UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
EXCHANGE ACT OF 1934
OR
ACT OF 1934
For the fiscal year ended
OR
ACT OF 1934
OR
EXCHANGE ACT OF 1934
Date of event requiring this shell company report:
For the transition period from to
Commission file number:
(Exact name of Registrant as specified in its charter)
The
(Jurisdiction of incorporation or organization)
(+49) 381 80113 500
(Address of principal executive offices)
Chief Executive Officer
Tel: (
Email:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
The number of outstanding common shares as of December 31, 2023 was:
Title of each class |
| Number of Shares Outstanding as of December 31, 2023 |
Common shares, par value of EUR 0.12 per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ |
| Accelerated Filer ☐ |
|
| Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards* provided pursuant to Section 13(a) of the Exchange Act. ☐
* The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial .
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☐ U.S. GAAP
☒
☐ Other
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17 ☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
TABLE OF CONTENTS
Page | ||
4 | ||
4 | ||
4 | ||
4 | ||
65 | ||
107 | ||
107 | ||
125 | ||
138 | ||
140 | ||
142 | ||
142 | ||
161 | ||
162 | ||
163 | ||
163 | ||
Material Modifications to the Rights Of Security Holders and Use Of Proceeds | 163 | |
163 | ||
165 | ||
165 | ||
165 | ||
165 | ||
166 | ||
Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 166 | |
166 | ||
166 | ||
166 | ||
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 166 | |
166 | ||
167 | ||
Disclosure under Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) | 169 | |
169 | ||
169 | ||
169 | ||
170 | ||
i
CERTAIN DEFINITIONS
Except otherwise indicated and except where the context otherwise requires, references in this Annual Report on Form 20-F to:
“Centogene”, the “Company”, the “Group”, “we”, “our”, “ours”, “us” or similar terms |
| are to Centogene N.V. or Centogene N.V. together with its subsidiaries, as the context may require; |
“Exchange Act” | are to the United States Securities Exchange Act of 1934, as amended; | |
“FDA” | are to the United States Food and Drug Administration; | |
“IASB” | are to International Accounting Standards Board; | |
“IFRS” | are to International Financial Reporting Standards; | |
“SEC” | are to the United States Securities and Exchange Commission; | |
“Securities Act” | are to the Securities Act of 1933, as amended; | |
“€”, “EUR” and “euro” | are to the European currency Euro; | |
“$,” “USD,” “US$” and “U.S. dollar” | are to the United States dollar; and | |
“SAR” | are to the Saudi Riyal. |
PRESENTATION OF FINANCIAL INFORMATION
We report under International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (the “IASB”). We present our consolidated financial statements in accordance with IFRS. We have made rounding adjustments to some of the figures included in this Annual Report. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
Our financial statements included in this Annual Report are presented in Euro and, unless otherwise specified, all monetary amounts are in Euro. All references in this Annual Report to “$”, “U.S. dollars” and “dollars” means U.S. dollars and all references to “€”, “Euro” and “EUR” mean Euro, unless otherwise noted.
In this Annual Report, unless otherwise indicated, some Euro amounts as of December 31, 2023, have been translated into U.S. dollars at the official exchange rate quoted by the European Central Bank. For information on the exchange rate used for the Group’s consolidated financial statements as of December 31, 2023, and 2022 and for the three years ended December 31, 2023 and 2022 and 2021, included in this Annual Report, please see “Note 5(a)—Foreign currency and currency translations” to such financial statements.
USE OF TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We have proprietary rights to trademarks, trade names and service marks used in this Annual Report on Form 20-F that are important to our business, many of which are registered under applicable intellectual property laws. CENTOGENE™ is our main trademark. The trademarks, trade names and service marks appearing in this Annual Report are property of their respective owners. Solely for convenience, the trademarks and trade names in this Annual Report are referred to without the symbols ® and ™, but such references should not be construed as any indication that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks, trade names or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
FORWARD-LOOKING STATEMENTS
This Annual Report contains statements that constitute forward-looking statements. All statements other than present and historical facts and conditions contained in this Annual Report, including statements regarding our future results of operations and financial position, business strategy, plans and our objectives for future operations, are forward-looking statements. When used in this Annual Report, the words “anticipate,” “believe,” “can,” “could,” “estimate,” “expect,” “intend,” “is designed to,” “may,” “might,” “plan,” “potential,” “predict,” “objective,” “should,” or the negative of these and similar expressions identify forward-looking statements.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially from those
1
expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified under “Item 3. Key Information—D. Risk Factors” in this Annual Report. These risks and uncertainties include factors relating to:
| ● | our ability to generate cash from operations and attract financing; |
| ● | failure to meet covenants in our debt agreements that could result in acceleration of our payment obligations, limit our operating and financial flexibility and in an event of default, result in losses to the assets securing our debt obligations; |
| ● | our strategic restructuring initiative and the related restructuring cost; |
| ● | our ability to effectively manage our future growth and to execute our business strategy; |
| ● | our ability to generate sufficient revenue from our relationships with our pharmaceutical partners and clients, and to otherwise maintain our current relationships, or enter into new relationships, with pharmaceutical partners and clients; |
| ● | economic, political or social conditions and the effects of these conditions on our pharmaceutical partners’ and diagnostics clients’ businesses and levels of business activity; |
| ● | the effects of pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic on our business and results of operations; |
| ● | our expectations for our products and solutions achieving commercial market acceptance, and our ability to keep pace with the rapidly evolving industry in which we operate; |
| ● | our assumptions regarding market size in the rare disease industry and our growth potential; |
| ● | our pharmaceutical partners’ and clients’ need for rare disease information products and solutions and any perceived advantage of our products over those of our competitors; |
| ● | our ability to manage our international expansion, including our exposure to new and complex business, regulatory, political, operational, financial, and economic risks, and numerous and conflicting legal and regulatory requirements; |
| ● | our continued reliance on our senior management team and other qualified personnel and our ability to retain such personnel; |
| ● | our ability to obtain, maintain, protect and enforce sufficient patent and other intellectual property protection for any products or solutions we develop and for our technology; |
| ● | the ongoing protection of our trade secrets, know-how, and other confidential and proprietary information; |
| ● | our ability to remediate our material weaknesses in internal control over financial reporting; |
| ● | general economic, political, demographic and business conditions in North America, the Middle East, Europe and other regions in which we operate; |
| ● | changes in government and industry regulation and tax matters; |
| ● | other factors that may affect our financial condition, liquidity and results of operations; |
| ● | our ability to comply in the future with all of Nasdaq continued listing standards and rules governing the diversity of our board of directors; and |
| ● | our ability to regain compliance in the future with all of Nasdaq´s listing requirements. |
2
| ● | other risk factors discussed under “Item 3. Key Information—E. Risk Factors.” |
You should refer to the section of this Annual Report titled “Item 3. Key Information—D. Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
ENFORCEMENT OF JUDGMENTS
We are organized and existing under the laws of the Netherlands, and, as such, under Dutch private international law rules the rights of our shareholders and the civil liability of our directors and executive officers are governed in certain respects by the laws of the Netherlands. The ability of our shareholders in certain countries other than the Netherlands to bring actions against us, our directors and executive officers may be limited under applicable law. In addition, substantially all of our assets are located outside the United States.
As a result, it may not be possible for investors to effect service of process within the United States upon us or our directors and executive officers or to enforce against them or us in United States courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. In addition, it is not clear whether a Dutch court would impose civil liability on us or any of our directors and executive officers in an original action based solely upon the federal securities laws of the United States brought in a court of competent jurisdiction in the Netherlands.
As of the date of this Annual Report, there is no treaty in effect between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. It is noted that, on the date of this Annual Report, the Hague Convention on Choice of Court Agreements of June 30, 2005 has entered into force for the Netherlands, but has not entered into force for the United States. The Hague Convention of July 2, 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters has not entered into force for either the Netherlands or the United States. Accordingly, a judgment rendered by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to such judgment if (i) the jurisdiction of the U.S. court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the U.S. court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such U.S. judgment is not contrary to Dutch public order (openbare orde) and (iv) the judgment by the U.S. court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a U.S. judgment is given binding effect, a claim based thereon may, however, still be rejected if the U.S. judgment is not or no longer formally enforceable. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Dutch court may reduce the number of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering).
Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or our directors, representatives or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
The United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Germany. German courts may deny the recognition and enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision to be in violation of German public policy principles. For example, judgments awarding
3
punitive damages are generally not enforceable in Germany. A German court may reduce the number of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages.
In addition, actions brought in a German court against us, our management board and supervisory board and the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. In particular, German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. German procedural law does not provide for pre-trial discovery of documents, nor does Germany support pre-trial discovery of documents under the 1970 Hague Evidence Convention. Proceedings in Germany would have to be conducted in the German language and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us, our management board and supervisory board and the experts named in this Annual Report.
PART ONE
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable
Item 2. Offer Statistics and Expected Timetable
Not applicable
Item 3. Key Information
A.[Reserved]
B.Capitalization and Indebtedness
Not applicable
C.Reason for the Offer and Use of Proceeds
Not applicable
D. Clawback Policy
The company has approved the clawback policy as mandated by the SEC pursuant to the Dodd-Frank Act.
This Policy (i) provides for the recoupment of certain Incentive Compensation in the event of a Financial Restatement resulting from material noncompliance with financial reporting requirements under U.S. federal securities laws and (ii) reflects certain Dutch legal provisions relating to the recoupment and/or adjustment of a Bonus from Managing Directors under certain circumstances defined by Dutch law, each in accordance with the terms and conditions set forth herein. This Policy is intended to comply with the requirements of Section 10D of the Exchange Act.
4
E.Risk Factors
Summary Risk Factors
In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in our industry and others of which are more specific to our own businesses. The discussion below addresses the material factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition and make an investment in the Company speculative or risky. Some of these risks include:
Certain Factors Relating to Our Business and Strategy
| ● | Our strategic restructuring initiative may not achieve intended benefits and the related restructuring cost could have a material adverse effect on our business and results of operations. |
| ● | We may fail to generate sufficient revenue from our relationships with our clients or pharmaceutical partners to achieve and maintain profitability. |
| ● | Many events beyond our control, including geopolitical events, may adversely affect our business. |
| ● | We may fail to maintain our current relationships with pharmaceutical companies or enter into new relationships on a similar scale. |
| ● | Difficulty in successfully identifying patients for our pharmaceutical partners due to relatively small patient populations for rare diseases. |
| ● | We may fail to generate sufficient volumes of data from our diagnostic tests for inclusion in our data repository. |
| ● | Volatile, negative or uncertain economic, political or social conditions and the effects of these conditions on our pharmaceutical partners’ and diagnostics clients’ businesses and levels of business activity. |
| ● | We derive a large proportion of our revenues and equipment from agreements with a limited number of pharmaceutical partners and suppliers, respectively. |
| ● | Restrictions or delays in the receipt of patient samples to our laboratories for diagnostic testing. |
| ● | Substantial product liability or professional liability claims that could exceed our resources. |
| ● | Challenges to patient consent validity could impede our rare disease information development efforts. |
| ● | Interruption of access or damage to our highly specialized laboratory facilities, storage facilities or equipment. |
| ● | Pandemics, epidemics, disease outbreaks and other public health crises, could materially adversely impact our business, financial condition, liquidity, and results of operations. |
| ● | Failure in our information technology systems. |
| ● | We rely on a limited number of suppliers, or, in some cases, a sole supplier, for some of our laboratory equipment and may not be able to find replacements or immediately transition to alternative suppliers. |
| ● | Inability to attract and retain new talent, including members of our senior management team. |
| ● | New and complex business, regulatory, political, operational, financial, and economic risks as a result of international business expansion. |
| ● | Unanticipated difficulties involved in the implementation of partnership agreements with our pharmaceutical partners. |
| ● | Failure to achieve or maintain sales of our products and solutions. |
| ● | Failure to manage our future growth effectively, which could make it difficult to execute our business strategy. |
| ● | Inability to successfully commercialize new products or solutions on a timely basis or at all. |
| ● | Failure to expand our direct sales and marketing force to adequately address our pharmaceutical partners’ and clients’ needs. |
| ● | The knowledge and interpretation-based solutions we provide to our pharmaceutical partners may not achieve significant commercial market acceptance. |
| ● | Failure to keep pace with the rapidly evolving industry in which we operate. |
| ● | We may fail to successfully respond to increasing demand for our products and solutions. |
| ● | Failure to obtain favorable pricing for our products and to meet our profitability expectations. |
| ● | Ethical, legal and social concerns related to the use of genomic information could reduce demand for our genetic rare disease knowledge and interpretation-based products and solutions. |
| ● | Our resource allocation decisions may lead us to focus on research and development programs that are not commercially viable, and as a result we may be unable to recover the costs incurred under these efforts. |
| ● | Failure to compete successfully with competitors, including new entrants in the market. |
| ● | If our pharmaceutical partners experience any of a number of possible unforeseen events in connection with their clinical trials, our ability to commercialize future solutions or improvements to existing solutions could be delayed or prevented. |
5
| ● | Our employees, principal investigators, consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements, insider trading, misappropriation of trade secrets and wrongful use or disclosure of confidential information. |
| ● | We may lose the support of key thought leaders and fail to establish our products and solutions as a standard of care for patients with rare and neurodegenerative diseases. |
| ● | Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation. |
| ● | We are subject to significant foreign currency exchange controls in certain countries in which we operate. |
| ● | We may acquire assets or other businesses that could negatively affect our operating results, dilute our shareholders’ ownership, or increase our debt. |
| ● | We may enter into joint ventures with third parties, which may subject us to various risks, including limited decision-making authority, reliance on our joint venture partners’ financial condition and the risk of disputes with our joint venture partners, which could adversely affect us. |
| ● | Regulatory risks including as a result of conflicting requirements, regulatory changes in the way that the FDA and the European Union regulate laboratory developed tests, non-compliance with FDA and EMA regulatory requirements and with evolving European and other data privacy laws, violations of worldwide anti bribery laws, and our inability to obtain timely regulatory approvals or adhere to regulations regarding our products and solutions. |
| ● | We may fail to achieve coverage or adequate reimbursement for our products and solutions by commercial third-party payors or government payors. |
| ● | Inspections, reviews, audits and investigations under federal and state government programs and contracts and health insurance providers regarding our billing practices. |
| ● | We may fail to successfully execute our contractual obligations associated with the establishment of our Joint Venture agreement. |
| ● | Being subject to significant foreign currency exchange controls, we may incur financial loss as the milestone related payments stipulated in our Joint Venture agreement are denominated in Saudi Riyal. |
Intellectual Property Risks Related to Our Business
| ● | Inability to obtain and maintain patent and other intellectual property protection for any products or solutions we develop and for our technology, allowing our competitors to develop and commercialize products and solutions similar or identical to ours. |
| ● | Additional intellectual property risks, including our inability to protect the confidentiality of our trade secrets, know how, and other confidential and proprietary information, the unenforceability of our patents and intellectual property rights, third party claims of intellectual property infringement or commercial rights to inventions we develop, non-compliance with patent agency requirement and dependence on licenses granted to us by others. |
Risks Relating to Our Financial Condition and Capital Requirements
| ● | We have a history of losses, and we may incur losses in the future. |
| ● | We will require additional funding, which may not be available to us in the desired amount, at the desired time or on acceptable terms, or at all. |
| ● | Failure to obtain additional capital to fund, develop and expand our operations. |
| ● | We may fail to meet covenants in our debt agreements, which could result in acceleration of our payment obligations under our debt agreements, limit our operating and financial flexibility and in an event of default, result in losses to the assets securing our debt obligations. |
| ● | Increasing our financial leverage could affect our operations, profitability, and ability to raise additional capital. |
| ● | We may be required to refund grants and subsidies and may fail to meet covenants under loan facilities. |
| ● | Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates. |
| ● | We have identified three material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate our material weaknesses or establish and maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or to prevent fraud, and such failure could cause investors to lose confidence in our reported financial and other public information and have a negative effect on the trading price of our common shares. |
6
Certain Factors Relating to Our Common Shares
| ● | Risks relating to our common shares, including fluctuations in our share price, risk of dilution upon future issuances, multi-jurisdictional tax consequences, impacts of our Dutch public company status (including differing shareholder rights), risks resulting from our emerging growth company and foreign private issuer status, our non-payment of dividends and our broad discretion in the use of our cash on hand. |
| ● | We may in the future not comply with all of Nasdaq’s continued listing standards and our common shares could be delisted. |
| ● | We may not in the future regain compliance with all of Nasdaq´s listing requirements. |
| ● | Failure to comply with Nasdaq’s rules governing the diversity of our board of directors. |
| ● | Although not free from doubt, we do not believe that we were a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes for 2023, there is a significant risk that we may be a PFIC for 2023 or one or more future taxable years. If we are a PFIC for any taxable year, U.S. shareholders may be subject to adverse U.S. federal income tax consequences. |
Additional factors discussed below could affect our business, prospects, financial condition, and results of operations. You should carefully consider the following risks and uncertainties and all the other information in this Annual Report before making any investment decision. Our business, financial condition or results of operations could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common shares could decline, and you could lose all or part of your investment. The risks described below are those that we currently believe may materially affect us. We may face additional risks and uncertainties not currently known to us or that we currently deem to be immaterial.
Certain Factors Relating to Our Business and Strategy
Our strategic restructuring initiative may not achieve intended benefits and the related restructuring cost could have a material adverse effect on our business and results of operations.
During 2023, the Group has embarked upon a company wide transformation that is already reflecting positive progression of revenues. Concurrently, we are continuing to reflect significant reductions in our general expenses aiming to extend our cash runway. This transformation is accentuated with further savings while boosting the selling resources dedicated to our Pharmaceutical segment.
We are pursuing a number of additional restructuring initiatives that could extend our cash runway until our operating cash flows reach break-even.
The process to undertake these restructuring initiatives could take more time and be more costly than anticipated, and we may not be able to obtain the anticipated operational improvements within the contemplated timing or at all. The restructuring initiatives could also place substantial demands on our management, which could lead to the diversion of management’s attention from other business priorities. Further, the restructuring may yield unintended consequences such as attrition beyond our targeted workforce reduction. The Company’s success is dependent on the skills of our key personnel. Our restructuring plan involving workforce reduction may lead to an unintended loss of experienced employees or know-how. The loss of any member of our key personnel and actual or threatened work slowdowns or stoppages could lead to operational delays or cost increases. In addition, if we reduce or
eliminate some or all of our research and development programs, this could cause significant delays in our preclinical, clinical and
regulatory efforts, which could adversely affect our business prospects. If these incidents occur or if we are unable to attract, retain and maintain productive relations with our employees and key professionals, we might fail to deliver under existing commitments to third parties, which could harm our business and negatively affect our operating results and financial condition.
7
We may fail to generate sufficient revenue from our relationships with our clients or pharmaceutical partners to achieve and maintain profitability.
We believe our commercial success is dependent upon our ability to successfully market and sell our products and solutions to clients and pharmaceutical partners, to continue to sell our suite of diagnostic tests, to continue to expand our current relationships and to develop new relationships with pharmaceutical partners. The demand for our existing services may decrease or may not continue at historical rates for several reasons, including, among others, the development by competitors of new products or solutions that we are not able to commercialize, and increased competition from companies that offer similar products and solutions. In addition to reducing our revenue, if our pharmaceutical partners or clients decide to decrease or discontinue their partnerships or relationships with us, and their use of our knowledge and interpretation-based solutions, this may reduce our access to research and patient data that facilitates the incorporation of new information about rare or neurodegenerative diseases into the Centogene Biodatabank. Our business model and strategy depend on the continued input of new data into our repository, and any such reduction in access to research and patient data could affect our ability to offer the same quality and scope of solutions to our pharmaceutical partners and other clients, which could adversely affect our business, prospects, financial condition, and results of operations. We are currently not profitable. Even if we succeed in increasing adoption of our existing solutions by pharmaceutical partners or tests by our clients or pharmaceutical partners, we may fail to generate sufficient revenue to achieve and maintain profitability.
Many events beyond our control, including geopolitical events, may adversely affect our business.
Many events beyond our control can adversely affect the healthcare industry, with a corresponding negative impact on our business and results of operations. Our operations and those of our third-party suppliers and collaborators could be subject to power shortages, telecommunications failures, water shortages, floods, hurricanes, earthquakes or other extreme weather conditions, medical epidemics, labor disputes, war, or other business interruptions. Although we have limited business interruption insurance policies in place, any interruption could come with high costs for us, as salaries and loan payments would usually continue. Moreover, any interruption could seriously harm our ability to timely proceed with our diagnostics, pharmaceutical collaborations, and research activities.
For example, the ongoing conflict between Russia and Ukraine, and the Middle East conflict have significantly disrupted supply chains and international trade. Following Russia’s invasion of Ukraine in February 2022, and the Middle East conflict started in October 2023, the United States, the United Kingdom, the European Union and other countries and supra-national entities have imposed comprehensive economic sanctions to Russia and Syria. The effects of the ongoing conflicts and global economy remains uncertain. However, they have resulted in significant volatility in financial markets, as well as an increase in energy and commodity prices globally.
While our business and operations are currently not significantly impacted, it is not possible to predict the broader or longer-term consequences of the conflicts. If the armed conflicts were to spread to other countries in Europe, we may incur significant costs associated with assisting our employees with relocating to neighboring countries or providing other forms of aid. We may also lose clients or experience other disruptions of our business activities in the impacted regions.
Other consequences of the conflicts could include further sanctions, embargoes, regional instability, geopolitical shifts and adverse effects on macroeconomic conditions, security conditions, currency exchange rates and financial markets. Such geopolitical instability and uncertainty could have a negative impact on our ability to conduct ongoing and future Diagnostics activities, Pharmaceutical collaborations, and research programs in certain regions. This could be due to trade restrictions, embargoes and export control law restrictions, and logistics restrictions, which could increase the costs, risks and adverse impacts from supply chain and logistics challenges. There can be no assurance that the Russia-Ukraine conflict, including any resulting sanctions, export controls or other restrictive actions, will not have a material adverse impact on our future operations and results.
In addition, increases in inflation may have an adverse effect on our business. Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies as well as the ongoing military conflicts. Continuing increases in inflation could impact the overall demand for our products, our costs for labor, material and services, and the margins we are able to realize on our products and services, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
8
We may fail to maintain our current relationships with pharmaceutical companies, or enter into new relationships on a similar scale.
Our success in the future depends in part on our ability to maintain relationships and to enter into new relationships with pharmaceutical partners. Partnerships are complex and time-consuming to negotiate and document. Whether we reach a definitive agreement for a partnership will depend on a number of factors, including, among other things, upon our partners’ assessment of our industry knowledge, data repository, logistical resources and expertise, the terms and conditions of the proposed partnership, and our partners’ evaluation of the potential value added from our rare and neurodegenerative disease knowledge and insights. If we are unable to do so, we may have to curtail our research on a particular rare or neurodegenerative disease or increase our expenditures and undertake research and development activities at our own expense. Further, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future partners.
Our ability to maintain our current relationships with our pharmaceutical partners, or enter into new relationships, can be difficult due to several factors, including that:
| ● | our products and solutions are focused towards facilitating the development of rare disease treatments which limits our market to pharmaceutical partners active in the rare and neurodegenerative disease space; |
| ● | orphan drug development is complex, expensive and time-consuming due to limited identified patient populations and limited industry knowledge of rare diseases; |
| ● | our pharmaceutical partners may decide to decrease or discontinue their use of our rare and neurodegenerative disease information platform due to circumstances outside of our control, including changes in their research and development plans, whether they can obtain positive data or regulatory approval in clinical trials or successfully commercialize a treatment, changes in the regulatory environment, or utilization of internal testing resources or genetic or other tests performed by other parties, among others; |
| ● | internal and external constraints may be placed on potential pharmaceutical partners that can limit the number and type of relationships with companies like us they can consider and consummate; and |
| ● | our pharmaceutical partners may be dissatisfied with our products or solutions or that we may fail to deliver expected benefits from our products or solutions. |
If we fail to maintain our current relationships with our pharmaceutical partners, or enter into new partnerships, our business could suffer.
Because the identified patient populations for rare diseases are relatively small, it may be difficult to successfully identify patients for our pharmaceutical partners.
Our inability to identify a sufficient number of patients for our partners’ clinical trials could result in significant delays and could require our partners to abandon one or more clinical trials altogether. Enrollment delays in our partners’ clinical trials may result in increased development costs for our partners’ drug candidates, which would cause the value of the solutions which we offer to our pharmaceutical partners to decline. If we are unable to identify patients with a specified driver of disease or applicable genomic alteration, this could compromise our ability to add value to our partners’ clinical trials by accelerating clinical development and regulatory timelines. In addition, our projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our partners’ existing treatments or drug candidates, are based on our internal estimates derived from data in the CENTOGENE Biodatabank. These estimates may prove to be incorrect, and new studies may reduce the estimated incidence or prevalence of these diseases. The number of patients in the United States, European Union and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our partners’ drug candidates or may be difficult to identify and access, all of which would adversely affect our business, prospects and ability to achieve or sustain profitability.
We may fail to generate sufficient volumes of data from our diagnostic tests for inclusion in the CENTOGENE Biodatabank.
Our business model assumes that we will be able to continue to generate significant diagnostic test volume to maintain the generation of data that feeds into the CENTOGENE Biodatabank, which is necessary for the development of new products and
9
solutions for our pharmaceutical partners and clients. We may not succeed in continuing to drive clinical adoption of our tests to achieve sufficient volumes. Inasmuch as detailed genetic or other data from our tests have only recently become available at relatively affordable prices, the pace and degree of clinical acceptance of the utility of such testing is uncertain. Specifically, it is uncertain how much genetic or other data will be accepted as necessary or useful, as well as how detailed that data should be, particularly since medical practitioners may have become accustomed to genetic or other testing that is specific to one or a few genes. To generate demand for our tests, we will need to continue to make our diagnostics clients, as well as physicians and key opinion leaders, aware of the benefits of our tests, including the price, the breadth of our testing options, and the benefits of having additional genetic or other data available from which to make treatment decisions. In addition, physicians in other areas of medicine may not adopt genetic or other testing for certain rare diseases as readily as it has been adopted for some more well-known rare diseases and our efforts to sell our tests to physicians outside of a set number of rare diseases may not be successful. A lack of or delay in increased clinical acceptance of our diagnostic tests would negatively impact sales and market acceptance of our tests and limit our ability to expand on the scope and quality of knowledge and interpretation-based solutions offered to our pharmaceutical partners, which could in turn impact our revenue growth and potential profitability.
In addition, genetic or other testing is still relatively expensive, and many potential pharmaceutical partners and clients may be sensitive to pricing concerns. Potential pharmaceutical partners or clients may not adopt our tests if adequate reimbursement is unavailable, or if we are not able to maintain low prices in the future relative to our competitors. If we are not able to generate demand for our tests at sufficient volumes, or if it takes significantly more time to generate this demand than we anticipate, our business, prospects, financial condition, and results of operations could be materially harmed.
We may be adversely affected by volatile, negative or uncertain economic, political or social conditions and the effects of these conditions on our pharmaceutical partners’ and diagnostics clients’ businesses and levels of business activity.
Global economic conditions affect our pharmaceutical partners’ and diagnostic clients’ businesses and the markets they serve, and volatile, negative or uncertain economic conditions may have an adverse effect on our revenue growth and profitability. Volatile, negative or uncertain economic conditions in our significant markets, in particular in our North America, Middle East or European regions, where we generated 42.7% and 15.9%, respectively, of our total revenues for the year ended December 31, 2023, could undermine business confidence, both in those markets and other markets, and cause our pharmaceutical partners or clients to reduce or defer their spending on new technologies or initiatives or terminate existing contracts, which would negatively affect our business. Growth in the markets we serve could be at a slow rate, or could stagnate, for an extended period of time. Differing economic conditions and patterns of economic growth and contraction in the geographical regions in which we operate and the industries we serve may affect demand for our products and solutions. Weakening in these markets as a result of high government deficits, credit downgrades or otherwise could have a material adverse effect on our results of operations. Ongoing economic volatility and uncertainty affects our business in a number of other ways, including making it more difficult to accurately forecast partner demand beyond the short term and effectively build our revenue and resource plans, particularly given the iterative nature of the negotiation of new contracts with our pharmaceutical partners. This could result, for example, in us not having the level of appropriate personnel where they are needed and could have a significant negative impact on our results of operations.
In addition, global capital markets have continued to display increased volatility in response to global events, including the Russian invasion of Ukraine as well as the hostilities in the Middle East. Future crises may be precipitated by any number of causes, including natural disasters, epidemics, geopolitical instability and war, changes to energy prices or sovereign defaults. Any sudden or rapid destabilization of global economic conditions could negatively impact our ability to obtain new equity or debt financing or make other suitable arrangements to finance our operations. If increased levels of volatility continue or in the event of a rapid destabilization of global economic conditions, including as a result of an escalation of the mentioned conflicts, it may result in a material adverse effect on the Company and the trading price of the Company’s common shares could be adversely affected.
Furthermore, increases in inflation may have an adverse effect on our business. Current and future inflationary effects may be driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies as well as the ongoing military conflict between Russia and Ukraine as well as possible future escalation in the Middle East crises. Continuing increases in inflation could impact the overall demand for our products, our costs for labor, material and services, and the margins we are able to realize on our products, all of which could have an adverse impact on our business, financial position, results of operations and cash flows.
Moreover, acts of terrorist violence, political unrest, armed regional and international hostilities and responses to these hostilities, natural disasters, global health risks or pandemics or the threat of or perceived potential for these events could have a negative impact on us. These events could adversely affect our pharmaceutical partners’ levels of business activity and precipitate sudden significant changes in regional and global economic conditions and cycles. These events also pose significant risks to our
10
people and to physical facilities and operations around the world, whether the facilities are ours or those of our distributors, pharmaceutical partners or physicians that utilize our diagnostic testing services. By disrupting communications and travel and increasing the difficulty of obtaining and retaining highly skilled and qualified personnel, these events could make it difficult or impossible for us to deliver products and solutions to our clients and pharmaceutical partners. Extended disruptions of electricity, other public utilities or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could also adversely affect our ability to serve our clients and pharmaceutical partners. We might be unable to protect our people, facilities and systems against all such occurrences. We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts and wars. If these disruptions prevent us from effectively serving our clients and pharmaceutical partners, our results of operations could be adversely affected.
We derive a large proportion of our revenues from agreements with a limited number of pharmaceutical partners and clients.
We have historically earned a large proportion of our revenue from a limited number of pharmaceutical partners and diagnostic testing clients. In the years ended December 31, 2023 and 2022, our top five pharmaceutical partners, in the aggregate, accounted for 26.7% and 29.8% of our revenues, respectively. The loss of, or material reduction in, revenues from any one of our major pharmaceutical partners or clients could materially reduce our total revenues, harm our reputation in the industry and/or reduce our ability to accurately predict our revenue, net income and cash flow. The loss of, or material reduction, in revenue from any one of our major pharmaceutical partners or clients could also adversely affect our gross profit and utilization as we seek to redeploy resources previously dedicated to that partner. We cannot assure you that revenue from our major pharmaceutical partners or clients will not be significantly reduced in the future. We also may not be able to maintain our relationships with our major pharmaceutical partners or clients on existing or on continued favorable terms and our major pharmaceutical partners or clients may not renew their agreements with us, in which case our business, financial condition and results of operations would be adversely affected.
In particular, during the year ended December 31, 2023, our collaboration with Takeda Pharmaceutical Company Limited, represented 12.6% of our total revenues (2022: 15.5%). We expect that our collaboration with Takeda will continue to account for a material portion of our revenue in 2024. The revenue attributable to Takeda may fluctuate in the future, which could have an adverse effect on our financial condition and results of operations. In addition, changes in the terms of our agreements with Takeda, or a modification or termination of our relationship with Takeda, could result in delays in the receipt of revenue by us, or a temporary or permanent loss of revenue to us. In addition, certain pharmaceutical companies, including those with which we currently have agreements, may choose not to do business with us or may seek out other partners for genetic rare disease information due to our strategic collaboration with Takeda, particularly if they are actual or potential competitors with Takeda. If we are unable to continue to grow our business with other pharmaceutical companies, our business and results of operations would be adversely affected.
Our client concentration may also subject us to perceived or actual leverage that our pharmaceutical partners or clients may have, given their relative size and importance to us. If our pharmaceutical partners or clients seek to negotiate their agreements on terms less favorable to us and we accept such unfavorable terms, this may have a material adverse effect on our business, financial condition and results of operations. Accordingly, unless and until we diversify and expand our client base, our future success will significantly depend upon the timing and volume of business from our largest pharmaceutical partners and clients and the financial and operational success of these pharmaceutical partners and clients.
We may face restrictions or delays in the receipt of patient samples to our laboratory for diagnostic testing.
Our business depends on our ability to receive samples quickly and reliably from physicians. Our proprietary, CE-Marked dried blood spot (DBS) collection kit, CentoCard®, is typically sent from locations worldwide to our laboratory in Rostock, Germany. Disruptions in delivery, whether due to factors beyond our control such as natural disasters, pandemics, terrorist threats, political instability, wars, governmental policies, failures by physicians to properly label or package the samples, failure by postage services, labor disruptions, bad weather or other factors could adversely affect the receipt by us of samples or specimen integrity and could impact our ability to process samples in a timely manner and to provide our services to our clients and pharmaceutical partners. There is a general trend in certain countries, for example in China, Saudi Arabia and certain countries in South America, where policies have been introduced or are under consideration that restrict the processing of genetic or other testing outside the country in which the patient is located. This could disrupt the transportation of samples to our testing from such countries and could adversely impact our current business operations or prevent us from expanding into certain new regions.
In addition, the majority of our samples are delivered to us via regular postal services worldwide. If such services are disrupted, or if we are unable to continue to obtain expedited delivery services or specialized delivery services for certain products, such as our prenatal algorithmic test, on commercially reasonable terms, our operating results may be adversely affected.
11
We may become subject to substantial product liability or professional liability claims that could exceed our resources.
The marketing, sale and use of our products and solutions could lead to the filing of product liability claims if someone were to allege that our products and solutions identified inaccurate or incomplete information regarding the diagnostic information of the disease indication analyzed, reported inaccurate or incomplete information concerning the available treatments for a certain type of rare or neurodegenerative disease or otherwise failed to perform as designed. For example, we have been subject to a claim from a client that our prenatal diagnostic test conducted at their request failed to identify a specific mutation present in a patient. See “Item 4. Information On the Company—B. Business Overview—Legal Proceedings” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” We may also be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon, the information we provide in the ordinary course of our business activities. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.
Our service and professional liability insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims. Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could damage our reputation or cause current clients or pharmaceutical partners to terminate existing agreements and potential clients or pharmaceutical partners to seek other partners, any of which could impact our results of operations.
If the validity of a consent from a patient was challenged, we could be forced to stop using certain data resources, which would impede our rare and neurodegenerative disease information development efforts.
We provide diagnostic testing services to patients of our pharmaceutical partners and diagnostics clients worldwide. We also provide products and solutions, including biomarker development and testing, to our pharmaceutical partners. Such products and solutions involve the aggregation of data obtained from patients in our existing data repository and data obtained from new tests conducted both on patients whose samples remain in our biobank or new patients from whom we collect samples.
To a large extent, we also rely upon our pharmaceutical partners, our clients and, in some cases, third-party laboratories to collect the subjects’ informed consent and comply with applicable local laws and international regulations. Although we maintain policies and procedures designed to monitor the collection of consent by both us and such third parties, we or third parties may not obtain the required consent in a timely manner, or at all. In addition, consent that we have obtained or will obtain may not meet the existing or future standards required by relevant governmental authorities.
The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of consent and the status of genetic material under many different legal systems. In some jurisdictions, samples that contain a person’s DNA might irrevocably qualify as personal data, as in theory such samples can never be completely anonymized. Legitimate interests of the donor might cause a “revival” of his or her personal rights in the future and limit our rights of utilization. The subject’s consent obtained in any particular country could be withdrawn or challenged in the future, and those consents could prove invalid, unlawful, or otherwise inadequate for our purposes. Furthermore, we may face disputes with patients should their data be used in a manner which they did not expect or if the consent was recorded incorrectly or obtained fraudulently. Any findings against us, or our pharmaceutical partners, clients, or distributors, could deny us access to or force us to stop using certain of our clinical data or samples, which would impede our genetic or other information solution development efforts. We could become involved in legal challenges, which could result in substantial costs and be a distraction to management and other employees. Such claims could materially harm our business, prospects, financial condition, and result of operations.
If access to our highly specialized laboratory facilities, storage facilities or equipment is interrupted or damaged, our business could be negatively impacted.
Our diagnostic testing products and pharmaceutical solutions are rendered at our laboratory facilities. We currently run most of our core diagnostic testing at our laboratory in Rostock, Germany. If our laboratory becomes inoperable or some or all of our key equipment ceases to function even for a short period of time, we may be unable to perform our genetic or other tests or develop solutions in a timely manner or at all, which may result in the loss of clients and pharmaceutical partners or harm to our reputation, and we may be unable to regain those clients and pharmaceutical partners or repair our reputation in the future. Our facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including war, fire, earthquake, flood, power loss, communications or internet failure or interruption, or terrorism, which may render it difficult or impossible for us to operate our information platforms or equipment for some period of time.
12
In particular, the biomaterials that are stored in our biobank are located in our Rostock facility. Should the biomaterials that we store there be damaged or destroyed, we would lose part or all our existing biomaterials and as a result we would not be able to retest this material for future research and development uses.
Furthermore, our facilities and the equipment we use to perform our research and development work could be unavailable or costly and time-consuming to repair or replace. It would be difficult, time-consuming, and expensive to rebuild any of our facilities or license or transfer our proprietary technology to a third party, particularly considering the licensure and accreditation requirements and specific equipment needed for laboratories like ours. Even in the unlikely event we are able to find a third party with such qualifications to enable us to perform our genetic or other tests or develop our solutions, we may be unable to negotiate commercially reasonable terms with such third parties. Any interruption of our laboratory operations could harm relationships with our clients and pharmaceutical partners or regulatory authorities, which could adversely affect our ability to generate revenue or maintain compliance with regulatory standards.
While we carry insurance for damage to our property and laboratory and the disruption of our business, such insurance may not cover all of the risks associated with damage to our property or laboratory or disruption to our business, may not provide coverage in amounts sufficient to cover our potential losses, may be challenged by insurers underwriting the coverage, and may not continue to be available to us on acceptable terms, if at all.
Pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic, have disrupted our business and operations, and future outbreaks or reemergence of the COVID-19 pandemic could materially adversely impact our business, financial condition, liquidity and results of operations.
Pandemics, epidemics or disease outbreaks either locally or globally, including the COVID-19 pandemic, have disrupted, and may in the future disrupt, our business, which could materially affect our results of operations, financial condition, liquidity and future expectations. The COVID-19 pandemic adversely affected businesses, economies and financial markets worldwide, placed constraints on the operations of businesses, decreased consumer mobility and activity, and caused significant economic volatility in capital markets. Any such events in the future, including a reemergence of COVID-19, may adversely impact our global operations, particularly as it relates to the United States (from where a significant proportion of our sequencing products are sourced) as well other countries in which we operate and from where we receive tests, may result in the loss of our significant client relationships and result in significant volatility of the trading price of our common shares. We may also be subject to enhanced legal risks, including potential litigation related to any future pandemics. Any new pandemic or other public health crisis, or the reemergence of the COVID-19 pandemic, could have a material impact on our business, financial condition and results of operations going forward.
To the extent any pandemics, epidemics, disease outbreaks and other public health crisis adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described under “—We may face restrictions or delays in the receipt of patient samples to our laboratories for diagnostic testing” and “—We may be adversely affected by volatile, negative or uncertain economic, political or social conditions and the effects of these conditions on our pharmaceutical partners’ and diagnostics clients’ businesses and levels of business activity.”
We depend upon our information technology systems, and any failure of these systems could harm our business.
In the normal course of our business, we depend on information technology and telecommunications systems for significant elements of our operations, including the CENTOGENE Biodatabank, our CentoPortal® client-facing platform, our laboratory information management system, our third-party datacenter solutions, our broadband connections and our client relationship management system. We have installed several enterprise software systems that affect a broad range of business processes and functional areas, including, for example, systems handling human resources, financial controls and reporting, contract management and other infrastructure operations. These information technology systems support a variety of functions, including laboratory operations, test validation, sample tracking, quality control, customer service support, billing and reimbursement, research and development activities, scientific and medical curation, and general administrative activities. In addition, our system is backed up by two offsite data centers that offer a disaster recovery system for our database in separate locations. Any technical problems that may arise in connection with third-party data center hosting facilities could result in interruptions in our service.
Despite the security measures we have in place and any additional measures we may implement in the future to safeguard our systems and to mitigate potential security risks, our facilities and systems, and those of our third-party service providers, could be vulnerable to cybersecurity incidents, computer viruses, lost or misplaced data, programming errors, human errors, acts of vandalism, viruses, bugs, worms, or other malicious codes, malware, including as a result of advanced persistent threat intrusions, and other
13
attacks by computer hackers, cracking, application security attacks, social engineering, including through phishing attacks, supply chain attacks and vulnerabilities through our third-party service providers, denial-of-service attacks, such as credential stuffing, credential harvesting, personnel misconduct or error, supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware, telecommunications failures, earthquakes, fires, floods, and other similar threats. Any steps we take to deter, identify, and mitigate these risks may not be successful and may cause us to incur increasing costs. Our business will also be harmed if our laboratory partners and potential laboratory partners believe our service is unreliable. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, malicious computer software (malware), and similar disruptive problems.
Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized criminal threat actors, personnel, such as through theft or misuse, sophisticated nation states, and nation-state-supported actors. In particular, ransomware attacks, including those from organized criminal threat actors, nation-states and nation-state supported actors, are becoming increasingly prevalent and severe and can lead to significant interruptions, delays, or outages in our operations, loss of data, including sensitive customer information, loss of income, significant extra expenses to restore data or systems, reputational loss and the diversion of funds.
Some threat actors also now engage and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors, for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we, the third parties upon which we rely, and our customers may be vulnerable to a heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain and ability to produce, sell and distribute our goods and services.
While we take steps to detect and remediate vulnerabilities, we may not be able to detect and remediate all vulnerabilities because the threats and techniques used to exploit such vulnerabilities change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but may not be detected until after a cybersecurity incident has occurred, if at all. Further, we may experience delays in developing and deploying remedial measures designed to address any such identified vulnerabilities.
Failures or significant downtime of our information technology systems, or those used by our third-party service providers, could prevent us from conducting our comprehensive genomic analyses, preparing, and providing reports and data to partners and physicians, billing payors, processing reimbursement appeals, handling patient or physician inquiries, conducting research and development activities, and managing the administrative aspects of our business. We may also need to expend significant additional resources to protect against cybersecurity threats or to address actual breaches or to redress problems caused by cybersecurity breaches. Additionally, to the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we may incur significant liability. Any cybersecurity incident, or disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could result in significant expenses and have an adverse effect on our business. Applicable data privacy and security obligations may require us to notify relevant stakeholders, regulatory authorities, and other individuals of cybersecurity incidents, and take other remedial measures. Such disclosures and measures are costly, and the disclosure or the failure to comply with such requirements could lead to adverse consequences. Any such event could also result in legal claims or proceedings, liability under laws that protect the privacy of personal information and significant regulatory penalties, and damage to our reputation and a loss of confidence in us and our ability to conduct clinical trials, which could delay the clinical development of our product candidates.
We rely on a limited number of suppliers, or, in some cases, a sole supplier, for some of our laboratory equipment and may not be able to find replacements or immediately transition to alternative suppliers.
We believe that there are only a few equipment manufacturers that are currently capable of supplying and servicing the sequencing equipment necessary for our laboratory operations. For example, we rely on Illumina as a key supplier for certain sequencing equipment used for our processes. We may not be able to obtain acceptable substitute equipment from another supplier on the same basis or at all. Even if we are able to obtain acceptable substitutes from replacement suppliers, their use could require us to significantly alter our laboratory operations. An interruption in our laboratory operations could occur if we encounter delays or difficulties in securing or maintaining the proper function of this laboratory equipment. Any such interruption could negatively impact research and development and launches of new products or solutions, and significantly affect our business, financial condition, results of operations, and reputation.
14
The loss or transition of any member of our senior management team, or our inability to attract and retain new talent, could adversely affect our business.
Our success depends on the skills, experience, and performance of key members of our senior management team. The individual and collective efforts of these employees will be important as we continue to develop the CENTOGENE Biodatabank and additional products and solutions, and as we expand our commercial activities. The loss or incapacity of existing members of our senior management team could adversely affect our operations if we experience difficulties in hiring qualified successors.
The complexity inherent in integrating a new key member of the senior management team with existing senior management may limit the effectiveness of any such successor or otherwise adversely affect our business. Leadership transitions can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover of other key officers and employees. Specifically, a leadership transition in the commercial team may cause uncertainty about or a disruption to our commercial organization, which may impact our ability to achieve sales and revenue targets.
Our research and development programs and laboratory operations depend on our ability to attract and retain highly skilled scientists and technicians. We may not be able to attract or retain qualified scientists and technicians in the future due to the intense competition for qualified personnel among life science businesses globally. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. We may have difficulties locating, recruiting, or retaining qualified sales people. Recruitment and retention difficulties can limit our ability to support our research and development and sales programs.
International expansion of our business exposes us to new and complex business, regulatory, political, operational, financial, and economic risks.
Our business strategy incorporates plans for significant expansion in the countries in which we currently operate and internationally. Doing business internationally involves several risks, including:
| ● | multiple, conflicting, and changing laws and regulations such as data protection laws, privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements (including requirements related to patient consent, testing of genetic material and reporting the results of such testing) and other governmental approvals, permits, and licenses, or government delays in issuing such approvals, permits, and licenses; |
| ● | failure to obtain regulatory approvals for the manufacture and sale of our products and use of our products and solutions in various countries; |
| ● | transition and management of our former distribution relationships in various countries; |
| ● | potentially relevant third-party intellectual property rights; |
| ● | difficulties in staffing and managing foreign operations; |
| ● | complexities and difficulties in obtaining, maintaining, protecting and enforcing our intellectual property rights; |
| ● | logistics and regulations associated with preparing, shipping, importing and exporting tissue and blood samples, including infrastructure conditions, transportation delays, and customs; |
| ● | limits in our ability to penetrate new geographical regions due to competition; |
| ● | logistical issues or increases in costs of transporting tests and samples since our diagnostic tests are conducted primarily in Germany; |
| ● | financial risks, such as the impact of local and regional financial crises on demand and payment for our products and solutions, and exposure to foreign currency exchange rate fluctuations; |
15
| ● | risks associated with operations in countries which have experienced, or are currently experiencing, high rates of inflation which increase our costs, inhibit economic growth and could lead to reduced demand for our products and solutions; |
| ● | natural disasters, political, and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions; and |
| ● | regulatory and compliance risks that relate to maintaining accurate information and control over sales and distribution activities that may fall within the purview of the United States Foreign Corrupt Practices Act (the “FCPA”) or comparable foreign regulations, including its books and records provisions, or its anti-bribery provisions. |
Any of these factors could significantly harm our future international expansion and operations and, consequently, our revenue and results of operations. The difference in regulations under the laws of the countries in which we may expand and the laws of the countries in which we currently operate may be significant and, in order to comply with such new laws, we may have to implement global changes to our products and solutions or business practices. Such changes may result in additional expense to us and either reduce or delay development of our products and solutions, commercialization of our biomarkers and other solutions or expansion of our data repository and biobank. In addition, any failure to comply with applicable legal and regulatory obligations could affect us in a variety of ways that include, but are not limited to, significant criminal, civil and administrative penalties, and restrictions on certain business activities. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our activities in these countries.
Failure to manage these and other risks may have a material adverse effect on our operations in any country and on our business as a whole.
Implementation of partnership agreements with our pharmaceutical partners may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of client relationships and diversion of management’s attention.
The negotiation of our existing partnership agreements, as well as any new partnership agreements that we enter into, take up significant management time and resources. Moreover, in part due to the complex nature of our partnership agreements, which typically provide for research and development collaboration as well as utilization of our patient screening processes, we may need to expend capital and dedicate manpower to meeting the requirements of our pharmaceutical partners. Any partnership agreements that we enter into in the future may contain restrictions on our ability to enter into potential collaborations with other third parties, or to otherwise provide products and solutions in connection with a particular rare disease indication. As a result of these and other factors, our partnership agreements may result in material unanticipated problems, expenses, liabilities, competitive responses, loss of client relationships and diversion of management’s attention.
Many of these factors will be outside of our control, and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, financial condition, and results of operations. As a result, we cannot assure you that our relationship with any pharmaceutical partner will result in the realization of the anticipated benefits.
If our products and solutions do not perform as expected, we may fail to achieve or maintain sales of our products and solutions.
Our success depends on the market’s confidence that we can provide accurate diagnostic testing products and reliable, high-quality rare and neurodegenerative disease information solutions. Our partnerships with our pharmaceutical partners and clients are typically designed to provide results in respect of a particular disease, and our preliminary assessments or knowledge about such disease may necessarily be limited by the amount of information currently available. As a result, the work we undertake on behalf of our pharmaceutical partners and clients may not yield the results that our pharmaceutical partners and clients expect or anticipate. We believe that our pharmaceutical partners and clients are likely to be particularly sensitive to solution and testing service defects and errors, including if our products or services fail to detect genomic or other alterations with high accuracy from clinical specimens or if we fail to accurately develop a biomarker.
Moreover, we may fail to maintain the accuracy and reproducibility we have demonstrated to date with our genetic or other testing services, particularly for clinical samples, as our test volume increases. The sequencing process yields that we achieve depend on the design and operation of our sequencing process, which uses several complex and sophisticated biochemical, informatics, optical, and mechanical processes, many of which are highly sensitive to external factors. An operational or technological failure in
16
one of these complex processes or fluctuations in external variables may result in sequencing processing yields that are lower than we anticipate or that vary between sequencing runs. In addition, we are regularly evaluating and refining our sequencing process. These refinements may initially result in unanticipated issues that further reduce our sequencing process yields or increase the variability of our sequencing process yields. Errors, including if our products or solutions fail to detect genomic variants with high accuracy, or mistakes, including if we fail to or incompletely or incorrectly identify the significance of gene variants, could have a significant adverse impact on our business.
Hundreds of genes can be implicated in some disorders, and overlapping networks of genes and symptoms can be implicated in multiple conditions. As a result, a substantial amount of judgment is required to interpret testing results for an individual patient and to develop an appropriate patient report. As a result, we may make errors in our interpretation of testing results, which could impair the results of our tests and adversely impact the quality of our overall knowledge base. The failure of our products or solutions to perform as expected would significantly impair our operating results and our reputation. We may also be subject to legal claims arising from, or loss of business as a result of, any defects or errors in our products and solutions.
We may fail to manage our future growth effectively, which could make it difficult to execute our business strategy.
We anticipate growth in our business operations. This future growth could create strain on our organizational, administrative and operational infrastructure, including laboratory operations, quality control, customer service, and sales force management. We may fail to maintain the quality or expected turnaround times of our products and services or satisfy customer demand as it grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial and management controls, as well as our reporting systems and procedures.
We plan to expand our laboratory and technical operations as our business grows. However, any expansion strategies and any future growth could create strain on our organizational, administrative and operational infrastructure, including laboratory operations, quality control, customer service and sales force management. We may not be able to maintain the quality or expected turnaround times of our testing services or satisfy client demand as our business grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial, and managerial controls, as well as our reporting systems and procedures, and to obtain appropriate regulatory approvals and meet regulatory standards applicable for the operation of our business.
The development of new products and solutions is a complex process, and we may be unable to successfully commercialize new products or solutions on a timely basis or at all.
New diagnostic test products and our interpretation-based solutions, take time to develop and commercialize. We may fail to develop and commercialize new diagnostic tests or solutions on a timely basis. Moreover, there can be no assurance that our products or solutions will be capable of meeting the needs of our clients and pharmaceutical partners, or that we will be able to commercialize them at all. Before we can commercialize any new products or solutions, we need to expend significant funds in order to:
| ● | conduct substantial research and development, including epidemiology and validation studies and potentially patient scope analyses; |
| ● | further develop our laboratory processes or equipment; |
| ● | allocate laboratory space for new solutions or further scale our infrastructure to accommodate research and development or new equipment; |
| ● | in the case of products or solutions for which we are seeking regulatory or marketing approval, pursue such regulatory approval. |
The development of new products and solutions involves risk, and development efforts may fail for many reasons, including the failure of any product or solution to perform as expected, a lack of validation or reference data, failure to demonstrate utility of a test or solution, or, in the case of solutions for which we are seeking or have received the Food and Drug Administration (“FDA”), European Commission and European Medicines Agency (“EMA”), German Federal Institute for Medicinal Products and Medical Devices (Bundesinstitut für Arzneimittel und Medizinprodukte), or comparable authorities’ or agencies’ approval, the inability to obtain such approval or the loss of such approval. We cannot predict whether or when we will successfully complete development of each biomarker and if we will receive patent protection on any biomarkers that we develop.
17
As we develop new products and solutions, we will have to make significant investments in development, marketing, and selling resources. Any failure to develop or deliver adequate products or solutions to our clients and pharmaceutical partners on a timely basis or at all could significantly affect our business, financial condition, results of operations, and reputation.
We have limited experience in marketing and selling our products and solutions and we may fail to expand our direct sales and marketing force to adequately address our pharmaceutical partners’ and clients’ needs.
We have limited experience in marketing and selling our products and solutions to pharmaceutical partners, and currently rely on a small sales force to sell our products and solutions. We may not be able to market, sell, or distribute our existing products and solutions or other services we may develop effectively enough to support our planned growth.
Our future sales and further business growth will depend in large part on our ability to develop, and expand, our sales force and to increase the scope of our marketing efforts. Our target market of pharmaceutical partners and clients is a diverse market with individualized needs. As a result, we believe it is necessary to develop a sales force that includes sales representatives with specific rare and neurodegenerative disease technical backgrounds. We will also need to attract and develop marketing personnel with industry expertise. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales and market acceptance of our products or solutions and limit our revenue growth and potential profitability. Our expected future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, and integrate additional employees. Our future financial performance will depend in part on our ability to manage this potential future growth effectively, without compromising quality.
If we believe a significant market opportunity for our products or solutions exists in a particular jurisdiction in which we do not have direct access through one of our existing offices, from time to time we may enlist distribution partners and local laboratories to assist with sales, distribution, and client support. We may not be successful in finding, attracting, and retaining distribution partners or laboratories, or we may not be able to enter into such arrangements on favorable terms. Sales practices utilized by our distribution partners that are locally acceptable may not comply with sales practices standards required under German, Dutch, the United States or other laws that apply to us, which could create additional compliance risk. If these additional sales and marketing efforts are not successful, we may not achieve significant market acceptance for our solutions in these markets, which could harm our business.
The knowledge and interpretation-based solutions we provide to our pharmaceutical partners may not achieve significant commercial market acceptance.
Our knowledge and interpretation-based solutions may not gain significant acceptance in the orphan drug development market and, therefore, may not generate substantial revenue or profits for us. Our ability to achieve increased commercial market acceptance for our existing knowledge and interpretation-based solutions will depend on several factors, including:
| ● | our ability to convince the medical and pharmaceutical community of the clinical utility of our solutions and their potential advantages over existing and new solutions; |
| ● | the willingness of our pharmaceutical partners, as well as their physicians and patients, to utilize our solutions; and |
| ● | the agreement by commercial third-party payors and government payors to reimburse any treatments provided by our pharmaceutical partners, the scope and amount of which will affect a partners’ willingness or ability to pay for our solutions and will influence physicians’ decisions to recommend our solutions. |
We believe that the successful completion of clinical trials by partners that use our solutions, publication of scientific and medical results based on the information gained from our CENTOGENE Biodatabank in peer-reviewed journals, and presentations at leading conferences are critical to the broad adoption of our solutions. Publication in leading medical journals is subject to a peer-review process, and peer reviewers may not consider the results of studies involving our solutions sufficiently novel or worthy of publication.
The failure to be listed in physician guidelines or the failure of our solutions to produce favorable results for our partners or to be published in peer-reviewed journals could limit the adoption of our solutions. Failure to achieve widespread market acceptance of our solutions would materially harm our business, financial condition, and results of operations.
18
Failure to keep pace with the rapidly evolving industry in which we operate could make us obsolete.
Our business relies on commercial activities in the rare and neurodegenerative disease genetic or other testing and diagnostics field. In recent years, there have been numerous advances in methods used to analyze very large amounts of genomic information and the role of genetics and gene variants in rare diseases and treatments, including through the development of biomarkers. Our industry has and will continue to be characterized by rapid technological change, increasingly larger amounts of data, frequent new testing service introductions and evolving industry standards. Our future success will also depend on our ability to keep pace with the evolving needs of our clients and pharmaceutical partners on a timely and cost-effective basis and to pursue new market opportunities that develop because of technological and scientific advances. Our current products and solutions could become obsolete unless we continually update our offerings to reflect new scientific knowledge about genes and genetic variations and their role in rare diseases and treatments. If we fail to anticipate or respond adequately to technological developments, demand for our products and solutions will not grow and may decline, and our business, revenue, financial condition, and operating results could suffer materially.
Moreover, many companies in this market are offering, or may soon offer, products and solutions that compete with our products and solutions, in some cases at a lower cost than ours. We cannot assure you that research and discoveries by other companies will not render our existing or potential products and solutions uneconomical or result in tests superior to our existing tests and those we may develop. We also cannot assure you that any of our existing products and solutions, or those that we develop in the future, will be preferred by our clients, pharmaceutical partners, physicians or other payors to any existing or newly developed technologies or tests. If we fail to maintain competitive test products, our business, prospects, financial condition and results of operations could be adversely affected.
We may fail to successfully respond to increasing demand for our products and solutions.
As our sales volume grows, we will need to continue to increase our infrastructure for sample intake, customer service, billing and general process improvements, expand our internal quality assurance program, and extend our platform to support comprehensive genomic and other analyses at a larger scale within expected turnaround times. We will need additional certified laboratory scientists and other scientific and technical personnel to process higher volumes of our products and solutions. Portions of our process cannot be fully automated and will require additional personnel to scale. We will also need to purchase additional equipment, some of which can take a long time to procure, set up, and validate, and increase our software and computing capacity to meet increased demand.
We may fail to successfully implement any of these increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements and we may have inadequate space in our laboratory facilities to accommodate such required expansion.
As additional products and solutions are commercialized, we will need to incorporate new equipment, implement new technology systems and laboratory processes, and hire new personnel with different qualifications. Failure to manage this growth or transition could result in turnaround time delays, higher product costs, declining product quality, deteriorating customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult or impossible for us to meet market expectations for our products and solutions and could damage our reputation and the prospects for our business.
We may fail to obtain favorable pricing for our products and solutions and to meet our profitability expectations.
If we are not able to obtain favorable pricing for our products and solutions to enable us to meet our profitability expectations, our revenues and profitability could materially suffer. The rates we are able to charge for our products and solutions are affected by a number of factors, including:
| ● | general economic and political conditions in the countries in which we operate; |
| ● | the competitive environment in our industry, as described below; |
| ● | our clients’ and pharmaceutical partners’ cost sensitivities; |
| ● | our ability to accurately estimate, attain and sustain revenues and royalties, margins, and cash flows over the full partnership period for our solutions, which includes our ability to estimate the impact of inflation and foreign exchange on our margins over long-term contracts; and |
19
| ● | procurement practices of our pharmaceutical partners and clients and their use of third-party advisors. |
The competitive environment in our industry affects our ability to obtain favorable pricing in several ways, all of which could have a material negative impact on our results of operations. The less we are able to clearly convey the value of our products and solutions or differentiate our products and solutions, the more risk we have that they will be seen as commodities, with price being the driving factor in selecting us as a partner. Competitors may be willing, at times, to price contracts or products lower than we do to enter the market or increase market share. Further, if competitors develop and implement methodologies that yield greater efficiency or efficacy, they may be able to offer products and solutions like ours at lower prices.
Ethical, legal and social concerns related to the use of genomic or other diagnostic information could reduce demand for our rare and neurodegenerative disease knowledge and interpretation-based products and solutions.
Genomic testing, like that conducted for our pharmaceutical partners and clients using our genetic rare and neurodegenerative disease information platform, has raised ethical, legal, and social issues regarding privacy and the appropriate uses of the resulting information. Governmental authorities could, for social or other purposes, limit or regulate the use of genomic information or genomic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Similarly, these concerns may lead patients to refuse to use genomic tests even if permissible.
Ethical and social concerns may also influence the United States and foreign patent offices and courts about patent protection for technology relevant to our business. These and other ethical, legal and social concerns may limit market acceptance of our products and solutions or reduce the potential markets for products and solutions enabled by our genetic rare and neurodegenerative disease information platform, either of which could have an adverse effect on our business, financial condition, or results of operations.
We have limited resources to be expended on research and development programs. Our resource allocation decisions may lead us to focus on research and development programs that are not commercially viable, and as a result we may be unable to recover the costs incurred under these efforts.
Because we have limited financial and managerial resources, we focus on research and development programs that we identify for rare and neurodegenerative diseases in collaboration with our pharmaceutical partners or based on our assessment of the market needs. As a result, we may forego or delay pursuit of opportunities with other orphan drug candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs for specific diseases may not yield any relevant results that are helpful to our existing programs or assist in the creation of any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing, or other royalty arrangements.
If we fail to compete successfully with our competitors, including new entrants in the market, we may be unable to increase or sustain our revenue or achieve and sustain profitability.
While personalized genomic and multiomic diagnostics is a relatively new area of science, we face competition from companies that offer tests or have conducted research to profile genes and gene expression in various rare and neurodegenerative diseases. Our principal competition comes from diagnostic companies that offer diagnostic tests that capture genetic, phenotypic and epidemiological data, as well as laboratories and academic research centers. Many hospitals and academic medical centers may also seek to perform the type of genetic or other testing and knowledge and interpretation-based solutions we offer at their own facilities or using their own research capabilities.
Some of our present and potential competitors may have substantially greater financial, marketing, technical or manufacturing resources than we do. Our competitors may also be able to respond more quickly to new technologies or processes and changes in client demands. They may also be able to devote greater resources towards the development, promotion and sale of their products or solutions for pharmaceutical partners than we can. As competition in our market increases, we may also be subject to increased litigation risk, including in connection with patents as well as our marketing practices and other promotional activities. In addition, our current and potential competitors may make strategic acquisitions or establish cooperative relationships among themselves or with third parties that increase their ability to address the needs of our physicians or partners. If we fail to compete successfully against current or future competitors, our business will be harmed.
20
Because our genetic or other testing and knowledge and interpretation-based solutions and products have limited patent protection, new and existing companies worldwide could seek to develop genetic or other tests or similar products and solutions that compete with ours. These competitors could have technological, financial, and market access advantages that are not currently available to us and they could develop and commercialize competing products and solutions faster than we are able to do so. Increased competition, including price competition, could have a material adverse impact on our net revenues and profitability.
If our pharmaceutical partners experience any of a number of possible unforeseen events in connection with their clinical trials, our ability to commercialize future solutions or improvements to existing solutions could be delayed or prevented.
Our pharmaceutical partners may experience numerous unforeseen events during, or because of, clinical trials that could delay or prevent their ability to continue or conduct further clinical trials or obtain regulatory approval of or commercialize future orphan drugs. Unforeseen events that could delay or prevent our pharmaceutical partners’ ability to conduct or support clinical trials, obtain regulatory approval of, or commercialize future orphan drugs include:
| ● | regulatory authorities or ethical review boards, Institutional Review Boards (IRBs), may not authorize the commencement of a clinical trial or may not accept clinical trial protocols; |
| ● | clinical trials may produce negative or inconclusive results, and our pharmaceutical partners may decide, or regulatory authorities may require them, to abandon development programs; |
| ● | the number of patients, or amount of data, required for clinical trials may be larger than we or our pharmaceutical partners anticipate, patient enrollment in clinical trials may be slower than we or our pharmaceutical partners anticipate or patients may drop out of these clinical trials at a higher rate than we or our pharmaceutical partners anticipate; |
| ● | failure to conduct our clinical trials in accordance with applicable regulatory requirements of the FDA and of the regulatory authorities responsible for authorization or oversight of the conduct of clinical trials in other countries; |
| ● | inability to develop companion diagnostic tests for a particular rare disease or to add companion diagnostic claims to existing tests, and/or obtain regulatory approval to market any such test on a timely basis or at all; |
| ● | due to a new legislative framework in the EU on the conduct of clinical trials on medicinal products for human use, the Regulation (EU) No. 536/2014 of April 16, 2014 (“CTR”), which results in EU-wide harmonization of the authorization process, approval and monitoring of clinical trials in the EU, there may be delays in initiating new clinical trials in the EU until our pharmaceutical partners become familiar with the new regulatory requirements, in particular the new authorization procedure via the new Clinical Trial Information System database (“CTIS”); |
| ● | clinical trials of our pharmaceutical partners for which we are developing companion diagnostic tests may suggest or demonstrate that our partners’ treatments are not as efficacious and/or as safe as other similar treatments or that our companion diagnostic test is not essential to determine which patients would benefit from these treatments; |
| ● | mergers and acquisitions could have an impact on the priorities of our pharmaceutical partners; and |
| ● | our pharmaceutical partners may decide, or regulatory authorities or institutional review boards may require them, to suspend or terminate clinical research for various reasons, including cost, adequate end market size, available data, or non-compliance with regulatory requirements. |
If our pharmaceutical partners choose not to conduct clinical trials for treatments in the rare or neurodegenerative disease space due to the above factors or otherwise, they may have less need for our products and solutions and may therefore choose not to partner with us. Our ability to continually expand our existing data repository depends on our ability to maintain partnerships with our pharmaceutical clients. Should our partners delay or cancel their ongoing existing trials or choose not to begin new trials for treatments in the disease areas relevant to us, our ability to commercialize future solutions or improvements to existing solutions could be delayed or prevented.
21
Our employees, principal investigators, consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, and commercial partners, including our distributors in our diagnostics business and pharmaceutical partners in our pharmaceutical business. Misconduct by these parties could include intentional failures to comply with the regulations of applicable regulatory authorities (including the FDA and the European Commission and EMA), comply with healthcare fraud and abuse laws and regulations, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, bribery, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, client incentive programs, and other business arrangements. Such misconduct could also involve the improper use of information obtained during clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have an insider trading policy as well as a code of conduct applicable to all of our employees and conduct a background check before entering into any new contracts with third party distributors, but it is not always possible to identify and deter employee or third-party misconduct, and our insider trading policy and code of conduct, due diligence and the other precautions we take to detect and prevent such misconduct 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 comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these actions or investigations.
We may lose the support of key thought leaders and fail to establish our products and solutions as a standard of care for patients with rare and neurodegenerative diseases, which may limit our revenue growth and ability to achieve future profitability.
We have established relationships with leading rare and neurodegenerative disease thought leaders at premier institutions and disease networks. If we suffer harm to our reputation, whether due to actions outside of our control or otherwise, our relationships with these persons may suffer which could adversely impact our business, including our key pharmaceutical partnerships and diagnostic client relationships. Moreover, if these key thought leaders determine that the CENTOGENE Biodatabank, our existing products or solutions or other new products or solutions that we develop are not useful to our partners’ development of treatments for rare and neurodegenerative diseases, that alternative technologies are more effective, or if they elect to use internally developed products or solutions, we could encounter significant difficulty validating our testing platform, driving adoption, or establishing our genetic knowledge and interpretation-based solutions and tests as a standard of care, which would limit our revenue growth and our ability to achieve profitability.
Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
In the ordinary course of our business, we collect and store sensitive data, including legally protected health information, personally identifiable information, intellectual property, and proprietary business information owned or controlled by us or physicians, pharmaceutical partners and other clients. We manage and maintain our applications and data utilizing a combination of on-site systems, managed data center systems, and cloud-based data center systems. We also communicate, and facilitate the exchange of, sensitive patient data to and between ourselves and physicians of the patients for whom we conduct diagnostic tests through an online client-facing portal, CentoPortal®. These applications and related data encompass a wide variety of business-critical information including legally protected health information, personally identifiable information, research and development information, commercial information, and business and financial information. We face a number of key risks related to the protection of this information, including unauthorized access risk, inappropriate or unauthorized disclosure risk, inappropriate modification risk and the risk of being unable to adequately monitor our controls.
22
The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy. Our information technology and infrastructure, and that of our third-party disaster recovery back-up providers, may be vulnerable to attacks by hackers or malicious software or breached due to personnel error, unauthorized access, malfeasance, or other disruptions. Any such breach or interruption could compromise the security or integrity of our networks, and the information stored there could be accessed by unauthorized parties or publicly or incorrectly disclosed, corrupted, lost, or stolen. Any such access, disclosure, corruption, other loss, or theft of information could result in governmental investigations, class action legal claims or proceedings, liability under laws that protect the privacy of personal information, such as but not limited to the Health Insurance Portability and Accountability Act (“HIPAA”), the General Data Protection Regulation (EU 2016/679) (“GDPR”), the United Kingdom’s General Data Protection Regulation (“UK GDPR”) and regulatory penalties. Although we have implemented security measures and a formal, dedicated enterprise security program to prevent unauthorized access to person data, applications such as our online client-facing portals are currently accessible through public web portals and may, in the future, be accessible through dedicated mobile applications, and there is no guarantee we can absolutely protect our online portals or our mobile applications from breach. Unauthorized access to, or loss or dissemination of, the data embedded in or transferred via these applications could also disrupt our operations, including our ability to conduct our analyses, provide test results, bill our pharmaceutical or other partners, provide client assistance solutions, conduct research and development activities, collect, process, and prepare company financial information, provide information about our products and solutions and other pharmaceutical partner and physician education and outreach efforts through our website, manage the administrative aspects of our business, and damage our reputation, any of which could adversely affect our business.
HIPAA, which establishes comprehensive federal protection for the privacy and security of health information, was expanded and strengthened by Subtitle D of the Health Information Technology for Economic and Clinical Health Act (“HITECH”) provisions of the American Recovery and Reinvestment Act of 2009. HIPAA, as amended by HITECH, applies to health plans, healthcare clearing houses, and healthcare providers that conduct certain healthcare transactions electronically, called “Covered Entities,”, as well as individuals or entities that perform services to Covered Entities involving the use, or disclosure of, individually identifiable health information or "PHI" under HIPAA. Such service providers are called "Business Associates." Under HIPAA, as amended by HITECH, the United States Department of Health and Human Services (“HHS”) has issued regulations to protect the privacy and security of PHI (“HIPAA Regulations”). HIPAA also regulates and standardizes the codes, formats and identifiers used in certain healthcare transactions and standardization of identifiers for health plans and providers, for example insurance billing. Any non-compliance with HIPAA and HITECH and related penalties, could adversely impact our business.
HIPAA’s privacy regulations protect medical records and other PHI by limiting its use and release, giving individuals a variety of rights with respect to their PHI, including the right to access their medical records and limiting most disclosures of PHI to the minimum amount necessary to accomplish an intended purpose.
HIPAA’s security rule requires the implementation of administrative, physical, and technical safeguards and the adoption of written security policies and procedures to ensure the confidentiality, integrity and availability of PHI stored electronically. HIPAA also requires Covered Entities and Business Associates to enter into business associate agreements with certain required provisions documenting assurances of compliance with applicable HIPAA regulations by the Business Associate.
HIPAA Regulations also require breach notification. Covered Entities must report breaches of PHI that have not been encrypted or otherwise secured in accordance with guidance from the Secretary of HHS (the “Secretary”). Required breach notices must be made as soon as is reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals and to the Secretary and in some cases, they must be reported through local and national media, depending on the size of the breach. Large-scale breaches affecting 500 or more individuals must be immediately reported to the Secretary and are then publicly posted on an HHS website. To avoid penalties for failure to comply with breach notification provisions, we must ensure that breaches of unsecured PHI are promptly detected and reported within the company, so that we can make all required notifications on a timely basis. However, even if we make required reports on a timely basis, we may still be subject to penalties for the underlying breach and at risk of significant penalties and reputational harm if we experience a large-scale data breach.
We are currently subject to the HIPAA Regulations as a Covered Entity and maintain an active compliance program. We are subject to audit by HHS, and we may be investigated in connection with a privacy or data security complaint or reported breach. HHS may also initiate a compliance review focusing on all or any part of our HIPAA compliance program. Significant civil and criminal fines and other penalties may be imposed for violating HIPAA directly, and in connection with acts or omissions of any agents, including a downstream Business Associate, as determined according to the federal common law of agency. Civil penalties are adjusted for inflation on an annual basis and can exceed one million dollars per year for failure to comply with a HIPAA requirement.
23
A single breach incident can violate multiple requirements. Additionally, a person who knowingly obtains or discloses PHI in violation of HIPAA may face criminal penalties, including fines and imprisonment, which increase if the wrongful conduct involves false pretenses or the intent to sell, transfer or use PHI for commercial advantage, personal gain or malicious harm. Covered entities are also subject to enforcement by state Attorneys General who were given authority to enforce HIPAA.
We are subject to significant foreign currency exchange controls in certain countries in which we operate.
We are in some countries, and could become elsewhere, subject to strict restrictions on the movement of cash and the exchange of foreign currencies, which limits our ability to use this cash across our global operations. We also face risks related to the collection of payments due to us from our major pharmaceutical partners or clients that are located in certain geographical regions with foreign currency or international monetary controls. This risk could increase as we continue our geographic expansion. In particular, for the years ended December 31, 2023 and 2022 we derived 42.7% and 41.9% respectively, of our total revenues from our Middle East region. Certain Middle East economies have adopted or been subject to international restrictions on the ability to transfer funds out of the country and convert local currencies into euros. This may increase our costs and limit our ability to convert local currency into euros and transfer funds out of certain countries. Any shortages or restrictions may impede our ability to convert these currencies into euros and to transfer funds, including for the payment of dividends or interest or principal on our outstanding debt.
We may acquire assets or other businesses that could negatively affect our operating results, dilute our shareholders’ ownership or increase our debt.
In addition to organic growth, we may pursue growth through the acquisition of assets or other businesses that may enable us to enhance our technologies and capabilities, expand our geographic market, add experienced management personnel or add new or improve our existing products and solutions. We also may pursue strategic alliances and joint ventures that leverage our technical platform and industry knowledge to expand our products and solutions. Negotiating these transactions and the formation of strategic alliances or joint ventures can be time-consuming and expensive and may be subject to third-party approvals as well as approvals from governmental authorities, which are beyond our control. In addition, some third parties may choose not to enter into partnership or collaboration agreements with us because of our existing relationships with other pharmaceutical partners. Consequently, we may not be able to complete any contemplated transactions on favorable terms or at all, and we can make no assurance that such transactions, once undertaken and announced, will close.
An acquisition or investment may result in unforeseen operating difficulties and expenditures, including in integrating businesses, products and solutions, personnel, operations, and financial, accounting, and other controls and systems, and retaining key employees, with the assumption of unknown liabilities or known liabilities that prove greater than anticipated, and in retaining the clients of any acquired business. Any such difficulties could disrupt our ongoing operations or require management resources that we would otherwise focus on developing our existing business. Future acquisitions could result in the use of our available cash and marketable securities, potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities, or impairment expenses related to goodwill, and impairment or amortization expenses related to other intangible assets, which could harm our financial condition. As a result, we may not realize the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture. These challenges related to acquisitions or investments could adversely affect our business, results of operations, and financial condition.
We may enter into joint ventures with third parties, which may subject us to various risks, including limited decision-making authority, reliance on our joint venture partners’ financial condition and the risk of disputes with our joint venture partners, which could adversely affect us.
We may make investments in assets or enter into agreements with companies that we do not control, including joint venture partnerships, or other structures with third parties. If we enter into any joint ventures, we may have limited decision-making authority and we may face the risk of disputes with our joint venture partners, including without limitation potential deadlocks in making major decisions and restrictions on our ability to exit the joint venture. Any disputes that may arise between us and any joint venture partners may result in litigation or arbitration. We may also face risks associated with any joint venture partners’ financial condition, including, among other things, the risk of bankruptcy and/or failure to fund their share of required capital contributions. As a result, we may be exposed to liabilities more than our share of any joint venture. Any joint venture partners may also have business interests or goals that are inconsistent with our business interests or goals and may be able to take actions contrary to our policies or objectives. We may, in specific circumstances, be liable for the actions of any joint venture partners. Any of the foregoing may have a material adverse effect on our business, financial condition, and results of operations.
24
Certain Factors Relating to Our Industry
Regulatory Risks
Our global operations expose us to numerous and sometimes conflicting legal and regulatory requirements, and violation of these requirements could harm our business.
We are subject to numerous, and sometimes conflicting, legal regimes in the countries in which we operate, including on matters as diverse as health and safety standards, marketing and promotional activities, anticorruption, import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, immigration, internal and disclosure control obligations, securities regulation, anti-competition, data privacy and labor relations. This includes in emerging markets where legal systems may be less developed or familiar to us. We strive to abide by and maintain compliance with these laws and regulations. Compliance with diverse legal requirements is costly, time-consuming and requires significant resources. Violations of one or more of these regulations in the conduct of our business could result in significant fines, criminal sanctions against us or our supervisory board or officers, prohibitions on doing business and damage to our reputation. Violations of these regulations in connection with the performance of our obligations to our clients or pharmaceutical partners also could result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to process information and allegations by our clients or pharmaceutical partners that we have not performed our contractual obligations. Due to the varying degrees of development of the legal systems of the countries in which we operate, local laws might be insufficient to protect our rights.
Our international operations could be affected by changes in laws, trade regulations, labor and employment regulations, and procedures and actions affecting approval, products and solutions, pricing, reimbursement and marketing of our products and solutions, as well as by inter-governmental disputes. Any of these changes could adversely affect our business. The imposition of new laws or regulations, including potential trade barriers, may increase our operating costs, impose restrictions on our operations or require us to spend additional funds to gain compliance with the new rules, if possible, which could have an adverse impact on our financial condition.
Current and future legislation, in particular legislation related to orphan drugs, may impact overall investment and activity in the rare disease space or our ability to obtain regulatory approvals.
In the United States, the European Union and its member states and some other foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system. These changes could affect our ability to sell profitably any products for which we require approvals. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare.
Specifically, regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population of greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers.
Similarly, in the European Union, the European Commission grants orphan drug designation after receiving the opinion of the EMA’s Committee for Orphan Medicinal Products on an orphan drug designation application. Orphan drug designation is intended to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than one in 2,000 persons in the European Union and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected). In addition, designation is granted for drugs intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug. In the European Union, orphan drug designation entitles a party to financial incentives, such as reduction of fees or fee waivers, and a ten-year market exclusivity once the drug is on the market.
25
These legislative initiatives have led to an increase in investment and activity in the rare disease drug development space. In 2020, the EU Commission launched a consultation process to revise the existing legal framework for orphan drugs with the aim of adopting a new regulation to increase the development of new products for patients with rare diseases, to provide faster access to corresponding medicines and to establish an efficient evaluation and approval process for these medicines. The consultation process has already ended, but neither an analysis nor a new draft regulation has yet been published. However, the published consultation working paper "Inception Impact Assessment", inter alia, indicates that the EU Commission acknowledges the granting of market exclusivity as the main incentive, but nevertheless considers that the duration of such exclusivity should be variable or shortened under certain criteria yet to be defined.
On April 26, 2023, the EU Commission adopted a proposal for a new Directive and a new Regulation, which, if enacted, would revise and replace the existing general pharmaceutical legislation in the EU (Regulation 726/2004 and Directive 2001/83/EC) and the legislation on medicines for children and for rare diseases (Regulation 1901/2006 and Regulation 141/2000/EC, respectively). The draft provides for significant changes to the existing legal regime. The draft provides, inter alia, for a shortening of the general market exclusivity period for orphan drugs from ten to nine years, but companies can take advantage of additional market exclusivity periods. The Commission proposal is now under review by the EU Parliament and EU Council and may undergo substantial changes during the ongoing legislative procedure (2023/0131/COD).
If these and other legislative initiatives were to change to become less favorable to orphan drug developers and researchers, it could harm our business, results of operations and financial condition.
We may fail to comply with the complex federal, state, local and foreign laws and regulations that apply to our business and become subject to severe financial and other consequences.
Our laboratory in Germany is subject to the Clinical Laboratory Improvement Amendments of 1998 (“CLIA”), a United States federal law that regulates all clinical diagnostic laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention, or treatment of disease. CLIA regulations mandate specific standards in the areas of personnel qualifications, administration, participation in proficiency testing, patient test management, quality control, quality assurance, and inspections. Our laboratory has a current certificate of accreditation under CLIA to conduct all genetic and biochemical analyses offered through our accreditation by the College of American Pathologists (“CAP”). To renew the CLIA certificates, we are subject to a survey and inspection every two years. Moreover, CLIA inspectors may make unannounced inspections of our clinical laboratories at any time.
Any sanction imposed under CLIA, its implementing regulations, or state or foreign laws or regulations governing licensure, or our failure to renew a CLIA certificate, a state or foreign license, or accreditation, could have a material adverse effect on our business. Most CLIA deficiencies are not classified as “condition-level” deficiencies, and there are no adverse effects upon the laboratory operations if the deficiencies are corrected. Remediation of these deficiencies are routine matters, with corrections occurring within several hours or weeks. More serious CLIA deficiencies could rise to the level of “condition-level” deficiencies, and CMS has the authority to impose a wide range of sanctions, including revocation of the CLIA certification along with a bar on the ownership or operation of a CLIA certified laboratory by any owners or operators of the deficient laboratory. There is an administrative hearing procedure that can be pursued by the laboratory in the event of imposition of such sanctions, during which the sanctions are stayed, but the process can take a number of years to complete. If we were to lose our CLIA certification or CAP accreditation, we would not be able to operate our clinical laboratories and perform our genetic or other tests, which would result in material harm to our business and results of operations.
We are also subject to HIPAA, for the U.S samples tested in Germany, under which the Department of Health and Human Services established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions; certain of our services, including our online client-facing portals for reporting and research, are subject to these standards and requirements. Amendments to HIPAA under the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), and related regulatory amendments, which strengthen and expand HIPAA privacy and security standards, increase penalties for violators, extend enforcement authority to state attorneys general, and impose requirements for breach notification.
We furnish pharmaceutical partners with genomic information that has been de-identified in accordance with HIPAA or anonymized in accordance with GDPR, the UK GDPR and relevant international health information privacy regulations. The laws of certain states and countries may require specific consent from the individual either to retain or utilize certain genetic or other information for research or other purposes even if such information has been de-identified or may require that we obtain a waiver of
26
such consent from an ethical or privacy review board. Even where we furnish pharmaceutical partners and academic researchers’ genomic information that has been de-identified or anonymized in accordance with applicable laws and regulations, pharmaceutical partners or academic researchers may use technology or other methods to link that de-identified or anonymized genomic information to the patient from whom it was obtained in contravention of one or more applicable laws and regulations. Similarly, as we expand our decision support applications and offerings, we may encounter greater regulatory risk, such as compliance with HIPAA, GDPR, the UK GDPR and other regulations governing the use of protected health information and the promotion of FDA approved drugs. A finding that we have failed to comply with any such laws and any remedial activities required to ensure compliance with such laws could cause us to incur substantial costs, to be subject to unfavorable publicity or public opinion, to change our business practices, or to limit the retention or use of genetic or other information in a manner that, individually or collectively, could be adverse to our business.
In the European Union, various regulations apply to genetic or other testing and the use of genomic information. In Germany, the Genetic Diagnosis Act (Gendiagnostikgesetz) (the “GenDG”) and guidelines and written opinions on novel genetic screenings developed by the Commission on Genetic Testing, an interdisciplinary independent commission established in 2009 in accordance with the GenDG, apply to such testing. The GenDG prohibits us from communicating results of genetic or other tests directly to a patient located within Germany. Instead, the results may only be provided to a physician who is a qualified genetic counsellor under applicable rules. Moreover, as of May 26, 2022, the new Regulation (EU) 2017/746 of the European Parliament and of the Council of April 5, 2017 on in vitro diagnostic medical devices (the “In Vitro Diagnostic Medical Devised Regulation” or “IVDR”) became applicable. The IVDR not only regulates the placing on the market of in vitro diagnostic medical devices (“IVD”) in the European Union, but also provides for stricter requirements in its Art. 6 with regard to the use of IVD in the context of a commercial activity for the provision of diagnostic or therapeutic services offered by means of an information society service. We are subject to the requirements of the IVDR if we provide services to natural or legal persons established in the EU by using products which qualify as IVD within the meaning of Art. 2 para. 1 IVDR, provided we offer these services “through means of information society services”.
In addition to CLIA, GDPR, the UK GDPR, HIPAA, the GenDG and the IVDR, our operations are subject to other extensive federal, state, local, and foreign laws and regulations, all of which are subject to change. Our failure to comply with any such laws and regulations could lead to civil or criminal penalties, exclusion from participation in government healthcare programs, or prohibitions or restrictions on our ability to conduct commercial activities. We believe that we are in material compliance with all statutory and regulatory requirements, but there is a risk that one or more government agencies could take a contrary position. These laws and regulations are complex and are subject to interpretation by the courts and by government agencies. In particular, about the novelties of the IVDR on the provision of services using IVDs, the scope of application of the provisions is unclear and no official practice has yet been established in this regard. If one or more such agencies allege that we may be in violation of any of these requirements, regardless of the outcome, it could damage our reputation and adversely affect important business relationships with third parties.
We are subject to numerous federal, local and foreign laws and regulations; complying with laws pertaining to our business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties and a material adverse effect to our business and operations.
Our operations are subject to extensive federal, state, local and foreign laws and regulations, all of which are subject to change. These laws and regulations currently include, among other things:
| ● | CLIA, which requires that laboratories obtain certification from the federal government, and state licensure laws; |
| ● | FDA laws and regulations, including but not limited to requirements for offering LDTs; |
| ● | HIPAA, which imposes comprehensive federal standards with respect to the privacy and security of PHI, and requirements for the use of certain standardized electronic transactions; amendments to HIPAA under HITECH, which strengthened and expanded HIPAA privacy and security compliance requirements, increased penalties for violators, extended enforcement authority to state attorneys general and imposed requirements for breach notification; |
| ● | state laws regulating genetic testing and protecting the privacy of genetic test results, as well as state laws protecting the privacy and security of health information and personal data and mandating reporting of breaches to affected individuals and state regulators; |
27
| ● | the federal Anti-Kickback Statute, which prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal health care program; |
| ● | the Eliminating Kickbacks in Recovery Act, which is an all-payor anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory; |
| ● | the federal False Claims Act, which imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment to the federal government; |
| ● | the CMP Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or Medicaid beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or Medicaid, unless an exception applies; |
| ● | other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, and false claims acts, which may extend to services reimbursable by any commercial payor, including private insurers; |
| ● | PAMA, which requires applicable laboratories to report commercial payor data in a timely and accurate manner every three years (and in some cases annually); |
| ● | state laws that impose reporting and other compliance-related requirements; and |
| ● | similar foreign laws and regulations that apply to us in the countries in which we operate. |
As a clinical laboratory, our business practices may face heightened scrutiny from government enforcement agencies such as the Department of Justice, the OIG and CMS. The OIG has issued fraud alerts in recent years that identify certain arrangements between clinical laboratories and referring physicians as implicating the Anti-Kickback Statute. The OIG has stated that it is particularly concerned about these types of arrangements because the choice of laboratory, as well as the decision to order laboratory tests, typically are made or strongly influenced by the physician, with little or no input from the patient. Moreover, the provision of payments or other items of value by a clinical laboratory to a referral source could be prohibited under the federal self-referral prohibition, commonly known as the Stark Law or the Physician Self-Referral Law, unless the arrangement meets all criteria of an applicable exception. The government has actively enforced these laws against clinical laboratories in recent years.
These laws and regulations are complex and are subject to interpretation by the courts and by government agencies. Our failure to comply could lead to significant civil or criminal penalties, exclusion from participation in state and federal health care programs, individual imprisonment, disgorgement of profits, contractual damages, reputational harm, diminished profits and future earnings, additional reporting or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law, curtailment or restructuring of our operations, or prohibitions or restrictions on our laboratories’ ability to provide or receive payment for our services, any of which could adversely affect our ability to operate our business and pursue our strategy. We believe that we are in material compliance with all statutory and regulatory requirements, but there is a risk that one or more government agencies could take a contrary position, or that a private party could file suit under the qui tam provisions of the federal False Claims Act or a similar state law. Such occurrences, regardless of their outcome, could damage our reputation and adversely affect important business relationships with third parties, including managed care organizations, and other private commercial payors.
The growth of our business may increase the potential of violating similar foreign laws or our internal policies and procedures. The risk of us being found in violation of these or other laws and regulations is further increased by the fact that many have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action brought against us for violation of these or other laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Any of the foregoing consequences could seriously harm our business and our financial results.
28
We may fail to comply with evolving European and other privacy laws.
On May 25, 2018, Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (the “GDPR”) went into effect, and the UK GDPR became effective in January 2021. In the United Kingdom, the GDPR has been implemented into United Kingdom domestic law, pursuant to the Data Protection, Privacy and Electronic Communications (Amendments etc.) (EU Exit) Regulations 2019 (as amended), which makes some minor technical amendments to ensure the GDPR is operable in the United Kingdom, or the UK GDPR. The UK GDPR is also supplemented by the Data Protection Act 2018. United Kingdom and European Union data protection law is therefore aligned. The GDPR and the UK GDPR impose a broad range of strict requirements on companies subject to the GDPR and the UK GDPR, such as us, and their processors, including requirements relating to having legal bases for processing personal data relating to identifiable individuals and transferring such information outside the European Economic Area (the “EEA”) or the UK, including to the United States, providing notice and details to those individuals regarding the processing of their personal data, keeping personal data secure, having data processing agreements with third parties who process personal data as processor, responding to individuals’ requests to exercise their rights in respect of their personal data, reporting security breaches involving personal data to the competent national data protection authority and affected individuals, appointing data protection officers, conducting data protection impact assessments, and record keeping. The GDPR and the UK GDPR increase substantially the penalties to which we could be subject in the event of any non-compliance, including fines of up to the higher of 10,000,000 euros and 2% of our total worldwide annual turnover for the preceding financial year for certain comparatively minor offenses, or up to the higher of 20,000,000 euros and 4% of our total worldwide annual turnover for the preceding financial year under the GDPR, or 17,500,000 GBP and 4% of our total worldwide annual turnover under the UK GDPR, for more serious offenses. Given the new law, we face uncertainty as to the exact interpretation of the new requirements and we may be unsuccessful in implementing all measures required by data protection authorities or courts in interpretation of the new law.
National laws of member states of the European Union may partially deviate from the GDPR and impose different obligations from country to country. Therefore, we may not operate in a uniform legal landscape in the European Union. Also, in the field of handling genetic and health data, the GDPR specifically allows national laws to impose additional and more specific requirements or restrictions, and European laws have historically differed quite substantially in this field, leading to additional uncertainty. Following Brexit, we are also required to comply with the UK GDPR. The free movement of data between the United Kingdom and the Member States of the European Union is ensured by an Adequacy Decision by the European Commission pursuant to Art. 45 GDPR. However, there are efforts to change data protection law in the United Kingdom. In this context, there is uncertainty as to whether an adequate level of data protection can continue to be maintained, including the free movement of data between the United Kingdom and the European Union. These changes could lead to additional compliance costs and could increase our overall risk.
We must also ensure that we maintain adequate safeguards to enable the transfer of personal data outside of the EEA and the UK, in particular to the United States, in compliance with European and UK data protection laws. In this regard, the July 2020 ruling by the Court of Justice of the EU (the “CJEU”) in the case referred to as Schrems II is significant. The CJEU held that businesses can use European Commission endorsed standard contractual clauses (“SCCs”), which are widely relied on, for data transfers to jurisdictions outside of the EEA. However, it emphasized the need for due diligence by businesses if they wish to use SCCs and called into question whether businesses can use SCCs to facilitate data transfers to certain jurisdictions with invasive surveillance regimes in a way which complies with the GDPR and the UK GDPR. This is also true for the new set of SCCs adopted by the European Commission in 2021. The CJEU also invalidated the EU-US Privacy Shield for transferring personal data from the EEA to the US. Under Clause 14 of the new SCC, data exporters must conduct a “data transfer impact assessment” (“DTIA”) to ensure that the data importer can actually contractually guarantee adequate data protection standards under the SCC. Such DTIA are both costly and time consuming. In addition, there is great uncertainty about how the DTIA is to be carried out in individual cases and how the national regulations in the country of the data importer are to be considered. However, on July 10, 2023, the European Commission adopted an adequacy decision for a new mechanism for transferring data from the European Union to the United States – the E.U.-U.S. Data Privacy Framework, which provides E.U. individuals with several new rights, including the right to obtain access to their data, or obtain correction or deletion of incorrect or unlawfully handled data, and allows U.S. companies to self-certify to the U.S. Department of Commerce their compliance with a set of agreed privacy principles in order to freely receive E.U. personal data. The adequacy decision followed the signing of an executive order in the U.S. introducing new binding safeguards to address the points raised in the Schrems II judgment. Notably, the new obligations were geared to ensure that data can be accessed by U.S. intelligence agencies only to the extent necessary and proportionate and to establish an independent and impartial redress mechanism to handle complaints from Europeans concerning the collection of their data for national security purposes. The UK-US Data Bridge (the UK extension to the Data Privacy Framework) came into force shortly after the E.U. – U.S. Data Privacy Framework and provides UK individuals with similar rights. Organizations that have not certified under the under the E.U. – U.S. Data Privacy Framework (or the UK-US Data Bridge) may utilize another data transfer mechanism, such as the EU Commission approved Standard Contractual Clauses, or the UK
29
equivalent, respectively. The European Commission and the UK government will continually review developments in the United States along with their adequacy decisions. Consequently, there is some risk of any data transfers from the EU and UK being halted. In addition, in June of 2021, the European Commission issued a decision, which will sunset on June 27, 2025 without further action, that the United Kingdom ensures an adequate level of protection for personal data transferred under the E.U. GDPR from the E.U. to the United Kingdom. Adequacy decisions can be adapted or even withdrawn in the event of developments affecting the level of protection in the applicable jurisdiction.
We expect that we will continue to face uncertainty as to whether our efforts to comply with our obligations under European privacy laws will be sufficient. If we are investigated by a European data protection authority, we may face fines and other penalties. Any such investigation or charges by European data protection authorities could have a negative effect on our existing business and on our ability to attract and retain new clients or pharmaceutical partners. We may also experience hesitancy, reluctance, or refusal by European or multinational clients or pharmaceutical partners to continue to use our products and solutions due to the potential risk exposure as a result of the current (and, in particular, future) data protection obligations imposed on them by certain data protection authorities in interpretation of current law, including the GDPR and the UK GDPR. Such clients or pharmaceutical partners may also view any alternative approaches to compliance as being too costly, too burdensome, too legally uncertain, or otherwise objectionable and therefore decide not to do business with us. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
In addition, various U.S. states have enacted privacy and security laws and regulations, and such laws and regulations vary from state to state, constantly evolve, and remain subject to significant change. In some cases, such laws and regulations can impose more restrictive requirements than HIPAA and other U.S. federal laws, thus complicating compliance efforts. By way of example, California has enacted the California Consumer Privacy Act, or CCPA, which went into effect in January of 2020. The CCPA established a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for California residents, requiring covered business to provide new disclosures to California residents, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. Additionally in 2020, California voters passed the California Privacy Rights Act, or CPRA, which went into full effect on January 1, 2023. The CPRA significantly amends the CCPA, potentially resulting in further uncertainty, additional costs and expenses in an effort to comply and additional potential for harm and liability for failure to comply. Among other things, the CPRA established a new regulatory authority, the California Privacy Protection Agency, which is tasked with enacting new regulations under the CPRA and will have expanded enforcement authority. In addition to California, more U.S. states are enacting similar legislation, increasing compliance complexity, and increasing risks of failures to comply. In 2023, comprehensive privacy laws in Virginia, Colorado, Connecticut, and Utah all took effect, and laws in Montana, Oregon, and Texas will take effect in 2024. In addition, laws in other U.S. states are set to take effect beyond 2024, and additional U.S. states have proposals under consideration, all of which are likely to increase our regulatory compliance costs and risks, exposure to regulatory enforcement action and other liabilities. While these state privacy laws, like the CCPA, also exempt some data processed in the context of clinical trials (and most also exempt employee and business personal data), these developments further complicate compliance efforts, and increase legal risk and compliance costs for us and the third parties upon whom we rely. The scope and enforcement of these laws is uncertain and subject to rapid change. For example, increasing concerns about health information privacy have recently prompted the federal government to take a newly expansive view of the scope of existing privacy laws and regulations. Congress and some states are considering (and in some cases have passed) new laws and regulations that further and more broadly protect the privacy and security of personal health information.
The interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and our clients and potentially exposing us to additional expense, adverse publicity, and liability. Further, as regulatory focus on privacy issues continues to increase and laws and regulations concerning the protection of personal information expand and become more complex, these potential risks to our business could intensify.
We could be adversely affected by violations of worldwide anti-bribery laws, including the U.S. Foreign Corrupt Practices Act.
We are subject to a variety of anti-bribery and anti-corruption laws in the jurisdictions in which we operate. In particular, we are subject to Germany’s Anti-Bribery Act of 2015 (Gesetz zur Bekämpfung der Korruption im Gesundheitswesen), which implements EU anti-corruption laws and the European legislation and the Criminal Law Convention on Corruption of the Council of Europe into German law, and the FCPA, which prohibits companies and their intermediaries from making payments in violation of law to non-United States government officials for the purpose of obtaining or retaining business or securing any other improper advantage. We are also subject to similar anti-bribery laws in the jurisdictions in which we operate, including the United Kingdom’s Bribery Act of 2010, which prohibits commercial bribery and makes it a crime for companies to fail to prevent bribery.
30
We use third-party collaborators, strategic partners, law firms and other representatives for patent registration and other purposes in a variety of countries, including those that are known to present a high corruption risk. We also use third-party distributors worldwide as part of our diagnostics business. Our reliance on third parties to sell our products and solutions internationally demands a high degree of vigilance because we can be held liable for the corrupt or other illegal activities of these third-party collaborators, or their or our employees, representatives, contractors, partners, and agents, even if we do not explicitly authorize such activities. In addition, although we have implemented policies and procedures to ensure compliance with anti-corruption and related laws and maintain a code of conduct, there can be no assurance that all of our employees, representatives, contractors, partners, or agents will comply with these laws at all times. Other United States companies in the medical device and pharmaceutical fields have faced criminal penalties under the FCPA for allowing their agents to deviate from appropriate practices in doing business with these individuals.
These laws are complex and far-reaching in nature, and, as a result, we cannot assure you that we would not be required in the future to alter one or more of our practices to be in compliance with these laws, any changes in these laws, or the interpretation thereof. Non-compliance with these and other relevant laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and debarment from contracting with certain governments or other persons, the loss of export privileges, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, results of operations, and financial condition could be materially harmed. In addition, responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense costs and other professional fees. Enforcement actions and sanctions could further harm our business, results of operations, and financial condition.
We may fail to adhere to regulations of promotional claims and activities regarding our products and solutions.
Once a patient has been identified and diagnosed through our diagnostics testing, we provide each patient’s physician with a diagnostic report. If a positive diagnosis is confirmed, we provide the physician with information on relevant treatment options, although the physician is responsible for ultimately making clinically relevant decisions for the treatment of his or her patient.
In the United States, the FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription drugs and devices. In particular, a device may not be promoted for uses or indications beyond those contained in the device’s approved labeling, or “off-label” uses. Similar laws and regulations exist in other jurisdictions where we promote our products. If the FDA determines that we have promoted our products for off-label use, it could request that we modify those promotional materials or take regulatory or enforcement actions, including the issuance of an untitled letter, warning letter, injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities may take action if they consider our promotional or training materials to constitute promotion of an unapproved use. If not successfully defended, enforcement actions related to off-label promotion could result in significant fines or penalties. The U.S. government has levied large civil and criminal fines against companies for alleged improper promotion and has entered into corporate integrity agreements and deferred prosecution agreements with companies that engaged in off-label promotion. The FDA has also requested that such companies enter into consent decrees and has taken other enforcement action. If the DOJ or FDA determines that we have engaged in off-label promotion in our test reports, we may be subject to civil or criminal fines. Although our policy is to refrain from statements that could be considered off-label promotion of third parties, the regulatory standards regarding off-label promotion are ambiguous, and the FDA or another regulatory agency could conclude that we have engaged in off-label promotion.
In addition to promoting our devices in a manner consistent with their approved indications, we must have adequate substantiation for the claims we make for our products or solutions. If any of our claims are determined to be false, misleading or deceptive, our products or solutions could be considered to be misbranded under the Federal Food, Drug, and Cosmetic Act (the “FDC Act”) or to violate the Federal Trade Commission Act. We could also face lawsuits from our competitors under the Lanham Act, alleging that our marketing materials are false or misleading. Such lawsuits, whether with or without merit, are typically time-consuming, costly to defend, and could harm our reputation.
Federal and state legislation regulate interactions between medical device manufacturers and healthcare professionals. We are subject to federal and state laws targeting fraud and abuse in healthcare, including anti-kickback laws, false claims laws, and other laws constraining or otherwise related to financial arrangements manufacturers may enter into with healthcare professionals. For example, the Physician Payments Sunshine Act requires device manufacturers to report and disclose payments or other transfers of value made to physicians and teaching hospitals. Violations of these laws can result in criminal or civil sanctions, including fines, imprisonment, and exclusion from government reimbursement programs, all of which could materially harm our business.
31
In addition, incentives exist under applicable laws that encourage competitors, employees, and physicians to report violations of law governing promotional activities for pharmaceutical products and solutions. These incentives could lead to so-called whistleblower lawsuits as part of which such persons seek to collect a portion of monies allegedly overbilled to government agencies due to, for example, promotion of pharmaceutical products and solutions beyond labeled claims. These incentives could also lead to lawsuits that claim we have mischaracterized a competitor’s service in the marketplace and, as a result, we could be sued for alleged damages to our competitors. Such lawsuits, whether with or without merit, are typically time-consuming and costly to defend. Such lawsuits may also result in related shareholder lawsuits, which may also be costly to defend.
Changes in the way that the FDA and the European Union regulate laboratory developed tests, manufactured, validated, and performed by laboratories like ours could result in additional expense in offering our current and any future products and solutions or even possibly delay or suspend development, manufacture, or commercialization of such products and solutions.
The FDA does not currently regulate most laboratory developed tests (“LDTs”). We believe that the tests we currently offer meet the definition of LDTs, as they have been designed, developed and validated for use in a single CLIA-certified laboratory. If our tests are qualified as LDTs, they are currently subject to FDA enforcement discretion, meaning that the agency will not actively pursue enforcement action of such tests under the medical device regulations. Since the early 1990s, the FDA has taken the position that, although LDTs are medical devices, it would exercise enforcement discretion by not requiring compliance with the FDC Act, or its regulations for LDTs. However, in October 2023, the FDA issued a proposed rule aimed at regulating LDTs under the current medical device framework and proposing to phase out its existing enforcement discretion policy for this category of diagnostic tests. The agency’s proposal envisions that the LDT enforcement policy phase-out process would occur in gradual stages over a total period of four years, with premarket approval applications for high-risk tests to be submitted by the 3.5-year mark, although more details are expected to be provided with the upcoming final rule. The FDA plans to finalize the LDT rule in April 2024, but it is likely to face litigation challenging the agency’s authority to take such action. Affected stakeholders continue to press for a comprehensive legislative solution to create a harmonized paradigm for oversight of LDTs by both the FDA and CMS, instead of implementation of the proposed FDA administrative action, which may be disruptive to the industry and to patient access to certain diagnostic tests.
