You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this Report and with our audited financial statements and related notes thereto for the year endedDecember 31, 2020 , included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission onMarch 17, 2021 , or the Annual Report. This discussion and other parts of this Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause such differences are discussed in the section of this Report titled "Special Note Regarding Forward-Looking Statements" and under "Item 1A. Risk Factors" in the Annual Report. Overview We are a clinical-stage specialty biopharmaceutical company focused on changing the field of immunotherapy by developing a novel technology platform called Viaskin. Our therapeutic approach is based on epicutaneous immunotherapy, or EPIT TM , our proprietary method of delivering biologically active compounds to the immune system through intact skin using Viaskin. We have generated significant data demonstrating that Viaskin's mechanism of action is novel and differentiated, as it targets specific antigen-presenting immune cells in the skin, called Langerhans cells, that capture the antigen and migrate to the lymph node in order to activate the immune system without passage of the antigen into the bloodstream, minimizing systemic exposure in the body. We are advancing this unique technology to treat patients, including infants and children, suffering from food allergies, for whom safety is paramount, since the introduction of the offending allergen into their bloodstream can cause severe or life-threatening allergic reactions, such as anaphylactic shock. Viaskin Peanut inthe United States InJanuary 2021 , we received written responses from the FDA to questions provided in the Type A meeting request, we submitted inOctober 2020 following the CRL. In exchanges with the FDA, we proposed potential resolutions to two main concerns identified by the FDA in the CRL: the impact of patch adhesion and the need for patch modifications. The FDA agreed with our position that a modified Viaskin Peanut patch should not be considered as a new product entity provided the occlusion chamber of the current Viaskin Peanut patch and the peanut protein dose of 250 µg (approximately 1/1000 of a peanut) remains unchanged and performs in the same way it has performed previously. In order to confirm the consistency of efficacy data between the existing and modified patches, the FDA has requested an assessment comparing the uptake of allergen (peanut protein) between the patches in peanut allergic children ages 4 to 11 years. The FDA also recommended conducting a 6-month, well-controlled safety and adhesion trial to assess the modified Viaskin Peanut patch in the intended patient population. In the second quarter of 2021, we completed CHAMP (Comparison of adHesion Among Modified Patches), a trial in healthy adult volunteers to evaluate the adhesion of five modified Viaskin Peanut patches in order to identify the top performers. Based on the adhesion parameters studied, we were pleased to learn that all modified Viaskin Peanut patches demonstrated better adhesion performance as compared to the current Viaskin Peanut patch. We then selected two modified patches that performed best out of the five modified patches studied for further development. The difference between the two selected patches is their shape-one is circular and the other is rectangular with rounded corners. They are both approximately 50% larger than the current patch but maintain the same structure of the occlusion chamber (i.e., foam ring and backing). We also conducted advisory boards with patient caregivers and key opinion leaders to obtain qualitative feedback on the consumer experience with both patches. I n the second quarter of 2021, we initiated PREQUAL, a Phase 1 study in healthy adult volunteers to optimize the allergen sample collection methodologies and validate the assays we intend to use in EQUAL (EQuivalence in Uptake of ALergen) to demonstrate the protein uptake comparability of the modified patch (mVP) to the reference or current patc h (cVP). We submitted the protocol for STAMP (Safety, Tolerability and Adhesion of Modified Patches), the
6-month
