards and requirements. In that event, we may voluntarily implement a recall, report a
HCT/P deviation or market withdrawal or may be required to do so by a regulatory authority. A recall or market withdrawal
of one of our products would be costly and would divert management resources. A recall, HCT/P deviation or market
withdrawal regarding one of our products, or a similar product manufactured by another entity, also could impair sales of
our products as a result of confusion concerning the scope of the recall or withdrawal, or as a result of the damage to our
reputation for quality and safety.
We and our distributor sales representatives must comply with U.S. federal and state fraud and abuse laws, including
antikickback and false claims laws and equivalent foreign rules.
We are exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors or
third-party distributors may engage in fraudulent or other illegal activity. Misconduct by these parties could include, among
other infractions or violations, intentional, reckless and/or negligent conduct or unauthorized activity that violates
FDA regulations, manufacturing standards, federal and state healthcare fraud and abuse laws and regulations, laws that
require the true, complete and accurate reporting of financial information or data, other commercial or regulatory laws or
requirements and equivalent foreign rules. We have policies and procedures intended to prohibit and deter such conduct,
including a Code of Ethics for Interactions with Healthcare Professionals, a Code of Conduct, and a Whistleblower Policy.
However, it is not always possible to identify and deter misconduct by our employees and third parties. Our precautions 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 or
regulations.
There are numerous U.S. federal and state laws pertaining to healthcare fraud and abuse, including anti-kickback and
false claims laws. These laws are complex, and even minor irregularities can potentially give rise to claims that a statute or
prohibition has been violated. Our and our distributor's relationships with physicians, other healthcare professionals and
hospitals are subject to scrutiny under these laws. The laws that may affect our ability to operate include:
– the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an
individual for, or the purchase, order or recommendation of, items or services for which payment may be made, in whole
or in part, under federal healthcare programs, such as the Medicare and Medicaid programs. There can be both criminal
and civil penalties for violations;
– the federal civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting,
or causing to be presented, false or fraudulent claims for payment of government funds or knowingly making, using or
causing to be made or used, a false record or statement to induce a false claim payment. There are also criminal
penalties, including imprisonment and criminal fines, for making or presenting a false or fictitious or fraudulent claim
to the federal government;
– HIPAA, which created federal criminal laws that prohibit, among other actions, knowingly and willfully executing,
or attempting to execute, a scheme to defraud any healthcare benefit program including private third-party payors;
– the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, biologics and medical supplies for
which payment is available under Medicare, Medicaid or the Children's Health Insurance Program to report annually
(with certain exceptions) to CMS information related to payments or other "transfers of value" made to physicians and
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teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to
CMS ownership and investment interests held by physicians and their immediate family members and payments or other
"transfers of value" to such physician owners;
– the federal Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions, which generally prohibit
companies and their intermediaries from making improper payments to government officials and/or other persons for
the purpose of obtaining or retaining business; and
– analogous state and foreign law equivalents of each of the above federal laws, such as:
– anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including
commercial insurers; or
– state laws that require biologic and drug manufacturers to report information related to payments and other transfers
of value to physicians and other healthcare providers or marketing expenditures, many of which differ from each other
in significant ways and may not have the same effect, thus complicating compliance efforts.
Violations of any of the laws described above or any other governmental regulations are punishable by significant civil,
criminal and administrative penalties, damages, fines and exclusion from government-funded healthcare programs, such as
Medicare and Medicaid. Although compliance programs can mitigate the risk of investigation and prosecution for violations
of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federal
and state privacy, security and fraud laws may prove costly.
In the course of conducting our business, we must adequately address quality issues that may arise with our products,
as well as defects in third-party components included in our products. Although we have established internal procedures to
minimize risks that may arise from quality issues, we may not be able to eliminate or mitigate occurrences of these issues
and associated liabilities. If the quality of our products does not meet the expectations of physicians or patients, then our
brand and reputation could suffer and our business could be adversely impacted.
A significant portion of our revenues and accounts receivable come from government accounts.
We have significant sales to the federal government (whether we are selling our products directly to government accounts
or through our current distributors). Any disruption of our products on the Federal Supply Schedule or a change in the way
the federal government purchases products like ours, or the price it is willing to pay for our products, could materially and
adversely affect our business, results of operations and financial condition.
Changes in internal purchasing procedures by the VA may have an adverse effect on our ability to sell our products to
VA hospitals and may have a material adverse effect on our sales and results of operations.
Recently, the VA announced a change in its internal purchasing procedures, which requires internal pre-authorization
by a warranted contracting officer for purchases of certain types of products, including Grafix and Stravix, for greater
than $3,500, except for VA-owned inventory or a consignment agreement negotiated by a VA contracting officer.
Pre-authorization delays the purchase of our products. In addition, a pre-authorized product may only be used for the patient
for whom authorization was granted. If such product is not used for the authorized patient, it may not be used for any other
patient and the product must be returned. These and other changes in purchasing procedures and policies by the VA could
have an adverse effect on our ability to sell our products to VA hospitals.
The ongoing cost-containment efforts of GPOs and integrated delivery networks ("IDNs") may have a material adverse
effect on our results of operations.