Separately, members of Congress have been working for the past several years on legislation to create an LDT and IVD regulatory framework that would be separate and distinct from the existing medical device regulatory framework. For example, as drafted and re-introduced for consideration by the current Congress, the Verifying Accurate, Leading-edge IVCT Development Act, or VALID Act, would codify into law the term “in vitro clinical test,” to create a new medical product category separate from medical device that includes all products currently regulated as IVDs as well as LDTs. The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and to establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients.
Whether as a result of new legislative authority or following formal notice-and-comment rulemaking, if the FDA begins to enforce new regulatory requirements for LDTs, or if the FDA disagrees with our assessment that our IVD products are LDTs, our tests could for the first time be subject to a variety of regulatory requirements, including registration and listing, medical device reporting and quality control. We also could be required to obtain premarket clearance or approval for our existing test and any new tests we are developing or may develop, which may force us to cease marketing such products until we obtain the required clearance or approval. If we are required to obtain premarket clearance or approval and/or conduct premarket clinical trials, our development costs could significantly increase, our introduction of any new tests we may develop may be delayed, and sales of our existing test could be interrupted or stopped. If the FDA requires any form of premarket review, our tests may not be cleared or approved on a timely basis, or at all. Any of these outcomes could reduce our revenue or increase our costs and materially adversely affect our business, prospects, results of operations, or financial condition. Moreover, any cleared or approved labeling claims may not be consistent with our current claims or adequate to support continued adoption of and reimbursement for our tests.
Additionally, should future regulatory actions affect any of the reagents we obtain from suppliers and use to perform our commercial tests, our business could be adversely affected in the form of increased costs of testing or delays, limits, or prohibitions on the purchase of necessary reagents. While we qualify all materials used in our products in accordance with the regulations and guidelines of CLIA, the FDA could promulgate regulations or issue guidance for industry that may impact our ability to purchase materials necessary for the performance of our tests. If any of the reagents we obtain from suppliers and use are affected by future regulatory actions, our business could be adversely affected, including by increasing the cost of testing or delaying, limiting, or prohibiting the purchase of reagents necessary to perform testing with our products.
32
Failure to comply with any applicable FDA requirements could trigger a range of enforcement actions by the FDA, including but not limited to warning letters, civil monetary penalties, injunctions, criminal prosecution, recall or seizure, operating restrictions, partial suspension or total shutdown of operations and denial of or challenges to applications for clearance or approval, as well as significant adverse publicity.
In addition, in November 2013, the FDA finalized guidance regarding the sale and use of products labeled for research or investigational use only. Among other things, the guidance states that the FDA continues to be concerned about distribution of research- or investigational-use only products intended for clinical diagnostic use. The guidance states that the FDA will assess whether a manufacturer of such research- or investigational-use only products intends that its products be used for clinical diagnostic purposes by examining the totality of circumstances, including advertising, instructions for clinical interpretation, presentations that describe clinical use, and specialized technical support such as assistance performing clinical validation, surrounding the distribution of the product in question. The FDA has advised that if evidence demonstrates that a product is inappropriately labeled for research- or investigational-use only, the device could be deemed misbranded and adulterated within the meaning of the FDC Act. If the FDA were to undertake enforcement actions, some of our suppliers may cease selling research-use only (“RUO”) products to us, and any failure to obtain an acceptable substitute could significantly and adversely affect our business, financial condition and results of operations.
In the European Union LDTs are similarly exempt from certain regulations that govern medical devices and IVD under certain conditions. As of May 26, 2022, when the new IVDR became applicable, the general safety and performance requirements set out in Annex I of the IVDR are applicable also to IVD manufactured and used only within health institutions. Overall, the exemptions for LDTs are narrowed, as even in relation to LDTs, health institutions, among others, have to provide information upon request on the use of such devices to their competent authority and each health institution will have to draw up a declaration, which it will make publicly available. If these conditions are not met and/or diagnostic tests are manufactured and used only within health institutions but “on an industrial scale”, or if the health institution cannot justify in its documentation that the target patient group’s specific needs cannot be met (including at the appropriate level of performance) by an equivalent device already available on the market, from May 26, 2028, such tests will qualify as IVDs with the full applicability of the IVDR. If we were not able to qualify for an exemption, we would be subject to all legal requirements of the IVDR. We also cannot predict whether the EU will amend or implement new laws which may impact our current operations.
For tests that are subject to FDA or EU regulation, we may not be able to obtain timely approvals for our tests or for modifications to our tests, which could delay or prevent us from commercializing our tests and harm our business.
The diagnostic tests we currently offer might meet the definition of LDTs, as they have been designed, developed and validated for use in a single CLIA-certified laboratory. If our tests are LDTs, they are currently subject to FDA enforcement. As of 2022, when the new IVDR came into force in the European Union, a qualification of our diagnostic tests as IVD becomes more likely as the manufacturing of diagnostic tests “on an industrial scale” might not qualify as LDTs. The IVDR itself does not provide for a definition of the term “industrial scale”. According to the guidance document MDCG-2023-01 published by the Medical Devices Coordination Group (“MDCG”), this new concept for LDTs involves many factors to be considered on a case-by-case basis, including e.g., volume of production, commercial aspects and manufacturing process. Moreover, the facilitations applicable to LDT as laid down in Art. 5 IVDR should only be applicable to devices that are produced by a health institution in order to meet the patient group’s specific needs, and therefore, no more than the estimated number of required devices should be produced. If the FDA takes action to finalize and implement a regulatory system for LDTs, or if legislation is enacted that subjects LDTs to FDA regulation, we would need to comply with the FDA regulatory requirements for our LDTs. If the FDA takes action to regulate LDTs as devices, we believe that our LDTs would likely be regulated as Class II devices.
In the EU, genetic or other tests on humans and prenatal tests for genetically caused disorders are regulated as Class C devices under the IVD Regulation. If our LDTs are subject to the IVD Regulation, our tests that qualify as Class C devices will be subject to conformity assessments performed by a notified body.
If services that are currently marketed as LDTs become subject to FDA requirements for in-vitro-diagnostics or are qualified as being subject to the European Union regulations on in vitro diagnostic medical devices, including requirements for premarket clearance or approval, we may not be able to obtain such clearance or approvals on a timely basis, or at all. Our business could be negatively impacted if we are required to stop selling genetic rare disease knowledge and interpretation-based products and solutions pending their clearance or approval, or the launch of any new products and solutions that we develop could be delayed. Likewise, for tests that are regulated as medical devices, we may not be able to obtain clearance or approval of new devices or modifications to marketed devices on a timely basis, or at all, which could delay or prevent us from commercializing our tests and harm our business.
33
Class II medical devices must obtain FDA clearance of a premarket notification, or 510(k) clearance, prior to marketing, unless the FDA has exempted the device from this requirement. Under the 510(k) process, we must demonstrate that our test is substantially equivalent in technological characteristics and intended use to a legally marketed predicate device. The FDA’s review and clearance of a 510(k) usually takes from three to twelve months, but it can take longer. Any modifications to an FDA-cleared device that could significantly affect its safety or effectiveness or that would constitute a major change in its intended use would require a new 510(k) clearance or, if the modified device is not substantially equivalent, possibly a de novo classification request or a premarket approval (“PMA”) application.
If we are unable to identify an appropriate predicate that is substantially equivalent to our device, we would be required to submit a PMA application or a De Novo classification request, because devices that have not been classified are automatically categorized as Class III. Under the De Novo classification process, we may request that the FDA classify a new low or moderate risk device that lacks an appropriate predicate as a Class I or Class II device. The De Novo classification process typically requires the development of clinical data and usually takes between six to twelve months from the time of submission of the required application, but it can take longer.
For tests that are subject to FDA or EU regulation, if we do not comply with FDA or EMA regulatory requirements, we may be subject to enforcement action, with severe consequences for our business.
After approval, devices subject to FDA or EMA regulation are required to comply with post-market requirements. Among the requirements, we and our suppliers must comply with the FDA’s Quality System Regulations (“QSRs”), which set forth requirements for the design and manufacture of devices, including the methods and documentation for the design, control testing, quality assurance, labeling, packaging, storage, and shipping of our devices. Our limited experience in complying with these requirements may lead to operational challenges as we increase the scale of our QSR-compliant operations in the United States and develop and refine our policies and procedures for evaluating and mitigating issues we encounter with our processes. Further, if there are any modifications made to the manufacturing of our PMA-approved marketed solutions, a PMA supplement may be required to be submitted to, and approved by, the FDA before the modified device may be marketed.
Other post-market requirements include the reporting of adverse events and malfunctions of which we become aware within the prescribed time frame to the FDA, post-approval studies, establishment registration and device listing, and restrictions on advertising and promotion. We may fail to meet these requirements, which could subject our business to further regulatory risks and costs.
The FDA enforces the post-market requirements of the FDC Act through announced and unannounced inspections. Failure to comply with applicable regulatory requirements could require us to expend time and resources to respond to the FDA’s observations and to implement corrective and preventive actions, as appropriate. If we cannot resolve such issues to the satisfaction of the FDA, we may be subject to enforcement actions, including untitled or warning letters, fines, injunctions, or civil or criminal penalties. In addition, we could be subject to a recall or seizure of current or future solutions, operating restrictions, a partial suspension, or a total shutdown of service. Any such enforcement action would have a material adverse effect on our business, financial condition, and results of operations.
We face inspections, reviews, audits and investigations under federal and state government programs and contracts and health insurance providers regarding our billing practices.
We may be subject to inspections, reviews, audits and investigations regarding our billing practices to verify our compliance with federal and state government program requirements and contracts and applicable laws and regulations. Other third-party payors, including private health insurance providers, may also reserve the right to conduct audits. An adverse result of an inspection, review, audit or investigation could result in:
| ● | denial of claims or recoupment or refunding of amounts from other payors; |
| ● | state or federal agencies imposing fines, penalties or other sanctions on us, including under the federal U.S. False Claims Act; |
| ● | temporary suspension of payments; |
| ● | revocation of billing privileges or exclusion from participation in programs or one or more payor networks; |
| ● | self-disclosure of violations to applicable regulatory authorities; |
| ● | damage to our reputation; |
| ● | criminal penalties; |
34
| ● | revision or restatements of historical financial statements, including derecognition of revenue for claims we were not entitled to; and |
| ● | loss of certain rights under, or termination of, our contracts with payors. |
We have in the past and may in the future be required to refund amounts we have been paid and/or pay fines and penalties as a result of these inspections, reviews, audits and investigations, in particular if our documentation, billing and other practices do not comply with applicable government program or other payor requirements.
We responded to an asserted overpayment following an audit of claims for diagnostic tests that was submitted to the U.S. government Medicare program previously recognized. In addition, we refunded payments received from a private health insurance company relating to reimbursement claims submitted for COVID-19 testing services between November 2020 and November 2021 and recognized in 2021. We recognized in our consolidated financial statements as of December 31, 2022, EUR 1,060 thousand of other liabilities to be refunded back to Medicare for overpayments made between 2019 and 2022.
Intellectual Property Risks Related to Our Business
If we are unable to obtain and maintain patent and other intellectual property protection for any products or solutions we develop and for our technology, or if the scope of intellectual property protection obtained is not sufficient, our competitors could develop and commercialize products and solutions similar or identical to ours, and our ability to successfully commercialize any products or solutions we may develop may be adversely affected.
Our success depends on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries for our biomarkers and other products and solutions. Patent law relating to the scope of claims in the fields in which we operate is complex and uncertain, so we cannot make any assurances that we will be able to obtain or maintain patent or other intellectual property rights, or that the patent and other intellectual property rights we may obtain will be valuable, provide an effective barrier to competitors or otherwise provide competitive advantages. In particular, our Lyso-Gb3 biomarker, which we use to support the diagnosis of Fabry disease, is not protected by any patents or included in any pending patent applications, and its successful commercialization by one of our competitors or by other third parties, which, in all probability, we would not be able to prevent, could materially harm our business or results of operations. Moreover, patent applications that we have made in the past have been subject to comment and revision by the relevant patent offices, which have resulted in our withdrawal of certain patent applications. If we are unable to obtain or maintain patent or other intellectual property protection with respect to our proprietary products and solutions, our business, financial condition, results of operations, and prospects could be materially harmed.
The scope of patent protection is uncertain. Changes in either the patent laws or their interpretation in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain, and enforce our intellectual property rights and, more generally, could affect the value of our intellectual property or narrow the scope of our patents. We cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors.
The patent prosecution process is expensive, time-consuming, and complex, and we may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output in time to obtain patent protection. Parties who have access to confidential or patentable aspects of our research and development output, such as our management and employees, advisors, and other third parties, and who are subject to non-disclosure and confidentiality agreements with us, may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek patent protection, or might themselves file respective IP rights. In addition, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to make the inventions claimed in our patents or pending patent applications, or that we were the first to file for patent protection of such inventions.
The patent position of companies in our industry generally is unsettled, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our products or solutions or which effectively prevent others from commercializing competitive products and solutions.
35
Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications issue as patents, they may not issue in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us, or otherwise provide us with any competitive advantage. Any patents that we hold may be challenged, narrowed, circumvented, or invalidated by third parties. In particular, for more information regarding U.S. patent law decisions that negatively impact the patentability of biomarkers, diagnostic products and diagnostic methods, and the validity of granted U.S. patents covering such subject matter, see “—Developments in patent law could have a negative impact on our business” below. Consequently, we do not know whether any of our biomarkers or other products and solutions will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative products and solutions in a non-infringing manner. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.
If we are unable to protect the confidentiality of our trade secrets, know-how, and other confidential and proprietary information, our business and competitive position would be harmed.
In addition to seeking patent protection for our products and solutions, we also rely upon trade secret protection and non-disclosure agreements and invention assignment agreements with our management and employees, consultants and other third parties to protect our unpatented know-how, technology, and other confidential or proprietary information. For example, significant elements of our proprietary platform and some of our tests, including aspects of sample preparation, computational-biological algorithms, and related processes and software, are based on unpatented trade secrets and know-how that to our knowledge are not publicly disclosed. In addition to contractual measures, we try to protect the confidential nature of our proprietary information using physical and technological security measures. Such measures may not provide adequate protection for our proprietary information; for example, in the case of misappropriation of intellectual rights by a member of management, an employee, consultant, or other third party with authorized access. We also cannot rule out the possibility that third parties specifically try to obtain our know-how, trade secrets or other confidential and proprietary information.
Trade secrets and know-how can be difficult to protect. We cannot guarantee that we have entered into applicable non-disclosure agreements and invention assignment agreements with our management and employees, consultants and other third parties who have had access to our trade secrets or other proprietary information. Our security and contractual measures may not prevent a member of management, an employee, consultant, or other third party from misappropriating our trade secrets and providing them to a competitor, other third parties or to the public, and any recourse we take against such misconduct, including litigation, may not provide an adequate remedy to protect our interests fully. Enforcing a claim that a party illegally disclosed or misappropriated intellectual property can be difficult, expensive, and time-consuming, and the outcome is unpredictable. Due to variations in the degree of protection afforded to intellectual property of this nature under the laws and regulations applicable to different international markets where our services are sold, our ability to pursue and obtain an adequate remedy may depend significantly on the jurisdiction in which the misconduct takes place and our ability to enforce a favorable judgment against the offending party in a jurisdiction in which such party has substantial assets. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. If any of our confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information were independently developed by a competitor, our competitive position could be harmed.
36
Patents covering our products or solutions could be found invalid or unenforceable if challenged
The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad. Others have filed, and in the future are likely to file, patent applications or related intellectual property rights that are similar or identical to ours. To determine the priority of inventions, demonstrate that we did not derive our invention from another individual or entity, or defend third party challenges or reservations of the granting authorities to the validity or enforceability of our patent rights, we may have to participate in opposition, derivation, revocation, reexamination, entitlement, post grant and inter partes review (“IPR”), or interference proceedings at the U.S. Patent and Trademark Office (the “USPTO”) or similar offices or respective courts in Europe or other jurisdictions. For example, we are aware of an opposition proceeding filed at the European Patent Office (“EPO”) by Sanofi against EP Patent No. 2 718 725 B1 (the “725 Patent”), a European patent that we (i.e. Centogene GmbH) own relating to our biomarker for Gaucher disease. The EPO opposition proceeding challenges the patentability of the ‘725 Patent in its entirety. The EPO rejected the opposition in the first instance in the hearing held on February 4, 2020. Sanofi filed an appeal against the opposition decision to the Board of Appeal at the EPO.. The Board of Appeal of the EPO revoked the patent on September 26, 2023. This decision can no longer be appealed and is therefore final. There are no further legal remedies available. The invalidation of the European patent will presumably not or only marginally harm our current business. We are also aware of an opposition proceeding filed at the European Patent Office (“EPO”) by Sanofi against EP Patent No. 3 318 881 B1 (the “‘881 Patent”) on April 15, 2021, another European patent that we (i.e. Centogene GmbH) own relating to our biomarker for Gaucher disease. The EPO opposition proceeding challenges the patentability of the ‘881 Patent in its entirety. Oral proceedings concerning the European patent took place before the opposition division of the EPO on May 04, 2022. The '881 Patent was maintained in limited form. We and Sanofi appealed the opposition decision. While we claim in our appeal that the opposition decision is reversed and the 881 Patent is maintained based on the set of claims as granted, Sanofi claims that the ‘881 Patent is revoked in its entirety. The outcome of the appeal is unclear. The Board of Appeal scheduled oral appeal proceedings for November 18, 2024. The ‘881 Patent may be revoked or maintained in amended, also further limited form, in whole or in part, which could materially harm our business. Revoking or maintaining the ‘881 Patent in amended form may limit our ability to stop others from using or commercializing similar or identical products and solutions to ours or limit the duration of the patent protection of our products and solutions. See “Item 4. Information On The Company—B. Business Overview—Legal Proceedings” and “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” Sanofi or other third parties may file future oppositions or other challenges, in Europe or other jurisdictions, against other patents that we own and may also challenge or attack the validity of the national parts of the ‘725 Patent and/or the ‘881 Patent before national patent courts in parallel or after the proceedings before the EPO. An adverse determination in any such proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our products or solutions and compete directly with us, without payment to us.
As of June 1, 2023, actions will most likely also be possible before the new European Unified Patent Court. If we do not actively exclude our existing (European patent applications as well as granted) European patents from this system (“opt-out”), they will become part of this new court system and it will be possible for third parties to challenge these patents before the courts of the Unified Patent Court system, with the consequence that these patents can then be restricted or revoked for the territory of all EU Member States participating in the Unitary Patent Court system (at the time of December 31, 2023, these are Austria, Belgium, Bulgaria, Denmark, Estonia, Finland, France, Germany, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovenia and Sweden; other countries may be added in the future, in particular Cyprus, Czech Republic, Greece, Hungary, Ireland, Romania and Slovakia) for which the European patent has effect. The same applies for future European patents and patent applications that are not opted out of the Unified Patent Court system, which is possible for a period of seven years after the date of entry into force of the Agreement on a Unified Patent Court unless an action has already been brought before the Unified Patent Court system in respect of the European patent or patent application. For future European patent applications, it also has to be decided whether a request for unitary effect is submitted with the consequence that the patent if grantable will be granted as Unitary Patent and can therefore be challenged before the Unified Patent Court and be restricted or revoked for the territory of all EU Member States participating in the Unitary Patent Court system.
37
Moreover, we may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post grant challenge proceedings, such as oppositions in a foreign patent office or nullity or entitlement proceedings, that challenge priority of invention or other features of patentability. Such challenges may result in loss of patent rights, loss of exclusivity, or in patents being cancelled, narrowed, amended, invalidated, revoked, or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products and solutions, or limit the duration of the patent protection of our products and solutions. Such proceedings could also result in substantial costs in legal fees and require significant time from our management and employees, even if the eventual outcome is favorable to us. In the event of entitlement proceedings, purported co inventors may bring claims for ownership, co-ownership, compensation and/or damages. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common shares. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.
In addition, if we initiate legal proceedings against a third party to enforce a patent covering our products or solutions, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. In other jurisdictions, defendants have and/or may have comparable grounds for defending against such claims, especially with regard to claims that a patent is invalid. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution or that a court or office dealing with the invalidity will judge prior art known to us to be detrimental to novelty in a manner deviating from our opinion and/or the opinion of the granting authority, or will consider the invention to be obvious and thus not protectable on the basis of such prior art. Such challenges could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer sufficiently cover our products and solutions. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our products or solutions. Such a loss of patent protection would materially harm our business, prospects, financial condition and results of operations. Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products and solutions and/or impact our share price.
Our commercial success depends upon our ability to develop and commercialize products and solutions and use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. We could become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our technology and any products or solutions we may develop, including interference proceedings, post-grant review, IPR, and derivation proceedings before the USPTO and similar proceedings in foreign jurisdictions, such as oppositions before the EPO or nullity or entitlement proceedings. Third parties may assert infringement and other claims against us based on existing patents or patents that may be granted in the future, regardless of their merit, and we may assert infringement and other claims against third parties. As we continue to commercialize our genetic rare and neurogenerative disease information solutions (including our biomarkers), launch new solutions and enter new markets, we expect that competitors will claim that our products or solutions infringe or otherwise violate their intellectual property rights, including as part of business strategies designed to impede our successful commercialization and entry into new markets. Third parties may have obtained, and may in the future obtain, patents under which such third parties may claim that the use of our technologies constitutes patent infringement. Third parties have in the past asserted and may in the future assert that we are employing their proprietary technology without authorization, and we occasionally receive letters from third parties inviting us to take licenses under, or alleging that we infringe, their patents. Depending upon the circumstances, we may elect to remove a particular biomarker from one of our products or solutions.
38
Even if we believe that third-party intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that these third-party patents are valid, enforceable, and infringed, which could materially and adversely affect our ability to commercialize any products or solutions we may develop or have developed. In order to successfully challenge the validity of any such U.S. patent in federal court or in courts in other jurisdictions, we would need to overcome a presumption of validity. As this burden is a high one, requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. The same applies to other jurisdictions and patents. Even if we were to find prior art that could justify the invalidation of the intellectual property right under which we are attacked, because of the bifurcated system dealing with infringement and validity before different courts in some jurisdictions (e.g., Germany), we may first be injuncted for infringement of the intellectual property right, which may be corrected only after subsequent invalidation of the intellectual property right. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such patents are invalid or unenforceable, we could be required to obtain a license from such third party to continue commercializing our products or solutions. However, we may not be able to obtain any required license on commercially reasonable terms, or at all and therefore may be unable to develop, sell or otherwise commercialize our products or solutions. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing, royalty, and other payments. Furthermore, parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize, and sell our products and solutions, and could result in the award of substantial damages against us. In the event of a successful claim of infringement, misappropriation, or other intellectual property violation against us, we may be required to render account for and pay damages and attorneys’ fees, recall or destroy stocks and obtain one or more licenses from third parties, or be prohibited from developing, commercializing and selling certain products or solutions. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right.
The new European Unified Patent Court system, which started on June 1, 2023, allows the patent owner to obtain injunctive relief with unitary effect with a single decision of the courts of the Unified Patent Court system, i.e. within all the territories of the EU Member States participating in the Agreement on a Unified Patent Court including e.g. claims for damages, compensation, recall, destruction and information with regard to its Unitary Patents. For European patents not taken out of the Unified Patent Court system by “opt-out” and future European patents for which no request for unitary effect was submitted, decisions of the courts of the Unified Patent Court system cover the territory of the EU Member States participating in the Agreement on a Unified Patent Court for which the European patent has effect. This may result in the loss of significant market opportunities and substantial adverse effects of a judgement.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our shares. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. 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 and more mature and developed intellectual property portfolios. Furthermore, 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. We also could incur substantial costs and divert the attention of our management and other employees in participating in litigation or proceedings of this nature, and an adverse ruling or perception of an adverse ruling could have a material adverse impact on our cash position and share price. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
39
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Obtaining and maintaining a patent portfolio entails significant expense and resources. Part of the expense includes periodic maintenance fees, renewal fees, annuity fees and various other governmental fees associated with patents and patent applications due in several stages over the lifetime of patents and patent applications. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. We may or may not choose to pursue or maintain protection for particular inventions. In addition, there are situations in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If we choose to forego patent protection or allow a patent application or patent or other intellectual property right to lapse purposefully or inadvertently, our competitive position could suffer. In such an event, potential competitors might be able to enter the market with similar or identical products and solutions. If we fail to obtain, maintain, protect or enforce our intellectual property rights successfully, our competitive position could suffer. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
Our rights to develop and commercialize our technology, products and solutions may in the future be subject, in part, to the terms and conditions of licenses granted to us by others.
In connection with the development of new products and solutions we may license intellectual property from third parties in the future or may deem it necessary to do so in order to commercialize our products or solutions. We may be unable to obtain these licenses at a reasonable cost, or at all. We could, therefore, incur substantial costs related to royalty payments or other payments for licenses obtained from third parties. We may also be unable to obtain exclusive rights to use such intellectual property or technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our products and solutions in the future and, as a result, we may not be able to prevent competitors from developing and commercializing competitive products or solutions. Moreover, we could encounter delays in introducing new products or solutions while we attempt to develop alternative products and solutions, and the defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing our products and solutions, which would materially affect our ability to grow.
Our licensors might conclude that we have materially breached our license agreements and might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products and solutions covered by such agreements. License agreements could also be time-limited or terminated, when possible, thereby removing our ability to develop and commercialize products and solutions covered by such agreements. If these in-licenses are terminated, or if the underlying patents fail to provide the intended exclusivity, competitors might have the freedom to market competing products and solutions identical or similar to ours. Disputes may arise regarding intellectual property subject to a licensing agreement, including:
| ● | the scope of rights granted under the license agreement and other interpretation-related issues; as well as the effectiveness of the license agreement in general; |
| ● | whether our products and solutions infringe on intellectual property of the licensor that is not subject to the licensing agreement; |
| ● | the sublicensing of patent and other rights under our collaborative development relationships; |
| ● | our diligence obligations under the license agreement and what activities satisfy those diligence obligations; |
| ● | the payment of royalties; |
| ● | the inventorship and ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners, including the question of bearing the costs; and |
| ● | the priority of invention of patented technology. |
40
In addition, agreements under which we license intellectual property or technology from third parties could be complex and turn out to be invalid in whole or in part. Certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement. Moreover, if disputes over intellectual property or technology that we have licensed prevent or impair our ability to maintain other licensing arrangements on commercially acceptable terms, defending our position could materially harm our business, prospects, financial condition and results of operations.
With regard to the Unified Patent Court, which started on June 1, 2023, it should be noted that this is a completely new court system, whose procedural and adjudicative methods as well as the mutual effects between the national European patent jurisdictions and the jurisdiction of the new system are practically impossible to assess at present. This creates an uncertainty that may harm our business, prospects, financial condition and results of operations because decisions may be issued, and case law may develop that is disadvantageous for us.
Developments in patent law could have a negative impact on our business.
Changes in either the patent laws or interpretation of patent laws could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. From time to time, the United States Supreme Court (the “Supreme Court”), other federal courts, the U.S. Congress, the USPTO, or other foreign patent offices, courts or legislators may change the standards of patentability and any such changes could have a negative impact on our business. Assuming that other requirements for patentability are met, prior to March 2013, in the United States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act (the “America Invents Act”), enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO-administered post-grant proceedings, including post-grant review, IPR, and derivation proceedings. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
In addition, the patent positions of companies in our industry are particularly uncertain. U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. For example, diagnostic method claims and “gene patents” were considered in two landmark Supreme Court cases, Mayo Collaborative v. Prometheus Laboratories (“Prometheus”), and Association for Molecular Pathology v. Myriad Genetics (“Myriad”). In Prometheus, a case involving patent claims over a medical testing method directed to optimizing the amount of drug administered to a specific patient, Prometheus’ claims failed to incorporate sufficient inventive content above and beyond merely describing underlying natural correlations to allow the claimed processes to qualify as patent-eligible processes that apply natural laws. In Myriad, a case brought by multiple plaintiffs challenging the validity of patent claims held by Myriad Genetics, Inc. relating to the breast cancer susceptibility genes BRCA1 and BRCA2, the court held that isolated genomic DNA that exists in nature, such as the DNA constituting the BRCA1 and BRCA2 genes, is not patentable subject matter, but that cDNA, which is an artificial construct created from RNA transcripts of genes, may be patent eligible. The Federal Circuit has begun to apply the holdings in Prometheus and Myriad. In 2015, the Federal Circuit, in Ariosa v. Sequenom, applying Prometheus, found claims to a prenatal diagnostic method that relied on a natural product to be patent ineligible, and clarified that the absence of preemption of a natural phenomenon was not sufficient to demonstrate patent eligibility.
In response to the Supreme Court decisions in Prometheus, Myriad, and Alice Corporation Pty. Ltd. v. CLS Bank International (“Alice Corp.”), and others, the USPTO has updated the Manual of Patent Examination Procedure to provide guidance to USPTO personnel in determining the eligibility of patent claims reciting judicially recognized exceptions to patentable subject matter, including laws of nature, natural phenomena, or abstract ideas, for patent eligibility. The USPTO guidance indicates that claims reciting a judicial exception to patent-eligible subject matter must amount to significantly more than the judicial exception itself in order to be patent-eligible subject matter. We cannot assure you that our efforts to seek patent protection for our products and solutions will not be negatively impacted by this interim guidance issued by the USPTO, the decisions described above, rulings in other cases, or changes in guidance or procedures issued by the USPTO.
41
We cannot fully predict what impact the Supreme Court’s decisions in Prometheus, Myriad, Alice Corp., and other decisions may have on our ability or the ability of companies or other entities to obtain or enforce patents relating to DNA, genes, or genomic-related discoveries in the future. Despite the USPTO’s interim guidance and Federal Circuit cases described above, the contours of when claims reciting laws of nature, natural phenomena, or abstract ideas may meet the patent eligibility requirements are not clear and may take years to develop via interpretation at the USPTO and in the courts. There are many previously issued patents claiming nucleic acids and diagnostic methods based on natural correlations that issued before the recent Supreme Court decisions discussed, and although many of these patents may be invalid under the standards set forth in the Supreme Court’s recent decisions, until successfully challenged, these patents are presumed valid and enforceable, and certain third parties could allege that we infringe, or request that we obtain a license to, these patents. Whether based on patents issued prior to or after these Supreme Court decisions, we might have to defend ourselves against claims of patent infringement, or choose to license rights, if available, under patents claiming such methods. In particular, although the Supreme Court has held in Myriad that isolated genomic DNA is not patent-eligible subject matter, certain third parties could allege that activities that we may undertake infringe other classes of gene-related patent claims, and we could have to defend ourselves against these claims by asserting non-infringement and/or invalidity positions or pay to obtain a license to these claims. In any of the foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement, we could be forced to pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter in question if we are unable to obtain a license on reasonable terms or at all. Such outcomes could materially affect our ability to offer our products and solutions and have a material adverse impact on our business. Even if we are able to obtain a license or successfully defend against claims of patent infringement, the cost and distraction associated with the defense or settlement of these claims could have a material adverse impact on our business. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
We may not be able to enforce our intellectual property rights throughout the world.
Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Accordingly, we may face an increased risk in these jurisdictions that unauthorized parties may attempt to copy or otherwise obtain or use our patented technology, trademarks, formulations or other intellectual property. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of Germany or the United States. Specifically, the legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents or other intellectual property rights and to prevent third parties from selling or importing products made using our inventions in and to the United States, Germany or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent or other protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection but enforcement is not as strong as that in Germany or the United States. These products may compete with our products and solutions, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. In addition, the use of our patents and/or other intellectual property rights may be permitted in individual cases because, for example, prior use rights or other privileges exist, e.g. use of the patents for experimental or research purposes. Additionally, many countries have compulsory licensing laws under which a patent owner must grant licenses to third parties or limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
Monitoring infringement and misappropriation of intellectual property can be difficult and expensive, and we may not be able to detect every instance of infringement or misappropriation of our proprietary rights. Even if we do detect infringement or misappropriation of our proprietary rights, proceedings to enforce our intellectual property rights could result in substantial costs, divert the efforts and attention of our employees and management from other aspects of our business, put our patents at risk of being invalidated or construed narrowly or provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop. In addition, changes in the law and legal decisions by courts in Germany, the United States and other jurisdictions, in particular, the newly formed European Unified Patent Court, may affect our ability to obtain adequate protection for our products and solutions and to enforce our intellectual property rights. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
42
Third parties may assert ownership or commercial rights to inventions we develop.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. For example, we rely on certain third parties to provide us with biological materials that we use to conduct our genomic analyses. We have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations. These agreements provide that we must negotiate certain commercial rights with collaborators with respect to joint inventions or inventions made by our collaborators that arise from the results of the collaboration. In some instances, there may not be adequate written provisions to clearly address the resolution of intellectual property rights that may arise from a collaboration. If we cannot successfully negotiate sufficient ownership and commercial rights to the inventions that result from our use of a third-party collaborator’s materials where required, or if disputes otherwise arise with respect to the intellectual property developed with the use of a collaborator’s samples, we may be limited in our ability to capitalize on the market potential of these inventions. In addition, we may face claims that our agreements with our management, employees, contractors, or consultants obligating them to assign intellectual property to us are ineffective, or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such inventions. We cannot exclude the possibility that third parties may claim to have made contributions to our inventions and accordingly claim co-inventor shares in inventions that we believe were made without the participation of third parties. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property, or may lose our exclusive rights in that intellectual property and may even face damages and/or compensation claims of the third party for our use of the intellectual property. Any of the foregoing could materially harm our business, prospects, financial condition and results of operations.
Most of our employees and inventions are subject to German law.
Most of our personnel, including many of our directors, work in Germany and are subject to German employment law. Inventions which may be the subject of a patent or of protection as a utility model and which are or were made by personnel working in Germany (except for legal representatives of our respective legal entities, for example managing directors) are subject to the provisions of the German Act on Employees’ Inventions (Gesetz über Arbeitnehmererfindungen) (the “German Inventions Act”), which regulates the ownership of, and compensation for, inventions made by employees. We face the risk that disputes may occur between us and our current or past employees pertaining to the sufficiency of compensation paid by us, allocation of rights to inventions under this Act or alleged non-adherence to the provisions of this Act, any of which may be costly to resolve and take up our management’s time and efforts whether we prevail or fail in such dispute. In addition, under the German Inventions Act, certain employees retain rights to patents and/or utility models they invented or co-invented and disclosed to us prior to October 1, 2009. If we do not manage to have the respective third-party interests transferred to us or are unable to obtain an exclusive license to any such third-party co-owners’ or owners’ interest in such patents and/or utility models, such co-owners or owners may be able to transfer or license their rights to other third parties, including our competitors. In addition, we may need the cooperation of any such co-owners or owners to enforce any such patents and/or utility models against third parties, or to conclude license agreements regarding such patents and/or utility models with third parties, and such cooperation may not be provided to us. While we believe that all our current and past German employee inventors have subsequently assigned to us their interest in inventions, patents and/or utility models they invented or co-invented, there can be no assurance that all such assignments are fully effective, which can lead to unexpected costs or economic disadvantages. Even if we lawfully own all inventions created by our employees who are subject to the German Inventions Act, we are required under German law to reasonably compensate such employees for the use of the inventions and intellectual property rights related thereto. If we are required to pay compensation or face other disputes under the German Inventions Act, our results of operations could be adversely affected. Legal representatives of legal entities, for example managing directors, whose contractual relationships with the respective entity are subject to German law and that are not subject to the German Inventions Act as well as consultants must assign and transfer their interest in inventions, patents and/or utility models they invent or co-invent to us in order for us to have any rights to such inventions, patents and/or utility models. While we believe that all assignments have been made, there can be no assurance that all such assignments are fully effective, which may harm our business, prospects, financial condition and results of operations.
43
If any of our current or past employees, legal representatives of our legal entities or consultants obtain or retain ownership or co-ownership of any inventions or related intellectual property rights that we believe we own, we may lose valuable intellectual property rights and be required to acquire the respective third-party interests or to obtain and maintain licenses from such employees, legal representatives of legal entities or consultants to such inventions or intellectual property rights, which may not be available on commercially reasonable terms or at all, or may be non-exclusive. If we are unable to acquire the respective third-party interests or to obtain and maintain a license to any such employee’s, legal representatives of legal entities’ or consultant’s interest in such inventions or intellectual property rights, we may need to cease the development, manufacture, and commercialization of one or more of the products or solutions we may develop or may have developed. In addition, any loss of exclusivity of our intellectual property rights could limit our ability to stop others from using or commercializing similar or identical products and solutions. We may also face entitlement, compensation and/or damages claims from our current or past employees, legal representatives of our legal entities or consultants owning or co-owning any inventions or related intellectual property rights that we believe we own. Any of the foregoing events could materially harm our business, prospects, financial condition and results of operations.
Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.
Many of our employees (including our management) and consultants are currently or were previously employed at universities or other diagnostic or biopharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees and consultants do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a current or former employer or other third parties. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees and/or consultants. Such claims could materially harm our business, prospects, financial condition and result of operations.
In addition, while it is our policy to require our employees (including our management) and consultants who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could materially harm our business, prospects, financial condition and results of operations.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
| ● | others may be able to make products or solutions that are similar to any products or solutions we develop or commercialize or utilize similar technology but that are not covered by the claims of our patents or patents that we might own or license in the future; |
| ● | we might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or may own or license in the future, and this may result for example in possible rights to use the invention for the one who first made the invention; and in the invalidity of our patents; |
| ● | we might not have been the first to file patent applications covering certain of our inventions; |
| ● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; |
| ● | it is possible that our pending patent applications or those that we may own or license in the future will not lead to issued patents; |
44
| ● | our issued patents or patents for which we hold or will hold licenses may be held invalid or unenforceable, including as a result of legal challenges by our competitors; |
| ● | courts might find our patents not infringed by products of third parties; |
| ● | our customers or competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products or solutions for sale in our major commercial markets; |
| ● | we may not develop additional proprietary technologies that are patentable; |
| ● | the patents of others may harm our business; and |
| ● | we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property. |
Should any of these events occur, they could materially harm our business, prospects, financial condition and results of operations.
Risks Relating to Our Financial Condition and Capital Requirements
We have a history of losses and we may incur losses in the future.
We have historically incurred losses, including total comprehensive losses of EUR 35,803 thousand, EUR 31,917 thousand and EUR 45,703 thousand in the years ended December 31, 2023, 2022 and 2021, respectively. We expect our losses to continue as a result of ongoing research and development expenses and increased selling and marketing costs. These losses have had, and will continue to have, an adverse effect on our working capital, total assets, and shareholders’ equity. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations, and cash flows.
We will require additional funding to continue as a going concern.
We incurred net losses for the year ended December 31, 2023. Our continued operations and the development of our business will require additional capital. Based on our current and anticipated level of operations, we do believe that our cash and cash equivalents, together with anticipated revenues from operations, will be sufficient to meet our anticipated operating expenses, liabilities and obligations for at least 12 months from the date of this Annual Report.
In the base case scenario and the stress case scenario we expect a positive cash position as per May 31, 2025, noting that the stress case scenario leaves very little headroom for any other unforeseen setbacks.
In addition to sales of our products, we have historically relied upon sales of our equity or debt securities to fund our operations.
For example, on January 31, 2022, we entered into a securities purchase agreement and a warrant agreement, each signed with certain investors, under which we received EUR 15.0 million as consideration for the issuance by us of an aggregate of 4,479,088 common shares at a price per share of USD 3.73 and warrants initially exercisable for the purchase of up to an aggregate of 1,343,727 additional common shares at an initial exercise price per common share of USD 7.72. The warrants are exercisable immediately as of the date of issuance and will expire on December 31, 2026.
On January 31, 2022, the Company and certain of its subsidiaries entered into a loan and security agreement with Oxford Finance LLC (“Oxford”) in the total amount of up to USD 45.0 million (as amended from time to time, the “Loan and Security Agreement”). The Loan and Security Agreement contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require the Company to satisfy a financial covenant, restrict the Company’s ability to transfer cash to its subsidiaries and, in certain circumstances, restrict the Company’s ability to incur liens, incur additional indebtedness, engage in mergers and acquisitions, make distributions or make asset sales without the prior written consent of the lenders thereunder. Additional debt financing, if available, would further increase our fixed payment obligations and may
45
involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
On July 28, 2022, we amended the Loan and Security Agreement to expand the scope of Permitted Indebtedness and Permitted Liens (each, as defined therein). On April 30, 2023, we amended the Loan and Security Agreement for a second time (the “Second Amendment”) to permit (i) the delivery of our audited consolidated financial statements for the fiscal year ended December 31, 2022 thirty days later than is otherwise required and (ii) the listing of our common shares on Nasdaq Global Market.
The Second Amendment introduced new requirements that (i) we prepay any outstanding loans under the Loan and Security Agreement in an amount of USD 5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) upon the first new business development or financing transaction we enter and (ii) we maintain at least EUR 9.1 million in unrestricted cash on deposit in collateral accounts subject to Oxford’s perfected security interest granted under the Loan and Security Agreement.
On October 26, 2023, we amended the Loan and Security Agreement for a third time (the “Third Amendment”) due to the transaction maintained with Pharmaceutical Investment Company, a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and trading as “Lifera” and a wholly-owned subsidiary of the Public Investment Fund based in Riyadh (“Lifera”). The Third Amendment modified the existing requirements as follows (i) a reduction in interest rate was introduced, (ii) the maturity date was extended; (iii) removal of the requirement to hold EUR 9.1 million in unrestricted cash on deposit once the JV had been created (see below for further detail regarding JV, and ancillary agreements are signed and the first milestone payment from the JV had been received and (iv) removal of the USD 5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) upon the first new business development or financing transaction the Company enters in.
On October 26, 2023, the Company entered into a convertible loan agreement with Lifera. Pursuant to the loan agreement, Lifera made an investment in the Company in the form of a mandatorily convertible loan with a total aggregate principal amount of USD 30.0 million. The term of the convertible loan originally was six months, which loan would automatically convert into common shares no more than six months from October 26, 2023, or before the Committee on Foreign Investment in the United States (“CFIUS”) approval, while providing the Company the ability to trigger earlier conversion. After six months the loan will automatically convert into equity. Additional to this, both companies created a JV, the terms of which also include three ancillary agreements, which were executed on November 27, 2023, pertaining to the transfer of technology and the license of the Company’s intellectual property (“IP”), consultancy services and lab services, all of which are expected to result in future positive cash inflows to the Company (e.g. a SAR 40 million (EUR 9.4 million) milestone payment upon signing of the agreements, royalty fees and other services). In addition, the restricted cash of EUR 9.1 million in collateral accounts to Oxford finance has been released upon the receipt of the first milestone payment.
During 2024, management completed a significant transaction through the sale of receivables with customers in the region of the Kingdom of Saudi Arabia to PIC which provides the Company with a cash injection of approximately USD 15.0 million (EUR 13.9 million). Currently. the Company has also entered into a share purchase agreement with PIC in which the Company sold 16% of the shares in the JV (retaining a 4% interest), providing a cash injection to the company of approximately SAR 20.0 million (EUR 4.9 million). See Notes 2.2 and 29 to the Consolidated Financial Statements for further detail about the foregoing transactions.
In order to close the transactions mentioned above, we obtained Oxford’s consent on May 12, 2024, which included the addition of certain covenants to our Oxford Loan and Security Agreement. Specifically, we agreed to certain near-term timing requirements for the entry into a binding definitive agreement for the sale of the Company by July 15, 2024, by June 15, 2024 with respect to the receipt of nonbinding term sheets relating to a sale. A breach of these timing requirements would constitute an event of default under the Oxford Loan and Security Agreement, unless waived by Oxford. This covenant is consistent with the process management announced in February 2024 to explore strategic alternatives, where we engaged an investment banking firm to advise us in connection with this process. We are currently in active discussions with several interested parties, which could result in a near term transaction by July 15, 2024.
In addition, the convertible loan agreement was amended to, among other things, extend the maturity date to a date promptly following the receipt of applicable governmental approvals (e.g., CFIUS) with respect to the issuance of common shares upon conversion of the loan.
Management has taken into consideration while developing the business plan, apart from the above mentioned transactions, and requirements, the assumptions of revenues increasing due to the ramp up of Pharma revenues based on the current pipeline
46
consisting of signed contracts and contracts under negotiations together with a slightly increase aligned with the latest performance in Diagnostic revenues; margin increasing as consumable costs affecting the overall margin to be significantly reduced in the following years due to the incorporation of a new sequencer on the laboratory that reduces the material required to run the tests and cost reduction mainly driven by R&D expenses and G&A expenses reduction based on the Company´s streamlining and implementation of several cost measures.
The future realization of our business plan is still subject to uncertainty and could already lead to an additional cash need before May 31, 2025 if our business plan does not materialize. This leads to a material uncertainty that raises significant doubt about our ability to continue as a going concern. See Note 2.2 to the Consolidated Financial Statements for additional information on our assessment. Without such funding, achievement of revenue growth and cost containment, our current cash and cash equivalents will not be sufficient to fund our operations and meet all of our obligations as they fall due for at least one year from the date of the issuance of the consolidated financial statements. We do not know whether additional funding will be available in the desired amount, at the desired time, or on acceptable terms, or at all. Our ability to obtain required debt or equity financing or funds from other transactions will be subject to a number of factors, including without limitation market conditions, our capitalization, our operating performance and investor sentiment. We cannot assure you that we will be able to secure the funding required to allow us to continue as a going concern.
We may need to raise additional capital to fund our existing operations, develop our genetic information platform, commercialize new products and solutions and expand our operations.
If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products or solutions as a result of other risks described herein, we may seek to sell common or preferred equity or convertible debt securities, enter into another credit facility or another form of third-party funding, or seek other debt financing.
Our ongoing efforts to expand our business will require substantial cash resources. We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:
| ● | increase our sales and marketing efforts to drive market adoption of our products and solutions and address competitive developments; |
| ● | fund development and marketing efforts of any future products and solutions; |
| ● | further expand our laboratory operations; |
| ● | expand our technologies into other types of diseases; |
| ● | obtain, maintain, protect and enforce existing or new intellectual property rights; |
| ● | acquire, license or invest in technologies, including information technologies; |
| ● | acquire or invest in complementary businesses or assets; and |
| ● | finance capital expenditures and general and administrative expenses. |
| ● | Our present and future funding requirements will depend on many factors, including: |
| ● | our ability to achieve revenue growth; |
| ● | the cost of expanding our laboratory operations and offerings, including our sales and marketing efforts; |
| ● | our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our products and solutions; |
47
| ● | our rate of progress in, and cost of research and development activities associated with, products and solutions in research and early development; |
| ● | the effect of competing technological and market developments; |
| ● | costs related to international expansion; and |
| ● | the potential cost of and delays in research and development as a result of any regulatory oversight applicable to our products and solutions. |
If we raise funds by issuing debt securities, those debt securities would have rights, preferences, and privileges senior to those of holders of our common shares. The terms of debt securities issued or borrowings pursuant to a credit or similar agreement could impose significant restrictions on our operations. Such financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If additional funds are raised by issuing equity securities through the sale of common shares or securities convertible or exchangeable into common shares, the ownership interest of our shareholders may be further diluted, and the terms of any securities may include liquidation or other preferences that materially adversely affect the rights of our common shareholders. In addition, if we were to issue equity securities at a low share price and low market valuation, it might be difficult for us to raise sufficient additional funds due to the significant dilution to current shareholders.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our intellectual property, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Additional equity or debt financing might not be available on reasonable terms or at all. Because of our potential long-term capital requirements, we may access the public or private equity or debt markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. If we cannot secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more research and development programs or sales and marketing initiatives. In addition, we may have to work with a partner on one or more of our development programs, which could lower the economic value of those programs to us. Lastly, if we are unable to obtain the requisite amount of financing needed to fund our planned operations, our business could be jeopardized, and we may not be able to continue our operations or pursue our strategic plans. If we are forced to scale down or limit or cease operations, our shareholders could lose all of their investment in our Company.
We are exploring strategic alternatives that could significantly impact our future operations and financial position.
On February 28, 2024, we announced that we are exploring strategic alternatives with the goal of maximizing shareholder value. Potential strategic alternatives that may include, without limitation, an acquisition of the Company through a tender offer, a merger or other business combination, divestitures of assets, licensing/partnership transactions, seeking additional financing, and/or continuing to operate as an independent public company. There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms. We are currently in active discussions with several interested parties, which could result in a near-term transaction by July 15, 2024. We do not expect to disclose developments unless and until our board of directors has concluded that disclosure is appropriate or required. If we determine to change our business strategy or to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management. Because of the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our business strategy and future funding requirements.
Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities and volatility in the market price of our common shares and may make it more difficult for us to attract and retain qualified personnel and business partners.
48
Increasing our financial leverage could affect our operations, profitability and ability to raise additional capital.
Following disbursement of the second tranche of USD 20.0 million loan of our Loan and Security Agreement at the end of 2022, and the signed Convertible Loan Agreement with a total face value of USD 30.0 million in 2023, our leverage has increased further. Our leverage may materially affect the availability of additional capital resources as well as our operations in several ways, including higher levels of interest expense to service or maintain our outstanding debt, the unavailability of additional borrowings in the future to repay our indebtedness when it comes due, less attractive economic or legal terms on which capital may be available to us and the possible diversion of liquidity from other uses.
Failure to meet covenants in our debt agreements could result in acceleration of our payment obligations thereunder, and we may not be able to find alternative financing.
Under the Loan and Security Agreement among Centogene N.V., Centogene GmbH, CentoSafe B.V. and Centogene US, LLC, as well as Oxford Finance LLC, we are required to maintain a specified amount of consolidated gross product revenue from our diagnostics and pharmaceutical services segments as of the end of each fiscal quarter on a trailing twelve-month basis, as specified in the Loan and Security Agreement. Our ability to comply with this covenant may be affected by factors beyond our control.
On July 28, 2022, we amended the Loan and Security Agreement to expand the scope of Permitted Indebtedness and Permitted Liens (each, as defined therein). On April 30, 2023, we amended the Loan and Security Agreement for a second time to permit (i) the delivery of our audited consolidated financial statements for the fiscal year ended December 31, 2022 thirty days later than is otherwise required and (ii) the listing of our common shares on Nasdaq Global Market.
The Second Amendment introduced new requirements that (i) we prepay any outstanding loans under the Loan and Security Agreement in an amount of USD 5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) upon the first new business development or financing transaction we enter and (ii) we maintain at least EUR 9.1 million in unrestricted cash on deposit in collateral accounts subject to Oxford’s perfected security interest granted under the Loan and Security Agreement.
On October 26, 2023 a new amendment was signed. This third amendment modified the existing requirements whereby (i) a reduction in interest rate was introduced, and (ii) maturity date was extended and (iii) removal of the requirement to hold EUR 9.1 million in unrestricted cash on deposit and (iv) removal of the USD 5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) once the Joint Venture (see Joint Venture Agreement, Note 1) had been created and signing of the ancillary agreements. Additional to this, due to the third amendment there is one tranche of USD 45 million as opposed to two tranches of USD 25 million and USD 20 million respectively.
On May 12, 2014, in connection with our entry into transactions with PIC as further described in Notes 2.2 and 29 to the Consolidated Financial Statements, the Loan and Security Agreement was further amended to include the addition of certain covenants. Specifically, we agreed to certain near-term timing requirements for the entry into a binding definitive agreement for the sale of the Company by July 15, 2024, and by June 15, 2024 with respect to the receipt of nonbinding term sheets relating to a sale.
If we fail to comply with the covenants contained in the Loan and Security Agreement or the amendments thereto, it could result in an event of default under the Loan and Security Agreement, which would permit or, in certain events, require Oxford to declare all amounts outstanding thereunder to be immediately due and payable. There can be no assurances that we will be able to repay all such amounts or able to find alternative financing in an event of a default. Even if alternative financing is available in an event of a default under the Loan and Security Agreement, it may be on unfavorable terms, and the interest rate charged on any new borrowings could be substantially higher than the interest rate under the Loan and Security Agreement, thus adversely affecting cash flows, results of operations, and ultimately, our ability to meet operating cash flow requirements.
49
The restrictive covenants in the Loan and Security Agreement and the Borrower’s obligation to make debt payments under the Loan and Security Agreement may limit our operating and financial flexibility and may adversely affect our business, financial condition and results of operations.
The Loan and Security Agreement imposes operating and financial restrictions and covenants, which may limit or prohibit our ability to, among other things:
| ● | incur additional indebtedness; |
| ● | make investments, including acquisitions; |
| ● | make payments on debt subordinated to the creditors under the Loan and Security Agreement; |
| ● | create liens on our property; |
| ● | make dividends, distributions or other restricted payments; |
| ● | effect affiliate transactions; |
| ● | enter into mergers, divisions, consolidations or sales of substantially all of our or our subsidiaries’ assets; |
| ● | change business activities; or |
| ● | sell or otherwise dispose of property (without using the proceeds thereof to repay the obligations under the Loan and Security Agreement). |
In addition, we are required to comply with certain financial covenants under the Loan and Security Agreement as described above.
Such restrictive covenants in the Loan and Security Agreement and our repayment obligations under the Loan and Security Agreement could have adverse consequences to us, including:
| ● | limiting our ability to use cash; |
| ● | limiting our flexibility in operating our business and planning for, or reacting to, changes in our business and our industry; |
| ● | requiring the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our operations, working capital, capital expenditures, future business opportunities and other general corporate purposes; |
| ● | restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; |
| ● | limiting our ability to obtain additional financing; |
| ● | limiting our ability to adjust to changing market conditions; and |
| ● | placing us at a competitive disadvantage relative to our competitors who are less leveraged. |
We may be required to refund grants and subsidies.
We have received various grants and subsidies to fund our research and development programs from various funding organizations. However, the Company continues to engage in efforts to secure further grants and subsidies for the next development steps of its product candidates. Some of these grants and subsidies provide for certain requirements in respect of the utilization of proceeds generated because of the publicly sponsored projects. For example, we received grants from the European Regional Development Fund to fund our Rostock facility, which grants are limited in purpose to development and innovation in the state of
50
Mecklenburg-Western Pomerania, Germany. Other grants which we obtain may impose restrictions on our operations, and if we are in noncompliance with the restrictions and conditions of any grant or subsidy program, a partly or complete repayment cannot be excluded. This may also apply to grants and subsidies we may apply for in the future. If we are required to refund grants or subsidies, this could have a material adverse effect on our liquidity and cash flow position and may negatively affect our business, prospects, and financial conditions. In the year ended December 31, 2023, we have received a total of EUR nil thousand in grants for our activities, but three grants were approved during the last quarter of 2023 and were recognized as a receivable in the financial statements.
We incur significant costs as a result of operating as a public company and our management needs to devote substantial time to public company compliance programs.
As a public company, we incur significant legal, accounting, and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act (“SOX”), as well as rules implemented by the SEC, and the Nasdaq Global Market (“Nasdaq”). The SEC and other regulatory authorities have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted. There are significant corporate governance- and executive compensation-related provisions in the Dodd-Frank Act that have required the SEC to adopt additional rules and regulations in these areas. Shareholder activism, the current political environment, and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, and the way we operate our business. Our management and other personnel will need to devote a substantial amount of time to these compliance programs and the monitoring of public company reporting obligations, and as a result of the new corporate governance- and executive compensation-related rules, regulations, and guidelines prompted by the Dodd-Frank Act, and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such rules and regulations. These rules and regulations will cause us to incur significant legal and financial compliance costs and will make certain activities more time-consuming and costly.
To comply with the requirements of being a public company, we may need to undertake various actions, including implementing new internal controls and procedures and hiring new accounting or internal audit staff. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls, other procedures and internal control over financial reporting that are designed to ensure that information required to be disclosed by us in the reports that we file with the SEC is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers. Our current controls and any new controls that we develop may become inadequate, and additional material weaknesses in our internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting, which we may be required to include in the periodic reports we file with the SEC under Section 404 of the Sarbanes-Oxley Act, and could harm our operating results, cause us to fail to meet our reporting obligations, or result in a restatement of our prior period financial statements. In the event that we are not able to demonstrate compliance with the Sarbanes-Oxley Act, that our internal control over financial reporting is perceived as inadequate, or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results, and the price of our common shares could decline.
We are required to comply with certain of the SEC rules that implement Section 404 of the Sarbanes-Oxley Act, which requires management to certify financial and other information in our annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting, commencing with this, our second annual report. This assessment includes the disclosure of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered public accounting firm. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting or if we are unable to complete our evaluation, testing, and any required remediation in a timely fashion, we will be unable to assert that our internal control over financial reporting is effective. For further details, see “Item 15 – Controls and Procedures”.
Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company” as defined in the JOBS Act. We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal controls in the future. If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion on the effectiveness of our internal
51
control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price of our common shares.
We will no longer qualify as an emerging growth company on November 6, 2024. As a result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2024, and we will no longer be able to take advantage of the exemptions from reporting available to emerging growth companies absent other exemptions or relief available from the SEC. We will incur additional expenses in connection with compliance to these regulations and our management will need to devote additional time and effort to implement and comply with such requirements.
If we fail to implement effective internal controls over financial reporting, such failure could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial and other public information and have a negative effect on the trading price of our common shares.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. Section 404 of the Sarbanes-Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. If we fail to design and operate effective internal controls or remediate our existing material weaknesses, it could result in material misstatements in our financial statements, impair our ability to raise revenue, result in the loss of investor confidence in the reliability of our financial statements and subject us to regulatory scrutiny and sanctions, which in turn could harm the market value of our common shares.
We will be required to disclose changes made in our internal controls and procedures and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We will cease to qualify as an emerging growth company on November 6, 2024. As result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2024. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
We have identified three material weaknesses in our internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remediate our material weaknesses or if we fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to report our financial results accurately or to prevent fraud.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. Section 404 of the Sarbanes Oxley Act of 2002 requires management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness thereof. 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 financial statements will not be prevented or detected on a timely basis.
In connection with the preparation of our consolidated financial statements, we have historically identified material weaknesses in our internal controls. These material weaknesses were not remediated as of December 31, 2023, and relate to a lack of effectively designed review and monitoring financial statement close controls, including the lack of accounting policies and personnel with appropriate skills to enable timely and appropriate technical assessments under IFRS, together with the lack of policies and procedures with respect to the review, supervision and monitoring of the accounting and reporting functions; a lack of an effectively designed and operating general IT controls framework (including system interfaces); and a lack of oversight and controls over the work performed by third-party advisors.
In response to such material weaknesses, we performed a root cause analysis of the material weaknesses identified, as well as performed risk assessments to identify significant business processes and relevant financial risks. Based on our assessments, we have started to design and implement a formalized SOX based framework of internal control.
52
Additionally, in late 2022 we appointed an IT Governance and Security expert to lead the design and implementation of a SOX ITGC framework encompassing all applications in our SOX IT scope. The ITGC framework has been reviewed by an external professional services firm which provided recommendations and remedial actions that we are in the process of implementing with the aim of achieving operating effectiveness of our IT general controls (including interfaces) in 2024.
If we are unable to successfully remediate our three identified material weaknesses, and if we discover additional material weaknesses or if we otherwise are unable to report our financial statements accurately or in a timely manner, we would be required to continue disclosing such material weaknesses in future filings with the SEC, which could adversely affect our business, investor confidence in our company and the market price of our common shares and could subject us to litigation or regulatory enforcement actions. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the market value of our common shares.
Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates.
Although we report our results of operations in Euro, not all of our net revenues are denominated in the Euro. Unfavorable fluctuations in foreign currency exchange rates could have a material adverse effect on our results of operations.
Because our consolidated financial statements are presented in Euro, we must translate revenues, expenses and income, as well as assets and liabilities, into Euros at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the Euro against other currencies will affect our net revenues, operating income and the value of balance-sheet items originally denominated in other currencies. These changes cause our growth in consolidated earnings stated in Euro to be higher or lower than our growth in local currency when compared against other periods.
As we continue to leverage our global delivery model, more of our expenses are incurred in currencies other than those in which we bill for the related services. An increase in the value of certain currencies against the Euro could increase costs for delivery of services at off-shore sites by increasing labor and other costs that are denominated in local currency. There can be no assurance that our contractual provisions will offset their impacts. We also face risks that extreme economic conditions, political instability or hostilities or disasters of the type described below could impact our underlying exposures, perhaps eliminating them. Such an event could lead to losses being recognized on the currency hedges then in place, not offset by anticipated changes in the underlying hedge exposure.
The company has signed a convertible loan agreement with Lifera in the total amount of USD 30 million in cash. Additionally, both companies entered into a Joint Venture Agreement (the “JV”), the terms of which include three ancillary agreements, all of which are expected to result in future positive cash inflows to the company including milestone payments, royalty fees and other revenues. Due to these arrangements being made in Saudi Riyal, we may incur financial loss due to foreign currency exchange fluctuations.
Certain Factors Relating to Our Common Shares
Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could cause the market price of our common shares to decline.
Sales of substantial amounts of our common shares in the public market, or the perception that these sales may occur, could cause a decline in the market price of our common shares. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our articles of association, we are authorized to issue up to 79,000,000 common shares, of which 29,000,137 common shares were outstanding as of December 31, 2023. If our existing shareholders sell substantial amounts of common shares in the public market, or the market perceives that such sales may occur, the market price of our common shares and our ability to raise capital through an issue of equity securities in the future could be adversely affected.
Moreover, we have entered into a registration rights agreement entitling certain of our existing shareholders to rights, subject to conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other shareholders. In addition, we have registered on a Form S-8 registration statement all common shares that we may issue under our long new term equity incentive plan.
53
As a result, these shares can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common shares could decline.
Our ordinary shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
Our common shares may be “thinly-traded” meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to most stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow a younger company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of weeks when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broad or active public trading market for our common shares may not develop or be sustained.
We have broad discretion in the use of our cash on hand and may invest or spend it in ways with which you do not agree and in ways that may not yield a return on your investment.
As of December 31, 2023, we had EUR 19.1 million in cash and cash equivalents. Our management will have broad discretion in the use of such cash and could spend it in ways that do not improve our results of operations or enhance the value of our common shares. You will not have the opportunity to influence our decisions on how to use our cash on hand. The failure by our management to apply these funds effectively could result in financial losses that could harm our business, cause the price of our common shares to decline and delay the development of our product candidates. Pending its use, we may invest our cash on hand in a manner that does not produce income or that loses value.
We may in the future not be compliant with all of Nasdaq’s continued listing standards and our common shares could be delisted.
Our common shares are currently listed for trading on the Nasdaq Global Market. Remaining listed for trading on Nasdaq requires us to remain compliant with Nasdaq’s current continued listing requirements, which include maintaining minimum levels of shareholders’ equity, assets and revenues (depending on the compliance standard being used to demonstrate compliance), and other quantitative standards such as minimum market value of publicly held shares, $1.00 minimum closing bid price, and number of market makers.
On December 12, 2022, we received notification from the Nasdaq Stock Market LLC Listing Qualifications Department (“Nasdaq’s Listing Department”) that our Company was not in compliance with the minimum bid price requirement set forth in Nasdaq Rule 5450(a)(1) since the closing bid price for the Company's common shares listed on Nasdaq was below US$1.00 for 30 consecutive business days. Nasdaq Rule 5450(a)(1) requires the shares to maintain a minimum bid price of US$1.00 per share, and Nasdaq Rule 5810(c)(3)(A) provides that failure to meet such a requirement exists when the bid price of the shares is below US$1.00 for a period of 30 consecutive business days. On February 6, 2023, we received confirmation from Nasdaq that our Company has regained compliance with the minimum bid price requirement for continued listing under Nasdaq Rule 5450(a)(1), because the closing bid price of our common shares had been at $1.00 per share or greater for the last 10 consecutive business days, from January 23 through February 3, 2023.
On April 24, 2023, we received a new notification from Nasdaq’s Listing Department, indicating that our Company was again not in compliance with the minimum bid price requirement set forth in Rule 5450(a)(1) of the Nasdaq Listing Rules since the closing bid price for the Company's common shares listed on Nasdaq was below US$1.00 for 30 consecutive business days (from March 10 through April 21, 2023). On July 12, 2023, we received confirmation from Nasdaq that our Company has regained compliance with the minimum bid price requirement for continued listing under Nasdaq Rule 5450(a)(1), because the closing bid price of our common shares had been at $1.00 per share or greater for the last 10 consecutive business days, from June 27 through July 11, 2023.
On June 8, 2023, we received notification from the Nasdaq Stock Market LLC Listing Qualifications Department (“Nasdaq’s Listing Department”) that our Company was not in compliance with the minimum Market Value of Publicly Held Shares (“MVPHS”) set forth in the Nasdaq Listing Rule 5450(b)(3)(C) for continued listing on the Nasdaq Global Market. Nasdaq Listing Rule 5450(b)(3)(C) requires companies to maintain a minimum MVPHS of USD 15 million, and Listing Rule 5810(c)(3)(D) provides that a
54
failure to meet the MVPHS requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the MVPHS of the Company for the 30 consecutive business days from April 26, 2023 to June 7, 2023, the Company no longer met the MVPHS minimum requirement. On July 13, 2023, we received confirmation from Nasdaq that our Company has regained compliance of the minimum Market Value of Publicly Held Shares (“MVPHS”) requirement set forth in the Nasdaq Listing Rule 5450(b)(3)(C), because the Company’s MVPHS has been $15,000,000 or greater for the last 10 consecutive trading days, from June 28 through July 12, 2023.
On August 30, 2023, we received a notification from Nasdaq’s Listing Department, indicating that our Company was not in compliance with the minimum Market Value of Publicly Held Shares (“MVPHS”) set forth in the Nasdaq Listing Rule 5450(b)(3)(C) for continued listing on the Nasdaq Global Market. Nasdaq Listing Rule 5450(b)(3)(C) requires companies to maintain a minimum MVPHS of USD 15 million, and Listing Rule 5810(c)(3)(D) provides that a failure to meet the MVPHS requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the MVPHS of the Company for the 30 consecutive business days from July 19, 2023 to August 29, 2023, the Company no longer met the MVPHS minimum requirement. In accordance with Listing Rule 5810(c)(3)(D) of the Nasdaq Listing Rules, we had a period of 180 calendar days from the date of notification, or until February 26, 2024, to regain compliance with the minimum MVPHS requirement.
On February 27, 2024, we received a notification from Nasdaq’s Listing Department notifying the Company of the determination of Nasdaq to delist the Company’s securities from The Nasdaq Global Market due to non-compliance with the MVPHS requirement, subject to our right to a hearing with the Nasdaq Listing Panel. On March 27, 2024, we also received a deficiency notice with respect to the minimum bid price requirement set forth in Rule 5450(a)(1) of the Nasdaq Listing Rules. On April 30, 2024, we had a hearing regarding the delisting notice and presented a plan of compliance with respect to the MVPHS requirement consisting of the achievement of specific milestones related to our strategic alternative review process; specifically, progress with respect to a definitive binding agreement to sell the Company. We are waiting to receive a decision, which is expected to be delivered at the end of May 2024.
If we are not able to meet any of Nasdaq’s continued listing standards, we could be subject to suspension and delisting proceedings. A delisting of our common shares and our inability to list on another national securities market could negatively impact us by: (i) reducing the liquidity and market price of our common shares; (ii) reducing the number of investors willing to hold or acquire our common shares, which could negatively impact our ability to raise equity financing; (iii) limiting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees.
If our common shares are ultimately delisted by Nasdaq, our common shares may be eligible to trade on the OTC Bulletin Board or another over-the-counter market. Any such alternative would likely result in it being more difficult for us to raise additional capital through the public or private sale of equity securities and for investors to dispose of or obtain accurate quotations as to the market value of, our common shares. In addition, there can be no assurance that our common shares would be eligible for trading on any such alternative exchange or markets.
Unless our common shares are listed on a national securities exchange, our common shares may also be subject to the regulations regarding trading in “penny stocks,” which are those securities trading for less than $5.00 per share, and that are not otherwise exempted from the definition of a penny stock under other exemptions provided for in the applicable regulations. The following is a list of the general restrictions on the sale of penny stocks:
| ● | Before the sale of penny stock by a broker-dealer to a new purchaser, the broker-dealer must determine whether the purchaser is suitable to invest in penny stocks. To make that determination, a broker-dealer must obtain, from a prospective investor, information regarding the purchaser’s financial condition, investment experience, and objectives. Subsequently, the broker-dealer must deliver to the purchaser a written statement setting forth the basis of the suitability finding and obtain the purchaser’s signature on such statement. |
| ● | A broker-dealer must obtain from the purchaser an agreement to purchase the securities. This agreement must be obtained for every purchase until the purchaser becomes an “established customer.” |
| ● | The Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires that before effecting any transaction in any penny stock, a broker-dealer must provide the purchaser with a “risk disclosure document” that contains, among other things, a description of the penny stock market and how it functions, and the risks associated with such investment. These disclosure rules are applicable to both purchases and sales by investors. |
55
| ● | A dealer that sells penny stock must send to the purchaser, within 10 days after the end of each calendar month, a written account statement including prescribed information relating to the security. |
These requirements can severely limit the liquidity of securities in the secondary market because fewer brokers or dealers are likely to be willing to undertake these compliance activities. If our common shares are not listed on a national securities exchange, the rules and restrictions regarding penny stock transactions may limit an investor’s ability to sell to a third party and our trading activity in the secondary market may be reduced.
We may seek to effect a reverse stock split, subject to obtaining shareholder approval, in order to address the $1.00 minimum bid price requirement under Nasdaq rules. In the event a reverse stock split is implemented, we cannot predict the effect that such reverse stock split would have on the market price for our common shares, and the history of similar reverse stock splits for companies in like circumstances has varied. Some investors may have a negative view of a reverse stock split. Even if such reverse stock split were to have a positive effect on the market price for our common shares, performance of our business and financial results, general economic conditions and the market perception of our business, and other adverse factors which may not be in our control could lead to a decrease in the price of our common shares following such reverse stock split.
If we fail to comply with Nasdaq rules governing the diversity of our board of directors, we could be exposed to financial penalties and suffer reputational harm.
In August 2021, the SEC announced that it had approved Nasdaq’s proposed rule change to advance board diversity and enhance transparency of board diversity statistics through new listing requirements. Under these new listing rules, we are now required to annually disclose diversity statistics regarding our directors’ voluntary self-identified characteristics and to have at least one diverse director by the later of August 7, 2023, or the date on which we file our annual report in 2023 (or explain why we do not have one such director) and two diverse directors, including one who self-identifies as female and one who self-identifies as either an underrepresented minority or LGBTQ+, by August 6, 2025, or the date on which we file our annual report in 2025 (or explain why we do not have two such directors). Failure to achieve designated minimum gender and diversity levels in a timely manner exposes us to financial penalties and reputational harm.
We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common shares less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we are taking advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” For example, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We will cease to qualify as an emerging growth company on November 6, 2024. As result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2024, and we will no longer be able to take advantage of the exemptions from reporting available to emerging growth companies absent other exemptions or relief available from the SEC. We cannot determine if investors find our common shares less attractive because we are relying on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Given that we currently report and expect to continue to report under IFRS as issued by the IASB, we have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required by the IASB. Since IFRS makes no distinction between public and private companies for purposes of compliance with new or revised accounting standards, the requirements for our compliance as a private company and as a public company are the same.
We are a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to
56
file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, foreign private issuers are not required to file their annual report on Form 20-F until four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
We may lose our foreign private issuer status, which would then require us to comply with the Exchange Act’s domestic reporting regime and cause us to incur significant legal, accounting and other expenses.
We are a foreign private issuer and therefore we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act applicable to U.S. domestic issuers. If in the future we are not a foreign private issuer as of the last day of the second fiscal quarter in any fiscal year, we would be required to comply with all of the periodic disclosure, current reporting requirements and proxy solicitation rules of the Exchange Act applicable to U.S. domestic issuers. In order to maintain our current status as a foreign private issuer, either (a) a majority of our common shares must be either directly or indirectly owned of record by non-residents of the United States or (b)(i) a majority of our managing directors, supervisory board members and executive officers may not be United States citizens or residents, (ii) more than 50% of our assets cannot be located in the United States and (iii) our business must be administered principally outside the United States. If we were to lose this status, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and stock exchange rules. The regulatory and compliance costs to us if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the costs we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. These rules and regulations could also make it more difficult for us to attract and retain qualified directors.
As a foreign private issuer and as permitted by the listing requirements of Nasdaq, we follow certain home country governance practices rather than the corporate governance requirements of Nasdaq.
We are a foreign private issuer. As a result, in accordance with the listing requirements of Nasdaq, we are relying on home country governance requirements and certain exemptions thereunder rather than relying on the corporate governance requirements of Nasdaq. In accordance with Dutch law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice will vary from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting shares. Although we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands, thus our practice varies from the requirement of Nasdaq Listing Rule 5620(b). As permitted by the listing requirements of Nasdaq, we have also opted out of the requirements of (i) Nasdaq Listing Rule 5605(d), which requires, among other things, an issuer to have a compensation committee that consists entirely of independent directors and makes determinations regarding the independence of any compensation consultants, (ii) Nasdaq Listing Rule 5605(e), which requires independent director oversight of director nominations, and (iii) Nasdaq Listing Rule 5605(b), which requires an issuer to have a majority of independent directors on its board. In addition, we have opted out of shareholder approval requirements, as included in the Nasdaq Listing Rules, for the issuance of securities in connection with certain events such as the acquisition of shares or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of the Company and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to these Nasdaq rules.
Insiders continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including a change of control.
Our principal shareholders, including certain of our managing directors, supervisory board members and executive officers and entities affiliated with them, in the aggregate, continue to beneficially own approximately 66.3% of outstanding common shares as at
57
December 31, 2023. As a result, these shareholders, if acting together, are able to influence or control matters requiring approval by our general meeting of shareholders, including the election of managing directors and supervisory board members, changes to our articles of association and the approval of mergers or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree, and which may be averse to your interests. The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our shareholders of an opportunity to receive a premium for their common shares as part of a sale of our company and might ultimately affect the market price of our common shares.
We do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain our future earnings, if any, for the foreseeable future, to repay indebtedness and to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common shares. As a result, capital appreciation in the price of our common shares, if any, will be your only source of gain on an investment in our common shares.
If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.
We do not intend to pay any dividends to holders of our common shares. However, if we do pay dividends, we may need to withhold tax on such dividends both in Germany and the Netherlands. As an entity incorporated under Dutch law, any dividends distributed by us are subject to Dutch dividend withholding tax on the basis of Dutch domestic law. However, on the basis of the 2012 Convention between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation with respect to taxes on income (the “double tax treaty between Germany and the Netherlands”), the Netherlands will be restricted in imposing these taxes if we continue to be a tax resident of Germany and our place of effective management is located in Germany. See “Item 3. Key Information—D. Risk Factors—We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.” However, Dutch dividend withholding tax is still required to be withheld from dividends if and when paid to Dutch resident holders of our common shares (and non-Dutch resident holders of our common shares that have a permanent establishment in the Netherlands to which their shareholding is attributable). As a result, upon a payment of dividends, we will be required to identify our shareholders in order to assess whether there are Dutch residents (or non-Dutch residents with a permanent establishment in the Netherlands to which the common shares are attributable) in respect of which Dutch dividend tax has to be withheld. Such identification may not always be possible in practice. If the identity of our shareholders cannot be determined, withholding of both German and Dutch dividend tax may occur upon a payment of dividends.
Furthermore, the withholding tax restriction referred to above is subject to the applicability of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the “MLI”). While Germany has enacted the MLI with effect as of April 1, 2021, it has, so far, refrained from initiating a notification procedure vis-à-vis the Netherlands as necessary under the rules of the MLI to set into force the rules of the MLI, and neither has the Netherlands notified the applicability of the MLI towards Germany. Only if Germany decides to change its reservation with respect to the tie-breaker provision (the "MLI Tie-Breaker Reservation") included in Article 4(3) of the 2012 Convention between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation with respect to taxes on income, and only if the applicability of the MLI has been mutually notified by Germany and the Netherlands, we may no longer be entitled anymore to any benefits of the double tax treaty between Germany and the Netherlands, including the withholding tax restriction, provided that Germany and the Netherlands do not reach an agreement on our tax residency for purposes of the double tax treaty between Germany and the Netherlands, except to the extent and in such manner as may be agreed upon by the authorities. As a result, any dividends distributed by us may be subject to withholding tax both in Germany and the Netherlands.
In addition, a proposed law is currently pending before the Dutch parliament, namely the Emergency act conditional exit dividend tax (Spoedwet conditionele eindafrekening dividendbelasting) which would, if enacted, impose, possibly with retroactive effect, a dividend withholding (exit) tax on certain deemed distributions if we cease to be a Dutch tax resident and become a tax resident of a jurisdiction that is not a member of the EU or the EEA, when such jurisdiction does not satisfy certain conditions. In some cases, we would have a right to recover the amount of tax from our shareholders when such shareholder is not entitled to an exemption.
58
We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.
Since our incorporation we have had, on a continuous basis, our place of “effective management” in Germany. Therefore, we believe that we qualify as a tax resident of Germany based on German domestic law. As an entity incorporated under Dutch law, however, we also qualify as a tax resident of the Netherlands based on Dutch domestic law. However, based on our current management structure and the current tax laws of Germany and the Netherlands, as well as applicable income tax treaties, and current interpretations thereof, we believe that we are a tax resident solely in Germany for the purposes of the double tax treaty between Germany and the Netherlands due to the “effective management” tie-breaker. The test of “effective management” is largely a question of fact and degree based on all the circumstances, rather than a question of law. Nevertheless, the relevant case law and OECD guidance suggest that the Company is likely to be regarded as having become a German tax resident from incorporation and remaining so if, as the Company intends, (i) most meetings of its management board are held in Germany (and none are held in the Netherlands) with a majority of directors present in Germany for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting the Company and its subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of the directors of the Company, together with supporting staff, are based in Germany; and (v) the Company has permanent staffed office premises in Germany. We may, however, become subject to limited income tax liability in other countries with regard to the income generated in the respective other country, for example, due to the existence of a permanent establishment or a permanent representative in such other country.
Our sole tax residency in Germany for purposes of the above-mentioned tax treaty is subject to the application of the provisions on tax residency as stipulated in such tax treaty as amended from time to time. The MLI, Germany and the Netherlands entered into, among other countries, should not, as of this date, affect such tax treaty’s rules regarding tax residency.
The applicable tax laws, tax treaties or interpretations thereof may change. Furthermore, whether we have our place of effective management in Germany and are as such tax resident in Germany is largely a question of fact and degree based on all the circumstances, rather than only a question of law, which facts and degree may also change. Changes to applicable tax laws, tax treaties or interpretations thereof and changes to applicable facts and circumstances (for example, a change of board members or the place where board meetings take place), or changes in the applicable tax treaties, including a change to the MLI, may result in us also becoming a tax resident of the Netherlands or another jurisdiction (other than Germany), potentially also triggering an exit liability in Germany. Therefore, our overall effective income tax rate and income tax expense could materially increase, which could have a material adverse effect on our business, results of operations, financial condition and prospects, which could cause our share price and trading volume to decline. However, if there is a double tax treaty between Germany and the respective other country, the double taxation of income may be reduced or avoided entirely.
Shareholders may not be able to exercise preemptive rights and, as a result, may experience substantial dilution upon future issuances of common shares
In the event of an issuance of common shares, subject to certain exceptions, each shareholder will have a pro rata preemptive right in proportion to the aggregate nominal value of the common shares held by such holder. These preemptive rights may be restricted or excluded by a resolution of the general meeting of shareholders or by another corporate body designated by the general meeting of shareholders. Our management board is authorized, until June 22, 2027, to issue shares or grant rights to subscribe for shares up to our authorized share capital from time to time and to limit or exclude preemptive rights in connection therewith. This could cause existing shareholders to experience substantial dilution of their interest in us.
If equity and industry research analysts publish negative evaluations of or downgrade our common shares, the price of our common shares could decline.
The trading market for our common shares relies in part on the research and reports that equity and industry research analysts publish about us or our business. We do not control these analysts. If one or more of the analysts covering our business downgrade their evaluations of our common shares, the price of our common shares could decline. If one or more of these analysts cease to cover our common shares, we could lose visibility in the market for our common shares, which in turn could cause our common shares price to decline.
59
Our ability to use our net operating loss carryforwards and other tax attributes may be limited.
Our ability to utilize our net operating losses (“NOLs”) is currently limited, and may be limited further, under Section 8c of the German Corporation Income Tax Act (Körperschaftsteuergesetz, the “KStG”) and Section 10a of the German Trade Tax Act (Gewerbesteuergesetz, the “GewStG”). These limitations apply if a qualified ownership change, as defined by Section 8c KStG, occurs subject to certain exemptions, as described below.
Under current tax laws, tax loss carryforwards can generally be used for an unlimited period of time but any change of control in the Company – including as a result of a capital increase – could result in the expiry of such tax loss carryforwards and of any current year losses if, subject to further prerequisites, more than 50% of the subscribed capital or voting rights of the Company will be, directly or indirectly, transferred to an acquirer (including parties related to the acquirer constituting a group of acquirers with aligned interests) within five years or a comparable acquisition occurs. However, tax loss carryforwards and unused current losses taxable in Germany will not expire to the extent that they are covered by built-in gains of the Company that are taxable in Germany at the time of such acquisition (Stille-Reserven-Klausel, the “Hidden-Reserves Clause”). Further, any share transfer that would otherwise be subject to the loss forfeiture rule above does not result upon application in forfeiture of tax loss carryforwards and interest carryforwards resulting from current business operations of the Company, if the current business operations of the Company remained the same (i) from the time of its establishment; or (ii) during the last three business years prior to the share transfer and such business operations are maintained after the transfer (fortführungsgebundener Verlustvortrag). The determination of whether the business operations have been maintained is assessed on the basis of qualitative factors, such as the produced goods and services, target markets, customer and supplier bases, etc. However, the tax loss carryforwards will be forfeited in any circumstance if, after the share transfer, the business operations of the Company become dormant, are modified or substantially restructured, the Company becomes a partner in an operating partnership (Mitunternehmerschaft), the Company becomes a fiscal unity parent, or assets are transferred from the Company and recognized at a value lower than the fair market value. This requirement is monitored until the retained tax loss carryforwards have been fully utilized.
According to another appeal filed by the fiscal court of Hamburg dated August 29, 2017, Section 8c, paragraph 1, sentence 1 KStG is not in line with the German constitution. The appeal is still pending. It is unclear when the Federal Constitutional Court will decide this case. According to statements in German legal literature, there are good reasons to believe that the Federal Constitutional Court may come to the conclusion that Section 8, paragraph 1, sentence 1 KStG is not in line with the German constitution.
As of December 31, 2023, we estimate unrecognized NOL carryforwards for German tax purposes of 152.8 million available which have not yet been assessed. However, we have not recognized a deferred tax asset for tax losses carried forward in our consolidated financial statements, see “Item 18. Financial Statements—Notes to the consolidated financial statements as of December 31, 2023 and 2022 and for the three years ended December 31, 2023, 2022 and 2021”. Future changes in share ownership may also trigger an ownership change and, consequently, a Section 8c KStG or a Section 10a GewStG limitation. Any limitation may result in the expiration of a portion or the complete tax operating loss carryforwards before they can be utilized. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carryforwards to reduce German income tax may be subject to limitations, which could potentially result in increased future cash tax liability to us.
Although not free from doubt, we do not believe that we were a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes for 2023, there is a significant risk that we may be a PFIC for 2024 or one or more future taxable years. If we are a PFIC for any taxable year, U.S. shareholders may be subject to adverse U.S. federal income tax consequences.
Under the Internal Revenue Code of 1986, as amended (the “Code”), we will be a PFIC for any taxable year in which, after the application of certain “look-through” rules with respect to our subsidiaries, either (i) 75% or more of our gross income consists of passive income or (ii) 50% or more of the average value of our assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, “passive income.” For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties, and investment gains. For these purposes cash is generally a passive asset. Goodwill is generally an active asset to the extent associated with business activities that produce active income.
60
Based on our current operations and composition of our income and assets, and certain estimates as to the value of our assets, we do not believe that we were a PFIC for our 2023 taxable year. However, there can be no assurance that the Internal Revenue Service (the “IRS”) will agree with our conclusion. In addition, whether we will be a PFIC in 2024 or any future taxable year is uncertain because, among other things, (i) we currently own, and expect to continue to own, a substantial amount of passive assets, including cash, (ii) the value of our assets that generate non-passive income for PFIC purposes, including our goodwill and other intangible assets, is uncertain and may vary substantially over time (and may be determined, in part, by reference to our market capitalization, which has been, and may continue to be, volatile) and (iii) the composition of our income may vary substantially over time. Accordingly, there can be no assurance that we will not be a PFIC for any taxable year. For example, if we raise additional cash, or if our market capitalization continues to decline or fluctuate (and the value of our assets were determined in part by reference to our market capitalization), then there is a significant risk that we could be a PFIC for 2024, depending on the composition and average value of our assets for 2024 (which cannot be determined until after 2024).
If we are a PFIC for any taxable year during which a U.S. investor holds our common shares, we will continue to be treated as a PFIC with respect to that U.S. investor for all succeeding years during which the U.S. investor holds our common shares, even if we cease to meet the threshold requirements for PFIC status, unless certain exceptions apply. Such a U.S. investor may be subject to adverse U.S. federal income tax consequences, including (i) the treatment of all or a portion of any gain on disposition as ordinary income, (ii) an additional tax liability representing deferred interest charge on such gain and the receipt of certain dividends and (iii) compliance with certain reporting requirements. We do not intend to provide the information that would enable investors to make a qualified electing fund election (a “QEF Election”) that would result in alternative U.S. federal income tax treatment if we are a PFIC for a taxable year.
For further discussion, see “Item 10. Additional Information—E. Taxation—Material U.S. Federal Income Tax Considerations for U.S. Holders.”
If a U.S. person is treated as owning 10% or more of our stock by vote or value, such person may be subject to adverse U.S. federal income tax consequences.
If a U.S. person is treated as owning (directly, indirectly or constrictively) 10% or more of our stock by value or voting power, such person generally will be treated as a “United States shareholder” with respect to each “controlled foreign corporation” (a “CFC”) in our group. A CFC is a non-U.S. corporation more than 50% of the stock (by voting power or value) of which is owned (directly, indirectly, or constructively) by “United States shareholders.” We have not determined whether we are a CFC. However, even if we are not a CFC, under certain ownership attribution rules our non-U.S. subsidiaries could be treated as owned by our U.S. subsidiary and thus may be treated as CFCs. A United States shareholder of a CFC that owns directly or indirectly the CFC’s stock may be subject to additional U.S. federal income tax liabilities and reporting requirements. We do not intend to furnish to any information that may be necessary for United States shareholders, if any, to comply with the CFC rules. U.S. investors that may be treated for purposes of the CFC rules as owning 10% of our stock by voting power or value should consult their tax advisers regarding the potential application of these rules in their particular circumstances.
We are a Dutch public company. The rights of our shareholders are different from the rights of shareholders in companies governed by the laws of U.S. jurisdictions and may not protect investors in a similar fashion afforded by incorporation in a U.S. jurisdiction.
We are a Dutch public company (naamloze vennootschap) organized under the laws of the Netherlands. Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. However, there can be no assurance that Dutch law will not change in the future or that it will serve to protect investors in a similar fashion afforded under corporate law principles in the United States, which could adversely affect the rights of investors.
The rights of shareholders and the responsibilities of managing directors and supervisory board members may be different from the rights and obligations of shareholders and board members in companies governed by the laws of U.S. jurisdictions. In the performance of their duties, our managing directors and supervisory directors are required by Dutch law to consider the interests of our company, its shareholders, its employees and other stakeholders, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, your interests as a shareholder.
61
Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that might be considered favorable and prevent, delay or frustrate any attempt to replace or remove the members of our management board or supervisory board.
Under Dutch law, various protective measures are possible and permissible within the boundaries set by Dutch law and Dutch case law. In this respect, certain provisions of our articles of association may make it more difficult for a third party to acquire control of us or effect a change in our management board and supervisory board. These include:
| ● | a provision that our managing directors and supervisory directors are appointed on the basis of a binding nomination prepared by our supervisory board which can only be overruled by a two-thirds majority of votes cast representing more than 50% of our issued share capital; |
| ● | a provision that our managing directors and supervisory directors may only be dismissed by the general meeting of shareholders by a two-thirds majority of votes cast representing more than 50% of our issued share capital, unless the dismissal is proposed by the supervisory board in which case a simple majority of the votes would be sufficient; |
| ● | a provision allowing, among other matters, the former chairperson of our supervisory board to manage the supervision of our affairs if all of our supervisory directors are dismissed and to appoint others to be charged with the supervision of our affairs, including the preparation of a binding nomination for our managing directors and supervisory directors as discussed above, until new supervisory directors are appointed by the general meeting on the basis of such binding nomination); and |
| ● | a requirement that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our management board with the approval of our supervisory board. |
Dutch law also allows for staggered multi-year terms of our managing directors and supervisory directors and as a result, only part of our managing directors and supervisory directors may be subject to appointment or re-appointment in any given year.
Furthermore, in accordance with the Dutch Corporate Governance Code, or DCGC, shareholders who have the right to put an item on the agenda for our general meeting or to request the convening of a general meeting shall not exercise such rights until after they have consulted our management board. If exercising such rights may result in a change in our strategy (for example, through the dismissal of one or more of our managing directors or supervisory directors), our management board must be given the opportunity to invoke a reasonable period of up to 180 days to respond to the shareholders’ intentions. If invoked, our management board must use such response period for further deliberation and constructive consultation, in any event with the shareholder(s) concerned and exploring alternatives. At the end of the response time, our management board, supervised by our supervisory board, shall report on this consultation and the exploration of alternatives to our general meeting. The response period may be invoked only once for any given general meeting and shall not apply (i) in respect of a matter for which a response period has been previously invoked or (ii) if a shareholder holds at least 75% of our issued share capital as a consequence of a successful public bid.
62
Moreover, our management board, with the approval of our supervisory board, can invoke a cooling-off period of up to 250 days when shareholders, using their right to have items added to the agenda for a general meeting or their right to request a general meeting, propose an agenda item for our general meeting to dismiss, suspend or appoint one or more managing directors or supervisory directors (or to amend any provision in our articles of association dealing with those matters) or when a public offer for our company is made or announced without our support, provided, in each case, that our management board believes that such proposal or offer materially conflicts with the interests of our company and its business. During a cooling-off period, our general meeting cannot dismiss, suspend or appoint managing directors and supervisory directors (or amend the provisions in our articles of association dealing with those matters) except at the proposal of our management board. During a cooling-off period, our management board must gather all relevant information necessary for a careful decision-making process and at least consult with shareholders representing 3% or more of our issued share capital at the time the cooling-off period was invoked, as well as with our Dutch works council (if we or, under certain circumstances, any of our subsidiaries would have one). Formal statements expressed by these stakeholders during such consultations must be published on our website to the extent these stakeholders have approved that publication. Ultimately, one week following the last day of the cooling-off period, our management board must publish a report in respect of its policy and conduct of affairs during the cooling-off period on our website. This report must remain available for inspection by shareholders and others with meeting rights under Dutch law at our office and must be tabled for discussion at the next general meeting. Shareholders representing at least 3% of our issued share capital may request the Enterprise Chamber of the Amsterdam Court of Appeal, or the Enterprise Chamber (Ondernemingskamer), for early termination of the cooling-off period. The Enterprise Chamber must rule in favor of the request if the shareholders can demonstrate that:
We are not obligated to, and do not, comply with all best practice provisions of the Dutch Corporate Governance Code.
As a Dutch public company, we are subject to the DCGC. The DCGC contains both principles and best practice provisions on corporate governance that regulate relations between the management board, the supervisory board and the shareholders and matters in respect of financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the provisions of the DCGC. If a company does not comply with those provisions (for example, because of a conflicting Nasdaq requirement), that company is required to give the reasons for such non-compliance. The DCGC applies to Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including Nasdaq. We do not comply with all best practice provisions of the DCGC. This may affect your rights as a shareholder, and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.
Our share price might fluctuate, and as a result, you could lose a significant part of your investment.
The market price of our common shares may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:
| ● | financial analysts ceasing to cover our common shares or changes in financial estimates by analysts; |
| ● | actual or anticipated variations in our operating results; |
| ● | changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes in the recommendations of any financial analysts that elect to follow our common shares or the shares of our competitors; |
| ● | announcements by us or our competitors of significant contracts or acquisitions; |
63
| ● | future sales of our shares; and |
| ● | investor perceptions of us and the industries in which we operate. |
In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our common shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could adversely affect our financial condition or results of operations.
U.S. investors may have difficulty enforcing civil liabilities against us or the members of our management board and supervisory board.
We are organized and existing under the laws of the Netherlands, and, as such, under Dutch private international law rules the rights of our shareholders and the civil liability of our directors and executive officers are governed in certain respects by the laws of the Netherlands. The ability of our shareholders in certain countries other than the Netherlands to bring actions against us, our directors and executive officers may be limited under applicable law. In addition, substantially all of our assets are located outside the United States.
As a result, it may not be possible for investors to effect service of process within the United States upon us or our directors and executive officers or to enforce against them or us in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. In addition, it is not clear whether a Dutch court would impose civil liability on us or any of our directors and executive officers in an original action based solely upon the federal securities laws of the United States brought in a court of competent jurisdiction in the Netherlands.
As of the date of this Annual Report, there is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. It is noted, on the date of this Annual Report, that the Hague Convention on Choice of Court Agreements of 30 June 2005 has entered into force for the Netherlands, but has not entered into force for the United States. The Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters has not entered into force for either the Netherlands or the United States. Accordingly, a judgment rendered by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a judgment rendered by a court in the United States that is enforceable under the laws of the United States and files a claim with the competent Dutch court, the Dutch court will in principle give binding effect to a foreign judgment if (i) the jurisdiction of the U.S. court was based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the U.S. court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging), (iii) binding effect of such U.S. judgment is not contrary to Dutch public order (openbare orde) and (iv) the judgment by the U.S. court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for recognition in the Netherlands. Even if such a U.S. judgment is given binding effect, a claim based thereon may, however, still be rejected if the U.S. judgment is not or no longer formally enforceable. Dutch courts may deny the recognition and enforcement of punitive damages or other awards. Moreover, a Dutch court may reduce the number of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of U.S. courts in the Netherlands are solely governed by the provisions of the Dutch Code of Civil Procedure (Wetboek van Burgerlijke Rechtsvordering).
Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or our directors, representatives or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.
64
The United States and Germany currently do not have a treaty providing for the reciprocal recognition and enforcement of judgments, in civil and commercial matters. Consequently, a final judgment for payment or declaratory judgments given by a court in the United States, whether predicated solely upon U.S. securities laws, would not automatically be recognized or enforceable in Germany. German courts may deny the recognition and enforcement of a judgment rendered by a U.S. court if they consider the U.S. court not to be competent or the decision to be in violation of German public policy principles. For example, judgments awarding punitive damages are generally not enforceable in Germany. A German court may reduce the number of damages granted by a U.S. court and recognize damages only to the extent that they are necessary to compensate actual losses or damages.
In addition, actions brought in a German court against us, our managing directors, our supervisory board members, our senior management and the experts named herein to enforce liabilities based on U.S. federal securities laws may be subject to certain restrictions. German courts generally do not award punitive damages. Litigation in Germany is also subject to rules of procedure that differ from the U.S. rules, including with respect to the taking and admissibility of evidence, the conduct of the proceedings and the allocation of costs. German procedural law does not provide for pre-trial discovery of documents, nor does Germany support pre-trial discovery of documents under the 1970 Hague Evidence Convention. Proceedings in Germany would have to be conducted in the German language and all documents submitted to the court would, in principle, have to be translated into German. For these reasons, it may be difficult for a U.S. investor to bring an original action in a German court predicated upon the civil liability provisions of the U.S. federal securities laws against us, our managing directors, our supervisory board members, our senior management and the experts named in this Annual Report.
Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce against us or management board members, supervisory board members and executive officers or certain experts named herein who are residents of or possessing assets in the Netherlands, Germany, or other countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities.
Item 4. Information on the Company
A.History and Development of the Company
Centogene was founded by our former CEO, Prof. Arndt Rolfs, in 2006 in Rostock, Germany. In connection with our initial public offering (“IPO”), which closed on November 12, 2019, we executed a corporate reorganization whereby Centogene B.V., which was incorporated on October 11, 2018, was converted into Centogene N.V. and Centogene N.V. became the holding company for Centogene AG, which remains our principal operating subsidiary. Centogene N.V. is a Dutch public company (naamloze vennootschap) organized under the laws of the Netherlands and our legal and commercial name is Centogene N.V.
On January 31, 2022, pursuant to a securities purchase agreement and a warrant agreement, each signed with certain investors, we received EUR 15.0 million as consideration for the issuance by us of an aggregate of 4,479,088 common shares at a price per share of $3.73 and warrants initially exercisable for the purchase of up to an aggregate of 1,343,727 additional common shares at an initial exercise price per common share of $7.72. The warrants are exercisable immediately as of the date of issuance and will expire on December 31, 2026.
Our principal executive offices are located at Am Strande 7, 18055 Rostock, Germany and our additional offices are in Berlin (Germany), Cambridge (Massachusetts, United States), Vienna (Austria), Dubai (United Arab Emirates), Delhi (India), and Zug (Switzerland). The office located in Vienna (Austria) was closed in 2023. Since November 7, 2019, our common shares have traded on Nasdaq under the symbol “CNTG.” Our agent for service of process in the United States is Cogency Global, located at 10 East 40th Street, 10th Floor, New York, NY 10016.
We are an emerging growth company and as such, we are eligible to, and intend to, take advantage, for up to five years, of certain exemptions from various reporting requirements applicable to other public companies that are not Emerging Growth Companies, such as not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. We will cease to qualify as an emerging growth company on November 6, 2024. As a result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2024, and we will no longer be able to take advantage of the exemptions from reporting available to emerging growth companies absent other exemptions or relief available from the SEC.
We will remain an emerging growth company until the earliest of: (i) the last day of our fiscal year during which we have total annual gross revenues of at least $1.235 billion; (ii) the last day of our fiscal year following the fifth anniversary of the closing of
65
our IPO which is December 31, 2024; (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; (iv) the date on which we are deemed to be a Large Accelerated Filer under the Exchange Act, with at least $700 million of equity securities held by non-affiliates.
Our capital expenditures for 2023, 2022 and 2021 amounted to EUR 2,279 thousand, EUR 2,094 thousand and EUR 5,702 thousand, respectively. These expenditures were primarily for property, plant and equipment and intangible assets. For further details see Item 4B below.
The SEC maintains an Internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov. Our website can be found at www.centogene.com. The information on our website is not incorporated by reference into this Annual Report, and you should not consider information contained on our website or any websites mentioned in this Annual Report to be part of this Annual Report.
B.Business Overview
We provide data-driven answers to patients, physicians, and pharmaceutical companies for rare and neurodegenerative diseases. We integrate multiomic technologies with the CENTOGENE Biodatabank – enabling a comprehensive analysis to guide precision medicine. Our unique approach enables rapid and reliable diagnosis for patients, supports a more precise physician understanding of disease states, and accelerates and de-risks targeted pharmaceutical drug discovery, development, and commercialization.
Since our founding in 2006, Centogene has been offering rapid and reliable diagnosis – building a network of approximately 30,000 active physicians. Our ISO, CAP, and CLIA certified multiomic reference laboratories in Germany utilize phenomic, genomic, transcriptomic, epigenomic, proteomic, and metabolomic datasets. This data is captured in our CENTOGENE Biodatabank, with approximately 850,000 patients represented from over 120 highly diverse countries, over 70% of whom are of non-European descent. To date, we have diagnosed over 2,500 different rare diseases and the CENTOGENE Biodatabank has contributed to generating novel insights for more than 300 peer-reviewed publications.
By translating our data and expertise into tangible insights, we have already supported 48 collaborations with pharmaceutical partners, as of December 31, 2023. Together, we accelerate and de-risk drug discovery, development, and commercialization in target and drug screening, clinical development, market access and expansion, as well as offering CENTOGENE Biodatabank Licenses and Insight Reports to enable a world healed of all rare and neurodegenerative diseases.
A rare disease, by definition in the United States, is a disease that affects 200,000 or fewer people. However, with over 7,000 currently identified rare diseases, they in aggregate affect more than 350 million people globally. Rare diseases can be severe and on average, it takes six to eight years for a patient with a rare disease to be diagnosed. This underscores the significant unmet need for high-quality genetic or other information in the rare disease space for the early identification and effective treatment of patients. Despite legislative initiatives and continued investment in rare disease drug development, significant unmet needs still exist. Of the 7,000 identified rare diseases, it is estimated that 80%, or 5,600, have a genetic origin, and of these rare hereditary diseases, less than 5%, have an FDA approved treatment. The introduction of new treatments and development of cost-effective drugs are constrained by a number of factors, including a lack of high-quality information regarding the clinical heterogeneity of medical symptoms, lack of comprehensive and curated medical data, difficulties in the early identification of patients, lack of biomarkers, and difficulties in understanding market size and epidemiology.
Our business is comprised of solutions for both physicians and their patients, as well as biopharma/pharmaceutical companies, including via collaborations with Contract Research Organizations (“CROs”). Our diagnostic solutions typically start with specialist physicians requesting diagnostic information to identify or confirm a rare disease by sending us their patients’ blood samples on our proprietary, CE-marked DBS collection kit, CentoCard, or other biological samples, such as ethylenediaminetetraacetic acid (EDTA) blood, buccal swabs, saliva, ready-to-use DNA, formalin-fixed paraffin-embedded (FFPE) tissue specimens, and cell-free DNA (cfDNA). With highly advanced technology, the CENTOGENE Biodatabank, and our team of medical experts, we then deliver reports back to the physicians that contain what we believe is critical information containing genetic and/or multiomic information, depending on what is most salient for each case. We also input this data into the CENTOGENE Biodatabank, which contributes to improved diagnostics and health outcomes, as well as enables the development of treatments.
For our pharmaceutical partners, we are able to provide various valuable information using our platform. For instance, with the access to the data in our repository and biomaterials in the CENTOGENE Biodatabank, we have successfully developed
66
biomarkers by applying highly sophisticated tools, including mass spectrometry technologies, together with artificial intelligence (“AI”) capabilities in an efficient and cost-effective manner. Biomarkers are important in orphan drug development as well as post commercialization monitoring by demonstrating the efficacy of existing and new drugs, performing longitudinal monitoring, and informing necessary titration for individual rare disease patients. Newly identified biomarkers may also have the potential to become validated disease modifiers – opening up opportunities for new therapeutic approaches. As of December 31, 2023, we have developed and capitalized six biomarkers covering three diseases (aromatic l-amino acid decarboxylase (AADC) deficiency, Gaucher disease, and amyloid transthyretin (ATTR) amyloidosis). We have also commercialized many biomarkers as laboratory developed tests.