adhesion and safety study of the modified patch, to the FDA onMay 6 , and received feedback from the FDA onOctober 14, 2021 . The FDA has requested us a stepwise approach to our modified Viaskin Peanut (mVP) development program. The FDA would like us to review the data from our protein uptake release study prior to providing additional comments on the STAMP protocol design. In its communication, the FDA stated that guidance is forthcoming on how best to demonstrate the protein uptake comparability of the mVP to the reference or current patch (cVP). The STAMP trial will not be initiated until we receive complete feedback from the FDA. Viaskin Peanut inEurope During the first quarter of 2021, we received the first set of questions from theEuropean Medicines Agency , or EMA, regarding the Marketing Authorization Application, or MAA, for Viaskin Peanut as a treatment for peanut allergy in children ages 4-11. The questions were consistent with our expectations and prefiling conversations with the EMA. We did not receive questions about the impact of adhesion on efficacy. TheEMA's Committee for Medicinal Products for Human Use will provide a recommendation to theEuropean Commission , or EC, on whether to grant a marketing authorization when its review of the Viaskin Peanut MAA is complete. 2 0 -------------------------------------------------------------------------------- Table of Contents InJuly 2021 , we received from the EMA a Day 180 list of outstanding issues. The review of the Viaskin Peanut MAA is progressing according to established EMA processes and ongoing conversations with the EMA. M any of EMA's Objections and Major Objections have been answered; one Major Objection remained. We are preparing our responses to the Day 180 letter and evaluating how to best address the Objections, including the remaining Major Objection which questions the limitations of the data, for example, the clinical relevance and effect size supported by a single pivotal study. Further exchanges with EMA are anticipated. We estimate the EMA could issue its decision on potential marketing authorization for Viaskin Peanut in the first quarter of 2022. Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States , orU.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the revenue, costs and expenses recognized during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no new policies or significant changes to our critical accounting policies as disclosed in the critical accounting policies described in the Annual Report. Our significant accounting policies are more fully described in Note 1 of the Notes to the Condensed Consolidated Financial Statements in Part I, Item 1 of our Annual Report. Results of Operations Comparison of the Three Months EndedSeptember 30, 2021 and 2020 The following table summarizes our results of operations, derived from our condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP and presented in thousands ofU.S. Dollars, for the three months endedSeptember 30, 2021 and 2020. Three months ended September 30, 2021 2020 $ change % change ) %) Operating income$ 1,323 $ 4,158 $ (2,836 (68 Operating expenses Research and development expenses (16,320 ) (25,751 ) 9,430 (37 %) Sales and marketing expenses (1,072 ) (1,595 ) 524 (33 %) General and administrative expenses (8,299 ) (6,863 ) (1,437 ) 21 % Restructuring expenses - 286 (286 ) 100 % ) ) %) Total Operating expenses (25,691 (33,923 8,232 (24 Financial income (expense) 336 (1,184 ) 1,519 (128 %) Income tax - (7 ) 7 (100 %) Net loss$ (24,033 ) $ (30,955 ) $ 6,922 (22 %) 21
-------------------------------------------------------------------------------- Table of Contents Operating Income The following table summarizes our operating income during the three months endedSeptember 30, 2021 and 2020: Three months ended September 30, 2021 2020 $ change % change Sales - - - - Other income 1,323 4,158 (2,836 ) (68 %) Research tax credit 1,647 1,815 (168 ) (9 %) Other operating (loss) income (324 ) 2,344 (2,668 ) (114 %) Total operating income 1,323 4,158 (2,836 ) (68 %) Our operating income is primarily generated from the French research tax credit ( Cr é dit d ' Iimp ô t Recherche , or CIR ), and by the revenue recognized under our collaboration agreement with Nestlé Health Science. We generated operating income of$1.3 million during the three months endedSeptember 30, 2021 compared to$4.2 million during the three months endedSeptember 30, 2020 . The decrease in operating income is primarily attributable to the change in the revenue recognized under the Nestlé's collaboration agreement, as we updated the measurement of progress of the Phase II clinical trial conducted as part of the agreement due to delays in new patient enrollment. The decrease in research tax credit is attributable to the decline of eligible expenses in connection with the decrease in Research and development expenses. Research and Development Expenses The following table summarizes our research and development expenses incurred during the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Research and development expenses 2021 2020 $ change % change External clinical-related expenses 8,633 5,175 3,458 67 % Employee-related costs 3,228 5,876 (2,648 ) (45 %) Share-based payment expenses 933 108 825 *