Many customers for our products use GPOs or are members of IDNs in an effort to contain costs. GPOs and IDNs
negotiate pricing arrangements with medical supply manufacturers and distributors, which negotiated prices are made
available to a GPO's or IDN's affiliated hospitals and other members. If we are not one of the providers selected by a GPO
or IDN, affiliated hospitals and other members may be less likely to purchase our products, and, if the GPO or IDN has
negotiated a strict compliance contract for another manufacturer's products, we may be precluded from making sales to
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members of the GPO or IDN for the duration of the contractual arrangement. Our failure to respond to the cost-containment
efforts of GPOs and IDNs may cause us to lose market share to our competitors and could have a material adverse effect
on our sales and results of operations.
Significant disruptions of information technology systems or breaches of information security could adversely affect our
business.
We rely to a large extent upon information technology systems to operate our business. We collect, store and transmit
large amounts of confidential information (including, but not limited to, personal information and intellectual property). We
also have outsourced significant elements of our operations to third parties, including vital components of our information
technology infrastructure. As a result, many third-party vendors may or could have access to our confidential information.
The size and complexity of our information technology and information security systems, and those of our third-party
vendors (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable
to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from
malicious attacks by third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and
individuals with a wide range of motives (including, but not limited to, industrial espionage and market manipulation) and
expertise. Our efforts to prevent service interruptions or security breaches may not be sufficient. Any interruption or breach
in our systems could result in the loss of critical or sensitive confidential information or intellectual property, allow third
parties to gain material, inside information that they could use to trade our securities, and could result in financial, legal,
business, operational and reputational harm to us.
We may expand our business through acquisitions, licenses, investments and other commercial arrangements in other
companies or technologies, which contain significant risks.
We periodically evaluate strategic opportunities to acquire companies, divisions, technologies, products and rights
through licenses, distribution agreements, investments or outright acquisitions to grow our business. In connection with
one or more of those transactions, we may:
– issue additional equity securities that would dilute our stockholders' value;
– use cash that we may need in the future to operate our business;
– incur debt that could have terms unfavorable to us or that we might be unable to repay;
– structure the transaction in a manner that has unfavorable tax consequences, such as a stock purchase that does not
permit a step-up in the tax basis for the assets acquired;
– be unable to realize the anticipated benefits, such as increased revenues, cost savings or synergies from additional sales;
– be unable to secure the services of key employees related to the acquisition; and
– be unable to succeed in the marketplace with the acquisition.
Any of these items could materially and adversely affect our revenues, financial condition and profitability. Business
acquisitions also involve the risk of unknown liabilities associated with the acquired business, which could be material. Incurring
unknown liabilities or the failure to realize the anticipated benefits of an acquisition could materially and adversely affect
our business if we are unable to recover our initial investment. Inability to recover our investment, or any write off of such
investment, associated goodwill or assets, could have a material adverse effect on our business, financial condition and
results of operations.
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Risks Related to Regulatory Approval and Other Government Regulations
Should the FDA determine that any of our current products do not meet regulatory requirements that permit qualifying
human cells, tissues and cellular and tissue-based products to be manufactured, stored, labeled and distributed without
premarketing approval, we may be required to stop manufacturing and distributing such products.
The FDA has developed a tiered, risk-based regulatory framework for human cells, tissues and cellular and tissue-based
products, or so-called 361 HCT/Ps (meaning that they comply with section 361 of the Public Health Service Act and with 21
CFR Part 1271). The framework includes criteria for facility management, quality assurance, donor selection and manufacture
of 361 HCT/Ps. We believe that commercial sale of Grafix, Stravix, BIO4 and Cartiform meets the regulatory definition of
361 HCT/P products and as a result do not require the FDA's pre-marketing approval. Specifically, we believe all of our
current products:
– are minimally manipulated;
– are intended for homologous use only, as reflected in our labeling, advertising, and all other indications of our objective
intent (e.g., that Grafix be used only as a wound cover, that Stravix be used only as a surgical cover, that BIO4 be used
only for augmentation of bone defects, and that Cartiform be used only as an osteochondral allograft);
– are not combined with another article except for water, crystalloids, or a sterilizing, preserving or storage agent in
a manner that raises no new clinical safety concerns; and
– do not have a systemic effect and are not dependent on the metabolic activity of living cells for their primary function.
These criteria form the framework governing our advertising and promotional activities. If we advertise or promote any
product in a manner that conveys an intent that it be used for non-homologous uses, that suggests that the product's primary
function depends on systemic effects or the metabolic activity of living cells, or that indicates that our manufacturing
process manipulates the product more than minimally by altering the original relevant characteristics of the tissue relating to
its utility for reconstruction, repair, or replacement, we will risk causing our products to no longer qualify as 361 HCT/Ps.
On September 26, 2013, we received the Untitled Letter from the FDA. The agency uses untitled letters to communicate
violations that the FDA does not consider of regulatory significance sufficient to lead to an enforcement action. The Untitled
Letter stated that Grafix and Ovation did not meet the definition of a 361 HCT/P. Among the grounds for the FDA's position
were our marketing claims, including wound healing claims for Grafix. Specifically, the Untitled Letter indicated that Grafix
did not meet the requirements because it is dependent upon the metabolic activity of living cells for its primary function
and is not intended for autologous use or allogeneic use in a first or second degree relative. On September 30, 2013, we
provided clarifying information to the FDA addressing these concerns. Specifically, we communicated that while Grafix does
retain the natural cell population, it is not enriched or expanded in any way; instead, the tissue is preserved so that it closely
resembles the source tissue in its native state in accordance with the FDA's definition of minimal manipulation.