In December 2018, the FDA issued a statement that supports the use of real-world evidence to accelerate drug development and to monitor the safety of drugs after they have been commercialized. Moreover, in February 2019, the FDA also issued a revised draft guidance for drug discovery in rare diseases, including a discussion of the benefits of using biomarkers as surrogate endpoints (the outcomes of which can be measured against therapy effectiveness in clinical trials). We believe that this guidance from the FDA, acknowledging the benefits of the use of both real-world evidence and biomarkers, further validates the value of our global proprietary rare disease platform and our biomarkers.
We historically have offered solutions to our customers through two business segments. In addition, the COVID-19 pandemic, which began in December 2019, resulted in our recognizing, as of the beginning of Q3 2020, a separate reportable segment comprising our COVID-19 business, which was discontinued in March 2022. Our historical business segments – Pharmaceutical and Diagnostics – are our core business segments. Our Pharmaceutical segment provides a variety of products and services to our pharmaceutical partners, including target and drug screening, clinical development, market access and expansion, as well as CENTOGENE Biodatabank Licenses and Insight Reports. Our information platforms, access to rare and neurodegenerative disease patients and their biomaterials, and our ability to develop proprietary technologies, such as biomarkers, enable us to provide services to our pharmaceutical partners in all phases of the drug development process as well as post commercialization. Revenues in our Pharmaceutical segment are generated primarily from collaboration agreements with our pharmaceutical partners, which are structured on a fee per analysis basis, milestone basis, fixed fee basis, royalty basis, or a combination of these. For the year ended December 31, 2023, EUR 14,802 thousand, or 30.5%, of our total revenues were derived from our Pharmaceutical segment. For the year ended December 31, 2022, EUR 16,115 thousand, or 33.9%, of our total revenues were derived from our Pharmaceutical segment. For the year ended December 31, 2021, EUR 15,641 thousand, or 37.0%, of our total revenues were derived from our Pharmaceutical segment.
Our Diagnostics segment provides targeted genetic sequencing and diagnostic services to patients through our distribution partners and clients, who are typically physicians, labs, or hospitals. Since our inception in 2006, we have been spearheading advanced diagnostic solutions using enhanced technologies and techniques applied across multiple analysis. As of December 31, 2023, we believe we offer the broadest diagnostic testing portfolio for rare diseases, covering over 19,000 genes using approximately 5,000 different tests, the latter reflecting the portfolio simplification Centogene implemented within 2022.
In 2022, we launched our commercially available multiomic testing portfolio, CENTOGENE MOx – a portfolio of single-step multiomic solutions that enable early diagnosis, improved prognosis, and precision medicine. In October 2023, the Company announced the expansion of MOx, now incorporating transcriptomic analysis. CENTOGENE’s MOx 2.0 is a single-step multiomic solution that combines DNA sequencing, biochemical testing, and RNA sequencing to provide physicians with the most comprehensive testing capability.
In January 2022, we launched CentoCloud, our cloud-based Software as a Service (SaaS) platform that enables laboratories around the world to analyze, interpret, and report genomic variants for rare disease diagnostics. Generating medical reports of diagnostic analyses is resource intensive – requiring an extensive amount of bioinformatic expertise, a sizeable databank of patient samples, and a streamlined recording system. Furthermore, as a trend, an increasing number of laboratories around the world are responding to regional requirements for increasing the amount of genetic sequencing being performed locally. This modular dry lab solution, powered by proven bioinformatic pipelines and the CENTOGENE Biodatabank, helps overcome these obstacles to make rare disease diagnostics accessible around the world. In May 2022, CentoCloud was CE-marked under the In Vitro Diagnostics Directive (98/79/EC). CE-marking is required for all in vitro diagnostic (IVD) devices to be placed in the European Economic Area (EEA) countries, as well as Iceland, Norway, and Liechtenstein, and indicates that the device may be legally commercialized in this area. CentoCloud is one of the world’s only CE-marked IVD software for genomic diagnostics.
67
In April 2023, the Company launched its FilterTool, an advanced web-based application for genetic data interpretation. The new FilterTool application integrates with CentoCloud® as an accessory and enables laboratories, medical experts, and bioinformaticians to efficiently display, filter, select, and classify relevant genetic variants identified by Next Generation Sequencing (NGS) data analysis. This allows CentoCloud® users to visualize key genetic variants of concern for any given patient.
In April 2023, the Company also launched NEW CentoGenome®, an enhanced Next Generation Sequencing (NGS)-based assay. Healthcare professionals can leverage NEW CentoGenome to provide more comprehensive diagnostic information, which could accelerate access to potential treatment options. Serving as a first-line test, NEW CentoGenome is the most comprehensive commercially available Whole Genome Sequencing (WGS) test on the market for both rare and neurodegenerative disorders – covering almost all disease-causing variants, including the most relevant repeat expansions associated with neurological diseases, in a single assay. NEW CentoGenome also detects Copy Number Variations (CNVs) associated with Spinal Muscular Atrophy (SMA), as well as complex disease-causing variants associated with Gaucher Disease (GD) and susceptibility to GBA1-related Parkinson's Disease (PD), with the highest levels of sensitivity.
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”) – refer to Note 15 in the financial statements for further detail. For the year ended 2023, we reported a loss of EUR 302k (2022: nil) from the JV.
Revenues from our Diagnostics segment are typically generated by set fees per diagnostic test or per bundle of diagnostic tests under contracts with our clients. For the year ended December 31, 2023, EUR 33,734 thousand, or 69.5%, of our total revenues were derived from our diagnostics segment. For the year ended December 31, 2022, EUR 31,358 thousand, or 66.1%, of our total revenues were derived from our diagnostics segment. For the year ended December 31, 2021, €26,593 thousand, or 63.0%, of our total revenues were derived from our diagnostics segment.
We continuously work on expanding our medical and genetic knowledge of rare and neurodegenerative genetic diseases. We work with renowned international scientific and academic institutions on a variety of groundbreaking research projects involving a significant number of patients.
The test requests that we receive from our customers in our Pharmaceutical segment, our Diagnostics segment, as well as from research projects yield a rich collection of genetic and biochemical data, which is used to map out phenotype-genotype correlations and continuously enrich and improve the quality of the CENTOGENE Biodatabank.
For the year ended December 31, 2023, we received over 118,309 test requests in total for both our Pharmaceutical and Diagnostics segments, as well as for our internal research projects – bringing the total number of test requests received in the period from January 1, 2022, to December 31, 2023, to 229,099. Compared to the total number of patients in the CENTOGENE Biodatabank as of December 31, 2023, this shows that approximately 26% of our data and biomaterials came from the last two years, which is an important factor when it comes to recruiting patients for clinical trials and clinical studies, considering the often shorter average life expectancy of rare disease patients.
The graphic below shows the cumulative test requests for the Diagnostic and Pharmaceutical segments (JV segment is not included as no business is running through it yet), as well as test requests received for our internal research projects during the period
68
from January 1, 2022 to December 31, 2023. The testing expenses relating to requests received for our internal research projects were included in Corporate as they did not generate any revenue and cannot be allocated to either of our business segments.
For the portion of the Pharmaceutical, Diagnostics, and Corporate tests, for which we have optional research consent from the patients in the CENTOGENE Biodatabank, we are able to re-test their biomaterials.
The graphic below shows the cumulative 150,776 test requests received from our Diagnostics segment in the period from January 1, 2022 to December 31, 2023, split by different type of analysis.
“Standard genetic” testing includes our single gene, CNV, and mutation quantification products.
69
From our inception in 2006, Centogene has been focused on delivering data-driven solutions to rare and neurodegenerative disease patients. Our laboratory at our headquarters in Rostock, Germany, is equipped with the most advanced technologies from thirteen different diagnostic platforms, and as of December 31, 2023, together employ more than 493 highly qualified personnel (including consultants) from over 61 nationalities. In addition to our laboratories, we have sales and administrative offices located in Berlin (Germany), Dubai (United Arab Emirates), Delhi (India), and Zug (Switzerland), allowing us to further expand our international footprint. The administrative office located in Vienna (Austria) and the laboratory located in Cambridge (United States) were closed in 2023.
Strategy
Our strategic objective is to be the essential life science partner for data-driven answers in rare and neurodegenerative diseases. We aim to translate our data and expertise into tangible insights to establish rapid and reliable diagnostics and accelerate and de-risk drug discovery, development, and commercialization in target and drug screening, clinical development, and market access and expansion.
To achieve this objective, our strategy is to:
| ● | Transform the rare and neurodegenerative disease landscape by applying precision medicine more comprehensively. Rare and neurodegenerative diseases affect patients of all ages and ethnicities across the world. We are focused on creating broader awareness of the challenges these patients and their families face, including the lack of accurate and up-to-date diagnostic solutions and effective therapies. We leverage our global network to access patient populations of varying demographics and continue to expand our existing data repository. We believe this central source of knowledge will allow us to apply precision medicine more comprehensively, which will enable more accurate diagnosis as well as support the more efficient discovery and development of new treatment solutions for rare and neurodegenerative disease patients. |
| ● | Further our leadership position in rare and neurodegenerative diseases and continue to build upon our data in the CENTOGENE Biodatabank. Since our Company’s founding in 2006, we have been focused on collecting clinical, phenotypic and genomic data for patients with rare hereditary diseases. We plan to continue growing this repository of information and biological samples through the identification of additional patients by expanding our clinical network, which will facilitate more effective drug development. This synergistic model will allow us to maintain our competitive advantage of having what we believe is the world´s largest real-world integrated multiomic data repository in rare and neurodegenerative diseases. |
| ● | Accelerate drug discovery, development, and commercialization for new and existing pharmaceutical partners. We believe we are uniquely positioned to support pharmaceutical partners along every stage of the pipeline, from target and drug screening to clinical development to market access and expansion. By leveraging insights generated from the CENTOGENE Biodatabank, multiomic technologies, and deep rare disease expertise, we are shifting the paradigm to transform data into tangible solutions – bringing speed and efficiency to our pharmaceutical partners’ drug discovery, development, and commercialization. We also offer CENTOGENE Biodatabank Licenses and Insight Reports, a portfolio of customizable data-driven solutions to enable partners to securely access unique real-world data sets and tailored data analysis reports. We believe this accelerates bringing life-changing treatment solutions to rare and neurodegenerative disease patients. In the most attractive areas, we may establish and pursue our own discovery programs or co-invest into partnered programs. This includes the building of digital representations of diseases. |
Rare Disease Overview
Overview
The Rare Diseases Act of 2002 defines a rare disease as having a prevalence of fewer than 200,000 affected individuals in the United States. In the European Union, orphan drug designation is intended to promote the development of drugs for the diagnosis, prevention, or treatment of life-threatening or chronically debilitating conditions affecting not more than one in 2,000 persons in the European Union and for which no satisfactory method of diagnosis, prevention, or treatment has been authorized (or the product would be a significant benefit to those affected).
70
The National Institutes of Health lists more than 7,000 disorders that qualify as rare diseases. A wide range of conditions qualify as a rare disease and include, but are not limited to:
| ● | Lysosomal storage disorders, such as Gaucher disease, Fabry disease, Pompe disease, mucopolysaccharidosis disorders, Farber disease, Niemann-Pick disease, and metachromatic leukodystrophy; |
| ● | Neurologic and neuromuscular disorders, such as Huntington’s disease, spinal muscular atrophy, Duchenne muscular dystrophy, and neuronal ceroid-lipofuscinosis type 2; and |
| ● | Non-malignant hematological disorders, such as paroxysmal nocturnal hemoglobinuria, atypical hemolytic uremic syndrome, hemophilia, and hemoglobinopathies, such as sickle cell disease and β-thalassemia. |
According to research published in the European Journal of Human Genetics in September 2019, a conservative, evidence-based estimate for the population prevalence of rare diseases is 3.5-5.9%, which equates to 263 to 446 million people affected globally at any point in time. According to the International Rare Diseases Research Consortium, there were over 800 new rare diseases identified between 2010 and 2019.
Causes of Rare Diseases
While there are many causes of rare diseases, approximately 5,600 are due to genetic mutations which are hereditary. To date, there are estimated to be approximately 4,700 rare genetic diseases that can be diagnosed by diagnostic sequencing tools. Despite these advancements in science and availability of Next Generation Sequencing (“NGS”) technologies, rare diseases are complex and an underlying genetic cause for approximately 1,400 rare diseases is still unknown.
In addition, new genetic mutations associated with identified rare diseases are discovered every year, and as a result, rare genetic diseases that can be diagnosed need to be continuously updated with the new information, otherwise the diagnosis provided becomes inaccurate over time. Furthermore, capabilities to deeply characterize patients with rare genetic variants, including RNA (transcriptomic) analysis, peptide and protein (proteomic) analysis, and functional assays and metabolite (metabolomic) analysis help significantly to delineate mechanisms of disease, and thereby characterize molecular markers of disease beyond the “naked” disease-causing variants which are captured through DNA sequencing.
Manifestation and Diagnosis of Rare Diseases
Because of phenotypic heterogeneity, rare disease manifestations vary in onset and severity, and many rare diseases exhibit a number of variations or sub-types. Almost 70% of the rare genetic diseases are pediatric onset, which means symptoms may be observed at birth or in childhood, as is usually the case with spinal muscular atrophy, neurofibromatosis, and chondrodysplasia. The remaining rare genetic diseases manifest symptoms during adulthood. Given the delayed onset and large variance in the symptoms that can manifest, the vast majority of these patients are misdiagnosed.
As rare diseases have a multifaceted genetic and phenotypical nature and often only a small number of patients are affected, diagnosis is complex and requires specialist knowledge – making it difficult for rare disease patients to receive an accurate diagnosis. This delay in diagnosis can be significant for many patients and may lead to irreversible progression of the patient’s condition. For example, in the United Kingdom and the United States, the average time to obtain a correct diagnosis for a rare disease is five to seven years, and throughout this period, patients experience two to three misdiagnoses. Pediatric rare disease patients can experience an even more significant delay in diagnosis. Across both pediatric and adult patient populations, approximately 90% of rare disease patients are typically undiagnosed. For example, the National Institutes of Health estimate that there are approximately 50,000 Fabry disease patients in the United States, whereas only 4,000 to 5,000 are currently diagnosed. As a result of incorrect and delayed diagnosis, unnecessary tests and treatments are often carried out, and in some cases, treatment windows are missed entirely.
Overlap Between Rare and Neurodegenerative Diseases
Genetic factors can significantly contribute to neurodegenerative diseases, with considerable heritability estimates. However, there is a large gap in the understanding of how genetics influence the manifestation of neurodegenerative diseases. Due to the hereditary nature of both rare and neurodegenerative diseases, there are clinical and pathological overlaps.
71
Leveraging the CENTOGENE Biodatabank and unparalleled insights into unique disease-causing variants, we have been able to demonstrate the genetic overlap between rare and neurodegenerative diseases, including more common conditions, such as Parkinson’s disease, as well as rare neurodegenerative diseases, including frontotemporal dementia and amyotrophic lateral sclerosis.
Regulatory Environment and Current Market
Orphan drug legislation in the United States has made significant improvements in encouraging the development of new drugs to treat rare diseases. Since the passage of the Orphan Drug Act and subsequent amendments to the orphan drug regulations, the FDA has granted over 6,000 orphan drug designations. Moreover, the FDA’s Center for Drug Evaluation and Research (“CDER”) approved 55 novel drugs in 2023, among which 28, or 51%, of these were for rare or “orphan” diseases (diseases that affect fewer than 200,000 people in the United States).
In the United States, orphan drug designation allows the drug sponsor to benefit from incentives for the development of these products up to marketing approval. The measures apply to all stages of drug development and include tax credits for qualified clinical trials, waiver of user fees, and potential marketing exclusivity for seven years. In addition, more than US$420 million was provided by the FDA’s Orphan Products Clinical Trials Grants Program over the last three decades and led to 70 marketing approvals for the treatment of rare diseases.
In the European Union, financial incentives, including fee reductions or waivers, are available and market exclusivity is granted for up to 10 years. In 2020, the EU Commission launched a consultation process to revise the existing legal framework for orphan drugs with the aim of adopting a new regulation to increase the development of new products for patients with rare diseases, to provide faster access to corresponding medicines and to establish an efficient evaluation and approval process for these medicines. On April 26, 2023, the EU Commission adopted a proposal for a new Directive and a new Regulation, which, if enacted, would revise and replace the existing general pharmaceutical legislation in the EU (Regulation 726/2004 and Directive 2001/83/EC) and the legislation on medicines for children and for rare diseases (Regulation 1901/2006 and Regulation 141/2000/EC, respectively). The draft provides for significant changes to the existing legal regime. The draft provides, inter alia, for a shortening of the general market exclusivity period for orphan drugs from ten to nine years, but companies can take advantage of additional market exclusivity periods. The Commission proposal is now under review by the EU Parliament and EU Council and may undergo substantial changes during the ongoing legislative procedure (2023/0131/COD).
Due to these legislative initiatives, there has been an increase in investment and activity in the rare disease drug development space. According to a report by Global Genes, a leading rare disease advocacy organization, investment in rare diseases is gaining momentum. In 2021, drug developers invested a total of US$22.9 billion for research on rare disorders, an increase of 28% compared to 2020. It is estimated that Orphan invoice spending has been increasing at a rate of over 14% for the last five years, and faster than other specialty or traditional drugs for the past four years. These investments are expected to lead to the approval of new rare disease drugs, which, according to market research, are expected to grow at a CAGR of 12% from 2021 to 2026 to US$273 billion, capturing approximately 20% of worldwide prescription sales.
Key Challenges in Rare Disease Drug Development
Despite the legislative initiatives to encourage orphan drug development and the consequent increase in investment and activity in the rare disease drug development space, significant unmet needs still exist. Of the 5,600 rare hereditary diseases, very few rare hereditary diseases have an FDA approved treatment. The limited number of treatments available for rare diseases is the greatest challenge for patient care and is based on the lack of research on rare diseases and barriers in developing and commercializing treatments.
We believe the following summarizes the key challenges clinicians and the pharmaceutical industry are facing today:
Lack of high-quality medical data as a result of:
| ● | Lack of phenotypic understanding. For many diseases, the symptoms are non-specific and often do not fit the typical picture of the disease. Due to their phenotypic heterogeneity, rare diseases have highly diverse clinical manifestations and unpredictable progression rates. These factors make it difficult for physicians to make an accurate diagnosis and determine an optimal treatment strategy. |
72
| ● | Lack of patient sample availability. Patient samples to study the disease are in short supply, making development of drugs difficult. Even more, dedicated pharmacological models are more commonly developed for common diseases. The generation and storage of rare disease samples is therefore a crucial prerequisite for drug development for rare diseases. |
| ● | Lack of comprehensive and curated information. A full understanding of the causes of a rare disease requires multiomic information, as well as detailed clinical information. Moreover, thorough medical validation processes must be conducted to ensure the quality of this information. While there are a few, limited rare disease databases available to the market, such as parts of ClinVar and HGMD, they are not specifically set up to service the rare disease industry and, due to their nature, lack medical curation. Consequently, this limits the accuracy and utility of that data for clinical diagnoses and decision-making. |
| ● | Lack of ethnically diverse datasets. The majority of existing rare disease datasets only capture individuals in developed regions of the world, where healthcare expenditure is disproportionately higher. This disparity yields population datasets that are specific to such regions and does not capture the full ethnic and hereditary nature that may be present in various rare diseases. For example, as published in Nature, even though unique genetic mutations are present across many different ethnicities, 87% of all genetic datasets are of European descent. |
Difficulties in the early identification of patients. Identifying rare disease patients is difficult given the small patient population for each rare disease. In addition, the population for each of the rare diseases is typically also scattered and diverse, which makes it more difficult to gain access to patients and collect sufficient real-world data to perform meaningful analyses to obtain a better understanding of the rare diseases. The lack of sufficient understanding of the clinical manifestations of rare disease makes it even more challenging to derive accurate diagnoses. The ability to access relevant patients with a particular rare disease and to access appropriate expertise, a physician network, and datasets via a repository, improves the accuracy of disease identification and facilitates the development of new treatments and diagnostic procedures.
Lack of biomarkers. The small patient populations, phenotypic heterogeneity, homogenous datasets and lack of curated information for rare diseases all impede biomarker discovery. Without an identified biomarker, the ability to diagnose and ultimately treat a patient in a timely manner is diminished. Delayed diagnoses and limited knowledge of available treatments can lead to incorrect patient management, further disease progression and/or invasive or detrimental treatments. For example, patients suffering from Gaucher disease and cystic fibrosis can have average life expectancies of only eleven years and one year, respectively, if no treatments are available, leaving limited time for effective treatment if not diagnosed early. In addition, the lack of an identified biomarker can create hurdles in obtaining drug approval as biomarkers can be beneficial in clinical development, specifically in monitoring how effectively a patient is treated by a drug. Biomarkers are also used to correlate with genetic changes, in particular if mutations affect the activity of the protein encoded to a different degree.
Difficulties in orphan drug development and commercialization as a result of:
| ● | Clinical Trial Recruitment. Relevant patient populations are rare and typically spread across large geographical regions, making adequate patient recruitment for clinical trials particularly difficult, which can delay development. |
| ● | Trial Design and Dose Selection. Small patient populations do not allow for multiple parallel studies in the same indication. This also applies to dosages, where the number of dose levels studied may be limited by the practical considerations of running a trial. As a result of these limitations, careful thought must be given to study design in order to optimize clinical trial success. |
| ● | Patient Management. In an orphan drug trial, clinical management of individual patients can be difficult. Understanding the burden of disease and managing the patient and family experience within a study is key. Because of the progressive nature of many rare diseases, it is crucial to enroll patients at a time where treatment has the highest potential to be effective. Furthermore, the nature of diseases can be very severe, as highlighted by the significant number of pediatric rare disease patients – making it an additional challenge to run a clinical trial. |
| ● | Eligibility Criteria. Eligibility criteria influences the type of patient eligible to participate in a clinical study. Consequently, this dynamic interferes with the establishment of a database that captures clinical efficacy and safety data which can be extrapolated to a larger network of patients with the same disorder. |
73
| ● | Understanding the End Market. Obtaining accurate epidemiological data is crucial for pharmaceutical companies to appropriately size the ultimate end market for a given drug in development. Given the small patient populations, it can be a challenge for pharmaceutical companies to recover the costs of rare disease drug development. As a result, this may impede initial investment in rare disease therapies. |
| ● | Sponsored testing for patient finding. Once a rare disease drug is commercialized, the limited number of identified patients and challenges associated with diagnosis make it difficult for physicians and pharmaceutical companies to find individuals who would benefit from an approved therapy. In order to market a commercial drug more successfully, improved datasets are needed to aid in patient identification. |
Our Vision
We have an integrated approach with a detailed, global understanding of the genetic basis and the clinical phenotype of rare hereditary diseases, which we believe will unlock the ability to target rare and neurodegenerative diseases and provide critical knowledge that will guide drug development and monitoring, and ultimately improve health outcomes for patients. We perform analysis on the patients’ data that we receive from our Pharmaceutical and Diagnostic segments as well as from our research projects using a multiomic approach, which utilizes phenomic, genomic, transcriptomic, epigenomic, proteomic, and metabolomic data sets. The combination of the varying “omics” provides deep insights in the pathogenesis of rare and neurodegenerative diseases. The value in such a holistic diagnostic process has resulted in a shift from data generation to interpretation-based diagnostics, whereby the development and use of biomarkers and tests is the central element in bringing rationality to treatment decisions for patients. High-quality, standardized clinical information supporting medical interpretation is a crucial element of the diagnostic process and leads to greater knowledge of the causes and symptoms of rare and neurodegenerative diseases. We believe a combination of worldwide data and detailed access to multiomic data will aid in the development of new treatments and reduce the costs associated with drug discovery, development, and commercialization.
The CENTOGENE Biodatabank
Centogene’s integrated multiomic data repository provides unique real-world data in rare and neurodegenerative diseases.
The CENTOGENE Biodatabank sits in the middle of all of Centogene’s activities. It drives both our diagnostic business as well as our pharmaceutical partnerships. We have captured data from more than 850,000 individuals from all over the world with a huge variety of clinical phenotypes and genetic information and the number of unique variants in the CENTOGENE Biodatabank is over 85 million. This unique data asset, together with its multiomic lab capabilities, helps Centogene to diagnose rare disease patients with a high diagnostic yield. It also supports our pharmaceutical activities ranging from drug and target discovery to clinical development to market access and expansion. All of these activities further fuel the CENTOGENE Biodatabank with multi modal data including multiomic data, clinical information, sociodemographic data and the patient biomaterial. With this, we believe Centogene created a positive feedback loop where diagnostic excellence and pharmaceutical partnerships create additional data which in turn helps patients via improved diagnostics and accelerated discovery, development, and commercialization of treatments in cooperation with our pharmaceutical partners.
The Strengths of the CENTOGENE Biodatabank
Our platform is intended to streamline and accelerate the development of treatments for rare and neurodegenerative diseases, and aids in the understanding of how to identify new rare disease patients and how to recognize and quantify market opportunities in patient populations. We believe we offer the following solutions for the industry:
| ● | Extensive repository to identify rare and neurodegenerative disease patients: The CENTOGENE Biodatabank includes genomic and multiomic data that reflects a global population, as well as a biobank of these patients’ blood samples. This capability has been facilitated by our development of the CentoCard, a convenient logistical solution. CentoCard is CE-Marked and easily stored, allowing for massive amounts of data aggregation from around the world. Additionally, where we have optional research consent from the patients in the CENTOGENE Biodatabank, we have the ability to retest their biomaterials in our biobank. We are able to provide information about available treatment options to the physicians in our medical reports, therefore adding to the physician’s decision-making tools in determining treatment for their patients. We believe this solution reflects the world´s largest real-world integrated multiomic data repository in rare and neurodegenerative diseases, thereby allowing us to assemble a knowledge base from which to derive accurate diagnoses and epidemiological information. We have relationships with a global network of specialists at rare disease |
74
| “centers of excellence.” With these relationships and the logistical advantages of CentoCard, we are able to continuously grow our repository from the collection of new patient samples and related patient data. |
| ● | Ethnically diverse datasets: The CENTOGENE Biodatabank has the advantage of holding samples from a broad range of ethnicities, with more than 70% being of samples of non-European descent. Our repository covers a substantial majority of ethnicities, as we have performed diagnostic tests for patients in over 120 highly diverse countries. Without the ability to recognize ethnicity-specific patterns, the interpretation of genetic variants in patients is difficult and a patient’s physician may fail to find an accurate diagnosis. The mutation frequency distribution within one ethnicity can vary significantly from that of other ethnic groups within the same rare disease population. For example, a mutation in the Caucasian population might have a significant functional impact and cause a disease, but the exact same mutation in the Mongolian population might be without any functional consequence. With access to data from a more diverse patient population, we are able to improve the interpretation of genetic variants, whether benign or causative. |
| ● | Curated information in the CENTOGENE Biodatabank: We have built a truly differentiated repository of multimodal data, including sociodemographic, clinical and multiomics data as well as biomaterial, covering over 2,500 rare diseases. As of December 31, 2023, the CENTOGENE Biodatabank included more than 850,000 individuals and approximately 550,000 dried blood spots cards stored in our own physical biobank which enables retrospective analysis for research consented samples. Equally notable is our network of approximately 30,000 active physicians with whom we have been in contact in the last five years. |
| ● | Geographic diversity: The CENTOGENE Biodatabank includes individuals representing over 120 highly diverse countries. It is observed that the largest share of data within our repository relates to Europe followed by the Middle East. In Europe, Germany, Spain and Italy are the top contributors. In the Middle East, Saudi Arabia, the United Arab Emirates and Iran contribute a large inflow of patients. Many cases of genetic rare diseases are observed in these regions and we have established a strong network of physicians. |
| ● | Data creation: At the core of our business is the CENTOGENE Biodatabank – allowing us to assemble an extensive knowledge base in rare and neurodegenerative diseases. We collect this detailed level of data in our repository through our easy-to-use CentoCard, which allows us to capture blood samples of potential patients with a low cost of distribution, accompanied by the patients’ medical histories and completed consent forms from the physicians. The data is then validated by professionals using a systematic and scientific approach. |
75
Our team of scientists collects, annotates and reviews the phenotypic, genetic and other clinically relevant data of patient samples to ensure the highest medical validity of each sample. We also employ Human Phenotype Ontology (“HPO”) coding to accurately track and standardize sample phenotype and genotype data. The data curation is performed by our professional scientists with strong backgrounds in human genetics. Our methodological approach to information curation ensures we provide accurate data relevant to clinical diagnoses and decision-making. In this way, we believe that the CENTOGENE Biodatabank brings rationality to the interpretation of global multiomic data.
Therapeutic Areas and Disease Focus
We believe that our broad expertise in rare diseases is reflected in the CENTOGENE Biodatabank, with more than 850,000 patients and over 2,500 rare diseases represented. The CENTOGENE Biodatabank contains comprehensive clinical, multiomic, and sociodemographic data for these cohorts. We have seen in multiple cases that these cohorts are the most comprehensive cohorts accessible.
76
In addition to powering our diagnostic capabilities, the CENTOGENE Biodatabank’s depth and richness of information has allowed us to uncover and describe new gene-disease associations. This repository also powers our R&D efforts to explore and validate candidate biomarkers and potential new therapies for some of the diseases on which we are experts.
Generally, multimodal data sets of cohorts of rare disease patients enable a rapid R&D cycle by generating data-driven insights and developing a better understanding of disease biology. They aid in solving unmet medical needs for the patients and their families, allowing better diagnostics, uncovering the biological factors that determine diverse disease outcomes (disease modifiers), discovering/validating useful disease biomarkers, and mining candidate drug targets.
Data Partnerships
Based on conversations with academic and commercial partners, we believe that the multimodal data in the CENTOGENE Biodatabank is very valuable. We have different data partnership models available under the umbrella term “the CENTOGENE Biodata Network”.
Both with Insight Reports as well as with Biodata Licenses, we can enable knowledge partners to tap into the richness of the CENTOGENE Biodatabank to improve diagnostics, accelerate target discovery and validation, and find and validate new biomarkers and novel gene-disease relationships. Further, the data helps to accelerate and de-risk clinical and observational studies and supports the commercialization with information for market access and expansion. The Biodata Network allows us to offer the right partnership model depending on our partners’ needs so that the data of research consented patients can be used to advance discovery and support patients and their families all over the world.
Our Core Business Commercialization Strategy
We are committed to improving health outcomes by accelerating the diagnosis and access to available treatment options for rare and neurodegenerative patients.
Our solutions from our core businesses are offered to our clients via two channels:
| ● | Pharmaceutical: Solutions from the core businesses are primarily acquired by pharmaceutical partners, whereas interest from other types of strategic partners, such as CROs, is increasing. |
| ● | Target and Drug Screening: The heart of this product offering is the development of patient-derived cell-models and multiomics as well as biomarker/assay identification and validation; |
| ● | Clinical Development: This product offering includes epidemiology and patient finding as well as genetic biomarker profiling for observational studies, patient multiomic profiling, stratification, modelling, and efficacy markers for POC/PhII/III as well as patient identification and diagnostics for POC/PhII/III; |
| ● | Market Access and Expansion: The core of this offering is three-fold: |
| - | Real-world registry and early access programs |
| - | Patient stratification, genetic and biomarker profiling, and modelling; and |
| - | Patient identification and diagnostics. |
| ● | The CENTOGENE Biodata Network: In addition to the above-mentioned offerings, Centogene differentiates itself from the market through the CENTOGENE Biodatabank and the capabilities to deliver tailored Insight reports and Biodata Licenses. |
Revenues from our Pharmaceutical segment are generated primarily from partnership agreements with our pharmaceutical partners, which can be structured on a fee per analysis basis, milestone basis, fixed fee basis, royalty basis or a combination of these. For the year ending December 31, 2023, EUR 14.8 million, or 30.5%, of our total revenues were derived from our pharmaceutical segment. For the year ended December 31, 2022, EUR 16.1 million, or 33.9% of our total revenues were derived from our Pharmaceutical segment.
77
| ● | Diagnostics: Our Diagnostics segment provides genetic sequencing and diagnostics interpretation and medical reporting services to patients through our distribution partners or prescribers, in laboratories and institutions, who are typically physicians and geneticist. We offer a broad diagnostic testing portfolio for rare and neurodegenerative diseases, covering over 19,000 genes. Our key products are our WGS and WES, as well as our multiomic testing solution. Together, these products represent the most comprehensive approach to identifying disease-causing variants. Revenues from our Diagnostics segment are typically generated by set fees per diagnostic test or per bundle of diagnostic tests, under contracts or per price/discount agreements with our clients. In turn, the biomaterial, clinical information and data collected from our diagnostics services allow us to continue to grow the CENTOGENE Biodatabank. For the year ended December 31, 2023, EUR 33.7 million, or 69.5%, of our total revenues were derived from our Diagnostics segment. For the year ended December 31, 2022, EUR 31.4 million, or 66.1%, of our total revenues were derived from our Diagnostics segment. |
Pharmaceutical Partnerships
Comprehensive partnerships with biopharmaceutical/pharmaceutical companies support de-risked processes and improved outcome from early drug discovery through clinical development to commercialization.
The offerings to pharmaceutical companies consist of the following key categories: (i) Target and Drug Screening; (ii) Clinical Development; (iii) Market Access and Expansion; and (iv) the CENTOGENE Biodata Network. We currently have partners in each of these categories. While Target and Drug Screening as well as the CENTOGENE Biodata Network are still in the early stages, we expect that Clinical Development as well as Market Access and Expansion will be the key growth drivers for 2024.
The below chart demonstrates the unique pharmaceutical product offering per category.
Strategic Partnerships: Large CROs manage a volume of well over 100 proposals for clinical trials in rare diseases per year. Each individual offer involves a large amount of work because it also involves extensive research into the potential distribution of study sites. We believe that with Centogene, selected CROs can now not only shorten this process, but also substantially improve the quality. The robustness of the CENTOGENE Biodatabank enables us to offer a unique competitive advantage, which makes us an ideal partner for CROs. Not only can the ramp up of the study be faster due to the potential use of patients already known to Centogene; it is also supported with prospective patient identification by Centogene, which can be initiated immediately after the project has been awarded. Strategic partners such as CROs see the advantage of working with Centogene to implement more efficient and faster study projects.
Centogene had 48 ongoing collaborations with 34 different pharmaceutical partners during 2023, and the projects covered all phases of from target and drug screening through clinical development to market access and expansion.
78
In Vitro Molecular Screening
A full understanding of a given rare and neurodegenerative disease and the ability to identify and target the right molecules is essential for drug development. With access to Centogene’s biological samples, in vitro molecular screening efforts can aid to accelerate drug discovery efforts. Combined with access to our biobank and data repository, the pharmaceutical partners are able to gain novel insights into the natural history of diseases, the broad spectrum of the different clinical symptoms as well as the genotype-phenotype correlation. Moreover, in situations where several genes can cause the same clinical symptoms, and therefore potentially cloud an accurate diagnosis, Centogene is able to identify additional genes that aid in the accurate diagnosis with the knowledge gathered in in the CENTOGENE Biodatabank.
Epidemiological Studies
The ability of pharmaceutical companies to identify patients early and to optimize their clinical trials is key to the development of treatments for rare and neurodegenerative diseases. Centogene offers epidemiological studies that will provide partners with important input on design and site feasibility data as well as identify the right patients for future clinical studies. Epidemiological studies can target a specific country or region of interest, and thereby enable a better understanding of market potential.
By collaborating with Centogene, pharmaceutical partners are able to specify the rare or neurodegenerative disease of interest as focus for an interventional clinical trial. Available epidemiological data is identified and enhanced with genetic and phenotypic information from the CENTOGENE Biodatabank. From there, the pharmaceutical partners are able to better understand and define specific conditions or eligibility criteria that patients must meet for a clinical study.
Hereafter, a patient selection and identification program is defined. We start by identifying existing patients in the CENTOGENE Biodatabank who fit the defined criteria. If the needed cohort of patients exceeds the number of patients available in our data repository, Centogene’s global network of key opinion leaders, clinical labs and specialist physicians can be leveraged. As a result, we are able to help our pharmaceutical partners optimize their clinical trials by more effectively selecting relevant patient groups and by leveraging our detailed understanding of the epidemiological data of the specific disease.
Biomarker Development
Biomarkers are key tools employed across the continuum of rare disease drug development. Namely, they are utilized to support diagnosis, classify genetic variants of uncertain significance, serve as a companion diagnostic, demonstrate treatment efficacy, as well as monitor disease progression. Furthermore, biomarkers enable more efficient and economical patient diagnosis than genetic testing and allow mass screening programs for large patient cohorts. Biomarkers can also be relevant for precision medicine.
In the development of a high-quality biomarker for a given rare disease, both heterogenous and homogeneous cohorts of patients with known phenotypic and genotypic aspects are needed to identify/validate the sensitivity and specificity of a biomarker for a given disease. We believe the CENTOGENE Biodatabank is the world´s largest real-world integrated multiomic data repository in rare and neurodegenerative diseases, and additionally contains a vast source of healthy control individuals against whom we are able to identify the characteristics of unique biomarkers. Therefore, Centogene is ideally positioned to lead the market in rare disease biomarker development.
As of December 31, 2023, Centogene has developed and capitalized eight biomarkers covering five diseases, including aromatic L-amino acid decarboxylase (AADC) deficiency, Gaucher disease, transthyretin amyloidosis, Farber disease and Hereditary angioedema. In addition, Centogene has commercialized and used additional biomarkers as laboratory developed tests.
79
With proprietary biomarkers, Centogene can also qualitatively measure a patient’s response to approved drugs and to drugs in clinical trials, and using this data helps to determine the optimum treatment dosage for each patient. This not only helps to accelerate the development of drugs by demonstrating the efficacy of the drugs in clinical trials, but also allows patients, physicians and reimbursement agencies to better understand the impact of the drugs. The below graphs demonstrate how Lyso-Gb1, Centogene’s first commercialized biomarker, can be used for patient screening and monitoring in the context of Gaucher disease:
* Based on a combination of our biomarker and a genetic confirmatory test
(Rolfs et. al., 2013.)
The left graph demonstrates the sensitivity and specificity of the Lyso-Gb1 (Glucosylsphingosine) biomarker for Gaucher disease. According to a 2017 study, patients who are not suffering from Gaucher disease show a Lyso-Gb1 level of less than 12 nanograms per mL blood, whereas patients with Gaucher disease display elevated levels of Lyso-Gb1. Based on the definition of the cut-off of 12ng/ml Lyso-Gb1, we can demonstrate a 100% sensitivity and close to 100% specificity, which means the Lyso-Gb1 biomarker, when combined with a confirmatory genetic test, can provide 100% accuracy in identifying patients suffering from Gaucher disease, and also those who are not suffering from the disease.
The right graph demonstrates how Lyso-Gb1 biomarker can also be used to titrate the proper enzyme replacement therapy dosage in each individual patient. An increase of the Lyso-Gb1 level indicates that the dosage of the enzyme replacement therapy needs to be adjusted. After adjustment, Lyso-Gb1 levels decreased to an almost normal level. This is valuable for demonstrating drug efficacy to relevant authorities for approval, and also for demonstrating to reimbursement agencies that individualized treatment and dosage may be required for the patient.
Genetic Screening of High-Risk Populations
Once a treatment is available for a rare or neurodegenerative disease, early identification of patients is critical so that patients can be treated before they have reached the stage of irreversible progression. Centogene is able to support pharmaceutical partners in market access and label expansion through patient identification efforts by leveraging our knowledge and performing genetic and biochemical screening on large groups of patients with the risk profile of a given disease. This can be done by using our biomarkers or a tailored genetic test. If a positive diagnosis is concluded, we provide physicians with a medical report, which helps physicians make clinically relevant decisions for the treatment of their patients. For negative diagnoses, further testing options may be available.
Research and Development Validation
Based on our extensive expertise in rare diseases and our access to detailed genetic data, our pharmaceutical partners can approach us for guidance during their drug development endeavors. More specifically, pharmaceutical partners can ask Centogene to engage in their clinical trial design and potentially complement it with multiomics capabilities. All of these services are aimed at optimizing clinical development efforts.
80
Key Partnerships
Shire/Takeda
In January 2015, we entered into an agreement with Shire, now a subsidiary of Takeda Pharmaceutical Company Limited, to provide certain diagnostic testing capabilities to Shire and its affiliates in order to enhance early diagnosis of patients suffering from lysosomal storage and other rare diseases, including Fabry disease, Gaucher disease and Hunter syndrome. Our unique expertise and repository of data contributes to Takeda’s mission to shorten the time it takes for rare disease patients to get diagnosed. In connection with this agreement, we receive a fixed annual fee plus additional service-based payments related to regulatory and diagnostic sequencing activities.
In addition, in 2018, we entered into a new research agreement with Shire relating to their ongoing drug development efforts in HAE. As part of this agreement, we are conducting an extensive epidemiological study leveraging our data repository and network of physicians at centers of excellence to gain unique insights into HAE and to support Takeda’s ongoing clinical development efforts. This study was finalized in April 2022.
In December 2021, we extended our Global Master Service Agreement with Takeda to March 2023 and did so again in February 2024 – extending the Global Master Service Agreement to March 2026. This continuous partnership allows us to continue diagnosing and connecting rare disease patients globally.
Evotec International GmbH (“Evotec”)
In July 2018, we entered into an agreement with Evotec to support and jointly expedite their identification of new small molecule treatments in the field of glucocerebrosidase deficiency (“Gaucher disease”). Evotec identifies active pharmaceutical ingredients based on the induced pluripotent stem cells (“iPSC”) that are generated from fibroblasts we obtain from skin biopsies of patients. We believe our collaboration will aid in the acceleration of drug development through the adoption and application of more accurate cellular models of the target disease and specific biomarkers to monitor such diseases. Our collaboration combines Evotec’s cellular compound screening platform and drug discovery capabilities with our medical and genetic insights to develop a high throughput platform to test innovative small molecules in Gaucher disease. In connection with this agreement, we received an initial payment in 2018 and milestone payments as well as further royalty fees on net sales of products developed from this collaboration in 2018 and 2019. In July 2020, we expanded our agreement with Evotec into an extensive collaboration for the discovery of both targets and therapies for Gaucher Disease (“GD”). The use of patient-derived, tissue-specific disease models, which have been created using our iPSC platform, allows for proof-of-concept evaluations in GD. The collaboration combines Evotec’s expertise in high throughput screening and compound generation along with our genomic and metabolomic platforms to discover novel therapies for the treatment of GD patients. This collaboration has been extended in December 2022 until March 2023.
On April 29, 2024, the Company and Evotec SE entered into a second amendment to the collaboration agreement, whereby the Company granted Evotec a non-exclusive license to use Program IP until March 31, 2025, in which Centogene will receive an up-front fee. The Company also granted Evotec an option right until March 31, 2025, to enter into a license agreement acquiring Centogene’s share of the IP generated throughout the collaboration. Should Evotec execute on a global license, Centogene would receive an up-front fee, milestone payments, as well as additional royalties.
Denali Therapeutics (“Denali”)
In September 2018, Centogene entered into a strategic collaboration with Denali Therapeutics for the targeted global identification of Parkinson’s patients with genetic variations in the LRRK2 gene. The LRRK2 gene is one of the most common mutated genes in familial PD.
In January 2023, Centogene announced that it had extended the Rostock International Parkinson's Disease (ROPAD) Study to recruit and genetically test additional patients over the next few years. Based on initial findings of the more than 12,500 patients already recruited and genetically tested, the study will now focus its efforts on select sites and geographic areas. The ROPAD Study, which is conducted alongside Denali Therapeutics, is the world’s largest observational study on Parkinson’s disease genetics with now over 15,000 enrolled patients to date. Throughout this study, up to 25,000 Parkinson’s patients from around the world will be tested. Patients enrolled in ROPAD and identified with genetic variations may be eligible for participation in ongoing interventional clinical studies.
81
Our Diagnostic Solutions
Overview and Product Offering
Our diagnostic solutions segment provides diagnostic testing services to patients exclusively through our network of distribution partners and our diagnostics clients, who are typically physicians, laboratories, universities, or hospital facilities. Our Diagnostic segment serves over 100 countries due in part to our CentoCard solution enabling an efficient and simple transfer of the sample from the point of care to the lab. Additionally, our online platform, CentoPortal, allows our clients to quickly and easily place orders and obtain information related to their patients’ test results, as well as benefit from advancements in rare and neurodegenerative disease research, which we update on a regular basis. We provide a high-quality, end-to-end clinical diagnostics solution, which includes pretest clinical counseling performed by our medical experts whenever necessary, sample preparation, sequencing using NGS and other technology, clinical interpretation using our manual and automated bioinformatics pipelines, and medical reporting by our specialists.
Of the more than 5,600 identified rare hereditary diseases, in many cases not only is there no treatment available, but even the natural course of the disease and the relevant tests to diagnose the disease are unknown or underdeveloped. In order to further improve the understanding of rare hereditary diseases and to provide a better and earlier diagnosis for rare disease patients, we continuously develop new testing products to provide the most effective diagnosis products to our physician clients, leveraging insights from the CENTOGENE Biodatabank and our deep medical expertise.
In 2022, we launched MOx (multiomics solutions) as an add-on to our standard Exome and Genome single omic testing. Up until 2021, Centogene was mainly perceived as a genetics company but realized it has strong skills in multiple technologies which could be, to be leveraged for multimodal testing to generate superior disease insights. Multimodal testing is gaining more attention as research shows favorable clinical utility or potential in:
| - | Increasing diagnostic yield in unresolved patients with challenging phenotypes; |
| - | Stratification of VUS after WES/WGS; and |
| - | Prognostic and predictive testing, monitoring, or subscription sales opportunity. |
In October 2023, the company expanded its multiomic portfolio with MOx 2.0 to now include RNA sequencing (transcriptomics). We believe that only a few competitors have begun to establish multiomic testing (e.g., Transcriptomics/RNA after WES/WGS).
As of December 31, 2023, we offered a comprehensive testing portfolio of approximately 5,000 different tests covering over 19,000 genes, from single gene to WGS-based products. We also offered differentiated comprehensive testing solutions including multiomic solutions, CNV analysis, biochemical testing, reproductive health and prenatal testing, among others.
In 2022, we announced the global release of CentoCloud®, a SaaS platform enabling decentralized analysis, interpretation, and reporting of genomic variants linked to rare diseases. The CentoCloud SaaS platform provides rapid and reliable medical reports, which can be challenging for sequencing laboratories due to bioinformatics resource as well as medical expertise limitations. Based on the decentralization of genetic testing and the CENTOGENE Biodatabank, as well as AI-based clinical interpretation, CentoCloud also enables access to high quality medical reporting.
82
Additionally, labs and research institutions can purchase NGS target enrichment panels in collaboration with Twist Bioscience (“Twist”) to help accelerate their research, and also have the option of using CentoCloud for the identification, prioritization, and classification of human genetic variants to expedite diagnostic analysis.
Overview of the Diagnostic Process
Our diagnostics processes are designed with the aim of providing the highest quality diagnosis within the shortest turnaround time. We perform our diagnostic services for our diagnostics and pharmaceutical businesses in our clinical laboratory located in Rostock, Germany, which is certified under CLIA and accredited by the CAP.
We strive to provide the best quality of diagnostics testing, not only by following the strictest quality criteria complying with CAP, and CLIA certifications and adhering to ISO 15189 standards supported by our multidiscipline quality management system (“QMS”), but also by following applicable and market standard Good Laboratory Practice (“GLP”) and Good Manufacturing Practice Regulations (“GMP”) guidelines. Our processes are highly efficient and have been designed to deliver our medical report back to the physician within 35 days from receipt of the sample, even for our most complex tests.
83
Our diagnostics process is defined by our five-step process:
| ● | Medical Quality and Counseling: Rare disease specialists review the patient’s clinical records and confirm that the physician has requested the appropriate genetic test with regard to the patient’s individual circumstances and medical history. In all cases, the physician is required to provide us with a completed patient consent form, which our staff review for adequacy prior to the performance of any diagnostic services. |
| ● | Logistics: We use the CentoCard collection method for obtaining the majority of our samples. This standardized procedure allows us to extract high-quality biological material from DBS on CentoCard, including DNA (for molecular diagnostics), protein (for enzymatic and biomarker assays) and metabolites (for biomarker assays). |
| ● | Clinical Data Management: Physicians are able to order our diagnostic tests for a particular patient either online through our CentoPortal platform or by email or mail. |
| ● | Diagnostics: Once a patient sample is received, we prepare the biological material for testing by taking an extract of the DNA from the relevant sample. Depending on the test requested by the physician, we would then proceed to run any number of our diagnostic services listed above. |
| ● | Once produced, the data is entered into a sophisticated series of our proprietary computational algorithms designed to detect and identify known pathogenic variants. The sequenced data is analyzed using our fully validated and automated bioinformatics pipeline and annotated with information from the CENTOGENE Biodatabank. The CENTOGENE Biodatabank is key to the diagnostics process as it is used as the basis of comparison with the patient’s sequenced data. This analyzed genetic information, together with the patient’s medical history and clinical data, is then interpreted by our medical experts, a team of trained human geneticists and doctors. All identified mutations along with their annotations will undergo a manual validation against the medical history of the patient in order to ensure accuracy. |
84
| ● | Additionally, our bioinformatics pipelines provide a highly automated approach to analysis of variant classification, CNV identification and other genetic data. To augment our bioinformatics pipelines, we have developed a database to store all variant information, which is part of the CENTOGENE Biodatabank, and is the basis for our evaluation and interpretation of genetic data. We have developed an in-house variant prioritization and classification system, named CentoPrio, to enhance our interpretation capabilities. CentoPrio takes advantage of the vast amount of genotypic and phenotypic data stored in our databases. Through the use of proprietary algorithms and machine learning algorithms (AI), we combine this data with current medical knowledge to prioritize particular variants that have been identified in previously closed patient cases. |
| ● | Reporting: Our test reports deliver clinically relevant information in a manner that seamlessly integrates into physician practices. A standard report contains a summary of the test result and provides our analysis, recommendations and detailed description of the patient’s relevant genomic alterations and a full data record for consolidation with the patient’s medical records. The report also identifies noteworthy absences of genomic alterations and summaries of, and references to, supporting data from peer-reviewed publications. If requested by the physician, we also provide information on variants in genes not associated with the patient’s disease or symptoms but that nonetheless contain medically actionable information (such as incidental or secondary findings). |
| ● | All of our medical reports are written by professional medical experts facilitated by our automated report writing technology and are reviewed and approved by our Chief Medical and Genomic Officer before distribution. Physicians obtain one report per patient diagnosis while our pharmaceutical partners obtain genomic information that has been provided with express patient consent and de-identified in accordance with HIPAA and other relevant health information privacy procedures. All reports are easily accessible through our online platform, CentoPortal. |
Our Solutions for Providing High-Quality Data
CentoCard
Our sample collection method is a CE-Marked DBS specimen receptacle, CentoCard (as shown below), which is translated into more than 50 languages and has market authorization in more than 35 countries. CentoCard is sent to physicians as part of a five-component kit: (1) the CentoCard, (2) a genetic or other testing informed consent form, (3) an instruction leaflet, (4) a self-addressed return envelope and (5) a plastic sleeve for the used CentoCard to be sealed in once the sample is obtained. In order to obtain the sample, a small amount of blood is drawn from a patient by his or her physician and placed on designated spots on the CentoCard. This sample is then left to dry for approximately two hours, during which time the sample stabilizes. Each CentoCard produced has a unique barcode that allows for the card to be traced at all times. It is delivered to our laboratory in Rostock, Germany, along with a signed consent form, from anywhere in the world via regular post. Samples collected on CentoCard are considered non-biohazardous materials, which allows them to be mailed across many borders without the need for certain customs declarations.
We use the CentoCard collection method to obtain the majority of our samples. This standardized procedure allows us to extract high-quality biological material and perform most of our diagnostic tests from a portion of a single DBS on the CentoCard. Using CentoCard, we are able to provide a solution where necessary molecular and biochemical tests can be run simultaneously using
85
the same patient sample. Given that the biomaterial stabilizes on CentoCard, we are able to retest the existing patient samples multiple times for more than 10 years from initial sample collection.
CentoPortal
After a physician creates an online account on CentoPortal by following a few easy steps, the physician can order a test product of his or her choosing, provide and sign a patient consent online, provide an overview of the patient’s medical history, track the samples and progress of the diagnostic test and download the final medical report once the process is complete. Access to the CentoPortal requires secured authentication. This helps prevent unauthorized access, unauthorized use or loss of patient data.
Biobank
We have established a high-quality biorepository for use in our research and development collaborations with our pharmaceutical partners. Our biobank provides a large diversity of positive test cases in the field of inherited rare diseases and comprises original patient materials characterized through our genetic and/or biochemical diagnostics and with associated clinical information. The biobank operates under robust quality standards and is the first CAP accredited repository outside the United States. It is also compliant with the new ISO20387 standard and comprises materials from patients who have consented to the use of such materials in research. All of our samples have gone through our rigorous process of documentation, analysis and data evaluation by our in-house experts.
Metabolic Biomarker Development Process
So long as an adequate patient cohort exists for any of the 7,000 identified rare diseases, of which approximately 80% have a genetic origin, we believe unique biomarkers can be established. However, the prerequisite is for up- or down-regulated metabolites to be present in the sample medium (e.g. blood) of pathologic or control cases. We may either develop a biomarker on our own, in which case we choose the rare disease to be analyzed using a biomarker, or we may develop a biomarker at the request of a pharmaceutical company, in which case we typically adapt a biomarker for a specific rare disease identified by the pharmaceutical company. In both cases, we own the rights to the biomarker or biomarker test, but in circumstances where a pharmaceutical company is funding the biomarker development process, we may agree to parameters for use of the biomarker going forward.
The first step to the biomarker development process is the identification of patients suffering from a particular disease compared to a respective control group of healthy individuals. To perform this, our repository, which we refer to as the data lake, is browsed for samples to perform patient stratification. Patients with a phenotype and/or genotype known to be an indicator of the particular disease for which we plan to develop the biomarker are compared with a large cohort of healthy control individuals. We can conduct this process with a disease cohort of as few as ten patients in the case of metabolic diseases, although it is our experience that a higher number of patients (i.e., approximately 40) could result in a more specific biomarker target validation. The samples included in the analysis (patients and controls) must be of the same type (e.g., DBS, plasma, tissue) and contain the same anticoagulant. The control samples must be matched to the pathological samples by sample age, patient age, gender, origin, and storage condition.
86
Information on ongoing treatments is important since it has an effect on the patient’s metabolic profile. In addition, our clinical study department is involved with the identification and recruitment of patients when there is a lack of patients identified in our repository.
The extraction of metabolites from a sample is performed in a highly standardized manner as the results of the biomarker discovery depend on the stability of the samples and the uniformity of the extraction process. We then analyze the samples using an untargeted high resolution hybrid mass spectrometer to obtain a full metabolic profile The resulting differences found between the patient cohort profiles and the control cohort profiles are identified using statistical and mathematical algorithms as well as methods based on AI.
Machine learning (“ML”) algorithms and statistical methods helps us to identify correlations between different data in an efficient and more accurate manner, and to discover patterns that would not be discovered manually. ML also allows us to perform fully automated pattern recognition on multidimensional data (e.g., retention time, collision cross section, monoisotopic ion mass, fragmentation pattern) obtained from mass spectrometry.
In 2020, we built an integrated biomarker development platform that substantially simplifies and accelerates the search and confirmation of metabolomic biomarkers. The platform allows us to align arbitrary numbers of mass spectrometry measurements. As of December 31, 2023, the metabolic profiles of more than 12,000 individuals are available in one aligned dataset within our CentoMetabolome data base. On this dataset, we can perform virtual experiments qualitatively for biomarker development. Since no further biomaterial is consumed after the one-time initial measurement, an unlimited number of experiments can be performed. The functionality is integrated in a user-friendly platform and therefore accessible to biological experts without knowledge about machine learning. The platform supports the search for biomarker candidates as well as screening of patients.
The mass spectrometry peaks (signals) identified by the platform are then investigated with other mass spectrometric techniques (fragmentation and targeted mass spectrometry) to identify the metabolites underlying the signal (so-called structural elucidation). Subsequently, using estimate on the structural identity of the biomarker candidate, a pure synthesized standard is measured to confirm the structural assignment and inspected to determine if the biomarker candidate is present in the metabolic pathway that is affected by the disease (biological interpretation).
Validation Tests
As more patients are enrolled to the clinical trials, we are also able to perform further validation tests for biomarkers so that it could be used for longitudinal monitoring. Validation is a three-to-six-month process during which the biomarker and its characteristics are assessed, which helps to determine the range of conditions under which the biomarker will give reproducible and accurate data. Approximately 50 to 100 patients in a disease cohort are needed to complete the validation process and approximately 8,000 to 10,000 different measurements are needed to comply with all CAP/CLIA/ISO requirements.
Research and Development
We are dedicated to scientific research and development in order to continuously improve the industry’s understanding of epidemiology and its analysis of clinical heterogeneity as an aid to the diagnosis of rare and neurodegenerative diseases and facilitate the discovery and development of new drugs.
We undertake scientific research and clinical studies, both independently and together with our pharmaceutical partners, with the aim of positively contributing to the global understanding of rare and neurodegenerative diseases, as well as to improve the accuracy of diagnosis and to support the development of effective treatments for rare diseases. The CENTOGENE Biodatabank, which represents over 850,000 individuals from over 120 highly diverse countries and contains over 500,000 biosamples, is key to our research and development. Clinical data captured combined with WGS, transcriptomics and metabolomics allows unique insights into disease pathologies. It enables our research in rare disease genomics and biomarker development and serves as a starting point for drug discovery. Cellular disease models serve as a starting point for testing hypotheses of pathological mechanisms. For this, patient derived IPS cells are differentiated towards mature cellular phenotypes. Disease causing mutations in those cells enable the establishment of cellular disease models and when comparing to healthy cells allows target and drug discovery with the aim of reverting a pathological phenotype towards a healthy phenotype.
We published over 30 scientific papers in 2023. The highlights from our publications include a landmark study on the largest and most heterogeneous Niemann-Pick type C1 disease (NPC1) cohort published in the European Journal of Human Genetics, data
87
confirming the utility of lyso-Gb1 (glucosylsphingosine) as a sensitive biomarker for Gaucher disease (GD) published in Diagnostics, and the discovery of a new form of early-onset dystonia and parkinsonism published in Brain.
In terms of technical innovation, we have worked on the evaluation and development of filtercard-based transcriptomic analysis, since the addition of transcriptomic data in our multiomic product offering ultimately defines a key differentiator in Centogene-unique capabilities. By August 2022, we could conclude on a successful proof-of-concept that clinical-quality RNA-analysis is possible in DBS filtercard samples from routine diagnostics opening up a variety of future products in diagnostics and pharmaceutical research.
Our major on-going clinical studies, other than those related to biomarker development, are as follows as of December 31, 2023.
Peptide-Based Immunization for Colon- and Pancreas-Carcinoma (PICOP-Global)
In June 2019, we announced the initiation of a 24-month global proof of concept study focusing on the identification of tumor specific neoantigens, which we anticipate will be used by our partners as the basis for developing a personalized, immune-based therapy to trigger patients’ own immune responses against tumors.
In 2022, we successfully concluded on the PICOP-study protocol with more than 200 cancer patients recruited in Germany and Pakistan. Furthermore, the somatic variant analysis for neoepitope prediction was established and validated within the program and high-quality neoepitopes for anti-tumor vaccination have been defined in the samples. The financial support through the ministry of economics in Mecklenburg–Western Pomerania, Germany was fully claimed and realized.
Induced pluripotent stem cells (iPSC) program
Since early 2019, we have independently conducted an iPSC program (the “iPSC Program”) with the aim of supporting orphan drug development in a more cost effective and efficient manner, in particular for the development of orphan drugs related to rare neurodegenerative, metabolic, and cardiovascular diseases. Human iPSCs, first reported in 2007, are reprogrammed from somatic cells and are self-renewal cells that can produce different types of cells. In the drug discovery process for rare diseases, iPSC technology is particularly important in providing information on the clinical spectrum of such diseases by generating disease specific cells which can be used to evaluate novel therapeutics.
As of December 31, 2023, 1,250 individuals from around the world donated skin biopsies. As part of our iPSC Program, we are currently in the process of reprogramming these biopsies into iPSC for a number of metabolic rare diseases and differentiating the cells into a number of disease-relevant cell types (macrophages, microglia and neurons). We currently establish patient-derived macrophage disease models in Gaucher disease and Niemann-Pick disease type C. Once completed, the iPSC Program will further support orthogonal target validation as well as further biomarker discovery that we undertake.
Hereditary Transthyretin-Related Amyloidosis Study (TRAMoniTTR)
Following the success of the TRAM2 study, where approximately 5,000 individuals were screened for TTR mutations resulting in the identification of almost 60 individuals with this rare neurodegenerative disease, a longitudinal study focusing on TTR-positive individuals was designed and initiated with the support of our pharmaceutical partner Alnylam. As of the end of 2022, 2,393 subjects have been screened in 50 German centers. To date, 63 individuals with TTR mutations have been recruited for follow-up visits and the samples are used for comprehensive multiomic characterization to define and validate TTR-specific biomarkers using transcriptomics and metabolomics.
Our major ongoing collaborative drug discovery efforts making use of our unique insight into disease mechanisms are as follows as of December 31, 2023.
Rostock International Parkinson’s Disease Study (ROPAD)
The Rostock International Parkinson's Disease (ROPAD) Study aims to characterize the genetics of PD to establish a better understanding of disease progression, diagnosis, and treatment for patients.
88
By the end of 2020, the ROPAD Study, which was initiated in May 2019 to investigate the genetic factors in Parkinson’s disease, achieved its goal of recruiting and genetically characterizing more than 10,000 subjects with Parkinson’s Disease (PD). In September 2018, Centogene entered into a strategic collaboration with Denali Therapeutics for the targeted global identification of PD patients with genetic variations in the LRRK2 gene. The LRRK2 gene is one of the most common mutated genes in familial PD.
In 2022, the study reached a significant milestone of testing over 12,500 participants.
In January 2023, Centogene announced that it had extended the Rostock International Parkinson's Disease (ROPAD) Study to recruit and genetically test additional patients over the next few years. Based on initial findings of the more than 12,500 participants already recruited and genetically tested, the study will now focus its efforts on select sites and geographic areas. Throughout this study, up to 25,000 PD participants from around the world will be tested.
Epidemiological Study in Frontotemporal Dementia (EFRONT)
We have been conducting a large observational study to advance the genetic understanding of frontotemporal dementia (FTD) since May 2021. The EFRONT study aims to enroll and complete data-rich genetic testing for over 2,500 FTD diagnosed or suspected patients to learn more about the genetic makeup of the disease. The EFRONT study is being conducted with support from Alector, Inc., a clinical-stage biotechnology company pioneering immuno-neurology.
EFRONT study participants with genetic mutations in the progranulin (GRN) gene will have the option to enroll in Alector’s Phase 3 INFRONT-3 clinical trial of latozinemab, an investigational therapeutic candidate designed to increase progranulin levels for the treatment of FTD.
European Alpha-Mannosidosis Patient Epidemiological Program (EUMAP)
EUMAP is an international, multicenter, observational, longitudinal monitoring study to investigate the prevalence of Alpha-Mannosidosis in participants at risk for Alpha-Mannosidosis. Recruitment for EUMAP was sponsored by Chiesi. Although the initial target to recruit 1,000 patients by September 2020 was not met due to the delays caused by the COVID-19 pandemic, we added nearly 250 patients in 2021. The total number of recruited patients at the end of 2021 was 677. The EUMAP study was mutually terminated after 767 patients were recruited. A final report was shared with Chiesi in September 2022 as final milestone marking project completion.
Drug discovery in Gaucher Disease
In January 2022, we entered the third year of a collaborative effort with Evotec to discover novel small molecule drug candidates to target the unmet medical needs in Gaucher disease. The combination of our unique understanding of genetics, transcriptomics, metabolomics and IPS derived cellular disease models in Gaucher disease, and Evotec’s outstanding drug discovery capabilities make uniquely position this collaboration to advance the discovery of drug candidates to glucocerebrosidase (GBA-1), a gene described as causative in Gaucher disease. After finishing high throughput screening, the next phase of drug discovery (a hit to lead chemistry program) was initiated, which resulted in progress towards proof of concept in an animal model of Gaucher disease. iPSC derived disease macrophages were used to show the efficacy of drug candidates using a Centogene proprietary biomarker. A new agreement was signed on April 2024 with Evotec to extend the collaboration.
Our Operations
Sales and Marketing
As of December 31, 2023, we had a sales force of approximately 59 employees and consultants in our Diagnostics segment. Our sales team members are all trained in key account management and/or genetic diagnostics and are able to discuss the different diagnostic and workflow needs of doctors, physicians, and genetic counselors. With our global footprint, we support rare and neurodegenerative disease patients around the world. We have a 5-region structure (North America (NAMER), Latin America (LATAM), Europe, the Middle East & Africa (EMEA), and Asia Pacific (APAC)), and each of the geographical regions is led by a Regional General Manager supervising a team of sales and clinical liaisons.
In 2023, we continued to expand our direct footprint and our distribution network in our Diagnostics Segment to further increase the sample volumes in targeted geographic areas. We strengthened our Southern European market presence in Italy, Spain,
89
and Portugal, as well as in Israel by expansion of sales resources. As part of our North America strategy, we also decided to invest in establishing a local presence in Canada with dedicated sales resources in East and West Canada. In Latin America, we decided to change our go-to-market strategy by establishing a local sales team in Colombia, taking over from distribution partners.
In 2023, we also significantly built up the team within our Pharmaceutical segment – underlining our strategic focus to better serve our existing partners, to increase collaborations with new partners, and to expand our collaboration model. As of December 31, 2023, we had a team of approximately 47 employees and consultants in our Pharmaceutical segment. Our Pharma team brings a significant amount of experience within the life science industry, which we expect to transfer to increased activities within this segment.
Information Technology Platforms
Our IT infrastructure platform is based on state-of-the-art standardized components. We run our systems according to the following hybrid production model in an effort to optimize cost and service levels:
| ● | Systems that require a short distance-to-lab infrastructure are run in-house in separate, protected server rooms; |
| ● | Tailored systems with special requirements and heightened security use outsourced infrastructure as a service provided by Datagroup AG, which is GDPR-compliant. These services are provided by two datacenters in Frankfurt and our lab in Rostock, which are connected by two independent and encrypted 10GB landlines; and |
| ● | Highly standardized, high-volume requirements use cloud services provided by Amazon Web Services (“AWS”) and Microsoft. |
All services are based on virtualized server systems with central storage components accompanied by backup and restore services, centrally managed network services, firewall systems, internet, databases and workplace services. System monitoring and events are implemented for all relevant systems with a central monitoring solution and central network scanner controls. Centrally managed user accounts are handled in the directory system.
Information security is highly valued and the principles of confidentiality, integrity and availability of information are a part of our core values. Information is protected by a variety of controls and procedures, including firewalls, password protections, data encryption (in storage and in transit) and malware protection tools. All internet-facing applications are regularly security tested. All personal data processing services are evaluated by our data protection officer and information security officer and documented in accordance with GDPR. Additionally, our data services are certified across a variety of industry security standards, including ISO 9001 (which aims to ensure we consistently provide services and products that meet customer and regulatory security expectations) and ISO 27001 (which standards ensure the data in our database are secured).
Our workflows and processes are supported by various specialized applications. For example, via our user-friendly online portal “CentoPortal,” analyses ranging from individual diagnostic requests to requests for pharmaceutical projects with high throughput testing can be ordered. Physicians can view the status of the samples they submitted and download a complete medical report. Upon receiving samples, we digitize all information to support a fully digital internal workflow. This starts with a web application for sample entries, where information is transferred automatically by interfaces to our laboratory information system. This information forms the basis of our medical reports, which are made available to doctors for download. Data is shared between CentoPortal and our laboratory information systems through a fully automated interface.
Artificial Intelligence
Since 2018, we have been using AI to further automate our processes, obtain new insights about rare diseases from mass data sets and generate new knowledge-driven business models. For example, we use AI to enhance our biomarker discovery process. This allows us to shorten data analysis time from weeks to minutes and to identify multiple biomarkers or additional biomarker patterns in our multiomic datasets. We also use AI to automate our curation process and the identification of genetic and/or metabolic modifiers.
We believe that the CENTOGENE Biodatabank provides us with a competitive advantage for driving the development of new and effective AI tools, as the foundation of any successful AI program is high-quality data in a volume that can effectively generate results. The higher quality the data and the more data that are available, the better chance we have of building machine learning models with high predictive power and accuracy.
90
We employ AI methods in the following domains:
Intelligent Character Recognition
Intelligent character recognition (“ICR”) at the sample entry stage enables us to fully digitize all information contained in sample order paperwork. Even on handwritten texts, our ICR technology achieves significant performance. This allows us to obtain accurate patient information at the initial stage of the diagnostics process and reduces the likelihood of human error.
Clinical Information Extraction
We extract clinical information from diagnostic reports, using natural language processing methods. Text recognition analyses PDF medical reports and detects clinical status, family history, HPO terms, age, and other data. The data is subsequently applied to enrich cases in our CENTOGENE Biodatabank.
Anomaly Detection in NGS data
We implemented an AI function that identifies lab contaminations at the sample or library preparation stages. This provides corrective measures and counter measures for future applications. The algorithm is programmed to recognize “normal” data and alerts its users when an anomaly is detected. Information regarding the anomaly is provided by the algorithm detailing its top-k indicators and comparisons are made to similar anomalies detected in the past along with the respective reported results and subsequent actions taken. This solution is fully developed but not yet deployed.
Variant Prioritization
We have deployed a new variant prioritization tool based on our in-house AI capability. This tool identifies the most likely disease-causing genes based on the CENTOGENE Biodatabank, in order to further accelerate our and our partners’ diagnostics processes and is in particular aimed to enhance the diagnostics process for WES and Clinical Exome Sequencings (“CES”).
With our clinical exome panel, which covers over 19,000 genes with known associated clinical phenotypes, the result of the sequencing process usually discovers between 70,000 and 150,000 variants per individual. However, the majority of these variants are benign or unrelated to the observed disease phenotype of the patient. With our huge data repository built up from the last 15+ years, and a curated database with standardized HPO terms, our tool is able to rank the variants from most to least relevant. Based on such “ranked” variants, we can then compare the HPO terms of a new patient with the results of prior, anonymized patients included in our repository with variants in the same gene. This allows us to provide a diagnosis in a more rapid, comprehensive and accurate manner, especially for patients with very rare or as yet undescribed diseases.
Variant Classification
In 2015, the American College of Medical Genetics and Genomics (ACMG) and the Association for Molecular Pathology (AMP) published a joint consensus recommendation for interpretation of genetic variants. ACMG’s recommended standards classify genetic variants, based on 28 criteria, into five categories: pathogenic, likely pathogenic, variant of uncertain significance (VUS), likely benign and benign. We have implemented a semi-automated variant classification tool that classifies variants detected in a sample based on ACMG’s recommended standards. Our tool will significantly reduce the time taken to interpret the clinical significance of genetic variants and increase the quality such interpretation.
AI-Based Artifact Detection Tool
Artifact discovery via current diagnostic workflows such as visual infection and sanger sequencing for WGS cases requires a lot of manual work. This method of discovery is inefficient, error prone and risks important variants being missed in the discovery process. By applying our artifact prediction model, we can improve the reliability of the data by distinguishing true variant calls from sequencing errors in WGS samples, and prioritize true variants in the evaluation processes which results in a reduction of analysis effort and increases the diagnostic efficiency. Subsequently, a report is provided to our medical experts for the interpretation of variant sequencing quality which categorizes the results into one of three classes: “likely artifact”, “likely true”, and “unknown”.
Artifact detection is a tool used for the classification of small sequence variants (SNPs, InDels) into likely artifacts, unknown, or likely variant. It enables the automated detection of artifacts in VCF-files using machine learning algorithms. The model is based on
91
gradient boosting classification, which uses an ensemble of so-called weak learners to create a strong learner, yielding reliable classification results.
Automated Curation Report
Our curators are responsible for the collection, association, update and review of genetic and phenotypic data of cases analyzed at Centogene to assure the highest level of data quality. The automated curation process supports our curation process with a set of rules encoding the expert knowledge and classifying newly incoming cases as well as reclassifying the old ones if new genomic insights result from research.
Biomarker Discovery & Support of Metabolomic Processes
We built a proprietary, AI-powered biomarker platform called CentoMetabolome. This internally developed platform has the potential to revolutionize the detection of new biomarkers by accelerating components of biomarker development that previously required months to complete to a few weeks. This includes supporting metabolome screening and identifying biomarker candidates. The integration of AI-based methods into a user-friendly platform enables the medical experts to perform high-quality and high-performance biomarker experiments, with integrated quality control checks. In addition, we have been awarded the Health-i Award for the development of this platform, which recognizes companies that are transforming healthcare domestically and internationally. The Health-i Award winners were selected by industry and research experts for initiatives that are aimed at transforming the next era of healthcare through innovation.
Multiomic Analysis
We extended a multiomic platform for genomics and metabolomics integration and visualization, from the focus on Gaucher disease to also include Parkinson’s disease. The platform consists of a comprehensive multiomic map of genes, mutations, metabolic reactions, enzymes, and regulatory elements of the focus diseases. The map allows for the overlay of our genomic, metabolomics and, phenomic data, the performance of perturbation experiments of expression parameters for phenotype prediction and the analysis of fold change data. This platform is capable of being extended to transcriptomics and proteomics. It provides a unique, innovative model for understanding system biology and allows for the selection of targets for drug discovery. The extension allows for the investigation of the interplay between Gaucher disease and Parkinson’s disease, with associated pathways. Inbuilt applications within the platform also allow correlations between genomic and metabolomic data, and extraction of pathways and differential metabolites to further enable biological understanding of diseases.
Genome-wide association studies (GWAS) pipeline
We have developed a genome-wide association studies (GWAS) pipeline to identify genetic modifiers. This pipeline includes different statistical tests, both at the variant and at the gene level. The implementation allows for variant filtering based on different quality criteria, as well as specific genetic principles. In addition, different gene collapsing models are defined based on variant properties such as minor allele frequency (MAF) and the predicted variant effect.
Big Data (Data Lake)
Many rare diseases share phenotypic and genetic traits which interests biopharma companies involved in drug development and commercialization. Patient, diagnostic, genetic, transcriptomic, proteomic, metabolic and phenotypic information extractable from patient samples are stored in different data formats with different applications and workflows. To optimize the infrastructure for cross-departmental data evaluation, we developed the BigData platform as a way forward to provide a low-cost scale solution for data storage and processing. It enables users to perform analytics and data science through a flexible, scalable and cloud-based platform across patient biomarker and bioinformatics data.
The Big Data solution is an analytical and reporting platform which changes traditional cross-departmental (silos) into a highly scalable, available system for data storage and analytics.
Healthcare Reimbursement
Reimbursement of genetic or other testing differs markedly among countries and evolves rapidly based on advancements in technologies and cost. It is a challenge for insurers or public payers to decide when to reimburse for genetic or other tests that are
92
offered by healthcare providers. One of the reasons this is difficult is that often there are alternative treatments with differing results, which insurers may not be able to easily evaluate
Depending on the billing arrangement and applicable law, we may be reimbursed for genetic or other testing services by third-party payors that provide coverage to the patient, such as an insurance company or managed care organization, or by physicians or other authorized parties (such as hospitals or independent laboratories) that order our tests or refer tests to us. In the years ended December 31, 2023, and 2022, we derived between 1% and 2% of our total revenue from United States third-party payers that includes managed care organizations and other healthcare providers. In the years ended December 31, 2023, and 2022, we derived less than 1% of our total revenue from EU insurance companies and managed care organizations based in the European Union.
Data Management
Data is the basis for all of our diagnostic and research processes. We are generating approximately up to 25TB of new data in the lab every month. The data is stored in our own infrastructure as well as in a certified third-party data center and with AWS. The software solutions supporting these processes are based on modern database architecture, and all of our critical systems are fully redundant and backed up in real-time to these facilities.
Further, we implement our big data concept based on architecture. Because we store a vast amount of raw data in our repository, we are able to aggregate data to gain new insights. Data gathering and variant curation are procedures developed and implemented in a web-based software (developed and maintained by Centogene N.V.) that is compliant with the HUGO Gene Nomenclature Committee (the “HGNC”), the Human Genome Variant Society (the “HGVS”) and HPO nomenclatures. The software integrates in-house sample management systems and analysis platforms with external databases and utilizes a combination of computer-based tools and manual review in order to assure the accuracy, efficiency and quality of curation process.
Quality Management System (QMS)
We document and maintain a QMS that integrates the compliance of our processes with various in vitro diagnostic medical device legislations, and laboratory requirements. Our QMS is supported by standard operating procedures, educational and staff training plans, internal and external proficiency and competency programs, internal and external auditing, quality improvement indicators and pre-post analytical quality controls, including equipment maintenance, negative and positive controls, change management, post-market surveillance, employees and customer health and safety, and document control programs. Our QMS processes comply with various regulatory requirements, including:
| ● | 42 CFR §493Laboratory Requirements |
| ● | 21 CFR §820Quality System Regulation |
| ● | ISO 15189Medical laboratories –Requirements for Quality and Competence |
| ● | ISO 13485Medical Devices – Quality Management Systems – Requirements for Regulatory Purposes |
| ● | Regulation (EU) 2017/746 (IVDR)Regulation (EU) 2017/746 of the European Parliament and of the Council of 5 April 2017 on in |
vitro diagnostic medical devices
| ● | Directive 98/79/EC (IVDD)Directive 98/79/EC of the European Parliament and of the Council of 27 October 1998 on in vitro |
diagnostic medical devices
We believe our QMS is built to withstand the rigorous review and auditing requirements of global medical device regulations, clinical trial requirements and good clinical laboratory practice requirements to ensure our patients and clients receive the highest quality level of care and service.
Client data protection is of high importance to us, as we provide solutions to our clients in more than 120 different countries with varying requirements. To ensure that that all data is properly handled, our employees and clients are actively educated on our data and consent processes and policies, which are in line with all applicable, country-specific regulations, such as HIPAA and GDPR. We continuously monitor our processes and policies to uphold the highest data standards.
93
Data Acquisition and Curation
Curation is the process of collection, association, updating and reviewing epidemiologic, phenotypic and genetic data of patients analyzed by us into a structured and standardized format. It uses a combination of computer-based tools and manual review in order to assure the accuracy, efficiency and quality of the curation process.
Data acquisition. Data gathering and variant curation procedures are developed and implemented in a web-based software which is compliant with the HGNC, HGVS and HPO nomenclatures allowing collection of variants detected in nuclear coding, nuclear non-coding and mitochondrial genes. The software integrates in-house sample management systems and analysis platforms with external databases providing the curator with a comprehensive and straightforward overview of the evidence regarding genotype-phenotype correlation available both in-house and external.
The data is gathered by a combination of manual submission and data importation following an individual-oriented model where characteristics belonging to a particular individual (including patient information, clinical data, methodology and detected genetic variants) are stored and associated together.
Our uniform classification of variants is an important step in improving our understanding of disease pathogenicity. There are approximately 3 billion base pairs in an individual genome, which translates to approximately 200 gigabytes of data that can be obtained from a single sequencing process. The classification of variants which we record in the CENTOGENE Biodatabank follows the American College of Medical Genetics and Genomics and Clingen guidelines for variant classification, differentiated into five categories: pathogenic, likely pathogenic, variant of uncertain clinical significance, likely benign or benign. If a diagnostic test is finalized without assigned clinical significance we still include the data under an “unclassified” quality status. This information can then be used as comparative data for future diagnostic tests. This systematic classification of variants is based on a highly qualified and standardized curation process, which allows us to provide our clients with high-quality clinical interpretations of newly identified variants, and also ensures that changes in variant classification will be communicated and reflected in our clinical interpretations in a timely manner.
As industry knowledge on variant frequencies increases, we reevaluate the variant classifications contained in our database on a regular basis to ensure our system incorporates the most up-to-date information. Additionally, given the number of rare diseases that have yet to be fully diagnosed and the speed of advancements in the rare disease industry, we regularly revisit “uncertain” patient data to reassess prior clinical interpretations against this new industry knowledge.
Database curators. Our curators are scientists with strong backgrounds in human genetics. They continuously undergo extensive training to ensure curation consistency and standardization. They assure that data is properly associated and interpreted and that there are no inconsistencies or discrepancies against detected in-house observations and from external sources. They close the curation process by manual approval that reviewed and curated data comply with standard in-house procedures.
Curation workflow. To provide high-quality data, our curation process is divided in three phases: variant-wise, individual-wise and error-wise procedures.
| ● | Curation by variant. To begin the curation process, the variant-linked information is reviewed. This includes approval of variant nomenclature, terminology, accuracy, consistency, and record completeness. |
| ● | Curation by individual. To start curation on a patient-by-patient basis, all variants detected in an individual must be approved. This process aims to assure that the data belonging to an individual follows the guidelines for clinical reporting closely and that all associated data agrees with our established guidelines and applicable industry standards. The following factors are considered critical for the clinical statement: variant clinical significance, patient genotype, inheritance pattern of the disorder, the sex of the patient and the phenotypic description, when available. |
| ● | Curation by warning. To maintain data quality and consistency, regular quality control (QC) checks are performed in curated data. The QC check process consists of checking and correcting variant, individual and other curated data related warnings detected using pre-established scripts. |
94
Intellectual Property
Our success depends in part on our ability to obtain and maintain proprietary protection of the CENTOGENE Biodatabank, proprietary biomarkers, products, solutions and other know-how related to our business, defend and enforce our intellectual property rights, in particular, our patent rights, preserve the confidentiality of our trade secrets, and operate without infringing valid and enforceable intellectual property rights of others. We seek to protect our proprietary position by, among other things, filing EU, U.S. and certain foreign patent applications related to our biomarkers, where patent protection is available. Our policy is to seek patent protection and trademark registration for commercially valuable assets we develop, as appropriate, and maintain as trade secrets other aspects of our genetic rare disease information platform, processes and know-how. We also rely on proprietary technologies, methods and processes, product designs and branding that we have developed.
Notwithstanding these efforts, we cannot be sure that patents will be granted with respect to any patent applications we have filed or may file in the future, and we cannot be sure that any issued patents will not be challenged, invalidated, or circumvented or that such patents will be commercially useful in protecting our technology. Moreover, trade secrets can be difficult to protect. While we have confidence in the measures we take to protect and preserve our trade secrets, such measures can be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. For more information regarding the risks related to our intellectual property, please see “Item 3. Key Information—D. Risk Factors—Intellectual Property Risks Related to Our Business.”
Patents
Each patent family in our patent portfolio typically includes one or more priority-forming patent applications on the basis of which an international patent application (an application filed under the Patent Cooperation Treaty (“PCT”)) is filed, after which national and regional patent applications are prosecuted in various jurisdictions. As of December 31, 2023, our patent portfolio was as follows:
| ● | With regard to our biomarker for Gaucher disease, we own two issued U.S. patents, one pending U.S. non-provisional patent application, issued patents in Australia, China, Europe, Israel, Japan and Russia, and pending patent applications in the following foreign jurisdictions: Brazil, Canada, Europe, and Hong Kong. The two issued European patents have been validated in one or more contracting states of the European Patent Convention. These issued patents, and any patents granted from such applications, are expected to expire in 2032, without taking potential patent term extensions or adjustments into account. |
| ● | With regard to our biomarker for Niemann-Pick disease, we own three issued U.S. patents, one pending U.S. non-provisional patent application, issued patents in Australia, Brazil, Europe, Israel, Japan and Mexico, and pending patent applications in the following foreign jurisdictions: Australia and Canada. The one issued European patent has been validated in one or more contracting states of the European Patent Convention. These issued patents, and any patents granted from such applications, are expected to expire between 2032 and 2034, without taking potential patent term extensions or adjustments into account. |
| ● | With regard to our biomarker for cystic fibrosis, we own one pending U.S. non-provisional patent application, one issued patent in Israel, and pending patent applications in the following foreign jurisdictions: Australia, Brazil, Canada, Europe, Israel, and Hong Kong. Any patents granted from such applications are expected to expire in 2037, without taking potential patent term extensions or adjustments into account. |
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.
Trade Secrets and Trademarks
In addition to patent protection, we also rely on trade secrets, know-how, continuing technological innovation, and confidential information to develop and maintain our proprietary position and protect aspects of our business that are not amenable to,
95
or that we do not consider appropriate for, patent protection, including, the CENTOGENE Biodatabank. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. In addition, we take other appropriate precautions, such as physical and technological security measures, to guard against misappropriation of our proprietary technology by third parties.
Our brand is very important to us, as it is a symbol of our reputation and representative of the goodwill we seek to generate with our customers. Consequently, we have invested significant resources in the protection of our trademarks. We seek trademark protection in the United States and in foreign jurisdictions where available and when appropriate. We own registered trademarks for “Centogene” in Europe, the United States and other jurisdictions, including Canada and Japan.
Regulation
Our diagnostics and pharmaceutical businesses are highly regulated due to our operation of clinical laboratories in Rostock, Germany and because of our provision of diagnostic services and our development of proprietary biomarkers. In addition, we are subject to a variety of regulations and industry standards worldwide governing, among other things, data privacy, distribution of our products and patents and trademark licensing.
The key U.S. and European regulations that are applicable to our business are discussed in more detail below. Whether or not we obtain FDA clearance or approval or a CE Mark for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the use of a diagnostic or other product in those countries. The requirements and processes governing patient consents, product registration and pricing vary from country to country.
United States Regulation
Our business is subject to and impacted by extensive and frequently changing laws and regulations in the United States at both the federal and state levels. These laws and regulations include regulations particular to our business and laws and regulations relating to conducting business generally. Set forth below are highlights of the key United States regulatory schemes applicable to our business.
CLIA and State Regulation
Because we operate clinical laboratories, we are required to hold certain United States federal and state licenses and certifications to conduct our business. We are subject to CLIA regulations in the United States, which establish quality standards for all laboratory testing to ensure the accuracy, reliability and timeliness of patient test results regardless of where the test is performed. Our laboratory in Rostock, Germany is CLIA-certified and accredited by CAP, as well as CAP ISO 15189 accredited. In addition, we are required to meet certain laboratory licensing requirements for states with regulations beyond CLIA. For more information on state licensing requirements, see “—Regulation—United States Regulation—State Laboratory Testing.”
Under CLIA, a laboratory is any facility that performs laboratory testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease, or the impairment of, or assessment of health. CLIA also requires that we hold a certificate applicable to the type of work we perform and comply with certain standards. CLIA further regulates virtually all clinical laboratories by requiring that they be certified by the federal government and comply with various operational, personnel, facilities administration quality and proficiency requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. Laboratories must register and list their tests with the Centers for Medicare & Medicaid Services, or CMS, the agency that oversees CLIA. CLIA compliance and certification is also a prerequisite to be eligible to bill for services provided to governmental payor program beneficiaries and for many private payors. CLIA is user-fee funded. Therefore, all costs of administering the program must be covered by the regulated facilities, including certification and survey costs.
We are subject to a survey and inspection every two years to assess compliance with program standards and may be subject to additional unannounced inspections. Laboratories performing high-complexity testing are required to meet more stringent requirements than laboratories performing fewer complex tests. In addition, a laboratory like ours that is certified as “high-complexity” under CLIA may develop, manufacture, validate and use proprietary tests referred to as LDTs. While laboratories that offer LDTs are subject to the FDC Act, in addition to CLIA, the FDA has generally exercised enforcement discretion towards these tests. In compliance with CLIA requirements to establish performance specifications, including accuracy, precision, specificity, sensitivity and a reference range for any LDT used in clinical testing, our LDTs have undergone full analytical validation.
96
In addition to CLIA requirements, we elect to participate in the accreditation program of CAP. CMS has deemed CAP standards to be equally or more stringent than CLIA regulations and has approved CAP as a recognized accrediting organization. Inspection by CAP is performed in lieu of CMS for accredited laboratories. Because we are accredited by the CAP Laboratory Accreditation Program, we are deemed to also comply with CLIA.
FDA
In the United States, medical devices, including software devices, are subject to extensive regulation by the FDA, under the Food, Drug, and Cosmetic Act (FDC Act), and its implementing regulations, and other federal and state statutes and regulations. The laws and regulations govern, among other things, medical device design, development, testing, manufacturing, labeling, storage, premarket clearance or approval, advertising and promotion and product sales and distribution. To be commercially distributed in the United States, medical devices must receive from the FDA prior to marketing, unless subject to an exemption, either approval of a PMA (for Class III devices), clearance of a 510(k) premarket notification (for most Class II devices) or classification pursuant to a De Novo submission. Typically, exemptions are granted for Class I devices. Manufacturers of all classes of devices must comply with FDA’s Quality System Regulation (QSR), establishment registration, medical device listing, labeling requirements, and medical device reporting (MDR) regulations, which are collectively referred to as medical device general controls. Class II devices may also be subject to special controls such as performance standards, post-market surveillance, FDA guidelines, or particularized labeling.
IVDs are subject to regulation by the FDA as medical devices to the extent that they are intended for use in the diagnosis or detection of diseases, or conditions, including, without limitation, the presence of certain chemicals, genetic information or other biomarkers. Predictive, prognostic and screening tests, such as carrier screening tests, can also be IVDs. A subset of IVDs is known as analyte specific reagents (“ASRs”). ASRs consist of single reagents and are intended for use in a diagnostic application for the identification and quantification of an individual chemical substance in biological specimens. Many ASRs are exempt from premarket review; however, ASRs may be regulated as Class I, II, or III devices.
Each medical device is classified into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness. Class I devices are considered low-risk devices and are generally exempt from premarket review requirements. Class II devices are considered moderate risk, and generally require clearance through the premarket notification (or 510(k) clearance), process in order to be commercially distributed. Class III devices are the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of each device’s safety and effectiveness. Class III devices must obtain premarket approval (PMA) before they are marketed. Clinical trials demonstrating a device’s safety and effectiveness are always required to support a PMA application and are sometimes required for 510(k) clearance or De Novo classification. Devices that are exempt from FDA premarket review requirements must nonetheless comply with general controls as described below, unless the FDA has chosen to exercise enforcement discretion with respect to a certain type of device, meaning that the agency will generally not enforce regulatory requirements that are otherwise applicable to such devices.
510(k) clearance pathway. To obtain 510(k) clearance, a manufacturer must submit a premarket notification demonstrating to the FDA’s satisfaction that the proposed device is substantially equivalent to a predicate device. A predicate device is a legally marketed device that is not subject to a PMA, meaning (i) as device that was legally marketed before May 28, 1976 and for which a PMA is not required, (ii) a device that has been reclassified from Class III to Class II or I, or (iii) a device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance pathway usually takes from three to 12 months, but it can take longer, particularly for a novel type of device or if FDA has significant questions or needs more information about the new device or its manufacturing or quality controls.
After a new medical device receives 510(k) clearance from the FDA, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require the submission of a PMA application. The FDA requires each manufacturer to make the determination of whether a device modification requires a new 510(k) notification or PMA in the first instance, but the FDA may review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance or PMA for a particular change, the FDA may retroactively require the manufacturer to submit a 510(k) premarket notification or a PMA application. The FDA may also require the manufacturer to cease U.S. marketing and/or recall any distributed units of the modified device until 510(k) clearance or a PMA for the modification is obtained.
PMA pathway. The PMA pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The PMA pathway is costly, lengthy and uncertain. A PMA application must provide extensive data from preclinical studies and at least one pivotal clinical trial, as well as information about the device and its components regarding, among other things, device design,
97
manufacturing and labeling. During the substantive review period, the FDA may request additional information or clarification of information already provided. Also during the review period, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA. As part of its PMA review process, the FDA will typically inspect the manufacturer’s facilities for compliance with QSR requirements, which impose elaborate testing, control, documentation and other quality assurance procedures. The PMA review process typically takes one to three years but can take longer.
New PMA applications or PMA supplements may be required for modifications to the manufacturing process, labeling, device specifications, materials or design of a device that is approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive clinical data or the convening of an advisory panel.
De novo pathway. If a previously unclassified new medical device does not qualify for the 510(k) premarket notification process because no predicate device can be identified, the device is automatically classified as Class III, requiring a PMA application. However, if the device is low or moderate risk, it may be eligible for the De Novo classification process. The De Novo classification process allows a device developer to request that the novel medical device be reclassified as either a Class I or Class II device, rather than having it regulated as a high-risk Class III device subject to the PMA requirements. If the manufacturer seeks reclassification into Class II, the classification request must include a draft proposal for special controls that are necessary to provide a reasonable assurance of the safety and effectiveness of the medical device. The De Novo classification route has been used for many IVD products.
As with the 510(k) premarket notification process described above, any modification to a device authorized through the De Novo process that could significantly affect the safety or effectiveness of such device, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require the submission of a PMA application.
As an alternative to the De Novo classification process, a company could also file a reclassification petition seeking to change the automatic Class III designation of a novel post-amendment device under Section 513(f)(3) of the FDCA. FDA can also initiate reclassification of an existing device type on its own initiative. In December 2018, FDA issued a final rule to clarify the administrative process through which the FDA reclassifies a medical device. To reclassify a device under Section 513(e) of the FDCA, the FDA must first publish a proposed reclassification order that includes a summary of the valid scientific evidence that supports the reclassification; convene a device classification panel meeting; and consider comments to the public docket before it then publishes a final reclassification order in the Federal Register.
Device Clinical Trials. Clinical trials are almost always required to support a PMA application and are sometimes required for a De Novo classification request or 510(k) premarket notification. In order to conduct a clinical investigation involving human subjects for the purpose of demonstrating the safety and effectiveness of a medical device, an investigator acting on behalf of the company must, among other things, apply for and obtain institutional review board (IRB) approval of the proposed investigation. In addition, if the clinical trial involves a “significant risk” (as defined by the FDA) to human health, the company sponsoring the trial (referred to as the “sponsor”) must also submit and obtain FDA approval of an investigational device exemption (IDE) application. An IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must be approved in advance by the FDA for a specified number of trial participants, unless the product is deemed a non-significant risk device and eligible for abbreviated IDE requirements. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the trial protocol and informed consent are approved by a duly-appointed IRB for each site. FDA’s IDE regulations govern investigational device labeling, prohibit promotion, and specify an array of good clinical practice (“GCP”) requirements, which include, among other things, recordkeeping, reporting and monitoring responsibilities of trial sponsors and study investigators. Clinical trials must further comply with the FDA’s regulations for IRB approval and for informed consent and other human subject protections, all of which are considered part of GCP requirements. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant approval or clearance of a product.
Information about certain clinical trials, including details of the protocol and eventually results, also must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on the ClinicalTrials.gov data registry. Information related to the product, patient population, phase of investigation, trial sites and investigators and other aspects of the clinical trial is made public as part of the registration process. Sponsors are obligated to disclose the results of their clinical trials after completion. Disclosure of results can be delayed in some cases for up to two years after the date of completion of the trial.
98
Failure to timely register a covered clinical trial or to submit results as provided for in the law can give rise to civil monetary penalties and also prevent the non-compliant party from receiving future grant funds from the federal government. The NIH Final Rule on ClinicalTrials.gov registration and reporting requirements became effective in 2017, and both NIH and FDA have brought enforcement actions against non-compliant sponsors.
In the Consolidated Appropriations Act for 2023, Congress amended the FDCA to require the sponsor of any clinical trial for a medical device to develop a diversity action plan for such trial, and if submission of an IDE application is required, to submit such diversity action plan to the FDA. The action plan must include the sponsor’s diversity goals for enrollment, as well as a rationale for the goals and a description of how the sponsor will meet them. The FDA may grant a waiver for some or all of the requirements for a diversity action plan. It is unknown at this time how the diversity action plan may affect device clinical trial planning and timing or what specific information FDA will expect in such plans, but if FDA objects to a sponsor’s diversity action plan and requires the sponsor to amend the plan or take other actions, it may delay trial initiation.
Post market general controls. After a medical device is authorized for marketing and placed in commercial distribution (or, for 510(k)-exempt products, placed into commerce without first obtaining FDA clearance or approval), numerous regulatory requirements apply. These general controls that must be met for all device classes include:
| ● | establishment registration and device listing; |
| ● | the QSR, which requires manufacturers, including third-party manufacturers, to follow design, testing, control, storage, supplier/contractor selection, complaint handling, documentation and other quality assurance procedures; |
| ● | labeling regulations, which govern the mandatory elements of the device labels and packaging (including Unique Device Identifier markings for certain categories of products); |
| ● | FDA’s prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses and other requirements related to promotional activities; |
| ● | the MDR regulations, which require that manufacturers report to the FDA if a device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; |
| ● | voluntary and mandatory device recalls to address problems when a device is defective and/or could be a risk to health; |
| ● | correction and removal reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; and |
| ● | post-market surveillance regulations, which apply to certain Class II or III devices when necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
FDA’s MDR requirements also extend to healthcare facilities that use medical devices in providing care to patients, or “device user facilities,” which include hospitals, ambulatory surgical facilities, nursing homes, outpatient diagnostic facilities, or outpatient treatment facilities, but not physician offices. A device user facility must report any device-related death to both the FDA and the device manufacturer, or any device-related serious injury to the manufacturer (or, if the manufacturer is unknown, to the FDA) within ten days of the event. Device user facilities are not required to report device malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur but may voluntarily report such malfunctions through MedWatch, the FDA’s Safety Information and Adverse Event Reporting Program.
To ensure compliance with regulatory requirements, medical device manufacturers are subject to market surveillance and periodic, pre-scheduled and unannounced inspections by the FDA and certain state authorities. Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may lead to any of the following sanctions:
| ● | Warning Letters or Untitled Letters that require corrective action; |
99
| ● | fines and civil penalties; |
| ● | unanticipated expenditures; |
| ● | delays in approving/clearing or refusal to approve/clear any of our future products; |
| ● | FDA refusal to issue certificates to foreign governments needed to export our products for sale in other countries; |
| ● | suspension or withdrawal of FDA approval or clearance (as may be applicable); |
| ● | product recall or seizure; |
| ● | partial suspension or total shutdown of production; |
| ● | operating restrictions; |
| ● | injunctions or consent decrees; and |
| ● | civil or criminal prosecution. |
We and any of our contract manufacturers, and some suppliers of components or device accessories, are required to manufacture medical device products in compliance with current good manufacturing practice requirements set forth in the QSR, unless explicitly exempted by regulation. The QSR requires a quality system for the design, manufacture, packaging, labeling, storage, installation, and servicing of marketed devices, and includes extensive requirements with respect to quality management and organization, device design, buildings, equipment, purchase and handling of components or services, production and process controls, packaging and labeling controls, device evaluation, distribution, installation, complaint handling, servicing, and record keeping. The FDA evaluates compliance with the QSR through periodic pre-scheduled or unannounced inspections that may include registered manufacturing facilities of our subcontractors. Following such inspections, FDA may issue reports known as Forms FDA 483 or Notices of Inspectional Observations, which list instances where the FDA inspector believes the manufacturer has failed to comply with applicable regulations and/or procedures. If the observations are sufficiently serious or the manufacturer fails to respond appropriately, the FDA may issue Warning Letters, which are notices of intended enforcement actions against the manufacturer. For less serious violations that may not rise to the level of regulatory significance, FDA may issue Untitled Letters. FDA may take more significant administrative or legal action if a manufacturer continues to be in substantial noncompliance with applicable regulations.
For example, if the FDA believes we or any of our contract manufacturers or regulated suppliers are not in compliance with these requirements and patients are being subjected to serious risks, it can shut down manufacturing operations, require recalls of our medical device products, refuse to approve new marketing applications, initiate legal proceedings to detain or seize products, enjoin future violations, or assess civil and criminal penalties against us or our officers or other employees. Research use only. IVDs that are intended only for use in scientific research are not subject to pre- and post-market controls for medical devices by the FDA, with the exception that they must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and they cannot be intended for any human clinical diagnostic use. A product labeled RUO but marketed, advertised, sold, or used in any way that indicates the product is actually intended to be used diagnostically may be viewed by the FDA as adulterated and misbranded under the FDC Act and, in such case, would be subject to FDA enforcement actions, including requiring the supplier to seek clearance or approval for the products. Our LDT uses instruments and reagents labeled as RUO in our laboratories.
Laboratory developed tests. LDTs have generally been considered to be a subset of IVDs that are designed, developed, validated and used within a single laboratory. The FDA takes the position that it has the authority to regulate such tests as medical devices under the FDC Act. The FDA has historically exercised enforcement discretion and has not required clearance or approval of LDTs prior to marketing, although some states require review and approval of LDTs before they are offered to their citizens. For instance, New York’s CLEP separately approves certain LDTs offered to New York State patients.
In October 2023, the FDA issued a proposed rule aimed at regulating LDTs under the current medical device framework and proposing to phase out its existing enforcement discretion policy for this category of diagnostic tests; the public comment period ended in early December 2023. The proposal envisions that the LDT enforcement policy phase-out process would occur in gradual
100
stages over a total period of four years, with premarket approval applications for high-risk tests to be submitted by the 3.5-year mark, although more details are expected to be provided with the upcoming final rule. The FDA plans to finalize the rule in April 2024, but it will likely be the subject of litigation challenging the agency’s authority to take such action. Affected stakeholders continue to press for a comprehensive legislative solution to create a harmonized paradigm for oversight of LDTs by both the FDA and CMS, instead of implementation of the proposed FDA administrative action, which may be disruptive to the industry and to patient access to certain diagnostic tests.
Separately, federal legislators have been working with stakeholders for several years on a possible bill to reform the regulation of in vitro clinical tests including LDTs. For example, as drafted and re-introduced for consideration by the current Congress, the Verifying Accurate, Leading-edge IVCT Development (VALID Act) would codify into law the term “in vitro clinical test” (IVCT) to create new medical product category separate from medical devices that includes products currently regulated as IVDs as well as LDTs. The VALID Act would also create a new system for labs and hospitals to use to submit their tests electronically to the FDA for approval, which is aimed at reducing the amount of time it takes for the agency to approve such tests, and establish a new program to expedite the development of diagnostic tests that can be used to address a current unmet need for patients.
It is unclear whether the VALID Act would be passed in Congress in its current form or if it or similar legislation would be signed into law by the President. Until the FDA finalizes the proposed LDT rule or the VALID Act or other legislation is passed reforming the federal government’s regulation of LDTs, it is unknown how the FDA may regulate our tests or what testing and data may be required to support any required clearance or approval.
We believe that the majority of the tests we currently offer meet the definition of LDTs, as they have been designed, developed and validated for use in a single CLIA certified laboratory. We are in the process of obtaining the requisite approvals for our LDTs in New York.
HIPAA and HITECH
Under the administrative simplification provisions of HIPAA, as amended by the HITECH Act, the United States Department of Health and Human Services issued regulations that establish, among other things, uniform standards governing the conduct of certain electronic healthcare transactions and protecting the privacy and security of protected health information used or disclosed by healthcare providers and other covered entities. Three principal regulations with which we are required to comply have been issued in final form under HIPAA: privacy regulations, security regulations and standards for electronic transactions, which establish standards for common healthcare transactions. The privacy and security regulations were extensively amended in 2013 to incorporate requirements from the HITECH Act.