Depreciation, amortization and other costs 3,526 14,592
(11,066 ) (76 %)Total Research and development expenses 16,320 25,751 (9,430 ) (37 %) *Percentage not meaningful Research and development expenses decreased by$9.4 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , primarily due to a decrease in depreciation, amortization and other costs, as well as in employee-related costs, partially offset by an increase in external clinical-related expenses. The decrease in depreciation, amortization and other costs was primarily due to the decrease in inventory depreciation, as we wrote down any inventories and work in progress to zero pending regulatory approval in the third quarter of 2020 following the CRL received from the FDA.This variation was partially offset by the accrual recorded in the amount of the difference between our current best estimates of costs yet to be incurred and revenues yet to be recognized for the completion of the Phase II clinical trial conducted as part of the Nestlé agreement. Employee-related costs, excluding share-based payment expenses, decreased by$2.6 million for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , due to the workforce reduction we implemented as part of our 2020 global restructuring plan. External clinical-related expenses increased by$3.5 million for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , primarily due to the completion of CHAMP, the initiation of PREQUAL and the preparation of the clinical protocol for STAMP. The share-based payment expenses recognized for the three months endedSeptember 30, 2020 was triggered by the reversal of share-based payment expenses due to employees' departures in the context of our restructuring plan. 22 -------------------------------------------------------------------------------- Table of Contents Sales and Marketing expenses The following table summarizes our sales and marketing expenses incurred during the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, Sales and Marketing expenses 2021 2020 $ change % change External professional services 379 (239 ) 619 (258 %) Employee-related costs 405 2,336 (1,931 ) (83 %) Share-based payment expenses (income) 87 (182 ) 269 (148 %) Depreciation, amortization and other costs 200 (320 ) 520 (163 %) Total Sales and Marketing expenses 1,072 1,595 (524 ) (33 %) Sales and marketing expenses amounted to$1.1 million for the three months endedSeptember 30, 2021 , compared to$1.6 million for the three months endedSeptember 30, 2020 . This decrease was primarily related to a decrease in employee-related costs of$1.9 million due related to the workforce reduction implemented as part of our restructuring plan. General and Administrative expenses The following table summarizes our general and administrative expenses incurred during the three months endedSeptember 30, 2021 and 2020: Three Months Ended September 30, General and Administrative expenses 2021 2020 $ change % change External professional services 2,216 1,663 552 33 % Employee-related costs 2,052 1,571 482 31 % Share-based payment expenses 530 - 531 *
Depreciation, amortization and other costs 3,501 3,629
(128 ) (4 %)
Total General and Administrative expenses 8,299 6,863
1,437 21 % *Percentage not meaningful General and administrative expenses increased by$1.4 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 primarily due to the effect of exchange rates on external professional fees and employee-related costs. The share-based payment expense was nil for the three months endedSeptember 30, 2020 mostly due to employees' departures in the context of our 2020 global restructuring plan. Restructuring expenses We initiated a global restructuring plan inJune 2020 to provide operational latitude to progress in the clinical development and regulatory review of investigational Viaskin ™ Peanut in theUnited States andEuropean Union . For the three months endedSeptember 30, 2021 , our average headcount was 94, compared to 248 for the three months endedSeptember 30, 2020 . As ofSeptember 30, 2021 , we had 92 employees. We expect full implementation of the organization-wide cost reduction measures to be completed in the fourth quarter of 2021. The restructuring costs were mainly comprised of payroll expenses, restructuring-related consulting and legal fees, as well as impairment of facilities and right-of-use assets following resizing of facilities. There were no restructuring costs for three months endedSeptember 30, 2021 . 