In order to make our marketing claims for Grafix clearer, we committed to the FDA to update our labeling and marketing
materials for Grafix to that of a wound cover. By October 2014, we completed all commitments made to the FDA, including
the discontinuance of Ovation. In April 2016, the FDA performed a routine inspection of us, which included follow-up on
the actions taken to address the Untitled Letter. In May 2016, we received an FDA Establishment Inspection Report which
stated that there were no observations, findings, warnings or untitled letters for either the routine inspection or the Untitled
Letter follow-up.
In March 2017, we completed the development of Prestige Lyotechnology as an alternative to cryopreservation, which
previously had been the only method available for long-term preservation of living cells and tissues, and which we are using
to process our current products. We designed our new technology to preserve living cells within tissues while stored at room
temperatures. We intend to use Prestige Lyotechnology in developing placental products. We believe that any products
based on our new technology will also comply with the above requirements for 361 HCT/Ps.
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We engage in ongoing communication with FDA representatives regarding the applicable regulatory requirements
and pathways for our products and product candidates. Determining whether a product complies with these regulatory
requirements and pathways is complex and dependent upon numerous factors and subject to varying interpretations and
conclusions. In November 2017, the FDA finalized its Guidance Document entitled "Regulatory Considerations for Human
Cell, Tissues, and Cellular Tissue-Based Products: Minimal Manipulation and Homologous Use." This document provides
the FDA's current guidance on 361 HCT/Ps. Specifically, it clarifies the FDA's definitions of minimal manipulation and
homologous use. The FDA has given affected companies until November 2020 to determine if they meet the requirements
and, if not, to file an IND.
We believe all of our current products (Grafix, Stravix, BIO4 and Cartiform), as well as our products being developed
using our Prestige Lyotechnology, meet, or will meet, the FDA's current interpretations. However, the FDA may not agree
with our views on these matters. Should the FDA decide that our current and future products do not meet the regulatory
definition of 361 HCT/Ps, we will not be able to produce and distribute these products unless and until we submit a BLA
and obtain pre-marketing approval from the FDA, which would require clinical trials and could take years to obtain, at
significant expense. This or any other determination by the FDA that adversely affects our ability to produce or to market
any of our products or product candidates would have a material adverse effect on our business, financial condition and
results of operations.
Our business is subject to an inherently uncertain and evolving area of regulation.
The regulatory framework that the FDA has developed for 361 HCT/Ps is inherently uncertain and the FDA's regulation
of 361 HCT/Ps is evolving. The FDA may alter or recalibrate its regulatory interpretations and enforcement activities, including
in the event a competitor obtains pre-marketing approval for a product similar to any of our products. Further, the FDA
could require that our products, which lack pre-marketing approval by the FDA, be taken off the market.
In addition, while the FDA's advertising and promotional labeling regulations do not apply to 361 HCT/Ps, the agency
could become more exacting with regard to acceptable advertising and promotional activities for 361 HCT/Ps. Specifically,
under FDA regulations, a manufacturer may not promote a 361 HCT/P in a manner that communicates an objective intent of
the manufacturer for the HCT/P to be used for non-homologous uses. In addition, a manufacturer risks undermining its
product's 361 status if it describes its product in a way that suggests that the product does not otherwise meet the criteria
for qualifying as a 361 HCT/P, such as by emphasizing the metabolic activity of live cells in the product. Because various
government agencies that regulate HCT/Ps, such as the FDA and CMS, employ different terms to describe HCT/Ps and apply
different criteria to its decisions, a risk exists that our sales representatives and other employees may use terms applicable to
one regulatory regime that are detrimental in another regulatory regime. An example would be that describing an HCT/P as
treating a wound for purposes of justifying reimbursement could be interpreted by the FDA as implying that the manufacturer
intends the product to be used for non-homologous wound healing.
If the FDA determines that any of our current products are not 361 HCT/Ps, or that any of our future products are not
361 HCT/Ps, we will be required to seek and obtain pre-marketing regulatory approval.
If the FDA determines that one or more of our current products do not meet the criteria for 361 HCT/Ps, we will need
to pursue pre-marketing approval applicable to biologics in the United States, which is also referred to as licensure. We
are currently considering product candidates that require licensure from the FDA. In the United States, a company must
complete rigorous preclinical testing and extensive clinical trials that demonstrate the safety, purity and potency of a
biological product in order to apply for licensure to market the product. The steps generally required by the FDA include:
– performance of preclinical (animal and laboratory) tests, in accordance with the FDA's cGLP regulations and other
applicable requirements;
– submissions to the FDA of an IND, which must become effective before clinical trials may commence;
– approval by an independent IRB of each clinical site before a clinical trial is initiated;
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– performance of adequate and well-controlled clinical trials according to the FDA's cGCP regulations, and any additional
requirements for the protection of human research subjects and their health information to establish the safety, purity
and potency of the investigational biological product in the intended target population for its intended use:
– establishment and validation of a consistent and reproducible manufacturing process intended for commercial use,
including the collection of appropriate manufacturing data;
– preparation and submission to the FDA of a BLA for marketing approval that includes substantial evidence of safety,
purity and potency from results of nonclinical testing and clinical trials;
– satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product
candidate is produced to assess compliance with cGMPs and to assure that the facilities, methods and controls are
adequate to preserve the biological product candidate's identity, safety, strength, quality, potency and purity;
– potential FDA inspection of the nonclinical and clinical trial sites that generated the data in support of the BLA; and
– FDA review and approval of the BLA before any commercial sale or shipment of the product can begin again.