The privacy regulations cover the use and disclosure of protected health information by healthcare providers and other covered entities. They also set forth certain rights that an individual has with respect to their protected health information maintained by a healthcare provider, including the right to access or amend certain records containing protected health information, or to request restrictions on the use or disclosure of protected health information. The security regulations establish requirements for safeguarding the confidentiality, integrity and availability of protected health information that is electronically transmitted or electronically stored. The HITECH Act, among other things, established certain protected health information security breach notification requirements. A covered entity must notify affected individual(s) and the United States Department of Health and Human Services when there is a breach of unsecured protected health information and in some cases must notify local and/or national media. The HITECH Act also strengthened the civil and criminal penalties that may be imposed against covered entities, business associates, and individuals, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, other federal and state laws may govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may not be preempted by HIPAA, thus complicating compliance efforts. The HIPAA privacy and security regulations establish a uniform federal “floor” that healthcare providers must meet and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing protected health information. Massachusetts, for example, has a state law that protects the privacy and security of personal information of Massachusetts residents that is more prescriptive than HIPAA.
These laws contain significant fines and other penalties for wrongful use or disclosure of protected health information. Additionally, to the extent that we submit electronic healthcare claims and payment transactions that do not comply with the electronic data transmission standards established under HIPAA and the HITECH Act, payments to us may be delayed or denied.
101
United States Federal and State Fraud and Abuse Laws
In the United States, we must comply with fraud and abuse laws, and we are potentially subject to regulation by various federal, state and local authorities, including CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the DOJ and individual U.S. Attorney´s Offices within the DOJ, and state and local governments. We also may be subject to foreign fraud and abuse laws.
In the United States, the federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or in return for patient referrals for, or purchasing, leasing, ordering or arranging for the purchase, lease or order of, any healthcare item or service reimbursable under a federal healthcare program. Courts have stated that a financial arrangement may violate the Anti-Kickback Statute if any one purpose of the arrangement is to encourage patient referrals or other federal healthcare program business, regardless of whether there are other legitimate purposes for the arrangement. Violations may result in imprisonment, criminal fines, civil money penalties and exclusion from participation in federal healthcare programs. Many states also have anti-kickback law, some of which may apply to items or services reimbursed by any third-party payor, including commercial insurers.
In addition, in October 2018, the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) was enacted as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (“SUPPORT Act”). EKRA is an all-payor anti-kickback law that makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using the services of a recovery home, a substance use clinical treatment facility, or laboratory. Although it appears that EKRA was intended to reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the language in EKRA is broadly written. Further, certain of EKRA’s exceptions are inconsistent with the Anti-Kickback Statute safe harbor regulations. Significantly, EKRA permits the U.S. Department of Justice to issue regulations clarifying EKRA’s exceptions or adding additional exceptions, but such regulations have not yet been issued. Further, there is no agency guidance to indicate how and to what extent it will be applied and enforced. We cannot assure you that our relationships with physicians, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under such laws. If imposed for any reason, sanctions under the EKRA could have a negative effect on our business.
The healthcare fraud statute prohibits knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from federal healthcare programs such as the Medicare and Medicaid programs. The false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact, or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. A violation of this statute is a felony and may result in fines, imprisonment or exclusion from governmental payor programs.
Finally, another development affecting the healthcare industry is the increased enforcement of the federal False Claims Act and, in particular, actions brought pursuant to the False Claims Act’s “whistleblower” or qui tam provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by to the federal healthcare. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has defrauded the federal government by submitting a false claim to the federal government and permit such individuals to share in any amounts paid by the entity to the government in fines or settlement. When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus substantial per-claim civil penalties, which are also adjusted for inflation.
In addition, various states have enacted false claim laws analogous to the federal False Claims Act, although many of these state laws apply where a claim is submitted to any third-party payor.
Physician Referral Prohibitions
Under a United States federal law directed at “self-referral,” commonly known as the “Stark Law,” there are prohibitions, with certain exceptions, on referrals for certain designated health services, including laboratory services, that are covered by the Medicare and Medicaid programs by physicians who personally, or through a family member, have an investment or ownership interest in, or a compensation arrangement with, an entity performing the tests. A person who engages in a scheme to circumvent the Stark Law’s referral prohibition may be subject to a substantial fine for each such arrangement or scheme. In addition, any person who presents or causes to be presented a claim to the Medicare or Medicaid programs in violation of the Stark Law is subject to substantial per-claim civil monetary penalties, an assessment of up to three times the amount claimed and possible exclusion from participation in
102
federal healthcare programs. Claims submitted in violation of the Stark Law may not be paid by Medicare, and any person collecting any amounts with respect to any such prohibited bill is obligated to refund such amounts. Many states have comparable laws that are not limited to Medicare and Medicaid referrals.
Corporate Practice of Medicine
Approximately 30 states in the United States have enacted laws prohibiting business corporations, such as us, from practicing medicine and employing or engaging physicians to practice medicine, generally referred to as the prohibition against the corporate practice of medicine. These laws are designed to prevent interference in the medical decision-making process by anyone who is not a licensed physician. For example, California’s Medical Board has indicated that determining what diagnostic tests are appropriate for a particular condition and taking responsibility for the ultimate overall care of the patient, including providing treatment options available to the patient, would constitute the unlicensed practice of medicine if performed by an unlicensed person. Violation of these corporate practice of medicine laws may result in civil or criminal fines, as well as sanctions imposed against us and/or the professional through licensure proceedings.
Other United States Regulatory Requirements
Our laboratories are subject to United States federal, state and local regulations relating to the handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemical, biological agents and compounds, blood samples and other human tissue. Typically, we use outside vendors who are contractually obligated to comply with applicable laws and regulations to dispose of such waste. These vendors are licensed or otherwise qualified to handle and dispose of such waste.
The U.S. Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for healthcare employers, including requirements to develop and implement programs to protect workers from exposure to blood-borne pathogens by preventing or minimizing any exposure through needle stick or similar penetrating injuries.
The federal Physician Payments Sunshine Act imposes reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them (and in some cases their distributors) to physicians, teaching hospitals and certain advanced non-physician health care practitioners, as well as ownership and investment interests held by physicians and their immediate family members. The reporting program (known as the Open Payments program) is administered by CMS and applies to manufacturers when their products become eligible for reimbursement under a federal healthcare program such as Medicare or Medicaid. We believe we are exempt from these reporting requirements as we manufacture our own LDTs solely for use and by or within our own laboratory. We may become subject to such reporting requirements under the terms of current CMS regulations, however, if enacted federal legislation renders our tests regulated by FDA, or if FDA finalizes its recently initiated notice-and-comment rulemaking to exercise authority over LDTs as medical devices or otherwise requires us to obtain premarket clearance or approval for one or more of our tests.
Civil Monetary Penalties Law
The federal Civil Monetary Penalties Law (the “CMP Law”), prohibits, among other things, (1) the offering or transfer of remuneration to a Medicare or state health care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health care program, unless an exception applies; (2) employing or contracting with an individual or entity that the provider knows or should know is excluded from participation in a federal health care program; (3) billing for services requested by an unlicensed physician or an excluded provider; and (4) billing for medically unnecessary services. The penalties for violating the CMP Law include exclusion, substantial fines, and payment of up to three times the amount billed, depending on the nature of the offense.
European Regulation
European sales of medical and diagnostic devices are subject to European regulations. The time required to obtain clearance or approval by a foreign country may be longer or shorter than that required for FDA clearance or approval, and the requirements may be different. Set forth below are highlights of the key European regulatory schemes applicable to our business.
103
European Conformity Marking (“CE Mark”) and Certifications
The primary regulatory bodies in Europe are the European Parliament and the Council, which have adopted three directives (Directive 90/385/EEC relating to active implantable medical devices, Directive 92/43/EEC on medical devices and Directive 98/79/EG relating to IVD) regulating the design, manufacture, clinical trials, labeling and adverse event reporting for medical and diagnostic devices. Devices that comply with the requirements of the relevant regulation will be entitled to bear the CE Mark indicating that the device conforms to the essential safety and performance requirements of the applicable regulation and, accordingly, can be commercially distributed throughout the member states of the European Union and the contracting states of the European Economic Area. The method of assessing conformity varies depending on the type and class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a notified body, an independent and neutral institution appointed by a country to conduct the conformity assessment. This third-party assessment may consist of an audit of the manufacturer’s quality system, review of technical documentation and specific testing of the manufacturer’s device. Such an assessment may be required in order for a manufacturer to commercially distribute the product throughout these countries. ISO 13485 certification is a voluntary standard. Quality systems that implement relevant harmonized standards establish the presumption of conformity with the essential requirements for a CE Mark.
We currently have 2 in vitro diagnostic medical devices, CentoCard, and CentoCloud, which are CE-marked in compliance with Regulation (EU) 2017/746 (which became fully effective as of May 26, 2022) and Directive 98/79/EG, respectively. We comply with ISO 13485:2021, as the harmonized standard for quality management systems for medical devices and in vitro diagnostic medical devices.
Currently, there is an ongoing legislative procedure proposing a Regulation of the European Parliament and of the Council laying down harmonized rules on artificial intelligence (Artificial Intelligence Act) and amending certain European Union legislative acts, which would also apply to medical devices. It is currently unclear whether and to what extent the proposal will be enacted.
Laboratory-Developed Tests
As currently a majority of our diagnostic testing is run at our laboratory in Rostock, Germany, the European Union and German legislation on in vitro diagnostic medical devices applies. As of May 26, 2022, when the new IVDR became applicable, the general safety and performance requirements set out in Annex I IVDR are applicable also to IVD manufactured and used only within health institutions. Overall, the exemptions for LDTs are now narrowed, as even health institutions that use LDTs, among other institutions, will have to provide information upon request on the use of such devices to their relevant authorities and the particular health institution will have to draw up a declaration which it is required to make publicly available. If those conditions are not met and/or diagnostic tests are manufactured and used only within health institutions but not “on an industrial scale”, or – effective from May 26, 2028 – if the health institution cannot justify in its documentation that the target patient group’s specific needs cannot be met (or cannot be met at the appropriate level of performance) by an equivalent IVD already available on the EU market, such tests will qualify as IVDs with the IVDR, generally applying with full applicability. Additionally, U.S. regulation applies to our laboratory-developed tests (see “Regulation—Regulation States Regulation—Laboratory-developed tests” for more information).
General Data Protection Regulation
In May 2016, the European Union formally adopted the GDPR, which applied to all EU member states as of May 25, 2018 and replaced the EU Data Protection Directive. The GDPR imposes strict requirements on controllers and processors of personal data, including special protections for “sensitive information,” which includes health and genetic information of data subjects residing in the European Union. The GDPR grants individuals the opportunity to object to the processing of their personal information, allows them to request deletion of personal information in certain circumstances, and provides an individual with an express right to seek legal remedies in the event the individual believes his or her rights have been violated. Further, the GDPR imposes strict rules on the transfer of personal data out of the European Union to the United States or other regions that have not been deemed to offer “adequate” privacy protections. It has increased our responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with the new EU data protection rules.
The GDPR is a complex law and the regulatory guidance is still evolving, including with respect to how the GDPR should be applied in the context of transactions from which we may gain access to personal data. Furthermore, many of the countries within the European Union are still in the process of drafting supplementary data protection legislation in key fields where the GDPR allows for national variation, including the fields of clinical study and other health-related information. There is still significant uncertainty related to the manner in which data protection authorities will seek to enforce compliance with GDPR in the medical and research
104
fields. For example, it is not yet clear the extent to which such authorities will conduct random audits of companies subject to the GDPR in the absence of complaints filed by individuals who claim their rights have been violated. Enforcement actions to date in other industries has resulted in significant fines and other penalties. Failure to comply with the requirements of the GDPR and the related national data protection laws of EU member states, which may deviate slightly from the GDPR, may result in material fines.
European Fraud and Abuse Laws
In Europe, various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties and/or significant fines, for individuals and/or companies committing a bribery offense. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery Act 2010, which went into effect in July 2011, a bribery occurs when a person offers, gives, or promises to give a financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also falls within the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act 2010 faces imprisonment of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.
In Germany, interactions between pharmaceutical and medical device companies and physicians, other healthcare professionals and healthcare organizations are subject to the general criminal law regime covering anti-bribery in the public and private sectors, respectively, as well as to more recently enacted specific provisions in the German Criminal Code (Strafgesetzbuch – StGB) covering anti-bribery in the healthcare sector in connection with the prescription and procurement of medicinal products and medical devices and the allocation of patients or material for diagnostic purposes. Obligations to report payments to healthcare professionals or healthcare organizations are currently limited to members of certain industry associations. Marketplace activities and medical claims are regulated by the Healthcare Advertising Act (Heilmittelwerbegesetz – HWG) and the Act against Unfair Competition (Gesetz gegen unlauteren Wettbewerb – UWG) allowing competitors, among others, to seek interim injunctions in ex-parte proceedings, and by consumer protection laws.
Violations of these laws may subject us to criminal, civil and administrative sanctions including monetary penalties, damages, fines, injunctions, disgorgement, individual imprisonment and exclusion from participation in government funded healthcare programs, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of noncompliance with these laws, reputational harm, and we may be required to curtail or restructure our operations. Moreover, we expect that there will continue to be federal, and state and foreign laws and regulations, proposed and implemented, that could impact our future operations and business.
Competition
We believe, for our core business, that we are the company offering the most comprehensive services to both diagnostics and pharmaceutical partners in the rare and neurodegenerative disease field, with highly curated data combining multiomic datasets and proprietary biomarkers. Our principal competitors are existing mainstream diagnostic companies or companies specializing in certain rare diseases, as well as cloud-based bioinformatic companies and entities that offer open-source, uncurated genetic databases. However, these companies do not offer curated information or as broad of a testing portfolio for rare diseases in as many geographical regions as we do. For example, we have found that the genetic mutation causing the same rare diseases and the phenotypical patterns may vary depending on the ethnicity of the patients, which we have identified based on our global data sets. Such unique insights may not be available to other companies that do not have the same global and diversified scope of patient data.
Our principal competitors in our Diagnostics segment include mainstream diagnostic testing companies as well as labs or hospital conglomerates which offer similar services. In our Pharmaceutical segment, our competitors include companies offering services to pharmaceutical companies.
With the continuous development of NGS technology, the cost of genetic sequencing is anticipated to decrease, and there may be companies intending to compete with us by performing sequencing at lower prices in order to obtain the relevant data to construct a similar database and repository. However, given the current limitations in the rare disease field, as well as the required quantity and quality of the data in order to make any relevant analysis, we believe the CENTOGENE Biodatabank is the leading real-world integrated multiomic data repository in rare and neurodegenerative diseases, due to its focus, data quantity, and data diversity (ethnic, geographic, etc.).
105
Legal Proceedings
For more information, see “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
C.Organizational Structure
Our parent company is Centogene N.V. (the “Company”). Centogene B.V. was incorporated on October 11, 2018. In connection with our initial public offering which closed on November 12, 2019, we executed a corporate reorganization whereby Centogene B.V. was converted into Centogene N.V., and Centogene N.V. became the holding company for Centogene AG (now Centogene GmbH).
Our major subsidiaries are listed below.
Country in which primary | Equity interest (%) | |||||
Name |
| activities are pursued |
| Dec 31, 2023 |
| Dec 31, 2022 |
Centogene GmbH (1) |
| Germany |
| 100 |
| 100 |
Centogene FZ-LLC |
| United Arab Emirates |
| 100 |
| 100 |
Centogene US, LLC |
| USA |
| 100 |
| 100 |
Centogene GmbH ⁽²⁾ |
| Austria |
| — |
| 100 |
Centogene India Pvt. Ltd. |
| India |
| 100 |
| 100 |
Centogene Switzerland AG | Switzerland | 100 | 100 | |||
CentoSafe B.V. | Netherlands | 100 | 100 | |||
Centogene d.o.o. Belgrade |
| Serbia |
| 100 |
| 100 |
Dr. Bauer Laboratoriums GmbH(4) | Germany | — | — | |||
Genomics Innovations Company Limited(3) |
| United Arab Emirates | 20 | — | ||
| (1) | Centogene IP GmbH and Centogene Shared Service GmbH were merged with Centogene GmbH on January 1, 2021. |
| (2) | The Group acquired the remaining 10% of Centogene GmbH in 2022 and wound it down in 2023. |
| (3) | See note 24 – List of subsidiaries. |
| (4) | See note 4 – Basis of consolidation. |
D.Property, Plants and Equipment
Our headquarters are located in Rostock, Germany, where we occupy approximately 8,500 square meters of office and laboratory space that was originally constructed by us. In July 2019, Centogene AG (now Centogene GmbH) entered into a sale and leaseback transaction, pursuant to which we sold our Rostock headquarters building to a third party for EUR 24,000 thousand. We then leased the building from the third party for a period of 12 years at a fixed rate per month with the option to extend twice. In addition, a bank guarantee of EUR 3,000 thousand (which we have secured by cash deposit of EUR 1,500 thousand) is required to be maintained during the lease period. In February 2020, we entered into another lease contract for the further expansion of our Rostock headquarters. The additional lease contract covers a total area of approximately 2,850 square meters of offices, staff facilities and storage spaces. In July 2022, we replaced this contract with a new lease contract for the further expansion of our Rostock headquarters. The additional lease contract covers a total area of approximately 1,474 square meters of offices, staff facilities and storage spaces, and will commence in 2025, when the building is expected to be completed by the lessor. The lease is charged at a fixed rate and covers a fixed period of five years, with the option to extend once for another five years. The lease cannot be terminated during the fixed five-year period, but we are permitted to sub-lease to a third party.
In September 2018, we also opened an office and laboratory facility in Cambridge, Massachusetts. We rented the premises with a two-year lease covering approximately 168 square meters. In June 2019, we rented additional premises of approximately 194 square meters. In July 2021, we reduced the premises to approximately 51 square meters. The lease ended in June 30, 2023 and we now use another facility within the area for our U.S. Administrative office. We do not have any laboratory in the U.S.
Our laboratory in Rostock, Germany is equipped with the most advanced technologies for clinical diagnostics, clinical studies and research and development. To further enhance flexibility in capital management, we may purchase some of the leased laboratory equipment. These leases usually cover a period of two to four years, and our obligations under these leases are secured by the lessor’s title to the leased assets.
106
In addition to our laboratory, we have sales and administrative offices located in Berlin (Germany), Cambridge (Massachusetts, United States), Belgrade (Serbia), Dubai (United Arab Emirates), Delhi (India) and Zug (Switzerland), allowing us to further expand our international footprint. Considering the continuous expansion of our business, we relocated our office to Berlin, Germany in October 2019. The new office covers an area of approximately 1,770 square meters and was leased for a period of 12 years without an extension option. Until the end of the lease period for our Berlin, Germany office, we must provide a bank guarantee of EUR 257 thousand (which we collateralized with a cash deposit of EUR 257 thousand).
As of December 31, 2023, our Property Plant and Equipment is pledged to Oxford debt, resulting from the Oxford Loan Agreement.
We are not aware of any environmental issues or other constraints that would materially impact the intended use of our facilities.
As of December 31, 2023, we employed approximately 493 highly qualified personnel (including consultants) from 61 nationalities.
Item 4A. Unresolved Staff Comments
None
Item 5. Operating and Financial Review and Prospects
A.Operating Results
The following discussion of our financial condition and results of operations should be read in conjunction with Centogene’s audited consolidated financial statements as of December 31, 2023 and 2022 and for the years ended December 31, 2023, 2022 and 2021 and the notes thereto, included elsewhere in this Annual Report. The following discussion is based on our financial information prepared in accordance with IFRS as issued by the IASB, which may differ in material respects from generally accepted accounting principles in the United States and other jurisdictions. The following discussion includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those described under “Item 3—D. Risk Factors” and elsewhere in this Annual Report.
Overview
We are a commercial-stage company with our core businesses focused on rare and neurodegenerative diseases that transforms real-world clinical and genetic or other data into actionable information for patients, physicians and pharmaceutical companies. Our goal is to bring rationality to treatment decisions and to accelerate the development of new orphan drugs by using our knowledge of the global rare disease market, including epidemiological and clinical data and innovative biomarkers. We have developed the CENTOGENE Biodatabank of multimodal data: Sociodemographic, clinical, multiomic data as well as biomaterial included from over 850,000 individuals. As of December 31, 2023, more than 500,000 DBS cards are stored in our own physical biobank which enables retrospective analysis for research consented samples. For approximately 110,000 individuals WES data and for 17,000 individuals WGS data is available. Equally notable is our network of approximately 30,000 active physicians we have been in contact with in the last five years. We believe this represents the only platform that comprehensively analyzes multi-level data to improve the understanding of rare hereditary diseases, which can aid in the identification of patients and improve our pharmaceutical partners’ ability to bring orphan drugs to the market.
We have identified three reportable segments:
| ● | Pharmaceutical. Our Pharmaceutical segment provides a variety of products and services to our pharmaceutical partners, including target and drug screening, clinical development, market access and expansion, as well as CENTOGENE Biodatabank Licenses and Insight Reports. Our information platforms, access to rare and neurodegenerative disease patients and their biomaterials, and our ability to develop proprietary technologies, such as biomarkers, enable us to provide services to our pharmaceutical partners in all phases of the drug development process as well as post commercialization. Revenues from our Pharmaceutical segment are generated primarily from collaboration agreements with our pharmaceutical partners. As of December 31, 2023, we collaborated with 34 pharmaceutical |
107
| partners. In addition, we have developed three biomarkers covering diseases. Since early 2020, we started to pursue a metabolomics approach for establishing a biomarker discovery pipeline for rare hereditary diseases. Our new approach will include a tandem mass spectrometry methodology and AI and, combined with the large volume of datasets in the CENTOGENE Biodatabank, has proven successful in the identification of new biomarkers. The new biomarker candidates are identified and then further validated and optimized in epidemiological clinical trials. |
| ● | Diagnostics. Our Diagnostics segment provides targeted genetic sequencing and diagnostics services to our clients worldwide, who are typically physicians, laboratories or hospitals, either directly or through distributors. As of December 31, 2021, we believe we offer the broadest diagnostic testing portfolio for rare diseases, covering over 19,000 genes using approximately 5,000 different tests. Our key products are our WGS and WES, as well as our multiomic testing solution, In turn, the data collected from our diagnostics services and biomaterials allow us to continue to grow the CENTOGENE Biodatabank. |
| ● | Joint Venture. On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023 with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. According to the joint venture agreement, the founding capital is to be provided 80% (SAR 80,000,000) by PIC and 20% (SAR 20,000,000) by the Company and will be used to finance business operations, including the establishment of a laboratory competence center in Saudi Arabia (“KSA”). Pursuant to the Joint Venture Agreement, and subject to the terms and conditions contained therein, the Company and PIC agreed to establish a limited liability company in Saudi Arabia (the “JV”), the terms of which also include ancillary agreements pertaining to a Technology Transfer and Intellectual Property License Agreement, a Consultancy Agreement and a Laboratory Services Agreement. On November 20, 2023, Genomics Innovations Company Limited (the “JV”) was fully formed as a limited liability company organized under the laws of the Kingdom of Saudi Arabia. Management has analyzed the terms included in the contract analyzing the control over the JV under IFRS 10, concluding the Company has no control over the “JV”, classifying the investment as a joint venture under IAS28 – refer to Note 15 Investment in Joint Venture in the accompanying financial statements. Chief Operating Decision Maker (“CODM”) has decided to disclose it as a separate segment. The terms of the Joint Venture Agreement were amended by the parties on May 12, 2024, including a reduction in the Company’s interest in the JV in exchange for a cash payment to the Company – see Note 29 to the Consolidated Financial Statements for additional details about such amendment. |
We discontinued our COVID-19 business in the three months ended March 31, 2022:
| ● | COVID-19 testing. While not a core business, due to its growth and financial significance in relation to our total activities, our COVID-19 testing business was managed and reported as a separate segment since the third quarter of 2020. We started offering COVID-19 testing in March 2020. Our initial COVID-19 test was a molecular diagnostic test performed for the in vitro qualitative detection of RNA from the SARS-CoV-2 in oropharyngeal samples from presymptomatic probands according to the recommended testing by public health authority guidelines. It was also validated in our CAP/CLIA/ISO certified analytical laboratory and received EUA from the FDA for use by authorized laboratories. The majority of these tests were performed in airport locations at the Frankfurt, Hamburg, Dusseldorf, and Berlin airports. Furthermore, tests were offered through collaborations with the state government and other companies. This segment was fully phased out in the first quarter of 2022 and is therefore presented as discontinued operations. |
Our revenue for the year ended December 31, 2023, was EUR 48,536 thousand, an increase of EUR 1,063 thousand, or 2%, from EUR 47,473 thousand for the year ended December 31, 2022. Our revenue for the year ended December 31, 2022, was EUR 47,473 thousand, an increase of EUR 5,239 thousand, or 12.4%, from EUR 42,234 thousand for the year ended December 31, 2021. Our Pharmaceutical and, Diagnostics segments contributed 30.5% and 69.5%, respectively, of our total revenues for the year ended December 31, 2023, as compared to 33.9%, and 66.1% respectively, of our total revenues for the year ended December 31, 2022, and 37.0%, and 63.0% respectively, of our total revenues for the year ended December 31, 2021. Test requests received by our Pharmaceutical and Diagnostics segments for the year ended December 31, 2023, were approximately 35.4 thousand and 81.5 thousand, respectively, representing a decrease of approximately 7% and an increase of 18%, respectively as compared to approximately 38.1 thousand and 69.2 thousand test requests, respectively, received for the year ended December 31, 2022.
Test requests received by our Pharmaceutical and Diagnostic segments for the year ended December 31, 2022, were approximately 38.1 thousand and 69.2 thousand, respectively, representing a decrease of approximately 30.8% and an increase of
108
approximately 21.4%, respectively, as compared to approximately 54.1 thousand and 57.1 thousand test requests, respectively, received for the year ended December 31, 2021.
Since the inception of our business, our research and development has been substantially devoted to our biomarkers and interpretation solutions. For the year ended December 31, 2023, we incurred research and development expenses of EUR 12,361 thousand, a decrease of EUR 5,127 thousand, or 29.3%, from EUR 17,488 thousand for the year ended December 31, 2022, mainly driven by a decrease in test during 2023, together with a reduction on IT R&D expenses in the current year compared to the prior year. For the year ended December 31, 2022, we incurred research and development expenses of EUR 17,488 thousand, a decrease of EUR 1,809 thousand, or 9.4% from EUR 19,297 thousand for the year ended December 31, 2021. During the years ended December 31, 2023, 2022 and 2021, we received test requests of approximately 1,340, 3,415 and 8,437, respectively, for our internal research and development projects.
Our loss before taxes from continuing operations for the year ended December 31, 2023, was EUR 35,245 thousand, a decrease of EUR 3,351 thousand, or 9%, from EUR 38,596 thousand for the year ended December 31, 2022. Our loss before taxes from continuing operations for the year ended December 31, 2022, decreased by EUR 18,826 thousand, or 33%, from EUR 57,422 thousand for the year ended December 31, 2021. Our loss before taxes for the year ended December 31, 2023, also included share-based compensation expenses of EUR 2,929 thousand, as compared to EUR (16) thousand for the year ended December 31, 2022, and EUR 8,035 thousand for the year ended December 31, 2021.
Important Developments
Sale of USD 15.0 million of Accounts Receivables to Lifera
On May 12, 2024, we completed a transaction with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of the Kingdom of Saudi Arabia (“KSA”) and a wholly-owned subsidiary of the Public Investment Fund based in Riyadh, with respect to the sale of certain Company accounts receivables (“PIC AR Sale”) and related transactions for proceeds of approximately USD 15.0 million (EUR 13.9 million) (not including additional process from our sale of a JV interest). PIC has agreed to purchase certain of Centogene’s accounts receivable in the KSA for an aggregate purchase price of USD 15.0 million payable in three equal tranches on or about May 13, 2024, May 31, 2024, and June 30, 2024. As a result of the foregoing, we now estimate that our cash runway extends for at least the next twelve (12) months. Specifically, based on our existing cash on hand and assuming the receipt of the proceeds from all three tranches of the PIC AR Sale and the achievement of our 2024 revenue guidance, we believe that we will be able to fund our operations, as currently planned (including amortization payments due under the Loan and Security Agreement with our senior lender Oxford Finance LLC (“Oxford”) commencing March 1, 2025), through the second quarter of 2025. While we believe our cash from operations and other assumptions are reasonable, there can be no assurances in this regard. For more information, see Note 2.2 to the Consolidated Financial Statements.
In connection with the PIC AR Sale and consistent with our ongoing strategic alternatives process with interested parties (as described below), we agreed to certain new covenants in our Oxford Loan and Security Agreement relating to the timing to this process. Specifically, we agreed to certain near-term timing requirements for the entry into a binding definitive agreement for the sale of the Company (July 15, 2024) and by June 15, 2024 with respect to the receipt of nonbinding term sheets relating to a sale. In addition to the new covenants described above, Oxford has the right pursuant to the preexisting terms of the Oxford Loan and Security Agreement to require the repayment of all debt owed to it upon the closing of a change of control transaction, such as a sale transaction resulting from our strategic alternatives process, unless Oxford agrees, in its sole discretion, to different arrangements with any strategic partner or successor. For a discussion of our indebtedness outstanding and liquidity, see “—B. Liquidity and Capital Resources—Overview”.
Update on Process to Review Strategic Alternatives
On February 28, 2024, we announced a process to explore strategic alternatives, we engaged an investment banking firm to advise us in connection with this process and we are currently in active discussion with several interested parties, which could result in the entry into a definitive agreement for a transaction by July 15, 2024. However, there can be no assurance that our strategic review
109
process will result in any transaction or other strategic outcome. We do not intend to disclose further developments on this strategic review process unless and until we determine that such disclosure is appropriate or necessary.
Going Concern
As an early commercial-stage company, we are still in progress towards reaching break-even on our Diagnostic and Pharmaceutical segments. We are subject to a number of risks similar to those of other development and early commercial stage companies. These risks include, among other things, the failure to enter into and successfully execute further collaborations with pharmaceutical partners, the failure to generate revenue from our development portfolio and risks associated with research, development, testing and obtaining related regulatory approvals in relation to our product candidates. Our ongoing success and ultimately the attainment of profitable operations depends on future uncertain events which include, among other things, obtaining adequate financing to promote our commercial and development activities until we can generate sufficient revenues to support our operating cash requirements.
The Group´s ongoing success and ultimately the attainment of profitable operations depends on future uncertain events which include, among other things, obtaining adequate financing to promote commercial and development activities until the Group can generate sufficient revenues to support its operating cash requirements. The Group has incurred operating losses since inception. For the year ended December 31, 2023, the Group incurred a net comprehensive loss of EUR 35.8 million, resulting in the net cash outflows from operating activities of EUR 31.7 million. As of December 31, 2023, the Group had generated an accumulated deficit of EUR 177.1 million and had a negative equity position of EUR 25.3 million.
During 2023, we entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023, with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. Pursuant to the Joint Venture Agreement, and subject to the terms and conditions contained therein, the Company and PIC have established a limited liability company in Saudi Arabia (the “JV”). In connection with the Joint Venture Agreement, Lifera and the Company have entered into a convertible loan agreement (the “Loan Agreement”), pursuant to which Lifera has loaned the Company USD 30.0 million (the “Principal Amount”). The Loan Agreement was signed on October 26, 2023. On October 30, 2023, the Company received the cash of USD 30.0 million (EUR 28.3 million). The loan originally had a term of six months and was originally scheduled to automatically convert into equity on the maturity date which was April 26, 2024. The conversion of the loan to equity requires the approval of the Committee on Foreign Investment in the United States (“CFIUS”), which is pending. Both companies have finalized the incorporation of the JV on November 19, 2023, and related ancillary agreements signed November 27, 2023 – refer to Note 21.1 to the Financial Statements for further details. In addition, the Company received cash inflows of SAR 40 million (EUR 9.4 million) on December 27, 2023, linked to the transfer of data from the Biodatabank relating to information from the region of the Kingdom of Saudi Arabia.
During 2024, management completed a significant transaction through the sale of receivables with customers in the region of the Kingdom of Saudi Arabia to PIC which provides the Company with a cash injection of approximately USD 15.0 million (EUR 13.9 million). In connection therewith, the Company also entered into a share purchase agreement with PIC in which the Company sold 16% of shares in the JV (retaining 4% interest), providing a cash injection to the company of approximately SAR 20.0 million (EUR 4.9 million).
In addition, the convertible loan agreement was amended to, among other things, extend the maturity date to a date promptly following the receipt of applicable CFIUS approvals with respect to the issuance of common shares upon conversion of the loan.
In order to close the transactions mentioned above, we obtained Oxford’s consent on May 12, 2024, which included the addition of certain covenants in our Oxford Loan and Security Agreement see “— Important Developments — Sale of USD 15.0 million of Accounts Receivables to Lifera”. A breach of these timing requirements would constitute an event of default under the Oxford Loan and Security Agreement, unless waived by Oxford. This covenant is consistent with the process management announced in February 2024 to explore strategic alternatives, where we engaged an investment banking firm to advise us in connection with this
110
process. We are currently in active discussions with several interested parties, which could result in a near term transaction by July 15, 2024.
As of December 31, 2023, we had cash and cash equivalents of EUR 19.1 million with interest-bearing short-term debt obligations of EUR 28.1 million.
Our management has prepared cash flow forecasts and considered our cash flow requirement for the next three years, principally focused on the twelve-month period from the date of the approval of the consolidated financial statements. These forecast considers a wide range of factors relating to expected cash inflows which are subject to uncertainty, including the forecasted revenue from the Diagnostics and Pharmaceutical segments, as well as whether we will enter into any new significant pharmaceutical partnerships, and realize potential cash injections from the sale of receivables, assuming such sale meets the requirements for a true sale under IFRS, and the sale of the shares in the JV. Management has also estimated cash outflows such as operating and capital expenditures and debt repayments, including the ability to delay uncommitted expenditures, and to benefit from the implementation of certain cost saving measures. See Notes 2.2 and 29 to the Consolidated Financial Statements for further detail.
Effect of COVID-19 Pandemic
The COVID-19 pandemic had a global impact and caused many governments to maintain measures, such as quarantines, travel restrictions, closures of borders, and mandatory maintenance of physical distance between individuals to slow the spread of the outbreak. During the three months ended March 31, 2022, we continued the COVID-19 testing activities that started in 2020. There were no investments made in the COVID-19 business in the three months ended March 31, 2022. Total investments in COVID-19 testing as of December 31, 2021, amounted to - thousand, of which - thousand related to property, plant and equipment and EUR 354 thousand to intangible assets. These investments have been fully depreciated and amortized as of March 31, 2022.
Total gross profit for our COVID-19 business for the three months ended March 31, 2022, was EUR 4,263 thousand representing a decrease of EUR 6,169 thousand or of 59.1% as compared to EUR 10,432 thousand in the prior year period. The decrease in gross profit within the COVID-19 business (which we report as a discontinued operation) is primarily due to the significant decline in COVID-19 testing orders.
During 2021 management updated its long-term outlook for the COVID-19 testing business, which led to management’s decision to initiate a wind down process in which lease contracts at unprofitable COVID-19 testing sites would not be renewed and a laboratory in Hamburg would be closed. Similarly, we significantly reduced COVID-19 related inventory levels to align with the needs of the remaining test sites and laboratories. As at March 31, 2022, all COVID-19 operations at testing sites had ceased as all COVID-19 testing site contracts expired in the first quarter of 2022.
For further information, see “Note 9 – Discontinued operations” to our consolidated financial statements as of December 31, 2023 and December 31, 2022.
Research and Development
We continued to expand our medical and genetic knowledge of rare genetic diseases, with the vision of shortening the diagnostics odyssey of rare disease patients and accelerating the development of new orphan drugs. In particular, we focused on the following collaborations during the year:
| ● | Collaboration with Evotec SE (“Evotec”) in the research, discovery and development of medical solutions for rare diseases related to the protein target glucocerebrosidase (“GBA”), a well-known enzyme deficiency linked to Gaucher disease. This collaboration combines our global proprietary rare disease platform and biomarker expertise, with a jointly developed induced pluripotent stem cell (“iPSC”) platform, drug discovery and development capabilities of Evotec. |
| ● | Collaboration with PTC Therapeutic, Inc (“PTC”) to expand our existing partnership to several new regions including many countries in Europe, the Middle East, and Latin America to provide genetic testing and 3-O-Methyldopa (3-OMD) biomarker analytics to help identify patients with Aromatic L-amino Acid Decarboxylase (AADC) deficiency. |
| ● | Collaboration with Alnylam Pharmaceuticals (“Alnylam”) to expand its existing epidemiology and biomarker work through the initiation of a new clinical program (TRAMoniTTR) focused on Hereditary Transthyretin Amyloidosis |
111
| (hATTR). Through the newly executed agreement, the Company will provide specific analyses regarding anonymized TTR patient populations with a focus on long-term longitudinal data. |
Financial Operations Overview
Revenue
Our revenue is principally derived from the provision of pharmaceutical solutions and diagnostic tests enabled by our knowledge and interpretation-based platform.
We expect our revenue to increase over time as we continue to expand our commercial efforts internationally with a focus on further growth in our Pharmaceutical segment. We expect revenue from our Diagnostics segment to grow in absolute terms but decrease as a proportion of total revenue if there is growth in our Pharmaceutical segment.
Changes in revenue mix between our Pharmaceutical and Diagnostic segments can impact our results period over period. We typically incur lower costs for the provision of solutions in our Pharmaceutical segment and therefore generate higher returns from our Pharmaceutical segment contracts than from our Diagnostics segment contracts.
Pharmaceutical segment
We generate revenue in our Pharmaceutical segment from the solutions we provide to our pharmaceutical partners to accelerate their development of treatments for rare hereditary diseases. Our data-driven studies are not only able to provide valuable information for drug target discovery, but also allow a better and more targeted design of clinical trials afterwards. Our biomarkers can be used not only in effective identification of rare disease patients, but also used to demonstrate the efficacy of the drugs, perform longitudinal monitoring and titrate the dosage needed of individual rare disease patients. Our partnership agreements are structured on a fee per analysis basis, milestone basis, fixed fee basis, royalty basis or a combination of these. We recognize our revenue from the rendering of solutions to our pharmaceutical partners as such service is performed, or upon the achievement of certain milestones if applicable to the partnership agreement.
During the year ended December 31, 2023, we entered into 27 new collaborations and successfully completed 21 collaborations resulting in a total of 48 ongoing collaborations. During the year ended December 31, 2022, we entered into 13 new collaborations and successfully completed 17 collaborations resulting in a total of 41 ongoing collaborations. During the year ended December 31, 2021, we entered into 18 new collaborations, and successfully completed 39 collaborations resulting in a total of 45 ongoing collaborations.
The timing of entry into new contracts with our pharmaceutical partners can be difficult to predict. Accordingly, we can experience different revenue patterns quarter-to-quarter and year-over-year due to the satisfaction of performance obligations involving significant upfront and milestone fees due from our pharmaceutical partners. We recognize revenue for upfront fees at a
112
point in time when the right to use the intellectual property is transferred to the customer, while revenue for milestone payments is recognized over time using an input method based on the work rendered by us, or at a point in time when the applicable provisions for over-time recognition are not present (e.g., the sale of CentoCard filter cards).
During the year ended December 31, 2023, Centogene entered into several collaborations with pharmaceutical partners, of which upfront fees totaling EUR 256k were received. During the year ended December 31, 2022, we entered into collaboration agreements with certain pharmaceutical partners, which resulted in upfront fees payable to us of over EUR 566 thousand for set up fees, are recognized over time and during the partnership period. During the year ended December 31, 2021, we entered into collaboration agreements with certain pharmaceutical partners, which resulted in upfront fees payable to us of over EUR 455 thousand for set up fees, that have been recognized over time and during the partnership period.
Diagnostics segment
We generate revenue in our Diagnostics segment primarily from genetic sequencing and diagnostics services, such as WES and WGS. The test requests received by our Diagnostics segment for the years ended December 31, 2023 and 2022 were split amongst our primary testing products as follows:
We provide these services in over 120 countries either through third-party distributors or directly to our diagnostics clients, who are typically physicians, labs or hospital facilities. Revenues are based on a negotiated price per test or on the basis of agreements to provide certain testing volumes over defined periods. Revenue from the rendering of clinical diagnostic services (sequencing, interpretation and reporting) is recognized over time by reference to the percentage of completion of the service on the reporting date, assessed on the basis of the work rendered. We strategically focus on countries around the globe where the prevalence of rare hereditary diseases is high or the availability of national genetic testing and interpretation is to some extent limited and therefore the complete reimbursement or partial payment by the government for our services is more likely. The major markets for our diagnostics business currently include the Middle East and North Africa region, Scandinavia, parts of Central and Eastern Europe, Latin America, North America and parts of Asia. In most of our markets, our diagnostics tests are billable directly to the party submitting the request for a test to us.
Cost of Sales and Operating Expenses
Our cost of sales and our operating expenses support all of the products and services that we provide to our customers and, as a result, are presented in an aggregate total for the business segments. We allocate certain overhead expenses, such as maintenance and depreciation to cost of sales and operating expense categories based on headcount and facility usage. As a result, overhead expense allocation is reflected in cost of sales and each operating expense category.
113
Cost of Sales
Cost of sales consists of cost of consumables, supplies and other direct costs such as personnel expenses, depreciation of laboratory equipment, amortization of biomarkers, repair and maintenance costs, shipping costs, as well as certain allocated overhead expenses.
We expect these costs in absolute terms will increase as we grow our revenue but to decrease as a percentage of revenue over time as our Pharmaceutical segment revenue increases and as we continue to implement operational efficiencies. During the year ended December 31, 2023, our cost of sales represented 64.5% of our total revenue, as compared to 58.4% for the year ended December 31, 2022, and 68.0% for the year ended December 31, 2021. The main driver of the increase in the current year is the increase in the price of the consumables used in our business.
Research and Development Expenses
Our research and development (“R&D”) expenses consist primarily of costs incurred for the research and development of new products and solutions, in particular our biomarkers, and the development of our IT driven and interpretation-based solutions. In the three fiscal years ended December 31, 2023, 2022 and 2021 we spent EUR 53,406 thousand on research and development, of which EUR 4,260 thousand was capitalized as intangible assets.
Expenses for research activities are recognized through profit or loss in the period in which they are incurred, unless they reach the development stage and prove to be technically and commercially feasible, upon which the expenses are capitalized. With respect to biomarkers, expenses are capitalized when the target validation process is completed and commercialization is probable. With respect to IT driven solutions, expenses are capitalized upon the completion of our internal validation test. Before such dates, any development costs are recognized in profit or loss.
Research and development which we conduct pursuant to our pharmaceutical partnership agreements is typically limited to a specific rare disease. As a result, our research and development expenses may vary substantially from period to period based on the timing of our research and development activities or our pharmaceutical partners, including due to the entry into, renegotiation of or termination of our partnership agreements. Our research and development expenses may also be impacted by changes in regulatory requirements and healthcare policies globally, particularly in respect of the validation and patent application processes that we conduct for our biomarkers.
During the year ended December 31, 2023, our research and development expenses represented 25.5% of our total revenue, as compared to 36.8% for the year ended December 31, 2022, and 45.7% for the year ended December 31, 2021. The decrease is attributable to reduced research and development-based personnel expenses arising as a result of organizational synergies achieved in 2021 and 2022. We continue to innovate our information platform, develop additional products and solutions and expand our data management resources.
General Administrative Expenses
Our general administrative expenses include costs for our personnel, premises, IT operations, accounting and finance, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, travel, and share-based compensation, as well as professional services fees such as consulting, audit, tax and legal fees and general corporate costs, insurance costs and allocated overhead expenses. We account for all general administrative expenses as incurred.
During the year ended December 31, 2023, our general administrative expenses represented 67.1% of our total revenue, as compared to 68.6% for the year ended December 31, 2022, and 103.0% for the year ended December 31, 2021. The decrease was mainly related to the decrease in general administrative related personnel expenses of which the primary contributor was a decrease in share-based payments expenses. Additionally, the reversal is attributable to reductions in senior management headcount as well as synergies achieved from the restructuring implemented since 2021.
Selling Expenses
Our selling expenses consist of costs from our sales organization, which includes our direct sales force and sales management, client services, distributor relations, marketing and business development personnel. These expenses primarily include salaries, commissions, bonuses, employee benefits and travel, as well as marketing and educational activities and allocated overhead expenses. We expense all selling expenses as incurred.
During the year ended December 31, 2023, selling expenses represented 25.9% of our total revenue, as compared to 20.9% for the year ended December 31, 2022, and 22.1% for the year ended December 31, 2021. The increase was mainly due to the strategic buildup of the Pharmaceutical team as well as increased sales commissions paid in the Diagnostics segment. We expect that our
114
selling expenses will continue to grow as we continue to increase our business footprint and expand our business development efforts in our Pharmaceutical segment.
Other Operating Income / (Expenses)
Other operating income and expenses primarily includes the income coming from the sale of Intellectual Property License Agreement (“IP”) to JV (Note 8.1 and 15). Additionally, it includes government grants and gain on disposal of property, plant and equipment.
Government grants contain performance-based grants to subsidize research, development and innovation in the state of Mecklenburg-Western Pomerania from funds granted by the European Regional Development Fund (“R&D Grants”). Furthermore, government grants contain investment grants related to the construction of our headquarters in Rostock, Germany in prior years and purchase of equipment for laboratory atomization (“Investment Grants”). R&D Grants that compensate our research and development expenses are recognized directly in profit or loss, while Investment Grants are initially recognized as deferred income and subsequently released to profit or loss on a systematic basis over the useful life of the related asset. We received different government grants in the state of Mecklenburg-Western Pomerania from funds granted by the European Regional Development Fund to subsidize our research, development and innovation.
During the year ended December 31, 2023, we received R&D Grants of EUR nil thousand, as compared to EUR 506 thousand and EUR 168 thousand for the year ended December 31, 2022 and December 31, 2021, respectively. The government grants that we receive, can fluctuate from period to period.
Results of Operations
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Consolidated statements of comprehensive loss: | ||||
Revenue |
| 48,536 |
| 47,473 |
Cost of sales |
| 31,287 |
| 27,712 |
Gross profit |
| 17,249 |
| 19,761 |
Research and development expenses |
| 12,361 |
| 17,488 |
General administrative expenses |
| 32,588 |
| 32,587 |
Selling expenses |
| 12,564 |
| 9,924 |
Impairment of financial assets | 812 | — | ||
Gain on reversal of financial asset impairment | — | 432 | ||
Other operating income |
| 11,848 |
| 3,774 |
Other operating expenses |
| 431 |
| 741 |
Operating loss |
| (29,659) |
| (36,773) |
Losses from investments accounted for by the Equity method |
| (302) | — | |
Changes in fair value of warrants | (159) | 2,574 | ||
Interest and similar income |
| 3,293 |
| 512 |
Interest and similar expenses |
| 8,418 |
| 4,909 |
Finance costs, net |
| (5,284) |
| (1,823) |
Loss before taxes from continuing operations |
| (35,245) |
| (38,596) |
Income tax expenses |
| 287 |
| 107 |
Loss for the year from continuing operations |
| (35,532) |
| (38,703) |
Net income from discontinued operations, net of tax | — | 6,862 | ||
Loss for the period | (35,532) | (31,841) | ||
Other comprehensive income/(loss) |
| (271) |
| (76) |
Total comprehensive loss for the year |
| (35,803) |
| (31,917) |
Revenue
Revenue increased by 1,063 thousand, or 2%, to EUR 48,536 thousand for the year ended December 31, 2023 from EUR 47,473 thousand for the year ended December 31, 2022, mainly driven by revenue from our Diagnostic segment.
115
The breakdown of our revenue by segment was as follows:
For the Years Ended | ||||
December 31, | ||||
2023 | 2022 | |||
Revenue by segment: |
|
|
| |
Pharmaceutical |
| 14,802 |
| 16,115 |
Diagnostics |
| 33,734 |
| 31,358 |
Total Revenue |
| 48,536 |
| 47,473 |
Pharmaceutical segment
Revenues from our Pharmaceutical segment were 14,802 thousand for the year ended December 31, 2023, a decrease of EUR 1,313 thousand, or 8%, from EUR 16,115 thousand for the year ended December 31, 2022. This decrease was primarily driven by a decrease in the price of the operations during the current year together with no new contracts with large volume won during the current year compared to prior years. We collaborated with 34 pharmaceutical partners, as of December 31, 2023, compared to 28 active partners as of December 31, 2022.
During the year ended December 31, 2023, we entered into 27 new collaborations and successfully completed 21 collaborations resulting in a total of 48 active collaborations on December 31, 2023, compared to 45 active collaborations as of December 31, 2022. Revenues from our new collaborations totaled EUR 700 thousand for the year ended December 31, 2023, which upfront fees totaling EUR 256k were received.
During the year ended December 31, 2022, we entered into 13 new collaborations and successfully completed 17 collaborations resulting in a total of 41 active collaborations as of December 31, 2022, compared to 45 active collaborations as of December 31, 2021. Revenues from our new collaborations totaled EUR 1,108 thousand for the year ended December 31, 2022, with upfront payments of EUR 566 thousand related to setup fees. During the year ended December 31, 2021, we entered into 18 new collaborations and completed 39 collaborations. Revenues from our new collaborations totaled EUR 2,323 thousand for the year ended December 31, 2021, with upfront payments of EUR 455 thousand related to setup fees.
We have been successful in entering into collaborations with pharmaceutical partners in the early stages of drug development, which puts us in a position to provide more support to the development process and increases our potential to secure further collaborations for the same drugs, such as biomarker developments. For further details on each of our drug development stages, please see “Item 4. Information on the Company—B. Business Overview—Pharmaceutical Solutions.”
During the year ended December 31, 2023, revenues from one pharmaceutical partner represented 12.6% of our total revenues, as compared to one that represented 15.5% for the year ended December 31, 2022.
Diagnostics segment
Revenues from our Diagnostics segment were EUR 33,734 thousand for the year ended December 31, 2023, an increase of EUR 2,376 thousand, or 8%, from EUR 31,358 thousand for the year ended December 31, 2022. We received 81,533 test requests in our Diagnostics segment during the year ended December 31, 2023, representing an increase of approximately 18% as compared to 69,243 test requests received for the year ended December 31, 2022.
116
For the years ended December 31, 2023 and 2022, our total Diagnostic segment revenues were split amongst our primary testing products as follows:
The increase in revenues was primarily related to an increase in order intakes for panel testing, WES and WGS during the year ended December 31, 2023. Total revenues from panel testing, WES and WGS for the year ended December 31, 2023, amounted to EUR 24,963 thousand, representing an increase of 9.94% as compared to EUR 22,706 thousand for the year ended December 31, 2022. The total number of panel testing, WES and WGS order intakes received in the Diagnostics segment for the year ended December 31, 2023, was 42,846, representing an increase of 18.83% as compared to 36,057 test requests received for the year ended December 31, 2022.
Revenue by geographical region
The breakdown of our revenue from all our segments, in the aggregate, by geographical region was as follows:
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Revenue by geographical region: |
|
|
|
|
Europe |
| 7,729 |
| 6,288 |
of which: Germany |
| 95 |
| 307 |
of which: Netherlands |
| 2 |
| 7 |
Middle East |
| 20,739 |
| 19,902 |
of which: Saudi Arabia | 13,379 | 12,412 | ||
North America |
| 14,874 |
| 16,591 |
of which: United States |
| 14,834 |
| 16,525 |
Latin America |
| 4,306 |
| 3,907 |
Asia Pacific |
| 888 |
| 786 |
Total Revenue |
| 48,536 |
| 47,473 |
117
In cases where our pharmaceutical partners are developing a new rare disease treatment, we generally anticipate that the final approved treatment will be made available globally. As a result, we allocate the revenues of our Pharmaceutical segment by geographical region by reference to the location where each pharmaceutical partner mainly operates, which is based on the region from which most of their revenues are generated. The allocation of revenues in our Diagnostics segment is based on the location of each customer.
Our North America region contributed EUR 14,874 thousand to revenue for the year ended December 31, 2023, a decrease of EUR 1,717 from EUR 16,591 thousand for the year ended December 31, 2022, mainly due to the termination of Medicare program. Revenues from the North America region represented 30.6% of our total revenues for the year ended December 31, 2023, as compared to 34.9% for the year ended December 31, 2022.
Our Middle East region contributed EUR 20,739 thousand to revenue for the year ended December 31, 2023, an increase of EUR 837 thousand, or 4%, from EUR 19,902 thousand for the year ended December 31, 2022. This revenue increase was primarily attributable to the increase in sales of panel testing, WES and WGS tests. Revenues from the Middle East region represented 42.7% of our total revenues for the year ended December 31, 2023, as compared to 41.9% for the year ended December 31, 2022.
Our Europe region contributed EUR 7,729 thousand to revenue for the year ended December 31, 2023, an increase of EUR 1,441 thousand, or 23% from EUR 6,288 thousand for the year ended December 31, 2022. This increase was mainly driven by increased revenues from the Diagnostics segment. Revenues from the Europe region represented 15.9% of our total revenues for the year ended December 31, 2023, as compared to 13.2% for the year ended December 31, 2022.
Cost of Sales
Cost of sales increased by EUR 3,575 thousand, or 13%, to EUR 31,287 thousand for the year ended December 31, 2023, from EUR 27,712 thousand for the year ended December 31, 2022. Cost of sales for the year ended December 31, 2023, represented 64.5% total revenue, an increase of 6.1 percentage points as compared to 58.4% for the year ended December 31, 2022.
Cost of sales incurred by our Pharmaceutical and Diagnostic segments for the year ended December 31, 2023, represented 62.6% and 65.3% of revenues from the respective segments, an increase e of 17.3 percentage points and 0.2 percentage points, respectively, as compared to 45.3% and 65.1%, respectively, for the year ended December 31, 2023. The 17.3 percentage point increase for our Pharmaceutical segment was mainly due to increased personal costs as well as changes in the product mix.
Gross Profit
Our core business segments (Diagnostics and Pharmaceutical segments combined) generated total gross margin of EUR 17,249 thousand or 36% of revenues which represents a decrease of EUR 2,512 thousand or 6.1 percentage points in the year ended December 31, 2023, as compared to EUR 19,761 thousand or 42% of revenues in the previous year ended December 31, 2022. The decrease is mainly driven by a decrease in pharmaceutical revenue as no new large collaborations were signed during this year together with an increase in cost incurred in reinforcing the selling structure to revert this situation for the following years.
Research and Development Expenses
The table below gives a breakdown of our research and development expenses for the years ended December 31, 2023 and 2022.
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Wages and salaries and social security expenses |
| 5,479 |
| 7,074 |
IT development costs |
| 3,849 |
| 5,654 |
Depreciation and amortization expenses |
| 1,981 |
| 2,927 |
Development and patent costs | 380 | 747 | ||
Others |
| 672 |
| 1,086 |
Total research and development expenses |
| 12,361 |
| 17,488 |
118
Research and development expenses decreased by EUR 5,127 thousand, or 29.3%, to EUR 12,361 thousand for the year ended December 31, 2023, from EUR 17,488 thousand for the year ended December 31, 2022. This mainly represents personnel costs, IT-related expenses incurred in our research that do not qualify for capitalization, decreased depreciation and amortization and other costs such as consumables, patent applications, legal costs and external consultant costs.
General Administrative Expenses
The table below gives a breakdown of our general administrative expenses for the years ended December 31, 2023 and 2022.
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Wages and salaries, social security and termination expenses |
| 9,760 |
| 11,155 |
Share‑based payment expenses |
| 2,929 |
| (16) |
Legal, audit and consulting expenses |
| 7,742 |
| 7,742 |
Travelling, corporate communication and event expenses |
| 617 |
| 1,055 |
IT operational costs |
| 3,244 |
| 2,815 |
Insurance premiums |
| 2,075 |
| 2,956 |
Recruitment expenses | 426 | 265 | ||
Depreciation and amortization expenses |
| 3,415 |
| 3,381 |
Others |
| 2,380 |
| 3,234 |
Total general administrative expenses |
| 32,588 |
| 32,587 |
General administrative expenses increased by EUR 1 thousand, or 0.0%, to EUR 32,588 thousand for the year ended December 31, 2023, from EUR 32,587 thousand for the year ended December 31, 2022, principally due to an increase in Share Based Payments expense was which offset by some decreases in wages expense. The general administrative expenses included share-based compensation expenses of EUR 2,929 thousand for the year ended December 31, 2023, an increase of EUR 2,945 thousand as compared to EUR (16) thousand for the year ended December 31, 2022.
Selling Expenses
Selling expenses increased by EUR 2,640 thousand, or 26.6%, to EUR 12,564 thousand for the year ended December 31, 2023, from EUR 9,924 thousand for the year ended December 31, 2022, principally due to an increase in personnel expenses.
Impairment of financial assets
There was an impairment expenses for financial assets incurred for the year ended December 31, 2023, representing an increase of EUR 812 thousand from EUR nil for the year ended December 31, 2022.
Gain on reversal of financial asset impairment
The gain on reversal of financial asset impairment for the year ended December 31, 2023 was EUR NIL (December 31, 2022: EUR 432k).
Other Operating Income / (Expenses)
Other operating income increased by EUR 8,074 thousand, or 213.9%, to EUR 11,848 thousand for the year ended December 31, 2023, from EUR 3,774 thousand for the year ended December 31, 2022, principally due to the income received from the sale of “IP” to the “JV” (Note 8 and 15). This is also driven by VAT refunds received based on a change made to the VAT tax declarations of Centogene GmbH in agreement with the tax administration in Germany for 2016 to 2019 financial years.
Other operating expenses decreased by EUR 310 thousand, or 41.8%, EUR 431 for the year ended December 31, 2023, from EUR 741 thousand for the year ended December 31, 2022, principally due to foreign exchange differences.
119
Interest and Similar Income / (Expenses)
Interest and similar income increased by EUR 2,781 thousand to EUR 3,293 thousand for the year ended December 31, 2023, from EUR 512 thousand for the year ended December 31, 2022.
Interest and similar expenses increased by EUR 3,509 thousand, or 71.5%, to EUR 8,418 thousand for the year ended December 31, 2023, from EUR 4,909 thousand for the year ended December 31, 2022, principally due to interest incurred on the Oxford loan as well as foreign currency losses.
Loss Before Taxes for the Year from Continuing Operations
As a result of the factors described above, our loss before taxes for the year ended December 31, 2023 was EUR 35,245 thousand, a decrease of EUR 3,351 thousand, or 8.7%, from EUR 38,596 thousand for the year ended December 31, 2022.
Segment Adjusted EBITDA
Our Segment Adjusted EBITDA was as follows:
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Segment Adjusted EBITDA: | ||||
Pharmaceutical |
| 1,589 |
| 6,802 |
Diagnostics |
| 5,087 |
| 6,438 |
JV |
| 4,462 |
| — |
| 11,138 |
| 13,240 | |
Adjusted EBITDA from our Pharmaceutical segment was EUR 1,589 thousand for the year ended December 31, 2023, a decrease of EUR 5,213 thousand, or 77%, from EUR 6,802 thousand for the year ended December 31, 2022. This decrease was attributable to the decrease in revenues from the Pharmaceutical segment and the higher cost of sale.
Adjusted EBITDA from our Diagnostic segment was EUR 5,087 thousand for the year ended December 31, 2023, a decrease of EUR 1,351 thousand, or 21%, from EUR 6,438 thousand for the year ended December 31, 2022. This decrease was primarily attributable to an increase in cost of sales as well as selling expenses which was mainly attributable to increased sales commissions and sales consulting expenses.
For further information about how we calculate Adjusted EBITDA, how it is used and our reconciliation of segment Adjusted EBITDA to the most comparable IFRS measure of the Group, see “Note 7 — Segment information and revenue from contracts with customers” of our consolidated financial statements as of and for the year ended December 31, 2023.
For the discussion of our results of operations for the year ended December 31, 2021 compared to year ended December 31, 2022, see “Financial Operations Overview —Year Ended December 31, 2021, compared to Year Ended December 31, 2022” included in our annual report for the year ended December 31, 2022, on Form 20-F (File No. 001- 39124) filed with the SEC on May 16, 2023.
B.Liquidity and Capital Resources
Overview
In fiscal year 2024 and beyond, we anticipate that our capital expenditures in our rare disease business will be primarily focused on improving our IT systems and infrastructure. This includes to continuously upgrade our laboratory equipment to enable innovative multiomics testing. Investments into IT systems and infrastructure enable us to provide data-driven solutions which are at the core of our Pharma and Diagnostics offering. Besides these capital expenditures, we will continue our relevant research and development activities as well as building our Pharma and Diagnostics commercial teams.
Historically, our main source of liquidity has been our secured loans, municipal loans and government funding of research programs, and proceeds from our initial public offering. In July 2020, we completed the Follow-on Equity Offering and received net offering proceeds, after deducting underwriting discounts and commissions, of EUR 22 million. In January 2022, we entered into the
120
Loan and Security Agreement in the total amount of USD 45.0 million (EUR 40.2 million) and secured an additional EUR 15 million through issuance of common shares and warrants.
In June 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”), to form a joint venture under the laws of Saudi Arabia. Pursuant to the Joint Venture Agreement, and subject to the terms and conditions contained therein, the Company and PIC agreed to establish a limited liability company in Saudi Arabia (the “JV”). In connection with the Joint Venture Agreement, Lifera and the Company have to enter into a convertible loan agreement (the “Loan Agreement”), pursuant to which Lifera agrees to loan the Company USD 30.0 million (the “Principal Amount”). The Loan Agreement was signed on October 26, 2023. On October 30, 2023, the Company received the cash of USD 30.0 million (EUR 28.3 million). The loan originally had a term of six months and was expected to automatically convert into equity on the maturity date which was April 26, 2024. Both companies have finalized the incorporation of the JV on November 19, 2023, and related ancillary agreements signed November 27, 2023 – refer to Note 28 to the Financial Statements for further details. In addition, the Company received cash inflows of SAR 40 million (EUR 9.4 million) on December 27, 2023, linked to the transfer of data from the Biodatabank relating to information from the region of the Kingdom of Saudi Arabia.
During 2024, management has completed a significant transaction through the sale of receivables with customers in the region of the Kingdom of Saudi Arabia to PIC which provides the Company with a cash injection of approximately USD 15.0 million (EUR 13.9 million). The Company has also entered into a share purchase agreement with PIC in which the Company sold 16% of shares in the JV (retaining a 4% interest), providing a cash injection of approximately SAR 20.0 million (EUR 4.9 million).
In addition, the convertible loan agreement was amended to, among other things, extend the maturity date to a date promptly following the receipt of applicable governmental approvals with respect to the issuance of common shares upon conversion of the loan.
In order to close the transactions mentioned above, we obtained Oxford’s consent on May 12, 2024, which included the addition of certain covenants in our Oxford Loan and Security Agreement see “— Important Developments — Sale of USD 15.0 million of Accounts Receivables to Lifera”. A breach of these timing requirements would constitute an event of default under the Oxford Loan and Security Agreement, unless waived by Oxford. This covenant is consistent with the process management announced in February 2024 to explore strategic alternatives, where we engaged an investment banking firm to advise us in connection with this process. We are currently in active discussions with several interested parties, which could result in a near term transaction by July 15, 2024.
Other than noncompliance with certain covenants, which Oxford has waived as described in Note 29 to the Consolidated Financial Statements, we believe that we are in compliance with all the other covenants in the Oxford Loan and Security Agreement at this time.
Our financial condition and liquidity are and will continue to be influenced by a variety of factors, including our ability to continue to generate cash flows from our operations, our capital expenditure requirements, and the impact of geopolitical conditions on financial markets and the global economy.
As of December 31, 2023, we had cash and cash equivalents of EUR 19.1 million with an interest-bearing short-term debt obligation of EUR 28.0 million.
Our management has prepared cash flow forecasts and considered our cash flow requirement for the next three years, principally focused on the twelve-month period from the date of the approval of the consolidated financial statements, considering cash flow requirements for the Company. Management included in their cashflows the cash inflows from the sale of receivables, amounting to approximately USD 15.0 million (EUR 13.9 million) and from the selling of shares in the JV, amounting to approximately SAR 20.0 million (EUR 4.9 million). See Note 2.2 to the Consolidated Financial Statements for further detail.
We are pursuing a number of additional restructuring initiatives that could extend our cash runway until our operating cash flows reach break-even.
The consolidated financial statements for the year ended December 31, 2023, do not reflect any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that would be necessary, should we be unable to continue as a going concern.
121
Our known material liquidity needs for periods beyond the next twelve months are described below in “Contractual Obligations.”
Contractual Obligations
The table below presents the residual contractual terms of the financial liabilities as of December 31, 2023, including estimated interest payments. The figures are undiscounted gross amounts, including estimated interest payments and interest on undrawn loan funds, but without showing the impact of offsetting.
Total | Between 1 | Between 3 | ||||||||
contractual | Less than | and | and | More than | ||||||
| cash flows |
| 1 year |
| 3 years |
| 5 years |
| 5 years | |
Secured bank loans |
| 57,598 |
| 4,747 | 22,018 | 30,833 | — | |||
Convertible Loan | 28,936 | 28,936 | — | — | — | |||||
Lease liabilities | 16,577 | 2,674 | 5,071 | 3,381 | 5,451 | |||||
Short term and low value leases |
| 109 |
| 105 | 4 | — | — | |||
Trade payables and purchase obligations |
| 5,628 |
| 5,628 | — | — | — | |||
Total |
| 108,848 |
| 42,090 |
| 27,093 |
| 34,214 |
| 5,451 |
Lease liabilities include leases related to lease contracts for land and buildings, offices as well as various items such as motor vehicles and other equipment which are accounted for according to IFRS 16, and measured at the present value of lease payments over the lease term at the commencement date of the leases.
Lease liabilities also include contractual cash flows in relation to the expansion of the Rostock headquarters that are not accounted for yet. The future lease payments for this non-cancellable lease contract are EUR 105k within one year, EUR 1,272 thousand within five years and EUR 318 thousand thereafter (2022: EUR nil; 2021: EUR 107k within one year; 2022: EUR 1,272k; 2021: EUR 2,370k within five years; and 2022. 318k; 2021: EUR 4,219k thereafter).
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Material Transactions
Private Placement of Common Shares and Warrants
On January 31, 2022, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the purchasers named therein (the “Investors”) and a Warrant Agreement (the “Warrant Agreement”) with the Investors. Pursuant to the Securities Purchase Agreement and the Warrant Agreement, we agreed to sell to the Investors (i) an aggregate of 4,479,088 common shares at a price per share of USD 3.73, and (ii) warrants initially exercisable for the purchase of up to an aggregate of 1,343,727 additional common shares at an initial exercise price per common share of USD 7.72 (the “Warrants”), for aggregate gross proceeds of EUR 15.0 million. The Warrants are exercisable immediately as of the date of issuance and will expire on December 31, 2026 and it is accounted for as liability.
The Securities Purchase Agreement and the Warrant Agreement contain customary representations and warranties from the Company and the Investors and customary closing conditions. The closing of the Private Placement occurred on January 31, 2022 (the “Closing Date”).
The Company also agreed pursuant to the Securities Purchase Agreement and the Warrant Agreement, among other things, to indemnify the Investors from certain liabilities arising out of or based in whole or in part on the inaccuracy of the representations and warranties of the Company contained in those respective agreements or the failure of the Company to perform its obligations thereunder.
Each of the Investors is a party to the Company’s existing Registration Rights Agreement, dated November 12, 2019 (as amended, the “Registration Rights Agreement”) (one Investor having executed a joinder thereto prior to the Closing Date). Pursuant to
122
the Registration Rights Agreement, we have agreed under certain circumstances to file a registration statement to register the resale of the securities held by such Investors, subject to certain exceptions, as well as to cooperate in certain public offerings of such securities.
Loan and Security Agreement
On January 31, 2022 (the “Closing Date”), the Company, Centogene GmbH, CentoSafe B.V. and Centogene US, LLC (together, the “Borrowers”), entered into the Loan and Security Agreement with Oxford Finance LLC and the other financial institutions or entities from time to time parties to the Loan and Security Agreement (collectively, referred to as “Lenders”) and Oxford, in its capacity as collateral agent for itself and the Lenders (in such capacity, “Agent”). Under the Loan and Security Agreement, the Lenders agreed to make available to the Borrowers certain term loans in an aggregate principal amount of up to $45.0 million, subject to funding in two tranches as follows: (a) on the Closing Date, a loan in the aggregate principal amount of $25.0 million (the “Term A Loan”) and (b) on and after the Term B Milestone (as defined below) until the earlier of 60 days thereafter and July 31, 2023, a loan in the aggregate principal amount of USD 20.0 million (the “Term B Loan” and collectively with the Term A Loan, the “Term Loans”). The obligations of the Lenders to fund the Term B Loan are subject to our achievement of product revenues from our diagnostics and pharmaceutical services segments of at least USD 50.0 million calculated on a trailing twelve month basis as of the last day of any fiscal month (such achievement, the “Term B Milestone”). As security for the Borrowers’ obligations under the Loan and Security Agreement, the Borrowers granted the Lenders a first priority security interest on the Borrowers’ assets.
The maturity date of the Term Loans is January 29, 2027, with amortized payments commencing March 1, 2025 in 24 equal monthly payments. The Term Loans bear an interest rate of 7.93% per annum plus the 1-month CME Term SOFR reference rate as published by the CME Group Benchmark Administration Limited (subject to a floor of 0.07% and 4.13% for Term A Loan and Term B Loan, respectively), based on a year consisting of 360 days.
At any time following the Closing Date, the Borrowers may prepay an amount of not less than all of the then outstanding principal balance and all accrued and unpaid interest on the Term Loans, subject to at least fifteen days’ prior written notice to the Agent and the payment of a prepayment fee equal to (x) if made on or prior to the first anniversary of the Closing Date, 3.0% of the principal amount being prepaid, (y) if made after the first anniversary of the Closing Date but on or prior to the second anniversary of the Closing Date, 2.0% of the principal amount being prepaid and (z) otherwise, 1.0%.
The Loan and Security Agreement contains customary affirmative covenants, negative covenants and events of default, including covenants and restrictions that, among other things, require the Borrowers to satisfy a financial covenant, restrict Borrowers’ ability to transfer cash to their subsidiaries, and in certain circumstances restrict the ability of the Borrowers to incur liens, incur additional indebtedness, engage in mergers and acquisitions, make distributions or make asset sales without the prior written consent of Lenders. A failure to comply with these covenants could permit the Lenders to declare the Borrowers’ obligations under the Loan and Security Agreement, together with accrued interest and fees, to be immediately due and payable, plus any applicable additional amounts relating to a prepayment or termination, as described above.
On July 28, 2022, we amended the Loan and Security Agreement to expand the scope of Permitted Indebtedness and Permitted Liens thereunder and each as defined therein. Later that year, we achieved the Term B Milestone and became eligible to draw down the outstanding $20.0 million of commitments under the Term B Loan. On December 22, 2022, we borrowed the Term B Loan and received a net disbursement under the Oxford Facility of $19,697,253.22 after accounting for fees, expenses and accrued interest.
We amended the Loan and Security Agreement for a second time on April 30, 2023 to permit (i) the delivery of our audited consolidated financial statements for the fiscal year ended December 31, 2022 thirty days later than is otherwise required and (ii) the listing of our common shares on NASDAQ Capital Market. The Second Amendment introduced new requirements that (i) we prepay any outstanding loans under the Loan and Security Agreement in an amount of USD 5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) upon the first new business development or financing transaction we enter and (ii) we maintain at least EUR 9.1 million in unrestricted cash on deposit in collateral accounts subject to Oxford’s perfected security interest granted under the Loan and Security Agreement.
On October 26, 2023 a new amendment was signed. This third amendment modified the existing requirements whereby (i) a reduction in interest rate was introduced, and (ii) maturity date was extended (iii) removal of the USD 5.0 million prepayment and (iv) removal of the requirement to hold EUR 9.1 million in unrestricted cash on deposit once the Joint Venture (see Joint Venture Agreement, Note 1) has been created and signing of the ancillary agreements.
123
Transactions with PIC
See Notes 15 and 29 to the Consolidated Financial Statements for a description of our transactions with PIC and Oxford.
Comparative Cash Flows
Comparison of the Years Ended December 31, 2023 and 2022
The following table sets forth our cash flows for the periods indicated:
For the Years Ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(€ in thousands) | ||||
Consolidated statements of cash flows from continuing operations | ||||
Cash flow (used in) continuing operating activities |
| (31,749) | (35,497) | |
Cash flow (used in)/from continuing investing activities |
| 2,277 | (1,553) | |
Cash flow (used in)/from continuing financing activities |
| 13,044 | 46,798 | |
Net (decrease)/ increase in cash and cash equivalents |
| (16,428) | 9,749 | |
Cash and cash equivalents at the beginning of the period |
| 35,951 | 17,818 | |
Effect of movements in exchange rates on cash held | (424) | (963) | ||
Cash flow from discontinued activities | — | 9,348 | ||
Cash and cash equivalents at the end of the period |
| 19,099 | 35,951 | |
Operating Activities
Our cash flow used in, or from, continuing operating activities primarily relates to changes in the components of our working capital, including cash received from pharmaceutical partners and diagnostics clients, as well payments made to our suppliers.
For the year ended December 31, 2023, cash flow used in continuing operating activities was EUR 31,749 thousand, a decrease of EUR 3,748 thousand as compared to cash flow used in continuing operating activities of EUR 35,497 thousand for the year ended December 31, 2022. The difference was mainly attributable to cost saving measures implemented during the year resulting in improved results from operating activities.
Investing Activities
Our cash flow used in, or from, investing activities mainly consists of investments in the JV and the cash received from the sale of the IP to JV. In addition, it also included cash flow used in, or from, investment in intangible assets, plant, property and equipment, grants received for investments in property, plant and equipment and cash received from disposals of property, plant and equipment. More specifically, cash used in investment activities in our rare and neurodegenerative disease business included mainly costs incurred in the development of new products and solutions, and the development of our IT driven and interpretation-based solutions. It also includes investment in property, plant and equipment used in the laboratories and other business operations.
For the year ended December 31, 2023, cash flow used in continuing investing activities was EUR 2,277 thousand, as compared to cash flow used of EUR 1,553 thousand in continuing investing activities for the year ended December 31, 2022. The increase was mainly due to the cash paid for the investments in subsidiary.
Financing Activities
Our cash flow generated from and used in continuing financing activities primarily relates to the Oxford Loan and Security Agreement and financial lease liabilities for the year ended December 31, 2023.
For the year ended December 31, 2023, cash flow from continuing financing activities was EUR 13,044 thousand, a decrease of EUR 33,754 thousand as compared to cash flow used in continuing financing activities of EUR 46,798 thousand for the year ended December 31, 2022, as in 2022, the Company signed Oxford Loan Agreement.
124
Cash used in financing activities includes repayment of lease liabilities of EUR 3,095 thousand as of December 31, 2023, a decrease of EUR 1,219 thousand as compared to repayment of EUR 4,314 thousand for the year ended December 31, 2022.
For the discussion of our cash flows for the year ended December 31, 2021, compared to year ended December 31, 2022, see “Comparative Cash Flows —Year Ended December 31, 2021, compared to Year Ended December 31, 2022” included in our annual report for the year ended December 31, 2022, on Form 20-F (File No. 001-39124) filed with the SEC on May 16,2023.
Indebtedness
Revolving Credit Agreements
We have entered into a secured bank overdraft agreements totaling EUR 500 thousand which we use to finance our day-to-day business operations. EUR nil was utilized as of December 31, 2023 but EUR 3,374 thousand was utilized as of December 31, 2022. Our first EUR 500 thousand bank overdraft agreement had an initial floating interest rate of 4.23% per annum (adjusted on EUR IBOR) when utilized as an overdraft facility. This is secured by a term deposit of EUR 500 thousand.
C.Research and Development, Patents and Licenses, etc.
For a description of our research and development policies for the last three years see “Item 4. Information on the Company—B. Business Overview—Research and Development.” For a description of our intellectual property, see “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
D.Trend Information
For a discussion of trend information, see “Item 5. Operating and Financial Review and Prospects.”
E.Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with IFRS as issued by the IASB. Some of the accounting methods and policies used in preparing the financial statements under IFRS are based on complex and subjective assessments by our management or on estimates based on past experience and assumptions deemed realistic and reasonable based on the circumstances concerned. The actual value of our assets, liabilities and shareholders’ equity and of our earnings could differ from the value derived from these estimates if conditions changed and these changes had an impact on the assumptions adopted.
Our significant accounting policies that we believe to be critical to the judgments and estimates used in the preparation of our financial statements are included in “Note 2.2—Going concern, Note 6—Accounting judgments and estimates” and “Note 22—Share-based payments” to our consolidated financial statements as of and for the year ended December 31, 2023.
Item 6. Directors, Senior Management and Employees
A.Directors and Senior Management
Board Structure
We have a two-tier board structure consisting of a management board (bestuur) and a separate supervisory board (raad van commissarissen).
Management Board
Our management board consists of three members, who we refer to as our managing directors (and who are also our executive officers). Each managing director of Centogene N.V. holds office for the term set by our general meeting of shareholders (as set forth in the table below), except in the case of earlier death, resignation or removal. Our managing directors do not have a retirement age requirement under our articles of association.
125
Our managing directors are responsible for the management and representation of our company. We have a strong centralized management team led by our CEO, with broad experience in strategy, operations, finance, information technology, sales, communications and training.
The following table lists the current members of our management board, as well as the year of expiration of their terms as management board members of Centogene N.V. We consider all persons named in the table below key executive officers.
|
|
| Year of Expiration | |||
Name | Position | Age | of Term | |||
Kim Stratton |
| Chief Executive Officer |
| 61 |
| 2026 |
Miguel Coego Ríos | Chief Financial Officer | 50 | 2026 | |||
Prof. Peter Bauer, M.D. |
| Chief Medical and Genomic Officer(1) |
| 54 |
| — |
| (1) | On January 24, 2023, Prof. Peter Bauer, M.D. was appointed as a temporary managing director (Chief Medical and Genomic Officer to the Management Board of Centogene N.V.), until his proposed formal appointment at the Company’s upcoming general meeting of shareholders. |
Unless otherwise indicated, the current business address for our managing directors is Am Strande 7, 18055 Rostock, Germany.
Kim Stratton, was appointed as our managing director and Chief Executive Officer on February 1, 2022, after having served as interim managing director and Chief Executive Officer as of December 20, 2021. Mrs. Stratton has more than 25 years of global commercial expertise in the biopharmaceutical space, with significant experience across multiple geographies, including the United Kingdom, the United States, Europe, and emerging markets. Most recently, Mrs. Stratton was CEO of Orphazyme, a biopharmaceutical company dedicated to developing treatments for patients living with rare diseases. Prior to this role, she worked at Shire Pharmaceuticals, where she served as Head of International Commercial for Shire’s Specialty and Rare Diseases portfolio. Before Shire, Mrs. Stratton spent nearly 15 years at Novartis in a number of senior management roles, including global product development, commercial, marketing, general manager, and various global corporate functions, including government and external affairs. Mrs. Stratton is on the Board of Recordati S.p.A, Novozymes A/S and Vifor Pharma AG.
Miguel Coego Ríos, Mr. Coego Ríos was appointed as our Chief Financial Officer, Legal & IT on June 22, 2022, after having served as interim Chief Financial Officer, Legal & IT since April 1, 2022. Mr. Coego Ríos is an experienced senior executive with broad expertise in finance and commercial leadership roles in the pharmaceutical and biotech sectors. He has an extensive track record in achieving sales and expenses targets, team management and development, and steering multi-country projects. Most recently, he was Vice President & General Manager South Europe at Orphazyme A/S, a late-stage clinical biotech company. Before that he was Vice President & CFO EMEA at Mundipharma, a multinational pharmaceutical company. Earlier in his career, he served in several senior management positions at Shire Pharmaceuticals between 2011 and 2019, most recently as CFO LATAM and General Manager of the Andean region.
Prof. Peter Bauer, M.D. Prof. Bauer was appointed as temporary managing director to the management board as our Chief Medical and Genomic Officer on January 24, 2023, until his proposed formal appointment at the Company’s next general meeting of shareholders, after having served as our Chief Medical Officer since 2022 and Chief Genomic Officer since December 2019, prior to which he served as our Chief Scientific officer from January 2017 to November 2019 and Chief Operating officer since joining Centogene in 2016. Prof. Bauer is a professor of human genetics at the University of Tübingen and a board-certified human geneticist with expertise in molecular genetics, diagnostic testing, genetic counselling, functional validation of genetic variants and bioinformatics tools for medical interpretation of clinical sequencing. Prior to joining us, he headed of the diagnostic and research laboratory at the Institute of Medical Genetics and Applied Genomics, University Hospital Tübingen from 2001 to 2015. Prof. Bauer has been vice president of the German Society of Neurogenetics since 2004. Prof. Bauer received a degree in medicine from the Freie University Berlin and the approbation as physician (German official license to practice medicine) from the Board of Physicians in Berlin in 1998.
The following table lists those of our key executive officers as of December 31, 2023 who are not members of our management board:
|
|
| Year of Expiration |
126
Name | Position | Age | of Term | |||
Florian Vogel, Ph.D. (1) | Chief Process Officer | 43 | — | |||
Patrice P. Denèfle, Ph.D. (2) | Chief Scientific Officer | 64 | — | |||
Bettina Goerner (3) | Chief Data Officer |
| 40 |
| — | |
Ian Rentsch (4) | Chief Commercial Officer | 48 |
| — |
| (1) | Mr. Vogel who served as Centogene’s Chief Process Officer resigned his position at the end of February 2023. |
| (2) | Mr. Denèfle, Ph.D, who served as Centogene’s Chief Scientific Officer left his position at the end of June 2023. |
| (3) | Ms. Goerner who served as Centogene’s Chief Data Officer resigned her position at the end of September 2023. |
| (4) | Mr. Rentsch was appointed as Chief Commercial Officer in March 2023. |
Ian Rentsch, Mr. Rentsch joined Centogene on March 15, 2023, as Chief Commercial Officer and General Manager – Pharma, and now represents as a key executive officer. Mr. Rentsch is a globally experienced industry leader with over 25 years of experience in the pharmaceutical and life sciences sector. He has worked with leading organizations across the globe, developing a comprehensive understanding of clinical development and real-world evidence generation. With a strong background in business administration, human resources, finance, and legal affairs, he has led global teams, exceeded significant growth targets, and conducted operations in over 20 countries worldwide.
Patrice P. Denèfle, Ph.D., Mr. Denèfle serves as Centogene’s Chief Scientific Officer and stepped down effective June 30th 2023. Within this role, he is responsible for overseeing the Company’s scientific activities to deliver on its vision and strategy, while driving value creation. Mr. Denèfle is a seasoned executive and scientific pioneer with over 35 years of experience at pharmaceutical and biotechnology companies in Europe and the U.S., spearheading translational R&D to deliver breakthrough treatments to patients. Prior to joining Centogene, Mr. Denèfle served as Chief Scientific Officer at 4P-Pharma, where he led the R&D drug repositioning strategy and operations towards potential full clinical demonstration and asset-value transfer to large pharmaceutical companies. Over the past three decades, he has held several leadership positions, including as the General Manager of the Roche Institute for Research and Translational Medicine, as well as other senior roles at Sanofi Aventis and Ipsen. Mr. Denèfle also served as CSO at Genethon, a biotech company dedicated to the development of gene therapy treatments for rare diseases. Mr. Denèfle received his Ph.D. in Molecular Biology and Biotechnology from the Pasteur Institute, Paris, completed his HDR (Habilitation) in Molecular Pharmacology at the University of Lille, graduated as Adjunct University Professor, and taught Biotechnology for 10 years at the University Paris-Descartes. Mr. Denèfle was also trained as a CEDEP fellow at INSEAD and has co-authored more than 150 scientific papers and patents.
Florian Vogel, Ph.D., Mr. Vogel served as our Chief Process Officer since 2021 and stepped down effective February 28, 2023. Within his role, he held disciplinary and budget responsibility for all five Diagnostic wet lab production departments in Rostock, Germany, and the CLIA and CAP lab processing facility in Cambridge, Massachusetts, United States. In addition, he was responsible for the Method & Process Development in Rostock. Before taking on this position, he served as Senior Director Research & Development from 2015-2018 at Centogene. Mr. Vogel has extensive experience in product development and streamlining of workflows for genetically based methods enabling the highest quality as well as high throughput testing. Mr. Vogel has more than ten years of know-how in molecular genetic assay design and international leadership in various industry sections. Prior to joining Centogene, he was living in South Korea to set up the local branch of a German university and labs for chemical and bioengineering as Head of the White Biotechnology department, including lab build out and starting industry collaborations. Mr. Vogel studied Biology at Friedrich-Alexander-University of Erlangen-Nurnberg and received his doctoral degree in Molecular Biology summa cum laude.
Bettina Goerner, Mrs. Goerner serves as our Chief Data Officer (CDO). Bringing 15 years of international industry experience and product-centricity, Mrs. Goerner is responsible for data management, enablement, and data partnerships for the CENTOGENE Biodatabank, which includes multiomic and clinical data, as well as biomaterial. Mrs. Goerner previously served as Managing Director of Data Products & Services at Springer Nature – overseeing data and product development, as well as commercialization of five data products for R&D, including the AdisInsight databases for drug development. While at Springer Nature, she built up new product lines, markets and business models. Mrs. Goerner holds a master’s degree in Molecular Biology from the International Max Planck Research School, including research at Harvard Institutes of Medicine. She started her career at McKinsey & Company and INSEAD Business School. She also holds board seats at Deepmatter Group Plc, a laboratory digitalization company focused on big data and experimental chemistry, as well as at Eagle Genomics Ltd., an innovator of data analysis software for life sciences and a Microsoft Genomics Partner.
127
Supervisory Board
Our supervisory board consists of nine members and one interim member. Each supervisory board member holds office for the term set by our general meeting of shareholders (as set forth in the table below), except in the case of his earlier death, resignation or removal. Our supervisory board members do not have a retirement age requirement under our articles of association.
The following table presents the names of the current members of our supervisory board, as well as the year of expiration of their terms as supervisory board members of Centogene N.V.:
|
|
| Year of Expiration | |||
Name | Position | Age | of Term | |||
Peer M. Schatz (5) |
| Chairman of the Supervisory Board |
| 58 |
| 2027 |
Andreas Busch, Ph.D. (1) | Member and Vice-Chairman of the Supervisory Board | 60 | 2026 | |||
Berndt Modig (2) | Member of the Supervisory Board | 66 | 2025 | |||
Flemming Ornskov, M.D. (3) |
| Member of the Supervisory Board |
| 66 |
| 2025 |
Jonathan G. Sheldon, Ph.D. |
| Member of the Supervisory Board |
| 52 |
| 2025 |
Holger Friedrich (4) |
| Member of the Supervisory Board |
| 57 |
| 2025 |
Guido Prehn |
| Member of the Supervisory Board |
| 46 |
| 2025 |
Eric Souêtre, M.D. |
| Member of the Supervisory Board |
| 68 |
| 2025 |
Hubert Birner, Ph.D. |
| Member of the Supervisory Board |
| 57 |
| 2025 |
Mary Sheahan | Member of the Supervisory Board | 51 | 2027 |
| (1) | Mr. Busch resigned his position at the end of December 2023. |
| (2) | Mr. Modig resigned his position on August 2023. |
| (3) | Dr. Ornskov resigned his position on October 2023. |
| (4) | Mr. Friedrich resigned his position on December 2023. |
| (5) | Mr. Schatz has been reappointed until 2027. |
Unless otherwise indicated, the current business address for our directors is Am Strande 7, 18055 Rostock, Germany.
Peer M. Schatz From January 1, 2021, Peer Schatz has served as Chairman of our supervisory board. Mr. Schatz joined the supervisory board of Centogene in March 2020 as interim member and interim Vice-Chairman of the supervisory board. His appointment was approved in the annual general meeting of shareholders in June 2020. He joined Centogene from his position as long-time Chief Executive Officer of QIAGEN N.V. (Nasdaq: QGEN; Frankfurt: QIA), a leading provider of molecular sample and assay technologies. From 1993 to 2019, he led QIAGEN’s rapid expansion from a start-up company with $2 million in sales into a global leader in molecular testing with over $1.6 billion in revenues. Mr. Schatz also serves as member of the supervisory board of Siemens Healthineers AG and as Chairman of the board of Resolve Biosciences GmbH and as Managing Director of PS Capital Management GmbH. He also served as a founding member of the German Corporate Governance Commission and as a supervisory board member of Evotec AG (Frankfurt: EVT). Mr. Schatz graduated from the University of St. Gallen, Switzerland with a master’s degree in Finance and from the University of Chicago Graduate School of Business with an MBA. He has been reappointed in the annual general meeting of shareholders in June 2023.
Andreas Busch, Ph.D., Dr. Busch was appointed member and Vice-Chairman of the supervisory board on February 18, 2022 and brings over 20 years of experience and leadership in the pharmaceutical industry. In April 2022, Dr. Busch transitioned from the board of directors at Absci, a leader in the protein drug creation revolution harnessing generative AI, to Absci’s leadership team as Chief Innovation Officer. From 2019 to 2022, he served as Chief Innovation Officer and Chief Scientific Officer at Cyclerion Therapeutics, Inc. (Nasdaq: CYCN), a clinical-stage biopharmaceutical company on a mission to develop treatments that restore cognitive function. Prior to this, Dr. Busch served as Head of R&D and CSO at Shire plc., a global biotechnology leader serving patients with rare diseases. Previously, he held a variety of senior leadership positions in his 13-year tenure at Bayer group, most recently as Head of Drug Discovery and a member of the Executive Committee for the Pharmaceuticals division of Bayer. Prior to joining Bayer, Dr. Busch was Global Head of Cardiovascular Research at Hoechst and Sanofi-Aventis. Dr. Busch has served as a member of numerous Supervisory and Scientific Boards of research institutions and companies, including the German Cancer Research Center, the University of Tübingen, the Max Delbrück Center, and the Max Planck Institute of Molecular Genetics, as well as Takeda and start-up companies, such as Omeicos and BerlinCures. He also holds the title of Extraordinary Professor of Pharmacology at the Johann Wolfgang Goethe-University in Frankfurt, Germany. Dr. Busch received his license to practice Pharmacy and Ph.D. in Pharmacology from the Johann-Wolfgang-Goethe-University, Frankfurt. He is the author of over 300 publications and abstracts and received the prestigious Sir Bernard Katz and Franz Volhard Awards for his work on renal and cardiac ion channels and transporters. He has resigned from his role effective December 12, 2023.
128
Flemming Ornskov, M.D., MPH, MBA. Dr. Ornskov has served as a member of our supervisory board since April 2019. From April 2019 until December 31, 2020, he also served as the Chairman of the supervisory board. He has served as the Chief Executive Officer of Galderma S.A. since October 2019. He currently also serves as the Chairman of the Board of Director of Waters Corporation. Dr. Ornskov was the Chief Executive Officer and a member of the board of directors of Shire Plc from April 2013 to January 2019, when Shire was acquired by Takeda. Earlier in his career, Dr. Ornskov worked in executive roles at Bayer, Novartis and Merck & Co. Dr. Ornskov received his M.D. from the University of Copenhagen, MBA from INSEAD, and Master of Public Health from Harvard University. He has resigned from his role effective October 6, 2023.
Jonathan G. Sheldon, PhD. Dr. Sheldon joined our supervisory board as an interim member on November 10, 2020, and his appointment was approved by the shareholders in the extraordinary general meeting of shareholders on December 18, 2020. Mr. Sheldon has an extensive track record in the life science and healthcare industry – having spearheaded growth and strategy development of multiple global companies. He serves as Senior Vice President of the Digital Insights Business Area and member of the Executive Committee at QIAGEN N.V., a leading provider of molecular sample and assay technologies. Prior to joining QIAGEN, Jonathan served as the Global Vice President of Oracle Health Services – further positioning the Company’s product portfolio, defining its healthcare strategy, and its convergence with Life Sciences. Previously, he was the Head of Bioinformatics at Roche Pharmaceutical, where he established the Company’s first bioinformatics department in the UK as well as providing leadership to a variety of software and data companies serving both the life science and healthcare sectors. From 2019 to 2021, Mr. Sheldon was a Board Member of the Drug Information Association (DIA) and served on the board of the American College of Medical Genetics Foundation. He completed his B.Sc. in Biochemistry and Molecular Biology at the University of Manchester, and went on to receive his Ph.D. in Biochemistry and Molecular Biology from the University of Cambridge.
Holger Friedrich. Mr. Friedrich has been a member of our supervisory board since 2017. Since 2010, Mr. Friedrich has been the Managing Director of the consulting division of CORE SE (acquired by EPAM). Prior to that, he was Chairman of SPM Technologies (acquired by SAP) from 1993 to 2003 and Senior Vice President, IT Architecture, at SAP from 2003 to 2005. From 2005 to 2008, he was a partner at McKinsey, responsible for IT Enterprise Architecture in Europe. From 2009 to 2010, he was a member of the Executive Board at Software AG. Friedrich studied computer science and German language and literature. He has resigned from his role effective December 12, 2023.
Guido Prehn. Mr. Prehn joined our supervisory board as a member in 2019. Mr. Prehn has over 15 years of experience in the private equity industry. He currently serves on the boards of OmniaMed Holding GmbH, Calvias GmbH, Everest TopCo B.V., Auerbach Holding AG, VTU Group GmbH, FinCo GmbH, B plus L Group Holding GmbH, M-Personal Protection Holding GmbH and M-Personal Protection Management GmbH. Mr. Prehn is a managing director of DPE Deutsche Private Equity which he joined in 2010, shortly after its foundation. Between 2002 and 2009, he worked in various positions at Allianz Capital Partners, TPG Capital and Merrill Lynch. Mr. Prehn studied business administration at the European Business School, Oestrich-Winkel, De Paul University Chicago and Universidad Argentina de la Empresa, Buenos Aires.
Eric Souêtre, M.D. Dr. Souêtre joined our supervisory board as a member in 2017. After various research positions at National Institute of Mental Health, Dr. Souêtre founded “BENEFIT” in 1990, a research and consulting company in health economics (subsequently acquired by QUINTILES Inc. (USA) in 1995). He then served as a board member at QUINTILES Inc., where he was responsible for the global consulting function. In 2003, Dr. Souêtre co-founded LABCO - a network of clinical laboratories - and led the company to a European leadership as chairman and CEO until late 2010. He remained as an active board member until LABCO was sold to CINVEN in 2015. Dr. Souêtre has since co-founded a private equity fund, Careventures, focused on pan European healthcare service ventures. He currently serves on the board of OPERA SA. Dr. Souêtre holds a Ph.D. in neurosciences by the Marseille University, an M.D. by the Medical University of Nice and an MBA from HEC school of Paris.
Berndt Modig, MBA. Mr. Modig joined our supervisory board as a member in April 2018 and has stepped down from his role after the 2023 Annual General Meeting. He is the Chief Executive Officer and Co-Founder of Pharvaris N.V. and brings more than 25 years of experience in working with biotech companies. He served as Chief Financial Officer of Prosensa Holding N.V., a public pharmaceutical company, from March 2010 until its acquisition by BioMarin Pharmaceutical Inc. in January 2015. From October 2003 to November 2008, Mr. Modig was Chief Financial Officer at Jerini AG where he directed private financing rounds, its IPO in 2005, and its acquisition by Shire Plc in 2008. Before that, Mr. Modig served as Chief Financial Officer at Surplex AG from 2001 to 2003 and as Finance Director Europe of U.S.-based Hayward Industrial Products Inc. from 1999 to 2001. In previous positions, Mr. Modig was a partner in the Brussels-based private equity firm, Agra Industria, from 1994 to 1999 and a senior manager in the Financial Services Industry Group of Price Waterhouse LLP in New York from 1991 to 1994. In addition, until April 2021 he served as Vice-Chairman of the supervisory board and Chairman of the audit committee of Kiadis Pharma N.V., all of which are publicly held pharmaceutical companies, and he was a Director of Mobile Loyalty plc from 2012 to 2013. Mr. Modig received a
129
bachelor’s degree in business administration, economics and German language from the University of Lund, Sweden, and an MBA from INSEAD, Fontainebleau, France. He is a certified public accountant (inactive).
Hubert Birner, Ph.D. Dr. Birner joined our supervisory board as chairman from July 2017 to March 30, 2019, and as vice-chairman from April 1, 2019, to March 16, 2020. Dr. Birner is responsible for TVM Capital Life Science’s overall investment strategy and global fund operations in Europe and North America. He currently serves as Chairman of the board of directors of Leon-nanodrugs GmbH and AL-S Pharma AG. Dr. Birner previously served on the board of Acer Therapeutics, Argos Therapeutic, Horizon Pharma, Inc., Bioxell SA, Evotec AG, Jerini AG, Noxxon Pharma, Probiodrug AG, Proteon Therapeutics Inc. and SpePharm Holdings BV. Prior to his current tenure, he was Head of Business Development Europe and Director of Marketing for Germany at Zeneca Agrochemicals. Dr. Birner joined Zeneca from McKinsey & Company’s European Health Care and Pharmaceutical practice and as Assistant Professor for biochemistry at the Ludwig-Maximilian-University (“LMU”), following his summa cum laude doctoral degree in biochemistry at LMU; his doctoral thesis was honored with the Hoffmann-La Roche prize for outstanding basic research in metabolic diseases. Dr. Birner also holds an MBA from Harvard Business School.
Mary Sheahan. Mrs. Sheahan was appointed as an interim supervisory director effective as of December 31, 2022, until her proposed formal appointment took place at the Company’s general meeting of shareholders held on June 2023. Mrs. Sheahan brings over 20 years of experience in private and publicly listed international pharmaceutical and life science companies, including as an executive at Avillion, Perrigo, and Elan Corporation, as well as a non-executive director at Venn Life Sciences. Throughout her career, she has held significant financial and other management roles and supported value creation across a wide range of areas, including supporting development, approval, and launch of products for neurology and immunology indications. Mrs. Sheahan currently serves as CFO of Avillion LLP, a private equity-backed life sciences company focused on the co-development and financing of pharmaceutical products. In this role, she is also responsible for supporting Avillion’s partnerships with multinational pharmaceutical companies. Mrs. Sheahan is also a qualified chartered accountant and has worked as an auditor with KPMG.
B.Compensation
Compensation of Managing Directors, Supervisory Board Members and Officers
We are a foreign private issuer. As a result, in accordance with Nasdaq listing requirements, we are complying with home country compensation requirements and certain exemptions thereunder rather than with Nasdaq compensation requirements. Dutch law does not provide for limitations with respect to the aggregate annual compensation paid to members of our management board or supervisory board, provided that such compensation is consistent with our compensation policy. Such compensation policy requires approval by our general meeting of shareholders. The supervisory board determines the remuneration of individual managing directors with due observance of the remuneration policy. A proposal with respect to remuneration schemes in the form of shares or rights to shares in which managing directors may participate is subject to approval by our general meeting of shareholders. Such a proposal must set out at least the maximum number of shares or rights to subscribe for shares to be granted to the managing directors and the criteria for granting or amendment. The compensation for our supervisory board members is set by the general meeting of shareholders.
The compensation, including benefits in kind, accrued or paid to our managing directors and supervisory board members with respect to the year ended December 31, 2023, for services in all capacities is shown below on an individual basis. Further details for the compensation for our managing directors and supervisory board members are provided in note 27 to our consolidated financial statements as of and for the year ended December 31, 2023.
130
Directors Compensation 2023
Supervisory Board Members
On June 22, 2022, at the general meeting of the Company, our shareholders approved changes to the cash remuneration payable to members of our supervisory board. Pursuant to the new cash remuneration scheme, each member of the supervisory board will receive a fixed cash fee of EUR 20,000 (gross) per annum. The Chairman of the supervisory board will receive an additional fixed cash fee of EUR 15,000 (gross) per annum as of the financial year 2023, and the Vice-Chairman of the supervisory board will receive an additional fixed cash fee of EUR 10,000 (gross) per annum as of the financial year 2023. The Chairman of the audit committee will receive an additional fixed cash fee of EUR 10,000 (gross) per annum, and the Chairman of the compensation committee will receive an additional fixed cash fee of EUR 2,000 (gross) per annum. If a supervisory board member serves for only part of a financial year, the fixed cash fees referred to above payable to such member will be adjusted and, if already paid, will be reimbursed by such member to us on a pro rata basis.
| P. Schatz |
| A. Busch | F. Ornskov |
| H. Birner |
| J. Sheldon | H. Friedrich |
| G. Prehn |
| E. Souêtre |
| B. Modig | M. Sheahan | |||||
(in € thousands) | |||||||||||||||||||||
Periodically paid compensation |
| 35 |
| 30 | 20 | 22 | 20 | 20 | 20 | 20 | 19 | 18 | |||||||||
Total cash compensation |
| 35 |
| 30 | 20 | 22 | 20 | 20 | 20 | 20 | 19 | 18 | |||||||||
2019 Equity Incentive Plan (1)(2) |
| 682 |
| 0 | 0 | 0 | 77 | 0 | 0 | 0 | 77 | 221 | |||||||||
Total share‑based payment compensation | 682 | 0 | 0 | 0 | 77 | 0 | 0 | 0 | 77 | 221 | |||||||||||
| (1) | This amount represents the portion of the grant date fair value of the option and RSU (as defined herein) awards recognized as an expense in 2023 under the provisions of IFRS 2. |
| (2) | Mr. Modig, Mr. Ornskov, Mr. Friedrich and Mr. Busch resigned their positions during 2023. The Company recognized a reversal amounted to EUR 626k. |
Managing Directors
| K. Stratton |
| M. Coego | P. Bauer(1) |
| ||
(in € thousands) | |||||||
Periodically paid compensation |
| 684 | 516 | 241 | |||
Bonuses |
| 1,010 | 315 | 112 | |||
Termination benefits | — | — | — | ||||
Total cash compensation |
| 1,694 |
| 831 |
| 353 | |
2019 Equity Incentive Plan(2) |
| 1,149 | 301 | 23 | |||
Total share‑based payment compensation |
| 1,149 |
| 301 |
| 23 | |
| (1) | On January 24, 2023, Prof. Peter Bauer, M.D. was appointed as temporary managing director (Chief Medical and Genomic Officer and member of the management board of Centogene N.V.), until his proposed formal appointment at the Company’s next general meeting of shareholders. |
| (2) | This amount represents grant date fair value of the RSUs and option awards granted in 2022 under the 2019 Plan (as defined and discussed below), recognized in 2022 under the provisions of IFRS 2. |
For the year ended December 31, 2023, our performance-based compensation programs are described below.