23 -------------------------------------------------------------------------------- Table of Contents Financial income (expense) Our financial income was$0.3 million for the three months endedSeptember 30, 2021 compared to a financial expense of$1.2 million for the three months endedSeptember 30, 2020 . This item mainly includes foreign exchange income and expenses. Income tax We did not have any income tax profit for the three months endedSeptember 30, 2021 or 2020. Net loss Net loss was$24.0 million for the three months endedSeptember 30, 2021 , compared to$31.0 million for the three months endedSeptember 30, 2020 . Net loss per share (based on the weighted average number of shares outstanding over the period) was$0.44 and$0.56 for the three months endedSeptember 30, 2021 and 2020, respectively. Results of Operations Comparison of the Nine Months EndedSeptember 30, 2021 and 2020 The following table summarizes our results of operations, derived from our condensed consolidated financial statements, which have been prepared in accordance withU.S. GAAP and presented in thousands ofU.S. Dollars, for the nine months endedSeptember 30, 2021 and 2020. Nine months ended September 30, 2021 2020 $ change % change Operating income$ 2,776 $ 12,488 $ (9,713 ) (78 %) Operating expenses Research and development expenses (58,663 ) (75,214 ) 16,551 (22 %) Sales and marketing expenses (2,999 ) (8,114 ) 5,115 (63 %) General and administrative expenses (26,250 ) (26,838 ) 587 (2 %) Restructuring expenses - (21,003 ) 21,003 (100 %) ( Total Operating expenses (87,912 ) (131,169 ) 43,257 33 %) Financial income (expense) 597 (1,380 ) 1,977 (143 %) Income tax 404 (10 ) 414 * Net loss$ (84,136 ) $ (120,071 ) $ 35,935 (30 %) * Percentage not meaningful Operating Income The following table summarizes our operating income during the nine months endedSeptember 30, 2021 and 2020: Nine Months ended September 30, 2021 2020 $ change % change Sales - - Other income 2,776 12,488 (9,713 ) (78 %) Research tax credit 5,324 7,615 (2,291 ) (30 %) Other operating (loss) income (2,549 ) 4,873 (7,422 ) (152 %) Total operating income 2,776 12,488 (9,713 ) (78 %) 24
-------------------------------------------------------------------------------- Table of Contents Our operating income was primarily generated from the French research tax credit ( CIR ) and from revenue recognized under our collaboration agreement with Nestlé Health Science. We generated operating income of$2.8 million during the nine months endedSeptember 30, 2021 , compared to$12.5 million during the nine months endedSeptember 30, 2020 . The decrease in operating income is primarily attributable to the change in the revenue recognized under the Nestlé's collaboration agreement, as we updated the measurement of progress of the Phase II clinical trial conducted as part of the agreement due to delays in new patient enrollment. The decrease in research tax credit is attributable to the decline in eligible expenses in connection with research and development expenses. Research and Development Expenses The following table summarizes our research and development expenses incurred during the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, Research and development expenses 2021 2020 $ change % change External clinical-related expenses 31,319 34,494 (3,175 ) (9 %) Employee-related costs 10,525 18,810 (8,284 ) (44 %) Share-based payment expenses (income) 1,747 (516 ) 2,263 (439 %)
Depreciation, amortization and other costs 15,072 22,427
(7,355 ) (33 %)Total Research and development expenses 58,663 75,214 (16,551 ) (22 %) Research and development expenses decreased by$16.6 million for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily due to a decrease in employee-related costs and depreciation, amortization and other costs, as well as in external clinical-related expenses, offset by an increase in share-based payment expenses. External clinical-related expenses decreased by$3.2 million for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily due to cost containment measures following our 2020 global restructuring plan. Employee-related costs, excluding share-based payment expenses, decreased by$8.3 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 due to the workforce reduction we implemented as part of our 2020 global restructuring plan. The decrease in depreciation, amortization and other costs was primarily due to the decrease in inventory depreciation, as we wrote down any inventories and work in progress to zero pending regulatory approval in the third quarter of 2020 following the CRL received from the FDA.This variation was partially offset by the accrual recorded in the amount of the difference between our current best estimates of costs yet to be incurred and revenues yet to be recognized for the completion of the Phase II clinical trial conducted as part of the Nestlé agreement. The share-based payment income recognized for the nine months endedSeptember 30, 2020 was triggered by the reversal of share-based payment expenses due to employees' departures in the context of our restructuring plan. Sales and Marketing expenses The following table summarizes our sales and marketing expenses incurred during the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, Sales and Marketing expenses 2021 2020 $ change % change External professional services 771 2,881 (2,111 ) (73 %) Employee-related costs 1,282 7,038 (5,757 ) (82 %) Share-based payment expenses (income) 246 (2,052 ) 2,298 (112 %) Depreciation, amortization and other costs 700 246 454 185 % Total Sales and Marketing expenses 2,999 8,114 (5,115 ) (63 %) 25