The processes are expensive and can take many years to complete. If we are required to obtain pre-marketing approval
from the FDA for any of our existing or future products, we may not be able to demonstrate the safety, purity and potency
of our products to the satisfaction of regulatory authorities. The start of clinical trials can be delayed or take longer than
anticipated for many and varied reasons, many of which are out of our control. Safety concerns may emerge that could
lengthen the ongoing clinical trials or require additional clinical trials to be conducted. Promising results in early clinical
trials may not be replicated in subsequent clinical trials. Regulatory authorities may also require additional testing, and we
may be required to demonstrate that our products represent an improved form of treatment over existing therapies, which
we may be unable to do without conducting further clinical trials. Moreover, if the FDA grants regulatory approval of a
product, the approval may be limited to specific indications or limited with respect to its distribution. Expanded or additional
indications for approved products may not be approved, which could limit our revenue opportunities.
Our business is subject to continuing regulatory compliance by the FDA and other authorities, which is costly and our
failure to comply could result in negative effects on our business.
As discussed above, the FDA has specific regulations governing our tissue-based products, or HCT/Ps. The FDA's
regulation of HCT/Ps includes requirements for registration and listing of products, donor screening and testing,
manufacture and distribution, labeling, record keeping and adverse-reaction reporting, and inspection and enforcement.
The FDA has broad regulatory and enforcement powers.
If we fail to comply with the FDA regulations regarding our tissue-based products, the FDA could take enforcement
action, including, without limitation, any of the following sanctions that may be relevant to our current or future business
operations, and the manufacture of our products or processing of our tissue could be delayed or terminated:
– untitled letters and warning letters;
– orders of retention, recall, destruction and cessation of manufacturing;
– product seizures, injunctions and civil penalties;
– operating restrictions;
– refusing applications for licensure of new products;
– suspending current applications for licensure, or revoking or suspending licenses already granted;
– refusal to allow the importation of our products or raw materials; and
– criminal prosecution.
It is likely that the FDA's regulation of HCT/Ps will continue to evolve in the future. Complying with any such new
regulatory requirements may entail significant time delays and expense, which could have a material adverse effect on our
business, financial condition and results of operation.
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In addition to FDA regulations, we are subject to other laws, rules, regulations and standards regarding the use of human
tissue.
We are registered with the FDA as a tissue bank. In addition, some states have their own tissue banking regulations. We
are licensed as a tissue bank in Maryland, California, New York and Florida. If we fail to comply with any of the requirements
for licensure as a tissue bank, we will not be able to operate as a tissue bank and collect and store donor tissue. The loss of
this licensure could adversely impact the quantity of human tissue available to us and our ability to process our products,
which could have a material adverse effect on our business, financial condition and results of operations.
In addition, procurement of certain human organs and tissues for transplantation is subject to the restrictions of NOTA,
which prohibits the transfer of certain human organs, including skin and related tissue, for valuable consideration, but
permits reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality
control and storage of human tissue and skin. We reimburse tissue banks, hospitals and physicians for their services associated
with the recovery, storage and transportation of donated human tissue. If we were to be found to have violated NOTA's
prohibition on the sale or transfer of human tissue for valuable consideration, we would potentially be subject to criminal
enforcement sanctions, which could materially and adversely affect our business, financial condition and results of operations.
Our business involves the use of hazardous materials that could expose us to environmental and other liability.
We have facilities in Maryland that are subject to various local, state and federal laws and regulations relating to safe
working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous
substances, including chemicals, micro-organisms and various radioactive compounds used in connection with our R&D
and manufacturing activities. These laws include the Occupational Safety and Health Act, the Toxic Test Substances Control
Act and the Resource Conservation and Recovery Act. We cannot assure you that accidental contamination or injury to our
employees and third parties from hazardous materials will not occur. We do not have insurance to cover claims arising from
our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental
contamination due to an otherwise insured peril, such as fire.
Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our
ability to collect and use that information and subject us to liability if we are unable to fully comply with such laws.
Numerous federal and state laws, rules and regulations govern the collection, dissemination, use, security and
confidentiality of personal information, including individually identifiable health information. These laws include:
– Provisions of HIPAA that limit how covered entities and business associates may use and disclose PHI, provide certain
rights to individuals with respect to that information and impose certain security requirements;
– HITECH, which strengthens and expands the HIPAA Privacy Rule and Security Rules and imposes data breach
notification obligations;
– Other federal and state laws restricting the use and protecting the privacy and security of personal information,
including health information, many of which are not preempted by HIPAA;
– Federal and state consumer protection laws; and
– Federal and state laws regulating the conduct of research with human subjects.
As part of our business operations, including our medical record keeping, third-party billing and reimbursement and
R&D activities, we collect and maintain PHI in paper and electronic format. Standards related to health information, whether
implemented pursuant to HIPAA, HITECH, state laws, federal or state action or otherwise, could have a significant effect
on the manner in which we handle personal information, including healthcare-related data, and communicate with payors,
providers, patients, donors and others, and compliance with these standards could impose significant costs on us or limit
our ability to offer services, thereby negatively impacting the business opportunities available to us.
If we are alleged to not comply with existing or new laws, rules and regulations related to personal information we could
be subject to litigation and to sanctions that include monetary fines, civil or administrative penalties, civil damage awards
or criminal penalties.
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We face significant uncertainty in the industry due to government healthcare reform.