2019 Equity Incentive Plan
In conjunction with the consummation of our IPO, we have established a new long-term incentive plan (our “2019 Plan”) with the purpose of advancing the interests of our shareholders and other stakeholders by enhancing our ability to attract, retain and motivate individuals who are expected to make important contributions to us. The 2019 Plan governs issuances of equity and equity-based incentive awards from and after the consummation of our IPO. The maximum number of common shares underlying awards that may be granted pursuant to the 2019 Plan (other than replacement awards) will not exceed 13% of the Company’s issued share capital immediately following our IPO. Such maximum number has been increased on January 1, 2020, and will be increased on January 1 of each calendar year thereafter, by an additional number of common shares equal to 3% of the Company’s issued share capital on such date (or a lower number of common shares as determined by the management board or supervisory board, where appropriate on the basis of a recommendation of the compensation committee (as the case may be, as prescribed by the 2019 Plan and, collectively, the “Committee”)). On November 1, 2022, the 2019 Plan was modified to reflect the leaver arrangements described under “Termination of Service” below.
131
Plan Administration. The 2019 Plan is administered by the Committee.
Eligibility. Awards under the 2019 Plan may be granted to our employees, the members of our management board and supervisory board, consultants or other advisors.
Awards. Awards under the 2019 Plan may be granted in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, other share-based awards or a combination of the foregoing. The Committee may condition the right of an individual to exercise his or her awards upon the achievement or satisfaction of performance criteria.
Vesting. The vesting conditions for awards under the 2019 Plan are determined by the Committee and are set forth in the applicable award documentation.
Termination of Service. In the event of a good leaver’s (as defined in the 2019 Plan) termination of employment or service, all vested awards will be exercised or settled in accordance with their terms within a 6-month period as otherwise specified by the Committee and all unvested awards will be cancelled automatically unless decided otherwise by the Committee. In the event of a bad leaver’s (as defined in the 2019 Plan) termination of employment or service, all vested and unvested awards will be cancelled automatically without compensation. Pursuant to an amendment to the 2019 Plan applicable to awards granted in the period between September 11, 2020 and November 25, 2020, unless otherwise determined by the Committee, in the event of a good leaver’s termination of employment or service, all unvested awards will vest in full and all vested awards that have not yet been exercised or settled must be exercised or settled in accordance with their terms within a period specified by the Committee. If those awards are not exercised or settled within such period, they will be cancelled automatically without compensation.
Change in Control. In the event of a change in control of the Company (as defined in the 2019 Plan), outstanding awards that will be substituted or exchanged for equivalent replacement awards, in connection with the change in control will be cancelled. Outstanding rewards that are not substituted or exchanged for equivalent replacement awards, in connection with the change in control will immediately vest and settle in full, unless otherwise decided by the Committee.
For the year ended December 31, 2023, our performance-based compensation programs are described below:
Equity Share Option (ESOP 2019) to Flemming Ornskov
In connection with his appointment as a member of the supervisory board, the Company entered into an agreement with Flemming Ornskov, pursuant to which Mr. Ornskov was granted a total of 396,522 options, with each option representing the right to acquire one common share with an exercise price equaling the IPO price, which was EUR 12.58 per share on the date of our IPO.
On December 18, 2020, in an extraordinary general meeting of shareholders of the Company, the shareholders approved the grant of 300,000 restricted stock units (“RSUs”) to Mr. Ornskov under the 2019 Plan, which replaced the ESOP 2019 and pursuant to which Mr. Ornskov will forfeit the options granted to him thereunder in exchange for the RSUs granted to him. The RSUs will expire after ten years, will not be subject to any other performance criteria, will have no exercise price and will be settled in shares. With respect to the RSUs granted 33% vested immediately and the remaining 67% will vest in two equal annual instalments on each anniversary of October 1 following the date of grant. All of the 300,000 RSUs were settled and exercised in 2022.
2022 Grants to Employees, Management Board and Selected Consultants
Under the 2019 Plan, we granted 1,295,015 RSUs to our employees, management board members and select consultants in 2022. Apart from one award that has performance vesting only, two awards will vest in full upon a change of control of the Company, all other awards referred to above will vest in four equal tranches in each year following the grant date. Four awards will continue to time-vest for 12 months after termination in 12 equal monthly instalments equal to 1/12 of one annual instalment under the original vesting schedule. In the event of a termination of employment or service, all other vested awards will be exercised or settled in accordance with their terms and all unvested awards will be cancelled automatically. In addition, as stated in Note 22, the CEO and the CFO agreed upon certain amendments to the RSU agreement.
132
The following table shows the options and RSUs granted to the members of the management board in 2022 and outstanding as of December 31, 2023, under the 2019 Plan, including the modified terms agreed to the RSU agreement:
Beneficiary |
| Grant Date |
| Number of |
| Exercise |
| Number of |
| Exercise |
| Expiration Date |
Options | Price USD | RSUs | Price USD | |||||||||
Kim Stratton | February 1, 2022 | — | — | 166,667 | — | February 1, 2032 | ||||||
Kim Stratton | February 1, 2022 | — | — | 87,197 | 12 | February 1, 2032 | ||||||
Kim Stratton | February 1, 2022 | — | — | 87,197 | 15 | February 1, 2032 | ||||||
Kim Stratton | June 12, 2023 | — | — | 1,052,227 | June 12, 2033 | |||||||
Miguel Coego Ríos | February 2, 2022 | — | — | 30,995 | — | February 2, 2032 | ||||||
Miguel Coego Ríos | May 27, 2022 | — | — | 55,556 | — | May 27, 2032 | ||||||
Miguel Coego Ríos | May 27, 2022 | — | — | 29,066 | 12 | May 27, 2032 | ||||||
Miguel Coego Ríos | May 27, 2022 | — | — | 29,066 | 15 | May 27, 2032 | ||||||
Miguel Coego Ríos | June 12, 2023 | 443,628 | June 12, 2033 | |||||||||
Total |
| — |
|
|
| 1,981,599 |
|
|
|
For further details of this plan, please see note 22 to our consolidated financial statements as of and for the year ended December 31, 2023.
2023 Supervisory Board Incentive Compensation Scheme
In the Company’s annual general meeting of shareholders on June 22, 2022, shareholders approved a new incentive compensation scheme for supervisory board members which is designed to attract and incentivize such members.
Pursuant to this scheme, certain members of the supervisory board will annually receive an award of options and RSUs for ordinary shares of the Company under the 2019 Plan with a value of EUR 140,000 multiplied by the LTI factor. For each award, RSUs will constitute 75% of the value of the award while options will constitute the remaining 25% of the value of the award. The LTI factor will be 100% or less based on the volume-weighted average stock price of our shares over a 60-trading day period preceding December 31 of the relevant financial year. Furthermore, the chairman and vice-chairman of the supervisory board, will each annually receive an additional award with a value of EUR 105,000 and EUR 70,000, respectively, multiplied by the LTI factor; the chairman of the audit committee and chairman of the compensation committee will each annually receive an additional award with a value of EUR 70,000 and EUR 14,000, respectively, multiplied by the LTI factor. The awards will be granted retrospectively for the preceding financial year following the audit of the Company’s annual accounts over such financial year. The LTI factor for 2021 with respect of the 2020 financial year was set to 100% which resulted in a grant of 9,427 RSUs to Mr. Berndt Modig and 878 RSUs to Mr. Jonathan Sheldon. In the same respect 4,713 share options were granted to Mr. Modig and 439 share options were granted to Mr. Sheldon, each with a strike price of USD 9.92. The awards will vest in four equal annual instalments on each relevant anniversary of the grant date and will vest in full upon a change in control of the Company (provided that the holder remains an eligible participant on the date of the change in control). The awards will expire on the ten-year anniversary of the grant date, are not subject to any performance criteria and will be settled in shares.
In connection to our initial public offering, 10,000 share options have been granted as an extraordinary incentive to Mr. Modig as approved in the annual general meeting of shareholders on June 24, 2021. The options have a strike price of USD 14 and will vest in four equal installments following the grant date.
For further details of the 2023 Supervisory Board incentive compensation scheme, please see note 22 to our consolidated financial statements as of and for the year ended December 31, 2023.
C.Board Practices
Date of expiration
For the year of expiration of the current term of the supervisory and management board members of Centogene N.V. see “—A. Directors and Senior Management.”
133
Service Agreements
As of the consummation of our IPO, we entered into service agreements with all of the managing directors and supervisory board members of the Company. All of these agreements provide for notice of termination periods after certain minimum appointment periods and all of them include restrictive covenants.
Committees
Audit Committee
The audit committee, which consists of Mary Sheahan, Peer Schatz and Jonathan G. Sheldon, assists the supervisory board in overseeing our accounting and financial reporting processes and the audits of our financial statements. In addition, the audit committee is responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm. Our supervisory board has determined that Mary Sheahan, Peer Schatz and Jonathan G. Sheldon each satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act and Mary Sheahan qualifies as an “audit committee financial expert,” as such term is defined in the rules of the SEC. The composition of our audit committee is consistent with the best practice provisions of the DCGC. The audit committee is governed by a charter that is available on our website.
The audit committee’s responsibilities include:
| ● | monitoring the management board with respect to (i) the relations with, and the compliance with recommendations and follow-up of comments made by, the Company’s internal audit function and the Dutch independent auditor, (ii) the Company’s funding, (iii) the application of information and communication technology by the Company, including risks relating to cybersecurity and (iv) the Company’s tax policy; |
| ● | issuing recommendations concerning the appointment and the dismissal of the head of the Company’s internal audit function; |
| ● | reviewing and discussing the performance of the Company’s internal audit function; |
| ● | the Company’s compliance with applicable legal and regulatory requirements; |
| ● | the operation of the Company’s code of conduct and ethics and its other internal policies; |
| ● | reviewing and discussing the Company’s audit plan, including with the Dutch independent auditor and the internal audit function; |
| ● | reviewing and discussing the essence of the audit results, including (i) flaws in the effectiveness of the internal controls, (ii) findings and observations with a material impact on the Company’s risk profile and (iii) failings in the follow-up of recommendations made previously by the internal audit function; |
| ● | receiving from the Dutch independent auditor a formal written statement at least annually delineating all relationships between the Dutch independent auditor and the Company consistent with applicable requirements of the Public Company Accounting Oversight Board (PCAOB) regarding the communications of the Dutch independent auditor with the Audit Committee concerning independence; |
| ● | reviewing and discussing with the Dutch independent auditor, at least annually (i) the scope and materiality of the Company’s audit plan and the principal risks of the Company’s annual financial reporting identified in such audit plan, (ii) the findings and outcome of the Dutch independent auditor’s audit of the Company’s financial statements and the management letter and (iii) significant findings from the audit and any problems or difficulties encountered, including restrictions on the scope of the Dutch independent auditor’s activities or on access to requested information, as well as significant disagreements with the Company’s management; |
| ● | determining whether and, if so, how the Dutch independent auditor should be involved in the content and publication of financial reports other than the Company’s financial statements; |
134
| ● | resolving disagreements between management and the Dutch independent auditor regarding the Company’s financial reporting; |
| ● | reviewing and discussing with the Dutch independent auditor any audit problems or difficulties and the response of the Company’s management thereto, including those matters required to be discussed with the Audit Committee by the Dutch independent auditor pursuant to established auditing standards, such as (i) restrictions on the scope of the activities of the Dutch independent auditor or on access to requested information, (ii) accounting adjustments that were noted or proposed by the Dutch independent auditor but were “passed” (as immaterial or otherwise), (iii) communications between the audit team and the audit firm’s national office regarding auditing or accounting issues presented by the engagement and (iv) management or internal control letters issued, or proposed to be issued, by the Dutch independent auditor; |
| ● | reviewing and discussing the effectiveness of the design and operation of the internal controls with the management board, the Chief Executive Officer and the Chief Financial Officer, as appropriate, including identified material failings, deficiencies or material weaknesses in the internal controls and material changes made to, and material improvements planned for, the internal controls; |
| ● | assisting the Company in preparing the disclosure to be included in the Company’s applicable filings as required by the Securities Act, the Exchange Act and their related rules; |
| ● | advising the management board regarding the Dutch independent auditor’s nomination for (re)appointment or dismissal (including confirmation and evaluation on the rotation of the audit partners on the audit engagement team as required by applicable laws) and preparing the selection of the Dutch independent auditor for such purpose, as relevant; |
| ● | reviewing and discussing the terms of engagement of the Dutch independent auditor to audit the Company’s financial statements, to prepare or issue an audit report, or to perform other audit, review or attest services, including the scope of the audit, the materiality standard to be applied, and causing the Company, without further action, to pay the compensation of the Dutch independent auditor as approved by the audit committee; |
| ● | engagement of such independent legal, accounting and other advisors as the audit committee deems necessary or appropriate to carry out its responsibilities, including causing the Company, without further action, to pay the reasonable compensation of such advisors as approved by the audit committee; |
| ● | causing the Company to pay, without further action, the ordinary administrative expenses of the audit committee that are necessary or appropriate in carrying out its duties; |
| ● | preparing the audit committee report that the SEC rules require to be included in the Company’s annual proxy statement (if and when the Company would become subject to those rules); |
| ● | establishing policies for the Company’s hiring of current or former employees of the Dutch independent auditor; |
| ● | establishing procedures for (i) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters and (ii) the confidential, anonymous submission by employees of the Company of concerns regarding questionable accounting or auditing matters; |
| ● | reviewing potential conflicts of interest involving managing or supervisory board members, including whether they may take part in the deliberations in the decision-making process on any issue as to which there may be a conflict; and |
| ● | developing and recommending to the supervisory board the Company’s related person transaction policy. |
Compensation Committee
The compensation committee consists of Hubert Birner, Guido Prehn and Eric Souêtre. The compensation committee assists the supervisory board in determining compensation for our executive officers and the members of our management board and supervisory board. The composition of our compensation committee is consistent with the best practice provisions of the DCGC.
135
The compensation committee’s responsibilities include:
| ● | reviewing and evaluating the Company`s compensation policy and benefits policies generally, including the review and recommendation of incentive-compensation and equity-based plans of the Company that are subject to approval of the supervisory board, as well as the compensation of the chief executive officer and the Company`s other executive officers |
| ● | submitting proposals to the supervisory board concerning changes to the Company’s compensation policies, as relevant; |
| ● | submitting proposals to the supervisory board concerning the compensation of individual managing directors and the Company’s other executive officers, covering at least (i) the compensation structure, (ii) the amount of the fixed and variable compensation components, (iii) the applicable performance criteria, (iv) the scenario analyses that have been carried out, (v) the pay ratios within the Company’s peer group, (vi) the views of any managing director with regard to the amount and structure of his own compensation and (vii) if considered appropriate by the management board or the compensation committee, the views of any executive officer with regard to the amount and structure of his own compensation; |
| ● | submitting proposals to the supervisory board concerning the compensation of individual supervisory board members; |
| ● | reviewing and assessing of risks arising from the Company’s compensation policies and practices and whether any such risks are reasonably likely to have a material adverse effect on the Company; |
| ● | preparing of the Company’s compensation report for the supervisory board; |
| ● | preparing of the compensation committee report required by SEC rules or the rules of any other regulatory body; and |
| ● | retaining of or obtaining advice from a compensation consultant, legal counsel or other advisor as the compensation committee deems necessary or appropriate to carry out its responsibilities, including the appointment of such consultant, counsel or advisor and the ability to cause the Company, without further approval, to pay with Company funds the reasonable compensation of such consultant, counsel or advisor as approved by the compensation committee, provided, however, that (i) in retaining or obtaining the advice of such consultant, counsel or advisor, other than in-house legal counsel, the compensation committee shall take into consideration the factors affecting independence required by applicable SEC rules and Nasdaq rules and (ii) the compensation committee will be responsible for the oversight of the work of any such consultant, counsel or advisor. |
Under SEC and Nasdaq rules, there are heightened independence standards for members of the compensation committee, including a prohibition against the receipt of any compensation from us other than standard director fees. As permitted by the listing requirements of Nasdaq, we have opted out of Nasdaq Listing Rule 5605(d), which requires that a compensation committee consist entirely of independent directors. The compensation committee is governed by a charter that is available on our website.
Nomination and Corporate Governance Committee
The nomination and corporate governance committee consists of Eric Souêtre, Peer Schatz, Guido Prehn and Hubert Birner. The nomination and corporate governance committee assists our supervisory board in identifying individuals qualified to become members of our management board or supervisory board consistent with criteria established by us and in developing our code of business conduct and ethics. The composition of our nomination and corporate governance committee is consistent with the best practice provisions of the DCGC.
The nomination and corporate governance committee’s responsibilities include:
| ● | drawing up selection criteria and appointment procedures for the managing directors and supervisory board members; |
| ● | reviewing the size and composition of the management board and the supervisory board and submitting proposals for the composition profile of the supervisory board; |
| ● | making recommendations to the supervisory board as to determinations of supervisory board members independence; |
136
| ● | reviewing the functioning of individual managing directors and supervisory board members and reporting on such review to the supervisory board; |
| ● | drawing up a plan for the succession of managing directors and supervisory board members; |
| ● | submitting proposals for (re)appointment of managing directors and supervisory board members; |
| ● | supervising the policy of the management board regarding the selection criteria and appointment procedures for the Company’s executive officers; |
| ● | overseeing the self-evaluation of the management board and the supervisory board to determine whether it and its committees are functioning effectively; and |
| ● | developing and recommending to the management board the code of conduct and ethics and overseeing compliance with the code of conduct and ethics, including - at least annually - reviewing and reassessing the adequacy of the code of conduct and ethics and recommending any proposed changes to the management board. |
As permitted by the listing requirements of Nasdaq, we have opted out of Nasdaq Listing Rule 5605(e), which requires independent director oversight of director nominations. The nomination and corporate governance committee is governed by a charter that is available on our website.
D.Employees
As of December 31, 2023, we employed approximately 493 highly qualified personnel (including consultants) from 61 nationalities. All of our employees are engaged in either operations, sales, research and development, or corporate and other supporting functions. None of our employees are covered by collective bargaining agreements. The following tables provide breakdowns of our full-time equivalent employees as of December 31, 2023, by function and by region:
| As of | |
December 31, 2023 | ||
Diagnostics Operations |
| 214 |
Pharmaceutical Operations |
| 29 |
Sales and Marketing |
| 60 |
Pharmaceutical Business Development |
| 18 |
Research and Development |
| 40 |
Corporate and other supporting functions |
| 132 |
Total employees (including consultants and apprentices) |
| 493 |
| As of | |
December 31, 2023 | ||
Germany |
| 363 |
United States |
| 10 |
India |
| 11 |
Consultants (located mainly in Europe, Asia, Middle East and Latin America) |
| 109 |
Total employees (including consultants and apprentices) |
| 493 |
E.Share Ownership
See “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.”
137
Item 7. Major Shareholders and Related Party Transactions
A.Major Shareholders
As of the date of this Annual Report, our authorized share capital was EUR 9,480,000, consisting of 79,000,000 common shares, par value EUR 0.12 per share. Each of our common shares entitles its holder to one vote. The following table presents information relating to the beneficial ownership of our common shares as of the date of this Annual Report by:
| ● | each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding shares; |
| ● | each member of our management board and supervisory board; and |
| ● | all members of our management board and supervisory board as a group |
Number of |
| ||||
Common Shares |
| ||||
beneficially owned |
| ||||
Shareholder |
| Number |
| Percentage |
|
>5% Shareholders: | |||||
Entities affiliated with DPE Deutsche Private Equity GmbH(1) |
| 7,739,658 |
| 26.7 | % |
Careventures Fund II S.C.Sp(2) |
| 4,261,460 |
| 14.7 | % |
Entities affiliated with TVM Life Science Innovation I, L.P.(3) |
| 3,982,777 |
| 13.7 | % |
Platinum Asset Management Ltd.(4) |
| 2,376,442 |
| 8.2 | % |
Management Board Members and Key Officers: |
|
|
|
| |
Kim Stratton | 348,322 | 1.2 | % | ||
Miguel Coego Ríos | 139,329 |
| 0.5 | % | |
Peter Bauer | 22,897 |
| 0.1 | % | |
Supervisory Board Members: |
|
|
|
| |
Guido Prehn(7) |
| 7,739,658 |
| 26.7 | % |
Eric Souêtre(8) |
| 4,261,460 |
| 14.7 | % |
Hubert Birner(5) |
| 3,982,777 |
| 13.7 | % |
Holger Friedrich(6) |
| 350,145 |
| 1.2 | % |
Flemming Ornskov |
| 300,000 |
| 1.0 | % |
Peer Schatz(9) |
| 100,000 |
| 0.3 | % |
* Less than 1% ownership.
(1) The 7,739,658 common shares held by entities affiliated with DPE Deutsche Private Equity GmbH consist of (a) 5,086,022 common shares held by DPE Deutschland II A GmbH & Co. KG (“DPE II A”) and (b) 2,653,636 common shares held by DPE Deutschland II B GmbH & Co. KG (“DPE II B”). DPE Deutsche Private Equity GmbH is the managing limited partner of DPE II A and DPE II B and may be deemed to beneficially own the common shares held by such entities, but disclaims beneficial ownership of such shares. Marc Thiery is the managing director of DPE Deutsche Private Equity GmbH and has sole power to vote the common shares beneficially owned by DPE Deutsche Private Equity GmbH. Guido Prehn has decision-making power over the common shares beneficially owned by DPE Deutsche Private Equity GmbH but disclaims beneficial ownership of such shares. The address for DPE Deutsche Private Equity GmbH, DPE II A and DPE II B is Ludwigstrasse 7, 80539 Munich, Germany.
(2) Careventures Fund II S.C.Sp (“Careventures II”) is managed by its general partner Careventures Fund II GP Sarl (“General Partner”), and Eric Souêtre, being a founder and shareholder of General Partner, participates in the collective decisions of the shareholders in relation to the General Partner. The registered address of Careventures II and the General Partner is 42-44, Avenue de la Gare, 1610 Luxembourg, Luxembourg.
(3) The 3,982,777 common shares held by entities affiliated with TVM Life Science Innovation I, L.P. consist of (a) 1,632,606 common shares held by TVM Life Science Innovation I, L.P and (b) 2,350,171 common shares held by TVM Life Science Innovation II SCSp. The governance, investment strategy and decision-making with respect to investments held by TVM Life Science Innovation I, L.P. is directed by TVM Life Science Innovation I (GP) Limited, whose directors are Reshentha Beeby, Hubert Birner and Gary Leatt, and who have shared power to vote the common shares beneficially owned by TVM Life Science Innovation I, L.P. As a result, each may be deemed to beneficially own the shares beneficially owned by TVM Life Science Innovation I, L.P. The address for TVM Life Science Innovation I, L.P. is 500-1 Place Ville-Marie, Montréal (Québec) H3B 1R1, Canada. The governance, investment strategy and decision-making process with respect to investments held by TVM Life Science Innovation II, SCSp. is directed by TVM Life Science Innovation II (GP) S.à r.l., whose directors are Monica Morsch, Ganash Lokanathen and Jens Hoellermann, and who have shared power to vote the common shares beneficially owned by TVM Life Science Innovation II SCSp. As a result, each may be deemed to beneficially own the shares beneficially owned by TVM Life Science Innovation II SCSp. The address for TVM Life Science Innovation II SCSp is 8 rue Lou Hemmer, L-1748, Senningerberg, Grand Duchy of Luxembourg.
(4) | Platinum Investment Management Limited (“Platinum”) is a Sydney, Australia-based investment advisory firm founded by Kerr Neilson and Andrew Clifford in 1994. Platinum is a fully owned subsidiary of Platinum Asset Management Limited (ABN 13 050 064 287), a company listed on the Australian Securities Exchange. The firm caters to retail and institutional investors. The address for Platinum is Level 8, 7 Macquarie Place, Sydney NSW 2000, Australia. |
138
(5) Hubert Birner beneficially owns common shares through his indirect ownership of interests in TVM Life Science Innovation I, L.P and TVM Life Science Innovation II (GP) S.à r.l.
(6) Common shares are held by CCG-Commercial Coordination Germany GmbH and are beneficially owned by Holger Friedrich. The address for CCG-Commercial Coordination Germany GmbH is Mauerstraße 78, 10117 Berlin, Germany.
(7) Guido Prehn has decision-making power over the common shares beneficially owned by DPE Deutsche Private Equity GmbH but disclaims beneficial ownership of such shares.
(8) Eric Souêtre beneficially owns common shares through his indirect ownership of interests in Careventures Fund.
(9) | The 25,100 Common shares are held by PS Capital Management GmbH and are beneficially owned by Peer Schatz. |
Each of our shareholders is entitled to one vote per common share. None of the holders of our shares have different voting rights from other holders of shares. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
Our common shares are held through the book-entry system provided by The Depository Trust Company (“DTC”) and are registered in the register of shareholders in the name of Cede & Co., as DTC’s nominee. We are, therefore, not aware of the identity of our beneficial owners, the number of common shares they hold, nor where such beneficial owners reside.
B.Related Party Transactions
The following is a description of related party transactions we have entered into since January 1, 2023 with any of our officers, directors and the holders of more than 5% of our voting securities, or any member of the immediate family of any of the foregoing persons.
Transactions Involving Members of Our Supervisory Board, Management Board and Other Related Parties
The Company purchased supplies used for genetic testing from an entity related to a member of the supervisory board. Expenses totaling EUR 812 thousand were charged to profit and loss related to the period of service of the board member.
For the year ended December 31, 2023, no revenues were recognized in profit and loss in relation performance of genetic testing services for entities related to members of the supervisory board.
For the year ended December 31, 2023, Dr Bauer GmbH recharged costs related to Covid to CNTG GmbH with an amount of EUR 236k. Consequently, as of December 31, 2023, the Company recognized the net position amounted to EUR 80k as a liability that has been fully paid in 2024.
On January 31, 2022 (the “Closing Date”), the Company, Centogene GmbH, CentoSafe B.V. and Centogene US, LLC (together, the “Borrowers”), entered into the Loan and Security Agreement with Oxford Finance LLC and the other financial institutions or entities from time to time parties to the Loan and Security Agreement (collectively, referred to as “Lenders”) and Oxford, in its capacity as collateral agent for itself and the Lenders (in such capacity, “Agent”). The loans extended under the Loan Facility bear monthly interest payments at an interest rate of 7.93% per annum plus the 1-month CME Term SOFR reference rate as published by the CME Group Benchmark Administration Limited.
On July 28, 2022, we amended the Loan and Security Agreement to expand the scope of Permitted Indebtedness and Permitted Liens (each, as defined therein). On April 30, 2023, we amended the Loan and Security Agreement for a second time (the “Second Amendment”) to permit (i) the delivery of our audited consolidated financial statements for the fiscal year ended December 31, 2022 thirty days later than is otherwise required and (ii) the listing of our common shares on NASDAQ Global Market.
The Second Amendment introduced new requirements that (i) we prepay any outstanding loans under the Loan and Security Agreement in an amount of $5.0 million (plus fees, interest and expenses, in each case, pursuant to the terms of the Loan and Security Agreement) upon the first new business development or financing transaction we enter and (ii) we maintain at least EUR 9.1 million in unrestricted cash on deposit in collateral accounts subject to Oxford’s perfected security interest granted under the Loan and Security Agreement.
On October 26, 2023 a new amendment was signed. This third amendment modified the existing requirements whereby (i) a reduction in interest rate was introduced, bearing now an interest of 6.15% instead of 7.93% originally, and (ii) maturity date was extended (iii) removal of the USD 5.0 million prepayment and (iv) removal of the requirement to hold EUR 9.1 million in unrestricted
139
cash on deposit once the Joint Venture (see Joint Venture Agreement, Note 1) has been created and signing of the ancillary agreements.
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023 with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. According to the joint venture agreement, the founding capital is to be provided 80% (SAR 80,000,000) by PIC and 20% (SAR 20,000,000) by the Company and will be used to finance business operations, including the establishment of a laboratory competence center in Saudi Arabia (“KSA”). This agreement was amended on October 23, 2023, changing the steps needed for the JV to be established.
Following this, a convertible loan agreement was signed on October 26, 2023. Cash of USD 30 million was received from PIC on October 30, 2023. Pursuant to the Joint Venture Agreement, and subject to the terms and conditions contained therein, the Company and PIC agreed to establish a limited liability company in the kingdom of Saudi Arabia (the “JV”). The terms of which also include ancillary agreements pertaining to a Technology Transfer and Intellectual Property License Agreement, a Consultancy Agreement and a Laboratory Services Agreement, that were signed on November 27, 2023. On November 19, 2023, Genomics Innovations Company Limited (the “JV”) was fully formed as a limited liability company organized under the laws of the Kingdom of Saudi Arabia. As a result of the convertible loan agreement, the Company granted a Capital Raise Bonus to the CFO and CEO (see Note 22 in the financial statements for further detail).
Insurance and Indemnification Agreements
Our current and future managing directors and supervisory board members (and such other officer or employee as designated by our management board) have the benefit of indemnification provisions in our articles of association. These provisions give the indemnified persons the right to recover from us amounts, including but not limited to litigation expenses, and any damages they are ordered to pay, in relation to acts or omissions in the performance of their duties, subject to certain exceptions. In particular, there is no entitlement to indemnification for acts or omissions which have been determined to constitute malice, gross negligence, intentional recklessness and/or serious culpability attributable to such indemnified person. In addition, we have entered into agreements with our managing directors and supervisory board members to indemnify them against expenses and liabilities to the fullest extent permitted by law. These agreements also provide, subject to certain exceptions, for indemnification for related expenses including, among others, attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by any of these individuals in any action or proceeding. In addition to such indemnification, we provide our managing directors and supervisory board members with directors’ and officers’ liability insurance.
Registration Rights Agreement
In connection with our initial public offering which closed on November 12, 2019, we entered into a registration rights agreement with certain of our existing shareholders pursuant to which we agreed under certain circumstances to file a registration statement to register the resale of the shares held by such holders, subject to certain exceptions, as well as to cooperate in certain public offerings of such shares. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For more details, see the Form of Our Registration Rights Agreement attached as Exhibit 4.1 to our Registration Statement on Form F-1 filed with the SEC on October 11, 2019. On June 18, 2020, the Registration Rights Agreement was amended in accordance with its terms.
C.Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A.Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements”, which contains our audited financial statements prepared in accordance with IFRS.
140
Legal Proceedings
Sanofi has filed an opposition proceeding in the EPO against the ‘725 Patent, (EP 2,718,725) a European patent that we own relating to our biomarker for Gaucher disease. The EPO opposition proceeding challenges the patentability of the ‘725 Patent in its entirety. The EPO rejected the opposition in the first instance in the oral proceedings on February 4, 2020. Sanofi has appealed the opposition decision. The Board of Appeal of the EPO revoked the patent on September 26, 2023. This decision can no longer be appealed and is therefore final. There are no further legal remedies available. The invalidation of the European patent will presumably not or only marginally harm our current business.
On April 15, 2021, Sanofi filed an opposition proceeding in the EPO against EP 3,318,881 (the “‘881 Patent”), a European patent that we own relating to our biomarker for Gaucher disease. Oral proceedings concerning the European patent took place before the opposition division of the EPO on May 04, 2022. The Opposition Division (as first instance) of the European Patent Office decided in the oral proceedings to maintain the patent in amended form. Sanofi has appealed the opposition decision. We have also appealed the opposition decision. The Board of Appeal scheduled oral appeal proceedings for November 18, 2024. The ‘881 Patent may still be revoked or maintained in amended, also further limited form, in whole or in part, which could materially harm our business. For more information regarding risks related to intellectual property, including this opposition proceeding, see “Item 3. Key Information—D. Risk Factors—Intellectual Property Risks Related to Our Business.”
In May 2016, we were informed in writing by the Universitair Medisch Centrum Utrecht (“UMCU”) that a claim had been initiated against UMCU regarding a prenatal diagnostic test that we conducted at UMCU’s request which failed to identify a specific mutation present in a patient. On October 1, 2018, the UMCU and Neon Underwriting Limited brought an action at the Regional Court of Rostock (Landgericht Rostock), Germany against us for damages, alleging that our negligence in performing the test resulted in the misdiagnosis of the patient. With the action, UMCU is seeking recovery for compensatory damages as a result of the alleged misdiagnosis. By court order of November 8, 2018, the Regional Court of Rostock set the amount in dispute at EUR 880 thousand and opened the written preliminary proceedings against the Company. On November 12, 2018, we submitted a notice to the Regional Court of Rostock of our intention to defend against the claim. On January 3, 2019 we filed a motion to dismiss in which we denied the merits of the claim. UMCU and Neon Underwriting Limited responded to this motion on March 15, 2019 with a statement of reply, and the parties made several court filings setting out their arguments since. By order dated June 3, 2019, the Regional Court of Rostock provided a first set of questions to be answered by an expert witness. Following a request by the Court, the Director of the Institute of Genetics at the University of Bonn recommended a professor for human genetics from the University of Aachen to be appointed as such expert witness in this case. We agreed to such recommendation. As of December 31, 2020, the amount in dispute was EUR 1.3 million. The matter was assigned to a new judge, due to the illness of the prior judge, and the decision to appoint the recommended expert witness is still pending. Since then, several potential experts were approached by the court, but eventually declined to prepare an expert witness report due to the possibility of bias. With its letter dated February 4, 2022, the court identified an expert witness to prepare a statement, which he delivered to the court on July 4, 2022. UMCU and Centogene were given four weeks to respond to the witness report. Based on the comments of both parties to the expert witness report, the court has asked the expert witness to answer additional questions in an additional report. The court set a first date for a court hearing to be November 15, 2023. In addition, the court currently has set the sum in dispute preliminarily to EUR 1.3 Mio, based on the alleged damages plead by the plaintiffs. A preliminary statement was issued by the Court signalling that it would dismiss the case. A court ruling was made available on February 2, 2024. It states that the claim is dismissed, and that the claimants shall bear the costs with equal shares. The judgement may be provisionally enforced against security amounting to 110% of the amount to be enforced. The amount in dispute was set at EUR 1,300,000.00. The claimants do have the chance to appeal the verdict.
For more information regarding risks related to liability claims, including this proceeding, see “Item 3. Key Information-D. Risk Factors-We may become subject to substantial product liability or professional liability claims that could exceed our resources.”
Dividends and Dividend Policy
Under Dutch law, we may only pay dividends and other distributions from our reserves to the extent our shareholders’ equity (eigen vermogen) exceeds the sum of the paid-in and called-up share capital plus the reserves we must maintain under Dutch law or by our articles of association and (if it concerns a distribution of profits) after adoption of our statutory annual accounts by our general meeting from which it appears that such dividend distribution is allowed. Subject to those restrictions, any future determination to pay dividends or other distributions from our reserves will be at the discretion of our management board with the approval of our supervisory board and will depend on many factors, including our results of operations, financial condition, cash requirements, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors we deem relevant. We have not adopted a formal dividend policy with respect to future dividends. We may adopt such a policy in the future, in which case we intend either to
141
place a discussion of such policy on the agenda for our annual general meetings of shareholders, consistent with the DCGC, or to disclose a deviation from the DCGC in this respect in our statutory annual report.
Under our articles of association, our management board may decide that all or part of the profits shown in our adopted statutory annual accounts will be added to our reserves. After reservation of any such profits, any remaining profits will be at the disposal of the general meeting at the proposal of our management board, with the approval of our supervisory board, for distribution on our ordinary shares, subject to applicable restrictions of Dutch law. Our management board, with the approval of our supervisory board, is permitted, subject to certain requirements and applicable restrictions of Dutch law, to declare interim dividends without the approval of our general meeting. Dividends and other distributions shall be made payable no later than a date determined by us. Claims to dividends and other distributions not made within five years from the date that such dividends or distributions became payable will lapse and any such amounts will be considered to have been forfeited to us (verjaring).
B.Significant Changes
Except as disclosed in this Annual Report, there have been no other significant changes to our business since December 31, 2023.
Item 9. The Offer and Listing
A.Offer and Listing Details
Our common shares, with a par value of EUR 0.12 per share, have traded on Nasdaq under the symbol “CNTG” since November 7, 2019.
B.Plan of Distribution
Not applicable.
C.Markets
For a description of our publicly traded common shares, see “—A. Offer and Listing Details.”
D.Selling Shareholders
Not applicable.
E.Dilution
Not applicable.
F.Expenses of the Issue
Not applicable.
Item 10. Additional Information
A.Share Capital
Not applicable.
B.Memorandum and Articles of Association
We incorporate by reference into this Annual Report our articles of association included as Exhibit 3.1 to Amendment No. 1 (File No. 333-234177) filed with the SEC on October 28, 2019. Such description sets forth an English translation of the official Dutch version of our articles of association as currently in effect. We also incorporate by reference into this Annual Report the section
142
“Description of Share Capital and Articles of Association” included in our F-1 registration statement (File No. 333-239735) filed with the SEC on July 7, 2020.
C.Material Contracts
Shire/Takeda
We have entered into a strategic collaboration with Shire International GmbH (“Shire”), now a subsidiary of Takeda Pharmaceutical Company Limited, pursuant to a global master services agreement originally entered into in January 2015, as subsequently amended and further extended in December 2019, a supply agreement with Shire Pharmaceuticals Ireland Ltd. originally entered into in December 2013, as subsequently amended and further extended in December 2019, and two project services agreements with Shire, respectively, each as described below.
Global Master Services Agreement
Under the global master services agreement with Takeda Pharmaceutical Company Limited, the parent company of Shire International GmbH, we provide diagnostic services to Takeda and its affiliates. Takeda makes an annual fee payment to us for performance of an unlimited number of diagnostic tests for Morbus Fabry, Morbus Gaucher, Morbus Hunter, MPS1, MPS2, MPS3, MPS4, MPS6 and MPS7. Tests for some of these diseases are eligible for incremental payments from Takeda upon meeting a minimum quantity threshold. Pursuant to the December 2019 amendment and the most recent amendment in March 2021, the annual fee payable to us was increased and the minimum quantity threshold for the tests of some diseases was removed. In December 2021, we extended our Global Master Service Agreement with Takeda to March 2023 and did so again in February 2024 – extending the Global Master Service Agreement to March 2026. This continuous partnership allows us to continue diagnosing and connecting rare disease patients globally.
Supply Agreement
Under the supply agreement with Takeda, we develop, manufacture and supply customized CentoCard filter cards and kits for use in approximately 50 countries as requested by Takeda. These kits are language-specific and include a filter-card with requested patient/clinician information, self-addressed and labeled envelopes, barcode/tracking stickers, an informed consent form and instructions. Payments are calculated at fixed and variable rates, including fixed rates per newly designed language-specific kits and related storage and quality control fees. Kits are then billed at variable rates based on volumes, with minimum order requirements. We granted Takeda and its affiliates a non-exclusive license to use any intellectual property in our existing kits or these custom-developed kits as necessary to distribute and provide the kits pursuant to the agreement. The supply agreement has been extended together with the extension of the Global Master Services Agreement.
Project Services Agreement
We have also entered into a project services agreement with Shire, now a subsidiary of Takeda, dated March 2018 for a collaborative research project on HAE DBS-based diagnostic testing screening algorithm. All charges under the agreement are to be paid by Takeda. We and Takeda have granted each other the limited right to use each other’s data and intellectual property related to such testing and screening for the sole purpose of performing research under the agreement. Any subsequent research results and inventions achieved under the agreement will be co-owned by us and Takeda, and Takeda has the exclusive right, for six months after our delivery of a research report, to negotiate with us to purchase ownership of or a license to our rights in any research results or inventions on commercially reasonable terms. This study was finalized in April 2022.
In July 2019, we entered into a collaborative research agreement with Shire, now a subsidiary of Takeda, related to HAE Kininogen assay mass spectrometry testing and screening. We and Takeda granted each other the limited right to use each other’s data and intellectual property related to such testing and screening for the sole purpose of performing research under the agreement. Any subsequent research results and inventions achieved under the agreement will be co-owned by us and Takeda, and Takeda has the exclusive right, for six months following the delivery of our research report, to negotiate with us to purchase ownership of or a license to our rights in any such research results or inventions on commercially reasonable terms. This project described under the agreement is funded by Takeda and finalized in 2022.
143
Denali
Master Agreement on Patient Recruitment Activities and Laboratory Services and Statement of Work 2.
In 2018, we entered a strategic collaboration with Denali Therapeutics for the targeted global identification of PD patients with genetic variations in the LRRK2 gene. This collaboration has been known as the Rostock International Parkinson’s disease (ROPAD) Study. In December 2022 the amendment to SOW was signed, extending the study, in order to recruit and genetically test additional patients on a monthly basis over the next few years. Based on initial findings of the more than 12,500 participants already recruited and genetically tested, the study will now focus its efforts on 48 sites across 10 countries, consisting of Argentina, Belgium, Brazil, Germany, Israel, Italy, Portugal, Spain, the U.K., and the U.S. Denali will reimburse us for the actual costs to conduct the activities for the ROPAD Study, inclusive of the costs for the tests kits, genotyping, Centogene’s labor on an FTE basis, investigator costs, etc. We have granted to Denali a non-exclusive royalty-free, irrevocable, transferable license, unlimited in time and purpose, to use (but not disclose) our data for its own research and development purposes with respect to the Parkinson’s disease.
Other material contracts
On January 31, 2022 (the “Closing Date”), the Company, Centogene GmbH, CentoSafe B.V. and Centogene US, LLC (together, the “Borrowers”), entered into the Loan and Security Agreement with Oxford Finance LLC and the other financial institutions or entities from time to time parties to the Loan and Security Agreement (collectively, referred to as “Lenders”) and Oxford, in its capacity as collateral agent for itself and the Lenders (in such capacity, “Agent”). This contract has been subsequently amended on July 28, 2022, April 30, 2023 and October 26, 2023. Refer to Note 21 in the financials for further details.
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023 with Pharmaceutical Investment Company (“PIC” or “Lifera”). Refer to Note 1 in the financials for further details.
Following this, a convertible loan agreement was signed on October 26, 2023. Cash of USD 30 million was received from PIC on October 30, 2023. Refer to Note 21 in the financials for further details. As a result of the convertible loan agreement, the Company granted a Capital Raise Bonus to the CFO and CEO. Refer to Note 22 in the financials for further details.
D.Exchange Controls
Under Dutch law, there are no exchange controls applicable to the transfer to persons outside of the Netherlands of dividends or other distributions with respect to, or of the proceeds from the sale of, shares of a Dutch company, subject to applicable restrictions under sanctions and measures, including those concerning export control, pursuant to European Union regulations, the Sanctions Act 1977 (Sanctiewet 1977) or other legislation, applicable anti-boycott regulations, applicable anti-money-laundering regulations and similar rules and provided that, under certain circumstances, payments of such dividends or other distributions must be reported to the Dutch Central Bank at their request for statistical purposes. There are no special restrictions in the articles of association or Dutch law that limit the rights of shareholders who are not citizens or residents of the Netherlands to hold or vote shares.
However, we are present in some countries, and could become elsewhere, subject to strict restrictions on the movement of cash and the exchange of foreign currencies, which limits our ability to use this cash across our global operations. We also face risks related to the collection of payments due to us from our major pharmaceutical partners or clients that are located in certain geographical regions with foreign currency or international monetary controls. This risk could increase as we continue our geographic expansion. In particular, for the years ended December 31, 2023 and 2022, we derived 42.7% and 41.9%, respectively, of our total revenues from our Middle East region. Certain Middle East economies have adopted or been subject to international restrictions on the ability to transfer funds out of the country and convert local currencies into Euros. This may increase our costs and limit our ability to convert local currency into Euros and transfer funds out of certain countries. Any shortages or restrictions may impede our ability to convert these currencies into Euros and to transfer funds, including for the payment of dividends or interest or principal on our outstanding debt.
144
E.Taxation
The following summary contains a description of certain U.S. federal, Dutch and German income tax consequences of the acquisition, ownership and disposition of common shares, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase common shares. The summary is based upon the tax laws of the United States and regulations thereunder, the tax laws of the Netherlands and regulations thereunder and the tax laws of Germany and regulations thereunder as of the date hereof, which are subject to change.
Material U.S. Federal Income Tax Considerations for U.S. Holders
The following is a description of the material U.S. federal income tax consequences to the U.S. Holders, described below, of owning and disposing of our common shares. It does not set forth all tax considerations that may be relevant to a particular person’s decision to own or dispose of our common shares.
This section applies only to a U.S. Holder that holds our common shares as capital assets for U.S. federal income tax purposes. In addition, it does not set forth all of the U.S. federal income tax consequences that may be relevant in light of the U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Code known as the Medicare contribution tax and tax consequences applicable to U.S. persons subject to special rules, such as:
| ● | certain financial institutions; |
| ● | dealers or traders in securities who use a mark-to-market method of tax accounting; |
| ● | persons holding our common shares as part of a hedging transaction, straddle, wash sale, conversion transaction or other integrated transaction or persons entering into a constructive sale with respect to our common shares; |
| ● | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| ● | pass-through entities such as partnerships, S corporations, “disregarded entities”, in each case; |
| ● | tax-exempt entities, “individual retirement accounts” or “Roth IRAs”; |
| ● | persons who acquired our common shares pursuant to the exercise of an employee stock option or otherwise as compensation; |
| ● | persons that own or are deemed to own 10% or more of our shares (by vote or value); or |
| ● | persons holding our common shares in connection with a trade or business conducted outside of the United States. |
If an entity or an arrangement that is classified as a partnership for U.S. federal income tax purposes holds our common shares, the U.S. federal income tax treatment of a partner will depend on the status of the partner and the activities of the partnership. Partnerships holding our common shares and partners in such partnerships should consult their tax advisers as to the particular U.S. federal income tax consequences of owning and disposing of our common shares.
This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between Germany and the United States (the “Treaty”) all as of the date hereof, any of which is subject to change or differing interpretations, possibly with retroactive effect.
A “U.S. Holder” is a holder who is, for U.S. federal income tax purposes, a beneficial owner of our common shares and:
| ● | a citizen or individual resident of the United States; |
| ● | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
145
| ● | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
This discussion assumes that our position as to us being tax resident solely in Germany is respected. U.S. Holders should consult their own tax advisers regarding any tax consequences that may arise if we were also treated as a tax resident of the Netherlands.
This discussion does not address the effects of any state, local or non-U.S. tax laws, or any U.S. federal tax laws other than
income tax laws (such as U.S. federal estate or gift tax laws). U.S. Holders should consult their tax advisers concerning the U.S. federal, state, local and non-U.S. tax consequences of owning and disposing of our common shares in their particular circumstances, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements.
Taxation of Distributions
This discussion is subject to the discussion under “Passive Foreign Investment Company Rules” below.
Distributions of cash or other property, if any, that are made on our common shares, other than certain pro rata distributions of our common shares, will be treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). For so long as our common shares continue to be listed on Nasdaq or another established securities market in the United States or we are eligible for benefits under the Treaty, subject to applicable limitations (that depend on a U.S. Holder’s particular circumstances) dividends paid to certain non-corporate U.S. Holders will be eligible for taxation as “qualified dividend income,” which is taxable at the rates applicable to long-term capital gains. Non-corporate U.S. Holders should consult their tax advisers regarding the availability of the reduced tax rate on dividends in their particular circumstances. The amount of a dividend will include any amounts withheld by us in respect of German income taxes. Dividends will not be eligible for the dividends-received deduction available to U.S. corporations under the Code. Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s receipt of the dividend. The amount of any dividend income paid in Euros will be the U.S. dollar amount calculated by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is in fact converted into U.S. dollars at that time. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.
Dividends will be foreign-source income to U.S. Holders. German income taxes withheld from dividends on our common shares at a rate not exceeding the rate provided by the Treaty will be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. German taxes withheld in excess of the rate applicable under the Treaty or that are otherwise refundable under German tax law will not be eligible for credit against a U.S. Holder’s federal income tax liability. The rules governing foreign tax credits are complex. For example, Treasury regulations provide that, in the absence of an election to apply the benefits of an applicable income tax treaty, in order for non-U.S. income taxes to be creditable the relevant non-U.S. income tax rules must be consistent with certain U.S. federal income tax principles, and we have not determined whether the German income tax system meets these requirements. U.S. Holders should consult their tax advisers regarding the creditability of foreign taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may elect to deduct non-U.S. taxes, including any German income tax, in computing their taxable income. An election to deduct non-U.S. taxes instead of claiming foreign tax credits applies to all creditable non-U.S. taxes paid or accrued in the taxable year. If Dutch income taxes are withheld from dividends paid to U.S. Holders, U.S. Holders are urged to consult their tax advisers regarding the creditability or deductibility of such Dutch income taxes against their U.S. federal income tax liabilities. See “Item 3. Key Information—D. Risk factors—Certain Factors Relating to Our Common Shares—If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands.”
Sale or Other Disposition of Common Shares
This discussion is subject to the discussion under “Passive Foreign Investment Company Rules” below.
Gain or loss realized on the sale or other disposition of our common shares will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder held our common shares for more than one year. The amount of the gain or loss will equal the difference between the U.S. Holder’s tax basis in the common shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Any gain or loss generally will be treated as U.S.-source gain or loss. German taxes on disposition gains (if any) generally will not be creditable or deductible for U.S. federal income tax purposes. The deductibility of capital losses is subject to limitations.
146
Passive Foreign Investment Company Rules
Under the Code, we will be a passive foreign investment company (“PFIC”) for any taxable year in which, after the application of certain “look-through” rules with respect to our subsidiaries, either (i) 75% or more of our gross income consists of “passive income” or (ii) 50% or more of the average value of our assets (generally determined on a quarterly basis) consists of assets that produce, or are held for the production of, “passive income.” For purposes of the above calculations, we will be treated as if we hold our proportionate share of the assets of, and receive directly our proportionate share of the income of, any other corporation in which we directly or indirectly own at least 25%, by value, of the shares of such corporation. Passive income includes, among other things, dividends, interest, certain non-active rents and royalties and investment gains. For these purposes cash is generally a passive asset. Goodwill is generally an active asset to the extent associated with business activities that produce active income.
Based on our current operations and composition of our income and assets, and certain estimates as to the value of our assets, although not free from doubt, we do not believe that we were a PFIC for our 2024 taxable year. However, there can be no assurance that the IRS will agree with our conclusion. In addition, whether we will be a PFIC in 2024 or any future taxable year is uncertain because, among other things, (i) we currently own, and expect to continue to own, a substantial amount of passive assets, including cash, (ii) the value of our assets that generate non-passive income for PFIC purposes, including our goodwill and other intangible assets, is uncertain and may vary substantially over time (and may be determined, in large part, by reference to our market capitalization, which has been, and may continue to be, volatile) and (iii) the composition of our income may vary substantially over time. Accordingly, there can be no assurance that we will not be a PFIC for any taxable year. For example, if we raise additional cash, or if our market capitalization continues to decline or fluctuate (and the value of our assets were determined in part by reference to our market capitalization), then there is a significant risk that we could be a PFIC for 2024, depending on the composition and average value of our assets for 2024 (which cannot be determined until after 2024).
If we are a PFIC for any taxable year and any entity in which it owned equity interests is also a PFIC (a “Lower-tier PFIC”), a U.S. Holder will be deemed to own a proportionate amount (by value) of the shares of each Lower-tier PFIC and will be subject to U.S. federal income tax according to the rules described in the next paragraph on (i) certain distributions by the Lower-tier PFIC and (ii) dispositions of shares of the Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though the U.S. Holder will not receive any proceeds of those distributions or dispositions.
In general, if we are a PFIC for any taxable year during which a U.S. Holder holds our common shares (assuming such U.S. Holder has not made a timely mark-to-market election, as described below), gain recognized by a U.S. Holder on a sale or other disposition (including certain pledges) of our common shares will be allocated ratably over the U.S. Holder’s holding period for our common shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC will be taxed as ordinary income. The amount allocated to each other taxable year will be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an additional tax representing a deferred interest charge will be imposed on the amount allocated to that taxable year. Further, to the extent that distributions received by a U.S. Holder on our common shares in any taxable year exceed 125% of the average of the annual distributions on our common shares received during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter, the excess distribution will be subject to taxation in the same manner as gain, described immediately above. If we are a PFIC for any taxable year during which a U.S. Holder owns our common shares, we will continue to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder owns the common shares, even if we cease to meet the threshold requirements for PFIC status, unless the U.S. Holder makes a valid “deemed sale election” under the applicable Treasury regulations with respect to our common shares (and pays any tax resulting from that election).
If we are a PFIC for any taxable year, a U.S. Holder can avoid the adverse rules described in the preceding paragraph by making a timely mark-to-market election with respect to our common shares, provided that our common shares are “marketable.” Our common shares will be marketable if they are “regularly traded” on a “qualified exchange” or other market within the meaning of applicable Treasury regulations. The Nasdaq is a qualified exchange for this purpose, but there is no assurance that our common shares will continue to be listed on the Nasdaq, or that they will be regularly traded for any period. If a U.S. Holder makes the mark-to-market election, it will recognize as ordinary income any excess of the fair market value of our common shares at the end of each taxable year over their adjusted tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of our common shares over their fair market value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in our common shares will be adjusted to reflect the amount of income or loss that is recognized. Any gain recognized on the sale or other disposition of our common shares in a taxable year when we are a PFIC will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of income previously included as a result of the mark-to-market election, with any excess treated as a capital loss). U.S. Holders should consult their tax advisers regarding the availability and advisability of
147
making a mark-to-market election in their particular circumstances. In particular, U.S. Holders should consider the impact of a mark-to-market election with respect to their common shares given that we may have Lower-tier PFICs, and there is no provision in the Code, Treasury regulations or other official guidance that would give U.S. Holders the right to make a mark-to-market election with respect to any Lower-tier PFIC the shares of which are not regularly traded.
In addition, in order to avoid the application of the foregoing rules, a United States person that owns stock in a PFIC for U.S. federal income tax purposes may make a qualified electing fund (“QEF”) election with respect to such PFIC that results in a tax treatment different from the treatment described above. We do not intend to provide information necessary for U.S. Holders to make QEF elections and therefore these elections will not be available.
If we are a PFIC or, with respect to a particular U.S. Holder, are treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable year, the preferential dividend rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders will not apply.
If a U.S. Holder owns our common shares during any taxable year in which we are a PFIC, subject to certain exceptions, the U.S. Holder must file annual reports on IRS Form 8621 (or any successor form) with respect to us.
U.S. Holders should consult their tax advisers concerning our potential PFIC status and the potential application of the PFIC rules.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii) in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not subject to backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle it to a refund, provided that the required information is timely furnished to the IRS.
Reporting With Respect to Foreign Financial Assets
Certain U.S. Holders who are individuals and certain entities may be required to report information relating to an interest in our common shares by filing a Form 8398 with their U.S. federal income tax return, subject to certain exceptions (including an exception for our common shares held in accounts maintained by certain U.S. financial institutions). Failure to file a Form 8398 where required can result in monetary penalties and the extension of the relevant statute of limitations with respect to all or a part of the relevant U.S. tax return. U.S. Holders should consult their tax advisers regarding this reporting requirement.
Material Dutch Tax Considerations
The following is a summary of certain material Dutch tax consequences of the acquisition, holding and disposal of common shares. This summary does not purport to describe all possible tax considerations or consequences that may be relevant to a holder or prospective holder of common shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as trusts or similar arrangements) may be subject to special rules. In view of its general nature, this summary should be treated with corresponding caution.
For the purposes of this discussion, we assume that we are a tax resident of Germany under German national tax laws since we intended to have, from our incorporation and on a continuous basis, our place of effective management in Germany. See “Item 3. Key Information—D. Risk Factors—We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.” Except as otherwise indicated, this summary is based on the tax laws of the Netherlands, published regulations thereunder and published authoritative case law, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. Where the summary refers to “the Netherlands” or “Dutch” it refers only to the part of the Kingdom of the Netherlands located in Europe. The applicable tax laws or interpretations thereof may change, or the relevant facts and circumstances may change, and such changes may affect the contents of this section, which will not be up-dated to reflect any such changes.
148
This discussion is for general information purposes only and is not Dutch tax advice or a complete description of all Dutch tax consequences relating to the acquisition, holding and disposal of the common shares. Holders or prospective holders of common shares should consult their own tax advisors regarding the Dutch tax consequences relating to the acquisition, holding and disposal of the common shares in light of their particular circumstances.
Please note that the summary does not describe the Dutch tax consequences for:
Dividend Withholding Tax
We are incorporated under the laws of the Netherlands, and therefore a Dutch tax resident for Dutch domestic tax law purposes, including the Dutch Dividend Withholding Tax Act 1969. As such, we are required to withhold Dutch dividend withholding tax at a rate of 15% from dividends distributed by us (which withholding tax will not be borne by us, but will be withheld by us from the gross dividends paid on the common shares). We are, however, also treated as a German tax resident for German domestic tax law purposes, since our place of effective management is located in Germany. As long as we continue to have our place of effective management in Germany, and not in the Netherlands, under the convention between the Federal Republic of Germany and the Netherlands for the avoidance of double taxation with respect to taxes on income of 2012, we will be considered to be exclusively tax resident in Germany. Consequently, the Netherlands will be restricted to impose Dutch dividend withholding tax on dividends distributed by us (and we will not be required to withhold Dutch dividend withholding tax). This exemption from withholding does not apply to dividends distributed by us to a holder of our common shares who is resident or deemed to be resident in the Netherlands for Dutch income tax purposes or Dutch corporate income tax purposes or to holders of common shares that are neither resident nor
149
deemed to be resident of the Netherlands if the common shares are attributable to a Dutch permanent establishment of such non-resident holder, in which events the following applies. See “Item 3. Key Information—D. Risk Factors—If we do pay dividends, we may need to withhold tax on such dividends payable to holders of our shares in both Germany and the Netherlands”.
Dividends distributed by us to individuals and corporate legal entities who are resident or deemed to be resident in the Netherlands for Dutch (corporate) income tax purposes (“Dutch Resident Individuals” and “Dutch Resident Entities,” as the case may be) or to holders of our common shares that are neither resident nor deemed to be resident of the Netherlands if the common shares are attributable to a Dutch permanent establishment of such non-resident holder are subject to Dutch dividend withholding tax at a rate of 15%.
The expression “dividends distributed” includes, among other things:
| ● | distributions in cash or in kind, deemed and constructive distributions and repayments of paid-in capital not recognized for Dutch dividend withholding tax purposes; |
| ● | liquidation proceeds, proceeds of redemption of shares, or proceeds of the repurchase of shares by us or one of our subsidiaries or other affiliated entities to the extent such proceeds exceed the average paid-in capital of those shares as recognized for purposes of Dutch dividend withholding tax; |
| ● | an amount equal to the par value of shares issued or an increase of the par value of shares, to the extent that it does not appear that a contribution, recognized for purposes of Dutch dividend withholding tax, has been made or will be made; and |
| ● | partial repayment of the paid-in capital, recognized for purposes of Dutch dividend withholding tax, if and to the extent that we have net profits (zuivere winst), unless (i) the general meeting has resolved in advance to make such repayment and (ii) the par value of the shares concerned has been reduced by an equal amount by way of an amendment to our articles of association. The term "net profits" includes anticipated profits that have yet to be realized. |
Dutch Resident Individuals and Dutch Resident Entities can generally credit the Dutch dividend withholding tax against their income tax or corporate income tax liability and to a refund of any residual Dutch dividend withholding tax. The same generally applies to holders of our common shares that are neither resident nor deemed to be resident of the Netherlands if the common shares are attributable to a Dutch permanent establishment of such non-resident holder.
Pursuant to legislation to counteract “dividend stripping”, a reduction, exemption, credit or refund of Dutch dividend withholding tax is denied if the recipient of the dividend is not the beneficial owner as described in the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965). This legislation generally targets situations in which a shareholder retains its economic interest in shares but reduces the withholding tax costs on dividends by a transaction with another party. It is not required for these rules to apply that the recipient of the dividends is aware that a dividend stripping transaction took place. The Dutch State Secretary of Finance takes the position that the definition of beneficial ownership introduced by this legislation will also be applied in the context of a double taxation convention.
Conditional withholding tax on dividends (as of January 1, 2024)
In addition to the above, it cannot be excluded that dividends distributed by us to certain related entities which are not resident in the Netherlands for Dutch tax purposes will become subject to a Dutch conditional withholding tax in certain specific situations (see below), irrespectively of the fact that we have our place of effective management in Germany and, therefore, are a tax resident of Germany under German national tax laws. As of January 1, 2024, a Dutch conditional withholding tax will be imposed on dividends distributed by us to related (gelieerd) entities (within the meaning of the Dutch Withholding Tax Act 2021; Wet bronbelasting 2021), if such related entity:
| ● | is considered to be resident (gevestigd) in a jurisdiction that is listed in the yearly updated Dutch Regulation on low-taxing states and non-cooperative jurisdictions for tax purposes (Regeling laagbelastende staten en niet-coöperatieve rechtsgebieden voor belastingdoeleinden) (a "Listed Jurisdiction"); or |
| ● | has a permanent establishment located in a Listed Jurisdiction to which the ordinary shares are attributable; or |
150
| ● | holds the ordinary shares for the main purpose or one of the main purposes to avoid taxation for another person or entity and there is an artificial arrangement or transaction or a series of artificial arrangements or transactions; or |
| ● | is not considered to be the beneficial owner of the ordinary shares in its jurisdiction of residence because such jurisdiction treats another entity as the beneficial owner of the ordinary shares (a hybrid mismatch); or |
| ● | is not resident in any jurisdiction (also a hybrid mismatch); or |
| ● | is a reverse hybrid (within the meaning of Article 2(12) of the Dutch Corporate Income Tax Act 1969), if and to the extent (x) there is a participant in the reverse hybrid which is related (gelieerd) to the reverse hybrid, (y) the jurisdiction of residence of such participant treats the reverse hybrid as transparent for tax purposes and (z) such participant would have been subject to the Dutch conditional withholding tax in respect of dividends distributed by the Company without the interposition of the reverse hybrid, |
all within the meaning of the Dutch Withholding Tax Act 2021.
The Dutch conditional withholding tax on dividends will be imposed at the highest Dutch corporate income tax rate in effect at the time of the distribution (currently 25.8%). The Dutch conditional withholding tax on dividends will be reduced, but not below zero, by any regular Dutch dividend withholding tax withheld in respect of the same dividend distribution. As such, based on the currently applicable rates, the overall effective tax rate of withholding the regular Dutch dividend withholding tax (as described above) and the Dutch conditional withholding tax on dividends will not exceed the highest corporate income tax rate in effect at the time of the distribution (currently 25.8%).
Taxes on income and capital gains
Dutch Resident Entities
Any benefit derived or deemed to be derived from the shares held by a Dutch Resident Entity, including any capital gains realized on the disposal thereof, will generally be subject to Dutch corporate income tax at a rate of 19 percent with respect to taxable profits up to EUR 200,000 and 25.8 percent with respect to taxable profits in excess of that amount (rates and brackets for 2023).
Dutch Resident Individuals
If a holder of common shares is a Dutch Resident Individual, any benefit derived or deemed to be derived from the common shares is taxable at the progressive Dutch income tax rates (with a maximum of 49.50% in 2023), if:
Taxation of savings and investments
If the above-mentioned conditions (i) and (ii) do not apply to a Dutch Resident Individual, the common shares will be subject to an annual Dutch income tax under the regime for savings and investments (inkomen uit sparen en beleggen). Taxation only occurs insofar the Dutch Resident Individual's net investment assets for the year exceed a statutory threshold (heffingvrij vermogen). The net investment assets for the year are the fair market value of the investment assets less the fair market value of the liabilities on 1 January of the relevant calendar year (reference date; peildatum). The common shares are included as investment assets. The taxable benefit for the year (voordeel uit sparen en beleggen) is taxed at a flat rate of 32% (rate for 2023). Actual income or capital gains realized in respect of the common shares are as such not subject to Dutch income tax.
151
The taxable benefit for the year is calculated as follows:
| a. | a deemed return on the fair market value of the actual amount of bank savings and cash on January 1 of the relevant calendar year; plus |
| b. | a deemed return on the fair market value of the actual amount of other investments, including the common shares, on January 1 of the relevant calendar year; minus |
| c. | a deemed return on the sum of the fair market value of the actual amount of liabilities on January 1 of the relevant calendar year less the statutory threshold for liabilities (drempel). |
| (iii) | The return percentage (%) (rendementspercentage) is calculated as follows: |
| a. | by dividing the return calculated under (ii) above by the net investment assets for the year of the Dutch Resident Individual; multiplied by |
| b. | 100. |
| (iv) | The taxable base (grondslag sparen en beleggen) is calculated as follows: |
| a. | the net investment assets for the year of the Dutch Resident Individual; minus |
| b. | the applicable statutory threshold. |
For the calendar year 2023, the deemed returns for the investment categories mentioned under (ii) (a) and (c) above have been temporarily set at 0.36% and 2.57%, respectively. The definitive percentages for these investment categories for the year 2023 will be published in the first months of 2024 and will have retroactive effect to January 1, 2023. The deemed return applicable to the other investments (mentioned under (ii)(b) above), including the common shares is set at 6.17% for the calendar year 2023. Transactions in the three-month period before and after January 1 of the relevant calendar year implemented to arbitrate between the deemed return percentages applicable to bank savings, other investments and liabilities will for this purpose be ignored if the holder of common shares cannot sufficiently demonstrate that such transactions are implemented for other than tax reasons.
Non-residents of the Netherlands
A holder of common shares that is neither a Dutch Resident Entity nor a Dutch Resident Individual will not be subject to Dutch corporate income tax in respect of income derived or deemed to be derived from the common shares or in respect of any gain or loss realized on the disposal or deemed disposal of the common shares, provided that:
152
Gift and inheritance taxes
Residents of the Netherlands
Gift or inheritance taxes will arise in the Netherlands with respect to a transfer of common shares by way of a gift by, or on the death of, a holder of such common shares who is resident or deemed resident of the Netherlands at the time of the gift or the holder’s death.
Non-residents of the Netherlands
No gift or inheritance taxes will arise in the Netherlands with respect to a transfer of the shares by way of gift by, or on the death of, a holder of common shares who is neither resident nor deemed to be resident of the Netherlands, unless:
For purposes of Dutch gift and inheritance taxes, amongst others, a person that holds the Dutch nationality will be deemed to be resident of the Netherlands if such person has been resident in the Netherlands at any time during the ten years preceding the date of the gift or the holder’s death. Additionally, for purposes of Dutch gift tax, amongst others, a person not holding the Dutch nationality will be deemed to be resident of the Netherlands if such person has been resident in the Netherlands at any time during the twelve months preceding the date of the gift. Applicable tax treaties may override deemed residency.
Value added tax (VAT)
No Dutch VAT will be payable by a holder of common shares in respect of any payment in consideration for the holding or disposal of the common shares.
Other taxes and duties
No Dutch registration tax, stamp duty or any other similar documentary tax or duty will be payable by a holder of common shares in respect of any payment in consideration for the holding or disposal of the common shares.
Material German Tax Considerations
The following is a summary of certain material German tax considerations of the acquisition, holding and disposal the Company’s common shares. For the purposes of this discussion, we assume that we are a tax resident of Germany under German national tax laws since we intended to have, from our incorporation and on a continuous basis, our place of effective management in Germany. See “Item 3. Key Information—D. Risk Factors—We may become taxable in a jurisdiction other than Germany and this may increase the aggregate tax burden on us.” This section does not set forth all German tax aspects that may be relevant for shareholders. The section is based on the German tax law applicable as of the date of this Annual Report. It should be noted that the law may change following the issuance of this Prospectus and that such changes may have retroactive effect.
The material German tax principles of purchasing, owning and transferring of shares are set forth in the following. This section does not purport to be a comprehensive or complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of shares and does not set forth all tax considerations that may be relevant to a particular person’s decision to acquire common shares. All of the following is subject to change. Such changes could apply retroactively and could affect the consequences set forth below. This section does not refer to any U.S. Foreign Account Tax Compliance Act aspects.
153
Shareholders are advised to consult their own tax advisers with regard to the application of German tax law to their particular situations, in particular with respect to the procedure to be complied with to obtain a relief of withholding tax on dividends and on capital gains (Kapitalertragsteuer) and with respect to the influence of double tax treaty provisions, as well as any tax consequences arising under the laws of any state, local or other foreign jurisdiction. For German tax purposes, a shareholder may include an individual who or an entity that does not have the legal title to the shares, but to whom nevertheless the shares are attributed, based either on such individual or entity owning a beneficial interest in the shares or based on specific statutory provisions.
This section does not constitute a particular tax advice. Potential purchasers of the Company’s shares are urged to consult their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of shares in light of their particular circumstances.
Taxation of Dividends
Withholding Tax on Dividends
Dividends distributed from a company to its shareholders are subject to withholding tax, subject to certain exemptions (for example, repayments of capital from the tax equity account (steuerliches Einlagekonto)), as described in the following. The withholding tax rate is 25% plus 5.5% solidarity surcharge (Solidaritätszuschlag) thereon (in total 26.375% plus, in the case of individuals as shareholders, church tax if applicable subject to further prerequisites) of the gross dividend approved by the ordinary shareholders’ meeting. Withholding tax is to be withheld and passed on for the account of the shareholders by a domestic branch of a domestic or foreign credit or financial services institution (Kredit- und Finanzdienstleistungsinstitut), by the domestic securities trading company (inländisches Wertpapierhandelsunternehmen) or a domestic securities trading bank (inländische Wertpapierhandelsbank) which keeps and administers the shares and disburses or credits the dividends or disburses the dividends to a foreign agent, or by the securities custodian bank (Wertpapiersammelbank) to which the shares were entrusted for collective custody if the dividends are distributed to a foreign agent by such securities custodian bank (which is referred to as the “Dividend Paying Agent”). In case the shares are not held in collective deposit with a Dividend Paying Agent, the Company is responsible for withholding and remitting the tax to the competent tax office.
Such withholding tax is levied and withheld irrespective of whether and to what extent the dividend distribution is taxable at the level of the shareholder and whether the shareholder is a person residing in Germany or in a foreign country.
In the case of dividends distributed to a company within the meaning of Art. 2 of the amended EU Directive 2011/96/EU of the Council of November 30, 2011 (the “EU Parent Subsidiary Directive”) domiciled in another Member State of the European Union, an exemption from withholding tax will be granted upon request if further prerequisites are satisfied (Freistellung im Steuerabzugsverfahren). This also applies to dividends distributed to a permanent establishment located in another Member State of the European Union of such a parent company or of a parent company tax resident in Germany if the participation in the Company is effectively connected with this permanent establishment. The key prerequisite for the application of the EU Parent Subsidiary Directive is that the shareholder has held a direct participation in the share capital of the Company of at least 10% for at least one year.
The withholding tax on distributions to other foreign resident shareholders can be reduced in accordance with a double taxation treaty (subject to domestic anti-treaty shopping rules or specific anti-abuse provisions in an applicable treaty, please see below) if Germany has concluded such double taxation treaty with the country of residence of the shareholder and if the shareholder does not hold his shares either as part of the assets of a permanent establishment or a fixed place of business in Germany or as business assets for which a permanent representative has been appointed in Germany. The reduction of the withholding tax is procedurally granted in such a manner that the difference between the total amount withheld, including the solidarity surcharge, and the tax liability determined on the basis of the tax rate set forth in the applicable double taxation treaty (generally 15% under German tax treaties providing for a dividend article in line with the OECD Model Treaty, or a lower rate subject to further prerequisites being met) is refunded by the German tax administration upon request (Federal Central Office for Taxes (Bundeszentralamt für Steuern), main office in Bonn-Beuel, An der Küppe 1, 53225 Bonn, Germany).
In the case of dividends received by corporations whose statutory seat and effective place of management are not located in Germany and who are therefore not tax resident in Germany, two-fifths of the withholding tax deducted and remitted are refunded without the need to fulfill all prerequisites required for such refund under the EU Parent Subsidiary Directive or under a double taxation treaty or if no double taxation treaty has been concluded between the state of residence of the shareholder (but subject to domestic anti-abuse rules such as substance requirements, please see below).
154
In order to receive a refund pursuant to a double taxation treaty or the aforementioned option for foreign corporations, the shareholder has to submit a completed form for refund (available at the Federal Central Office for Taxes (http://www.bzst.de) as well as at the German embassies and consulates) together with a withholding tax certificate (Kapitalertragsteuerbescheinigung) issued by the institution that withheld the tax.
The exemption from withholding tax in accordance with the EU Parent Subsidiary Directive or a double tax treaty and the aforementioned options for a refund of the withholding tax (with or without protection under a double taxation treaty) depend on whether certain additional prerequisites (in particular so-called substance requirements) are fulfilled. The applicable withholding tax relief will only be granted if the preconditions of the German anti avoidance rules (so called Directive Override or Treaty Override), in particular Section 50d, paragraph 3, German Income Tax Act (Einkommensteuergesetz) are fulfilled.
The aforementioned reductions of (or exemptions from) withholding tax are further restricted if (i) the applicable double taxation treaty provides for a tax reduction resulting in an applicable tax rate of less than 15% and (ii) the shareholder is not a corporation that directly holds at least 10% in the equity capital of the Company and is subject to tax on its income and profits in its state of residence without being exempt. In this case, the reduction of (or exemption from) withholding tax is subject to the following three cumulative prerequisites: (i) the shareholder must qualify as beneficial owner of the shares in the Company for a minimum holding period of 45 consecutive days occurring within a period of 45 days prior and 45 days after the due date of the dividends, (ii) the shareholder has to bear at least 70% of the change in value risk related to the shares in the Company during the minimum holding period without being directly or indirectly hedged and (iii) the shareholder must not be required to fully or largely compensate directly or indirectly the dividends to third parties. However, these further prerequisites do not apply if the shareholder has been the beneficial owner of the shares in the Company for at least one uninterrupted year upon receipt of the dividends.
For individual or corporate shareholders tax resident outside Germany not holding the shares through a permanent establishment (Betriebsstätte) in Germany or as business assets (Betriebsvermögen) for which a permanent representative (ständiger Vertreter) has been appointed in Germany, the remaining and paid withholding tax (if any) is final (i.e., not refundable) and settles the shareholder’s limited tax liability in Germany. For individual or corporate shareholders tax resident in Germany (that are, for example, shareholders whose residence, domicile, registered office or place of management is located in Germany) holding their shares as business assets, as well as for shareholders tax resident outside of Germany holding their shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany, the withholding tax withheld (including solidarity surcharge) can be credited against the shareholder’s personal income tax or corporate income tax liability in Germany. Any withholding tax (including solidarity surcharge) in excess of such tax liability is refunded. For individual shareholders tax resident in Germany holding the Company’s shares as private assets, the withholding tax is a final tax (Abgeltungsteuer), subject to the exceptions described in the following section.
Pursuant to special rules on the restriction of withholding tax credit, the credit of withholding tax is subject to the following three cumulative prerequisites: (i) the shareholder must qualify as beneficial owner of the shares in the Company for a minimum holding period of 45 consecutive days occurring within a period of 45 days prior and 45 days after the due date of the dividends, (ii) the shareholder has to bear at least 70% of the change in value risk related to the shares in the Company during the minimum holding period without being directly or indirectly hedged and (iii) the shareholder must not be required to fully or largely compensate directly or indirectly the dividends to third parties. Absent the fulfillment of all of the three prerequisites, three-fifths of the withholding tax imposed on the dividends must not be credited against the shareholder’s (corporate) income tax liability, but may, upon application, be deducted from the shareholder’s tax base for the relevant assessment period. A shareholder that has received gross dividends without any deduction of withholding tax due to a tax exemption without qualifying for a full tax credit has to notify the competent local tax office accordingly and has to make a payment in the amount of the omitted withholding tax deduction. The special rules on the restriction of withholding tax credit do not apply to a shareholder whose overall dividend earnings within an assessment period do not exceed EUR 20,000 or that has been the beneficial owner of the shares in the Company for at least one uninterrupted year upon receipt of the dividends.
Taxation of dividend income of shareholders tax resident in Germany holding the Company’s shares as private assets
For individual shareholders (individuals) resident in Germany holding the Company’s shares as private assets, dividends are subject to a flat tax rate which is satisfied by the withholding tax actually withheld (Abgeltungsteuer). Accordingly, dividend income will be taxed at a flat tax rate of 25% plus 5.5% solidarity surcharge thereon (in total 26.375%) and church tax (Kirchensteuer) in case the shareholder is subject to church tax because of his individual circumstances. An automatic procedure for deduction of church tax by way of withholding will apply to shareholders being subject to church tax unless the shareholder has filed a blocking notice (Sperrvermerk) with the German Federal Tax Office (details related to the computation of the concrete tax rate including church tax
155
are to be discussed with the individual tax adviser of the relevant shareholder). Except for an annual lump sum savings allowance (Sparer-Pauschbetrag) of up to EUR 801 (for individual filers) or up to EUR 1,602 (for married couples and for partners in accordance with the registered partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing jointly), private individual shareholders will not be entitled to deduct expenses incurred in connection with the capital investment from their dividend income.
The income tax owed for the dividend income is satisfied by the withholding tax withheld by the Dividend Paying Agent. However, if the flat tax results in a higher tax burden as opposed to the private shareholder’s individual tax rate, the private shareholder can opt for taxation at his individual personal income tax rate. In that case, the final withholding tax will be credited against the income tax. However, pursuant to the German tax authorities and a court ruling, private shareholders are nevertheless not entitled to deduct expenses incurred in connection with the capital investment from their income. The option can be exercised only for all capital income from capital investments received in the relevant assessment period uniformly, and married couples as well as partners in accordance with the registered partnership law filing jointly may only jointly exercise the option.
Exceptions from the flat tax rate (satisfied by withholding at source) (Abgeltungsteuer) may apply—that is, only upon application—for shareholders who have a shareholding of at least 25% in a company and for shareholders who have a shareholding of at least 1% in the Company and work for the Company in a professional capacity. In such a case, the same rules apply as for sole proprietors holding the shares as business assets. See “—Taxation of dividend income of shareholders tax resident in Germany holding the Company’s shares as business assets—Sole proprietors.”
Taxation of dividend income of shareholders tax resident in Germany holding the Company’s shares as business assets
If a shareholder holds the Company’s shares as business assets, the taxation of the dividend income depends on whether the respective shareholder is a corporation, a sole proprietor or a partnership.
Corporations
Dividend income of corporate shareholders is exempt from corporate income tax, provided that the incorporated entity holds a direct participation of at least 10% in the share capital of a company at the beginning of the calendar year in which the dividends are paid. The acquisition of a participation of at least 10% in the course of a calendar year is deemed to have occurred at the beginning of such calendar year for the purpose of this rule. Participations in the share capital of the Company which a corporate shareholder holds through a partnership, including co-entrepreneur ships (Mitunternehmerschaften), are attributable to such corporate shareholder only on a pro rata basis at the ratio of the interest share of the corporate shareholder in the assets of the relevant partnership. However, 5% of the tax exempt dividends are deemed to be non-deductible business expenses for tax purposes and therefore are subject to corporate income tax (plus solidarity surcharge) and trade tax, i.e., tax exemption of 95%. Business expenses incurred in connection with the dividends received are entirely tax-deductible.
For trade tax purposes the entire dividend income is subject to trade tax (i.e., the tax-exempt dividends must be added back when determining the trade taxable income), unless the corporation shareholder holds at least 15% of the Company’s registered share capital at the beginning of the relevant tax assessment period (Erhebungszeitraum). In case of an indirect participation via a partnership please refer to the section “Partnerships” below.
If the shareholding is below 10% in the share capital, dividends are taxable at the applicable corporate income tax rate of 15% plus 5.5% solidarity surcharge thereon and trade tax (the rate of which depends on the municipalities the corporate shareholder resides in).
Special regulations apply which abolish the 95% tax exemption if the Company’s shares are held as trading portfolio assets in the meaning of Section 340e of the German commercial code (Handelsgesetzbuch) by (i) a credit institution (Kreditinstitut), (ii) a financial service institution (Finanzdienstleistungsinstitut) or (iii) a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz), in case more than 50% of the shares of such financial enterprise are held directly or indirectly by a credit institution or a financial service institution, as well as by a life insurance company, a health insurance company or a pension fund in case the shares are attributable to the capital investments, resulting in fully taxable income.
Sole proprietors
For sole proprietors (individuals) resident in Germany holding shares as business assets dividends are subject to the partial income rule (Teileinkünfteverfahren). Accordingly, only (i) 60% of the dividend income will be taxed at his/her individual personal
156
income tax rate plus 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the dividend income are deductible for tax purposes. In addition, the dividend income is entirely subject to trade tax if the shares are held as business assets of a permanent establishment in Germany within the meaning of the German Trade Tax Act (Gewerbesteuergesetz), unless the shareholder holds at least 15% of the Company’s registered share capital at the beginning of the relevant assessment period. The trade tax levied will be eligible for credit against the shareholder’s personal income tax liability based on the applicable municipal trade tax rate and the individual tax situation of the shareholder.
Partnerships
In case shares are held by a partnership, the partnership itself is not subject to corporate income tax or personal income tax. In this regard, corporate income tax or personal income tax (and church tax, if applicable) as well as solidarity surcharge, are levied only at the level of the partner with respect to their relevant part of the profit and depending on their individual circumstances.
If the partner is a corporation, the dividend income will be subject to corporate income tax plus solidarity surcharge. See “—Corporations.”
If the partner is a sole proprietor (individual), the dividend income will be subject to the partial income rule. See “—Sole Proprietors.”
The dividend income is subject to trade tax at the level of the partnership (provided that the partnership is liable to trade tax), unless the partnership holds at least 15% of a company’s registered share capital at the beginning of the relevant assessment period, in which case the dividend income is exempt from trade tax. In the case of dividends received by a corporate shareholder of the partnership. However, trade tax will be levied on 5% of the dividends to the extent they are attributable to the shares of such corporate partners to whom at least 10% of the shares of the Company are attributable on a look-through basis, since such portion of the dividends will be deemed to be non-deductible business expenses.
If a partner is an individual, depending on the applicable municipal trade tax rate and the individual tax situation, the trade tax paid at the level of the partnership is partly or entirely be credited against the partner’s personal income tax liability.
In case of a corporation being a partner, special regulations will apply with respect to trading portfolio assets of credit institutions, financial service institutions or financial enterprises within the meaning of the German Banking Act (Kreditwesengesetz) or life insurance companies, health insurance companies or pension funds. See “—Corporations.”
Thus, the actual trade tax charge, if any, at the level of the partnership depends on the shareholding quota of the partnership and the nature of the partners (e.g., individual or corporation).
Taxation of dividend income of shareholders tax resident outside of Germany
For foreign individual or corporate shareholders tax resident outside of Germany not holding the shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany, the deducted withholding tax (possibly reduced by way of a tax relief under a double tax treaty or domestic tax law, such as in connection with the EU Parent Subsidiary Directive) is final (that is, not refundable) and settles the shareholder’s limited tax liability in Germany, unless the shareholder is entitled to apply for a withholding tax refund or exemption.
In contrast, individual or corporate shareholders tax resident outside of Germany holding the Company’s shares through a permanent establishment in Germany or as business assets for which a permanent representative has been appointed in Germany are subject to the same rules as applicable (and described above) to shareholders resident in Germany holding the shares as business assets. The withholding tax withheld (including solidarity surcharge) is credited against the shareholder’s personal income tax or corporate income tax liability in Germany.
Taxation of Capital Gains
Withholding tax on capital gains
Capital gains realized on the disposal of shares are only subject to withholding tax if a German branch of a German or foreign credit or financial institution, a German securities trading Company or a German securities trading bank holds in safe custody or
157
administers the shares or carries out the sale of the shares and pays or credits the capital gains in its capacity as disbursing agent. In those cases, the disbursing agent (and not the company) is required to deduct the withholding tax at the time of payment for the account of the shareholder and has to pay the withholding tax to the competent tax authority. However, no withholding tax should be levied by the disbursing agent from capital gains realized on the disposal of the shares by a shareholder that is tax resident outside of Germany and not subject to German taxation (see below section “Taxation of capital gains realized by shareholders tax resident outside of Germany”). In case the shares in Centogene N.V. are held (i) as business assets by a sole proprietor, a partnership or a corporation and such shares are attributable to a German business or (ii) in case of a corporation being subject to unlimited corporate income tax liability in Germany, the capital gains are not subject to withholding tax. In case of clause (i), the withholding tax exemption is subject to the condition that the paying agent has been notified by the beneficiary (Gläubiger) that the capital gains are exempt from withholding tax. The respective notification has to be filed by using the officially prescribed form.
Taxation of capital gains realized by shareholders tax resident in Germany holding shares as private assets
For individual shareholders (individuals) resident in Germany holding shares as private assets, capital gains realized on the disposal of shares are subject to final withholding tax. Accordingly, capital gains will be taxed at a flat tax rate of 25% plus a 5.5% solidarity surcharge thereon (in total 26.375%) and church tax, in case the shareholder is subject to church tax because of his individual circumstances. An automatic procedure for deduction of church tax by way of withholding will apply to shareholders being subject to church tax unless the shareholder has filed a blocking notice (Sperrvermerk) with the German Federal Tax Office (details related to the computation of the concrete tax rate including church tax are to be discussed with the individual tax adviser of the relevant shareholder). The taxable capital gain is calculated by deducting the acquisition costs of the shares and the expenses directly related to the disposal from the proceeds of the disposal. Apart from that, except for an annual lump sum savings allowance (Sparer-Pauschbetrag) of up to EUR 801 (for individual filers) or up to EUR 1,602 (for married couples and for partners in accordance with the registered partnership law (Gesetz über die Eingetragene Lebenspartnerschaft) filing jointly), private individual shareholders will not be entitled to deduct expenses incurred in connection with the capital investment from their capital gain.
In case the flat tax results in a higher tax burden as opposed to the private shareholder’s individual tax rate, the private shareholder can opt for taxation at his individual personal income tax rate. In that case, the withholding tax (including solidarity surcharge) withheld will be credited against the income tax. However, pursuant to the German tax authorities the private shareholders are nevertheless not entitled to deduct expenses incurred in connection with the capital investment from their income. The option can be exercised only for all capital income from capital investments received in the relevant assessment period uniformly, and married couples as well as for partners in accordance with the registered partnership law filing jointly may only jointly exercise the option.
Capital losses arising from the sale of the shares can only be offset against other capital gains resulting from the disposition of the shares or shares in other stock corporations during the same calendar year. Offsetting of overall losses with other income (such as business or rental income) and other capital income is not possible. Such losses are to be carried forward and to be offset against positive capital gains deriving from the sale of shares in stock corporations in future years.
The final withholding tax will not apply if the seller of the shares or in case of gratuitous transfer, its legal predecessor has held, directly or indirectly, at least 1% of the Company’s registered share capital at any time during the five years prior to the disposal. In that case capital gains are subject to the partial income rule. Accordingly, only (i) 60% of the capital gains will be taxed at his individual personal income tax rate plus a 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the capital gains are deductible for tax purposes. The withholding tax withheld (including solidarity surcharge) will be credited against the shareholder’s personal income tax liability in Germany.
Taxation of capital gains realized by shareholders tax resident in Germany holding the Company’s shares as business assets
If a shareholder holds shares as business assets, the taxation of capital gains realized on the disposal of such shares depends on whether the respective shareholder is a corporation, a sole proprietor or a partnership:
Corporations
Capital gains realized on the disposal of shares by a corporate shareholder are generally exempt from corporate income tax and trade tax. However, 5% of the tax-exempt capital gains are deemed to be non-deductible business expenses for tax purposes and therefore are subject to corporate income tax (plus solidarity surcharge) and trade tax, i.e., tax exemption of 95%.
158
Capital losses incurred upon the disposal of shares or other impairments of the share value are not tax-deductible. A reduction of profit is also defined as any losses incurred in connection with a loan or security in the event the loan or the security is granted by a shareholder or by a related party thereto or by a third person with the right of recourse against the before-mentioned persons, and the shareholder holds directly or indirectly more than 25% of the company’s registered share capital.
Special regulations apply if the shares are held as trading portfolio assets by a credit institution, a financial service institution or a financial enterprise within the meaning of the German Banking Act (Kreditwesengesetz) as well as by a life insurance company, a health insurance company or a pension fund. See “—Corporations.”
Sole Proprietors
If the shares are held by a sole proprietor, capital gains realized on the disposal of the shares are subject to the partial income rule. Accordingly, only (i) 60% of the capital gains will be taxed at his/her individual personal income tax rate plus a 5.5% solidarity surcharge thereon and church tax (if applicable) and (ii) 60% of the business expenses related to the dividend income are deductible for tax purposes. In addition, 60% of the capital gains are subject to trade tax if the shares are held as business assets of a permanent establishment in Germany within the meaning of the German Trade Tax Act (Gewerbesteuergesetz). The trade tax levied, depending on the applicable municipal trade tax rate and the individual tax situation, is partly or entirely credited against the shareholder’s personal income tax liability.
Partnerships
In case the shares are held by a partnership, the partnership itself is not subject to corporate income tax or personal income tax as well as a solidarity surcharge (and church tax) since partnerships qualify as transparent for German tax purposes. In this regard, corporate income tax or personal income tax as well as a solidarity surcharge (and church tax, if applicable) are levied only at the level of the partner with respect to their relevant part of the profit and depending on their individual circumstances.
If the partner is a corporation, the capital gains will be subject to corporate income tax plus a solidarity surcharge. See “—Corporations.” Trade tax will be levied additionally at the level of the partner insofar as the relevant profit of the partnership is not subject to trade tax at the level of the partnership. However, with respect to both corporate income and trade tax, the 95% exemption rule as described above applies.
If the partner is a sole proprietor (individual), the capital gains are subject to the partial income rule. See “—Sole Proprietors.”
In addition, if the partnership is liable to trade tax, 60% of the capital gains are subject to trade tax at the level of the partnership, to the extent the partners are individuals, and 5% of the capital gains are subject to trade tax, to the extent the partners are corporations. However, if a partner is an individual, depending on the applicable municipal trade tax rate and the individual tax situation, the trade tax paid at the level of the partnership is credited against the partner’s personal income tax liability.
With regard to corporate partners, special regulations apply if they are held as trading portfolio assets by credit institutions, financial service institutions or financial enterprises within the meaning of the German Banking Act or life insurance companies, health insurance companies or pension funds, as described above.
Taxation of capital gains realized by shareholders tax resident outside of Germany
Capital gains realized on the disposal of the shares by a shareholder tax resident outside of Germany are subject to German taxation provided that (i) the Company’s shares are held as business assets of a permanent establishment or as business assets for which a permanent representative has been appointed in Germany, or (ii) the shareholder or, in case of a gratuitous transfer, its legal predecessor has held, directly or indirectly, at least 1% of the company’s shares capital at any time during a five-year period prior to the disposal. In these cases, capital gains are generally subject to the same rules as described above for shareholders resident in Germany. However, in case the shares are not attributable to a German permanent establishment or permanent representative the 5% taxation (see “—Corporations—Taxation of capital gains realized by shareholders tax resident in Germany holding the Company’s shares as business assets”) should not apply and the capital gains are fully exempt from German tax.
However, except for the cases referred to in clause (i) above, some of the double tax treaties concluded with Germany (including the German-U.S. tax treaty) provide for a full exemption from German taxation.
159
Inheritance and Gift Tax
The transfer of the Company’s shares to another person by way of succession or donation is subject to German inheritance and gift tax (Erbschaft- und Schenkungsteuer) if:
Special regulations apply to qualified German citizens who maintain neither a residence nor their domicile in Germany but in a low tax jurisdiction, and to former German citizens, also resulting in inheritance and gift tax. The few double tax treaties on inheritance and gift tax which Germany has entered into provide that German inheritance and gift tax is levied only in case of (i) and, with certain restrictions, in case of (ii).
Imposition of Solidarity Surcharge
With effect as from the assessment period 2021, the solidarity surcharge has been partially abolished for certain individuals. The solidarity surcharge shall, however, continue to apply for capital investment and, thus, on withholding taxes levied. If the individual income tax burden for an individual shareholder is lower than 25%, the shareholder can apply for his/her capital investment income to be assessed at his/her individual tariff-based income tax rate, in which case the solidarity surcharge would be refunded.
Other Taxes
No German capital transfer tax (Kapitalverkehrsteuer), value-added tax (Umsatzsteuer), stamp duty (Stempelgebühr) or similar taxes are levied when acquiring, holding or transferring the Company’s shares. No value-added tax will be levied unless the shareholder validly opts for it. Net wealth tax (Vermögensteuer) is currently not levied in Germany.
On February 14, 2013, the EU Commission adopted a proposal for a Council Directive (the "Draft Directive") on a common financial transaction tax (“FTT”) to be implemented in Austria, Belgium, France, Germany, Greece, Italy, Portugal, Spain, Slovakia, and Slovenia (the “Participating Member States”). Estonia has stated in 2015 that it will not participate in implementing the proposed FTT.
The Draft Directive has a very broad scope and could, if introduced, apply to certain dealings in the shares or subscription rights (including secondary market transactions) in certain circumstances. The Draft Directive focused on levying a FTT on financial transactions (as defined in the Draft Directive), including the purchase, sale and exchange of financial instruments. Under the Draft Directive, the rate of the FTT would not be lower than 0.1% (0.01% for derivatives), generally based on the amount of the paid or owed consideration or in case of derivatives, the notional amount referred to in the derivatives contract at the time of the financial transaction. The issuance and subscription of shares should, however, be exempt.
Since the date of the publication
In of the Draft Directive, discussions have taken place between the Participating Member States. According to a statement of the German Federal Ministry of Finance (Bundesministerium der Finanzen) dated May 25, 2020, the work on the legal framework for the FTT was expected to be finalized in the second half of the calendar year 2020 based on the model of the existing French FTT legislation. Accordingly, the scope of application of the FTT to be levied at a rate of 0.2%, if enacted at all, could be confined to secondary market acquisitions of shares in domestic companies with a market capitalization of more than EUR 1 billion, while initial public offerings, market making and intraday trading should not be within the scope of taxation.
Nevertheless, the FTT remains subject to negotiation between the Participating Member States and was (and most probably will be) the subject of legal challenge. It may still be altered prior to its adoption. Moreover, once any directive has been adopted, it
160
will need to be implemented into the respective domestic laws of the participating member states, and the domestic provisions implementing the directive might deviate from the directive itself. Finally, additional EU member states may decide to participate in or to dismiss the implementation.
A joint statement issued by 10 of the 11 participating EU member states in October 2016 reaffirmed the intention to introduce FTT. However, at the moment not many details are available. Thus, it is not known to what extent the elements of the European Commission’s proposal outlined in the preceding paragraph will be followed in relation to the taxation of shares. The FTT proposal remains subject to negotiation between the participating Member States and is subject to political discussion. It may, therefore, be altered prior to the implementation, the timing of which remains unclear. Additional EU member states may decide to participate.
Prospective holders of the shares are advised to monitor future developments closely and to seek their own professional advice in relation to FTT.
F.Dividends and Paying Agents
Not applicable.
G.Statement by Experts
Not applicable.
H.Documents on Display
We are subject to the informational requirements of the Exchange Act. Accordingly, we are required to file reports and other information with the SEC, including annual reports on Form 20-F and reports on Form 6-K. The SEC maintains an internet website that contains reports and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
We also make available on our website, free of charge, our Annual Report and the text of our reports on Form 6-K, including any amendments to these reports, as well as certain other SEC filings, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Our website address is www.centogene.com. The information contained on our website is not incorporated by reference in this Annual Report and our website address is included in this Annual Report as an inactive textual reference only.
I.Subsidiary Information
Not applicable.
Item 11. Quantitative and Qualitative Disclosures About Market Risk
In the ordinary course of the business activities, the Group is exposed to various risks that are beyond its control, including credit risk, liquidity risk, currency risk and interest rate risk. Refer to Note 23 to our consolidated financial statements as of December 31, 2023, for further details.
161
Item 12. Description of Securities Other Than Equity Securities
A.Debt Securities
Not applicable.
B.Warrants and Rights
On January 31, 2022, pursuant to a securities purchase agreement and a warrant agreement, each signed with certain investors, the Group received EUR 15.0 million in exchange for the issuance of an aggregate of 4,479,088 common shares at a price per share of USD 3.73 (EUR 3.35) and warrants initially exercisable for the purchase of up to an aggregate of 1,343,727 additional common shares at an initial exercise price per common share of USD 7.72. The warrants are exercisable immediately as of the date of issuance and will expire on December 31, 2026. Based on the fair value per share at the issuance date, the Group recognized the warrants as liabilities in the amount of USD 3.2 million (EUR 2.8 million). The fair value of warrants an increase from EUR 0.19 per warrant as of January 31, 2022, to EUR 0.29 per warrant as of December 31, 2023. The result is an increase in fair value of warrant liabilities of EUR 159k for the period ended December 31, 2023.
C.Other Securities
Not applicable.
D.American Depositary Shares
Not applicable.
162
PART TWO
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
A.Material Modifications to Instruments
Not applicable.
B.Material Modifications to Rights
Not applicable.
C.Withdrawal or Substitution of Assets
Not applicable.
D.Changes in Trustees or Paying Agents
Not applicable.
E.Use of Proceeds
Not applicable.
Item 15. Controls and Procedures
A.Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitations, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our required disclosures.
Based on the foregoing, including the material weaknesses noted below, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2023, the design and operation of our disclosure controls and procedures were not effective at the reasonable assurance level.
B.Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections or any evaluation or effectiveness for future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
163
As part of our continued risk assessment and implementation of controls, we identified three material weaknesses related to a lack of effectively designed review and monitoring financial statement close controls, including the lack of accounting policies and personnel with appropriate skills to enable timely and appropriate technical assessments under IFRS, together with the lack of policies and procedures with respect to the review, supervision and monitoring of the accounting and reporting functions; a lack of an effectively designed and operating general IT controls framework (including system interfaces); and a lack of oversight and controls over the work performed by third-party advisors.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2023, using the criteria established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation and the criteria issued by COSO, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2023, our internal control over financial reporting was not effective because of the three material weaknesses related to the design and maintenance of effective controls described above, which has not been remediated on December 31, 2023.
During 2023, management continued implementing the corrective actions initiated since 2021 to remediate the material weaknesses identified, by performing updated root cause analyses of the material weaknesses identified in 2022 and 2023, developing a SOX internal control framework, delivering trainings to improve the technical abilities of our team, as well as hiring new qualified personnel from public accounting firms with IFRS experience.
Although the Company has dedicated time and resources to improve the internal control over financial reporting, our remediation efforts are ongoing. We will continue the process of designing corrective actions to remediate the material weaknesses identified, and we will test the design and ongoing operating effectiveness of the new and existing controls in future periods.
With the oversight of the Management Board and our Audit Committee, we are undertaking remediation efforts to address the material weaknesses identified above through the following actions:
| ● | Designing and formalizing policies and procedures to ensure routine and non-routine transactions are sufficiently analyzed and assessed against the requirements of IFRS and our corporate governance standards as part of the financial statement close process, and that contemporaneous documentation is prepared and reviewed in a timely manner. |
| ● | Designing and formalizing policies and procedures to ensure appropriate review, supervision and monitoring of the accounting and reporting functions. |
| ● | Enhancement and standardization of the financial closing and reporting process and the consideration of prior year adjustments. |
| ● | Designing and formalizing general IT General Control policies and procedures, including automation and integration of financially relevant processes, to assist in controlling certain routine processes within the finance function. |
| ● | Designing and implementing more robust controls over the review of the work done by the external advisors. |
During 2024, management will test and evaluate the implementation of these internal controls to ascertain whether they are designed and operating effectively in order to provide reasonable assurance that they will prevent or detect a material misstatement in the Company’s consolidated financial statements. If our efforts to remediate these material weaknesses are not sustained, the material weaknesses may reoccur, or other material weaknesses could occur in the future.
Notwithstanding the identified material weaknesses, our management believes that the financial statements and related notes thereto included in this annual report on Form 20-F fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in accordance with IFRS.
C.Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a transition period established by rules of the SEC for emerging growth companies. We
164
will cease to qualify as an emerging growth company on November 6, 2024. As a result, we will be required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act for the year ending December 31, 2024.
D.Changes in Internal Control Over Financial Reporting
Our management is committed to continuously improve the internal control over financial reporting and will undertake consistent improvements or enhancements on an ongoing basis. During the period covered by this annual report our management has taken steps toward improving our internal controls over financial reporting, aiming to remediate the identified material weaknesses identified in the previous years. However, the changes during the period covered by this annual report have not yet remediated the material weaknesses or our internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
Our supervisory board has determined that Mary Sheahan, Peer Schatz and Jonathan G. Sheldon each satisfy the “independence” requirements set forth in Rule 10A-3 under the Exchange Act and Mary Sheahan qualifies as an “audit committee financial expert,” as such term is defined in the rules of the SEC. For more information see “Item 6. Directors, Senior Management and Employees—C. Board Practices—Committees—Audit Committee.”
Item 16B. Code of Ethics
We adopted a Code of Business Conduct and Ethics (the “BCE”) applicable to our management board, our supervisory board, and company personnel, which is a code of ethics as defined in Item 16B of Form 20-F promulgated by the SEC. The full text of the BCE can be found on our website at www.centogene.com. Information contained on, or that can be accessed through, our website does not constitute a part of this Annual Report and is not incorporated by reference herein. If we make any amendment to the BCE or grant any waivers, including any implicit waiver, from a provision of the BCE, we will disclose the nature of such amendment or waiver on our website to the extent required by the rules and regulations of the SEC.
Item 16C. Principal Accountant Fees and Services
Our financial statements have been prepared in accordance with IFRS and are audited by EY GmbH & Co. KG Wirtschaftsprüfungsgesellschaft (“Ernst & Young”), our independent registered public accounting firm registered with the Public Company Accounting Oversight Board in the United States.
Ernst & Young has served as our independent registered public accounting firm for each of the three years ended December 31, 2023, 2022 and 2021, for which audited financial statements appear in this Annual Report.
For the year ended | ||||
December 31, | ||||
| 2023 |
| 2022 | |
(in thousands) | ||||
Audit |
| 1,361 |
| 2,253 |
Audit‑related fees |
| — |
| — |
Tax fees |
| — |
| — |
All other fees |
| — |
| — |
Total |
| 1,361 |
| 2,253 |
Audit fees relate to (i) audit services, (ii) certain procedures on our quarterly results, and (iii) services related to our statutory and regulatory filings for certain of our subsidiaries, including Centogene GmbH.
Audit Committee’s Pre-Approval Policies and Procedures
The audit committee is responsible for the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm.
165
The Audit Committee evaluates the qualifications, independence and performance of the independent registered public accounting firm as well as pre-approves and reviews the audit and non-audit services to be performed by the independent registered public accounting firm. The external audit plan and fees for professional audit services and other services rendered by Ernst & Young for the years ended December 31, 2023 and 2022 were approved by the Audit Committee.
The Audit Committee monitors compliance with the German, Dutch and U.S. rules on non-audit services provided by an independent registered public accounting firm.
Audit Work Performed by Persons Other Than Principal Accountant if Greater than 50%
Not applicable.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither we nor any affiliated purchaser has purchased any shares or other units of any class of our equity securities registered pursuant to Section 12 of the Exchange Act during the fiscal year ended December 31, 2023.
Item 16F. Change in Registrant’s Certifying Accountant
Not applicable.
