Santhera Pharmaceuticals : 2021 Santhera Annual Report

Santhera Annual Report 2021

Financial Key Figures

IFRS consolidated, in CHF thousands	2021	2020
Revenue from contracts with customers	-1,595	15,008
Operating expenses	-51,872	-58,347
Operating result	-56,888	-53,076
Net result	-55,526	-67,659
Basic and diluted net result per share (in CHF)	-1.62	-5.08
Cash and cash equivalents at December 31 *	21,208	12,411
Net change in cash and cash equivalents	8,797	-18,947
* Cash and cash equivalents

Share Price Development in 2021

High	CHF 4.95 (February 10, 2021)
Low	CHF 1.26 (November 29/30, 2021)
Share price performance in 2021	-52.5%
Share price at year-end	CHF 1.33
Market capitalization at year-end	CHF 72 million
Average trading volume	234,362 shares/day
(based on closing share prices)

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Santhera Annual Report 2021

Contents
Letter to Our Shareholders ........................................................................................................................	4
Review of 2021
Last year's events-building the basis for future growth ........................................................................	8
Financial Highlights
Financial performance & financing outlook ...........................................................................................	13
Rare Disease Focus
Our pipeline............................................................................................................................................	16
Neuromuscular
Vamorolone highlights ...........................................................................................................................	17
Santhera and the DMD community
Patients come first, also in unprecedented times..................................................................................	21
Pulmonary
Lonodelestat highlights...........................................................................................................................	22
This is Us
Our vision, our promise, our values .......................................................................................................	24
Meet the team .......................................................................................................................................	25
Consolidated Financial Statements ............................................................................................................	26
Statutory Financial Statements .................................................................................................................	79
Compensation Report ............................................................................................................................	101
Corporate Governance Report .................................................................................................................	117
Addresses .............................................................................................................................................	134
Forward-LookingStatements ..................................................................................................................	135

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Santhera Annual Report 2021

Letter to Our Shareholders

Dear Shareholders,

Our overarching goal for 2021 was to advance our lead therapy candidate vamorolone for Duchenne muscular dystrophy (DMD) towards registration and approval-and we are very pleased to have delivered on key milestones as promised.

Lead pipeline candidate vamorolone on track for expected first market entry in early 2023

Vamorolone is under joint development by ReveraGen and Santhera for Duchenne muscular dystrophy (DMD) patients who require anti-inflammatory and muscle preserving treatment comparable, the current standards of care but with an improved safety and tolerability profile to overcome side effects that often lead to premature treatment discontinuation in real world practice.

This approval stage compound has been designed to engage with the glucocorticoid receptor (GR) to retain the beneficial anti-inflammatory action of glucocorticoid steroids, the standard of care in DMD, but has been specifically engineered to reduce the downstream activation of genes responsible for some of the most important side effects that lead to prematurely discontinuation or require significant medical resources to manage the side effects that also place an increased burden on children and their fam- ilies.

The positive pivotal Phase 2b VISION-DMD study demonstrated statistically significant superiority of vamorolone compared with placebo across multiple efficacy endpoints with 2 doses across a 3-fold dose range but importantly, showed no growth stunting, had no detrimental impact on biomarkers of bone health, fewer and clinically less severe behavioral issues and showed a dose dependent effect on weight gain, Cushing features and adrenal suppression.

Furthermore, recent analyses comparing the long-term efficacy and safety of vamorolone to deflazacort and prednisone, the current standard of care, indicate that vamorolone has comparable efficacy but has a unique bone sparing profile that resulted in no stunting of growth as well as fewer and less severe spinal fractures. This data will shortly be presented at several medical and scientific congresses.

Following a successful pre-NDA meeting with the FDA, Santhera initiated a rolling NDA submission in the U.S. in March 2022 which we expect to complete by the end of June 2022. This truly represents a tremendous milestone for Santhera and an important step for the Duchenne community. We look forward to continuing to work closely with the FDA in the coming months. Commercial launch would start in the U.S., subject to approval which we expect in Q1-2023 at the earliest, followed by Europe where a marketing authorization application (MAA) submission is planned for Q3-2022.

Upon approval, we plan to launch vamorolone in the U.S. and selected European countries with our own organization. We are operating in the rare disease area in which expert guidelines have already established the use of glucocorticoid steroids as a first line standard of care, including recommendations for screening of side effects where vamorolone has unique competitive advantages. In addition, parent of

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Santhera Annual Report 2021

children with DMD as well as young men with this condition typically form advocacy groups that are well informed concerning the latest advancements in the development of emerging therapies. Because patients are usually treated at a limited number of expert reference centers, physicians can be located and targeted efficiently by a small and highly skilled in-house team.

Establishing market readiness and transitioning Santhera to the commercial stage

Following the restructuring in 2020, Santhera used 2021 to embark on the path forward with a focus on preparations for the transition to a commercial stage company. At leadership level, we have made strategic appointments to support the next phase of Santhera's development, including hiring Stephanie Brown as President for North America and Member of the Executive Management team to oversee our U.S. operations as we prepare for potential commercialization. Most recently, Dr. Shabir Hasham has been promoted to Chief Medical Officer and Member of the Executive Management, a key appointment that will strongly support the advancement of our clinical projects by providing medical and regulatory project leadership and oversight.

We expect our workforce to expand in connection with the preparations for a potential launch of vamorolone in DMD in the U.S. and later in the largest European countries and to support our planned development of vamorolone in other indications and clinical development of lonodelestat.

Regulatory clarity and commercial viability of vamorolone paving the way for additional financing

In 2021, we secured up to CHF 42 million (net) in funding, comprised of a CHF 20 million equity financing, a CHF 15 million placement of private convertible bonds and upsizing of an existing financing arrangement of up to CHF 10 million. This supported planned operations through to completion of the rolling NDA filing, scheduled for the end of June. In early 2022, we also repaid our convertible bonds which resulted in a significant reduction in the Company's debt, thereby strengthening the balance sheet. On June 2, we announced the partial deferral of an upcoming milestone payment to partner ReveraGen and an upsizing of an existing financing arrangement with Highbridge Capital. The agreements reduce near-term liquidity needs by USD 20 million and is expected to provide additional funds of up to USD 40 million, extending cash reach into Q1-2023 or up to the approval of vamorolone in the U.S., anticipated in Q1-2023 subject to priority review being granted.

Financing continues to remain a priority. Several of our financing options have been hampered by the strong market downturn and the crisis owing to the war in Europe. The XBI Biotech index, representing the biotechnology segment of the S&P Total Market Index, has lost nearly two thirds in value1 since its peak and the aggregate enterprise value of the world's biotech sector is down 72% over the same time span 2. This has led to hesitation on the part of potential investors to invest, however, feedback from our close interactions with the financial community indicates that our long-term value creation starts to be recognized.

1. Decline of 61% between its peak on February 8, 2021 and May 13, 2022
2. Enterprise value defined as market capitalization plus total debt minus cash and cash equivalents. Source: CapitalIQ and Torreya Analysis, May 16, 2022
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