There have been and continue to be proposals by the federal government, state governments, regulators and third-party
payors to control healthcare costs, and generally, to reform the healthcare system in the United States. With the Trump
Administration and the 115th Congress, there have been certain regulatory and legislative changes to the Patient Protection
and Affordable Care Act (the "Affordable Care Act"). For example, the Tax Cuts and Jobs Act enacted on December 22,
2017, eliminated the shared responsibility payment for individuals who fail to maintain minimum essential coverage under
section 5000A of the Internal Revenue Code of 1986, commonly referred to as the individual mandate, beginning in 2019.
Additional legislative changes to and regulatory changes under the Affordable Care Act remain possible. However, it remains
unclear how any new regulations or legislation might affect the prices we may obtain for any of our products. Any reductionin
reimbursement from Medicare and other government programs may result in a similar reduction in payments from private
payors. The implementation of cost containment measures or other healthcare reforms may harm our business and prevent
us from being able to attain and maintain profitability. We also cannot predict what further reform proposals, if any, will
be adopted, when they will be adopted, or what impact they may have on us.
Risks Related to Intellectual Property
Given our limited patent position in regard to our products, if we are unable to protect the confidentiality of our proprietary
information and know-how related to these products, our competitive position would be impaired and our business,
financial condition and results of operations could be adversely affected.
Our success depends, in part, on our ability to obtain patents, maintain trade secret protection and operate without
infringing on the proprietary rights of third parties. Our policy is to file patent applications to protect technology, inventions
and improvements that we consider important to our business and operations. We hold an ownership interest in a number
of pending and issued patents in the United States and foreign countries with respect to our products and technologies.
We have pending patent applications in the United States Patent and Trademark Office, the European Patent Office, and
the patent offices of other foreign jurisdictions, and it is possible that we will need to defend patents from challenges by
others from time to time in the future. Certain of our U.S. patents may also be challenged by parties who file a request for
post-grant review or inter partes reexamination under the America Invents Act of 2011 or ex parte reexamination. Post-grant
proceedings are increasingly common in the United States and are costly to defend. Our patent rights may not provide us
with a proprietary position or competitive advantages against competitors. Furthermore, even if the outcome is favorable to
us, the enforcement of our intellectual property rights can be extremely expensive and time consuming.
A significant amount of our technology, including our information regarding the manufacturing process for our products,
is patent pending, unpatented or is maintained by us as trade secrets or confidential know-how. In an effort to protect this
proprietary information, we require our employees, consultants, service providers, advisors and other third parties to execute
confidentiality agreements upon the commencement of their relationships with us. These agreements require that all
confidential information developed by the individual or entity or made known to the individual or entity by us during the
individual's or entity's relationship with us be kept confidential and not disclosed to third parties without prior written consent
by us. These agreements, however, may not provide us with adequate protection against improper use or disclosure of trade
secrets or confidential information, and these agreements may be breached. For example, a portion of the manufacturing
methodology and know-how for Grafix is protected by trade secret or through confidentiality arrangements. A breach of
confidentiality could affect our competitive position. Also, others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade secrets or know-how.
Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The
disclosure of our trade secrets or know-how could impair our competitive position and could have a material adverse effect
on our business, financial condition and results of operations.
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If our patent position does not adequately protect our products, others could compete against us more directly, which
would harm our business and have a material adverse effect on our business, financial condition and results of operations.
Patent law relating to the patentability and scope of claims in the biotechnology field is evolving and our patent rights
are subject to this additional uncertainty. The degree of patent protection that will be afforded to our products in the United
States and other important commercial markets is uncertain and is dependent upon the scope of protection decided upon
by the patent offices, courts and governments in these countries. There is no certainty that our existing patents or others,
if obtained, will provide us protection from competition or provide commercial benefit. Others may independently develop
similar products or processes to those developed by us, duplicate any of our products or processes or, if patents are issued
to us, design around any products and processes covered by our patents. We expect to, when appropriate, file product and
process applications with respect to our inventions. However, we may not file any such applications or, if filed, the patents
may not be issued. Patents issued to or licensed by us may be infringed by the products or processes of others.
Because of the extensive time required for development, testing and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only
a short period following commercialization, thereby reducing any advantages of the patent. A portion of our technology,
including certain know-how regarding the production processes for our products, is unpatented and is maintained by us as
trade secrets. The lack of patent protection for our products reduces the barrier for entry by others and makes these
products susceptible to increased competition, which could be harmful to our business.
If we infringe or are alleged to infringe intellectual property rights of third parties, it will adversely affect our business,
financial condition and results of operations.
Our research, development and commercialization activities, and the manufacture or distribution of our products, may
infringe or be alleged to infringe patents owned by third parties and to which we do not hold licenses or other rights. There
may be patent applications that have been filed but not published that, when issued, could be asserted against us. These
third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us,
could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be
enjoined from certain activities including a stop or delay in research, development, manufacturing or sales activities related
to the product or technology that is the subject of the suit.
As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek a
license from the third party. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain
a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be
nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could
be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result
of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.
The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of
our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of
their greater financial resources. Patent litigation and other proceedings may also absorb significant management time.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material
adverse effect on our ability to compete in the marketplace and, as a result, on our business, financial condition and results
of operations.
We may become involved in lawsuits or administrative proceedings to protect or enforce our patents or the patents of
ourservice providers or licensors, which could be expensive and time consuming.
Litigation may be necessary to enforce patents issued or licensed to us, to protect trade secrets or know-how, or to
determine the scope and validity of proprietary rights. Litigation, post-grant review, reexamination, opposition or interference
proceedings could result in substantial additional costs and diversion of management focus. If we are ultimately unable to
protect our technology, trade secrets or know-how, we may be unable to operate profitably.