Item 16G. Corporate Governance
As a “foreign private issuer”, as defined by the SEC, we are permitted to rely on home country governance requirements and certain exemptions thereunder rather than on the corporate governance requirements of Nasdaq. For example, in accordance with Dutch law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. To this extent, our practice varies from the requirement of Nasdaq Listing Rule 5620(c), which requires an issuer to provide in its bylaws for a generally applicable quorum, and that such quorum may not be less than one-third of the outstanding voting shares. Although we must provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands, thus our practice varies from the requirement of Nasdaq Listing Rule 5620(b). As permitted by the listing requirements of Nasdaq, we have also opted out of the requirements of Nasdaq Listing Rule 5605(d), which requires, among other things, an issuer to have a compensation committee that consists entirely of independent directors, Nasdaq Listing Rule 5605(e), which requires independent director oversight of director nominations, and Nasdaq Listing Rule 5605(b)[(1)], which requires an issuer to have a majority of independent directors on its board. In addition, we have opted out of shareholder approval requirements, as included in the Nasdaq Listing Rules, for the issuance of securities in connection with certain events such as the acquisition of shares or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of the Company and certain private placements. To this extent, our practice varies from the requirements of Nasdaq Rule 5635, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events.
Item 16H. Mine Safety Disclosure
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
Item 16J. Insider trading policies
Not applicable.
166
Item 16K. Cybersecurity
The digital environment and developments have facilitated the access of companies and users to a large amount of information, multiplying the ease and speed at which this information can be transmitted between different networks, companies, and countries. This volume of data implies an important advancement opportunity for society, but also a significant responsibility for companies that, like Centogene, manage considerable amounts of personal, anonymous, or aggregate information. In addition to threats to the integrity and privacy of data, Centogene may face network interruptions which could affect the quality of, or cause interruption to, the provision of its services. We also face risks related to cybersecurity such as unauthorized access, cybersecurity attacks and other security incidents, including as perpetrated by hackers and unintentional damage or disruption to hardware and software systems, loss of data, and misappropriation of confidential information. The Board of Directors is responsible for risk oversight, including oversight of cybersecurity risks, and is regularly informed by the Finance team of the managing areas' assessment of the Company's main risks, including cybersecurity risks.
Cybersecurity Risk Management
Cybersecurity risks are one of the main risks within Centogene’s risk management framework. To address these risks, the Company has adopted a comprehensive information security program that includes procedures to identify and assess material risks from cybersecurity threats and cybersecurity incidents. Our information security program also includes procedures to classify, analyze, and implement controls to address cybersecurity incidents.
Network Security: To protect our applications, we've deployed AWS WAF as the frontline defense, fortified our network with DMZ and segmentation, and enforce stringent traffic scrutiny using firewalls. Centogene's intranet is segmented with virtual private clouds, tightly controlling ingress and egress traffic. Firewall rule changes require approval from IT Operations and Security heads.
IT Security and Endpoint Protection: At our organization, we leverage AWS Security Hub which actively detects and reports various security threats, ranging from CVEs to malware, trojans, and anomalous activities across our AWS environment. Our company-provided laptops benefit from the protection of Microsoft Defender, which offers continuous monitoring for anomalous activities, unauthorized access attempts, and provides defense against malware. Users are devoid of local administrative rights; USB ports are disabled for USB flash drives. User activities are logged within our system. Our IT teams are capable of investigating incidents, issues depending on these logs. AWS Security Hub and Microsoft Defender generate incident, alert or finding based on user activities, which our security team actively monitors and manages. Our email server is fortified with threat policies, including Anti-phishing, Anti-spam, Anti-malware, Safe Attachments, and Safe Links policies. Every email undergoes scanning via MS Defender. We maintain a strict blacklist for untrusted senders. Users report security concerns and any identified security issues to our security team.
Data Encryption: Data is encrypted in transit and at rest. Our mail server sends emails encrypted. Laptop disks are encrypted. Data in transit is routed through SSL. Remote access to critical applications is restricted to VPN. It is important to note that our customers' sensitive data are exclusively hosted within our systems (server rooms in Centogene Rostock Facility and Centogene AWS cloud environment in AWS eu-central-1-Frankfurt zone).
Access Control: Our access management system strictly follows SOPs, emphasizing least privilege and minimum access rights to mitigate unauthorized actions. Access requests undergo thorough scrutiny via a ticketing system, requiring business justification and approval from relevant authorities. We utilize a range of authentication tools such as Active Directory, Azure AD, AWS IAM, OAuth, SSO, and MFA to bolster security. Password policies ensure management, including expiration and complexity standards, while regular reviews of access rights and user statuses maintain a proactive security stance.
Employee Awareness: Users undergo periodic training covering various topics such as email security risks, data protection basics, and GDPR compliance. New employees receive SOP training, with additional sessions triggered by SOP updates. Security team sends out warnings and recommendations to enhance awareness when necessary.
Backup and Recovery: We execute a backup strategy, conducting regular backups for critical IT applications to safeguard against potential data loss. Depending on these backups, we have Disaster Recovery Plans (DRPs) that serve as a blueprint for swift and effective response in the face of unforeseen events. We validate them through annual testing.
167
Physical Security: Our data is stored and processed within our facility at Rostock and the AWS Frankfurt zone. The physical security of our IT assets on cloud is ensured by AWS. Physical access to facility of Centogene is restricted, controlled, and monitored via access control software and transponders. Each personnel have restricted access right depending on his/her responsibilities to the locations in facility. Our facility features climate controls, surveillance cameras, and a redundant power supply system to ensure both security and uninterrupted operations.
ISMS and ISO27001: Centogene is ISO/IEC 27001 certified. The backbone of our ISMS is a set of Standard Operating Procedures (SOPs), serving as a guide for implementing and maintaining security measures.
ITGCs: We have established a framework of IT general controls, documented, and executed to ensure the integrity, confidentiality, and availability of our information systems. These controls, encompassing a range of technical measures, form a layer of our IT governance.
Independent security assessments: Annually, we perform penetration testing on our critical publicly available IT assets, as well as internal and external audits on our ISMS, all outsourced to trusted suppliers. These annual assessments on our cybersecurity help us to identify areas for continued focus, improvement, and compliance.
Third party service management: Cybersecurity considerations affect the selection and oversight of our third-party service providers. We require those third parties that could introduce significant cybersecurity risk to us to agree by contract to manage their cybersecurity risks in specified ways, and to agree to be subject to cybersecurity audits.
For a discussion of the cybersecurity risks that may affect the business strategy, results of operations or financial condition of the Company, see “Item 3. Key Information—Risk Factors—Operating Risks”— as we depend on information technology and telecommunications systems for significant elements of our operations. During 2023, we did not experience any material cybersecurity incidents.
Cybersecurity Governance
Cybersecurity is an area of focus for Centogene executive team (CET). CET oversees risk management activities designed and implemented by our management and receives annual ISMS review report. CFO (Legal and IT), alongside IT, QM, and other relevant VPs and department heads, convenes monthly security review meetings to address and deliberate on security-related matters. In the meetings, we cover a wide range of critical topics, including our information security posture, progress towards predefined risk mitigation goals, significant cybersecurity threat risks or incidents, insights from third-party assessments, and the cybersecurity scorecard. The CFO communicates with the audit committee as deemed necessary based on the outcomes of the monthly security review meetings. This ensures that any significant security-related matters or decisions are promptly escalated to the appropriate governance body. The audit committee of our board of directors is responsible for the oversight of risks from cybersecurity threats.
The Security Team comprises a Head of Security and Compliance (Information Security Officer), alongside an IT Security Analyst. The Head oversees the strategic direction of our security, ensuring alignment with industry standards and regulatory requirements, and leads the coordination of security initiatives across departments. The IT Security Analyst is responsible for daily monitoring of security tools. They collaborate closely with developers, system administrators, the DevOps team, HR, application owners, QM, and other departments, ensuring seamless integration of security measures. The head has over 10 years of prior work experience in IT audit, governance, risk and compliance, managing information security, implementing effective information and cybersecurity programs, and relevant degree and certification.
In addition to the core Security Team, our organization's privacy and security efforts are reinforced by a legal and data management infrastructure. This includes a Manager of Legal Affairs & Data Privacy and a Senior Legal Counsel specializing in data protection and IT, offering legal counsel on compliance and risk mitigation. These roles are supported by a team of IT and data professionals, including engineers, scientists, managers, and analysts, who collaborate to design, implement, and manage data systems with privacy and security at the forefront. Moreover, our IT Data Management Department is tasked with the comprehensive lifecycle management of data, ensuring compliance with regulations and organizational standards. Together, these teams form a cohesive framework dedicated to fortifying our defenses, mitigating risks, and maintaining trust in our data practices. These individuals have sufficient years of prior work experience in various relevant roles, demonstrating competence in their respective areas, and hold relevant degrees and certifications.
168
During 2023, no incidents were identified. Nonetheless, the Board of Directors will continue overseeing the evolution of this matter in the future, together with the Finance department.
Miscellaneous. Disclosure under Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA)
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with designated natural persons or entities sanctioned under programs relating to terrorism or the proliferation of weapons of mass destruction. Disclosure is required even where the activities, transactions or dealings are conducted outside the US by non-US affiliates in compliance with applicable law, and whether or not the activities are sanctionable under US law.
As of the date of this Annual Report, we are not aware of any activity, transaction or dealing by us during the financial year ended December 31, 2023 that is disclosable under Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act, except as set forth below. This information is to the best of our knowledge.
Centogene N.V., which is not a U.S. person and is not owned or controlled by U.S. persons, does not have any branches or subsidiaries based in Iran. However, we have contracts with several laboratories and one distributor in Iran through which we provide diagnostic tests to patients in Iran, primarily NIPT for pregnant women. These laboratories and our third-party distributor are not owned or controlled by the Iranian government and we do not have any agreements, commercial arrangements, or other contracts with the Iranian government. Moreover, neither our distributor nor we have entered into any arrangements with or sold any products to persons included on the Specially Designated Nationals and Blocked Persons List maintained by the U.S. Department of the Treasury’s Office of Foreign Asset Control.
In the year ended December 31, 2023, our gross revenues from activities in Iran amounted to EUR nil. We did not generate any net profits for the year ended December 31, 2022, from authorities in Iran.
We do not receive information regarding the identity of our distributor’s downstream customers and intermediaries in Iran, and it is possible that these parties include entities, such as government-owned hospitals and pharmacies, that are owned directly or indirectly by the Iranian government or by persons or entities sanctioned in connection with terrorism or proliferation activities. As a result, we cannot establish the proportion of gross revenue or sales potentially attributable to entities affiliated with the Iranian government or parties sanctioned for disclosable activities.
We believe that our business with Iranian parties is conducted in compliance with all applicable sanctions and export controls and that such activities, which involve providing genetic testing services to patients, are not sanctionable under U.S. secondary sanctions targeting Iran. For further information, see “Item 3. Key Information—D. Risk Factors—Transactions involving Iran or other countries or parties that are targets of U.S. or other economic sanctions could expose us to certain risks and may lead some potential customers and investors to avoid doing business with us or investing in our securities.”
As of the date of this Annual Report, our management does not anticipate any change in our activities in Iran that would result in a material impact on Centogene.
PART THREE
Item 17. Financial Statements
We have responded to Item 18 in lieu of this item.
Item 18. Financial Statements
Our audited consolidated financial statements are included in this Annual Report beginning at Page F-1.
169
Exhibit no. |
| Description |
|---|---|---|
4.11 | ||
4.12 | ||
4.13 | ||
4.14 | ||
4.15 | ||
4.16 | ||
4.17 | ||
4.18 | ||
4.19 | ||
4.20 | ||
4.21 | ||
4.22 | ||
4.23 | ||
4.24 | ||
4.25 | ||
4.26 | ||
4.27 |
171
Exhibit no. |
| Description |
|---|---|---|
4.28 | ||
4.29 | ||
4.30 | ||
4.31 | ||
4.32 | Technology Transfer and Intellectual Property License Agreement as of November 27, 2023* | |
4.33 | ||
4.34 | ||
4.35 | ||
4.36 | ||
4.37 | ||
4.38 | ||
4.39 | ||
4.40 | ||
4.41 | ||
4.42 | ||
4.43 | ||
4.44 | ||
4.45 | ||
8.1 | ||
11.1 | ||
12.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* |
172
Exhibit no. |
| Description |
|---|---|---|
12.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
13.1 | ||
13.2 | ||
15.1 | Consent of EY GmbH & Co. KG Wirtschaftsprüfungsgesellschaft.* | |
97.1 | ||
101 | The following materials from this Annual Report on Form 20-F formatted in iXBRL (Inline Extensible Business Reporting Language) are furnished herewith: (i) the Report of Independent Registered Public Accounting Firm, (ii) the consolidated statements of comprehensive loss data, (iii) the consolidated statements of financial position, (iv) the consolidated statements of cash flows, (v) the consolidated statements of changes in equity, and (vi) the notes to consolidated financial statements, in each case tagged as blocks of text and in detail.** | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101). |
* Filed herewith.
** Furnished herewith.
† Certain information has been excluded from the exhibit because it both (i) is not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.
173
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
CENTOGENE N.V. | |||
By: | /s/ KIM STRATTON | ||
Name: | Kim Stratton | ||
Title: | Chief Executive Officer | ||
Date: May 15, 2024
174
INDEX TO FINANCIAL STATEMENTS
F-1
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Supervisory Board of Centogene N.V.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial position of Centogene N.V. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive loss, changes in equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2.2 to the consolidated financial statements, the Company has suffered recurring losses from operations since inception and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2.2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2010.
May 15, 2024
F-2
Centogene N.V.
Consolidated statements of comprehensive loss for the years ended December 31, 2023, 2022 and 2021
(in EUR k)
| Note |
| 2023 |
| 2022 |
| 2021 | |
Revenue |
| 7.2 |
| |
| |
| |
Cost of sales |
|
|
| |
| |
| |
Gross profit |
|
|
| |
| |
| |
Research and development expenses |
|
|
| |
| |
| |
General administrative expenses |
|
|
| |
| |
| |
Selling expenses |
|
|
| |
| |
| |
Impairment of financial assets | | — | | |||||
Gain on reversal of financial asset impairment | — | | — | |||||
Other operating income |
| 8.1 |
| |
| |
| |
Other operating expenses |
| 8.2 |
| |
| |
| |
Operating loss |
|
|
| ( |
| ( |
| ( |
Losses from investments accounted for by the Equity method |
| 15 |
| ( |
| — |
| — |
Gains/(losses) on changes in fair value of warrants | 8.3 | ( | | — | ||||
Interest and similar income |
|
|
| |
| |
| |
Interest and similar expenses |
|
|
| |
| |
| |
Financial costs, net |
| 8.3 |
| ( |
| ( |
| ( |
Loss before taxes from continuing operations |
|
|
| ( |
| ( |
| ( |
Income taxes expenses |
| 10 |
| |
| |
| ( |
Loss for the year from continuing operations |
|
|
| ( |
| ( |
| ( |
Net income from discontinued operations, net of tax | 9 | — | | | ||||
Loss for the period | ( | ( | ( | |||||
Other comprehensive income/(loss), all attributable to equity holders of the parent |
|
|
| ( |
| ( |
| |
Total comprehensive loss |
|
|
| ( |
| ( |
| ( |
Attributable to: |
|
|
|
|
| — |
| — |
Equity holders of the parent |
|
|
| ( |
| ( |
| ( |
Non‑controlling interests from continuing operations |
| 25 |
| — |
| — |
| |
Non‑controlling interests from discontinued operations | — | — | — | |||||
| ( |
| ( |
| ( | |||
Net loss per share - Basic and diluted from (in EUR) | ||||||||
Continuing operations | 11 | ( | ( | ( | ||||
Loss attributable to parent | 11 | ( | ( | ( | ||||
The accompanying notes form an integral part of these consolidated financial statements
F-3
Centogene N.V.
Consolidated statements of financial position as of December 31, 2023 and 2022
(in EUR k)
Assets |
| Note |
| Dec 31, 2023 |
| Dec 31, 2022 |
Non‑current assets |
|
|
|
|
| |
Intangible assets |
| 12 |
| |
| |
Property, plant and equipment |
| 13 |
| |
| |
Right-of-use assets | 14 | | | |||
Investment in Joint Venture | 15 | | — | |||
Derivative assets | 23.1 | | | |||
Other assets |
| 17 |
| |
| |
| |
| | |||
Current assets |
|
|
|
|
| |
Inventories |
| 16 |
| |
| |
Trade receivables and contract assets |
| 17 |
| |
| |
Other assets |
| 17 |
| |
| |
Cash and cash equivalents |
| 18 |
| |
| |
| |
| | |||
| |
| |
Equity and liabilities |
| Note |
| Dec 31, 2023 |
| Dec 31, 2022 |
Equity |
|
|
|
|
| |
Issued capital |
| 19 |
| |
| |
Capital reserve |
| 19 |
| |
| |
Accumulated deficit and other reserves |
|
| ( |
| ( | |
Non‑controlling interests |
|
|
| — |
| — |
| ( |
| | |||
Non‑current liabilities |
|
|
|
|
| |
Non‑current loans |
| 21.1 |
| |
| |
Lease liabilities |
| 21.1 |
| |
| |
Deferred tax liabilities |
| 10 |
| |
| |
Government grants |
| 21.2 |
| |
| |
Derivative liabilities | 21.2, 23 | | | |||
Warrant liability | 21.2, 23 | | | |||
Other liabilities | 21.2, 22 | | | |||
| |
| | |||
Current liabilities |
|
|
|
|
| |
Government grants |
| 21.2 |
| |
| |
Current loans |
| 21.1 |
| |
| |
Lease liabilities |
| 21.1 |
| |
| |
Liabilities from income taxes |
|
| |
| | |
Trade payables |
| 21.2 |
| |
| |
Other liabilities |
| 21.2, 22 |
| |
| |
| |
| | |||
| |
| |
The accompanying notes form an integral part of these consolidated financial statements
F-4
Centogene N.V.
Consolidated statements of cash flows for the years ended December 31, 2023, 2022 and 2021
(in EUR k)
| Note |
| 2023 |
| 2022 |
| 2021 | |
Operating activities |
|
|
|
|
|
|
|
|
Loss before taxes from continuing operations | ( | ( | ( | |||||
Income before taxes from discontinued operations | 9 | — | | | ||||
Loss before taxes |
|
|
| ( |
| ( |
| ( |
Adjustments to reconcile earnings to cash flow from operating activities |
|
|
|
|
| |||
Amortization (including impairments) and depreciation |
| 12,13,14 |
| |
| |
| |
Government grant depreciation | ( | — | — | |||||
Inventory write-off | 16 | | — | | ||||
Interest income |
| 8.3 |
| ( |
| — |
| ( |
Interest expense |
| 8.3 |
| |
| |
| |
Gain on the disposal of property, plant and equipment |
|
| ( |
| ( |
| ( | |
Gain on the sales of IP to Joint Venture | 8.1 | ( | — | — | ||||
Expected credit loss allowances on trade receivables and contract assets | 23.2 | | — | | ||||
Share‑based payment expenses |
| 22 |
| |
| ( |
| |
Tax Expense | — | ( | — | |||||
Profit or loss from financial instruments FV adjustments | 8.3 | ( | ( | — | ||||
Loss from Joint Venture equity method | 15 | | — | — | ||||
Other non‑cash items |
|
|
| ( |
| ( |
| ( |
Net foreign exchange differences | ( | | — | |||||
Interest received | | — | — | |||||
Changes in operating assets and liabilities: |
|
|
|
|
| |||
Inventories |
| 16 |
| ( |
| |
| |
Trade receivables and contract assets |
| 17 |
| ( |
| |
| |
Other assets |
| 17 |
| |
| - |
| |
Trade payables |
| 21.2 |
| ( |
| ( |
| ( |
Other liabilities |
|
| ( |
| ( |
| | |
Thereof cash flow (used in) continuing operating activities | ( | ( | ( | |||||
Thereof cash flow from discontinued operating activities | — | | | |||||
Cash flow (used in)/from operating activities |
|
|
| ( |
| ( |
| ( |
Investing activities |
|
|
|
|
|
|
| |
Cash paid for investments in intangible assets |
| 12 |
| ( |
| ( |
| ( |
Cash paid for investments in property, plant and equipment |
| 13 |
| ( |
| ( |
| ( |
Cash paid for investment in Joint Venture | 15 | ( |
| — |
| — | ||
Grants received for investment in property, plant and equipment |
| 21.2 |
| — |
| |
| |
Cash received from the disposals of property, plant and equipment |
|
| |
| |
| | |
Cash received from sale of IP to Joint Venture |
| 15 |
| |
| — |
| — |
Interest received |
|
|
| — |
| — |
| |
Thereof cash flow from/(used in) in continuing investing activities | | ( | ( | |||||
Thereof cash flow from/(used in) discontinued investing activities | — | | ( | |||||
Cash flow used in investing activities |
|
|
| |
| ( |
| ( |
Financing activities |
|
|
|
|
|
|
| |
Cash received from the issuance of shares |
| 19 |
| — |
| |
| — |
Cash received from issuance of warrants | — | | — | |||||
Cash paid for acquisition of non-wholly owned subsidiary | — | ( | — | |||||
Cash received from loans |
| 21, 23.2 |
| |
| |
| |
Cash repayments of loans |
| 21, 23.2 |
| ( |
| — |
| ( |
Cash repayments of lease liabilities |
| 21, 23.2 |
| ( |
| ( |
| ( |
Interest paid |
| 8.3 |
| ( |
| ( |
| ( |
Thereof net cash flow from/(used in) continuing financing activities | | | ( | |||||
Thereof net cash flow used in discontinued financing activities | — | ( | ( | |||||
Cash flow from financing activities |
|
|
| |
| |
| ( |
Changes in cash and cash equivalents |
|
|
| ( |
| |
| ( |
Cash and cash equivalents at the beginning of the period |
|
|
| |
| |
| |
Effect of movements in exchange rates on cash held | ( | ( | ( | |||||
Cash and cash equivalents at the end of the period |
|
|
| |
|
| |
The accompanying notes form an integral part of these consolidated financial statements
F-5
Centogene N.V.
Consolidated statements of changes in equity for the years ended December 31, 2023, 2022 and 2021
Attributable to the owners of the parent | ||||||||||||||||
Currency | Non‑ | |||||||||||||||
Issued | Capital | translation | Accumulated | controlling | Total | |||||||||||
in EUR k |
| Note |
| capital |
| reserve |
| reserve |
| deficit |
| Total |
| interests |
| equity |
As of January 1, 2021 | 1 | | | ( | ( | | | | ||||||||
Loss for the year |
| — | — | — | ( | ( | | ( | ||||||||
Other comprehensive loss |
| — | — | | — | | — | | ||||||||
Total comprehensive loss | — | — | | ( | ( | | ( | |||||||||
Share-based payments | 22 | — | | — | — | | — | | ||||||||
Exercise of options | | ( | — | — | — | — | — | |||||||||
Disposal of non-wholly owned subsidiary | — | — | — | — | — | — | — | |||||||||
Acquisition of non-wholly owned subsidiary | — | — | — | — | — | — | — | |||||||||
As of December 31, 2021 | | | | ( | | | | |||||||||
Attributable to the owners of the parent | ||||||||||||||||
Currency | Non | |||||||||||||||
Issued | Capital | translation | Accumulated | controlling | Total | |||||||||||
in EUR k |
| Note |
| capital |
| reserve |
| reserve |
| deficit |
| Total |
| interests |
| equity |
As of January 1, 2022 | 1 | | | | ( | | | | ||||||||
Loss for the year |
| — | — | — | ( | ( | — | ( | ||||||||
Other comprehensive loss |
| — | — | ( | - | ( | — | ( | ||||||||
Total comprehensive loss | — | — | ( | ( | ( | — | ( | |||||||||
Issuance of shares | 19 | | | — | — | | — | | ||||||||
Share-based payments | 22 | — | ( | — | — | ( | — | ( | ||||||||
Exercise of options | 19 | | ( | — | — | — | — | — | ||||||||
Warrant liability | 19 | — | ( | — | — | ( | — | ( | ||||||||
Acquisition of non-wholly owned subsidiary | 24 | — | ( | — | | | ( | ( | ||||||||
As of December 31, 2022 | | | | ( | | — | | |||||||||
Attributable to the owners of the parent | ||||||||||||||||
Currency | Non | |||||||||||||||
Issued | Capital | translation | Accumulated | controlling | Total | |||||||||||
in EUR k |
| Note |
| capital |
| reserve |
| reserve |
| deficit |
| Total |
| interests |
| equity |
As of January 1, 2023 | 1 | | | | ( | | — | | ||||||||
Loss for the year |
| — | — | — | ( | ( | — | ( | ||||||||
Other comprehensive loss |
| — | — | ( | — | ( | — | ( | ||||||||
Total comprehensive loss | — | — | ( | ( | ( | — | ( | |||||||||
Share-based payments | 22 | — | | — | — | | — | | ||||||||
Exercise of options | 19 | | ( | — | — | — | — | — | ||||||||
Other movements | — | ( | — | — | ( | — | ( | |||||||||
As of December 31, 2023 | | | | ( | ( | — | ( | |||||||||
The accompanying notes form an integral part of these consolidated financial statements
F-6
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
1 General company information
Centogene N.V. (“the Company”) and its subsidiaries focus on providing data-driven answers to patients, physicians, and pharmaceutical companies for rare and neurodegenerative diseases. By integrating multiomic technologies with the CENTOGENE Biodatabank, we are able to provide dimensional analysis to guide the next generation of precision medicine. Our unique approach enables rapid and reliable diagnosis for patients, supports a more precise physician understanding of disease states, and accelerates and de-risks targeted pharmaceutical drug discovery, development, and commercialization.
Centogene N.V. is a public company with limited liability incorporated in the Netherlands, with registered office located at Am Strande 7 in 18055 Rostock, Germany and Dutch trade register number 72822872.
On January 31, 2022, pursuant to a securities purchase agreement and a warrant agreement signed with certain investors, we received EUR
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023 with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. According to the joint venture agreement, the founding capital is to be provided
2 Basis of preparation
Unless otherwise specified, “the Company” refers to Centogene N.V. and Centogene GmbH throughout the remainder of these notes, while “the Group” refers to Centogene N.V., Centogene GmbH and its subsidiaries.
The consolidated financial statements of the Group were prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (the “IASB”). The accounting policies used in the fiscal year 2023 generally correspond to the policies applied in the prior year.
These consolidated financial statements are presented in EURO, which is the Group’s functional currency. Unless otherwise specified, all financial information presented in EURO is rounded to the nearest thousand (EUR k) in line with customary commercial practice.
2.1New significant accounting policies and accounting judgments and estimates
Investment in Joint Venture
The Group assesses whether it has significant influence not only on the basis of its ownership percentage but also on the existence of qualitative factors such as representation on the board of directors of the investee, its participation in decision-making processes, interchange of managerial personnel and access to technical information. The Group assesses rights and obligations agreed to by the parties to a joint arrangement and, when relevant, other facts and circumstances in order to determine whether the joint arrangement in which it is involved is a joint venture or a joint operation. Management assessed the JV agreement mentioned in Note 1 has determined as a joint venture based on the analysis of the different factors under the applicable standard (as voting rights,
F-7
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
percentage of ownership, board reserves matter and resolutions), and concluded this should be accounted under the equity method (Note 5 (h)).
2.2 Going Concern
As an early commercial-stage company, the Group is still in progress towards reaching break-even in its diagnostic and pharmaceutical businesses. The Group and Company are subject to a number of risks similar to those of other development and early commercial stage companies. These risks include, among other things, the failure to enter into and successfully execute further collaborations with pharmaceutical partners and the failure to generate sufficient revenue from the Company’s development portfolio.
The Group´s ongoing success and ultimately the attainment of profitable operations depends on future uncertain events which include, among other things, obtaining adequate financing to promote commercial and development activities until the Group can generate sufficient revenues to support its operating cash requirements. The Group has incurred operating losses since inception. For the year ended December 31, 2023, the Group incurred a net comprehensive loss of EUR
During 2023, management obtained a significant financing through a convertible loan. In parallel, management is in discussions with several private equity parties aiming to secure a significant capital injection. These parties are also a suitable strategic fit for the Company. The Company entered into a joint venture agreement (the “Joint Venture Agreement”) dated June 26, 2023, with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. Pursuant to the Joint Venture Agreement, and subject to the terms and conditions contained therein, the Company and PIC have established a limited liability company in Saudi Arabia (the “JV”). In connection with the Joint Venture Agreement, Lifera and the Company have entered into a convertible loan agreement (the “Loan Agreement”), pursuant to which Lifera has loaned the Company USD
On May 12, 2024, the Company completed an account receivables sale (the “PIC AR Sale”) with PIC. The terms of the PIC AR Sale are set forth in the KSA Receivables Transfer Agreement, which became effective as of May 12, 2024 (the “KSA Receivables Transfer Agreement”), and the accompanying Variation Agreement (the “KSA Receivables Variation Agreement,” and together with the KSA Receivables Transfer Agreement, the “Receivables Agreement”) between the Company, and PIC dated as of May 12, 2024. Pursuant to the Receivables Agreement, PIC agreed to purchase rights to certain of Centogene’s accounts receivable in the region of the Kingdom of Saudi Arabia (each, a “KSA Receivable”) for an aggregate purchase price of USD
On May 12, 2024, the Company and PIC entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company agreed to sell to PIC
F-8
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
On May 12, 2024, the Company and PIC entered into a Second Amendment (the “Second Loan Amendment”) to the Convertible Loan Agreement, dated October 26, 2023, between the Company and PIC to, among other provisions, bifurcate the existing conversion feature of the loan such that (i) an aggregate principal amount of USD
In order to close the transactions mentioned above, we obtained Oxford’s consent on May 12, 2024, which included the addition of certain covenants in our Oxford Loan and Security Agreement. Specifically, we agreed to certain near-term timing requirements for the entry into a binding definitive agreement for the sale of the Company by July 15, 2024 and by June 15, 2024 with respect to the receipt of nonbinding term sheets relating to a sale. A breach of these timing requirements would constitute an event of default under the Oxford Loan and Security Agreement, unless waived by Oxford, which might require us to open insolvency proceedings if Oxford demands the repayment of the loan at short notice and no other financing can be secured. This covenant is consistent with the process management announced in February 2024 to explore strategic alternatives, where we engaged an investment banking firm to advise us in connection with this process. We are currently in active discussions with several interested parties, which could result in a near term transaction by July 15, 2024.
Considering cash and cash equivalents of EUR
Management have considered the uncertainties described in Note 6.2 when preparing the business plan and the cash flow forecast for the purpose of our going concern assessment.
While management is pursuing avenues to ensure we have sufficient liquidity and resources to maintain operations, if the Company is unable to obtain such funding, achievement of revenue growth and cost containment,, our current cash and cash equivalents will not be sufficient to fund our operations and meet all of our obligations as they fall due for at least one year from the date of the issuance of the consolidated financial statements, which results in a material uncertainty that raises significant doubt about our ability to continue as a going concern. We do not know whether additional funding will be available in the desired amount, at the desired time, or on acceptable terms, or at all.
The accompanying consolidated financial statements for the year ended December 31, 2023, have been therefore prepared on a going concern basis. This contemplates the Group will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of operations. The consolidated financial statements do not reflect any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that would be necessary, should the Group be unable to continue as a going concern.
2.3Geopolitical Conditions and COVID-19 Pandemic
Worldwide economic and political disruptions as a result the conflicts between Russia and Ukraine as well as in the Middle East, and the effects of COVID-19 have resulted and is expected to further result in interruptions to business operations and supply chain disruption, affecting raw material and or intermediate supply or manufacturing capabilities.
Until today, the impact of geopolitical conditions has not been significant to the Group’s operations. However, economic growth is expected to slow, including due to the recent surge in inflation and related actions by central banks, with a significant risk of recession in many parts of the world in the near term. This may also prolong tight credit markets and potentially cause such conditions to become more severe. These issues, along with the re-pricing of credit risk and the difficulties currently experienced by financial institutions, may make it difficult to obtain financing. Additionally, the Group may be affected by price increases or certain fiscal
F-9
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
policy changes in Germany, such as new tax legislation, economic sanctions, and comparable measures, although at this point, management does not foresee any such macroeconomic changes.
COVID-19 vaccines being widely available, management updated its long-term outlook for the COVID-19 testing business at the end of the third quarter of 2021 and decided to wind-down all COVID-19 business related operations. Consequently, all COVID-19 testing site contracts expired, all COVID-19 operations at testing sites had ceased and the COVID-19 testing business was discontinued as of March 31, 2022. For Diagnostics and Pharmaceutical businesses, management expects that the impact of the pandemic would be minimal to none for the foreseeable future.
3 Effects of new accounting standards
(a)New standards adopted by the Group as of January 1, 2023
The following amendments and interpretations apply for the first time in 2023 and had no impact on the consolidated financial statements of the Group:
| ● | Amendments to IAS 12 – International Tax Reform (Pillar II) and Deferred Tax |
| ● | Amendments to IAS 21 – Lack of Exchangeability |
| ● | Amendments to IAS 7 and IFRS 17 – Supplier Finance Agreements |
| ● | Amendments to IAS 1 and IAS 8 – Presentation and Accounting Policies |
| ● | IFRS 17 – Insurance Contracts |
(b)New standards not yet effective
Furthermore, certain new and amended standards and interpretations have been published that are not mandatory for December 31, 2023, reporting periods and have not been early adopted by the Group (IFRS 18 - Presentation and Disclosure). The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective. The Group is currently evaluating the impact of these new or amended standards and interpretations that are issued and become effective for the 2024 annual reporting period.
4 Basis of consolidation
The basis of consolidation includes the entities over which Centogene N.V. has control within the meaning of IFRS 10 Consolidated Financial Statements. According to IFRS 10, Centogene N.V. has control of an investee when it has direct or indirect power over the investee, exposure, or rights to variable returns from its involvement with the investee and the ability to use its power over the investee to affect those returns. Control is established when it is possible to influence operating and financial policies of the investee, typically with a share in the voting rights or shareholding of more than 50% in the investee. An entity is included in the Group’s basis of consolidation from the point in time when the Group obtains control of the entity and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full upon consolidation.
If the Group loses control over a subsidiary, it derecognizes the related assets, liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss.
F-10
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
As of March 31, 2022, operations at all COVID-19 testing sites ceased and the Group abandoned the COVID-19 business line. Consequently, the Group is reporting its COVID-19 segment as a discontinued operation (Note 9). With the decision to cease COVID-19 operations as of March 31, 2022, Centogene terminated its cooperation agreement with Dr. Bauer GmbH with a separation agreement effective as of April 2, 2022 and signed on August 23, 2022 (the “Separation Agreement”). With the COVID-19 business being discontinued and the collaboration agreement being terminated, Centogene’s control over Dr. Bauer GmbH ceased; Centogene no longer meets the criteria of the control model under IFRS 10 as it no longer has exposure to variable returns and the ability to use power to affect returns through COVID-19 operations. Therefore, Centogene deconsolidated Dr. Bauer GmbH from its consolidated financial statements as of April 2, 2022 (“Deconsolidation Date”). The impact of the deconsolidation on the loss for the period and on the statement of cash flows is disclosed under Note 9 – Discontinued operations. The impact of the deconsolidation on the statement of financial position is disclosed under Note 27 – Related parties.
On June 26, 2023, as mentioned in Note 1, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. Management has analyzed the terms included in the contract analyzing the control over the JV under IFRS 10 (Note 6.2).
5 Significant accounting policies
The Group applied the following accounting policies consistently for all of the periods presented in these consolidated financial statements.
(a)Foreign currency and currency translation
The Group’s consolidated financial statements are presented based on the parent company’s functional currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation and on disposal of a foreign operation, the gain or loss that is reclassified to profit or loss reflects the amount that arises from using this method.
Transactions in foreign currency are translated into the respective entity’s functional currency at the spot rate prevailing on the date of the transaction.
The functional currency of each entity is the respective local currency, since the entities carry out their business activities independently from a financial, economic and organizational perspective.
Monetary assets and liabilities denominated in foreign currency are translated to the functional currency using the closing rate at the reporting date. Currency translation differences are recognized immediately through profit or loss. Non-monetary items denominated in a foreign currency that are measured at historical cost are not translated at the reporting date.
On consolidation, the assets and liabilities of foreign operations are translated into Euros using the closing rate on the reporting date. Income and expenses of foreign operations are translated using the exchange rate prevailing on the date of the transaction or the annual average exchange rate. Equity is translated using historical rates until the entity is removed from the Group’s basis of consolidation. Any resulting currency translation differences are recorded in other comprehensive income and recognized under the currency translation reserve in equity if the exchange difference is not allocable to the non-controlling interests.
F-11
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The exchange rates used are presented in the following table:
Average rate | Closing rate | |||||||||||
|
|
|
| Dec 31, |
| Dec 31, |
| Dec 31, | ||||
2023 |
| 2022 |
| 2021 |
| 2023 |
| 2022 |
| 2021 | ||
USD (EUR 1) |
| | |
| |
| | |
| | ||
AED (EUR 1) |
| | |
| |
| | |
| | ||
INR (EUR 1) |
| | |
| |
| | |
| | ||
CHF (EUR 1) | | |
| | | | | |||||
SAR (EUR 1) | | — | — | | — | — | ||||||
RSD (EUR 1) | | |
| | | | | |||||
(b)Revenues from contracts with customers
The Group provides pharmaceutical solutions and diagnostic tests, enabled by its knowledge and interpretation-based platform. Revenue from contracts with customers is recognized when control of the goods are transferred to the customer or over the time as services are performed, at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.
(i)Pharmaceutical segment
The Group's contracts with customers relate to a variety of solutions provided to the Group's pharmaceutical partners in order to accelerate their development of treatments for rare diseases, including early patient recruitment and identification, epidemiological insights, biomarker discovery and patient monitoring. The collaboration agreements are structured on a fee per analysis basis, milestone basis, fixed fee basis, or a combination of these. In addition, some of the Group's contracts with its pharmaceutical partners also include sales of CentoCard filter cards for the collection of biological samples from patients.
The performance obligations in Pharmaceutical segment can either be satisfied over time, as the services are performed, or at a point in time depending on the structure of the collaborations, which are determined based on nature of the service provided, as detailed below.
| - | Revenue from early patient recruitment and identification, epidemiological insights, biomarker discovery and patient monitoring is based on fee per analysis, milestone fees and fixed fees. The revenues from these solutions are recognized over time using an input method based on the work rendered in order to measure progress towards complete satisfaction of the services. |
| - | Revenue from the licensing of intellectual property for an unlimited period, usually in the structure of an upfront fee, is recognized at a point in time, when the right (or license) to use intellectual property is conveyed. |
| - | Revenues from the licensing of intellectual property for a certain period, being a right to access such intellectual property as defined in IFRS 15, is recognized over time over the licensing period. |
| - | Revenue from the sale of CentoCard filter cards is recognized at a point in time when the control of the CentoCard filter cards has transferred to the customer, which typically occurs on delivery. |
(ii)Diagnostics segment
Revenues from the Group's Diagnostic segment are typically generated from genetic sequencing and diagnostics services that the Group provides to clients, who are typically physicians, laboratories or hospitals, either directly or through distributors. Revenues are based on a negotiated price per test or on the basis of agreements to provide certain testing volumes over defined periods. The Group has concluded that the services rendered in the Diagnostic segment comprise one performance obligation.
F-12
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The performance obligation in the Diagnostics segment is recognized over time, as the services are performed, using an input method to measure progress towards complete satisfaction of the service. In order to measure progress, the Group uses a standardized process which measures progress to completion by stages, consisting of (i) a preparation stage, (ii) a clarification stage, (iii) a sequencing stage, and (iv) an output stage. The percentages attributed to those stages are indicative of the cost incurred in performing the respective stage in relation to total cost.
Contract balances
(i) Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group satisfies a performance obligation by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional. Contract assets are subject to impairment assessment. Refer to accounting policies of impairment of financial assets in Note 5(o) “Financial instruments”.
(ii) Trade receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies of impairment of financial assets in Note 5(o) “Financial instruments”.
(iii) Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration or an amount of consideration is due from the customer (whichever is earlier). If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract.
(c)Finance income and finance costs
Interest income and expenses are recognized in the period which they relate to through profit or loss using the effective interest rate method.
(d)Current versus non-current classification
The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is:
| - | Expected to be realized or intended to be sold or consumed in the normal operating cycle |
| - | Held primarily for the purpose of trading |
| - | Expected to be realized within twelve months after the reporting period; or |
| - | Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period |
All other assets are classified as non-current.
A liability is current when:
| - | It is expected to be settled in the normal operating cycle |
F-13
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
| - | It is held primarily for the purpose of trading |
| - | It is due to be settled within twelve months after the reporting period; or |
| - | There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period |
| - | A covenant breach has occurred and not resolved at year end from a loan |
The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
(e)Intangible assets
Research and development
Expenses for research activities are recognized through profit or loss in the period in which they are incurred.
Development expenditures on an individual project are recognized as an intangible asset from the date the Group can demonstrate:
| - | the product or process is technically and commercially feasible so that the asset will be available for use or sale |
| - | the Group has the ability and intention to use or sell the asset |
| - | a future economic benefit is probable |
| - | the Group has sufficient resources to complete the development and |
| - | the development costs can be measured reliably. |
The Group’s research and development activities mainly relate to development of biomarkers where likelihood for future commercialization is probable, constant innovation for the Diagnostic and Pharmaceutical businesses with new or enhanced products, continuous improvement on the bioinformatics pipelines, AI capabilities and Medical Reporting automatization and IT driven solutions. With respect to biomarkers, the development stage is usually considered to be achieved when the target validation process is completed, and commercialization is probable. Regarding the innovation on bioinformatics, main efforts are put on enhancing the automatization of identification of disease-causing variants via variant prioritization and classification to speed up and improve diagnosis. In the realm of IT-driven solutions, there is a growing focus on automating data processing and analytics through cloud-based platforms.
Capitalized development costs are recognized at cost less accumulated amortization and any accumulated impairment losses. They are only amortized from the date the asset is ready for its intended use, which in the case of biomarkers is normally at the time the patent application for such biomarker is made. Amortization expense is recorded in cost of sales and research and development expenses.
Capitalized development costs which are still under development are tested for impairment annually and when circumstances indicate that the carrying value may be impaired.
F-14
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Other intangible assets
Other intangible assets purchased by the Group with finite useful lives are recognized at cost less accumulated amortization and any accumulated impairment losses. Subsequent expenditure is only capitalized if it increases the future economic benefits of the respective asset.
Intangible assets are amortized over their estimated useful life using the straight-line method and assessed for impairment whenever there is an indication that the intangible asset may be impaired.
The estimated useful lives are as follows:
| - | Internally generated/acquired biomarkers: |
| - | Internally developed database: - |
| - | Purchase rights, licenses and software: - |
The useful lives and depreciation methods are reviewed annually to ensure that the methods and periods of depreciation are consistent with the expected economic benefit from the asset.
(f)Property, plant and equipment
Property, plant and equipment are carried at cost less any accumulated depreciation and any accumulated impairment losses.
The cost of property, plant and equipment comprises its purchase price including customs duties and non-refundable acquisition taxes, and proportionate VAT not deductible from input tax as well as any directly attributable costs of bringing the asset to its working condition and location for its intended use.
Subsequent expenditure is only capitalized if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
Depreciation is calculated over the estimated useful life using the straight-line method. The Group has assessed that none of its property, plant and equipment has a residual value. The estimated useful lives of significant property, plant and equipment are as follows:
| - | Buildings: |
| - | Plant and other equipment, furniture and fixtures: |
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of comprehensive loss when the asset is derecognized.
The depreciation methods, useful lives and residual values are reviewed, and adjusted prospectively if appropriate, as of each reporting date.
Assets under construction are reported at cost and are allocated to property, plant and equipment until they are completed and put into operational use, from which point onwards they are depreciated.
F-15
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(g)Leases
Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
(i)Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter of its lease term and the estimated useful lives, as follows:
| - | Buildings: |
| - | Offices: |
| - | Plant and other equipment, furniture and fixtures: |
If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to accounting policies of impairment of financial assets in Note 5(o) “Financial instruments”.
(ii)Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for leases reasonably certain to be terminated. The variable lease payments that do not depend on an index or a rate are recognized as expenses in the period during which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
(iii)Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered of low value (i.e., below EUR 5k). Lease payments on short-term leases and leases of low-value assets are recognized as expenses on a straight-line basis over the lease term.
F-16
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(iv)Sale and leaseback transactions
The Group applies IFRS 15 for determining if the transfer of an asset to the buyer (lessor) is to be accounted for as a sale of assets. After the sale of assets is concluded, the Group measures the right-of-use assets arising from the leaseback at the proportion of the previous carrying value of the asset that relates to the right of use retained by the Group. Accordingly, the Group recognizes only the amount of any gain or loss that relates to the rights transferred to the buyer (lessor).
If the fair value of the consideration for the sale of an asset does not equal the fair value of the asset, or if the payments for the leases are not at market rates, the Group makes the following adjustments to measure the sale proceeds at fair value:
| ● | any below-market terms shall be accounted for as a prepayment of lease payments |
| ● | any above-market terms shall be accounted for as additional financing provided by the buyer-lessor to the seller-lessee. |
(h)Investments in associates and joint arrangements
The Group assesses whether it has significant influence not only on the basis of its ownership percentage but also on the existence of qualitative factors such as representation on the board of directors of the investee, its participation in decision-making processes, interchange of managerial personnel and access to technical information. The Group assesses rights and obligations agreed to by the parties to a joint arrangement and, when relevant, other facts and circumstances in order to determine whether the joint arrangement in which it is involved is a joint venture or a joint operation. Management assessed the JV agreement mentioned in Note 1 can be determined as a joint venture based on the analysis over the different factors under the applicable standard (as voting rights, percentage of ownership, board reserves matter and resolutions), and concluded this should be accounted under equity method and therefore recognized at cost at the date of acquisition and subsequently adjusted for the Company’s share in undistributed earnings or losses since acquisition, less any impairment incurred. Losses are presented in the consolidated statement of comprehensive loss in losses from investment accounted for by equity method.
Whenever there is an indication of impairment related to investments accounted for under the equity method, the Company performs an impairment test based, amongst others, on an estimate of its share in the present value of the projected future cash flows expected to be generated by operations of associates and joint ventures and, similarly to impairment testing of tangible and intangible assets, including goodwill, the estimates, judgments and assumptions applied for the value in use calculations relate primarily to growth rates, expected changes to average selling prices, shipments and direct costs. Assumptions for average selling prices and shipments are based on historical experience and expectations of future changes in the market.
Gains and losses resulting from transactions involving assets that do not constitute a business, between the Company and its associate or joint venture are recognized in the Company’s financial statements only to the extent of unrelated investors’ interests in the associate or joint venture.
(i) Impairment of Non-current assets
Non-current assets, including tangible, intangible assets and investments in associates and joint ventures, are assessed at each reporting date for indicators of impairment. Whenever such indicators exist, or in the case of assets which are subject to an annual impairment test, the recoverable amount is estimated. An asset’s recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future post-tax cash flows deriving from the use of the asset or its cash generating unit, as applicable, are discounted to their present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, provided that the result obtained is the same that would be obtained by discounting pre-tax cash flows at a pre-tax discount rate.
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount, and an impairment loss is recognized as an expense under “Impairment losses” in the consolidated income statement.
F-17
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The Group bases the calculation of impairment on the approved business plans of the various cash generating units to which the assets are allocated. The projected cash flows, based on the approved strategic business plans, cover a period of five years. Starting with the sixth year, an expected constant growth rate is applied.
(j)Inventories
Inventories are measured at the lower of cost and net realizable value. Inventories are recognized at cost based on the first in first out (FIFO) method.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
(k)Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Grants that are intended to compensate the Group for expenses incurred are recognized through profit or loss in the period in which expenses are submitted and claimed.
Government grants which relate to an asset are initially recognized as deferred income at nominal amounts. They are subsequently released to profit or loss on a systematic basis over the expected useful life of the related asset.
The release of deferred income related to either type of grant is presented as other operating income (see Note 8.1).
(l)Share-based payments
Plan recipients (including senior executives and certain member of the Supervisory Board) of the Group receive remuneration in the form of share-based payments, whereby the recipients render services as consideration for equity instruments (equity-settled transactions) or settled in cash (cash-settled transactions). The Company has only equity-settled awards granted which were vesting in the fiscal periods 2021-2023.
Equity settled transactions
The cost of equity-settled transactions is determined by the fair value of the granted options or the granted Restricted Units (“RSU”) or Stock Grants (“SGA”) when the grant is made, using a Black-Scholes or Monte Carlo simulation model or share price on the grant date, with further details given in Note 23.
The cost is recognized in employee benefits expense (see Note 8.4) or other relevant expenses, together with a corresponding increase in equity (capital reserves), over the period in which the service conditions are fulfilled (the vesting period). The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The expense or credit in profit or loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
F-18
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(m)Provisions, contingent assets and contingent liabilities
A provision is recognized when the Group has a present obligation (legal, contractual or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement misrecognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the profit or loss net of any reimbursement. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
If the requirements for recognizing a provision are not satisfied, the corresponding obligations are recorded as contingent liabilities unless the possibility of an outflow of resources embodying economic benefits is remote.
A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. The Group does not recognize a contingent asset. Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
(n)Income taxes
Tax expense comprises current and deferred taxes. Current taxes and deferred taxes are recognized through profit or loss apart from deferred taxes related to items recognized outside profit or loss, in which case it is recognized in correlation to the underlying transaction either directly in equity or in other comprehensive income.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.
Deferred taxes are set up for temporary differences between the carrying amounts of assets and liabilities for group financial reporting purposes at the reporting date and the amounts used for tax purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:
- | temporary differences arising from the initial recognition of assets or liabilities in the course of a business transaction that is not a business combination and does not affect either the accounting profit or the taxable profit or loss |
- | temporary differences associated with investments in subsidiaries if the Group controls the timing of the reversal of the temporary differences, and it is probable that the differences will not reverse in the foreseeable future. |
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities are offset against each other if certain conditions are met.
F-19
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(o)Financial instruments
(i) Financial assets
The Group’s financial assets principally consist of those accounted for as receivables, contract assets, financial assets at fair value through profit or loss and cash and cash equivalents.
Receivables and contract assets
Receivables, including contract assets, are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Contract assets and trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under IFRS 15. Refer to the accounting policies in note 5(b) “Revenues from contracts with customers”.
After initial recognition, receivables and contract assets are subsequently carried at amortized cost using the effective interest rate method less any impairment losses. Gains and losses are recognized in the profit or loss for the period when the assets are derecognized or impaired.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognized in the statement of profit or loss.
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.
Derecognition
A financial asset or a part of a financial asset is derecognized when the Group no longer has the contractual rights to the asset or the right to receive cash flows from the asset have expired.
Impairment
The Group recognizes an allowance for expected credit losses (ECLs). ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.
The Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group considers a financial asset in default when contractual payments are
Further disclosures relating to impairment of trade receivables, including contract assets, are in Note 23.
F-20
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(ii) Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts and derivative financial instruments, including warrant liabilities.
Loans and borrowings
Loans and borrowings are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method, taking into account any principal repayments and any discount or premium on acquisition and including transaction costs and fees that are an integral part of the effective interest rate.
Gains or losses are recognized through profit or loss at the time the liabilities are derecognized or disposed of.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in the statement of profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of recognition, and only if the criteria in IFRS 9 are satisfied.
Warrant liabilities
Warrants are classified as equity to the extent that they confer the right to purchase a fixed number of shares for a fixed exercise price. In the event that the exercise price or the numbers of shares to be issued are not deemed to be fixed, the warrants are classified as a non-current derivative financial liability. Since the exercise price of the warrants is determined in US dollars which is different from the Company’s functional currency, warrants are classified as liabilities. This liability is initially recognized at its fair value on the date the contract is entered into and subsequently accounted for at fair value through profit and loss (FVTPL) at each reporting date. As the warrants are classified as financial liabilities at FVTPL, the transaction costs are expensed in the consolidated statements of comprehensive loss.
Derecognition
A financial liability is derecognized when the obligation underlying the liability is discharged, canceled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized through profit or loss.
(p) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and bank balances, including short-term, highly liquid investments that can be quickly converted into cash amounts. These have original maturities of three months or less and are subject to a low risk of fluctuation in value.
F-21
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(q) Discontinued operations
A discontinued operation is a component of an entity that either has been disposed of, or that is classified as held for sale. It must either (i) represent a major separate line of business or geographical area of operations; (ii) be part of a single coordinated disposal plan; or (iii) be a subsidiary acquired exclusively with a view to resale. A component also qualifies for presentation as a discontinued operation when activities are ultimately ended (abandoned). Non-current assets and disposal groups are not classified as assets held for sale if their carrying amount is to be recovered through continuing use.
In 2021, the Group decided to end its COVID-19 business activities, effective Q1 2022. The Group assessed that ending the activities of this operating segment would qualify as a discontinued operation. Therefore, the profit or loss related to the COVID-19 business was presented in a separate line item of the profit and loss section of the consolidated statements of comprehensive loss for the years ended December 31, 2022 and 2021. Since the operations were discontinued through winding-down of the COVID-19 business, no assets or liabilities were required to be disclosed separately on the statements of financial position. The segment reporting note and notes to the consolidated financial statements for the years ended December 31, 2023, 2022 and 2021, only represent continuing operations. For further details on the discontinued operations refer to Note 9 – Discontinued operations.
6 Accounting judgments and estimates
The preparation of the consolidated financial statements requires the management board to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis and revisions of estimates are recorded prospectively.
6.1Judgments
Provision for expected credit losses of trade receivables and contract assets
The Group uses a provision matrix to calculate ECLs for trade receivables and contract assets. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (e.g. by segment, geography, customer type and rating).
The provision matrix is initially based on the Group's historical observed default rates.
The assessment of the correlation between historical observed default rates and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecasted economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer's actual default in the future. The information about the ECLs on the Group's trade receivables and contract assets is disclosed in Note 23.2.
Deferred tax asset on loss carryforwards
The tax losses carried forward do not expire. In the light of the Company’s loss history, the recognition of deferred taxes for tax losses carried forward and deductible temporary differences is limited to the future reversal of existing taxable temporary differences.
Fair value measurement of financial instruments
When the fair values of financial assets and liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair values are measured using valuation techniques including the discounted cash flow model and option pricing models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. For the valuation of the loan hosting a multiple embedded option the Group used the Leveraged Loan Index spread for B- companies as boundary conditions. See Note 23.1 for further details.
F-22
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Revenue implicit concession
The Group has a diagnostics customer in the Middle Eastern region with a history of significant payment delays. This history has resulted in the recognition of significant subsequent impairment losses by applying the expected credit loss method as the collection of the contractual consideration was historically considered probable upon recognition of revenue. In 2021, based on the developments in its collection experience, additional negotiations with the customer, and past experiences, the Group considered it necessary to reassess its judgments related to the recognition of revenue from contracts with this customer.
The Group’s management concluded, based on the facts and circumstances and management’s expectations regarding this customer, that this uncertainty in the amount of the contract consideration it expects to collect, and the likelihood of accepting a lower amount or changing payment terms represents an “implicit price concession” such that the contract consideration is variable.
Therefore, the Group’s management estimates the amount of the contractual consideration it expects to ultimately collect and for which it is highly probable that related revenue recognized would not be subject to significant future reversals when such uncertainty is resolved. The Group’s management estimates the implicit price concessions by applying an estimated rate of
Despite the uncertainties related to the amount expected to be collected from the customer, based on experience and the facts and circumstances related to the customer, the Group considers it probable that it will collect
Investment in Joint Venture
On June 26, 2023, as mentioned in Note 1, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia. Management has analyzed the terms included in the contract analyzing the control over the JV under IFRS 10, considering such as voting rights, percentage of ownership, board reserves matter and resolutions, concluding the Company has joint control over the “JV”, classifying the investment as an investment in a Joint Venture under IAS28 – refer to Note 15 Investment in Joint Venture.
6.2 Assumptions and estimation uncertainties
Going Concern
In assessing whether the going concern assumption is appropriate and whether there are material uncertainties that may cast significant doubt about our ability to continue as a going concern, management must estimate future cash flows for a period of at least twelve-months following the end of the reporting period by considering relevant available information about the future. Management has considered a wide range of factors relating to expected cash inflows which are subject to uncertainty, including the forecasted revenue from the Diagnostics and Pharmaceutical segments, as well as whether we will enter into any new significant pharmaceutical partnerships, and realize potential cash injections from the sale of receivables, assuming such sale meets the requirements for a true sale under IFRS, modifications under the convertible loan, the sale of the shares in the JV, as well as the possibility to comply with covenants mentioned in note 2.2. Management has also estimated cash outflows such as operating and capital expenditures and debt repayments, including the ability to delay uncommitted expenditures, and to benefit from the implementation of certain cost saving measures. Estimated future cash flows are derived from cash inflows from projected revenues less projected cash costs and are based
F-23
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
on the approved budget adjusted for any earnings that have come from the year-to-date performance. Estimated future cash flows have been prepared based on assumptions such as:
| ● | additional capital injections in relation to sold receivables from customers in the region of the Kingdom of Saudi Arabia which are conditional on certain contract closing and payment conditions not yet met (i.e., achievement of business plan targets) and that such sale, if implemented will meet the true sale criteria under IFRS, |
| ● | additional cash injections in relation to sold shares in the JV to PIC, |
| ● | compliance with covenants in our Oxford Loan and Security Agreement, |
| ● | revenue growth rates by segment, |
| ● | current contract pipeline considering signed contracts and contracts under negotiations in our pharmaceutical segment, |
| ● | consumable costs affecting the overall margin to be significantly reduced in the following years due to the incorporation of a new sequencer on the laboratory that reduces the material required to run the diagnostic tests and |
| ● | reduction of R&D and G&A expenses based on the Company’s implemented cost saving measures. |
Share-based payments
Estimating fair value for share-based payment transactions requires a determination of the most appropriate valuation model, which depends on the terms and conditions of the grant. For the measurement of the fair value of equity-settled transactions at the grant date (including those issued to replace the cash-settled transactions), the Group uses the Monte Carlo simulation model. The fair value at grant date of equity-settled transactions is not updated at the end of each reporting period.
7 Segment information and revenue from contracts with customers
7.1 Segment information
For management purposes, the Group is organized into business units based on its products and services. In line with the management approach, the operating segments were identified on the basis of the Group’s internal reporting and how the chief operating decision maker (“CODM”) assesses the performance of the business. On this basis, the Group has the following
| ● | Pharmaceutical segment: This segment provides a variety of solutions to our pharmaceutical partners, including target and drug screening, clinical development, market access and expansion, as well as CENTOGENE Biodatabank Licenses and Insight Reports; and |
| ● | Diagnostic segment: This segment provides genetic sequencing and diagnostics services to our clients, who are typically physicians, laboratories or hospitals, either directly or through distributors. |
| ● | JV segment: As disclosed in Note 1, on June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”), with Pharmaceutical Investment Company (“PIC” or “Lifera”). This segment provides the income from the IP sale and the costs related to setting up the JV (see Note 15 – Investment in Joint Venture). |
In 2021, the Group decided to end its COVID-19 business activities in Q1 2022. The Group assessed that ending the activities of this operating segment would qualify as a discontinued operation. Therefore, the profit or loss related to the COVID-19 business is presented in a separate line item of the profit and loss section of the consolidated statements of comprehensive loss for the years ended December 31, 2023, 2022, and 2021 (see Note 9 – Discontinued Operations).
F-24
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The management board is the CODM and monitors the operating results of the segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on segment results and is measured with reference to the Adjusted EBITDA. Adjusted EBITDA is a financial measure which is not prescribed by IFRS, which the Group defines as income/loss before finance costs (net), taxes, and depreciation and amortization (including impairments), adjusted to exclude corporate expenses, one-off costs as well as share-based payment expenses.
Corporate expenses, interest and similar income and expenses, as well as share-based payment expenses are not allocated to individual segments as the underlying instruments are managed on a group basis. Assets and liabilities are managed on a Group basis and are not allocated to the different segments for internal reporting purposes. Therefore, our CODM does not regularly review this information by segment and accordingly we do not report this information by segment.
2023 | ||||||||||
in EUR k |
| Pharmaceutical |
| Diagnostics |
| JV | Corporate |
| Total | |
Total Revenues from contracts with external customers |
| | | — | — | | ||||
Adjusted EBITDA | | | | ( | ( | |||||
Other segment information | ||||||||||
Depreciation and amortization (including impairments) |
| | | — | | | ||||
Research and development expenses | — | — | — | | | |||||
Share of income (loss) of investments accounted for by the equity method |
| — | — | ( | — | ( | ||||
Capital Expenditures | ||||||||||
Additions to property, plant and equipment and right-of-use assets | | | — | | | |||||
Additions to intangible assets | | — | — | | | |||||
2022 | ||||||||||
in EUR k |
| Pharmaceutical |
| Diagnostics |
| JV | Corporate |
| Total | |
Total Revenues from contracts with external customers |
| | | — | — | | ||||
Adjusted EBITDA | | | — | ( | ( | |||||
Other segment information | ||||||||||
Depreciation and amortization (including impairments) |
| | | — | | | ||||
Research and development expenses | — | — | — | | | |||||
Share of income (loss) of investments accounted for by the equity method |
| — | — | — | — | — | ||||
Capital Expenditures | ||||||||||
Additions to property, plant and equipment and right-of-use assets | | | — | | | |||||
Additions to intangible assets | | | — | | | |||||
F-25
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
2021 | ||||||||||
in EUR k |
| Pharmaceutical |
| Diagnostics |
| JV | Corporate |
| Total | |
Total Revenues from contracts with external customers |
| | | — | — | | ||||
Adjusted EBITDA | | | — | ( | ( | |||||
Other segment information | ||||||||||
Depreciation and amortization (including impairments) |
| | | — | | | ||||
Research and development expenses | — | — | — | | | |||||
Share of income (loss) of investments accounted for by the equity method |
| — | — | — | — | — | ||||
Capital Expenditures | ||||||||||
Additions to property, plant and equipment and right-of-use assets | | | — | | | |||||
Additions to intangible assets | | — | — | | | |||||
Adjustments to income/ loss include non-cash charges in relation to depreciation, amortization (including impairments), one-off costs, share-based payments as well as net financial costs and income taxes. Certain costs, and related income, are not allocated to the reporting segment results and represent the residual operating activities of the Group reported as ‘Corporate’. These costs include general financing costs and corporate overheads related to, centralized functions such as communications, information technology, facilities, legal, finance and accounting, insurance (D&O), human resources, business development and strategic initiatives, certain professional and consulting services, procurement, research and development and other supporting activities.
Corporate expenses contain the costs incurred for the process of obtaining the equity and debt financing amounted to EUR
Reconciliation of segment Adjusted EBITDA to Group loss for the period
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Reportable segment Adjusted EBITDA |
| |
| |
| |
Corporate expenses |
| ( |
| ( |
| ( |
| ( |
| ( |
| ( | |
Share‑based payment expenses (Note 22) |
| ( |
| |
| ( |
Depreciation and amortization (including impairments) |
| ( |
| ( |
| ( |
Operating loss |
| ( |
| ( |
| ( |
Financial costs, net |
| ( |
| ( |
| ( |
Investments accounted for by the Equity method |
| ( |
| — |
| — |
Income taxes |
| ( |
| ( |
| |
Loss for the year |
| ( |
| ( |
| ( |
Under share-based payment expenses, the Company has capitalized EUR
Non-current asset locations
Non-current assets of the Group consist of right-of-use assets (under IFRS 16), property, plant and equipment, as well as intangible assets. All of such assets are located in Germany, which is the country of the business address of the Centogene GmbH, except for property, plant and equipment of EUR
F-26
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
7.2 Revenue from contracts with customers
in EUR k | 2023 | |||||
| Pharmaceutical |
| Diagnostics | Total | ||
Rendering of services |
| | | | ||
Sales of goods |
| | — | | ||
Total Revenues from contracts with external customers |
| | | | ||
Recognized over time |
| | | | ||
Recognized at a point in time |
| | — | | ||
Total Revenues from contracts with external customers |
| | | | ||
Geographical information | ||||||
Europe |
| | | | ||
—Germany* |
| — | | | ||
—Netherlands** | — | | | |||
Middle East |
| | | | ||
—Saudi Arabia# | | | | |||
North America |
| | | | ||
—United States# |
| | | | ||
Latin America |
| | | | ||
Asia Pacific |
| — | | | ||
Total |
| | | | ||
in EUR k | 2022 | |||||
| Pharmaceutical |
| Diagnostics | Total | ||
Rendering of services |
| | | | ||
Sales of goods |
| | — | | ||
Total Revenues from contracts with external customers |
| | | |||
Recognized over time | | | | |||
Recognized at a point in time | | — | | |||
Total Revenues from contracts with external customers | | | ||||
| ||||||
Geographical information | ||||||
Europe |
| | | | ||
—Germany* |
| — | | | ||
—Netherlands** | — | | | |||
Middle East |
| | | | ||
—Saudi Arabia# | — | | | |||
North America |
| | | | ||
—United States# |
| | | | ||
Latin America |
| | | | ||
Asia Pacific |
| — | | | ||
Total |
| | | |||
F-27
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
in EUR k | 2021 | |||||
| Pharmaceutical |
| Diagnostics | Total | ||
Rendering of services |
| | | | ||
Sales of goods |
| | — | | ||
Total Revenues from contracts with external customers |
| | | | ||
Recognized over time | | | | |||
Recognized at a point in time | | — | | |||
Total Revenues from contracts with external customers | | | | |||
Geographical information |
| |||||
Europe |
| | | | ||
—Germany* |
| — | | | ||
—Netherlands** | — | | | |||
Middle East |
| | | | ||
—Saudi Arabia# |
| — | | | ||
North America |
| | | | ||
—United States# |
| | | | ||
Latin America |
| | | | ||
Asia Pacific |
| — | | | ||
Total |
| | | | ||
* country of the incorporation of Centogene GmbH
** country of the incorporation of Centogene N.V.
# countries contributing more than 10% of the Group's total consolidated revenues for the respective year ended December 31, 2023, 2022 or 2021
The Group collaborated with the majority of our pharmaceutical partners on a worldwide basis in 2023, 2022 and 2021. In addition, in cases where our pharmaceutical partners are developing a new rare disease treatment, it is generally anticipated that the final approved treatment will be made available globally. As a result, we allocate the revenues of our Pharmaceutical segment by geographical region by reference to the location where each pharmaceutical partner mainly operates, which is based on the region from which most of their revenues are generated. The allocation of revenues in our Diagnostic segment is based on the location of each customer.
Pharmaceutical segment
During the year ended December 31, 2023, revenues from
During the year ended December 31, 2023, Centogene entered into several collaborations with pharmaceutical partners, of which upfront fees totaling EUR
Diagnostics segment
During the year ended December 31, 2023, revenues from Diagnostic segment represented
F-28
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Contract balances
in EUR k |
| Dec 31, 2023 |
| Dec 31, 2022 |
Trade receivables (note 17) |
| |
| |
Contract assets (note 17) |
| |
| |
Contract liabilities (note 21.2) |
| |
| |
The contract assets primarily relate to the Group’s rights to consider for work completed but not billed at the reporting date on the tests for the Diagnostic segment, with the satisfaction of the respective performance obligation measured by reference to stages in a standardized process. The contract assets also include work performed for pharmaceutical partners which are based on milestone fees. In 2023, EUR
The contract liabilities as of December 31, 2023, amount to EUR
8 Other income and expenses
8.1Other operating income
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Government grants |
| |
| |
| |
Gain on disposal of property, plant and equipment | | | | |||
VAT refund from tax authorities |
| |
| |
| — |
Sale of IP to JV |
| |
| — |
| — |
Others |
| |
| |
| |
Total other operating income |
| |
| |
| |
Government grants contain performance-based grants to subsidize research, development and innovation in the state of Mecklenburg-Western Pomerania from funds granted by the European Regional Development Fund. Furthermore, government grants contain the release of deferred income from investment related grants. VAT refund from tax authorities consist of the amounts received from 2016 to 2019 financial years as a result of a change made to the VAT tax declarations of Centogene GmbH in agreement with the tax administration in Germany. Based on the Technology Transfer and Intellectual Property License Agreement mentioned in Note 1, the Company has recognized a gain of EUR
8.2Other operating expenses
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Currency losses |
| |
|
| | |
Total other operating expenses |
| |
| |
| |
F-29
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
8.3Financial costs, net
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Interest expenses from loans |
| ( |
| ( | ( | |
Changes in FV of warrants | ( | | — | |||
Changes in FV of floor | | ( | — | |||
Changes in FV of prepayment option | | | — | |||
Currency income/(loss) | | ( | — | |||
Unwinding of the discount on lease liabilities |
| ( |
| ( | ( | |
Interest income from loans and receivables |
| |
| | | |
Total Financial costs, net |
| ( |
| ( | ( |
On January 31, 2022, the Company entered into the Loan Agreement with Oxford Finance LLC, whose terms have been modified on November 1, 2023. The interest expenses recognized for it during 2023 were EUR
In addition, the Company entered into a Convertible Loan Agreement as stated in Note 21.1. The interest expenses recognized for it during 2023 were EUR
8.4Employee benefits expense
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Wages and salaries |
| |
| |
| |
Social security contributions |
| |
| |
| |
Share‑based payments |
| |
| ( |
| |
Termination benefits |
| |
| |
| |
Total |
| |
| |
| |
Social security contributions include contributions to state pension scheme of EUR
During 2022, due to the departure of the former CEO Andrin Oswald, the former CFO René Just and former CIO Volkmar Weckesser in 2022, the share-based payment expenses included reversals of in previous periods recognized expenses based on cancelations and forfeiture of EUR
9 Discontinued Operations
At the end of the third quarter of 2021, management updated its long-term outlook for the COVID-19 testing business, which led to management’s decision to initiate a wind down process in which lease contracts at unprofitable COVID-19 testing sites would not be renewed. Similarly, COVID-19 related inventory levels were significantly ramped down to align with the needs of the remaining test sites and laboratories.
As of March 31, 2022, operations at all COVID-19 testing sites have ceased. The Company has not renewed any of the COVID-19 testing site leases and abandoned the COVID-19 business line. Consequently, the Company reported its COVID-19 segment as a discontinued operation.
F-30
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
All COVID-19 related property, plant and equipment were fully depreciated as of March 31, 2022. In addition, all COVID-19 related accounts receivable and accounts payable were included in the balance sheet as of March 31, 2022 whilst all COVID-19 related inventory were written down to
As detailed in Note 5 (q), with the discontinuation of the COVID-19 business, the Group signed the Separation Agreement to terminate the collaboration agreement signed with Dr. Bauer GmbH, effective as of April 2, 2022. The Group deconsolidated Dr. Bauer GmbH from its financial statements as of that date and disclosed the impact of the deconsolidation under discontinued operations. With the Separation Agreement, Centogene ensures that any COVID-19 business related future obligations that might arise from the past activities of Dr. Bauer GmbH will be paid by Centogene in exchange for the EUR
The impact of the Separation Agreement on net income for the period 2022 was EUR
Discontinued operations are presented separately from continuing operations in the consolidated statements of comprehensive loss and consolidated statements of cash flows.
in EUR k | 2023 | 2022 | 2021 |
Results of discontinued operations | |||
Revenue | - | | |
Cost of sales | - | | |
Gross profit | - | | |
General administrative expenses | - | | |
Selling expenses | - | | |
Other operating income | - | | |
Other operating expenses | - | ||
Operating income | - | | |
Financial costs, net | - | | |
Income before taxes | - | | |
Income tax expense | - | | |
Income for the period | - | | |
Total comprehensive income, attributable to equity holders of the parent | - | | |
Net income per share - Basic and diluted (in EUR) | - | | |
10 Income taxes
Taxes recognized through profit or loss:
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Current tax expenses |
| |
| ( |
| ( |
Current year |
| ( | ( |
| ( | |
Adjustments for prior periods |
| |
| ( |
| ( |
Deferred tax (expense)/income |
| ( |
| |
| |
Temporary differences |
| ( |
| |
| |
Tax losses |
| — |
| — |
| — |
Total income tax (expenses)/benefit |
| ( |
| ( |
| |
F-31
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
A reconciliation of the effective tax rate to the Group’s statutory rate of
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Loss before tax |
| ( |
| ( |
| ( |
Taxes on the basis of the Company’s domestic tax rate |
| |
| |
| |
Tax rate effect of foreign tax jurisdictions |
| ( |
| |
| |
Non‑deductible expenses |
| ( |
| ( |
| ( |
Current year losses for which no deferred tax assets were recognized |
| ( |
| ( |
| ( |
Tax income related to prior years |
| |
| ( |
| ( |
Other effects |
| ( |
| |
| ( |
Income tax (expenses)/ benefit |
| ( |
| ( |
| |
The domestic tax rate of
Tax losses carryforwards for which no deferred tax assets were recognized amount to EUR
Tax losses carried forward in Germany do not expire. Foreign tax losses carried forward may be restricted. In the light of the Group’s loss history, the recognition of deferred taxes for tax losses carried forward and deductible temporary differences was limited to the future reversal of existing taxable temporary differences.
For temporary differences associated with investments in the amount of EUR
The below table shows a breakdown of deferred taxes in the Group’s statement of financial position.
December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
Deferred | Deferred | Deferred | Deferred | Deferred | Deferred | |||||||
in EUR k |
| tax assets |
| tax liabilities | tax assets |
| tax liabilities | tax assets |
| tax liabilities | ||
Intangible assets | — | ( | — | ( | — | ( | ||||||
Property, plant and equipment | — | ( | — | ( | — | ( | ||||||
Right-of-use assets |
| — | ( | — |
| ( | — | ( | ||||
Measurement of service contracts |
| | — | — |
| ( | — | ( | ||||
Leasing liabilities |
| | — | |
| — | | — | ||||
Government grants | | — | | — | | — | ||||||
Loan Liability (Oxford) | — | ( | — | — | — | — | ||||||
Loan Liability (Convertible) | — | ( | — | — | — | — | ||||||
Measurement of Fx-effects unrealized | — | ( | — | — | — | — | ||||||
Unused tax losses |
| | — | |
| — | | — | ||||
Sum |
| | ( | |
| ( | | ( | ||||
Offset |
| ( | | ( |
| | ( | | ||||
Deferred Taxes |
| — | ( | — |
| ( | — |
| ( | |||
F-32
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
11 Loss Per Share
Basic loss per share is calculated by dividing loss for the period attributable to equity holders of the Group by the weighted average number of shares outstanding during the same period. The weighted average number of outstanding shares for the year ended December 31, 2023 was
For the periods included in these financial statements, the impact of outstanding share options and warrants are not included in the diluted loss per share calculation as the Company was loss-making in all periods. Due to the anti-dilutive nature of the outstanding share options and warrants, basic and diluted loss per share is equal. The warrants are exercisable for the purchase of up to an aggregate of
Assets
12 Intangible assets
Reconciliation of carrying amounts
| Internally |
|
|
| ||||
generated | Internally | Purchased rights, | ||||||
/acquired | developed | licenses, | ||||||
in EUR k | biomarkers | databases | software | Total | ||||
Cost |
|
|
|
|
|
|
|
|
As of Jan 1, 2021 |
| |
| | |
| | |
Additions | | | | | ||||
Reclassification |
| ( |
| |
| — |
| — |
As of Dec 31, 2021 |
| |
| | |
| | |
Additions | | | | | ||||
Reclassification |
| — |
| — |
| — |
| — |
As of Dec 31, 2022 |
| |
| |
| |
| |
Additions |
| | — | |
| | ||
Reclassification |
| — |
| ( |
| |
| — |
As of Dec 31, 2023 |
| |
| |
| |
| |
Accumulated amortization and impairment |
|
|
|
|
|
|
|
|
As of Jan 1, 2021 | |
| |
| |
| | |
Amortization and impairment | |
| |
| | | ||
Reclassification | ( | | — | — | ||||
As of Dec 31, 2021 |
| |
| |
| |
| |
Amortization and impairment |
| | |
| |
| | |
Reclassification | — | — | — | — | ||||
As of Dec 31, 2022 |
| |
| |
| |
| |
Amortization and impairment |
| |
| | ||||
Reclassification | — | — | — | — | ||||
As of Dec 31, 2023 |
| |
| |
| |
| |
Carrying amounts |
|
|
|
|
|
|
|
|
As of Dec 31, 2021 | | | | | ||||
As of Dec 31, 2022 |
| |
| |
| |
| |
As of Dec 31, 2023 |
| |
| |
| |
| |
Development costs and amortization
Internally generated intangible assets include capitalized development costs for biomarkers and IT driven solutions such as the new ERP system (see notes 5 and 6 regarding measurement). The asset category “Internally developed databases” contains the
F-33
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Centometabolome, an Artificial Intelligence module created to accelerate biomarker developments. The carrying amount of this asset as of December 31, 2023, is EUR
The amortization of patents, trademarks and development costs is expensed and recorded under “cost of sales” to the extent the related intangible assets are used in generating revenue and recorded in research and development expenses to the extent the related intangible assets are used for R&D purposes.
Certain identified biomarkers and internally developed databases were impaired because the probable future economic benefits related to these assets were not sufficient to cover the carrying value of each asset. The impairment is expensed under cost of sales and included in amortization and impairment expense in the Pharmaceutical segment. The amount of the impairment expenses recognized as of December 31, 2023, is EUR
F-34
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
13 Property, plant and equipment
Please refer to the following table for the development from January 1, 2021 to December 31, 2023:
|
|
| Other |
| ||||
equipment, | ||||||||
furniture | ||||||||
in EUR k | Buildings | Plant | and fixtures | Total | ||||
As of Jan 1, 2021 | |
| |
| | | ||
Additions | |
| |
| |
| | |
Disposal* | — |
| ( |
| ( |
| ( | |
Transfers from right-of-use assets*** | — | | — | | ||||
As of Dec 31, 2021 |
| |
| |
| |
| |
Additions | — |
| | |
| | ||
Disposal** |
| — |
| ( | ( |
| ( | |
Currency translation differences | | | | | ||||
Transfers from right-of-use assets*** | — |
| | — | | |||
As of Dec 31, 2022 |
| |
| |
| |
| |
Additions |
| — | — | |
| | ||
Disposal |
| — | ( | ( |
| ( | ||
Currency translation differences | ( | ( | ( | ( | ||||
Transfers from right-of-use assets*** | — | | — | | ||||
As of Dec 31, 2023 |
| |
| |
| |
| |
Accumulated depreciation and impairment |
|
|
|
|
|
|
|
|
As of Jan 1, 2021 | |
| |
| |
| | |
Depreciation | | | | | ||||
Disposal* | — | ( | ( | ( | ||||
Transfers from right-of-use assets*** | — | | — | | ||||
As of Dec 31, 2021 |
| |
| |
| |
| |
Depreciation | |
| |
| | | ||
Disposal** | — | ( | ( | ( | ||||
Currency translation differences | | | | | ||||
Transfers from right-of-use assets*** | — | | — | | ||||
As of Dec 31, 2022 |
| |
| |
| |
| |
Depreciation |
| | | |
| | ||
Disposal | — | | ( | ( | ||||
Currency translation differences | — | ( | ( | ( | ||||
Transfers from right-of-use assets*** | — | | — | | ||||
As of Dec 31, 2023 |
| |
| |
| |
| |
Carrying amounts |
|
|
|
|
|
|
| |
As of Dec 31, 2021 | | | | | ||||
As of Dec 31, 2022 |
| |
| |
| |
| |
As of Dec 31, 2023 |
| |
| |
| |
| |
* The disposal relates to the sale of a CentoTruck as part of a contract with a COVID-19 customer.
** The disposal relates to various obsolete plant and machinery equipment mainly in relation to the ramp down of the COVID-19 business segment.
*** The transfers from right-of-use assets represents assets purchased at the end of the lease.
At the end of the third quarter of 2021, management updated its long-term outlook for the COVID-19 testing business, which led to management’s decision to discontinue the COVID-19 business (see Note 9). As part of the wind down, estimated useful lives of all
F-35
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
COVID-19 related tangible assets were accelerated. As of March 31, 2022, there were no operations and no active leases on any of the testing sites. In addition, all COVID-19 related tangible assets have been fully depreciated.
14 Right-of-use assets
The Group has lease contracts for land and buildings and offices in Germany and the United States, as well as various items of plant, machinery, motor vehicles and other equipment used in its operations. Leases for land and buildings is related to the sale and leaseback transaction of the Rostock headquarters building and the office in Berlin, both with a lease term of
The lease contract of Rostock headquarters building includes extension options. These options are negotiated by management to provide flexibility in managing the leased-asset portfolio and align with the Group’s business needs. The lease of Rostock headquarters building allows the Group to extend the rental contract , each for a period of
The Group also has certain leases of motor vehicles and premises with lease terms of
Set out below are the carrying amounts of right-of-use assets and movements during the period:
Plant and | Other | Motor | ||||||||||
In EUR k |
| Buildings* |
| Offices |
| equipment |
| equipment |
| Vehicles |
| Total |
As of Jan 1, 2021 | | | | | |
| | |||||
Additions | — | | | | | | ||||||
Transfers to property, plant & equipment** | — | — | ( | — | — | ( | ||||||
Depreciation expenses | ( | ( | ( | ( | ( | ( | ||||||
As of December 31, 2021 |
| |
| |
| |
| |
| |
| |
Additions |
| — | | | — | |
| | ||||
Transfers to property, plant & equipment** | — | — | ( | ( | — | ( | ||||||
Depreciation expenses |
| ( | ( | ( | ( | ( |
| ( | ||||
As of December 31, 2022 |
| |
| |
| |
| |
| |
| |
Additions | | | | — | — | | ||||||
Transfers to property, plant & equipment** | — | — | ( | — | — | ( | ||||||
Depreciation expenses | ( | ( | ( | — | ( | ( | ||||||
As of December 31, 2023 | | | | | | |
* As the lease of land and buildings are made through one contract, all the related right-of-use assets are allocated to Buildings.
** Transfers of leased assets to PP&E (Note 13) represents purchased assets at the end of lease term.
F-36
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Set out below are the carrying amounts of lease liabilities and the movements during the period:
in EUR k |
| 2023 |
| 2022 | 2021 | |
As of January 1 |
| | | | ||
Additions |
| | | | ||
Interest expenses |
| | | | ||
Disposals | — | — | ( | |||
Payments |
| ( | ( | ( | ||
As of December 31 |
| | | | ||
Current |
| | | | ||
Non-current |
| | | |
The maturity analysis of lease liabilities is disclosed in Note 23.
The following are the amounts recognized in profit or loss:
in EUR k |
| 2023 |
| 2022 | 2021 | |
Depreciation expense of right-of-use assets |
| | | | ||
Interest expenses on lease liabilities |
| | | | ||
Rent expenses—short-term leases |
| | | | ||
Rent expense—leases of low-value assets |
| | | | ||
Total amounts recognized in profit or loss |
| | | |
The Group had total cash outflows for leases of EUR
15. Investment in Joint Venture
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”), a closed joint stock company incorporated pursuant to the laws of Saudi Arabia and a wholly-owned subsidiary of the Public Investment Fund (PIF) based in Riyadh, to form a joint venture under the laws of Saudi Arabia.
According to the joint venture agreement, the founding capital is to be provided
The Group’s interest in the JV is accounted for using the equity method in the consolidated financial statements. Management obtained financial information from the JV as a reporting package based in local GAAP and analyzed the necessary adjustment to convert the information into IFRS based financial statements. Summarized financial information of the joint venture, and reconciliation with the carrying amount of the investment in the consolidated financial statements are set out below:
F-37
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Summary financial information of the JV:
Dec 31, 2023 |
| in SAR k | in EUR k |
Non‑current assets |
| | |
Current assets |
| | |
Cash and Cash equivalents | | | |
| | | |
Equity |
| | |
Non‑current liabilities |
| — | — |
Current liabilities |
| | |
| | |
Dec 31, 2023 | in SAR k | in EUR k | |
Operating loss | ( | ( | |
Loss before tax | ( | ( | |
Loss for the year | ( | ( | |
Total comprehensive loss for the year | ( | ( |
The details of the movement in investments accounted for by the equity method in 2023 was as follows:
% Holding | Investments accounted for by the equity method | Share of (loss) income of investments accounted for by the Equity method | |||||
in EUR k |
|
| Dec 31, 2023 |
| 2023 |
| |
Investment in Joint Venture | | ( | |||||
Total | | ( | |||||
in EUR k | 2023 | |
As of January 1 | — | |
Additions | | |
Disposals | — | |
Translation differences and other comprehensive income (loss) | — | |
Loss | ( | |
Dividends | — | |
Transfers and others | ( | |
As of December 31 |
Following this, to finance the contribution, the Company entered into a convertible loan agreement that was signed on October 26, 2023. Cash of USD
Pursuant to the Joint Venture establishment mentioned above, the Company and PIC have agreed to a Technology Transfer and Intellectual Property License Agreement, a Consultancy Agreement and a Laboratory Services Agreement.
As mentioned in note 8.1, as a result from the transfer of technology and the license of the company’s Intellectual Property (“IP”), which amounted to a gain of EUR
F-38
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
16 Inventories
in EUR k |
| Dec 31, 2023 |
| Dec 31, 2022 |
Raw materials, consumables and supplies |
| | | |
Finished goods and merchandise |
| | | |
Inventories |
| |
| |
In the year ended December 31, 2023, raw materials, consumables, and changes in inventories of finished goods recorded as expenses under “cost of sales” came to EUR
17 Trade and other receivables and other assets
in EUR k |
| Dec 31, 2023 |
| Dec 31, 2022 |
Non‑current |
|
|
|
|
Other assets—Rental deposits |
| |
| |
Other assets—Others | | | ||
| |
| | |
Current |
|
|
|
|
Trade receivables |
| |
| |
Contract assets |
| |
| |
Other assets |
| |
| |
| |
| | |
Total non-current and current trade and other receivables and other assets | | |
Other non-current assets
The non-current portion of other assets mainly include cash deposit of EUR
Trade receivables
Trade receivables are non-interest bearing and are generally due in
Other current assets
Other current assets include VAT receivables of EUR
18 Cash and short-term deposits
As of December 31, 2023, cash and cash equivalents amounted to EUR
F-39
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Equity and liabilities
19 Equity
Issued capital and capital reserve
in thousands of shares |
| Dec 31, 2023 |
| Dec 31, 2022 |
|
| Dec 31, 2021 |
Common shares as of Jan 1, fully paid |
| |
| |
|
| |
Issued shares |
| — |
| |
|
| — |
Exercise of options | |
| |
|
| | |
Common shares issued as of Dec 31, fully paid |
| |
| |
|
| |
| |||||||
in thousands of shares |
| Dec 31, 2023 | Dec 31, 2022 | Dec 31, 2021 | |||
Authorized common shares of EUR |
| | | |
Common Shares
On January 31, 2022, pursuant to a securities purchase agreement signed with certain investors, the company received EUR
As of December 31, 2023,
The holders of common shares are entitled to the Company's approved dividends and other distributions as may be declared from time to time by the Company, and is entitled to vote per share on all matters to be voted at the Company's annual general meetings.
Capital reserve
As of December 31, 2023, capital reserve included a share premium of EUR
On January 31, 2022, pursuant to the securities purchase agreement and a warrant agreement, each signed with certain investors, the Group received EUR
The capital reserve consists of the share premium account and amounts recorded in respect of share-based payments. For additional information on the share-based payments, please refer to note 22.
20 Capital management
The Group's objectives when managing capital are to safeguard the Company's ability to continue as a going concern and finance all necessary sustainable developments, so that it can continue to provide returns for shareholders and benefits for other stakeholders. In particular, care is taken and an optimal capital structure is strived to reduce the cost of capital. With the IPO in
F-40
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
November 2019, follow-on public offering of July 2020, shares and warrant issuance and aggregate debt financing in February 2022, and the closing of the Convertible Loan Agreement on October 2023, the Group is focused on achieving a healthy capital base to increase the confidence of investors and the capital market.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the risk characteristics of its activities. To maintain or adjust the capital structure, the Group may adjust the return to shareholders, issue new shares, or pay additional interests to reduce debt.
The Company monitors covenants stated in its loan facility agreements to be compliance with to take early mitigating actions in case the Company breach any of these.
21 Financial liabilities
21.1Interest-bearing loans
in EUR k |
| Dec 31, 2023 |
| Dec 31, 2022 |
Non‑current liabilities |
|
|
|
|
Non‑current portion of secured bank loans |
| |
| |
Total non‑current loans |
| |
| |
Lease liabilities |
| |
| |
Total non‑current liabilities |
| |
| |
Current liabilities |
|
| ||
Current portion of secured bank loans |
| — |
| |
Convertible loan | | — | ||
Bank overdrafts |
| — |
| |
Total current loans |
| |
| |
Current portion of lease liabilities |
| |
| |
Total current liabilities |
| |
| |
Total non‑current and current liabilities |
| |
| |
As of December 2023, short-term cash deposits of EUR
F-41
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The following table is based on the original terms and conditions:
Conditions and statement of liabilities
The outstanding interest-bearing loans as of December 31, 2023 and 2022 have the following conditions:
Dec 31, 2023 | Dec 31, 2022 | |||||||||||||||||
Nominal | Nominal | Fair | Carrying | Nominal | Fair | Carrying | ||||||||||||
in EUR k | Currency | interest rate | Maturity | amount | Value | amount | amount | Value | amount | |||||||||
Convertible Loan |
| USD |
| 2024 |
| | | |
| — | — |
| — | |||||
Secured bank loan | USD | 2028 | | | | | | | ||||||||||
Bank overdrafts |
| EUR |
| Rollover |
| — | — | — | | | | |||||||
Bank overdrafts |
| EUR |
| Rollover | — | — | — | | | | ||||||||
Bank overdrafts | EUR | Rollover | — | — | — | | | | ||||||||||
Lease liabilities* | EUR | 2017-31 | | | | | | | ||||||||||
Total interest‑bearing financial liabilities |
|
|
|
|
|
| |
| | |
| | |
| | |||
* represents the incremental borrowing rate of the Group at the commencement of the leases
Secured bank loan
On January 31, 2022, the Company, Centogene GmbH, CentoSafe B.V. and Centogene US, LLC (together, the “Borrowers”), entered into a debt financing agreement in the total amount of up to USD
The Loan and Security Agreement with Oxford Finance was amended on April 30, 2023 which introduced new requirements that the Group will prepay any outstanding loans under the Loan and Security Agreement in an amount of USD
The Company determined the impact of the new amendment changes and applied the guidance set out in IFRS 9 ‘Financial Instruments’ and determined that there was a contract modification. The resulting analysis revealed that that there is no change in the principal amount, that there was a change in interest rate (from
F-42
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
In 2022, the Loan Facility was initially recognized at fair value minus transaction costs and subsequently carried at amortized cost measured using the effective interest rate method. The transaction costs deducted from the fair value of the Loan Facility at initial recognition were EUR
Convertible Loan
On October 26, 2023, the Company (the ""Borrower"") and Pharmaceutical Investment Company, LLC (“PIC” or the "Lender"), entered into a debt financing agreement in the total amount of up to USD
The Lender may, at its option, convert the Loan into Conversion Consideration. The Lender may convert the Loan in its entirety at any time after the date upon which the
The type and amount of consideration (the “Conversion Consideration”) due in respect of the Principal Amount of the Loan to be converted will be a number of Common Shares equal to the quotient obtained by dividing (1) the Principal Amount of the Loan plus accrued and unpaid interest by (2) the Conversion Price of USD
Fundamental Change is considered when the following occurred: the acquisition by any party (or parties acting in concert) of Common Shares representing more than fifty percent (
The initial number of Conversion Shares to be delivered upon conversion of the Loan is
Management assessed the accounting treatment of the Convertible Loan and analyzed the possibility of conversion at maturity date, determining the Loan should be accounted as a financial liability using the effective interest rate method as there are some circumstances in which the Company should repay the Loan in case of no conversion at maturity date. Management also considered the embedded rights that could only occur upon certain conditions being met, concluding that these were not bifurcated and had a value of zero. As of December 31, 2023, the Company has recognized the loan at amortized cost measured using the effective interest rate method. The transaction costs deducted at initial recognition were EUR
F-43
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Bank overdrafts
The bank overdrafts of EUR
21.2Trade payables and other liabilities
in EUR k |
| Dec 31, 2023 |
| Dec 31, 2022 |
Trade payables |
| |
| |
Government grants (deferred income) |
| |
| |
Contract liabilities | | | ||
Warrant liability | | | ||
Derivative liabilities | | | ||
Others |
| |
| |
Trade payables and other liabilities |
| |
| |
Non‑current |
| |
| |
Current |
| |
| |
Government grants mainly include investment-related government grants. These were received for the purchase of certain items of property, plant and equipment for the research and development facilities in Mecklenburg-Western Pomerania, including the Rostock facility. The grants were issued in the form of investment subsidies as part of the joint federal and state program, “Verbesserung der regionalen Wirtschaftsstruktur” (improvement of the regional economic structure) in connection with funds from the European Regional Development Fund.
Contract liabilities mainly contain the deferred revenues recognized for advance payments received by the customers; in case the revenue is recognized over time. The increase of the period is mainly due to the new collaborations entered during the current year partially offset by the release of certain amounts related to advance payments made in prior years, netting to an increase of EUR
On January 31, 2022, pursuant to a securities purchase agreement and a warrant agreement, each signed with certain investors, the Group received EUR
The fair value of the warrants was estimated at the date of issuance date using the Black-Scholes-Merton option pricing model. The key assumptions used to derive the warrants value are set out below:
Dec 31, 2023 | Dec 31, 2022 | |
Exercise price (USD) | | |
Share price (USD) | | |
Volatility (%) | | |
Risk-free interest rate (%) | | |
Dividend yield (%) | ||
Time to maturity | | |
F-44
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Other liabilities include an accrual for outstanding invoices of EUR
22 Share-based payments
As of December 31, 2023 and 2022, the Group had the following share-based payment arrangements.
(i) 2019 Equity Incentive Plan (2019 Plan)
The Company established a long-term incentive plan (the “2019 Plan”) in 2019. The 2019 Plan governs issuances of equity and equity-based incentive awards from and after the consummation of the IPO. Awards under the 2019 Plan may be granted to the employees, the members of management board and supervisory board, consultants or other advisors. As of January 1, 2023 the maximum number of common shares underlying awards that may be granted pursuant to the 2019 Plan (other than replacement awards) will not exceed
In the event of a change in control of the Company (as defined in the 2019 Plan), outstanding awards that will be substituted or exchanged for equivalent replacement awards, in connection with the change in control will be cancelled. Outstanding rewards that are not substituted or exchanged for equivalent replacement awards, in connection with the change in control will immediately vest and settle in full, unless otherwise decided by the Committee.
In November 2022, the Company amended the 2019 plan to include stock grants (SGAs) and restricted stock units (RSUs) and to modify the settlement of the awards. Accordingly, the awards will be delivered as promptly as reasonably practicable following the exercise or settlement of the relevant award, but in no event later than
The grants disclosed in the following paragraphs were granted under the 2019 Plan.
(ii) ESOP/ VSOP 2017
During 2019,
During 2023,
As of December 31, 2023, there are
The contractual term of the share options as of December 31, 2023 is
The fair values were estimated at the date of grant using the Black-Scholes option pricing model, taking into account the terms and conditions under which the share options were granted. The model takes into account historical and expected dividends, and the share price volatility of other public companies in the relevant industries to predict the share performance. There are no cash settlement alternatives for either the option holders or the Company.
F-45
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
(iii) Equity share option 2019 (ESOP 2019) to Flemming Ornskov
All
(iv) 2021 grants to management board and employees
During the year ended December 31, 2021,
RSUs do not have any market or performance based vesting criteria and vest in
Options vest in
During 2023, additional
(v) 2022 grants to employees
During the year ended December 31, 2022,
SGAs do not have any market or performance based vesting criteria and vest in or equal annual tranches starting from their grant dates. Each SGA represents a right to receive a payment in cash or shares equal to the value of the SGA on the settlement date. The Company has a choice to settle either in cash, in shares or a combination thereof. In line with this policy, both types of awards are to be settled in shares.
As of December 31, 2023, there are
(vi) 2022 grants to CEO and CFO
On February 1, 2022, Kim Stratton (the “CEO”) was awarded
On June 12, 2023, the Company, the CEO and the CFO agreed upon certain amendments to the RSU agreements (“Amendment Agreement”). The Initial RSUs granted to the CEO and CFO in 2022 were replaced and additional RSUs were awarded, so that a total of
The New RSUs will vest over
F-46
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Furthermore, under the previous award agreement the CEO and CFO were entitled to receive Annual RSUs and M&A RSUs, in the event of a Change of Control (“CoC”). As part of the amendment, the Company, the CEO and the CFO agreed that the Annual RSUs and M&A RSUs are cancelled. Instead, both parties agreed that in case of the occurrence of a Change of Control (“CoC”), depending on the CoC-event (e.g., Sale, IPO), all awarded New RSUs will immediately vest such that a portion of
The replacement of the RSUs is accounted for as a modification under IFRS 2. The Initial RSUs are modified in a way that is not beneficial to the CEO, so, the incremental fair value of the modified Initial RSUs at the date of the modification was determined to be USD , so that the expense for the Initial RSUs will continue to be recognized as if the terms had not been modified.
However, the Initial RSUs are modified in a way that is beneficial to CFO, so, the incremental fair value of the modified Initial RSUs at the date of the modification was determined to be USD
In addition to the above-described changes, the Company granted a Capital Raise Bonus to the CEO and CFO. The CEO and the CFO are entitled to a one-time cash bonus in an amount of USD
On June 26, 2023, the Company entered into a Joint Venture Agreement with Pharmaceutical Investment Company (“PIC”), and signed a Convertible Loan Agreement on October 26, 2023. According to those facts and circumstances the scenario of a Capital Raise as defined in the Amendment Agreement happened, therefore, the Company awarded a Capital Raise Bonus in the amount of EUR
(vii) 2023 grants to management board and employees
In addition to the new RSUs to the CEO and CFO as noted in 22 (vi) above, during the year ended December 31, 2023,
Number of awards | |
Outstanding as of January 1, 2023 | - |
Granted during the year 2023 | |
Forfeited during the year 2023 | ( |
Exercised during the year 2023 | - |
Outstanding as of December 31, 2023 | |
Vested as of December 31, 2023 | - |
Exercisable as of December 31, 2023 | - |
During 2023,
(viii) Other grants to management board, employees or other parties
During the year ended December 31, 2023,
F-47
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
From the amount described above,
In addition, as a consequence of the completion of the Convertible Loan Agreement (Note 23), the Company granted
The expense recognized for the above share-based payment transactions during the year is shown in the following table:
in EUR k | 2023 |
| 2022 |
| 2021 | |
Expenses arising from equity-settled share-based payment transactions | ||||||
- ESOP 2019, including replacement by RSUs | | | | |||
- Grants to management board and employees | | | | |||
- Supervisory board grant | — | — | | |||
- Grants to other parties | | — | — | |||
- Reversals | ( | ( | — | |||
Total expenses arising from share‑based payment transactions | |
| ( |
| |
Financial instruments
23 Financial instruments-fair values and risk management
23.1Classifications and fair values
The fair values of the Company’s cash and cash equivalents, trade receivables and contract assets and trade and other payables approximate their carrying values because of the short-term nature of these instruments.
Except for the warrant liability, the prepayment option and interest rate floor derivatives, the Group does not carry any financial instruments at fair value through profit and loss but at amortized cost.
IFRS 13 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value as follows:
| - | Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| - | Level 2 - inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and |
| - | Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
The following table shows the fair values of financial instruments as of December 31, 2023, including their level 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:
in EUR k | Level 1 | Level 2 | Level 3 | Carrying value | Measurement Category |
Non-current loans | — | ( | — | ( | Amortized Cost |
Current loans | — | ( | — | ( | Amortized Cost |
Warrants liability | — | — | ( | ( | FVTPL |
Prepayment option derivative asset | — | — | | | FVTPL |
Interest rate floor derivative liability | — | — | ( | ( | FVTPL |
F-48
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
As of December 31, 2023, carrying amount of all financial assets or financial liabilities approximated their fair value.
Net gain recognized in the consolidated statements of comprehensive loss, within changes in fair value of warrants, from the warrant liability fair value measurement differences was EUR
The valuation techniques used in measuring level 2 and 3 fair value for financial instruments in the consolidated statements of financial position, as well as the significant unobservable inputs used, were as follows:
| - | The fair value of the warrant liabilities, recognized as non-current financial liability at FVTPL, was calculated by applying a Black-Scholes-Merton option pricing model. This model uses the Centogene’s share price and the share price volatility as material input factors. The volatility is considered as material unobservable input factor (Level 3). |
| - | The initial measurement of the fair value of the loan is calculated as being the amount funded less the Fair Value of bifurcated embedded derivatives at entry. The subsequent measurement is determined using a calibrated Income Approach. Cashflows at entry are forecast based on the contractual terms and Interest Rate forward curves sourced from Bloomberg. The internal rate of return (“IRR”) is calculated such that the Present Value of the forecast cashflows is equal to the initial measurement amount. This is categorized as Level 2. |
| - | The bifurcated embedded prepayment option and floor are measured initially and subsequently using a hybrid valuation model applying the backward Monte Carlo method, selected to account for the variable strike and American style exercise features. The hybrid valuation model incorporates two risk factors, describing the behavior of interest rates and the company’s credit spread respectively. Interest rates are modelled using a one factor Hull & White process, with the drift, mean reversion and volatility parameters calibrated to observed quotes for interest rate swaps and interest rate caps. Credit spreads are modelled using a lognormal process, with credit spread volatility estimated from the historical volatility of CDS spreads of a set of comparable companies and initial credit spread estimated by calibration at the loan’s agreement date, with adjustments applied based on changes in the Leveraged Loan Index spread for B- companies. Discounting is at the benchmark risk-free rate, with the possibility of default incorporated via a hazard rate associated with the credit spread. This is categorized as Level 3 due to the following unobservable inputs: (i) credit spread; (ii) credit spread volatility. |
The table below summarizes the profit or loss impact on the fair values of Level 3 instruments by changing the significant unobservable input factors.
2023 | |||
in EUR k | Shift | increase | decrease |
Option (yield) - Credit Spread | +/- | ( | |
Option (yield) - Volatility | +/- | | ( |
Option (Floor) - Credit Spread | +/- | | ( |
Option (Floor) - Volatility | +/- | — | — |
Warrant - Volatility | +/- | | ( |
23.2Financial risk management
The Group is exposed to the following risks from the use of financial instruments:
| ● | Credit risk |
| ● | Liquidity risk |
| ● | Currency risk |
F-49
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
| ● | Interest rate risk |
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions and foreign exchange transactions.
The carrying amount of the financial assets corresponds to the maximum default risk.
Trade receivables and contract assets
The Group utilizes a receivables management system that closely manages open items of major customers. The Group’s customers in the Pharmaceutical segment are mainly pharmaceutical companies which are usually listed companies, or strongly financed by private equity funds. The Group’s customers in the Diagnostic segment are mainly hospitals, labs and physicians, of which a large part are generating revenues. To avoid default, the Company may request prepayment for new business.
In addition to the macroeconomic situation generally, the development of international healthcare markets is a key economic factor in assessing the default risk related to trade receivables and contract assets. These markets are closely monitored by the Group.
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e. by customers from different segment; customers from different geographical region and customer type). The calculation reflects the probability weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 17. The Group does not hold collateral as security and does not request letters of credit or other forms of credit insurance. The Group evaluates the concentration of risk with respect to trade receivables and contract assets and recorded credit losses reflecting the expected lifetime loss, based on different types of customers.