-------------------------------------------------------------------------------- Table of Contents Sales and marketing expenses decreased by$5.1 million for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily due to a decrease in employee-related costs and external professional services, partially offset by share-based payment expenses. Employee-related costs, excluding share-based payments expenses, decreased by$5.8 million for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 due to the workforce reduction we implemented as part of our 2020 global restructuring plan. External professional services decreased by$2.1 million for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , primarily as a result of budget discipline measures. The share-based payment expense recognized for the nine months endedSeptember 30, 2021 and the income recognized for the nine months endedSeptember 30, 2020 was triggered by the reversal of share-based payment expenses due to employees' departures in the context of our restructuring plan. 26 -------------------------------------------------------------------------------- Table of Contents General and Administrative expenses The following table summarizes our general and administrative expenses incurred during the nine months endedSeptember 30, 2021 and 2020: Nine Months Ended September 30, General and Administrative expenses 2021 2020 $ change % change External professional services 6,425 10,517 (4,092 ) (39 %) Employee-related costs 7,263 7,026 237 3 % Share-based payment expenses (income) 2,084 (397 ) 2,482 625 %
Depreciation, amortization and other costs 10,478 9,693
785 8 %
Total General and Administrative expenses 26,250 26,838
(587 ) (2 %) * Percentage not meaningful General and administrative expenses decreased by$0.6 million for the nine months endedSeptember 30, 2021 compared to the nine months endedSeptember 30, 2020 , primarily due to cost containment measures and decreased external professional fees, partially offset by an increase in share-based payment expenses. The share-based payment expense recognized for the nine months endedSeptember 30, 2021 and the income recognized for the nine months endedSeptember 30, 2020 was triggered by the reversal of share-based payment expense due to employees' departures in the context of our 2020 global restructuring plan. Restructuring expenses We initiated a global restructuring plan inJune 2020 to provide operational latitude to progress the clinical development and regulatory review of investigational Viaskin ™ Peanut in theUnited States andEuropean Union . For the nine months endedSeptember 30, 2021 , our average headcount was 105 compared to 291 for the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2021 , we had 92 employees. We expect full implementation of the organization-wide costs reduction measures to be completed in the fourth quarter of 2021. The restructuring costs were mainly comprised of payroll expenses, restructuring-related consulting and legal fees, as well as impairment of facilities and right-of-use assets following resizing of facilities. There were no restructuring costs for nine months endedSeptember 30, 2021 . Financial income (expense) Our financial income was$0.6 million for the nine months endedSeptember 30, 2021 compared to a financial expense of$1.4 million for the nine months endedSeptember 30, 2020 . This item mainly includes foreign exchange income and expenses. Income tax Our income tax profit was$0.4 million for the nine months endedSeptember 30, 2021 . This income tax profit mainly resulted from US tax refunds. We did not have any income tax profit for the nine months endedSeptember 30, 2020 . Net loss Net loss was$84.1 million for the nine months endedSeptember 30, 2021 , compared to$120.1 million for the nine months endedSeptember 30, 2020 . Net loss per share (based on the weighted average number of shares outstanding over the period) was$1.53 and$2.23 for the nine months endedSeptember 30, 2021 and 2020, respectively. 27
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