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Competitors may infringe our patents or the patents of our service providers or licensors. As a result, we may be required
to file infringement claims to protect our proprietary rights. This can be expensive, particularly for a company of our size,
and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is invalid or is
unenforceable, or may refuse to enjoin the other party from using the technology at issue. An adverse determination of any
litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly.
Interference proceedings brought by the United States Patent and Trademark Office may be necessary to determine the
priority of inventions with respect to our patent applications or those of our service providers or licensors. Litigation or
interference proceedings may fail and, even if successful, may result in substantial costs and distraction to our management.
We may not be able, alone or with our service providers and licensors, to prevent misappropriation of our proprietary rights.
Furthermore, though we would seek protective orders where appropriate, because of the substantial amount of discovery
required in connection with intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, during this kind of litigation, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these
results to be negative, the market price for our common stock could be significantly harmed.
The prosecution and enforcement of patents licensed to us by third parties are not within our control, and without these
technologies, our products may not be successful and our business would be harmed if the patents were infringed or
misappropriated.
We have obtained licenses from third parties for patents and patent application rights, allowing us to use intellectual
property rights owned by or licensed to these third parties. We do not control the maintenance, prosecution, enforcement
or strategy for many of these patents or patent application rights and as such are dependent in part on the owners of the
intellectual property rights to maintain their viability. Their failure to do so could significantly impair our ability to exploit
these technologies.
Risks Related to Our Common Stock
Our common stock has been delisted from trading on NASDAQ, which we expect to continue to have a material effect
on us and our stockholders.
As a result of the Restatement, we are delinquent in the filing of our Annual Reports on Form 10-K for the years ended
December 31, 2015 and December 31, 2016, and our Quarterly Reports on Form 10-Q for the quarters ended March 31,
2016, June 30, 2016, September 30, 2016, March 31, 2017,
June 30, 2017 and September 30, 2017. NASDAQ formally delisted our common stock on April 28, 2017 as a result of
our failure to timely file our SEC reports. There can be no assurance whether or when our common stock will again be listed
for trading on NASDAQ or any other national securities exchange. Further, the market price of our shares might decline and
become more volatile, and our stockholders may find that their ability to trade in our stock is limited. Furthermore, institutions
whose charters do not allow them to hold securities in unlisted companies might sell our shares, which could have a further
adverse effect on the price of our stock.
The trading price of the shares of our common stock is highly volatile, and purchasers of our common stock could incur
substantial losses.
Our stock price is volatile. The stock market in general and the market for biotechnology companies in particular have
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a
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result of this volatility, investors may not be able to sell their common stock at or above the price they paid for it. The market
price for our common stock may be influenced by many factors, including:
– reduced access to a trading market for our common stock as a result of our delisting from NASDAQ;
– loss of investor confidence in us due to the Restatement;
– the recent changes in our senior management team and departures of other key personnel;
– the outcome of the existing lawsuits against us and the announcement of any future litigation matters, if any;
– the marketing and distribution of new products by our competitors;
– regulatory developments in the United States, generally or specific to us and our products;
– changes in the structure of healthcare payment systems;
– expiration or termination of our significant relationships with third parties;
– market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts' reports or
recommendations;
– sales of substantial amounts of our stock by existing stockholders;
– sales of our stock by insiders;
– variations in our financial results or those of companies that are perceived to be similar to us;
– general economic, industry and market conditions;
– announcements by us of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
– commercial, stockholder class action and derivative, intellectual property or product liability litigation against us; and
– the other factors described in this "Risk Factors" section.
There is no significant trading market or price discovery available for our common stock and purchasers of our common
stock may be unable to sell their shares.
Our common stock is currently quoted on the Pink OTC Markets Inc., referred to as the "pink sheets"; however trading to
date has been limited. If activity in the market for shares of our common stock does not increase, purchasers of our shares may
find it difficult to sell their shares. The pink sheets are a less recognized market than the NASDAQ and other stock exchanges
and are often characterized by low trading volume and significant price fluctuations. These and other factors may further impair
our stockholders' ability to sell their shares when they want to and/or could depress our stock price. As a result, stockholders may
find it difficult to dispose of their shares or obtain accurate quotations of the price of our securities because smaller quantities of
shares could be bought and sold, transactions could be delayed, and security analyst and news coverage of our Company may
be limited. These factors could result in lower prices and larger spreads in the bid and ask prices for our shares of common stock.
We do not intend to pay cash dividends.
We currently do not intend to pay cash dividends for the foreseeable future. We currently intend to retain earnings, if
any, to finance our operations and growth. As a result, capital appreciation, if any, of our common stock will be an investor's
only source of potential gain from our common stock for the foreseeable future.
Certain provisions of Maryland law and of our charter and bylaws contain provisions that could delay and discourage
takeover attempts and any attempts to replace our current directors by stockholders.
Certain provisions of Maryland General Corporation Law ("MGCL") and of our Maryland charter and Maryland bylaws
contain provisions that may make it more difficult to or prevent a third party from acquiring control of us or changing our
Board and management. These include, but are not limited to, the following:
– authorization of the board of directors to issue shares of preferred stock generally without stockholder approval;
– requirements that special meetings of stockholders may only be called by stockholders, upon request of stockholders
holding at least 20% of the capital stock issued and outstanding; and
– requirements that our stockholders comply with advance notice procedures in order to nominate candidates for election
to our Board or to place stockholders' proposals on the agenda for consideration at stockholder meetings.