Considering the major exposure to the credit risk arising from the Diagnostic segment, the Group focused its impairment analysis on the trade receivables due from customers in the Diagnostic segment, in particular the MENA and Europe regions as they represent the majority of that segment’s revenue. In addition to applying the provision matrix, the Group performed an individual customer analysis on major debtors, with reference to the past history (such as sales and collection in the previous periods) and the assessment of their current financial condition and other relevant factors and evaluated if additional specific impairment losses would be necessary.
F-50
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Set out below is the information regarding the credit risk exposure of the Group’s trade receivables and contract assets using a provision matrix.
As of December 31, 2023 |
| ||||||||||
|
|
|
|
| Past due by |
| |||||
Total Gross | Past due 1 - | Past due 31‑ 90 | more than 90 |
| |||||||
in EUR k | amount | Not past due | 30 days | days | days |
| |||||
Middle East |
| |
| | | | | ||||
Europe |
| |
| | | | | ||||
Latin America |
| |
| | | | | ||||
North America |
| |
| | | — | — | ||||
Asia Pacific |
| | | | | | |||||
Contract assets | | | — | — | — | ||||||
Total |
| |
| | | | | ||||
Expected credit loss rate |
| | % | | % | | % | | % | | % |
Expected credit loss |
| |
| | | | | ||||
As of December 31, 2022 |
| ||||||||||
|
|
|
|
| Past due by |
| |||||
Total Gross | Past due 1 - | Past due 31‑ 90 | more than 90 |
| |||||||
in EUR k | amount | Not past due | 30 days | days | days |
| |||||
Middle East |
| |
| |
| |
| |
| | |
Europe |
| |
| |
| |
| |
| | |
Latin America |
| |
| |
| |
| |
| | |
North America |
| |
| |
| |
| |
| | |
Asia Pacific |
| |
| |
| |
| — |
| — | |
Contract assets | | | — | — |
| — | |||||
Total |
| |
| |
| |
| |
| | |
Expected credit loss rate |
| | % | | % | | % | | % | | % |
Expected credit loss |
| |
| | |
| |
| | ||
As of December 31, 2021 |
| ||||||||||
|
|
|
|
| Past due by |
| |||||
Total Gross | Past due 1 - | Past due 31‑ 90 | more than 90 |
| |||||||
in EUR k | amount | Not past due | 30 days | days | days |
| |||||
Middle East |
| | | | | | |||||
Europe |
| | | | | | |||||
Latin America |
| | | | | | |||||
North America |
| | | — | — | — | |||||
Asia Pacific |
| | | | | — | |||||
Total |
| | | | | | |||||
Expected credit loss rate |
| ||||||||||
Expected credit loss |
| | | | | | |||||
Overdue trade receivables from the Middle East region mainly relate to major customers from the Diagnostic segment for which the Company and PIC signed a Receivable Transfer Agreement on April 23, 2024 (see Note 29). The trade receivables due from the top
F-51
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Set out below is the movement in the allowance for expected credit losses of trade receivables and contract assets:
in EUR k | 2023 | 2022 | 2021 | |||
As of January 1 |
| |
| | | |
Provision/(reversal) for expected credit losses |
| |
| ( | | |
Derecognition of trade receivables | ( | ( | ( | |||
As of December 31 |
| |
| | |
The addition to the allowance for expected credit losses includes an amount of EUR
Cash and cash equivalents
As of December 31, 2023, the Group held cash and cash equivalents of EUR
Liquidity risk
The liquidity risk is the risk of the Group possibly not being in a position to meet its financial liabilities as contractually agreed by providing cash or other financial assets.
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts and lease contracts.
Managing liquidity within the Group is intended to ensure that - as far as possible - sufficient cash and cash equivalents are always available to meet payment obligations when these falls due, in both normal and challenging conditions, without incurring unacceptable losses or damaging the Group’s reputation.
As mentioned in Note 2.2, Management prepared the budget based on several assumptions. On a weekly basis, Management monitors the financial positions to identify significant deviation and manage the cash available or the need of additional funding in case there is a shortfall of liquidity.
On January 31, 2022, pursuant to a securities purchase agreement signed with certain investors, we received EUR
As mentioned in Note 20, Management also monitors the covenants compliance on a quarterly basis in order to implement immediate solutions in case the Company breaches certain covenants. As also mentioned in Note 29, the Company has received a notification from Nasdaq due to non-compliance with the requirements to be listed, which consequences a covenant breach under Oxford Loan Agreement. To this situation, Management implemented certain mitigating actions, including the obtention of a waiver from Oxford.
On October 2023, the Company and PIC entered into a convertible loan agreement in the total amount of up to USD
As mentioned in Note 21, Management identified the risk of repayment the Convertible Loan amount as maturity date was April 26, 2024. As disclosed in Note 29, as of May 12, 2024, the Company and “PIC” signed a new amendment to the Convertible Loan agreement in which the maturity date has been changed.
F-52
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
The Group strives to maintain cash and cash equivalents at a level above that of the expected cash outflows for financial liabilities (apart from trade payables) during the next 60 days. As of December 31, 2023,
In addition to the cash and cash equivalents available as of December 31, 2023, the Group also has access to other sources of funding. As of December 31, 2023, the Group has secured credit lines totaling EUR
The table below presents the remaining contractual terms of the financial liabilities on the reporting date, including estimated interest payments. The figures are undiscounted gross amounts, including estimated interest payments and interest on undrawn loan funds, but without showing the impact of offsetting.
Contractually agreed cash flows | ||||||||||||
|
|
|
|
|
| More | ||||||
Dec 31, 2023 | Carrying | Less than | 2 to 12 | 1 to 5 | than | |||||||
in EUR k | amount | Total | 2 months | months | years |
| 5 years | |||||
Bank overdrafts |
| — | — | — | — | — | — | |||||
Secured bank loans |
| | | | | | — | |||||
Convertible Loan | | | — | | — | — | ||||||
Lease liabilities |
| | | | | | | |||||
Trade payables |
| | | | — | — | — | |||||
| | | | | | | ||||||
Contractually agreed cash flows | ||||||||||||
|
|
|
|
|
| More | ||||||
Dec 31, 2022 | Carrying | Less than | 2 to 12 | 1 to 5 | than | |||||||
in EUR k | amount | Total | 2 months | months | years |
| 5 years | |||||
Bank overdrafts | | | | — | — | — | ||||||
Secured bank loans |
| | | | | | — | |||||
Lease liabilities |
| | | | | | | |||||
Trade payables |
| | | | — | — | — | |||||
| |
| |
| |
| |
| |
| | |
Contractually agreed cash flows | ||||||||||||
|
|
|
|
|
| More | ||||||
Dec 31, 2021 | Carrying | Less than | 2 to 12 | 1 to 5 | than | |||||||
in EUR k | amount | Total | 2 months | months | years |
| 5 years | |||||
Bank overdrafts | | | | — | — | — | ||||||
Secured bank loans |
| | | | | — | — | |||||
Lease liabilities |
| | | | | | | |||||
Trade payables |
| | | | — | — | — | |||||
| | | | | | | ||||||
F-53
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Reconciliation of liabilities arising from financing activities
|
|
| Non-cash changes | |||||||
Changes in | ||||||||||
in EUR k | Jan 1, 2023 | Cash flows | Additions | Non cash transactions | Dec 31, 2023 | |||||
Non-current financial liabilities | | ( | | ( | | |||||
Non-current portion of secured bank loans |
| |
| ( | | ( |
| | ||
Non-current lease liabilities |
| |
| ( | | ( |
| | ||
Current financial liabilities |
| |
| | | ( |
| | ||
Current portion of secured bank loans |
| |
| — | — | ( |
| — | ||
Convertible loan | — | | | ( | | |||||
Bank overdrafts | | ( | — | — | — | |||||
Current lease liabilities |
| |
| ( | — | |
| | ||
Total |
| |
| |
| |
| ( |
| |
Non-cash changes | ||||||||||
|
|
|
| Changes in |
| |||||
in EUR k | Jan 1, 2022 | Cash flows | Additions | Non cash transactions | Dec 31, 2022 | |||||
Non-current financial liabilities |
| | | | | | ||||
Non-current portion of secured bank loans | — |
| | — | |
| | |||
Non-current lease liabilities |
| |
| ( | | — |
| | ||
Current financial liabilities |
| |
| ( |
| |
| — |
| |
Current portion of secured bank loans |
| |
| ( | | — |
| | ||
Bank loans | — | — | — | — | — | |||||
Bank overdrafts | | | — | — | | |||||
Current lease liabilities |
| |
| ( | | — |
| | ||
Total |
| |
| |
| |
| |
| |
Currency risk
The Group is exposed to currency risk in cases where contracts are concluded in foreign currencies. The vast majority of goods delivered and services the Company provided, including those for international customers, are invoiced in EUR.
The main functional currencies of group companies are the EUR, USD, SAR, the Indian rupee and the United Arab Emirates Dirham. The following table presents the net foreign currency exposure of the Group as of December 31, 2023, 2022 and 2021.
Dec 31, 2023 | ||||||||
in EUR k |
| USD |
| INR | AED | SAR | ||
Trade receivables | | — | — | — | ||||
Trade payables and other liabilities |
| ( | — | — | — | |||
Net exposure |
| ( | — | — | — |
Dec 31, 2022 | ||||||||
in EUR k | USD | INR | AED | SAR | ||||
Trade receivables |
| | | — | — | |||
Trade payables and other liabilities |
| ( | — | — | — | |||
Net exposure |
| |
| | — | — |
Dec 31, 2021 | ||||||||
in EUR k | USD | INR | AED | SAR | ||||
Trade receivables |
| | | — | — | |||
Trade payables and other liabilities |
| ( | ( | — | — | |||
Net exposure |
| |
| | — | — | ||
F-54
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Sensitivity analysis relating to changes in exchange rates
The following tables demonstrate the sensitivity at the end of the reporting period to a reasonably possible change in the USD exchange rates, with all other variables held constant, of the Group’s earnings before tax and equity movement. The Group’s exposure to foreign currency risk for all other currencies is not material.
Earnings before tax | Equity | ||||||
in EUR k | 5% increase |
| 5% decrease |
| 5% increase | 5% decrease | |
December 31, 2023 | | ( | | ( | |||
December 31, 2022 | ( | ( | | ||||
Interest rate risk
Interest bearing liabilities with floating interest rates exist for non-current loans as of December 31, 2023.
The following sensitivity analyses has been determined based on the exposure to interest rates at the reporting date. For the floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the reporting date was outstanding for the whole period. In accordance with the relevant loan agreement, the interest rate cannot be lower than the determined interest rate and therefore the analysis has only been performed for the scenario where interest rate increases.
If interest rates had been
24 List of subsidiaries
The major subsidiaries of the Group are listed below.
Equity interests (%) | ||||||
| Country in which |
|
| |||
primary activities are | ||||||
Name | pursued | Dec 31, 2023 | Dec 31, 2022 | |||
Centogene GmbH | Germany | | | |||
Centogene FZ-LLC |
| United Arab Emirates |
| |
| |
Centogene US, LLC |
| USA |
| |
| |
Centogene GmbH* |
| Austria |
| — |
| |
Centogene India Pvt. Ltd |
| India |
| |
| |
Centogene Switzerland AG | Switzerland | | | |||
Centosafe B.V. | Netherlands | | | |||
Centogene d.o.o Belgrade | Serbia | | | |||
Genomics Innovations Company Limited** | United Arab Emirates | | — | |||
(*)The Group acquired the remaining
(**)Joint Venture created in 2023. See note 15.
25 Non-controlling interests
As of December 31, 2023, the Group has
F-55
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
the criteria of the control model under IFRS 10 as it no longer has exposure to variable returns and the ability to use power to affect returns through COVID-19 operations (see Note 4).
Dec 31, 2021 | Centogene GmbH, Vienna | Dr. Bauer Laboratoriums GmbH | ||
in EUR k |
| |||
Net assets/(liabilities) |
| ( | | |
Carrying amount of non‑controlling interests |
| ( | — | |
Revenue |
| — | ||
Profit/(loss) |
| ( | | |
Profit/(loss) allocated to non‑controlling interests |
| ( | | |
26 Commitments
Future payments for non-cancellable leases
The Group has a lease contract in relation to the expansion of the Rostock headquarters. The future lease payments and utilities for these non-cancellable lease contracts are EUR
The Group has various non-cancellable lease contracts of office equipment and storage spaces which had a lease term of less than 12 months or were related to leases of low-value assets, and therefore the short-term lease recognition exemption was applied to these contracts. The future lease payments for these non-cancellable lease contracts are EUR
Future payment obligations
During 2023, the Group concluded agreements with suppliers, for goods and services to be provided in 2024 with a total payment obligation of EUR
27 Related parties
Transaction with shareholders
On January 31, 2022, pursuant to a securities purchase agreement and a warrant agreement, each signed with certain investors, the Group received EUR
On June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”) (see Note 1 and 15). During the year 2023, as mentioned in note 8.1, the Company has recognized a gain of EUR
F-56
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Remuneration of management in key positions
Key management have been defined as the members of the management board and the Company’s other key executive officers.
in EUR k |
| 2023 |
| 2022 |
| 2021 |
Short‑term employee benefits |
| | | | ||
Post‑employment pension and medical benefits |
| — | — | | ||
Termination benefits | | | | |||
Share‑based payment transactions |
| | ( | | ||
Total compensation to key management |
| | | |
During 2023, due to the departure of Patrice Denèfle, the former CSO, the share-based payment expenses included a reversal of the costs previously recognized amounted to EUR
There are
During 2023
As of December 31, 2023, the Group has receivables of EUR
Remuneration of members of the Supervisory Board
The supervisory board received remuneration for its activities of EUR
Transactions with members of management in key positions and other related parties
The Company purchased supplies used for genetic sequencing from an entity related to a member of the supervisory board that joined the board in 2020. Expenses totaling EUR
The Company deconsolidated Dr. Bauer GmbH from April 2, 2022 (see Note 4 – Basis of consolidation) and assessed Dr. Bauer GmbH under IAS 24 as of the Deconsolidation Date. Accordingly, Dr. Bauer GmbH is a related party through Dr. Peter Bauer who is a key management personnel of Centogene.
Transactions with Dr. Bauer GmbH for the year ended December 31, 2023, was EUR
As of December 31, 2023, the Group had receivables balances with Dr. Bauer GmbH of EUR
As mentioned above, on June 26, 2023, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Pharmaceutical Investment Company (“PIC” or “Lifera”). As a result from the transfer of technology and the license of the company’s Intellectual Property (“IP”), which amounted to a EUR
F-57
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
28 Contingent liabilities
Contingent Liabilities
In May 2016, the Company was informed in writing by the Universitair Medisch Centrum Utrecht ("UMCU") that a claim had been initiated against UMCU regarding a prenatal diagnostic test that the Company conducted at their request which failed to identify a specific mutation present in a patient.
By order of the court dated October 13, 2021, a Professor was appointed as the expert witness. The court asked the expert witness to prepare its expert report latest by January 5, 2022. With its letter to the court dated October 25, 2021, the expert witness rejected the appointment due to the possibility of bias. Since then, several potential experts were approached by the court but eventually declined to prepare an expert witness report due to the possibility of bias. Eventually an expert witness was assigned to prepare the expert witness report and delivered it to the court July 4, 2022. The report is favorable for Centogene and the ruling was made available on February 2, 2024. It states that the claim is dismissed, and that the claimants shall bear the costs with equal shares. The judgement may be provisionally enforced against security amounting to
29 Subsequent Events
A decision had been made regarding the UMCU case against Centogene. Refer to paragraph 28 Contingent Liabilities further details.
On February 27, 2024, we received a notification from Nasdaq’s Listing Department notifying the Company of the determination of Nasdaq to delist the Company’s securities from The Nasdaq Global Market due to non-compliance with the MVPHS requirement, subject to our right to a hearing with the Nasdaq Listing Panel. On March 27, 2024, we also received a deficiency notice with respect to the minimum bid price requirement set forth in Rule 5450(a)(1) of the Nasdaq Listing Rules. On April 30, 2024, we had a hearing regarding the delisting notice and presented a plan of compliance with respect to the MVPHS requirement consisting of the achievement of specific milestones related to our strategic alternative review process; specifically, progress with respect to a definitive binding agreement to sell the Company. We are waiting to receive a decision, which is expected to be delivered at the end of May 2024.
On April 29, 2024, the Company and Evotec SE entered into a second amendment to the collaboration agreement, whereby the Company granted Evotec a non-exclusive license to use Program IP until March 31, 2025, in which Centogene will receive an up-front fee. The Company also granted Evotec an option right until March 31, 2025, to enter into a license agreement acquiring Centogene’s share of the IP generated throughout the collaboration. Should Evotec execute on a global license, Centogene would receive an up-front fee, milestone payments, as well as additional royalties.
On May 12, 2024, the Company and PIC entered into a Second Amendment (the “Second Loan Amendment”) to the Convertible Loan Agreement, dated October 26, 2023, between the Company and PIC (as amended) to, among other provisions, bifurcate the existing conversion feature of the loan such that (i) an aggregate principal amount of USD
On May 12, 2024, the Company completed an account receivables sale (the “PIC AR Sale”) with PIC. The terms of the PIC AR Sale are set forth in the KSA Receivables Transfer Agreement, which became effective as of May 12, 2024 (the “KSA
F-58
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Receivables Transfer Agreement”), and the accompanying Variation Agreement (the “KSA Receivables Variation Agreement,” and together with the KSA Receivables Transfer Agreement, the “Receivables Agreement”) between the Company, and PIC dated as of May 12, 2024. Pursuant to the Receivables Agreement, PIC agreed to purchase rights to certain of Centogene’s accounts receivable in the KSA (each, a “KSA Receivable”) for an aggregate purchase price of USD
On May 12, 2024, the Company and PIC entered into a share purchase agreement (the “Share Purchase Agreement”) pursuant to which the Company agreed to sell to PIC
On May 12, 2024, the Company and the JV entered into a variation agreement (the “Consultancy Variation Agreement”) to the Consultancy Agreement (the “Consultancy Agreement”) between the Company and the JV, which was entered into on November 27, 2023, in connection with the formation of the JV. Pursuant to the Consultancy Variation Agreement, the first operational milestone fee payable to the Company under the Consultancy Agreement was reduced from SAR
Also, on May 12, 2024, the Company and the JV entered into a variation agreement (the “IP License Variation Agreement”) to the Technology Transfer and Intellectual Property License Agreement (the “IP License Agreement”) between the Company and the JV, which was entered into on November 27, 2023, in connection with the formation of the JV. Pursuant to the IP License Variation Agreement, among other things, certain royalty fees payable to the Company were reduced from
On May 12, 2024, the Company and Oxford entered into a limited waiver, consent and fourth amendment (the “Fourth Amendment”) to the existing Loan and Security Agreement dated January 31, 2022 (as amended from time to time, the “Loan and Security Agreement”). Pursuant to the Fourth Amendment, Oxford (a) consented to permit the Share Purchase Agreement, the Consultancy Variation Agreement, the IP License Variation Agreement, the Second Loan Amendment (together with the previously disclosed amendment to the Convertible Loan Agreement dated April 23, 2024), the KSA Receivables Transfer Agreement (as amended by the KSA Receivables Variation Agreement) and the Registration Rights Amendment and the transactions contemplated by the foregoing and (b) agreed to waive events of default under the Loan and Security Agreement with respect to the Company’s delayed 20-F filing and alleged actions taken by the Company in connection with the negotiation on certain of the mentioned transactions.
Additionally, the Fourth Amendment provides that the Loan and Security Agreement shall be amended to (a) extend the period of time in which the Company has to deliver its audited consolidated financial statements for its fiscal year ended December 31, 2023, (b) remove a delisting of the Company’s common shares from Nasdaq as an event of default and (c) include additional covenants requiring the Company to (i) engage a financial consultancy firm and chief restructuring/transformation officer, and (ii) achieve certain near-term milestones with respect to the Company’s announced pursuit of strategic alternatives.
On May 12, 2024, the Company and Oxford entered into a success fee agreement (the “Success Fee Agreement”). The Success Fee Agreement provides that, upon a trigger event, the Company shall pay Oxford a fee for each term loan advanced by the lenders under the Loan and Security Agreement, which shall be equal to
On May 12, 2024, the Company and PIC entered into an amendment (the “Registration Rights Amendment”) to the Second Registration Rights Agreement (the “Registration Rights Agreement”) dated October 26, 2023. Pursuant to the Registration Rights
F-59
Notes to the consolidated financial statements as of December 31, 2023 and 2022 and
for the three years ended December 31, 2023, 2022 and 2021
Amendment, the Company shall not be required to file a registration statement usable for the resale or other transfer of the Company’s common shares to be issued upon conversion of the loan pursuant to the Convertible Loan Agreement until the date that is fifteen (15) days following the receipt of CFIUS Clearance (the “Registration Statement Effectiveness Deadline Date”). Additionally, if at the time of receipt of CFIUS Clearance the Company is not required to file reports under Section 13 or Section 15(d) of the Securities Exchange Act of 1934, then the Registration Statement Effectiveness Deadline Date shall be fifteen (15) days following the date on which the Company becomes required to file such reports.
These consolidated financial statements were approved by management on May 15, 2024.
F-60
Exhibit 4.26
Execution Version
FIRST AMENDMENT TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is made and entered into as of April 23, 2024, by and among CENTOGENE N.V., a public company with limited liability (naamloze vennootschap) incorporated under the laws of the Netherlands (the “Borrower”), and PHARMACEUTICAL INVESTMENT COMPANY, a closed joint stock company incorporated pursuant to the laws of the Kingdom of Saudi Arabia (the “Lender”).
W I T N E S S E T H :
WHEREAS, the Borrower and the Lender have executed and delivered that certain Loan Agreement, dated as of October 26, 2023 (as the same may be amended, restated, supplemented, or otherwise modified from time to time, and together with the Terms and Conditions attached thereto, the “Loan Agreement”); and
WHEREAS, the Borrower has requested that the Lender amend certain provisions of the Loan Agreement as set forth herein, and the Lender has agreed to such amendments, subject to the terms and conditions hereof.
NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the Borrower and Lender hereby covenant and agree as follows:
“Maturity Date” means the earlier to occur of (i) April 1, 2025, and (ii) the date that is twenty (20) days after the date on which CFIUS Clearance is obtained.
“Interest Payment Date” means, with respect to the Loan, (i) the date that is ninety (90) days from the Closing Date,(ii) the date that is one-hundred-eighty (180) days from the Closing Date and (iii) the Maturity Date.
“CFIUS” means the Committee on Foreign Investment in the United States.
“CFIUS Clearance” means (a) the receipt by the Borrower and Lender, or their respective Affiliates, of written notification (including by email) from CFIUS that (i) the transactions contemplated by this Amendment (including the conversion of the Loan into Conversion Consideration) are not a “covered transaction” under the DPA; or (ii) CFIUS has concluded its review (or, if applicable, investigation) under the DPA and determined that there are no unresolved national security concerns with respect to the transactions contemplated by this Amendment (including the conversion of the Loan into Conversion Consideration), and has concluded all action under the DPA with respect to the transactions contemplated by this Amendment (including the conversion of the Loan into Conversion Consideration); or (b) CFIUS has sent a report to the President of the United States (the “President”) requesting the President’s decision on the transactions contemplated by this Amendment and either (i) the President has announced a decision not to take any action to suspend or prohibit the transactions contemplated by this Amendment (including the conversion of the Loan into Conversion Consideration) or (ii) the period under the DPA during which the President may announce a decision to take action on the transactions contemplated by this Amendment (including the conversion of the Loan into Conversion Consideration) has expired without any such action being taken or announced.
“CFIUS Notice” means a joint voluntary notice prepared by the Borrower and Lender, or their respective Affiliates, with respect to the transactions contemplated by this Amendment and submitted to CFIUS pursuant to 31 C.F.R. Part 800 Subpart E.
“Company Business” means the business of the Borrower and its Subsidiaries as currently conducted or proposed to be conducted; provided, however, that following any conversion of the Loan, any change to the business of the Borrower and its Subsidiaries as conducted on such date shall require the prior written consent of the Lender (which consent may not be unreasonably withheld, conditioned, or delayed).
“DPA” means Section 721 of the Defense Production Act of 1950, as amended, and all implementing regulations thereof.
Section 3.07CFIUS NOTICE AND CLEARANCE
(A)CFIUS Notice. Each of the Borrower and Lender shall (and shall cause their respective Affiliates to) (i) prepare and submit to CFIUS, as soon as practicable, and in any case within thirty (30) business days of the date of this First Amendment, a draft CFIUS Notice, (ii) submit a formal CFIUS Notice pursuant to the DPA as soon as practicable or, if applicable, after receipt of any comments to the draft CFIUS Notice, and (iii) provide any supplemental information and other related information requested by CFIUS pursuant to the DPA as soon as practicable (and, in any case, within the time periods required by
2
CFIUS); provided however, that the Borrower and Lender may agree to request an extension of time pursuant to the DPA to respond to CFIUS requests for information.
(B)CFIUS Clearance. The Borrower and Lender shall, and shall cause their respective Affiliates to, use commercially reasonable efforts to obtain CFIUS Clearance. Each of the Borrower and Lender shall, in connection with the efforts to obtain CFIUS Clearance, (i) cooperate in all respects and consult with each other in connection with the CFIUS Notice, including by allowing each other to have a reasonable opportunity to review in advance and comment on drafts of filings and submissions, (ii) to the extent not prohibited by CFIUS, promptly inform each other of any communication received by any party from, or given by any party to, CFIUS, including by promptly providing copies to each other of any such written communications, (iii) permit each other to review in advance any substantive communication that is given to, and consult with each other in advance of any conference, meeting, or substantive telephone call with, CFIUS, and to the extent not prohibited by CFIUS, provide each other the opportunity to attend and participate in any conference, meeting, or substantive telephone call with CFIUS and (iii) enter into such commercially reasonable assurances or agreements requested or required by CFIUS or the President of the United States to obtain CFIUS Clearance; provided, however, that neither Lender nor any of its Affiliates shall be required to (w) take any action that would violate any Law applicable to Lender or any of its Affiliates, (x) sell, divest, or dispose of any assets or businesses that Lender or any of its Affiliates hold, (y) provide the Borrower with copies of or permit the Borrower to review or receive the “personal identifier information” required under 31 C.F.R. § 800.502(c)(5)(vi), or (z) otherwise adopt conditions or restrictions that would reasonably be expected to have, individually or in the aggregate, an adverse effect on the value of the Lender’s investment. For purposes of this Section 3.07 “commercially reasonable efforts” shall not be construed to require any party to enter into litigation to overturn or challenge any governmental determination or action with respect to the DPA.
(C)Lender Consent. The Borrower shall not, and shall cause their respective Affiliates not to, take or agree to take any action, condition or restriction required by CFIUS in connection with obtaining CFIUS Clearance except with the advance written consent of Lender.
Generally. Following receipt of CFIUS Clearance and the subsequent conversion of the Loan, and for so long as Lender and its Permitted Transferees continue to have record and beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of at least 10% of the outstanding Common Shares of the Borrower (in each case, the “Nomination Right Condition”), Lender and its Permitted Transferees, if any, shall have the right to designate two persons for appointment to the Supervisory Board of Directors (an “Lender Nominee”), at each annual general meeting of shareholders of the Borrower in which one or more members of the Supervisory Board of Directors are up for appointment or re-appointment. If Lender and its Permitted Transferees, if any, have the right to so designate one or two Lender Nominees in a given year, the Supervisory Board
3
of Directors shall upon each such designation having been made nominate each Lender Nominee so designated for appointment or re-appointment, as applicable, by the general meeting of shareholders of the Borrower to the Supervisory Board of Directors in accordance with the Articles of Association and Dutch law. If, following appointment or re-appointment to the Supervisory Board of Directors, a Lender Nominee resigns, is removed, is not re-appointed or is otherwise unable to serve for any reason and Lender and its Permitted Transferees, if any, still have the right to designate a Lender Nominee, then Lender and its Permitted Transferees, if any, shall be entitled to designate a replacement Lender Nominee, and the Supervisory Board of Directors shall upon such designation nominate the Lender Nominee for appointment by the general meeting of shareholders to the Supervisory Board of Directors in accordance with the Articles of Association and Dutch law. In the event that Lender and its Permitted Transferees, if any, cease to satisfy either Nomination Right Condition, if requested by the Supervisory Board of Directors, Lender and its Permitted Transferees, if any, shall use reasonable efforts to have such Lender Nominee resign as a member of the Supervisory Board of Directors.
Control Rights Upon Conversion. Following receipt of CFIUS Clearance and the subsequent conversion of the Loan, and for so long as the Nomination Right Condition is met, the Lender’s prior written consent (which shall not be unreasonably withheld, conditioned or delayed) shall be required in order for the Borrower to select a new line of business or venture.
4
5
[SIGNATURES ON FOLLOWING PAGES]
6
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed by its duly authorized officer as of the day and year first above written.
| BORROWER: | |
| | |
| CENTOGENE N.V. | |
| | |
| | |
| By: | |
| | Name: Kim Stratton |
| | Title: Chief Executive Officer |
| | |
| | |
| LENDER: | |
| | |
| PHARMACEUTICAL INVESTMENT COMPANY | |
| | |
| | |
| By: | |
| | Name: Ibrahim Aljuffali |
| | Title: Chairman of the Board |
Signature Page to First Amendment
Exhibit 4.27
Execution Draft
DATED April 23, 2024
CENTOGENE GMBH
And
PHARMACEUTICAL INVESTMENT COMPANY
KSA RECEIVABLES TRANSFER AGREEMENT
Al-Tatweer Towers, 7th Floor, Tower 1
King Fahad Highway
P.O. Box 17411
Riyadh 11484, Saudi Arabia
www.lw.com
1
CONTENTS
Clause | Page | |
| | |
3 | ||
8 | ||
9 | ||
10 | ||
10 | ||
10 | ||
11 | ||
11 | ||
11 | ||
11 | ||
12 | ||
15 | ||
16 | ||
SCHEDULE 4 CENTOGENE REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS | 17 | |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
2
THIS KSA RECEIVABLES TRANSFER AGREEMENT (the “Agreement”) is made on April 23, 2024,
BETWEEN
(1) | CENTOGENE GMBH, a limited liability company incorporated under the laws of Germany, having its registered office at Am Strande 7, 18055 Rostock, Germany, and registered with the commercial register at the local court of Rostock under registration no. HRB 14967, (“Centogene”); and |
(2) | PHARMACEUTICAL INVESTMENT COMPANY, a closed joint stock company incorporated pursuant to the laws of the Kingdom of Saudi Arabia, with commercial registration number 1010698585, having its registered address located at Alra’idah Digital City, Building MU04, Al Nakhil District, P.O. Box 6847, Riyadh 11452, KSA (“PIC”); |
each a “Party” and together the “Parties”.
WHEREAS:
(A) | PIC and Centogene’s parent company, Centogene N.V., a public company (naamloze vennootschap) organized under the laws of the Kingdom of the Netherlands and registered with the Chamber of Commerce (Kamer van Koophandel) under registration number 72822872, having its head office address at Am Strande 7, 18055 Rostock, Germany (“NV”), have entered into a Loan Agreement dated October 26, 2023 (the “Loan Agreement”) under which PIC extended to NV a $30.0 million U.S. Dollars loan (the “Loan”). |
(B) | On the date hereof PIC and NV have agreed [a term sheet setting out] certain amendments to the Loan Agreement and other ancillary agreements (the “Loan Amendments”). |
(C) | In consideration of the Loan Amendment and at the request of Centogene, PIC has agreed to acquire and Centogene has agreed to transfer to PIC, from time to time, all of its respective right, title, benefit and interest in, to and under all amounts receivable under the KSA Agreements as further described in Schedule 1 (the “KSA Receivable”) and their Related Rights (as defined below) now existing or hereafter originated. |
(D) | The Parties wish to transfer the KSA Receivables and Related Rights as described in Recital (C) in accordance with the terms, and subject to the conditions, set out in this Agreement. |
(E) | It is the intention of the Parties that the transfer of KSA Receivables and Related Rights in accordance with this Agreement is intended to constitute an absolute transfer of the KSA Receivables and Related Rights from Centogene to PIC, without recourse to Centogene, with the full benefits of ownership of the KSA Receivables and Related Rights to vest in PIC absolutely. |
IT IS AGREED as follows:
1.DEFINITIONS AND INTERPRETATION
Definitions and Interpretation
1.1 | In this Agreement: |
“Business Day” means a day (other than a Friday, Saturday or Sunday) which is a day for trading by and between banks in deposits denominated in the relevant currency in Frankfort and Riyadh;
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
3
“Closing Date” means the date on which all Conditions Precedent are confirmed to have been satisfied or otherwise waived by PIC in accordance with this Agreement;
“Collections” means, in respect of any KSA Receivable as follows:
(a) | all cash collections and other cash proceeds of the KSA Receivable in respect of the relevant KSA Agreement, including, without limitation, all finance charges (if any), all VAT (if any) and cash proceeds of any Related Rights; |
(b) | any proceeds received by Centogene from insurance policies; and |
(c) | any cash collections and proceeds received as recoveries in respect of defaulted KSA Receivables, including where collected via a debt collection agency; |
“Commercial Court” means the Commercial Court and any renamed or successor dispute- settlement forum at any time serving as the commercial court system of the Kingdom of Saudi Arabia;
“Dilution” means, in respect of any KSA Receivable, an amount equal to:
(a) | any payment, rebate, discount, or price or quantity adjustment of that KSA Receivable which has arisen due to: |
(i) | defective, rejected or returned goods or services or otherwise to any failure by Centogene to perform under any related KSA Agreement; |
(ii) | any change in the terms of, or cancellation of, a KSA Agreement or any rebate, administrative fee, discount, refund, non-cash payment, chargeback, allowance or any billing or other adjustment by Centogene; or |
(b) | any set-off or off-set in respect of a claim by any person (whether such claim arises out of the same or a related transaction or an unrelated transaction); and |
(c) | any set-off or off-set, withholding, defence or counterclaim, made by the relevant KSA Obligor with respect to the KSA Receivable (whether such claim arises out of the same or a related or unrelated transaction); |
“Dispute” has the meaning given to it in Clause 10.2;
“Insolvency Event” means, with respect to a person, that person:
(a) | is dissolved (other than pursuant to a solvent consolidation, reorganisation amalgamation or merger); |
(b) | becomes insolvent, including pursuant to sec. 17, 18 and/or 19 of the German Insolvency Code (Insolvenzordnung), or is otherwise or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; |
(c) | makes a general assignment, arrangement or composition with or for the benefit of its creditors (other than pursuant to a solvent consolidation, reorganisation, amalgamation or merger); |
(d) | institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
4
or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official;
(e) | has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in paragraph (e) above and: (i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; or (ii) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; |
(f) | has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a solvent consolidation, amalgamation or merger); |
(g) | seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (other than, for so long as it is required by law or regulation not to be publicly disclosed, any such appointment which is to be made, or is made, by a person or entity described in paragraph (e) above); |
(h) | has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; |
(i) | causes or is subject to any event with respect to it, which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in paragraphs (a) to (i) above; or |
(j) | takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. |
“KSA Agreement” means the agreements set out in Schedule 2 (KSA Agreements).
“KSA Obligor” means a counterparty to a KSA Agreement, including any distributor.
“Material Adverse Effect” means any change, event, effect, state of facts or occurrence arising after the date of this Agreement that, individually or in the aggregate with any other change, event, effect, state of facts, or occurrence, has had or would reasonably be expected to have a material adverse effect on (a) the assets, liabilities, results of operations, financial condition or business of NV and its subsidiaries taken as a whole, or (b) the ability of NV or Centogene to perform its obligations under this Agreement, in each case excluding any effect resulting from any failure, in it of itself, by NV to maintain compliance with the minimum bid price, minimum stockholders’ equity or minimum market value of publicly-held securities requirement of The Nasdaq Stock Market LLC or any resulting de-listing of the shares of NV (it being understood that the facts or causes underlying or contributing to such failure, including, without limitation, any decline in stockholders’ equity, may be considered in determining whether a Material Adverse Change has occurred unless otherwise excluded pursuant to any of the other clauses of this definition);
“Oxford Loan” means the Loan and Security Agreement, dated as of January 31, 2022 among NV, certain subsidiaries of NV, Oxford Finance LLC and the Lenders party thereto from time to
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
5
time, as amended, supplemented, restated, renewed, replaced, refinanced or extended from time to time;
“Related Rights” means, in respect of any KSA Receivable:
(a) | all deposits, guarantees, rights under any insurance policy written for the benefit of Centogene, indemnities, warranties and other agreements or arrangements of whatever character from time to time supporting or securing payment of that KSA Receivable, to the extent transferable in accordance with their terms and under applicable law; |
(b) | all rights to receive and obtain payment under a KSA Agreement relating to the relevant KSA Receivable (including, without limitation, any right to demand, sue for, recover, receive and give receipts for payment of any amount or any other right to enforce against the relevant KSA Obligor in so far as it relates to the KSA Receivable); |
(c) | any contractual rights Centogene may have to enforce, or giving rise to a cause of action in respect of, any KSA Receivable, which may exist as at the origination date of the relevant KSA Agreement or at any time in the future; and |
(d) | all proceeds (including, any Collections), however arising, of the payment or repayment, sale or other disposal (including for debt management purposes) or enforcement of, or dealing with, decree or judgment relating to the KSA Receivable and any pledge, retention of title or other security for its payment. |
“Restricted Uses” means any of the following:
(a) | the declaration, making or payment of any dividend; |
(b) | the distribution, repurchase, repayment, redemption or return of any share capital or loan stock; |
(c) | the payment of any sum to, or entering into any transaction with any directors, officers or employees of Centogene or NV unless disclosed in writing to PIC prior to the date hereof and PIC has consented to the same; |
(d) | the payment of any bonuses or other incentives to any employee, former employee, or to any other person unless disclosed in writing to PIC prior to the date hereof and PIC has consented to the same; |
(e) | the upward revision of the terms of remuneration of any employee otherwise than in accordance with past practice; |
(f) | the making of any gift or other gratuitous payment with an aggregate value above SAR 25,000; |
(g) | any other expenditures not in the ordinary course of business; |
(l) | the making of or entering into of any agreement or arrangement relating to any of the foregoing matters; and |
“SCCA” has the meaning given to it in Clause 10.2.
Third Party Rights
1.2No person shall have rights to enforce any of the terms of this Agreement unless it is a party to this Agreement.
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
6
Satisfaction of Conditions Precedent
1.3This Agreement will come into effect on the Closing Date upon confirmation by PIC that the following conditions precedent (the “Closing Conditions Precedent”) have been satisfied or waived by PIC:
(a) | In respect of Centogene and NV: |
(i) | a solvency certificate or equivalent declaration as at the date hereof; and |
(ii) | certified copies of: |
(A) | the KSA Agreements and related purchase orders, invoices, and evidence of completion of services and all other documentations related to the KSA Receivables; |
(B) | the NV audited unqualified consolidated annual accounts for 2023 (20- F); |
(iii) | Executed resolutions in respect of this Agreement and the transactions contemplated thereby together with a copy of the internal approval provided by the supervisory and management boards of directors (or, if applicable, the shareholders): |
(A) | approving the terms of, and the transactions contemplated by, this Agreement and resolving that it executes this Agreement; |
(B) | authorising a specified person or persons to execute this Agreement to on its behalf; and NV and any unaudited financial statements produced subsequently. |
(b) | NV shall have received the consent under the Oxford Loan to the transactions contemplated by this Agreement and the Loan Amendments which shall be in full force and effect and in form and substance reasonably satisfactory to PIC; |
(c) | Centogene shall have provided written notice, in form and substance acceptable to PIC, with each KSA Obligor and Centogene’s distributor in KSA, Saudi Ajal, to irrevocably authorize and instruct it (and obtain its written acknowledgement) to transfer all future collections of the purchased KSA Receivables directly to the bank account indicated by PIC, and providing that PIC shall have the exclusive right to take enforcement action in respect of any non-payment of any purchased KSA Receivable; |
(d) | execution of the definitive documents relating to Loan Amendments; |
(e) | no event shall have occurred which would cause, or be reasonably likely to cause, any Material Adverse Effect to occur on or prior to the Closing Date; and |
(f) | Centogene shall have obtained all authorizations from any applicable governmental entity and all consents of other persons, in each case that are necessary or advisable in connection with the transactions contemplated by this Agreement and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to PIC; |
1.4 | PIC’s obligation to pay the Tranche Purchase Price on each Tranche Payment Date shall be subject to the satisfaction or waiver by PIC of the following additional conditions precedent (the “Payment Conditions Precedent”): |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
7
(a) | The relevant KSA Obligors have confirmed the following in writing with respect to the KSA Receivable being transferred on such Tranche Payment Date: |
(i) | the full amount of such KSA Receivable; |
(ii) | that such KSA Receivables have not been repudiated or otherwise challenged by it or by any other relevant person, including hospitals receiving the services from Centogene; |
(iii) | that all related services related to such KSA Receivable has been received by it or other relevant recipients, including hospitals and that Centogene has no further obligations with respect to such KSA Receivable under the relevant SA Agreements; |
(b) | Centogene providing: |
(i) | certified confirmation of the projected use of the proceeds of the Tranche Purchase Price which shall not include Restricted Uses, |
(ii) | certified confirmation that NV has met the business plan targets set out in Schedule 3 (Business Plan Target) and related progress reports, in each case to the reasonable satisfaction of PIC; |
(iii) | on a monthly basis from the date hereof a management presentations with details of P&L, Revenues, Expenses, Working Capital with Cash position, in each case to the reasonable satisfaction of PIC; |
(iv) | on a weekly basis from the date hereof the cash projections for the upcoming 13 weeks, in each case to the reasonable satisfaction of PIC; |
(c) | the representations, warranties and covenants of Centogene in Section [4] hereof are true and correct in all material respects; |
(d) | Centogene shall have performed and complied in all respects with such agreements and covenants required to be performed and complied with prior to the relevant Tranche Payment Date; and |
(e) | no event shall have occurred which would cause, or be reasonably likely to cause, any Material Adverse Effect or an Insolvency Event to occur on or prior to the Tranche Payment Date. |
Agreement to transfer KSA Receivables
2.1 | In consideration of the Tranche Purchase Price and subject to the satisfaction of the Closing Conditions Precedent and Payment Conditions Precedent and in accordance with the terms and conditions set out in this Agreement, Centogene agrees to sell, assign, and transfer to PIC, and PIC agrees to the transfer of, all of Centogene’s right, title, benefit and interest, present and future, in, to and under, all KSA Receivables and Related Rights. |
2.2 | PIC agrees to purchase each KSA Receivable for its face value of as at the date of purchase provided that the aggregate amount payable for all KSA Receivable (the “Purchase Price”) shall not exceed USD 15,000,000 and shall be paid to the bank account notified by Centogene in three tranches (each a “Tranche Purchase Price”) as follows: |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
8
(a) | up to USD 5,000,000 million (the “First Tranche Purchase Price”) on April 30, 2024, or such later date agreed by the Parties (the “First Tranche Payment Date”) with respect to the KSA Receivables Set out in Part I of Schedule 1 (the “First Tranche”) upon satisfaction of the Payment Conditions Precedent with respect to the First Tranche; |
(b) | up to USD 5,000,000 million (the “Second Tranche Purchase Price”) on May 31, 2024, or such later date agreed by the Parties (the “Second Tranche Payment Date”) with respect to the KSA Receivables Set out in Part II of Schedule 1 (the “Second Tranche”) upon satisfaction of the Payment Conditions Precedent with respect to the Second Tranche; |
(c) | up to USD 5,000,000 million (the “Third Tranche Purchase Price”) on June 30, 2024, or such later date agreed by the Parties (the “Third Tranche Payment Date” and together with the First Tranche Payment Date and Second Tranche Payment Date, the “Tranche Payment Date”) With respect to the KSA Receivables Set out in Part III of Schedule 1 (the “Third Tranche”) upon satisfaction of the Payment Conditions Precedent with respect to the Third Tranche. |
Transfer of title to KSA Receivables
2.3 | Centogene’s present and future right, title and interest in, to and under each KSA Receivable and Related Rights transferred in accordance with Clause 2.1 (Agreement to transfer KSA Receivables) is hereby transferred to PIC upon payment of the relevant Tranche Purchase Price. |
2.4 | Except as expressly set out in this Agreement (including in respect of Deemed Collections), PIC agrees that it bears the risk of collection and that in the event of non-payment by the relevant KSA Obligors, PIC will have no right to claim payment from Centogene and it will not seek recourse against Centogene for any unpaid amount or invoices related to the KSA Receivables. |
Use of Proceeds
2.5 | Centogene shall not use the proceeds of the Purchase Price for any Restricted Use. |
3. |
3.1 | Centogene hereby agrees and acknowledges that, if PIC determines that any action is necessary for the protection of its interests in the KSA Receivables, PIC shall be entitled to take any action which it reasonably considers to be necessary in order to protect, preserve or enforce PIC’s rights against the KSA Obligors in respect of KSA Receivables. |
3.2 | Centogene undertakes that if, following notification to a KSA Obligors of the transfer of KSA Receivables owed by such KSA Obligor made in accordance with the terms of this Agreement, and such KSA Obligor contacts Centogene, it shall confirm to that KSA Obligor the transfer of the relevant KSA Receivable, that PIC is entitled to all amounts owed in respect of that KSA Receivable and that the KSA Obligor should comply with any payment instructions received from PIC. |
3.3 | Centogene hereby agrees and acknowledges that PIC may notify a KSA Obligor of the transfer of KSA Receivables owed by such KSA Obligor on or at any time. |
3.4 | Without prejudice to the transfer by Centogene of its right, title, benefit and interest, present and future, in, to and under any KSA Receivables to PIC in accordance with Clause 2 (Transfer of KSA Receivables), any notice delivered to a KSA Obligor in accordance with this Clause 3 is intended to ensure that a full legal assignment of such KSA Receivable has occurred. |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
9
4.REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
Representations and Warranties of Centogene
4.1 | Centogene represents and warrants to PIC on the Closing Date and each Tranche Payment Date Date and each Monthly Payment Date on the terms set out in with reference to the facts and circumstances then subsisting and Centogene undertakes to notify PIC as soon as reasonably practicable if it becomes aware of any breach of any representation or warranty. |
5.COLLECTIONS AND PAYMENT DIRECTIONS
Payment Directions
5.1 | Centogene shall instruct KSA Obligors to make all payments in respect of the KSA Receivables directly into the bank account notified by PIC. |
Ownership and Application of Collections
5.2 | Each of Centogene and PIC acknowledges and agrees that PIC shall, upon the transfer of any KSA Receivable and Related Rights to it in accordance with Clause Error! Reference source not found., have all the rights of ownership and property in respect of that KSA Receivable and Related Rights, including but not limited to the related Collections; and |
6.REMEDIES FOR BREACH OF REPRESENTATION AND WARRANTY
Deemed Collections
6.1 | If on any day: |
(a) | any representation or warranty or undertaking relating to any KSA Receivable or the related KSA Agreement with a KSA Obligor as set out in Schedule 4 (Centogene Representations, Warranties and Undertakings) proves not to have been true and correct or is in material breach as at the Tranche Payment Date of the affected KSA Receivable; |
(b) | it proves to be the case that any KSA Receivable never existed; or |
(c) | a Dilution arises in respect of any KSA Receivable which causes the aggregate of all Dilutions in respect of the KSA Receivables to exceed the amount equal to five per cent. (5%) of the Purchase Price, |
an amount shall be due and payable by Centogene to PIC (a “Deemed Collection”) in an amount equal to the aggregate outstanding principal balance of the affected KSA Receivable or in the case of a Dilution, an amount equal to the amount of the Dilution.
Payments in respect of Deemed Collections
6.2 | If a Deemed Collection is deemed to have arisen in accordance with Clause 6.1 (Deemed Collections), Centogene shall pay to PIC on the fifth Business Day after the date on which the Deemed Collection has arisen, an amount equal to the Deemed Collection. |
Remedy of Breach
6.3 | The payment by Centogene in full when due of the amounts payable in respect of any KSA Receivable under Clause 6.2 (Payments in respect of Deemed Collections) will remedy any breach or default listed in Clause 6.1 (Deemed Collections) in respect of that KSA Receivable up to the amount of the Deemed Collection. |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
10
Accounting for Collections
6.4 | To the extent that Centogene has made a payment to PIC in respect of a KSA Receivable in accordance with Clause 6.2 (Payments in respect of Deemed Collections) and an actual Collection is subsequently received by PIC in respect of such KSA Receivable, PIC will pay to Centogene an amount equal to the actual Collection so received in respect of that KSA Receivable. |
If a KSA Obligor owing a payment obligation in respect of a KSA Receivable makes a general payment to Centogene on account both of a KSA Receivable and of any other moneys due for any reason whatsoever to Centogene and makes no apportionment between them then that payment shall be treated as though the person had appropriated the amount first, to the KSA Receivable and second, to the other amount.
If, at any time, any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
This Agreement and any non-contractual obligations arising out of or in connection with it are governed by the laws of the Kingdom of Saudi Arabia.
10.1 | In the event of any dispute, difference, claim, controversy or question between the Parties, directly or indirectly arising at any time under, out of, in connection with or in relation to this Agreement (or the subject matter of this Agreement) or any term, condition or provision hereof, including any of the same relating to the existence, validity, interpretation, construction, performance, enforcement and termination of this Agreement (a “Dispute”), the affected Parties (the “Disputing Parties”) shall first endeavour to settle such Dispute by good faith negotiation. The Parties agree, save as otherwise agreed in writing by the Disputing Parties, that the negotiations shall not exceed fifteen (15) days from the date of the start of such negotiations. |
10.2 | Notwithstanding the provisions of paragraph 10.110.1 above, any Dispute arising out of, or in connection with, this Agreement shall be finally administered by the Saudi Center for Commercial Arbitration (“SCCA”) in accordance with its Arbitration Rules. The arbitration shall be conducted by an arbitration tribunal consisting of three (3) arbitrators, of whom PIC shall appoint one (1) arbitrator, Centogene shall appoint one (1) arbitrator and the SCCA shall appoint one (1) arbitrator. The arbitration shall take place in the English language and the seat shall be at the SCCA, in Riyadh, the Kingdom. Judgment for any award rendered may be entered in any court having jurisdiction or an application may be made to such court for a judicial recognition of the award or an order of enforcement thereof, as the case may be. Nothing in this clause shall preclude any Party from seeking provisional measures to secure its rights from any court having jurisdiction or where any assets of the other Party may be found. The arbitration proceedings contemplated by this clause and the content of any award rendered in connection with such proceeding shall be kept confidential by the Parties. |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
11
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
12
Part 2
Second Tranche
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
13
Part 3
Third Tranche
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
14
KSA AGREEMENTS
1. | Partnership and Distributorship Agreement dated November 08, 2021 concluded by and between Centogene and its distributor Saudi Ajal Health Services Co. (current distributorship agreement). |
2. | Framework Distributorship Agreement dated January 17 2017 concluded by and between Centogene and its distributor Saudi Ajal Health Services Co. (previous distributorship agreement replaced by the current one). |
3. | Agreement dated May 22, 2019, concluded by and between Centogene and King Fahd Medical City (KFMC). |
4. | Price & Discount Overview, Quotation offered by Centogene to King Abdul Aziz Medical City (Riyadh Branch) valid from July 1, 2019 to July 1, 2020. |
5. | Price & Discount Overview, Quotation dated July 30, 2020 and offered by Centogene to King Abdul Aziz Medical City. |
6. | Price & Discount Overview, Quotation dated April 29, 2021 and offered by Centogene to King Abdul Aziz Medical City (Riyadh Branch). |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
15
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
16
CENTOGENE REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
Part 1
Corporate Representations and Warranties
The following representations and warranties are given with respect to both Centogene and NV:
1 | Status: |
(a) | it is duly incorporated and validly existing under the laws of its jurisdiction of incorporation; and |
(b) | it has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted and is qualified to do business in each jurisdiction in which it operates its business; |
2 | Capacity and Authority: the execution, delivery and performance by it of this Agreement and any other documents to be delivered by it in accordance herewith: |
(a) | are within its corporate powers; |
(b) | have been duly authorised by all necessary corporate action; |
(c) | do not and shall not contravene or breach or constitute a default under or contained in: |
(i) | any applicable law; or |
(ii) | any document which contains or establishes its constitution; or |
(iii) | any contractual restriction binding on or affecting it or its property; or |
(iv) | any other contractual or legal obligation, covenant or undertaking given by it; or |
(v) | any order, writ, judgment award, injunction or decree binding on or affecting it or its property, |
which, in each case, would be material to the performance of its obligations under this Agreement; and
(d) | do not result in or require the creation of any encumbrance upon or with respect to any KSA Receivable or any Related Rights; |
3 | Authorisation: all acts, conditions and things required to be done, fulfilled and performed by it in order: |
(a) | to enable it lawfully to enter into this Agreement; |
(b) | to enable it lawfully to exercise its rights under and perform and comply with the obligations expressed to be assumed by it in this Agreement; |
(c) | to ensure that the obligations expressed to be assumed by it in this Agreement are legal, valid, binding and enforceable against it; and |
(d) | to make this Agreement admissible in evidence in a the relevant jurisdictions, |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
17
have been done, fulfilled and performed and are in full force and effect or, as the case may be, have been effected and no steps have been taken to challenge, revoke or cancel any such authorisation obtained or effected;
4 | Consent and licences: |
(a) | all authorisations, consents, licences, filings, approvals and permissions (each, an “Authorisation”) required to enable it to duly execute, deliver, exercise its rights under and perform its obligations under the KSA Agreements to which it is or shall be a party or any other document to be delivered by it have been (or shall prior to its entry into those documents) obtained or effected and are (or shall be) in full force and effect; |
(b) | all Authorisations necessary for the conduct of its business, trade and ordinary activities have been obtained or effected and are in full force and effect; and |
(c) | it has maintained in all material respects all records required to be maintained by any applicable governmental authority and that are necessary for the performance of its obligations under the KSA Agreements; |
5 | Compliance with laws: it has complied in all material respects with all applicable laws which are applicable and/or binding on it and that are necessary for the performance of its obligations under this Agreement and the KSA Agreements; |
6 | Binding obligations: this Agreement has been duly executed and delivered by it and constitutes the legal, valid and binding obligation of it enforceable against it in accordance with its terms subject to general equitable principles and applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally; |
7 | Non-conflict with other obligations: the entry by Centogene into and the execution (and, where appropriate, delivery) of this Agreement and the performance by Centogene of its obligations under this Agreement do not and will not, conflict with or constitute a breach or infringement by Centogene of (i) its articles of association and/or other constitutional documents; or (ii) any agreement, indenture, contract, mortgage, deed or other instrument to which it is a party or which is binding on it or any of its assets, where such conflict, breach, infringement or default may have a Material Adverse Effect on Centogene; |
8 | Insolvency: no Insolvency Event with respect to it has occurred and is continuing and no insolvency proceedings in respect of it or its assets have been commenced or, to its knowledge, are pending or threatened against it. It shall not be subject to any insolvency event nor any insolvency proceedings in consequence of any sale of KSA Receivables or any other obligation or transaction contemplated in this Agreement; |
9 | Arm’s length transactions: it has entered into this Agreement in good faith for its benefit and on arm’s length commercial terms and no sale of KSA Receivables constitutes a transaction at an undervalue; |
10 | Anti-corruption and Anti-money laundering: it has not, nor has any director, officer, nor, so far as it is aware, any agent or employee of it nor has any person acting on its behalf engaged in any activity or conduct which would violate any applicable anti-corruption laws or any anti- money laundering laws or regulation or any other law dealing with the proceeds of crime and it has instituted and maintains policies designed to prevent violation of such anti-money laundering laws by it. |
11 | Financial Statements: |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
18
(a) | its most recently delivered audited financial statements (including the income statement and balance sheet) have been prepared on a basis consistently applied in accordance with the relevant accounting standards and present fairly its results for the relevant period and the state of its affairs as at the relevant accounting reference date; |
(b) | the budgets and forecasts supplied under its most recently delivered audited financial statements were arrived at after careful consideration and have been prepared in good faith on the basis of recent historical information and on the basis of assumptions which were reasonable as at the date they were prepared and supplied; and |
(c) | since the date of the most recent financial statements delivered, there has been no material adverse change in it business, assets or financial condition; |
15. | No litigation: there is not one or more pending or threatened actions, investigations or proceedings to which it is a party before any court, governmental agency, arbitrator or arbitral tribunal in any jurisdiction, which if adversely decided may have a material adverse impact on its business; |
16. | No judgment: there is not one or more judgments, decrees or orders of a court, arbitral body or agency which have been made against Centogene, where the aggregate amount of the judgments, decrees or orders of a court which if adversely decided may have a material adverse impact on its business; and |
17. | No Material Adverse Effect: there has been no change in its business or operations which has had a Material Adverse Effect; |
18. | Information: |
(a) | none of the written information furnished by it or on its behalf in connection with the transactions contemplated by this Agreement is inaccurate in any respect, or contains any misstatement of fact or, to its knowledge, omits to state a fact or any fact necessary to make the statements not misleading as at the date it was provided or as at the date it is stated to be given and it is not aware of any fact, information or circumstance the omission of which from that information would affect any assessment of the rights being acquired in relation to any KSA Receivable, the enforceability or collectability of any KSA Receivable or the transactions and arrangements contemplated hereby; |
(b) | any factual information provided by it for the purposes of the due diligence was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated; |
(c) | nothing has occurred or been omitted from the information provided for the purposes of the due diligence and no information has been given or withheld that would in either case cause the results of the due diligence be untrue or misleading in any material respect; and |
(d) | all other written or oral information provided by it (including its advisers) in the context of the due diligence was true, complete and accurate in all material respects as at the date it was provided and is not misleading in any respect; |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
19
Part 2
Representations and Warranties relating to the KSA Agreements and KSA Receivables
1.Ownership of Receivables:
(a) | it owns and has at all times owned the entire interest in such KSA Receivable and the KSA Agreement under which it arises; |
(b) | it has never permitted any encumbrance to be created over or to subsist in relation to such KSA Receivable and such KSA Agreement; and |
(c) | it is entitled to sell and assign and it is selling and assigning the KSA Receivable to PIC free from any encumbrance; |
2. | Transfer and good title: on the date any KSA Receivable is transferred, PIC will have full, marketable and unencumbered title in and to the KSA Receivable and its related KSA Agreement subject to any notice being given to the relevant KSA Obligor and, subject to giving such notice to that KSA Obligor, no further act, condition or thing shall be required to be done and, in particular, no acknowledgement by the KSA Obligor in connection with such assignment or assignation or holding in trust in order to enable the PIC to require payment of the KSA Receivable to itself, or to enforce any such right in court; |
3. | Valid and binding: the KSA Agreement under which the KSA Receivable arises evidences the entire agreement between the relevant KSA Obligor in respect of the KSA Agreement and the KSA Receivable constitute legal, valid and binding obligations of the relevant KSA Obligor in accordance with the terms of the KSA Agreement, subject to general equitable principles and applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally; |
4.Modifications to KSA Agreement and confidentiality: the KSA Agreement under which the KSA Receivable arises:
(a) | has not been extended, rewritten or otherwise modified for credit related reasons from its original terms other than any modifications for the purpose of protecting the interest of PIC; and |
(b) | does not contain any confidentiality provisions which may prejudice the sale or enforceability or collectability of the KSA Receivable or the Related Rights or the creation or enforceability by PIC of a first priority security interest over it; |
5.No default or event of default:
(a) | it is not in default of any of its obligations in any material respect under any KSA Agreement; |
(b) | all payments due by it to its distributor in KSA, Saudi Ajal or any other KSA Obligor are fully paid and settled; |
(c) | no event of default is continuing or is reasonably likely to result from the entry into, the performance of any KSA Agreement; and |
(d) | no other event or circumstance is outstanding which constitutes a contravention of, or default under, any law, statute, decree, rule, regulation, order, judgment, injunction, decree, resolution, determination or award by which it or any of its assets is bound or affected; |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
20
6. | Information: all written information and statements of any kind in respect of the KSA Receivables (including any information or statements provided as evidence of or relating to the title in and to any KSA Receivable), supplied before or after the Closing Date by it is, when taken together, true, accurate, correct, complete and not misleading; |
7. | Data protection: the disclosure of information relating to the KSA Obligor of each KSA Receivable as contemplated by, and for the purpose envisaged by, This Agreement is not contrary to any data protection laws; |
8. | Misrepresentation, duress: the KSA Agreement under which the KSA Receivable arises was not entered into as a consequence of any conduct by it, its directors, officers, employees or agents, constituting fraud, fraudulent misrepresentation, negligent misrepresentation, duress or undue influence or, to the best of its knowledge and belief, innocent misrepresentation; |
9. | Segregation of KSA Receivables: it maintains books or other records and IT systems in relation to the KSA Receivables clearly identifying each KSA Receivable as having been sold and transferred to PIC and clearly distinguishing and segregating such KSA Receivables from other KSA Receivables or Related Rights held or administered by it; |
10. | No Adverse Selection of KSA Receivables: it shall ensure that there is no selection of KSA Receivables to be offered for sale and transfer to the PIC on a basis which is adverse to the interests of PIC; |
11. | Records: it has or has caused to be maintained records relating to each KSA Receivable which are accurate and complete in all material respects and which are adequate so as to enable such KSA Receivable to be objectively identified and enforced by PIC in its own name and for its own account against the relevant KSA Obligor and such records are held by it or to its order; |
12. | Electronic Records of Receivables: in respect of each KSA Receivable, the principal balance is the amount recorded in the electronic systems of Centogene by reference to the KSA Agreement ID and each KSA Receivable is transferred at face value; |
13. | Withholding tax: no KSA Receivable or its Related Rights (or payment in respect of the same) is subject to any withholding or deduction on account of tax; |
14. | Revenue Recognition: it has adequately followed its revenue recognition and accounting policies with respect to the KSA Receivables in the period during which the KSA Receivable was accrued; |
15. | Not non-performing: on the date any KSA Receivable is transferred, it is not an obligation which is non-performing when assessed in accordance with its contractual repayment terms. |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
21
Part 3
Centogene Undertakings
General Undertakings
1.Authorisations, approvals and consents: it shall:
(a) | obtain, make, take and keep in force or maintain all authorisations, approvals, consents, licences, exemptions, registrations, recordings, filings, or notarisations which are necessary for the performance of its function, duties and obligations under this Agreement and to ensure the validity, legality, or enforceability of its obligations under this Agreement and the rights of PIC under the this Agreement; and |
(b) | perform its obligations under this Agreement in such a way as to not prejudice the continuation of any authorisation, approval, consent, licence, exemption, registration, recording, filing, or notarisation; |
2.Compliance with laws: it shall comply with:
(a) | its articles of incorporation, by-laws or other organisational or governing documents; |
(b) | any law, treaty, rule or regulation, or determination of an arbitrator or a court or other governmental authority, in each case applicable to or binding upon it and it has in place a compliance framework appropriate for its size and complexity; |
(c) | all provisions of any encumbrance issued by it or of any agreement, instrument or other undertaking to which it is a party or by which it is bound; and |
(d) | the data protection laws; |
3.Change in business: it shall not make any material change in the character of its business;
Information Undertakings
4. | Delivery of Financial Statements: it shall deliver to PIC information relating to the financial condition of Centogene and NV, as soon as the same becomes available; |
5. | Other Information: it shall ensure that any other information which it provides at any time to PIC in connection with this Agreement is true, complete and accurate in all material respects as of the date, if no date is specified, the date on which it is provided and no such document contains or shall contain any untrue statement of a fact or omits or shall omit to state a fact necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading in any material way, and shall not contain personal data unless specifically requested by PIC; |
Notice Undertakings
6. | Notice of Litigation: it shall promptly notify PICPIC if there is one or more pending or threatened actions, investigations or proceedings against it before any court, governmental agency, arbitrator or arbitral tribunal in any jurisdiction, which if adversely decided may have a material adverse impact on an Centogene’s business; |
7. | Notice of termination event or event of default: it shall give notice to PIC of the occurrence of any termination event or event of default in connection with any KSA Agreement promptly after becoming aware of it; |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
22
Material Adverse Effect
8.Material Adverse Effect: it shall:
(a) | not take any action, or intentionally omit to take any action available to it, if that action, or omission to that action, could reasonably be expected to result in a Material Adverse Effect; and |
(b) | provide to PIC any notice which it receives that concerns any event, circumstance or series of events which could be reasonably expected to have a Material Adverse Effect; |
Co-operation and Further Assurance Undertakings
9. | Compliance: until such time as all the liabilities of it and PIC under this Agreement have been discharged, it shall comply with the terms of this Agreement; |
10. | Further Assurances: it shall as soon as reasonably practicable execute all such further documents, deeds, agreements, instruments, consents, notices or authorisations and do all such further acts and things (or procure the same) as may be necessary at any time or times (a) expected of a reasonably prudent creditor in administering and originating the KSA Receivables, and (b) in the reasonable opinion of PIC including following the occurrence of any Centogene’s termination event or event of default of a KSA Agreement to perfect or protect the interests of PIC and/or to give effect to this Agreement; |
11. | Co-operation with PIC: it shall fully co-operate with PIC and provide it with such information and assistance as it shall reasonably require in order to keep all registers and make all returns required by law or by relevant regulatory authorities and it shall fully co-operate with of PIC and provide it with such information in relation to the KSA Receivables and the operation of this Agreement as it shall reasonably require; |
12. | Interests of PIC: it shall take into account the interests of PIC under This Agreement when dealing with any KSA Obligor of any KSA Receivable and when exercising any administrative discretion under this Agreement; |
13. | Instructions: it shall comply with any reasonable direction, order and instruction which PIC may from time to time give to it arising from the matters contemplated by this Agreement, but only to the extent that compliance would not be unlawful or conflict with any provision of this agreement and in such circumstances, it shall promptly give notice thereof to PIC. |
AML and Sanctions Undertakings
14. | Anti-Money Laundering: it shall conduct its operations and adopt and maintain policies and procedures designed to prevent violation of, and to monitor compliance with applicable anti- money laundering laws; |
Receivables Undertakings
23. | Performance and compliance with KSA Agreements: it shall perform and comply with all material obligations and undertakings required to be observed by it under the KSA Agreement and under applicable laws related to the KSA Receivables (including, but not limited to, any duty to provide each PIC KSA Obligor all information, notices and copies of documents to which such PIC KSA Obligor is entitled); |
24. | Amendment to KSA Agreements: it shall not make any amendment or modification of KSA Agreements unless made in accordance with PIC’s approval; |
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
23
25. | Change in payment instructions to KSA Obligors: it shall not instruct any KSA Obligor to make payments in respect of the KSA Receivables to any account other than in accordance with the terms of this Agreement; |
26. | Disclosure of information to KSA Obligors: it has, in relation to the KSA Receivables, disclosed all the information required to be disclosed to the KSA Obligors in accordance with applicable laws; |
27. | Records: it shall: |
(a) | maintain records relating to each KSA Receivable which are accurate and complete in all material respects and which are adequate so as to enable such KSA Receivable to be enforced by PIC in its own name and for its own account against the relevant PIC Obligor; |
(b) | maintain adequate back-ups of such records in accordance with its usual administrative and operating procedures; |
(c) | ensure that such records are held by it or to its order and comply with all reasonable instructions of PIC in relation to the records; and |
(d) | notify PIC of (i) any change in the location of any office where the records are kept within two Business Days of becoming aware of such change; or (ii) any change in its administrative and operating procedures with respect to the records promptly following such change; |
Payment Undertakings
28. | Payment Directions: it shall direct all payments by KSA Obligors in respect of the KSA Receivables directly into the bank account notified by PIC; |
29. | Incorrect Payments: it shall procure that, where any payment in respect of any KSA Receivable is made directly to it as Centogene, that it shall, within one Business Day of receipt, deposit that amount into the bank account notified by PIC and, until deposited, shall hold on trust for the benefit of PIC the amount of such payment; |
Security Undertakings
Encumbrances: it shall not allow any encumbrance to arise or take any action which would result in the sale or assignment of the KSA Receivables or the PIC KSA Agreements or take any action which would result in any interest in any KSA Receivables, PIC KSA Agreements, Collections, Related Rights, being conferred on any other person.
Execution Version of the KSA Receivables Transfer Agreement between Centogene GMBH and Pharmaceutical Investment Company
24
SIGNATURES
IN WITNESS of which this Agreement has been signed by the duly authorised representatives of the parties to it on the date appearing on page 1.
Signed for and on behalf of | | ||
CENTOGENE GMBH | | ||
| | ||
By: | /s/ Miguel Coego | | |
| Name: | Miguel Coego | |
| Title: | Chief Financial Officer, Legal, & IT | |
| | ||
By: | /s/ Peter Bauer | | |
| Name: | Peter Bauer | |
| Title: | Chief Medical and Genomic Officer | |
Signature Page to the KSA Receivables Transfer Agreement
Signed for and on behalf of | | |
| | |
PHARMACEUTICAL INVESTMENT COMPANY | | |
| | |
By: | /s/ Ibrahim Aljuffali | |
Name: | Ibrahim Aljuffali | |
Title: | Chairman of the Board | |
Date: | | |
Signature Page to the KSA Receivables Transfer Agreement
Exhibit 4.32
Execution Version
GENOMICS INNOVATIONS COMPANY LIMITED
(“Company”)
and
CENTOGENE N.V.
(“NV”)
dated [***] 2023
TECHNOLOGY TRANSFER AND INTELLECTUAL
PROPERTY LICENSE AGREEMENT
TABLE OF CONTENTS
Clause | Page | |
| | |
2 | ||
| | |
3 | ||
| | |
5 | ||
| | |
6 | ||
| | |
8 | ||
| | |
10 | ||
| | |
11 | ||
| | |
REPRESENTATIONS, WARRANTIES, INDEMNITIES AND LIMITATION OF LIABILITY | 12 | |
| | |
16 | ||
| | |
19 | ||
| | |
20 | ||
| | |
21 | ||
| | |
21 | ||
| | |
21 | ||
| | |
22 | ||
| | |
22 | ||
| | |
22 | ||
| | |
22 | ||
| | |
23 | ||
| | |
23 | ||
| | |
23 | ||
| | |
23 | ||
| | |
24 | ||
| | |
24 | ||
| | |
25 | ||
| | |
26 | ||
| | |
26 | ||
| | |
36 | ||
| | |
37 | ||
| | |
38 | ||
| | |
39 | ||
| | |
40 | ||
1
TECHNOLOGY TRANSFER AND INTELLECTUAL PROPERTY AGREEMENT
THIS TECHNOLOGY TRANSFER AND INTELLECTUAL PROPERTY AGREEMENT (this “IP Agreement”) is dated [***], 2023 (the “Effective Date”) and is entered into by and between:
(1) | GENOMICS INNOVATIONS COMPANY LIMITED, a limited liability company organized under the laws of the Kingdom of Saudi Arabia with a registered office at [***] (“Company”); and |
(2) | CENTOGENE N.V., a company organized under the laws of the Netherlands with a registered office at Am Strande 7, 18055 Rostock, Germany (“NV”). |
Company and NV shall be referred to herein either individually as a “Party” or together as the “Parties”.
WHEREAS:
(A) | NV and its Affiliates (as defined below) have developed and maintain certain laboratories and a biodatabank relating to patient samples collected in the ordinary course of its diagnostics business at a site located in Rostock, Germany (“NV Facility”); |
(B) | Company and NV have entered into a Joint Venture Agreement dated 26 June 2023 (“Joint Venture Agreement”) for the establishment of Company and the operation of the KSA Facility in the Kingdom; |
(C) | Company and NV have entered into a Laboratory Services Agreement dated [***] (“Laboratory Services Agreement”) whereby NV or its Affiliates shall act as the exclusive provider of certain laboratory and diagnostic services to Company; |
(D) | Company and NV have entered into a Consultancy Agreement dated [***] (“Consultancy Agreement”) for the provision by NV and its Affiliates of certain consultancy services related to the construction and operation of the KSA Facility; |
(E) | The Parties wish to enter into this IP Agreement to address the Parties’ respective rights with respect to certain Intellectual Property Rights that will be used in connection with the activities contemplated by the Consultancy Agreement and Laboratory Services Agreement; and |
(F) | Company wishes to obtain from NV, and NV wishes to grant to Company, an exclusive license in the KSA to certain NV IPR (as defined below) for Company’s operation of the Business (as defined below) and establishment of the KSA Facility, on the terms and conditions set forth herein. |
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:
1. |
Capitalized terms used in this IP Agreement shall have the meanings given in Part 1 (Definitions) of Schedule 1 (Defined Terms and Interpretation). This IP Agreement shall be interpreted in accordance with Part 2 (Interpretation) of Schedule 1 (Defined Terms and Interpretation).
2
2. |
2.1 | NV License Grants |
2.1.1 | Subject to the terms and conditions of this IP Agreement, NV hereby grants (and shall cause its Affiliates to grant) to Company: |
(a) | an exclusive, perpetual (in accordance with the terms set forth in clause 9.3.2), non-sublicensable (other than as set forth in clause 2.3), non-transferable (other than as set forth in clause 15), royalty-bearing license to use the NV Technology, NV Know-How, NV Patents, in KSA, and solely for the purposes of: |
(i) | receiving the full benefit of services provided by NV under any Project Documents; |
(ii) | operating the KSA Facility and the Business (including in connection with any and all services and/or products marketed, promoted or provided by Company to its customers); |
(iii) | performing diagnostic testing services by Company in KSA by accessing and utilizing the NV Technology; and |
(iv) | accessing, viewing and Manipulating the NV Data and creating Company Derived Data, |
collectively (i)-(iv) (the “Purpose”);
(b) | an exclusive, perpetual (in accordance with the terms set forth in clause 9.3.2), irrevocable (other than as set forth in clause 9.3), non-sublicensable (other than as set forth in clause 2.3), non-transferable (other than as set forth in clause 15) license to use the NV Variant List as of the date that the KSA Facility is operational and updated thereafter during the Term solely in KSA and solely for the Purpose; |
(c) | an exclusive, perpetual (in accordance with the terms set forth in clause 9.3.2), irrevocable (other than as set forth in clause 9.3), non-sublicensable (other than as set forth in clause 2.3), non-transferable (other than as set forth in clause 15) license to use the NV KSA Data solely in KSA and solely for the Purpose; |
(d) | an exclusive, perpetual, irrevocable, royalty-free, fully paid-up, fully sublicensable (through multiple tiers of sublicenses), fully transferable, license to use the New NV IPR, solely in KSA and solely for the Purpose; and |
(e) | an exclusive, limited, royalty-free, non-transferable, non-sublicensable (except as set forth in clause 2.3) and license to use the NV Trademarks solely in KSA and solely in connection with the Business for use on Business Materials and Promotional Materials for the duration of the Initial Term (unless earlier terminated in accordance with clause 9.2). |
2.1.2 | The license grants from NV in clause 2.1.1 shall be exclusive to Company in KSA and NV shall not grant to any Third Party a right to use the NV IPR in KSA. The Parties hereby acknowledge and agree that clause 10 (Restrictive Covenants) of the Joint Venture Agreement shall apply to this IP Agreement mutatis mutandis. In the event that Company is successful in securing any Material Opportunity, the Parties shall discuss in good faith, |
3
for up to forty (40) Business Days, the terms of an agreement pursuant to which Company would obtain an exclusive license to use NV IPR in the Other GCC Member State that is the subject of such Material Opportunity in compliance with the terms set forth in the Joint Venture Agreement.
2.1.3 | For the avoidance of doubt, Company’s license to the NV Data under clauses 2.1.1(b) and 2.1.1(c) shall at all times be subject to any restrictions provided by Applicable Law, including, but not limited to, the informed consent form of each applicable data subject pursuant to Applicable Data Protection Laws. Company shall not be in breach of the license grant in clause 2.1.1(e) where it uses such NV Trademarks on any websites or digital materials outside of KSA so long as such use complies with Company’s obligations under clause 10 (Restrictive Covenants) of the Joint Venture Agreement. |
2.2 | Company License Grant |
2.2.1 | Subject to the terms and conditions of this IP Agreement, Company hereby grants (and shall cause its Affiliates to grant) to NV and its Affiliates a non-exclusive, royalty-free, fully paid-up, non-sublicensable (other than as set forth in clause 2.3) and non-transferable (other than as set forth in clause 15) license to use the Company IPR (other than Company Data) in Germany and KSA, solely for the purposes of performing its obligations under the Laboratory Services Agreement and Consultancy Agreement, for the duration of the Term (unless earlier terminated in accordance with clause 9.2). |
2.2.2 | Company has collected, or will collect, Company Data and shall make such Company Data available to NV in order for NV to fulfil its obligations under the Laboratory Services Agreement. Subject to the terms and conditions of this IP Agreement, Company hereby grants (and shall cause its Affiliates to grant) to NV and its Affiliates a non-exclusive, royalty-free, fully paid-up, non-sublicensable (other than as set forth in clause 2.3), non- transferable (other than as set forth in clause 15) license to use the Company Data in Germany and KSA, for the duration of the Term (unless earlier terminated in accordance with clause 9.2) for the purposes of: |
(a) | providing the Testing Services (as defined in the Laboratory Services Agreement) to Company under the Laboratory Services Agreement; |
(b) | conducting internal research and development at the NV Facility; and |
(c) | accessing, viewing and analyzing the Company Data and creating NV Derived Data |
2.2.3 | For the avoidance of doubt, NV’s license to the Company Data under clause 2.2.2 shall at all times be subject to any restrictions provided by Applicable Law including, but not limited to, the informed consent form of each applicable data subject pursuant to Applicable Data Protection Laws. |
2.3 | Sublicenses |
2.3.1 | The Licensed Party may not sublicense any licenses granted to it under clauses 2.1.1(a), 2.1.1(b), 2.1.1(c), 2.1.1(e), 2.2.1 or 2.2.2, as applicable, to any Third Party without the prior written consent of the Licensing Party; provided that, Company may sublicense the NV IPR to Third Party service providers engaged pursuant to the terms of the Consultancy Agreement or Laboratory Services Agreement without prior written consent, solely to |
4
allow such service providers to provide the services permitted under such agreement to Company.
2.3.2 | In the event that the Licensing Party consents to the Licensed Party granting any such sublicense, the sublicense agreement shall be consistent with, and expressly made subject to, the terms and conditions of this IP Agreement. The Licensed Party shall be liable for any acts or omissions of its subcontractor or failure of any of its sublicensees to comply with this IP Agreement and the grant of any such sublicense shall not relieve such Licensed Party of its obligations under this IP Agreement. Except for any sublicenses granted by Company under clause 2.1.1(d), upon the expiration or earlier termination of this IP Agreement, any such sublicense agreements shall automatically terminate (and each sublicense agreement shall include terms notifying the sublicensee of and automatically effecting such termination). Any sublicense granted or attempted to be granted in contravention of the terms and conditions of this clause 2.3 shall be null and void. |
2.4 | Third Party IPR |
NV shall not incorporate into any NV deliverable under the Consultancy Agreement or Laboratory Services Agreement or otherwise provide Company with, any Intellectual Property Rights owned by a Third Party (the “Third Party IPR”) necessary for Company to receive the benefit of any Project Documents without first:
2.4.1 | obtaining Company’s prior written consent; and |
2.4.2 | informing Company of the details and required uses for such Third Party IPR. |
In the event Company requires a license to continue to use such Third Party IPR, NV shall use commercially reasonable efforts to assist Company in obtaining a license to such Third Party IPR, at Company’s sole cost and expense (including the payments of any royalties, fees or other amounts under such license).
2.5 | Rights Disclaimer |
Except as otherwise expressly set forth in this IP Agreement, none of the Parties or their Affiliates shall acquire under this IP Agreement any license or other right, title or interest, by implication, estoppel or otherwise, under any Intellectual Property Rights of the other Party or such other Party’s Affiliates.
3. |
3.1 | NV shall provide Company with copies of the NV Technology, NV Data and NV Know-How in accordance with the timelines set forth on Schedule 2 (Scope of Services) of the Consultancy Agreement (and any other Project Documents) unless otherwise mutually agreed by the Parties in writing. |
3.2 | For the avoidance of doubt, any transfer of NV Data to Company or Company Data to NV under any Project Documents shall only be performed to the extent permissible under all Applicable Laws and any applicable consents from data subjects pursuant to Applicable Data Protection Laws including, but not limited to, the Data Sharing Agreement in the Laboratory Services Agreement. |
3.3 | Company shall accept such transfer of the copies of NV Technology, NV Data and NV Know-How as soon as practicable, including by designating representatives to serve as recipients of such NV Technology and NV Know-How. |
5
3.4 | During the Term, NV shall notify Company of any new, or Improvements to, NV Technology or NV Know-How (including any New NV IPR), or any NV Technology or NV Know-How not previously transferred to Company, which, in each case, are necessary to provide the services under the Project Documents and, at Company’s written request, NV shall either promptly transfer copies of such NV Technology or NV Know-How to Company and/or update Schedule 2 (Scope of Services) of the Consultancy Agreement or the relevant Project Documents to reflect the reasonable timeline for such transfer, which shall be mutually agreed by the Parties in writing. |
3.5 | NV shall provide reasonable training and assistance to Company in relation to the technology transfer as set forth in the Laboratory Services Agreement and Consultancy Agreement or, if not set forth therein, only as mutually agreed to by the Parties in writing. |
4. |
4.1 | Intellectual Property Ownership |
4.1.1 | Company Background IPR and NV Background IPR |
As between the Parties, and subject to the licenses granted under this IP Agreement, NV solely and exclusively owns, and shall continue to solely and exclusively own, the entire right, title, and interest in and to any and all NV Background IPR, and Company shall solely and exclusively own the entire right, title, and interest in and to any and all Company Background IPR.
4.1.2 | New IPR |
Subject to the license grants and other rights herein, as between the Parties:
(a) | NV shall solely and exclusively own and retain all right, title and interest in and to any and all New IPR that is conceived, discovered, developed, reduced to practice or otherwise made solely by or on behalf of NV (or its Affiliates or its or their sublicensees or personnel) under any of the Project Documents, including any NV Derived Data (the “New NV IPR”); |
(b) | Company shall solely and exclusively own and retain all right, title and interest in and to any and all New IPR that is conceived, discovered, developed, reduced to practice or otherwise made solely by or on behalf of Company (or its Affiliates or its or their sublicensees or personnel and any NV secondees during the course of their secondment from NV at the KSA Facility (the “NV Secondees”) under any of the Project Documents, including any Company Derived Data and Company Data (“New Company IPR”); |
(c) | After Company and NV have notified each other in relation to the selection of any NV Secondees as a condition precedent to the start of any secondment under the Consultancy Agreement, the relevant NV Secondee shall execute, and NV shall use commercially reasonable efforts to secure such execution of, an Acknowledgment and Undertaking materially in the form of Schedule 5 (Acknowledgement and Undertaking). In the event of any conflict between the provisions of this IP Agreement and the provisions of any Acknowledgment and Undertaking, the provisions of the Acknowledgment and Undertaking shall prevail; and |
6
(d) | While the Parties do not anticipate the creation of New IPR that is jointly created under the Project Documents, the Parties shall jointly own all right, title and interest in and to any and all New IPR that is conceived, discovered, developed, reduced to practice or otherwise made jointly by or on behalf of both Parties (or its Affiliates or its or their permitted sublicensees or personnel) under the Project Documents during the Term; that does not constitute New NV IPR or New Company IPR and is not related to any further commercial or non-operational activities of the KSA Facility (“Joint IPR”). Each Party shall have an equal and undivided joint ownership interest in and to the Joint IPR. Each Party will exercise its ownership rights in and to such Joint IPR, including the right to license and sublicense or otherwise to exploit, transfer or Encumber its ownership interest, without an accounting or obligation to, or consent required from, the other Party. |
4.2 | Assignment |
4.2.1 | NV, on behalf of itself and its Affiliates, and together with their respective officers, directors, employees, contractors, advisors and agents, hereby assigns to Company, any and all rights that it or they may have or acquire with respect to all Company IPR and take any such action as is reasonably required by Company to effect such assignment. |
4.2.2 | Company, on behalf of itself and its Affiliates, and together with their respective officers, directors, employees, contractors, advisors and agents, hereby assigns to NV, any and all rights that it or they may have or acquire with respect to all NV IPR and take any such action as is reasonably required by NV to effect such assignment. For the avoidance of doubt, Company shall own all Intellectual Property Rights created or developed solely by an NV Secondee during the course of such NV Secondee’s secondment under the Consultancy Agreement. |
4.2.3 | NV hereby assigns to Company all Intellectual Property Rights created or developed solely by the NV Secondees in the course of their secondment and all materials embodying such rights to the fullest extent permitted by Applicable Law, and will at Company’s reasonable request and at Company’s sole cost and expense provide those materials and execute all further documentation necessary to effect and confirm Company’s ownership of those rights. |
4.2.4 | NV shall use commercially reasonable efforts to cause the NV Secondees to assign to NV in writing all Intellectual Property Rights that will be created by NV Secondees during the course of their secondment under the Consultancy Agreement to the fullest extent permissible by Applicable Law by executing the Acknowledgement and Undertaking set forth in Schedule 5 (Acknowledgement and Undertaking) and NV shall provide to Company promptly such document. |
4.2.5 | Each Party, for itself and on behalf of its Affiliates, and together with their respective officers, directors, employees, contractors, advisors and agents, hereby assigns to the other Party an equal and undivided joint ownership interest in and to all Joint IPR to be held in accordance with clause 4.1.2(d). |
4.3 | Protection, Maintenance and Enforcement |
4.3.1 | NV shall not assign or grant any rights under any NV Technology in a manner inconsistent with the licenses granted in this IP Agreement. |
7
4.3.2 | NV shall determine in its sole discretion how to, and shall have the sole right (but not the obligation) to, protect, register, maintain, enforce and defend the NV IPR. |
4.3.3 | Company shall determine in its sole discretion how to, and shall have the sole right (but not the obligation) to, protect, register, maintain, enforce and defend the Company IPR. |
4.3.4 | The Parties shall jointly determine how to protect, register, maintain, enforce and defend the Joint IPR. The Parties will work together in good faith to develop an agreement regarding the protection, maintenance, enforcement and prosecution of any Joint IPR and will take any and all other reasonable and necessary actions related to the protection, maintenance, enforcement and prosecution of the Joint IPR. However, in the event that NV and Company are unable to agree on such prosecution strategy within six (6) months of such Joint IPR being developed, Company shall have the final decision-making authority with respect to the prosecution strategy and NV waives any claims that it may have against Company or otherwise with respect to Company’s decision(s) or the result(s) thereof. |
4.4 | Notice of Infringement |
The Licensed Party shall give the Licensing Party prompt written notice of:
4.4.1 | any actual or suspected infringement, misappropriation or other violation of the Intellectual Property Rights licensed to the Licensed Party under clause 2.1 or 2.2; or |
4.4.2 | any assertion by a Third Party that the use of any Intellectual Property Rights licensed to the Licensed Party under clause 2.1 or 2.2 infringes, misappropriates or otherwise violates such Third Party’s Intellectual Property Rights, together with a summary of any relevant evidence or additional information relating to the alleged infringement, misappropriation or other violation. In the event either Party brings a suit or takes any other action in accordance with clause Error! Reference source not found., the other Party shall cooperate fully, including, if required to bring and maintain such action, being named as a party to such action. |
5. |
5.1 | In consideration for NV’s grant of the rights and licenses to Company hereunder, Company shall pay a one-time, non-refundable and non-creditable payment of forty million Saudi Arabian Riyals (SAR 40,000,000.00) to NV upon the Effective Date. |
5.2 | During the Royalty Term, in consideration for NV’s grant of the rights and licenses to Company hereunder, Company shall make non-refundable, non-creditable royalty payments to NV in an amount equal to two and a half percent (2.5%) of Company’s Net Revenue (the “Royalty Fee”). |
5.3 | Royalty Term |
The Royalty Fee shall be payable for a period commencing as of the sixth (6th) anniversary of the date of incorporation of Company and expiring on the tenth (10th) anniversary of the Effective Date (“Royalty Term”) (it being understood that, notwithstanding anything in this IP Agreement to the contrary, Company’s obligation to pay the Royalty Fee pursuant to this clause 5.3 shall survive the expiration or earlier termination of this IP Agreement). Upon the expiration of the Royalty Term, the license grants to Company under clause 2.1 will become fully-paid and royalty-free with respect to KSA during the Term.
8
5.4 | Payment Terms |
5.4.1 | Within thirty (30) Business Days after the end of each Calendar Quarter, commencing with the sixth anniversary of the date of incorporation of Company, Company shall: |
(a) | provide NV with a report that states Company’s Net Revenue for such Calendar Quarter; and |
(b) | remit payment to NV of the applicable royalty payment shown to be due in such report. |
5.4.2 | All payments from Company to NV under this IP Agreement shall be payable in Saudi Arabian Riyals (SAR), which shall be paid by wire transfer in immediately available funds into such bank account nominated by NV to Company in writing prior to the relevant payment within sixty (60) Business Days of the end of the Calendar Quarter. Company shall be liable for all bank charges relating to such wire transfers. |
5.4.3 | If any undisputed payment due to NV under this IP Agreement is not paid by the applicable due date, NV may charge Company interest on any outstanding amount of such payment, accruing as of the original due date, at an annual rate equal to the prime rate (as reported in The Wall Street Journal (U.S. edition)) plus one percentage point (1%) or the maximum rate allowable by Applicable Law, whichever is less. |
5.5 | Records and Audit |
5.5.1 | Company shall maintain complete and accurate records in sufficient detail to permit NV to confirm the accuracy of any and all royalty payments payable by Company hereunder. |
5.5.2 | For a period of three (3) years from the end of the calendar year to which such records pertain, such records shall be open for examination upon NV’s provision of at least thirty (30) days’ prior notice, such examination to be conducted during regular business hours, and not more often than once each calendar year, by a nationally recognized independent certified public accountant selected by Company and reasonably acceptable to NV, for the sole purpose of verifying for NV the accuracy of the royalty reports provided by Company under this IP Agreement. |
5.5.3 | Such independent certified public accountant shall be bound by confidentiality and non- use obligations to reasonable satisfaction of Company that limit disclosure to whether an underpayment or overpayment has occurred, and, if so, the value of such underpayment or overpayment. Company and NV will be entitled to receive a full written report of such independent certified public accountant with respect to its findings and NV will provide, without condition or qualification, Company with a copy of the report, or other summary of findings, prepared by such independent certified public accountant promptly following NV’s receipt of same. |
5.5.4 | NV shall bear the cost of such audit unless such audit reveals an underpayment by Company of more than five percent (5%) of the amount actually due for the time period being audited, in which case Company shall reimburse NV for the costs of such audit. Company shall pay to NV any underpayment discovered by such audit within thirty (30) days after the independent certified public accountant’s report, plus interest (as set forth in clause 5.4.3) from the original due date. If the audit reveals an overpayment by Company, then Company may take a credit for such overpayment or offset against any future payments due to NV (it being understood that if there will be no future payment |
9
due, then NV shall refund such amount to Company within thirty (30) days after the date of the audit). For the avoidance of doubt, any set-off shall not impact the obligations of a Party under clause 6.
6. |
6.1 | Without prejudice to the generality of clause 6.2 below, the amounts payable in accordance with this IP Agreement shall be exclusive of any additional Taxes, levies or fees that may apply. Any such Taxes, levies or fees shall be payable in addition to, and at the same time and in the same manner as, the payments against provision by NV to Company of an invoice for the same provided, that Company shall only be responsible for withholding taxes if NV does not have a permanent establishment in KSA. Any additional Taxes shall not include any taxes, levies or fees applicable to NV for a taxable presence in KSA relating to a permanent establishment for corporation income tax. Any Taxes relating to the permanent establishment of NV shall be solely borne by NV and not Company. |
6.2 | All amounts, monetary or otherwise, expressed under this IP Agreement which (in whole or in part) constitute the consideration for any supply for VAT purposes by NV are deemed to be exclusive of any VAT which is chargeable on that supply, and accordingly if VAT is or becomes chargeable on any supply made by NV to any Party under this IP Agreement and NV is required to account to the relevant tax authority for VAT on that supply, Company must pay to NV (in addition to and at the same time as paying any other consideration, or at the point the VAT becomes due to be paid or accounted for by NV if earlier) an amount equal to the amount of that VAT (and NV must promptly provide an appropriate VAT invoice to Company where so required to by Applicable Law). In this clause 6.2, references to “NV” shall include reference to a relevant Affiliate of NV. |
6.3 | In relation to any supply made by NV (or a relevant Affiliate) to Company under this IP Agreement, if reasonably requested by Company, NV must promptly provide Company with details of NV’s (or the relevant Affiliate’s) VAT registration and such other information as is reasonably requested in connection with Company’s VAT reporting requirements in relation to such supply. |
6.4 | The following provisions shall apply should any payment from Company to NV be subject by Applicable Law to any deduction or withholding on account of Tax: |
6.4.1 | The Tax Deduction will be made in the minimum amount permitted by Applicable Law and Company shall account to the relevant tax authority for the same, in full and within all applicable time limits; provided that any late payment fees or penalties associated with Company’s failure to comply with this clause 6.4.1 shall be borne solely by Company. |
6.4.2 | Company shall provide evidence, reasonably satisfactory to NV, of the Tax Deduction and any relevant payment to a tax authority on written request from NV to Company. |
6.4.3 | NV shall (or shall procure that a relevant Affiliate shall), on written request from Company, provide a declaration of Tax residence on the prescribed forms and obtain certification by the relevant taxation authority in order to confirm the applicability and availability of any reduced rate of withholding on account of Tax, pursuant to the provisions of any relevant double taxation treaties or otherwise. |
6.4.4 | If a Tax Deduction is required by Applicable Law to be made by Company in relation to any payment under this IP Agreement, the amount of the payment due from Company shall be increased to an amount which (after making any Tax Deduction) leaves an |
10
amount equal to the payment which would have been received if no Tax Deduction had been required.
6.4.5 | If Company has been obliged to make an increased payment under clause 6.4.4 in respect of a Tax Deduction and NV determines that: |
(a) | a Tax Credit is attributable to that payment, or to the relevant Tax Deduction; and |
(b) | that NV (or a relevant Affiliate) has obtained and utilized that Tax Credit, |
then NV shall pay to Company an amount (or procure the payment by the relevant Affiliate of an amount to Company) which NV determines will leave it (or the relevant Affiliate), after that payment, in the same after-Tax position as it would have been had no increased payment under clause 6.4.4 been required to be made by Company.
6.4.6 | Company shall report and pay VAT directly to the relevant KSA tax authority to the extent that the amounts charged by NV to Company under this IP Agreement are subject to VAT under the Applicable Laws of KSA. Notwithstanding any other provision of this clause 6 or this IP Agreement, in relation to any Taxes that NV may incur related to the registration of NV as a permanent establishment in KSA, NV shall notify Company of such Taxes, comply with any requirements under Applicable Law and follow all necessary compliance and registration requirements. NV shall bear any associated costs including any Taxes, fines or penalties from a Governmental Authority, or Regulatory Authority. |
7. |
7.1 | Each Party (the “Recipient”) acknowledges that it may receive Confidential Information that has been created, discovered or developed by the other Party (the “Provider”). |
7.2 | The Recipient undertakes to the Provider to: |
7.2.1 | hold all Confidential Information which it obtains in relation to this IP Agreement in strict confidence and will take all necessary measures to preserve the confidentiality of the Confidential Information; |
7.2.2 | not disclose, or authorize the disclosure of, Confidential Information to any Third Party other than pursuant to clauses 7.3 or 7.5; |
7.2.3 | not use, or authorize anyone to use, Confidential Information for any purpose other than the performance of its obligations pursuant to this IP Agreement, or the exercise of its rights or receipt of any benefits under this IP Agreement; and |
7.2.4 | promptly notify the Provider of any suspected or actual unauthorized use or disclosure of Confidential Information for which the Recipient is responsible and of which the Recipient becomes aware and promptly take all commercially reasonable efforts that Recipient may require in order to prevent, stop or remedy the unauthorized use or disclosure. |
7.3 | The Recipient may disclose Confidential Information to its Affiliates and its and their respective officers, directors, employees, contractors, advisors and auditors, but only to the extent, and provided, that such persons: |
7.3.1 | need to know the Confidential Information disclosed to them; |
11
7.3.2 | have been informed of the confidential nature of the Confidential Information and the purpose for which it may be lawfully used; and |
7.3.3 | comply with the terms of this clause 7 of this IP Agreement in respect of the Confidential Information disclosed to them. |
7.4 | Clause 7.1 shall not apply to Confidential Information to the extent that: |
7.4.1 | such Confidential Information has been placed in the public domain other than through the fault of the Recipient; |
7.4.2 | such Confidential Information was at the time of receipt, publicly available; |
7.4.3 | such Confidential Information has been independently developed without reference to the Confidential Information, as established by independent evidence; or |
7.4.4 | the Provider has approved in writing the particular use or disclosure of the Confidential Information. |
7.5 | The Recipient also may disclose Confidential Information if, and solely to the extent that, it is required to do so by any Governmental Authority or Regulator or otherwise as required by Applicable Law. Where Recipient is required to disclose Confidential Information relating to itself in accordance with this clause 7.5, it shall: |
7.5.1 | to the extent that it is able to do so and is not prohibited by Applicable Law, notify the Provider in writing as soon as practicable upon becoming aware of the obligation to disclose, prior to such disclosure; and |
7.5.2 | to the extent it is able to do so, cooperate with the Provider in avoiding or limiting the disclosure to that portion of the Confidential Information which it is legally required to furnish and obtaining assurances as to confidentiality from the body to whom the Confidential Information is to be disclosed. |
7.6 | Subject to the express provision of this clause 7, each Party shall maintain and shall procure that its Affiliates and contractors maintain the confidentiality of the existence, terms of the negotiations between the Parties and of this IP Agreement, and of the services provided pursuant to this IP Agreement and any other Project Document. Each Party shall not, and shall procure that each of its Affiliates and contractors and subcontractors shall not, issue any press release or other public statement relating to the existence or content of this IP Agreement or any other Project Document without the prior written approval of the other Party. |
7.7 | Subject to requirements under Applicable Law, the obligations with respect to Confidential Information shall survive the termination or expiry of this IP Agreement. |
8. | REPRESENTATIONS, WARRANTIES, INDEMNITIES AND LIMITATION OF LIABILITY |
8.1 | Mutual Representations and Warranties |
Each of Company and NV represent and warrant that:
8.1.1 | it has the full power and authority to enter into this IP Agreement and to carry out its obligations hereunder; |
12
8.1.2 | it is duly organized, validly existing, and in good standing as a corporation or other entity as represented herein under the Applicable Laws of its jurisdiction of incorporation or organization; |
8.1.3 | it shall comply in all material aspects with all Applicable Laws in the course of performing its obligations and exercising its rights under this IP Agreement; |
8.1.4 | the execution of this IP Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by all necessary action of the Party; and |
8.1.5 | when executed and delivered by such Party, this IP Agreement shall constitute the legal, valid, and binding obligation of such Party, enforceable against such Party in accordance with its terms. |
8.2 | Additional Representations, Warranties and Undertakings of NV |
NV represents, warrants, and undertakes (as applicable) to Company that, as of the Effective Date:
8.2.1 | NV and its Affiliates solely own the entire right, title and interest in and to the NV Technology, NV Patents, NV Know-How and NV Trademarks or NV Data to the extent such data is owned by NV; |
8.2.2 | other than as disclosed on Schedule 3 (Permitted Encumbrances), NV and its Affiliates have not previously assigned, transferred, conveyed or otherwise Encumbered its right, title and interest in such NV IPR in a manner that would prevent NV from granting Company the rights granted under this IP Agreement; |
8.2.3 | NV and its Affiliates have not granted and will not grant any license or right in the NV IPR that is inconsistent with the licenses and rights granted to Company and its Affiliates under this IP Agreement in any material respect; |
8.2.4 | NV is not a party to any agreement that would materially prevent it from granting the rights granted to Company under this IP Agreement or performing its obligations under this IP Agreement; |
8.2.5 | NV and its Affiliates have not received any written notice from any Third Party asserting or alleging that any NV IPR or the exploitation thereof infringes or misappropriates the Intellectual Property Rights of such Third Party, and to NV’s actual knowledge, without any duty of inquiry, the permitted use of the NV IPR pursuant to this IP Agreement has not infringed or misappropriated and will not infringe or misappropriate the Intellectual Property Rights of any Third Party; |
8.2.6 | Other than as disclosed on Schedule 4 (NV IPR Claims), as of the Effective Date, there are no pending, and NV and its Affiliates have not received written notice threatening, adverse actions, suits, proceedings, or claims against NV or its Affiliates involving any NV IPR; |
8.2.7 | to NV’s knowledge, no Third Party has or is engaged in any unauthorized use, infringement or misappropriation of any NV IPR; |
8.2.8 | to NV’s knowledge, all NV Patents are subsisting and in good standing; being diligently prosecuted in applicable patent offices in accordance with Applicable Law; have been filed and maintained properly and correctly and all issued NV Patents are valid and enforceable; |
13
8.2.9 | all material regulatory filings, regulatory approvals and other material correspondence with Regulatory Authorities in the KSA relating to any NV IPR is accurate, complete and true in all material respects; |
8.2.10 | NV and its Affiliates have conducted all research and development of NV Technology in accordance with all Applicable Laws; and |
8.2.11 | all regulatory filings or regulatory approvals filed by NV or its Affiliates with respect to NV Technology have been true and accurate in all material respects; |
8.3 | Indemnification |
8.3.1 | NV shall defend, indemnify and hold harmless Company and its respective employees, personnel, consultants, agents, contractors and subcontractors (each a “Company Indemnitee”) during the Term and, solely to the extent arising within the applicable statute of limitations period allowed under Applicable Law, thereafter, in respect of any Indemnified Losses to the extent the same are assessed against, or incurred by, a Company Indemnitee in respect of, the following: |
(a) | NV’s gross negligence, fraud or Willful Misconduct; |
(b) | any allegation that Company’s use of NV IPR in accordance with the terms and conditions of this IP Agreement infringe any Third Party IPR; provided that in no event shall NV be obligated to indemnify any Company Indemnitee for any Indemnified Losses to the extent relating to any alteration or modification of the NV IPR by or on behalf of any Company Indemnitee or any combination of any NV IPR with any other products, technology or other Intellectual Property Rights; provided further that NV has not provided written instructions to Company to make such alterations or modifications; |
(c) | use of any Company Data in violation of the terms of this IP Agreement or Applicable Law; |
(d) | material breach of this IP Agreement; or |
(e) | the violation of Applicable Law. |
8.3.2 | Company shall defend, indemnify and hold harmless NV and its respective employees, personnel, consultants, agents, contractors and subcontractors (each a “NV Indemnitee”) during the Term and, solely to the extent arising within the applicable statute of limitations period allowed under Applicable Law, thereafter, in respect of any Indemnified Losses to the extent the same are assessed against, or incurred by, a NV Indemnitee in respect of the following: |
(a) | Company’s gross negligence, fraud or Willful Misconduct; |
(b) | any allegation that NV’s use of Company IPR in accordance with the terms and conditions of this IP Agreement infringe any Third Party Intellectual Property Rights; provided that in no event shall Company be obligated to indemnify any NV Indemnitee for any Indemnified Losses to the extent relating to any alteration or modification of the Company IPR by or on behalf of any NV Indemnitee or any combination of any Company IPR with any other products, technology or other |
14
Intellectual Property Rights; provided further that Company has not provided written instructions to NV to make such alterations or modifications;
(c) | use of any NV Data in violation of the terms of this IP Agreement or Applicable Law; |
(d) | material breach of this IP Agreement; or |
(e) | the violation of Applicable Law. |
8.3.3 | For the purpose of interpreting clause 8.3, reference to an act or omission of a Party shall also include relevant acts or omissions of the applicable Party’s personnel, Affiliates, subcontractors and their relevant personnel. |
8.3.4 | The provisions of clause 13.5 of the Laboratory Services Agreement shall govern the procedure for indemnification claims under this IP Agreement. |
8.3.5 | This clause 8.3 shall remain in full force and effect notwithstanding any termination or expiry of this IP Agreement. |
8.3.6 | Notwithstanding anything to the contrary, in no event shall Company be entitled to recover from NV under both this IP Agreement and any other Project Document for the same Losses. |
8.4 | Limitation on Liability |
8.4.1 | In no event shall either Party have any liability under this IP Agreement for any Losses, whether based on an action or claim in contract, tort (including negligence), breach of statutory duty or otherwise that exceed in the aggregate ten million Euros (€10,000,000.00). |
8.4.2 | Subject to clause 8.4.3, in no event shall either Party have any liability under this IP Agreement for: |
(a) | any punitive, exemplary, incidental, special, indirect or consequential loss or damages; or |
(b) | any direct or indirect: |
(i) | loss of profits, contract, income, or revenue; |
(ii) | cost of cover; |
(iii) | business interruption or downtime; |
(iv) | loss of the use of money or failure to realize anticipated savings; or |
(v) | loss of opportunity, goodwill or reputation. |
8.4.3 | Nothing in this IP Agreement shall exclude or limit the liability of any Party for: |
(a) | fraud (including fraudulent misrepresentation); |
(b) | death or personal injury caused by a Party’s gross negligence; |
15
(c) | a Party’s Willful Misconduct or gross negligence; |
(d) | a breach of clause 7; |
(e) | with respect to NV only, any liability for NV’s breach of clause 6; |
(f) | the indemnity in clause 8.3 (other than any Losses arising out of any breach by either Party of the representations and warranties contained in clauses (i) 8.1 and 8.2; or (ii) 8.3.1(b) or 8.3.2(b), in each case, which Losses shall be subject to the limitation of liability set forth in clause 8.4); or |
(g) | any other liability which cannot be excluded or limited by Applicable Law. |
8.4.4 | Each Party acknowledges its general duty to reasonably mitigate any Losses incurred in relation to this IP Agreement and, in any case, each Party shall reasonably mitigate any Losses incurred by it in relation to this IP Agreement. |
8.4.5 | Except as expressly stated in clause 8.1 and 8.2, no Party has made and nor makes any promises, covenants, guarantees, representations or warranties of any nature, directly or indirectly, express, statutory or implied, including without limitation, merchantability or fitness for a particular purpose, suitability, durability, condition, quality or any other characteristic of any Technology, Intellectual Property Rights or data licensed pursuant to this IP Agreement. |
9. |
9.1 | Term |
This IP Agreement shall be in full force and effect beginning on the Effective Date and continue for a period of ten (10) years unless terminated in the manner set forth in clause 9.2 below (such period, the “Initial Term”). The Initial Term shall automatically renew for successive one-year terms (each a “Renewal Term”) unless or until either Party notifies the other Party in writing of its intention not to renew no less than ninety (90) calendar days prior the expiration of the Initial Term or then-current Renewal Term or this IP Agreement is otherwise terminated pursuant to clause 9.2 below (the Initial Term and any Renewal Terms, the “Term”).