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Maryland law also prohibits "business combinations" between us and an interested stockholder or an affiliate of an
interested stockholder for five years after the most recent date on which the interested stockholder becomes an interested
stockholder. These business combinations include a merger, consolidation, share exchange or, in certain circumstances
specified in the statute, an asset transfer or issuance or reclassification of equity securities.
Maryland law defines an interested stockholder as any person who beneficially owns 10% or more of the voting power
of the corporation's stock, or an affiliate or associate of the corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of 10% or more of the voting power of the corporation's then-outstanding
voting stock. A person is not an interested stockholder if the board of directors of the corporation approved in advance the
transaction by which the person otherwise would have become an interested stockholder. However, such approval may be
conditional.
After the five-year prohibition, any business combination between the corporation and an interested stockholder or
an affiliate of an interested stockholder generally must be recommended by the board of directors and approved by
the affirmative vote of at least 80% of the votes entitled to be cast by holders of the then-outstanding shares of voting
stock, and two-thirds of the votes entitled to be cast by holders of the voting stock other than stock held by the interested
stockholder with whom or with whose affiliate the business combination is to be effected or stock held by an affiliate or
associate of the interested stockholder. These super-majority vote requirements do not apply if the holders of the common
stock receive a minimum price, as defined under Maryland law, for their stock in the form of cash or other consideration in
the same form as previously paid by the interested stockholder for its stock.
The statute permits various exemptions from its provisions, including business combinations that are approved or
exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Our
Board has not exempted us from the business combination statute. Consequently, unless the Board adopts an exemption
from this statute in the future, the statute will be applicable and may affect business combinations between us and other
persons. The statute may discourage others from trying to acquire control of us or increase the difficulty of consummating
any such acquisition.
Subtitle 8 of Title 3 of the MGCL ("Subtitle 8") permits a Maryland corporation with a class of equity securities registered
under the Exchange Act, and with at least three independent directors to elect to be subject to any or all of five provisions:
– a classified board;
– a two-thirds vote requirement to remove a director;
– a requirement that the number of directors be fixed only by the vote of the directors;
– a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the
full term of the directorship in which the vacancy occurred; and
– a majority requirement for the calling of a special meeting of stockholders.
An eligible Maryland corporation like us can elect into this statute by provision in its charter or bylaws or by a resolution of
its board of directors, without stockholder approval. Furthermore, we can elect to be subject to the above provisions regardless
of any contrary provisions in the charter or bylaws. Pursuant to Subtitle 8, we have elected to provide that vacancies on our
Board may be filled only by the remaining directors and for the remainder of the full term of the class of directors in which
the vacancy occurred.
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders
may prevent others from influencing significant corporate decisions, and provisions in our charter allowing for a stockholder
vote by consent in lieu of a meeting may make it easier for stockholders holding a majority of our common stock to take
action.
Our executive officers, directors and beneficial owners of 5% or more of our common stock and their affiliates, in
aggregate, beneficially own approximately 52.3% of our outstanding common stock as of March 28, 2018. Included among
this 52.3%, Peter Friedli, the Chairman of the Board, and certain entities with which he is affiliated, beneficially own
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approximately 42.9% of our outstanding common stock as of March 28, 2018. These persons, acting together, will be able
to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any
merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with our
interests or the interests of other stockholders.
Moreover, as permitted by the MGCL, our charter provides that the holders of common stock entitled to vote generally
in the election of directors may take action or consent to any action by delivering a consent in writing or by electronic
transmission of the stockholders entitled to cast not less than the minimum number of votes (which is generally either a
majority of votes cast or a majority of votes entitled to be cast) that would be necessary to authorize or take the action at
a stockholders meeting if the corporation gives notice of the action not later than ten (10) days after the effective date of
the action to each holder of the class of common stock and to each stockholder who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting.
Accordingly, these persons acting together, and Mr. Friedli specifically, currently has, and will continue to have, a
significant influence over the outcome of all corporate actions requiring stockholder approval, including any actions that
may be taken by stockholder consent in lieu of a meeting.
Risks Related to the Restatement of Financial Statements and
Failure to File SEC Reports
We have restated our prior financial statements, which may lead to additional risks and uncertainties, including loss of
investor confidence and negative impacts on our stock price.
As discussed in the 2014 Form 10-K/A, we have restated our audited financial statements for the year ended December
31, 2014, and as discussed in Note 15 to our financial statements included in Part II, Item 8 of this Form 10-K, our unaudited
interim financial statements for the periods ended March 31, 2015, June 30, 2015 and September 30, 2015. We have filed
this Form 10-K to, among other things, reflect the restatement of our 2015 interim financial statements.
As a result of the Restatement, we have become subject to a number of additional costs and risks, including costs for
accounting and legal fees in connection with or related to the Restatement and the remediation of our material weaknesses
in internal control over financial reporting. In addition, the attention of our management team has been diverted by these
efforts. We are subject to stockholder and other actions in connection with the Restatement and related matters.
In addition, the Restatement and related matters could impair our reputation or could cause our counterparties to lose
confidence in us. Each of these occurrences could have a material adverse effect on our business, financial condition, results
of operations and stock price.
Our management has identified material weaknesses in the Company's internal control over financial reporting which
could, if not remediated, result in additional material misstatements in our consolidated financial statements. We may
be unable to develop, implement and maintain appropriate controls in future periods.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, and
the Sarbanes-Oxley Act of 2002 and SEC rules require that our management report annually on the effectiveness of the
Company's internal control over financial reporting. Among other things, our management must conduct an assessment of
the Company's internal control over financial reporting to allow management to report on, and our independent registered
public accounting firm to audit, the effectiveness of the Company's internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. As disclosed in Part II, Item 9A, "Controls and Procedures" of this Form 10-K, our
management, with the participation of our current Interim Chief Executive Officer and our current Chief Financial Officer,
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has determined that we had material weaknesses in the Company's internal control over financial reporting as of December
31, 2017. Some of these material weaknesses contributed to the material misstatements in our previously filed annual audited
and interim unaudited consolidated financial statements, which were restated as part of the Restatement.
A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements
will not be prevented or detected on a timely basis. We are actively engaged in developing and implementing a remediation
plan designed to address such material weaknesses. However, additional material weaknesses in the Company's internal
control over financial reporting may be identified in the future. Any failure to implement or maintain required new or improved
controls, or any difficulties we encounter in their implementation, could result in additional material weaknesses, or could
result in material misstatements in our consolidated financial statements. These misstatements could result in a further
restatement of our consolidated financial statements, cause us to fail to meet our reporting obligations, reduce our ability
to obtain financing or cause investors to lose confidence in our reported financial information, leading to a decline in our
stock price.
Although we are working to remedy the ineffectiveness of the Company's internal control over financial reporting, there
can be no assurance as to when the remediation plan will be fully developed and implemented. Until our remediation plan
is fully implemented, our management will continue to devote significant time, attention and financial resources to these
efforts. If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there
will continue to be an increased risk that we will be unable to timely file future periodic reports with the SEC and that our
future consolidated financial statements could contain errors that will be undetected. Further and continued determinations
that there are material weaknesses in the effectiveness of the Company's internal control over financial reporting could also
reduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures
of both money and our management's time to comply with applicable requirements. For more information relating to the
Company's internal control over financial reporting, the material weaknesses that existed as of December 31, 2017 and the
remediation activities undertaken by us, see Part II, Item 9A, "Controls and Procedures" of this Form 10-K.
We and certain of our former executive officers and current and former directors have been named as defendants in litigation
actions that could result in substantial costs and divert management's attention.
We are currently party to legal and other proceedings which are described under Part II, Item 3, "Legal Proceedings,"
of this Form 10-K. We, and certain of our former executive officers and current and former directors, have been named as
defendants in a purported class action lawsuit that allege, among other things, that the defendants made materially false
or misleading statements and material omissions in the Company's SEC filings in violations of federal securities laws. Further,
stockholder derivative complaints have been filed in Maryland state and federal court against individual members of the
Company's Board and certain former executive officers alleging, among other things, that the defendants (i) violated their
fiduciary duties to the Company's stockholders; (ii) abused their ability to control and influence the Company; (iii) engaged
in gross mismanagement of the assets and business of the Company and (iv) were unjustly enriched at the expense of, and
to the detriment of, the Company. The resolution of these matters may result in significant damages, costs, and expenses,
which could have a material adverse impact on our business, financial condition and results of operations.
In addition, we could face suspension or disbarment from contracting with the VA and other government agencies as
a result of the legal and other proceedings which are described under Part II, Item 3, "Legal Proceedings," of this Form 10-K.
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Our failure to timely file certain periodic reports with the SEC poses significant risks to our business, each of which could
materially and adversely affect our financial condition and results of operations.
We failed to file our Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016
and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2016, June 30, 2016, September 30, 2016,
March 31, 2017, June 30, 2017 and September 30, 2017.
Consequently, we were not compliant with the periodic reporting requirements under the Exchange Act. We are filing
this comprehensive Form 10-K as part of our effort to become current in our filing obligations under the Exchange Act. Our
failure to file those and possibly future periodic reports with the SEC could subject us to enforcement action by the SEC.
Any of these events could materially and adversely affect our financial condition and results of operations and our ability
to register with the SEC public offerings of our securities for our benefit or the benefit of our security holders. We have not
amended, and do not intend to amend, our Quarterly Reports on Form 10-Q for the 2015 interim periods. We also do not
intend to file separate Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016 or
Quarterly Reports on Form 10-Q for the 2016 and 2017 interim periods.
Our failure to prepare and timely file our periodic reports with the SEC limits our access to the public markets to raise
debt or equity capital.
We did not file our Annual Reports on Form 10-K for the years ended December 31, 2015 and December 31, 2016 and
our Quarterly Reports on Form 10- Q for the quarters ended March 31, 2016, June 30, 2016, September 30, 2016, March
31, 2017, June 30, 2017 and September 30, 2017 as required by the SEC. Because we have not complied with our reporting
requirements with the SEC, we are limited in our ability to access the public markets to raise debt or equity capital. Our
limited ability to access the public markets could prevent us from pursuing transactions or implementing business strategies
that we might otherwise believe are beneficial to our business. Even if we regain and maintain compliance with our SEC
reporting obligations prospectively, until one year from the date we regain and maintain status as a current filer, we will
be ineligible to use shorter and less costly filing forms, such as Form S-3, to register our securities for sale. We may use Form
S-1 to register a sale of our stock to raise capital or complete acquisitions, but doing so would likely take longer than
using a shorter and less costly form, increase transaction costs and adversely impact our ability to raise capital or complete
acquisitions of other companies in a timely manner.
New Venturetec Ltd. Chollerstrasse 356300 Zug
phone +41 41 740 25 25fax +41 41 740 25 [email protected]
Annual Report 2018 TechnologyBiotechnology
www.newventuretec.comenter