9.2 | Termination |
This IP Agreement may be terminated upon the occurrence of any of the following events:
9.2.1 | Company may terminate this IP Agreement for any reason by giving nine (9) months’ prior written notice to NV; provided that Company may not send any notice terminating this IP Agreement pursuant to this clause 9.2.1 prior to two and a half (2.5) years from the Effective Date, it being understood that Company’s obligations to pay the Royalty Fees set forth in clause 5.2 shall survive any such termination for convenience in accordance with clause 5.3). |
9.2.2 | This IP Agreement shall terminate automatically upon termination of the Joint Venture Agreement. |
9.2.3 | Either Party may terminate this IP Agreement in the event the other Party is in material breach of any of its obligations under this IP Agreement and either that breach is not capable of remedy or, if the breach is capable of remedy, the breaching Party has failed to remedy such breach within sixty (60) days (unless a shorter remedy period applies |
16
hereunder) after receiving written notice requiring it to remedy the relevant breach; provided that, no event of default shall be deemed to have occurred hereunder if such breach cannot reasonably be remedied within such sixty (60) day period and the breaching Party has commenced and is diligently pursuing such remedy within such sixty (60) day period, in which case the breaching Party shall have an additional period of time (not to exceed one hundred and twenty (120) days after receipt of written notice of such default) to remedy such default and the non-breaching Party may not terminate this IP Agreement during such period.
9.2.4 | Notwithstanding clause 9.2.3, NV may terminate this IP Agreement if Company fails to pay any undisputed amounts due under this IP Agreement within thirty (30) Business Days of written demand by Formal Notice to Company for such payment or Company fails to pay any disputed amount within thirty (30) Business Days of such disputed payments being agreed. |
9.2.5 | NV may terminate this IP Agreement if NV Abandons (as defined in the relevant Project Document) the provision of services under the Project Documents and NV has failed to remedy such Abandonment within forty-five (45) days after receiving written notice requiring it to remedy such Abandonment. |
9.2.6 | Company may terminate this IP Agreement if there is an NV Change of Control (as defined in the Joint Venture Agreement). |
9.2.7 | Either Party may terminate this IP Agreement with immediate effect by written notice to the defaulting Party if: |
(a) | the defaulting Party is unable to pay its debts as they fall due or an order is made or a resolution passed for the administration, winding-up or dissolution of the defaulting Party (other than for the purposes of a solvent amalgamation or reconstruction) or an administrative or other receiver, manager, liquidator, administrator, trustee or similar officer is appointed over all or any substantial part of the assets of the defaulting Party; or |
(b) | the defaulting Party enters into or into or proposes any composition or arrangement with its creditors generally or anything analogous to the foregoing occurs. |
9.3 | Effect of Termination |
9.3.1 | Upon termination or expiration of this IP Agreement, all rights and obligations of the Parties under this IP Agreement immediately cease (including, for the avoidance of doubt, any license grants, including the licenses granted under clauses 2.1 and 2.2); provided that: |
(a) | the provisions surviving pursuant to clause 9.5 shall continue; and |
(b) | Company may continue to use the NV Trademarks for the Transition Period set forth in and otherwise in accordance with clause 9.3.6. |
9.3.2 | Notwithstanding anything to the contrary herein, other than in the event of termination by NV pursuant to clause 9.2.3, 9.2.4 or 9.2.7 whereby the Parties shall meet in good faith to discuss the terms of a separate license agreement, Company will retain a non-exclusive, non-sublicensable, non-transferable, royalty-bearing (for so long as the Royalty Term is still in effect, after which such license shall become royalty-free and fully paid-up) license to the NV Technology, NV Patents, NV Know-How and NV Data then existing at the |
17
effective date of termination of this IP Agreement for the Purpose; provided that the foregoing license shall automatically terminate immediately in the event Company uses the NV Patents, NV Technology, NV Know-How and NV Data in any manner that:
(a) | materially breaches the terms and conditions of the license set forth in this clause 9.3.2 and either that breach is not capable of remedy or, if the breach is capable of remedy, Company has failed to remedy such breach within sixty (60) days (unless a shorter remedy period applies hereunder) after receiving written notice requiring it to remedy the relevant breach; provided that, no event of default shall be deemed to have occurred hereunder if such breach cannot reasonably be remedied within such sixty (60) day period and Company has commenced and is diligently pursuing such remedy within such sixty (60) day period, in which case Company shall have an additional period of time (not to exceed one hundred and twenty (120) days after receipt of written notice of such default) to remedy such default and NV may not terminate this IP Agreement during such period; |
(b) | violates Applicable Law or violates any applicable consents from any data subjects. |
9.3.3 | Following expiration or earlier termination of this IP Agreement, the Parties shall discuss in good faith the terms of an agreement pursuant to which Company shall obtain a license grant to the NV Variant List following the Term. |
9.3.4 | On any termination of this IP Agreement for any reason by Company or expiration of the Term: |
(a) | NV shall as soon as reasonably practicable return, delete or destroy (as directed in writing by the other Company) all Company Data and other materials or information provided to NV by Company in connection with this IP Agreement or under any Project Document including materials containing or based on Company’s Confidential Information, subject to the confidentiality obligations in clause 7; and |
(b) | NV shall as soon as reasonably practicable ensure that all Company Data and that has been used or accessed by NV (excluding any NV Derived Data) is deleted from any IT system of NV or its Affiliates. and any electronic data shall be considered deleted, for the purpose of this clause 9.3.4 where it has been put beyond use by NV or its Affiliates; |
provided that if NV is required by any Applicable Law or Governmental Authority or Regulatory Authority to retain any data, documents or materials that it would otherwise be required to return or destroy under clause 9.3.4, it shall notify Company in writing of that retention, giving details of the documents or materials that it must retain and NV shall not be in breach of clause 9.3.4 with respect to the retained data, documents or materials, however, clause 7 shall continue to apply to such data, documents and materials.
In the event the Parties wish to enter into any further research and/or collaborations in respect of Company Data that has been retained by NV pursuant to this clause 9.3.4, the Parties shall enter into good faith discussions with respect to a separate license agreement.
18
9.3.5 | Where there is a termination of only certain services under a Project Document (and not the IP Agreement as a whole) clause 9.3.4 shall still apply but only to the extent applicable to the terminated service. |
9.3.6 | Upon expiration or termination of the Initial Term, Company shall, and shall cause its Affiliates and any sublicensees to, as soon as practicable (but in no event more than six (6) months) following expiration or termination of the Initial Term (the “Transition Period”) cease any and all use of the NV Trademarks or any derivation thereof in any form, including by removing the NV Trademarks from any and all assets, inventories, advertisements, communications, website content, other internet or electronic communication vehicles and other documents and materials of Company, its Affiliates and its sublicensees and making any and all filings necessary to remove any NV Trademarks (including any Composite Marks) from Company’s Corporate Identity (it being understood that Company shall promptly change its Corporate Identity to not use any Composite Marks or any other NV Trademarks). |
9.3.7 | Company agrees and hereby specifically consents to NV obtaining a decree of a court having jurisdiction over Company, its Affiliates or any of its sublicensees to enforce the provisions of this clause 9.3, in addition to any other remedy to which it may be entitled by Applicable Law. |
9.4 | Bankruptcy |
The Parties agree that Company, as a licensee of such rights under this IP Agreement, will retain and may fully exercise all of its rights and elections under Applicable Law, including the right to preserve and enforce the licensee benefits set forth in this Agreement. NV agrees to notify Company in the event of any insolvency or bankruptcy event that might affect the rights granted to Company’s rights hereunder, with the intent to provide notice so that Company would have an opportunity to object to any transfer in bankruptcy that might lead to the rejection of any pre- existing licenses. Without limiting the foregoing, the Parties agree that Company may assert without objection from NV that this IP Agreement is not vulnerable to rejection under bankruptcy laws and that, if rejected, such rejection shall not result in termination of the Agreement or a similar result or effect. All rights, powers and remedies of Company, as a licensee hereunder, provided herein by NV are in addition to and not in substitution for any and all other rights, powers and remedies now or hereafter existing at law or in equity in the event of the commencement of a bankruptcy case by or against NV.
9.5 | Survival |
Upon expiration or termination of this IP Agreement, the terms of clauses 2.5, 4.1, 4.2, 4.3, 5.2, 5.3, 5.4 (solely to the extent the Royalty Term has not yet expired), 5.5, 7, 8.3, 8.4, 9.3, 9.4, 9.5, 11-22 and 23.2 and any definitions necessary to construe any of the forgoing provisions, shall survive the termination of this IP Agreement.
10. |
10.1 | Compliance with Applicable Laws |
Each Party warrants that it shall comply with any Applicable Law related to the subject matter of this IP Agreement that are applicable to such Party.
10.2 | Responsibility for Compliance |
19
Each Party shall (except as otherwise set forth in other written agreements entered into between the Parties) be, as to its own activities, responsible for compliance with Applicable Law with respect to any sale, manufacture or other use involving any Technology, including any NV Technology, and any associated Intellectual Property Rights therein, including, without limitation, any Applicable Export Control or Economic Sanctions Programs.
10.3 | Costs |
Except as otherwise provided in this IP Agreement, each Party shall be responsible for any and all of its expenses, costs, fees, duties and/or Taxes necessary to comply with Applicable Law in connection with the subject matter of this IP Agreement.
11. |
11.1 | Any communication to be given in connection with this IP Agreement shall be in writing and, if such communication is a Formal Notice, shall either be delivered by hand or courier to a Party’s registered office (or such other address as a Party may notify the other Party for such purpose) or by e-mail as follows: |
to NV at: | to Company at: |
| |
CENTOGENE N.V. | GENOMICS INNOVATIONS COMPANY LIMITED |
Am Strande 7, 18055 | |
Rostock, Germany | |
| |
Marked for the attention of: | Marked for the attention of: |
Chief Legal Officer | [Jeremy Panacheril] |
email: jan.boysen@centogene.com | |
| email: [***] |
| |
| |
With a copy, which shall not | With a copy to: |
constitute notice, to: | [***] |
| |
legal@centogene.com | |
| |
And with a copy, which shall not | with a copy, which shall not constitute notice, to: |
constitute notice, to: | [***] |
| |
Chief Financial Officer | |
| |
email: miguel.coego@centogene.com | |
11.2 | A communication sent according to clause 11.1 shall be deemed to have been received: |
11.2.1 | if delivered by hand, on written acknowledgment or receipt by an officer or an employee of the receiving Party; |
11.2.2 | if delivered by courier, on production of evidence from the relevant courier that the notice was successfully delivered; or |
20
11.2.3 | if by e-mail, upon transmission to the correct e-mail address as specified, provided that a hard copy is sent by post as soon as reasonably practicable thereafter to the address set out in clause 11.1. |
11.3 | If, under the preceding provisions of clause 11.2, a communication would otherwise be deemed to have been received outside normal business hours in the place of receipt, being 9:00 a.m. to 4:00 p.m. on a Business Day, it shall be deemed to have been received at 9:00 a.m. on the next Business Day. |
11.4 | A Party may notify the other Party of a change to its name or address or e-mail address for the purposes of clause 11.1; provided that such notification shall only be effective on: |
11.4.1 | the date specified in the notification as the date on which the change is to take place; or |
11.4.2 | if no date is specified or the date specified is less than five (5) Business Days after the date on which notice is deemed to have been served, the date falling five (5) Business Days after notice of any such change is deemed to have been given. |
12. |
12.1 | Each Party agrees that it shall execute and perform all such deeds, documents, assurances, acts and things and exercise all powers and rights available to it, reasonably required to implement the terms of this IP Agreement. |
12.2 | Save as otherwise provided in this IP Agreement, nothing in this clause 12 shall require, or be construed to require, any Party to agree to: |
12.2.1 | sell, hold, divest, discontinue or limit any assets, businesses or interests; |
12.2.2 | any conditions relating to, or changes or restrictions in, the operations of their assets, businesses or interests; |
12.2.3 | any conditions relating to, or changes or restrictions in, the operations of the assets, businesses or interests of either Party which could reasonably be expected to materially and adversely impact the economic or business benefits to such Party of the transactions contemplated by this IP Agreement; or |
12.2.4 | any material modification or waiver of the terms and conditions of this IP Agreement. |
13. |
Other than as required under Applicable Law, neither Party shall issue any announcement or communication concerning the rights and obligations contemplated by this IP Agreement without the prior consent in writing of the other Party.
14. |
14.1 | This IP Agreement shall be executed in English. |
14.2 | Any notice (including a Formal Notice) given in connection with this IP Agreement must be in English. |
14.3 | Any other document provided by a Party in connection with this IP Agreement must be in English. |
21
15. |
15.1 | Neither Party is permitted to assign, sub-license, create a charge over or otherwise Dispose of any of its rights or subcontract, transfer or otherwise Dispose of any of its obligations under this IP Agreement without the prior written consent of the other Party (not to be unreasonably withheld, conditioned or delayed); provided that either Party is permitted to assign, sub-license, create a charge over or otherwise Dispose of any of its rights or transfer or otherwise Dispose of any of its obligations under this IP Agreement: |
15.1.1 | to any Affiliate; or |
15.1.2 | as collateral in relation to its right to receive payment under this IP Agreement to any financial institution providing financing to such Party or any of such Party’s Affiliates, |
in each case without the prior written consent of the other Party.
16. |
16.1 | Nothing in this IP Agreement shall be deemed to constitute a partnership between or among any of the Parties, nor constitute any Party constituting or becoming in any way the agent of any other Party for any purpose. |
16.2 | Unless specifically authorized in writing by a Party or as otherwise set forth herein, no other Party shall have any authority to incur an expenditure in the name or for the account of such Party or hold itself out in any way as having authority to bind such Party. |
17. |
Except as otherwise set forth in this IP Agreement, each Party shall pay the costs and expenses, including any Tax, incurred by it in connection with the preparation, review, negotiation and execution of this IP Agreement.
18. |
18.1 | A failure or delay by a Party to exercise any right or remedy provided under this IP Agreement, whether by conduct or otherwise, shall not constitute a waiver of that or any other right or remedy, nor shall it preclude or restrict any further exercise of that or any other right or remedy. No single or partial exercise of any right or remedy provided under this IP Agreement, whether by conduct or otherwise, shall preclude or restrict the further exercise of that or any other right or remedy. |
18.2 | A waiver of any right or remedy under this IP Agreement shall only be effective if given in writing and signed by the Party against whom the waiver would be enforced and shall not be deemed a waiver of any subsequent breach or default. |
18.3 | No variation or amendment of this IP Agreement shall be valid unless it is in writing and duly executed by or on behalf of all of the Parties to this IP Agreement. Unless expressly agreed in writing, no variation or amendment shall constitute a general waiver of any other provision of this IP Agreement, nor shall it affect any rights or obligations under or pursuant to this IP Agreement which have already accrued up to the date of variation or amendment, and the rights and obligations under or pursuant to this IP Agreement shall remain in full force and effect, except and only to the extent that they are varied or amended in accordance with this clause 18. |
22
19. |
Where any provision of this IP Agreement is or becomes illegal, invalid or unenforceable in any respect, then such provision shall be deemed to be severed from this IP Agreement and, if possible, replaced with a lawful provision which, as closely as possible, gives effect to the intention of the Parties under this IP Agreement and, where permissible, that shall not affect or impair the legality, validity or enforceability in that, or any other, jurisdiction of any other provision of this IP Agreement.
20. |
20.1 | A person who is not a party to this IP Agreement shall not have any right to enforce any term of this IP Agreement. |
20.2 | The rights of the Parties to terminate, rescind or agree to any variation, waiver or settlement under this IP Agreement is not subject to the consent of any person that is not a party to this IP Agreement. |
21. |
Each Party acknowledges that a breach or threatened breach by such Party of its obligations under this IP Agreement would give rise to irreparable harm to the other Party for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such Party of any such obligations, the other Party shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach or threatened breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance, and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond) to prevent such breach or to enforce specifically the performance of the terms of this IP Agreement.
22. |
22.1 | Governing Law |
This IP Agreement shall be governed and construed in accordance with the laws of the Kingdom.
22.2 | Jurisdiction |
22.2.1 | In the event of any dispute, difference, claim, controversy or question between Company and NV, directly or indirectly arising at any time under, out of, in connection with or in relation to this IP Agreement (or the subject matter of this IP Agreement) or any term, condition or provision hereof, including any of the same relating to the existence, validity, interpretation, construction, performance, enforcement and termination of this IP Agreement (a “Dispute”), Company and NV shall first endeavor to settle such Dispute by good faith negotiation. The Parties agree, save as otherwise agreed in writing by Company and NV, that the negotiations shall not exceed three (3) months from the date of the start of such negotiations. |
22.2.2 | Notwithstanding the provisions of clause 22.2.1 above, any Dispute arising out of, or in connection with, this IP Agreement shall be finally administered by the Saudi Centre for Commercial Arbitration (“SCCA”) in accordance with its Arbitration Rules. The arbitration shall be conducted by an arbitration tribunal consisting of three (3) independent arbitrators, none of whom shall have any relationship or competitive interests with any of the Parties or any of their Affiliates. Company shall appoint one (1) arbitrator, NV shall appoint one (1) arbitrator and the SCCA shall appoint one (1) arbitrator. The arbitration |
23
shall take place in the English language and the seat shall be at the SCCA, in Riyadh, the Kingdom. Judgment for any award rendered may be entered in any court having jurisdiction or an application may be made to such court for a judicial recognition of the award or an order of enforcement thereof, as the case may be. Nothing in this clause shall preclude any Party from seeking provisional measures to secure its rights from any court having jurisdiction or where any assets of the other Party may be found. The arbitration proceedings contemplated by this clause and the content of any award rendered in connection with such proceeding shall be kept confidential by the Parties.
23. |
23.1 | Neither Party shall be liable for failure or delay in performing any of its obligations (other than any payment obligations) under or pursuant to this IP Agreement if such failure or delay is due to any cause whatsoever outside its reasonable control and which by the exercise of due diligence such Party is unable to prevent or overcome, including: |
23.1.1 | acts of God; |
23.1.2 | flood, fire, earthquake or explosion; |
23.1.3 | war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot or other civil unrest; |
23.1.4 | Applicable Law; |
23.1.5 | government actions, embargoes, sanctions or blockades in effect on or after the date of this IP Agreement; |
23.1.6 | action by any Governmental Authority or Regulator (including regulatory changes); provided that the Party relying on the government act or omission as a reason for delay in performance did not, directly or indirectly, procure or induce such government act or omission; |
23.1.7 | national emergency; |
23.1.8 | pandemics or epidemics; and |
23.1.9 | strikes, labour stoppages, or other industrial disturbances |
(each a “Force Majeure Event”) and the affected Party shall be relieved from its liability hereunder during the period of such Force Majeure Event and the other Party may terminate this IP Agreement in accordance with clause 9.2 if such Force Majeure Event continues for more than one hundred and eighty (180) days.
23.2 | The affected Party shall, in any event, use reasonable endeavours to avoid or mitigate the effect of such events so as to recommence performance of their obligations as soon as reasonably possible following the Force Majeure Event no longer applying. |
24. |
24.1 | This IP Agreement and the Project Documents set out the entire agreement and understanding between the Parties in respect of the subject matter of this IP Agreement and supersede all prior agreements and understandings, both oral and written, between the Parties with respect to the subject matter hereof and thereof. |
24
24.2 | Each Party acknowledges that it is not relying on, and shall have no remedies in respect of, any undertakings, representations, warranties, promises or assurances (whether made innocently or negligently) that are not set forth in this IP Agreement. |
25. |
This IP Agreement (and any amendment agreed to pursuant to clause 18.3) may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, this IP Agreement has been executed by the Parties by their duly authorized representatives on the Effective Date.
Signed by | ) |
[***] for and on behalf of CENTOGENE N.V. | ) |
| ) |
| ) |
| ) |
| ) |
| |
Signed by | ) |
[***] for and on behalf of GENOMICS | ) |
INNOVATIONS COMPANY LIMITED | ) |
| ) |
| ) |
25
In this IP Agreement:
“ABC Laws” means all laws and regulations applicable to the Parties and this IP Agreement, that relates to bribery or corruption or money laundering, including (without limitation):
(a) | the Saudi Arabian Anti-Bribery Law promulgated by royal decree number M/36 dated 26/12/1412H (corresponding to 27 June 1992) and the Saudi Arabian Anti-Money Laundering Law promulgated by royal decree number M/20 dated 5/2/1439H (corresponding to 25 October 2017); |
(b) | the US Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations issued thereunder; and |
(c) | the UK Bribery Act 2010, as each may be amended or re-enacted from time to time; |
“Accredited” means the CAP Laboratory Accreditation from the College of American Pathologists and the Clinical Laboratory Improvement Amendments certification or, in the event Company is unable to obtain such accreditation or certification, as applicable, due to regulatory changes arising after the Effective Date, an equivalent internationally recognized accreditation or certification, as applicable, as mutually agreed by the Board of Directors, and “Accredited” shall be construed accordingly;
“Acknowledgment and Undertaking” means the acknowledgment and undertaking attached hereto as Schedule 5 (Acknowledgement and Undertaking) that shall be executed by a NV Secondee prior to the commencement of any secondment pursuant to the Consultancy Agreement;
“Affiliate” means any person, now or in the future, directly controlling, controlled by or under direct or indirect common control of a Party. For the avoidance of doubt, for purposes of this IP Agreement when used in connection with Company, the term “Affiliate” will not include NV and when used in connection with NV, the term “Affiliate” will not include Company. For the purposes of this definition, “control” (including the terms “controlling”, “controlled by” and “under common control”), means in relation to any Person (being the “Controlled Person”), being:
(a) | entitled to exercise, or control the exercise of (directly or indirectly) more than fifty percent (50%) of the voting power at any general meeting of the shareholders, members or partners or other equity holders (and including, in the case of a limited partnership, of the limited partners of) in respect of all or substantially all matters falling to be decided by resolution or meeting of such Persons; |
(b) | entitled to appoint or remove: |
(i) | directors on the Controlled Person’s board of directors or its other governing body (or, in the case of a limited partnership, of the board or other governing body of its general partner) who are able (in the aggregate) to exercise more than fifty percent (50%) of the voting power at meetings of that board or governing body in respect of all or substantially all matters; |
26
(ii) | any managing member of such Controlled Person; and/or |
(iii) | in the case of a limited partnership, its general partner; or |
(c) | entitled to exercise a dominant influence over the Controlled Person (otherwise than solely as a fiduciary) by virtue of the provisions contained in its constitutional documents or pursuant to an agreement with other shareholders, partners or members of the Controlled Person; |
“Applicable Data Protection Laws” means any and all laws, statutes, rules and regulations r the privacy, security, protection, access, collection, storage, transmission, disclosure, exchange or other processing of Personal Data, including, but not limited to: the General Data Protection Regulation (EU) 2016/679 (“GDPR”), the German Federal Data Protection Act (Bundesdatenschutzgesetz), the provisions of the German Genetic Diagnostics Act (Gendiagnostikgesetz), the Kingdom National Data Management Office’s Interim Regulations on Personal Data Protection, the Kingdom Ministry of Health’s Guidelines for Informed Consent, and the Kingdom Personal Data Protection Law (issued pursuant to Royal Decree M/19 of 9/2/1443H (corresponding to 16 September 2021), and any relevant implementing regulations issued pursuant to the Kingdom Personal Data Protection Law (“KSA PDPL”)), in each case as amended or updated from time to time;
“Applicable Export Control” or “Economic Sanctions Programs” means all applicable national and international export controls, sanctions laws, regulations and programs;
“Applicable Law” means any of the following, to the extent that it applies to a Party:
(a) | any laws, statute, directive, order, enactment, regulation, bylaw, ordinance or subordinate legislation in force from time to time, but subject to any written waivers granted by any Governmental Authority; |
(b) | any binding court order, judgment or decree; |
(c) | any applicable industry code, policy or standard enforceable by law; |
(d) | any applicable direction, statement of practice, policy, rule or order that is set out by a Regulatory Authority, that is binding on the Parties; and |
(e) | the ABC Laws, Applicable Data Protection Laws and the Applicable Export Control or Economic Sanctions Programs; |
“Board of Directors” means the Board of Directors of Company from time to time;
“Business” has the meaning given to this term in the Joint Venture Agreement;
“Business Day” means any day other than a Friday, Saturday or public holiday in KSA or Germany;
“Business Materials” means signs, business cards, invoices, letterhead, agreements and other commercial documents;
27
“Calendar Quarter” means each successive period of three (3) calendar months commencing on January 1, April 1, July 1 and October 1; provided, however, that the last Calendar Quarter of the Term shall end upon the expiration or termination of this IP Agreement;
“Claim” means any claims, demands, suits, proceedings or actions by any Governmental Authority, Regulatory Authority or a Third Party (in either case, not being connected to or related to the relevant Indemnitee);
“Company” has the meaning given to this term in the preamble of this IP Agreement;
“Company Background IPR” means any and all Intellectual Property Rights, Technology and data owned or Controlled by Company or any of its Affiliates:
(a) | in existence as of immediately prior to the Effective Date; or |
(b) | arising during the Term but independently from this IP Agreement and the other Project Documents; |
“Company Data” means all rights, title and interest in and to any samples, data or information that is:
(a) | exclusively related to the Business or Company’s customers that is provided to, held or obtained by NV or any of its Affiliates pursuant to the Consultancy Agreement or Laboratory Services Agreement during the term of such agreements; |
(b) | created, generated, collected or processed by NV or its Affiliates for Company in the performance of its services under the Consultancy Agreement and Laboratory Services Agreement during the term of such agreements subject to and in accordance with patient consents and Applicable Law, including reports and other results and output of such services; or |
(c) | material findings, results and derivatives (excluding any NV Derived Data) from any of the items described in clause (a) and (b) above; |
“Company Derived Data” means Derived Data that is Manipulated by Company or its Affiliates;
“Company Indemnitee” has the meaning given to this term in clause 8.3.1 of this IP Agreement;
“Company IPR” means all Intellectual Property Rights that are owned or Controlled by Company or to which Company otherwise has legal rights, including, but not limited to, Company Background IPR, Company Data and New Company IPR;
“Composite Mark” has the meaning in clause 2.7 of Schedule 2 (NV Trademarks);
“Confidential Information” means information that is marked, designated, or otherwise identified as ‘confidential’ or which by its nature is clearly confidential. Confidential Information includes any Personal Data and information concerning the technology, technical processes, samples, studies, findings, inventions, ideas, business processes, procedures, business affairs, financial affairs and finance of Company and its Affiliates or NV and its Affiliates, as the case may be; provided, that Company’s or NV’s security procedures are also included within the definition of Confidential Information. Confidential Information may take the form of documents, technical specifications, unpublished Patent specifications, data, drawings, plans, processes, photographs,
28
databases, computer software in disk, cassette, tape or electronic form and data storage or memory in, and items of, computer hardware; or oral descriptions, demonstrations or observations, and Confidential Information includes (without limitation) information which is supplied to, stored by, processed or marked for destruction by, NV to Company, or by Company to NV under this IP Agreement, including all Company IPR and NV IPR;
“Consultancy Agreement” has the meaning given to this term in the preamble of this IP Agreement;
“Control” or “Controlled” means with respect to any Patents, Know-How, materials, information or any other Intellectual Property Rights, the legal authority or right (whether by ownership, license or otherwise but without taking into account any rights granted by one Party to the other Party pursuant to this IP Agreement) of a Party to grant access, a license or a sublicense of or under such, Patents, Know-How, materials, information or other Intellectual Property Rights to the other Party, or to otherwise disclose proprietary or trade secret information to such other Party without:
(a) | violating the terms of any agreement or other arrangement with any Third Party in existence as of the time such Party or its Affiliate would be required hereunder to grant such license, sublicense, or right of access and use; or |
(b) | incurring any additional payment obligations to any Third Party for which such other Party has not agreed to reimburse such Party pursuant to the Project Document; |
“Corporate Identity” means any business or corporate entity name, trade name or other business or corporate identifier (e.g., “d/b/a”);
“Derived Data” means any data (wholly or in part) Manipulated to such a degree that:
(a) | is anonymized and cannot be identified as originating or deriving directly from the data or services provided pursuant to any Project Documents; |
(b) | cannot be used to identify a natural person; |
(c) | cannot be reverse-engineered such that it can be so identified; and |
(d) | is not capable of use substantially as a substitute for the data or the results of the Testing Services (as defined in the Laboratory Services Agreement); |
“Dispose” means to:
(a) | sell, assign, transfer or otherwise dispose of it |
(b) | create or permit to subsist any Encumbrance over it; |
(c) | direct (by way of renunciation or otherwise) that another person should, or assign any right to, receive it; |
(d) | enter into any agreement in respect of the votes or any economic or other rights attached to it; or |
(e) | agree, whether or not subject to any condition precedent or subsequent, to do any of the foregoing; |
29
“Dispute” has the meaning given to this term in clause 22.2.1 of this IP Agreement;
“Effective Date” has the meaning given to this term in the preamble of this IP Agreement;
“Encumber” means creating or allowing to exist or agreeing to create or agreeing to allow to exist any mortgage, charge (fixed or floating), pledge, lien, option, right to acquire, assignment by way of security, trust arrangement for the purpose of providing security or any other security interest of any kind, including title retention arrangements;
“Encumbrance” has the meaning correlative to Encumber herein;
“Force Majeure Event” has the meaning given to this term in clause 23.1 of this IP Agreement;
“Formal Notices” means:
(a) | notices invoking, or relating to, Dispute resolution or any litigation between the Parties; |
(b) | notices given in connection with a Force Majeure Event pursuant to clause 23 of this IP Agreement; |
(c) | a change to the contact details specified in clause 11.1 of this IP Agreement; or |
(d) | any other notices stated in this IP Agreement to be a Formal Notice; |
“GCC” means the Cooperation Council for the Arab States of the Gulf, consisting of the Kingdom, the Kingdom of Bahrain, State of Kuwait, State of Qatar, The United Arab Emirates and the Sultanate of Oman;
“Governmental Authority” means any federal, emirate, state, provincial or municipal government or political subdivision thereof, a governmental or quasi-governmental ministry, legislative body, agency, authority, board, bureau, commission, government-controlled corporation or entity, department, instrumentality or public body, or any court, administrative tribunal or public utility that has jurisdiction over the Party or matter in question;
“Improvement” means any update, upgrade, modification, enhancement, variation or improvement to Technology, including any and all manufacturing and engineering developments;
“Indemnified Losses” means:
(a) | any amounts awarded by a court or tribunal of competent jurisdiction or arbitrator to a Third Party; |
(b) | any amounts paid in settlement to a Third Party; |
(b) | any interest awarded by a court of competent jurisdiction or arbitrator in respect of the above; and |
(c) | reasonable costs of investigation, litigation, settlement and external legal fees (on a solicitor-client basis) and disbursements and administrative costs directly incurred by the Indemnitee in respect of a Claim; |
“Indemnitee” means a Party relying on an indemnity pursuant to this IP Agreement;
30
“Initial Term” has the meaning given to this term in clause 9.1 of this IP Agreement;
“Intellectual Property Rights” or “IPR” means all past, present, and future rights of the following types, which may exist or be created under the laws of any jurisdiction in the world:
(a) | rights associated with works of authorship, including exclusive exploitation rights, copyrights, moral rights, and other similar works; |
(b) | trade secret rights and Know-How; |
(c) | Patents, Technology, and other industrial property rights; |
(d) | other proprietary rights in intellectual property; and |
(e) | rights in or relating to registrations, renewals, extensions, combinations, divisions, and reissues of, and applications for, any of the rights referred to in clauses (a) through (d) above; |
“IP Agreement” has the meaning given to this term in the preamble of this IP Agreement;
“Joint IPR” has the meaning given to this term in clause 4.1.2(d) of this IP Agreement;
“Joint Venture Agreement” or “JV Agreement” has the meaning given to this term in the preamble of this IP Agreement;
“Kingdom” or “KSA” means the Kingdom of Saudi Arabia;
“Know-How” means know-how, trade secrets, technical data, unpatented inventions, and commercial information and techniques in any form (including paper, electronically stored data, magnetic media, film and microfilm) including, without limitation, drawings, formulae, test results, reports, project reports and testing procedures, instruction and training manuals, tables of operating conditions and lists and particulars of suppliers;
“KSA Biodatabank” means national KSA data registries, biodatabank, and genetic data including in relation to rare and neurodegenerative diseases that is Controlled by Company;
“KSA Facility” means the facility for the establishment and maintenance of the KSA Lab and the KSA Biodatabank;
“KSA Lab” means a laboratory facility to be located in Riyadh, the Kingdom, and operated in accordance with Applicable Law with the intention that it becomes an Accredited, globally recognized, commercially driven genomics wet and dry lab;
“Laboratory Services Agreement” has the meaning given to this term in the preamble of this IP Agreement;
“Licensed Party” means a Party in its capacity as licensee under the licenses granted under clause 2.1 or clause 2.2;
“Licensing Party” means a Party in its capacity as licensor under the licenses granted under clause 2.1 or clause 2.2;
31
“Losses” means all Claims (whether or not successful, compromised or settled), actions, proceedings, liabilities, demands, judgments (asserted or established in any jurisdiction) and any and all losses, damages (including interest), any amounts paid in settlement (including interest) of a Claim, costs, expenses (including reasonable legal, investigative, administrative or professional costs and expenses incurred in disputing or defending any of the foregoing), Taxes, fines or penalties;
“Manipulate” means to combine or aggregate the data (wholly or in part) with other data or information or to adapt the data (wholly or in part);
“Material Opportunity” means the opportunity to enter into any agreement in any Other GCC Member State for the provision of services related to the Business with prospective clients or government entities, the value of which exceeds five million Saudi Arabian Riyals (SAR 5,000,000.00);
“Net Revenue” means the net revenue of Company, after deduction of reasonable and customary customer discounts or allowances, as calculated in accordance with generally accepted accounting principles consistently applied;
“New Company IPR” has the meaning given to this term in clause 4.1.2(b) of this IP Agreement;
“New IPR” means all Intellectual Property Rights, Derived Data, Improvements, discoveries and inventions, patentable or otherwise, that are first invented, conceived, developed, generated, or made by or on behalf of either Party, their employees and contractors in the course of activities conducted pursuant to any of the Project Documents;
“New NV IPR” has the meaning given to this term in clause 4.1.2(a) of this IP Agreement; “NV” has the meaning given to this term in the preamble of this IP Agreement;
“NV Background IPR” means any and all Intellectual Property Rights, Technology and data owned or Controlled by NV or any of its Affiliates:
(a) | in existence as of immediately prior to the Effective Date; or |
(b) | arising during the Term but independently from this IP Agreement and the other Project Documents; |
“NV Data” means:
(a) | anonymized data owned or Controlled by NV as of the Effective Date relating to KSA individuals who have signed applicable consents allowing such data to be shared with Company (“NV KSA Data”); and |
(b) | at any given time during the Term, the curated classified variant list Controlled by NV and used by NV for diagnostics at such time (the “NV Variant List”); |
“NV Derived Data” means Derived Data that is Manipulated by NV or its Affiliates;
“NV Facility” has the meaning given to this term in the recitals of this IP Agreement;
“NV Indemnitee” has the meaning given to this term in clause 8.3.2 of this IP Agreement;
32
“NV IPR” means all the NV Technology, NV Patents, NV Know-How, NV Data, New NV IPR and NV Trademarks;
“NV Know-How” means any Know-How owned or Controlled by NV as of the Effective Date that is necessary for Company to operate the KSA Facility or receive the benefit of the Project Documents or is otherwise provided to Company by NV pursuant to any of the Project Documents;
“NV Patents” means any Patents owned or Controlled by NV as of the Effective Date that is necessary for Company to operate the KSA Facility or receive the benefit of the Project Documents;
“NV Secondees” has the meaning given to this term in clause 4.1.2(b) of this IP Agreement;
“NV Technology” means any Technology owned or Controlled by NV as of the Effective Date that is necessary for Company to operate the KSA Facility or receive the benefit of the Project Documents;
“NV Trademarks” means the Trademarks listed in Schedule 2 (NV Trademarks) and, subject to clause 2.7 of Schedule 2 (NV Trademarks), any and all Composite Marks;
“Other GCC Member State” means each member state of the GCC, excluding KSA;
“Party” or “Parties” has the meaning given to it in the preamble of this IP Agreement;
“Patents” means patents (including utility, utility model, plant and design patents, and certificates of invention), patent applications (including additions, provisional, national, regional, and international applications, as well as original, continuation, continuation-in-part, divisionals, continued prosecution applications, reissues, and re-examination applications), patent or invention disclosures, registrations, applications for registrations, and any term extension or other governmental action which provides rights beyond the original expiration date of any of the foregoing;
“Person” means any individual, corporation, sole proprietorship, limited liability company, partnership, joint venture, association, joint stock company, fund, trust, unincorporated organization or Governmental Authority;
“Personal Data” has the meaning given to it in Applicable Data Protection Laws;
“Project Documents” means, collectively, this IP Agreement, the Joint Venture Agreement, the Laboratory Services Agreement and the Consultancy Agreement;
“Promotional Material” means any and all material used in the promotion of, or otherwise in connection with the Purpose (whether written or recorded in any medium) as permitted in this IP Agreement, and includes artwork, advertising materials (irrespective of the medium in which they are recorded), display materials, brochures, videos, broadcasts, and posters (including any internet or web-based materials);
“Provider” has the meaning given to this term in clause 7.1 of this IP Agreement;
“Purpose” has the meaning in clause 2.1.1(a) of this IP Agreement;
“Recipient” has the meaning given to this term in clause 7.1 of this IP Agreement;
33
“Regulator” or “Regulatory Authority” means any national, regional, state or local regulatory agency, department, bureau, commission, council or other Governmental Authority whose review and/or approval is necessary for performing clinical and/or laboratory services in the applicable regulatory jurisdiction and granting regulatory approvals or having regulatory or supervisory authority over a Party or a Party’s assets, resources or business;
“Renewal Term” has the meaning given to this term in clause 9.1 of this IP Agreement;
“Royalty Fee” has the meaning given to this term in clause 5.2 of this IP Agreement;
“Royalty Term” has the meaning given to this term in clause 5.3 of this IP Agreement;
“SCCA” has the meaning given to this term in clause 22.2.2 of this IP Agreement;
“Tax” means all forms of taxation and statutory, governmental, state, federal, provincial, local, government or municipal charges, duties, imposts, contributions, levies, withholdings or other liabilities in the nature of taxation wherever chargeable and whether of KSA or any other jurisdiction (including, for the avoidance of doubt, social security contributions in KSA and Germany and corresponding obligations elsewhere) and any penalty, fine, surcharge, interest, charges or costs relating to it or them;
“Tax Credit” means a credit against, relief or remission for, or repayment of, any Tax;
“Tax Deduction” means any amount which Company is required by Applicable Law to deduct or withhold on account of Tax from any payment by Company to NV (or a relevant Affiliate) in respect of any payments made under this IP Agreement;
“Technology” means all proprietary information, both business and technical, tangible and intangible, including inventions and discoveries (whether patented, patentable or not), algorithms, business rules, routines, processes, devices, prototypes, schematics, test methodologies, software, systems, original works of authorship, documents, data and Know-How;
“Term” has the meaning given to this term in clause 9.1 of this IP Agreement;
“Third Party” means any individual, partnership, joint venture, corporation or other legal entity that is not a Party or an Affiliate;
“Third Party IPR” has the meaning given to this term in clause 2.4 of this IP Agreement;
“Trademark” means any and all trademarks, service marks, trade names, service names, brand names, trade dress, logos, certifications, accounts, corporate names and any and all other indications of origin (whether or not registered), including any and all goodwill associated therewith, and any and all applications, registrations and renewals in connection therewith;
“Transition Period” has the meaning given to this term in clause 9.3.6 of this IP Agreement;
“VAT” means:
(a) | any Tax imposed in relation to the Unified Agreement for Value Added Tax for the GCC; |
(b) | any other Tax of a similar nature, imposed in a member state of the GCC; or |
(c) | any other similar Taxes imposed anywhere in the world; and |
34
“Willful Misconduct” means conduct that is unreasonable, deliberate and carried out by a Party in the knowledge that it will result in significant injury or damage to the other Party.
35
In this IP Agreement:
(a) | any reference to “Schedule” or “Annex”, unless the context otherwise requires, is a reference to the relevant schedule or annex of and to this IP Agreement, and any reference to a “clause”, “section” or “paragraph”, unless the context otherwise requires, is a reference to a clause in this IP Agreement, a section or paragraph in the relevant Schedule and a paragraph in the relevant Annex, respectively; |
(b) | The clause, section and paragraph headings and the contents page in this IP Agreement are included for convenience purposes only and shall not affect the interpretation of this IP Agreement. |
(c) | Unless the context otherwise requires, the words “this IP Agreement,” “hereof,” “hereunder,” “herein,” “hereby,” or words of similar import shall refer to this IP Agreement as a whole and not to a particular clause or other subdivision hereof. |
(d) | Whenever the context requires, the words used herein shall include the masculine, feminine, and neuter gender, and the singular and the plural. |
(e) | Any reference to a Party or the Parties means a party or the parties to this IP Agreement, including their successors in interest and permitted assigns. |
(f) | Any reference to “persons” includes natural persons, companies, corporations, partnerships, limited liability companies, firms, associations, organizations, Governmental Authorities, foundations and trusts (in each case, whether or not having separate legal personality). |
(g) | Any reference to a date refers to the Gregorian calendar. |
(h) | Any reference to a statute, statutory provision or subordinate legislation shall, except where the context otherwise requires, be construed as referring to such legislation as amended and in force from time to time and to any legislation which re-enacts or consolidates (with or without modification) any such legislation. |
(i) | Unless otherwise defined, terms used in the healthcare industry or other relevant business context shall be interpreted in accordance with their generally understood meaning in that industry or business context. |
(j) | Any phrase introduced by the terms “including”, “include”, “in particular” or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms. |
(k) | Any reference to “writing” or “written” includes email (but not faxes), save with respect to Formal Notices, where service in accordance with clause 11 is required. |
(l) | Any reference to any agreement or other instrument shall, except where expressly provided to the contrary, include any amendment, restatement, amendment and restatement, modification, variation or novation (in whole, or in part) to such agreement or other instrument. |
36
1. | NV TRADEMARKS |
2. | Use of the NV Trademarks |
2.1 | All goodwill associated with any use of the NV Trademarks by Company, its Affiliates or its sublicensees shall inure to the sole and exclusive benefit of NV. Company and its Affiliates shall not: |
2.1.1 | challenge the validity or NV’s exclusive ownership of the NV Trademarks or claim adversely or assist in any claim adverse to NV concerning any right, title or interest in the NV Trademarks; or |
2.1.2 | do or permit any act by Company, its Affiliates or any sublicensees which may directly or indirectly impair or prejudice NV’s title to the NV Trademarks or be detrimental to the reputation and goodwill of NV, including any act which might assist or give rise to any application to remove or de-register the NV Trademarks. |
2.2 | Company shall provide NV with such reasonable assistance in order for NV to file, prosecute, defend, and maintain applications and registrations for the NV Trademarks as NV deems appropriate in its sole discretion, including providing all consents, other documents and specimens of use reasonably requested by NV. |
2.3 | Subject to compliance with the terms and conditions of this IP Agreement, Company may use the NV Trademarks on Business Materials or Promotional Materials for products or services for the Purpose in KSA. |
2.4 | Company shall not do or permit any act by Company, its Affiliates or its sublicensees which would be reasonably likely to adversely affect the NV Trademarks or otherwise be detrimental to the reputation and goodwill of NV or its Affiliates. |
2.5 | Company shall use the NV Trademarks only in the fonts and colors shown in Schedule 2 (NV Trademarks) of this IP Agreement, or such other fonts and colors as may be approved in writing by NV, and shall conform to the standards for use of the NV Trademarks that NV from time to time prescribes, including standards relative to the font, design, size, position, appearance, marking, and color of the NV Trademarks, and manner of use of the NV Trademarks and accompanying designations on or in connection with any product, service, document or other media including any Promotional Material. |
2.6 | Company shall not and shall cause its Affiliates not to: |
37
2.6.1 | register or use or attempt to register or to use any Trademark, design, URL, domain name, or social media identifier that may be similar to or comprise or include any NV Trademark; or |
2.6.2 | register or attempt to register the NV Trademarks individually or as part of, in combination with or otherwise in connection with, any Trademark. |
2.7 | Company shall notify NV in writing if it desires to use (including as part of any Corporate Identity) any NV Trademark, including any Trademark with the name or mark “Centogene” (e.g., “Centogene KSA”) (a “Composite Mark”). Any right to use any such Composite Mark by Company shall be subject to NV’s prior written consent, which may not be unreasonably withheld, conditioned or delayed. If NV provides Company with consent to use any such Composite Mark, NV shall use commercially reasonable efforts to register and maintain any such Composite Mark for use in the Business, at NV’s sole cost and expense, and such Composite Mark shall be deemed to be an NV Trademark and licensed to Company pursuant to clause 2.1.1(e) for the purposes of this IP Agreement. NV shall solely and exclusively own any and all Composite Marks and Company will not assert any ownership rights in any Composite Mark. NV shall have the exclusive right to control the prosecution and maintenance of any application for or registration of any Composite Mark, at NV’s sole cost and expense. All goodwill associated with any use of any Composite Mark by Company, its Affiliates or its sublicensees shall inure to the sole and exclusive benefit of NV. Upon the request of NV, and at NV’s sole cost and expense, Company shall execute (or cause its Affiliates to execute, as applicable) additional documents and take (or cause its Affiliates to take, as applicable) such other actions as may be reasonably necessary in order for NV to perfect, register, enforce or defend any and all of its rights, title or interests in or to any Composite Mark. |
2.8 | All products and services to which the NV Trademarks are applied shall at all times be in compliance with all Applicable Laws, and such products and services shall be provided in a manner so as not to bring discredit or disrepute upon the NV Trademarks. Company shall ensure that all products and services to which the NV Trademarks are applied (and all Business Materials and Promotional Materials used in connection with the foregoing) shall be of at least substantially the same quality in all material aspects as those equivalent products and services sold or provided by NV and its Affiliates in the twelve months prior to the Effective Date and that such quality shall be reasonably maintained on a consistent basis. |
2.9 | NV shall have the right to inspect any designation, document or other media including any Business Materials and Promotional Materials used or maintained by NV or its sublicensees in connection with the supply of services under the NV Trademarks upon providing Company two (2) weeks prior written notice. Upon any such written request, Company shall furnish NV with representative samples of services bearing the NV Trademarks (including Business Materials and Promotional Materials) in order to ascertain that they conform to such quality standards and other provisions of this IP Agreement. In the event that NV determines that any sample does not meet such standards, Company shall have thirty (30) days after notification by NV within which to make the changes required for compliance. |
2.10 | If requested in writing by NV, Company shall ensure that any use of the NV Trademarks contains a written statement to the effect that the NV Trademarks are owned by NV and used by Company under license, or such other statement as NV may reasonably require from time to time. |
SCHEDULE 3 PERMITTED ENCUMBRANCES
1. | Loan and Security Agreement, dated as of January 31, 2022, by and between Oxford Finance and NV and its Affiliates, as amended, restated, amended and restated, supplemented or otherwise modified from time to time. |
38
Parties:
Petitioner: Sanofi
Defendant: CENTOGENE GmbH
Case Brief:
Sanofi has filed an opposition proceeding in the EPO against the '725 Patent, (EP 2,718,725) a European patent that we own relating to our biomarker for Gaucher disease. The EPO opposition proceeding challenged the patentability of the '725 Patent in its entirety. The EPO rejected the opposition in the first instance in the oral proceedings on February 4, 2020. The opponent has appealed the opposition decision. The Board of Appeal of the EPO revoked the patent on September 26, 2023. This decision can no longer be appealed and is therefore final. There are no further legal remedies available.
Internal Evaluation:
The majority of the samples that CENTOGENE analyses are not based on biomarker analysis, and, as an example, under the Takeda contract the majority of the samples that CENTOGENE analyses are not related to Gaucher’s disease but to other diseases (e.g. Fabry disease) in which case we have no protected IP. Moreover, the analyses CENTOGENE is offering under the Takeda contract comprises different types of analyses, such as specific biomarkers for each disease (e.g. LysoGb1 for Gaucher’s disease), enzymatic activity tests and genetic diagnostic (genetic panels and gene sequencing). The percentage of analyses based on the biomarker LysoGb1 are quite low, so that the invalidation of the European patent will presumably not or only marginally harm our current business.
Parties:
Petitioner: Sanofi
Defendant: CENTOGENE GmbH
Case Brief:
On April 15, 2021, Sanofi has filed an opposition proceeding in the EPO against EP 3,318,881 (the '881 Patent), a European patent that we own relating to our biomarker for Gaucher disease. Oral proceedings concerning the European patent took place before the opposition division of the EPO on May 04, 2022. The Opposition Division (as first instance) of the European Patent Office has decided in the oral proceedings to maintain the patent in a slightly amended form. Sanofi has appealed the opposition decision. We have also appealed the opposition decision, mainly for tactical reasons. We cannot predict the outcome of the proceedings.
Internal Evaluation:
The '881 Patent was maintained in amended form. Such does not harm our business. However, if the Board of Appeal does not uphold the opposition decision, the '881 Patent may still be revoked or maintained in amended form, in whole or in part, which could materially harm our business.
39
SCHEDULE 5 ACKNOWLEDGEMENT AND UNDERTAKING
[Insert Date]
[Insert The Company]
[Insert Address]
Attn: [Insert Name of Representative]
Re: Acknowledgement and Undertaking of Secondee
This is to acknowledge that I have agreed to be seconded (the “Secondment”) to [Insert The Company] (the “Company”).
I am aware that during my Secondment to the Company, I may receive information which is considered confidential and proprietary of the Company or has been received from a third party on the condition of being treated confidential. Therefore, in consideration of my Secondment to the Company, I agree that any such information I may obtain, directly or indirectly, has been furnished to me on a strictly confidential basis only by virtue of my Secondment to the Company and I agree to keep confidential and not disclose any such information, except to the extent such disclosure is by direction of the Company’s management and on the Company’s behalf. I agree that my only use of such information shall be within the scope of, and where reasonably necessary for me to carry out, my Secondment and that no materials amounting to or containing such information shall be retained by me upon the termination of the Secondment. I acknowledge that I have been provided with a copy of the confidentiality provisions which I understand govern how I treat certain information.
My obligations regarding confidentiality for the term of my Secondment shall be governed by this Acknowledgment and Undertaking and the Company’s policies as may be updated from time to time.
I further acknowledge and agree that ownership of any inventions, discoveries and improvements, either conceived or made by me during the course of my duties in the Secondment or which are based on information, data, or knowledge resulting, in whole or part, from my Secondment, whether patented, copyrighted, or otherwise protected during my Secondment or thereafter, shall fully vest in the Company as per the [Consultancy/Secondment agreement] between the Company and NV dated [***] (the “Agreement”). I agree to disclose promptly and in writing to the Company the full details of such inventions, discoveries and improvements. If, for whatever reason, the [Secondee Developed IP] (as defined in the Agreement) is owned by me, I also hereby agree to assign (and execute the necessary documents to effect such assignment) to the Company or NV (as directed by the Company) all of my right, title, and interest (if any) in them, including any right to secure a patent or copyright on them and any right to use and to enjoy such inventions, discoveries and improvements, without further payment to me other than the remuneration being paid by either [NV ] or the Company.
I agree to abide by the confidentiality policies and procedures of the Company (copies of which, where in writing, have been given to me), as well as other confidentiality rules which may be reasonably required by the Company and which are communicated to me. I agree not to remove any documents or other items from the Company’s premises without first obtaining my supervisor’s permission except as may be within the scope of and necessary for me to carry out my Secondment. At the end of my Secondment, I will return to the Company all property, equipment, materials, records, and documents in my possession which are associated with my Secondment.
[Signature page follows]
40
Exhibit 4.33
|
AMENDMENT TO THE AWARD AGREEMENT
THIS AGREEMENT IS MADE ON 20 JUNE 2023 BETWEEN
1. | Kim Stratton, born on 9 July 1962 (the "Participant"); and |
2. | Centogene N.V., a public company with limited liability, having its corporate seat in Amsterdam (address: Am Strande 7, 18055 Rostock, Germany, trade register number: 72822872) (the "Company"). |
Each a "Party" and together the "Parties".
WHEREAS
A. | The Parties have entered into a service agreement dated 28 January 2022 and effective as of 1 February 2022, which was amended by means of an addendum dated 30 June 2022 and a second addendum (the "Second Addendum") dated 12 June 2023 (as amended, the "Services Agreement"). |
B. | On 3 February 2022, the Parties entered into an award agreement pursuant to which, among other matters, (i) 174,394 Initial Performance RSUs and (ii) 166,667 Initial Time-Vested RSUs (collectively, the "Initial RSUs") were issued to the Participant (the "Award Agreement"). |
C. | The Parties wish to agree upon certain amendments to the Award Agreement and wish enter into this amendment agreement (the "Amendment Agreement''). |
D. | Except as expressly provided otherwise in this Amendment Agreement, the Parties acknowledge and agree that all other terms and conditions as laid down in the Award Agreement remain unchanged. |
NOW HEREBY AGREE AS FOLLOWS
1 | DEFINITIONS AND INTERPRETATION |
1.1 | Unless the context otherwise required or unless otherwise defined in this Amendment Agreement, capitalized terms in this Amendment Agreement shall have the same meaning as set out in the Award Agreement or the Second Addendum, as applicable. |
2 | AMENDMENTS TO AWARD AGREEMENT |
2.1 | The Parties hereby determine and agree that: |
1
|
a. | the terms and conditions applicable to the Initial RSUs pursuant to Clause 1.4 of the Award Agreement are hereby amended in their entirety as set forth in, and superseded and replaced by the provisions of, this Article 2; |
b. | the terms and conditions applicable to the Annual RSUs pursuant to Clause 1.4 of the Award Agreement hereby cease to apply; |
c. | the terms and conditions applicable to the M&A RSUs pursuant to Clause 1.4 of the Award Agreement hereby cease to apply; |
d. | the termination and Change of Control arrangements applicable pursuant to Clause 1.4 of the Award Agreement are hereby amended in their entirety as set forth in, and superseded and replaced by the provisions of, this Article 2; |
e. | the Participant shall have no entitlement to receive or exercise Annual RSUs or M&A RSUs pursuant to the terms of the Award Agreement (and any such entitlement, including any vested or unvested Annual RSUs to the extent already granted, has been waived, forfeited and cancelled by the Participant in the Services Agreement). |
2.2 | The Participant has been granted an Award on the terms and subject to the conditions set out in the Plan and below: |
Form of Award | : | - 341,061 RSUs, being the "Initial RSUs" under the Services Agreement. |
| | - 1,052,227 RSUs, being the "New RSUs" under the Services Agreement. |
Grant Date | : | 1 February 2022 for the Initial RSUs and 12 June 2023 for the New RSUs. |
Expiration Date | : | 1 February 2032 for the Initial RSUs and 12 June 2033 for the New RSUs. |
Time-vesting | : | Time-vesting in four equal annual instalments as follows: |
| | - 85,265 Initial RSUs and 263,057 New RSUs time- vested on 12 June 2023 (for the avoidance of doubt, to the extent that any Initial RSUs in excess of the aforementioned 85,265 Initial RSUs were already vested upon the execution of the Second Addendum, such excess Initial RSUs shall be deemed not to have vested and shall vest only in accordance with the arrangements set out below); |
2
|
| | - 85,265 Initial RSUs and 263,057 New RSUs time-vest on 1 February 2024; |
| | - 85,265 Initial RSUs and 263,057 New RSUs time-vest on 1 February 2025; and |
| | - 85,266 Initial RSUs and 263,056 New RSUs time-vest on 1 February 2026. |
| | The Initial RSUs and the New RSUs are subject to time- vesting only. |
Performance vesting | : | No Performance Criteria apply. |
Change of Control | : | The occurrence of a Take-Private prior to termination of the Services Agreement |
| | i. The unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Take-Private such that, in total, 75% of all Initial RSUs shall then be fully vested and 75% of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above). |
| | This paragraph i. is subject to paragraphs ii. through iv. set out below. |
| | The Launch of a Take-Private in the form of a tender offer for all outstanding Ordinary Shares prior to termination of the Services Agreement |
| | ii. The unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest at Launch of such tender offer such that, in total, 75% of all Initial RSUs shall then be fully vested and 75% of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above and paragraph iii. below). |
| | iii. All remaining unvested Initial RSUs (if any) and all remaining unvested New RSUs (if any) shall vest at settlement of such tender offer. |
| | The occurrence of an Exit Event prior to termination of the Services Agreement |
3
|
| | iv. All unvested Initial RSUs (if any) and all unvested New RSUs (if any) shall immediately vest upon the occurrence of such Exit Event. |
| | The occurrence of a Change of Control that is not a Take- Private nor an Exit Event prior to termination of the Services Agreement |
| | v. 50% of the unvested Initial RSUs (if any) and 50% of the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Change of Control (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above). |
Settlement | : | Vested RSUs may be exercised at the option of the Participant and shall be settled in Ordinary Shares. |
Applicable Cap | | - Each time when the Participant exercises any one or more vested Initial RSUs and/or vested New RSUs, the Company shall be obliged to pay to the Participant an amount equal to the number of Ordinary Shares underlying such vested RSUs multiplied the lower of (i) FMV (as defined in the LTIP) on such exercise date and (ii) the Applicable Cap (as defined below). |
| | - The Company shall satisfy such payment obligation in the form of Ordinary Shares valued at FMV (as defined in the LTIP). |
| | - The "Applicable Cap" shall be until and including 31 December 2025: USD 7. There will be no further applicable cap after 31 December 2025. |
Good/Bad Leaver | : | As determined by the LTIP, subject to the arrangements set out below: |
| | Termination of the Services Agreement after having entered into the Handover Consultancy Agreement |
| | - The Initial RSUs and the New RSUs shall continue to time-vest during the Handover Period |
| | - The Initial RSUs and the New RSUs shall stop vesting upon the termination of the Handover Consultancy Agreement. |
| | Termination of the Services Agreement without having entered into the Handover Consultancy Agreement |
4
|
| | - The Initial RSUs and the New RSUs shall stop vesting upon the termination of the Services Agreement. |
3 | MISCELLANEOUS PROVISIONS |
3.1 | Save as amended, modified, waived, acknowledged and agreed or determined by this Amendment Agreement, the terms and conditions of the Award Agreement shall remain unaffected and shall apply to each Party. Any reference in the Award Agreement to this Amendment Agreement shall be deemed to be a reference to the Award Agreement as amended by this Amendment Agreement. |
3.2 | Article 1.7 of the Award Agreement shall apply mutatis mutandis to this Amendment Agreement. |
(signature page follows)
5
|
Signature page to Amendment to the Award Agreement. | | |
| | |
/s/ Kim Stratton | | |
Kim Stratton | | |
| | |
/s/ Peer Schatz | | |
Centogene N.V. | | |
Name | : Peer Schatz | |
Title | : Chairman of the Supervisory Board | |
6
Exhibit 4.34
AMENDMENT TO THE AWARD AGREEMENT
THIS AGREEMENT IS MADE ON 20 JUNE 2023 BETWEEN
1. | Jose Miguel Coego Rios, born on 22 August 1973 (the "Participant"); and |
2. | Centogene N.V., a public company with limited liability, having its corporate seat in Amsterdam (address: Am Strande 7, 18055 Rostock, Germany, trade register number: 72822872) (the "Company"). |
Each a "Party" and together the "Parties".
WHEREAS
A. | The Parties have entered into a service agreement dated 27 May 2022 and effective as of that same date, which was amended by means of an addendum (the "Addendum") dated 12 June 2023 (as amended, the "Services Agreement"). |
B. | On 27 May 2022, the Parties entered into an award agreement pursuant to which, among other matters, (i) 58,132 Initial Performance RSUs and (ii) 55,556 Initial Time-Vested RSUs (collectively, the "Initial RSUs") were issued to the Participant (the "Award Agreement"). |
C. | The Parties wish to agree upon certain amendments to the Award Agreement and wish enter into this amendment agreement (the "Amendment Agreement''). |
D. | Except as expressly provided otherwise in this Amendment Agreement, the Parties acknowledge and agree that all other terms and conditions as laid down in the Award Agreement remain unchanged. |
NOW HEREBY AGREE AS FOLLOWS
1 | DEFINITIONS AND INTERPRETATION |
1.1 | Unless the context otherwise required or unless otherwise defined in this Amendment Agreement, capitalized terms in this Amendment Agreement shall have the same meaning as set out in the Award Agreement or the Addendum, as applicable. |
2 | AMENDMENTS TO AWARD AGREEMENT |
2.1 | The Parties hereby determine and agree that: |
a. | the terms and conditions applicable to the Initial RSUs pursuant to Clause 1.4 of the Award Agreement are hereby amended in their entirety as set forth in, and |
1
superseded and replaced by the provisions of, this Article 2;
b. | the terms and conditions applicable to the M&A RSUs pursuant to Clause 1.4 of the Award Agreement hereby cease to apply; |
c. | the termination and Change of Control arrangements applicable pursuant to Clause 1.4 of the Award Agreement are hereby amended in their entirety as set forth in, and superseded and replaced by the provisions of, this Article 2; |
d. | the Participant shall have no entitlement to receive or exercise M&A RSUs pursuant to the terms of the Award Agreement (and any such entitlement has been waived, forfeited and cancelled by the Participant in the Services Agreement). |
2.2 | The Participant has been granted an Award on the terms and subject to the conditions set out in the Plan and below: |
Form of Award : | - 113,688 RSUs, being the "Initial RSUs" under the Services Agreement. |
| |
| - 443,628 RSUs, being the "New RSUs" under the Services Agreement. |
| |
Grant Date : | 27 May 2022 for the Initial RSUs and 12 June 2023 for the New RSUs. |
| |
Expiration Date : | 27 May 2032 for the Initial RSUs and 12 June 2033 for the New RSUs. |
| |
Time-vesting : | Time-vesting in four equal annual instalments as follows: |
| |
| - 28,422 Initial RSUs and 110,907 New RSUs time-vest on 12 June 2023 (for the avoidance of doubt, to the extent that any Initial RSUs in excess of the aforementioned 28,422 Initial RSUs were already vested upon the execution of the Addendum, such excess Initial RSUs shall be deemed not to have vested and shall vest only in accordance with the arrangements set out below); |
| |
| - 28,422 Initial RSUs and 110,907 New RSUs time-vest on 27 May 2024; |
| |
| - 28,422 Initial RSUs and 110,907 New RSUs time-vest on 27 May 2025; and |
| |
| - 28,422 Initial RSUs and 110,907 New RSUs time-vest on 27 May 2026. |
2
| The Initial RSUs and the New RSUs are subject to time- vesting only. |
| |
Performance vesting : | No Performance Criteria apply. |
| |
Change of Control : | The occurrence of a Take-Private prior to termination of the Services Agreement |
| |
| i. The unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Take-Private such that, in total, the Relevant Percentage (as defined below) of all Initial RSUs shall then be fully vested and the Relevant Percentage of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above). |
| |
| This paragraph i. is subject to paragraphs ii. through iv. set out below. |
| |
| The Launch of a Take-Private in the form of a tender offer for all outstanding Ordinary Shares prior to termination of the Services Agreement |
| |
| ii. The unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest at Launch of such tender offer such that, in total, the Relevant Percentage of all Initial RSUs shall then be fully vested and the Relevant Percentage of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above and paragraph iii. below). |
| |
| iii. All remaining unvested Initial RSUs (if any) and all remaining unvested New RSUs (if any) shall vest at settlement of such tender offer. |
| |
| The occurrence of an Exit Event prior to termination of the Services Agreement |
| |
| iv. All unvested Initial RSUs (if any) and all unvested New RSUs (if any) shall immediately vest upon the occurrence of such Exit Event. |
| |
| The occurrence of a Change of Control that is not a Take- |
3
| Private nor an Exit Event prior to termination of the Services Agreement |
| |
| v. 50% of the unvested Initial RSUs (if any) and 50% of the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Change of Control (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with the paragraph Time-vesting above). |
| |
Relevant Percentage | For purposes of paragraph Change of Control above, the "Relevant Percentage" shall be: |
| |
| a. 50%, unless paragraphs b., c. or d. below apply; |
| |
| b. 75%, if (i) a material change to the compensation of the Participant (compared to his compensation as of 12 June 2023) would occur as a result of the consummation of a Take-Private, as determined by the Supervisory Board acting reasonably or (ii) the Participant and the Supervisory Board have not reasonably reached an agreement prior to the consummation of a Take-Private on the compensation of the Participant following the consummation of such Take-Private; |
| |
| c. 75%, if a Take-Private is consummated in 2024 and the Participant continues to serve as a managing director and CFO of the Company (or its legal successor) for a term following the consummation of that Take-Private (such term to be reasonably agreed between the Participant and the Supervisory Board); or |
| |
| d. 100%, if a Take-Private is consummated in 2025 and the Participant continues to serve as a managing director and CFO of the Company (or its legal successor) for a term following the consummation of that Take-Private (such term to be reasonably agreed between the Participant and the Supervisory Board). |
| |
Settlement : | - Vested RSUs may be exercised at the option of the Participant and shall be settled in Ordinary Shares. |
| |
| |
| |
| |
| |
| |
4
Applicable Cap | - Each time when the Participant exercises any one or more vested Initial RSUs and/or vested New RSUs, the Company shall be obliged to pay to the Participant an amount equal to the number of Ordinary Shares underlying such vested RSUs multiplied the lower of (i) FMV (as defined in the LTIP) on such exercise date and (ii) the Applicable Cap (as defined below). |
| |
| - The Company shall satisfy such payment obligation in the form of Ordinary Shares valued at FMV (as defined in the LTIP). |
| |
| - The "Applicable Cap" shall be until and including 31 December 2025: USD 7. There will be no further applicable cap after 31 December 2025. |
| |
Good/Bad Leaver : | As determined by the LTIP, subject to the arrangements set out below: |
| |
| Termination of the Services Agreement after having entered into the Handover Consultancy Agreement |
| |
| - The Initial RSUs and the New RSUs shall continue to time - vest during the Handover Period |
| |
| - The Initial RSUs and the New RSUs shall stop vesting upon the termination of the Handover Consultancy Agreement. |
| |
| Termination of the Services Agreement without having entered into the Handover Consultancy Agreement |
| |
| - The Initial RSUs and the New RSUs shall stop vesting upon the termination of the Services Agreement. |
3 | MISCELLANEOUS PROVISIONS |
3.1 | Save as amended, modified, waived, acknowledged and agreed or determined by this Amendment Agreement, the terms and conditions of the Award Agreement shall remain unaffected and shall apply to each Party. Any reference in the Award Agreement to this Amendment Agreement shall be deemed to be a reference to the Award Agreement as amended by this Amendment Agreement. |
3.2 | Article 1.7 of the Award Agreement shall apply mutatis mutandis to this Amendment Agreement. |
(signature page follows)
5
Signature page to Amendment to the Award Agreement. | ||
| | |
| | |
/s/ Miguel Coego | | |
J.M. Coego Rios | | |
| | |
| | |
| | |
/s/ Peer Schatz | | |
Centogene N.V. | | |
Name | : Peer Schatz | |
Title | : Chairman of the Supervisory Board | |
6
Exhibit 4.35
Execution copy
AMENDMENT TO THE
SERVICES AGREEMENT
between
Kim Stratton
as the Officer
and
Centogene N.V.
as the Company
1
AMENDMENT TO THE SERVICES AGREEMENT
THIS AMENDMENT AGREEMENT IS MADE ON June 12, 2023, BETWEEN
1. | Kim Stratton, born on 9 July 1962 (the "Officer"); and |
2. | Centogene N.V., a public company (naamloze vennootschap), having its corporate seat in Amsterdam (address: Am Strande 7, 18055 Rostock, Germany, trade register number: 72822872) (the "Company"). |
Each a "Party" and together the "Parties".
WHEREAS
A. | The Parties have entered into a service agreement dated 28 January 2022 and effective as of 1 February 2022, which was amended by means of an addendum dated 30 June 2022 (as amended, the "Services Agreement"). |
B. | On 3 February 2022, the Parties entered into an award agreement pursuant to which, among other matters, (i) 174,394 Initial Performance RSUs and (ii) 166,667 Initial Time-Vested RSUs (collectively, the "Initial RSUs") were issued to the Officer (the "Award Agreement"). |
C. | The Parties wish to agree upon certain amendments to the Services Agreement and the Award Agreement and wish enter into this amendment agreement (the "Amendment Agreement''). |
D. | Except as expressly provided otherwise in this Amendment Agreement, the Parties acknowledge and agree that all other terms and conditions as laid down in the Services Agreement remain unchanged. |
NOW HEREBY AGREE AS FOLLOWS
1 | DEFINITIONS AND INTERPRETATION |
1.1 | Unless the context otherwise required or unless otherwise defined in this Amendment Agreement, capitalized terms in this Amendment Agreement shall have the same meaning as set out in the Services Agreement. |
2
2 | LONG-TERM INCENTIVES |
2.1 | At or promptly following the execution of this Amendment Agreement, the Officer shall receive a number of RSUs that is, together with the number of the Ordinary Shares underlying the (vested and unvested) Initial RSUs, equal to 5% of the Ordinary Shares comprised in the Company's issued share capital on the date of this Amendment Agreement (the "New RSUs"). |
2.2 | In addition, the Parties hereby determine and agree that: |
a. | the terms and conditions applicable to the Initial RSUs pursuant to Clauses 3.3.2(d) through 3.3.2(i) of the Services Agreement are hereby amended in their entirety as set forth in, and superseded and replaced by the provisions of, this Article 2; |
b. | the terms and conditions applicable to the Annual RSUs pursuant to Clauses 3.3.2(j), through 3.3.2(l) of the Services Agreement hereby cease to apply; |
c. | the terms and conditions applicable to the M&A RSUs pursuant to Clauses 3.3.2(m), through 3.3.2(o) of the Services Agreement hereby cease to apply; |
d. | the termination and Change of Control arrangements applicable pursuant to Clauses 3.3.2(p) and 3.3.2(q) of the Services Agreement are hereby amended in their entirety as set forth in, and superseded and replaced by the provisions of, this Article 2; |
e. | the Officer shall have no entitlement to receive or exercise Annual RSUs or M&A RSUs pursuant to the terms of the Services Agreement and the Award Agreement (and any such entitlement, including any vested or unvested Annual RSUs to the extent already granted, is hereby waived, forfeited and cancelled). |
2.3 | The Initial RSUs and the New RSUs will time-vest as follows: |
i. | all Initial RSUs and all New RSUs vest in four equal annual instalments following 1 February 2022 and shall not be subject to any Performance Criteria (as defined by the LTIP as it reads on the date of this Amendment Agreement); |
ii. | 25% of the Initial RSUs and 25% of the New RSUs are vested upon the execution of this Amendment Agreement; |
iii. | consistent with subparagraph (i) above, an additional 25% of the Initial RSUs and 25% of the New RSUs will vest on each of 1 February 2024, 1 February 2025, and 1 February 2026, subject to the terms of this Amendment Agreement (including, for the avoidance of doubt, subparagraph (iv) below); and |
3
iv. | the unvested Initial RSUs and the unvested New RSUs will stop vesting upon the termination of the Services Agreement. |
2.4 | Subject to Articles 2.5 and 2.6, if (i) a Change of Control occurs which results, directly or indirectly, in the Company's shareholders at the time immediately prior to the occurrence of that Change of Control receiving proceeds upon or promptly following the occurrence of that Change of Control (a "Take-Private") and (ii) the Services Agreement has not terminated prior to or upon the occurrence of such Take-Private, the unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Take- Private such that, in total, 75% of all Initial RSUs shall then be fully vested and 75% of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with Article 2.3). For the avoidance of doubt, (i) the transactions described in the letter dated 18 May 2023 received by the Company from Charme Capital Partners Limited expressing an indication of interest in acquiring the Company's business will, if consummated, constitute a Take-Private under this Article 2.4 and (ii) in case of uncertainty as to whether a transaction or series of related transactions would constitute a Take-Private under this Article 2.4, the Supervisory Board shall decide this in good faith at the Officer's request. |
2.5 | If (i) a Take-Private occurs in the form of a tender offer for all outstanding Ordinary Shares and (ii) the Services Agreement has not terminated when such tender offer is announced and made by the acquirer(s) in such tender offer ("Launch"): |
a. | the unvested Initial RSUs (if any) and the unvested New RSUs (if any) shall immediately vest at Launch of such tender offer such that, in total, 75% of all Initial RSUs shall then be fully vested and 75% of all New RSUs shall then be fully vested (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with Article 2.3 and paragraph b. of this Article 2.5); and |
b. | all remaining unvested Initial RSUs (if any) and all remaining unvested New RSUs (if any) shall vest at settlement of such tender offer. |
2.6 | If (i) a Change of Control occurs through a transaction, or series of related transactions, with a third party whose securities are publicly traded on a national stock exchange which results, directly or indirectly, in the Company's shareholders at the time immediately prior to the occurrence of that Change of Control receiving proceeds (including, for the avoidance of doubt, securities issued by the third party concerned in exchange for the Ordinary Shares) upon or promptly following the occurrence of that Change of Control (an "Exit Event") and (ii) the Services Agreement has not terminated prior to or upon the occurrence of such Exit Event, all unvested Initial RSUs (if any) and all unvested New RSUs (if any) shall immediately vest upon |
4
the occurrence of such Exit Event.
2.7 | If (i) a Change of Control occurs that is not a Take-Private nor an Exit Event and (ii) the Services Agreement has not terminated prior to or upon the occurrence of such Change of Control, 50% of the unvested Initial RSUs (if any) and 50% of the unvested New RSUs (if any) shall immediately vest upon the occurrence of such Change of Control (and any remaining unvested Initial RSUs and/or New RSUs will thereafter continue to vest in accordance with Article 2.3). |
2.8 | Each time when the Officer exercises any one or more vested Initial RSUs and/or vested New RSUs, the Company shall be obliged to pay to the Officer an amount equal to the number of Ordinary Shares underlying such vested RSUs multiplied the lower of (i) FMV (as defined in the LTIP as it reads on the date of this Amendment Agreement) on such exercise date and (ii) the Applicable Cap (as defined below). The Company shall satisfy such payment obligation in the form of Ordinary Shares valued at FMV. The "Applicable Cap" shall be until and including 31 December 2025: USD 7 (for clarification, there will be no further applicable cap after 31 December 2025). |
2.9 | Subject to the foregoing provisions of this Amendment Agreement, all Initial RSUs and all New RSUs shall be subject to the provisions of the LTIP as it reads on the date of this Amendment Agreement. |
3 | CAPITAL RAISE BONUS |
3.1 | If (i) the Company enters into a binding agreement with a third party between the date of this Amendment Agreement and 31 December 2023 relating to an issuance of securities (including but not limited to debt securities, convertible bonds and/or Ordinary Shares) by the Company to that third party, the formation of a joint venture with that third party and/or any other strategic transaction with a third party outside the ordinary course of business which, once consummated, would result in aggregate gross proceeds for the Company (directly or indirectly through its investment in such joint venture) ("Gross Proceeds") equal to or exceeding EUR 10,000,000 (a "Capital Raise"), and (ii) the Services Agreement has not terminated prior to or upon the execution of such binding agreement relating to a Capital Raise, the Company shall grant the Officer a one-time cash bonus in the amount of USD 375,000 (gross) (the "Capital Raise Bonus") promptly following the consummation of such Capital Raise, provided that, to the extent the Capital Raise results in Gross Proceeds exceeding EUR 10,000,000, the Capital Raise Bonus shall be increased with an amount equal to 3.75% of such excess amount, provided further that the Capital Raise Bonus shall never exceed USD 750,000 (gross). |
4 | ADDITIONAL ARRANGEMENTS |
5
4.1 | Unless the Company terminates the Services Agreement in accordance with its terms with the approval of the Supervisory Board, the Officer shall continue to serve as Managing Director and CEO under the terms of the Services Agreement until and including 31 December 2024. |
Except as otherwise approved by the Supervisory Board, the Officer will be required to continue providing services to the Company on a consultancy basis (on customary and arm's length terms to be agreed between the Officer and the Supervisory Board in good faith prior to the start of the Handover Period, as defined below)(the "Handover Consultancy Agreement") for a period of up to six (6) months from the date of termination of the Services Agreement in accordance with its terms (the "Handover Period"). During the Handover Period, the Officer shall use reasonable best endeavours to effect a full and complete transfer of her duties, rights and obligations as Managing Director and CEO to a successor CEO (once identified by the Supervisory Board). The Officer's fiduciary duties to the Company and its stakeholders shall continue for the duration of the Handover Period. The Initial RSUs and/or New RSUs shall continue to vest during the Handover Period, provided that, the Handover Consultancy Agreement has been entered into between the Officer and the Company and such Handover Consultancy Agreement has not terminated.
4.2 | Once the Handover Period has lapsed, the Supervisory Board shall consider the nomination of the Officer for appointment by the General Meeting as Supervisory Director. For the avoidance of doubt, the Officer shall in no way be obliged to accept such position nor shall the Supervisory Board be obliged to nominate the Officer for such position. |
5 | MISCELLANEOUS PROVISIONS |
5.1 | Save as amended, modified, waived, acknowledged and agreed or determined by this Amendment Agreement, the terms and conditions of the Services Agreement shall remain unaffected and shall apply to each Party. Any reference in the Services Agreement to this Amendment Agreement shall be deemed to be a reference to the Services Agreement as amended by this Amendment Agreement. |
5.2 | Articles 8.1 through 8.9 and Article 9 of the Services Agreement shall apply mutatis mutandis to this Amendment Agreement. |
(signature page follows)
6
Signature page to the Amendment Agreement | | |
| | |
/s/ Kim Stratton | | |
Kim Stratton | | |
| | |
| | |
/s/ Peer Schatz | | |
Centogene N.V. | | |
Name: | Peer Schatz | |
Title: | Chairman of the Supervisory Board | |
7
Exhibit 4.36
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K on the basis that the registrant customarily and actually treats that information as private or confidential and the omitted information is not material. Information that has been omitted has been noted in this document with a placeholder identified by the mark “[***]”.
Dated 1 April 2024
TAKEDA PHARMACEUTICALS INTERNATIONAL AG
- and -
CENTOGENE GmbH
1. Amendment to
GLOBAL MASTER SUPPLY AND
SERVICES AGREEMENT
This 1. Amendment to the GLOBAL MASTER SUPPLY AND SERVICES AGREEMENT, dated 1 April 2023, (this “Amendment”) is effective as of 1 April 2024 (the “Effective Date”) and is by and between:
(1) | TAKEDA PHARMACEUTICALS INTERNATIONAL AG, a Swiss stock corporation incorporated under the laws of the Swiss Confederation under identification number CHE-113.444.401, having its registered office at Thurgauerstrasse 130, 8152 Glattpark (Opfikon), Switzerland (“Takeda”); and |
(2) | CENTOGENE GmbH (formerly CENTOGENE AG), a German limited liability company registered with the commercial register of the local court ('Amtsgericht') of Rostock under the number HRB 14967 and having a business address at, Am Strande 7, 18055 Rostock, Germany, (“Centogene”), |
each a “Party” and together the “Parties”.
PREAMBLE
(A) | The Parties have entered into the GLOBAL MASTER SUPPLY AND SERVICES AGREEMENT, dated 1 April 2023 (the “Agreement”). |
(B) | The Parties intend to extend the term of the Agreement and to amend certain sections of the Agreement as set out in this Amendment. |
NOW, THEREFORE, Takeda and Centogene, intending to be legally bound, hereby agree as follows:
| 1. | changes to Section 9 of the agreement “Price and Terms of Payment” |
| 1.1 | A new section 9.5 shall be added to the Agreement as follows: |
9.5 Training, Medical Training and Expert Time (Training Services). Training Services will be performed only upon Takeda’s request. The prices for Training Services are set out in Exhibit 7 and Centogene shall invoice Takeda or an Affiliate of Takeda, as the case may be depending on the requesting entity, for the Training Services immediately upon completion of all Training Services specified in such services order.
| 2. | changes to Section 13 of the agreement “Quality” |
| 2.1 | Section 13.1 of the Agreement shall be replaced in its entirety as follows: |
Technical Quality Agreement. The Technical Quality Agreement was entered into between the Parties on 26 June 2023 and shall be binding upon the Parties to this Agreement.
| 3. | changes to Section 14 of the Agreement “Vigilance” |
| 3.1 | Section 14.2 of the Agreement shall be replaced in its entirety as follows: |
2
14.2 Takeda Assistance. Takeda will report Complaints and Incidents to Centogene and, as applicable, to the local representatives as set out in Exhibit 10, and assist in the conduct of field safety corrective actions, e.g., recalls, under responsibility of Centogene. Takeda shall notify Centogene of any Complaint or Incident immediately, but not later than [*****] ([*****]) calendar day after awareness of Takeda. Such notice shall be forwarded to Centogene by email (to: [*****]) and include the name, address, and telephone number of the person making the Complaint or report of an Incident, the Customized DBS Test Kit(s) involved and the nature of the Incident. Exhibit 10 shall be updated by Centogene as necessary and all changes shall be communicated to Takeda in writing.
| 4. | Section 19 of the Agreement “Representations and Warranties” |
| 4.1 | A new section 19.6 shall be added to the Agreement as follows: |
19.6 Sanctions and Export Compliance.
19.6.1 Each Party agrees to comply with all applicable export control and trade sanctions laws and regulations, including those of the [*****], [*****], [*****], [*****], and [*****] ("Export Control and Trade Sanctions").
19.6.2 Each Party:
19.6.2.1 represents and warrants that neither it nor its directors, officers, or subsidiaries are designated or sanctioned parties under Export Control and Trade Sanctions;
19.6.2.2 shall promptly notify the other Party in writing if it becomes aware of any change in its status on any Export Control and Trade Sanctions lists;
19.6.2.3 agrees not to provide services or goods to the other Party in connection with countries, regions, and/or parties subject to Export Control and Trade Sanctions absent government authorization and prior express written agreement with the receiving Party;
19.6.2.4 shall indemnify and hold the other Party harmless from any claims, losses, damages, or liabilities arising from a breach of this sanctions and export compliance clause; and
19.6.2.5 upon request, each Party shall provide the other Party with written assurance of its compliance with applicable Export Control and Trade Sanctions, including any necessary export licenses or approvals obtained under the applicable Export Control and Trade Sanctions.
19.6.3 The parties acknowledge that any goods, software, technical data, or services provided under this agreement may be subject to Export Control and Trade Sanctions, and they agree not to export, re-export, or transfer such items or services in violation of
3
applicable Export Control and Trade Sanctions. The parties shall obtain any necessary licenses or approvals required under the applicable Export Control and Trade Sanctions for the export, re-export, or transfer of such items and services.
| 5. | changes to exhibit 1 of the agreement “Existing Customized DBS Test Kit Countries” |
| 5.1 | Exhibit 1 of the Agreement shall be replaced by a revised Exhibit 1 as attached to this Amendment. |
| 6. | changes to exhibit 3 of the agreement “monthly diagnostic test reports” |
| 6.1 | The Parties agree to add the following sentence to Exhibit 3: |
Monthly Reports shall be provided in a password-protected format.
| 7. | changes to exhibit 7 of the agreement “pricing” |
| 7.1 | Exhibit 7 of the Agreement shall be replaced by a revised Exhibit 7 as attached to this Amendment. |
| 8. | changes to exhibit 9 of the agreement “testing services” |
| 8.1 | Exhibit 9 of the Agreement shall be replaced by a revised Exhibit 9 as attached to this Amendment. |
| 9. | Term |
| 9.1 | Term. The Parties agree to extend the Term of the Agreement until 31 March 2026. |
| 10. | Miscellaneous |
| 10.1 | Other stipulations in the Agreement. All other stipulations in the Agreement not mentioned in this Amendment shall remain in full force and effect. |
| 10.2 | Counterparts, Electronic Signatures and Delivery. This Amendment may be executed in one (1) or more duplicate originals, all of which together shall be deemed one and the same instrument. Each Party agrees that any digital (and encrypted) electronic signature of one of the Parties, included in or opposed to this Amendment is intended to execute and authenticate this Amendment and to have the same force and effect as a manuscript signature. Delivery of a copy of this Amendment bearing an original manuscript or electronic signature by facsimile transmission, electronic mail, or any other electronic means intended to preserve the original graphic and pictorial appearance of a document, will have the same effect as physical delivery of the paper document bearing an original manuscript or electronic signature. |
| 10.3 | Costs. Each Party shall bear the costs of its own accountants, attorneys, consultants and other professional advisors in connection with the negotiation and execution of this Amendment. |
4
| 10.4 | Effective Date. This Amendment comes into force and takes effect as of the Effective Date. |
| ||
| | |
| ||
| | |
for and on behalf of Takeda Pharmaceuticals International AG | | for and on behalf of Centogene GmbH |
| | |
|
| ||
| | |
|
|
| ||
| | |
|
5
Exhibit 1
Existing Customized DBS Test Kit Countries
Country | Language | Takeda importation and distribution activities | Regulatory review ongoing* |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
[*****] | [*****] | [*****] | [*****] |
* In all other countries regulatory review confirmed compliance of Customized DBS Test Kits with current local regulatory requirements.
6
Countries to be developed (Development Order pending)
Country | Language | Takeda importation and distribution activities |
| | |
7
| 1. | Development Services |
| a) | Development Fees: |
| ● | A lump sum fee of [*****] per specific Customized DBS Test Kit development project if the Development Services do not require translations into a new language. |
| 2. | Training, Medical Training and Expert Time (upon request) |
| ● | At least [*****] ([*****]) CentoPortal® training sessions not exceeding a total of [*****] ([*****]) hours of such training per year will be performed by Centogene [*****]. |
| ● | Without prejudice to the foregoing bullet point, [*****] per training session on specific, pre-agreed technical matters, e. g. for CentoPortal® or CentoCard® use. |
| ● | [*****] for Centogene’s medical experts, e. g for medical training, such as on specific diseases, and participation at round tables or other expert events such as speaker events. For the avoidance of doubt, any preparation time shall be charged at the same rate. |
| 3. | Manufacture and Supply |
[*****] euro /Customized DBS Test Kit
8
| 4. | Testing Services |
Takeda shall pay a Testing Services Fee for each Test in respect of which Testing Services are performed by Centogene in accordance with the terms of this Agreement during the Term, in accordance with the following table:
Indication | Price per test |
[*****] | [*****] |
[*****] | [*****] |
[*****] | [*****] |
Avg. Weighted price per test | [*****] |
For the avoidance of doubt, the Testing Services Fee includes all Testing Services as specified in Exhibit 9.
9
Testing Services
| 1. | The performance of Tests by Centogene, on DBS Cards (whether Centogene DBS Test Cards or Non-CG DBS Test Cards), whole blood samples, plasma samples and upon specific request by Takeda and approval by Centogene buccal swabs, for the purpose of identifying Patients suffering from rare genetic diseases; |
| 2. | Quality testing of Customized DBS Test Kits and/or Non-CG DBS Test Kits received; |
| 3. | Monitoring of and ensuring compliance of manufacture, supply and provisions of any Customized DBS Test Kits or the provision of Services with Applicable Laws or Standards of the Territory, and informing Takeda of any changes to the Applicable Laws or Standards; |
| 4. | Reporting pursuant to Section 10 of the Agreement; |
| 5. | Regulatory services for maintaining relevant registrations in Existing Customized DBS Test Kit Countries in compliance with Applicable Laws or Standards; |
| 6. | Alliance management, including dedicated primary project manager contact and all costs of Centogene’s Alliance Managers in participating in the Alliance Team and the Joint Steering Committee; |
| 7. | Importation activities required to import Customized DBS Test Kits into the relevant countries in accordance with Applicable Laws as far as not coordinated by Takeda pursuant to Exhibit 1 of the Agreement; |
| 8. | Operation and maintenance of CentoPortal; |
| 9. | Dispatch of digital medical reports via CentoPortal (or via postal mail if digital reports cannot be delivered); |
| 10. | Operation of Centogene email hotline including recording of the response time; |
| 11. | Country-specific support services provided through Centogene’s corporate project management or local representatives; |
| 12. | Onboarding and strategic introductory meetings for Takeda medical lead and alliance management team; |
| 13. | Provision of testing methodology training materials pursuant to Section 8.5 of the Agreement; |
| 14. | Centralized invoicing; |
| 15. | Validating and qualifying the instruments and equipment used for the Tests (including, without limitation, conducting installation, operational and performance qualification) and maintaining all such instruments and equipment in a compliant state; |
| 16. | Notification of Contaminants in accordance with the Agreement; |
| 17. | Re-establishing any suspended Testing Services; |
| 18. | Audit support, audit follow-up actions. |
10
Exhibit 10
Local Representatives
Territory | Name and Address | Contact for complaints and reportable events |
[*****] | [*****] | [*****] and [*****] |
11
Exhibit 4.37
LONG-TERM INCENTIVE PLAN
CENTOGENE N.V.
INTRODUCTION
| 1. | to attract, retain and motivate Participants with the qualities, skills and experience needed to support and promote the growth and sustainable success of the Company and its business; and |
| 2. | to incentivise Participants to perform at the highest level and to further the best interests of the Company, its business and its stakeholders. |
DEFINITIONS AND INTERPRETATION
| 1 | |
| 1 | In this Plan the following definitions shall apply: |
Article | An article of this Plan. |
Award | A grant under this Plan in the form of one or more Options, SGAs, SARs, Shares of Restricted Stock, RSUs, PSUs, Other Awards, or a combination of the foregoing. |
Award Agreement | A written agreement between the Company and a Participant evidencing the grant of an Award to such Participant and containing such terms as the Committee may determine, consistent with and subject to the terms of this Plan. |
Bad Leaver | A Participant who ceases to be an Eligible Participant for Cause. |
Cause | With respect to a Participant, "cause" as defined in such Participant's employment, service or consulting agreement with the Company or a Subsidiary, or if not so defined (and unless determined otherwise in the applicable Award Agreement or otherwise by the Committee): |
a. such Participant's indictment for any crime which (i) constitutes a felony, (ii) has, or could reasonably be expected to have, an adverse impact on the performance of such Participant's services to the Company and/or any Subsidiary or (iii) has, or could reasonably be expected to have, an adverse impact on the business and/or reputation of the Company and/or any Subsidiary; b. such Participant having been the subject of any order, judicial or administrative, obtained or issued by any governmental or regulatory body for any securities laws violation involving fraud, market manipulation, insider trading and/or unlawful dissemination of non-public price-sensitive information; c. such Participant's wilful violation of the Company's code of business conduct and ethics, insider trading policy or other internal policies and regulations established by the Company and/or any Subsidiary, in each case to the extent applicable to the Participant concerned; d. gross negligence or wilful misconduct in the performance of such Participant's duties for the Company and/or any Subsidiary or wilful or repeated failure or refusal to perform such duties; e. material breach by such Participant of any employment, service, consulting or other agreement entered into between such Participant on the one hand and the Company and/or any Subsidiary on the other; f. conduct by such Participant which should be considered as an urgent cause within the meaning of Section 7:678 DCC, irrespective of whether that provision applies to such Participant's relationship with the Company and/or any Subsidiary; and g. such other acts or omissions to act by such Participant as reasonably determined by the Committee, |
provided that the Committee may determine, at its absolute discretion, that occurrence of an event described in paragraphs c. through e. above shall only constitute Cause if and when such event has not been cured or remedied by the relevant Participant within thirty days after the Company has provided written notice to such Participant. | |
Change of Control | The occurrence of any one or more of the following events (in each case unless the Committee determines otherwise): a. the direct or indirect change in ownership or control of the Company effected through one transaction, or a series of related transactions within a twelve-month period, as a result of which any Person or group of Persons acting in concert, directly or indirectly acquires (i) beneficial ownership of at least 50% of the Company's issued share capital and/or (ii) the ability to cast at least 50% of the voting rights in the General Meeting; b. at any time during a period of twelve consecutive months, individuals who at the beginning of such period constituted the Supervisory Board cease to constitute a majority of members of the Supervisory Board, provided that any new member of the Supervisory Board who was nominated for appointment by the Supervisory Board by a vote of at least a majority of the Supervisory Directors who either were Supervisory Directors at the beginning of such twelve-month period or whose nomination for appointment was so approved, shall be considered as though such individual were a member of the Supervisory Board at the beginning of such twelve-month period; c. the consummation of a merger, demerger or business combination of the Company or any Subsidiary with another Person, as a result of which the legal or beneficial ownership of the Shares outstanding immediately prior to the consummation of such transaction no longer represents (either by remaining outstanding or by being converted into, or exchanged for, |
voting securities of the surviving or acquiring Person or a parent thereof) (i) legal or beneficial ownership of at least fifty percent (50%) of all outstanding Shares, or at least fifty percent (50%) of the shares in the capital of such surviving or acquiring Person or parent, outstanding immediately after the consummation of such transaction or (ii) at least fifty percent (50%) of all voting rights attached to the securities referred to under (i) of this paragraph c.; d. the consummation of any sale, lease, exchange or other transfer to any Person or group of Persons acting in concert, not being Subsidiaries, in one transaction or a series of related transactions within a twelve-month period, of all or substantially all of the business of the Company and its Subsidiaries, provided in each case that, under no circumstances, a delisting of the Shares in itself (i.e., without being combined with any of the events mentioned under paragraphs a. through d. above) will constitute a Change of Control. | |
Committee | Subject to Article 3.2, the Supervisory Board, acting at the recommendation of the Company's compensation committee. |
Company | Centogene N.V. |
Consultant | Any Person, other than a Managing Director, Supervisory Director or Employee, who is an adviser or consultant engaged by the Company and/or a Subsidiary to render bona fide services to the Company and/or a Subsidiary. |
DCC | The Dutch Civil Code. |
Eligible Participant | Any Managing Director, Supervisory Director, Employee or Consultant. |
Employee | Any Person, other than a Managing Director or a Supervisory Director, who is an employee or officer of the Company and/or a Subsidiary. |
Exercise Date | The date on which an Award is duly exercised by or on behalf of the Participant concerned. |
Exercise Price | The exercise price applicable to an Award. |
FMV | The volume weighted average closing price of a Share over a period of twenty trading days on the principal stock exchange where Shares have been admitted for trading, unless determined otherwise by the Committee. |
General Meeting | The Company's general meeting of shareholders. |
Good Leaver | A Participant who ceases to be an Eligible Participant and who is not a Bad Leaver. |
Grant Date | The date on which the Committee decides to grant an Award, or such later effective date applicable to such Award as may be determined by the Committee. |
Management Board | The Company's management board. |
Managing Director | A member of the Management Board. |
Option | The right to subscribe for, or otherwise acquire, one Plan Share. |
Other Award | An Award which does not take the form of an Option, SGA, SAR, Share of Restricted Stock, RSU or PSU, and which may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to Shares or factors which may influence the value of Shares, including financial instruments which are convertible into or exchangeable for Plan Shares. |
Participant | The holder of an Award, including, as the context may require, the rightful heir(s) of a previous holder of such Award having acquired such Award as a result of the death of such previous holder. |
Performance Criteria | The performance criteria applicable to an Award. |
Person | A natural person, partnership, company, association, cooperative, mutual insurance society, foundation or any other entity or body which operates externally as an independent unit or organisation. |
Plan | This long-term incentive plan. |
Plan Share | A Share underlying an Award. |
PSU | Any RSU in respect of which the vesting is conditioned in whole or in part on the satisfaction of Performance Criteria. |
Replacement Award | An Award granted in assumption of, or in substitution or exchange for, long-term incentive awards previously granted by a Person acquired (or whose business is |
acquired) by the Company or a Subsidiary or with which the Company or a Subsidiary merges or forms a business combination, as reasonably determined by the Committee. | |
Restricted Stock | Plan Shares subject to such restrictions as the Committee may impose, including with respect to voting rights and the right to receive dividends or other distributions made by the Company. |
RSU | The right to receive one or more Plan Shares valued at FMV on the Exercise Date. |
SAR | The right to receive, in the form of Plan Shares valued at FMV, the excess of the FMV of one Share on the applicable Exercise Date over the applicable Exercise Price. |
SGA | The right to receive one Plan Share, which shall be settled automatically through the delivery of such Plan Share to the Participant once the Award becomes fully vested in accordance with its terms. |
Section 409A IRC | Section 409A of the United States Internal Revenue Code of 1986, as amended, and the rules, regulations and guidance promulgated pursuant thereto. |
Share | A share in the Company's capital. |
Subsidiary | A subsidiary of the Company within the meaning of Section 2:24a DCC. |
Supervisory Board | The Company's supervisory board. |
Supervisory Director | A member of the Supervisory Board. |
| 2 | References to statutory provisions are to those provisions as they are in force from time to time. |
| 3 | Terms that are defined in the singular have a corresponding meaning in the plural. |
| 4 | Words denoting a gender include each other gender. |
| 5 | Except as otherwise required by law, the terms "written" and "in writing" include the use of electronic means of communication. |
ADMINISTRATION
| 1 | designating Persons to whom Awards are granted; |
| 2 | deciding to grant Awards; |
| 3 | determining the form(s), format(s) and type(s) of Awards being granted and setting the terms and conditions applicable to such Awards, including: |
| 1 | the number of Plan Shares underlying Awards; |
| 2 | whether, to which extent, and under which circumstances Awards may cancelled, forfeited or suspended; |
| 3 | whether, to which extent and under which circumstances a Participant may designate another Person owned or controlled by him as recipient or beneficiary of his Awards; |
| 4 | whether and to which extent Awards are subject to Performance Criteria and/or restrictive covenants (including non-competition, non-solicitation, confidentiality and/or Share ownership requirements); |
| 5 | the method(s) by which Awards may be exercised, settled or cancelled; |
| 6 | whether, to which extent and under which circumstances, the exercise, settlement or cancellation of Awards may be deferred or suspended; |
| 4 | amending or waiving the terms applicable to outstanding Awards (including Performance Criteria), subject to the restrictions imposed by Article 9 and provided that no such amendment shall take effect without the consent of the affected Participant(s), if such amendment would materially and adversely affect the rights of the Participant(s) under such Awards, except to the extent that any such amendment is made to cause this Plan or the Awards concerned to comply with applicable law, stock exchange rules, accounting principles or tax rules and regulations; |
| 5 | correcting any defect, supplying any omission or reconciling any inconsistency in the Plan or any Award Agreement; |
| 6 | making any determination under, and interpreting the terms of, this Plan, any rules or regulations issued pursuant to this Plan and any Award Agreement; |
| 8 | making any other determination or taking any other action which the Committee considers to be necessary, useful or desirable in connection with the administration or operation of this Plan. |
| those Eligible Participants than an aggregate number of Awards approved by the Committee from time to time and (ii) when granting such Awards, the Management Board shall observe any other restrictions imposed by the Committee from time to time in connection with the administration or operation of this Plan. The Company's compensation committee may approve such proposals without further approval from the Supervisory Board. |
| 3 | The Committee may issue further rules and regulations for the administration and operation of this Plan, consistent with and subject to the terms of this Plan. |
| 4 | All decisions of the Committee shall be final, conclusive and binding upon the Company and the Participants (including beneficiaries of Awards). |
AWARDS
| 1 | Awards can only be granted to Eligible Participants, unless the Committee decides otherwise. |
| 2 | No Award is intended to confer any rights on the relevant Participant except as set forth in the applicable Award Agreement. In particular, no Award should be construed as giving any Participant the right to remain employed by or to continue to provide services for the Company or any Subsidiary. |
| 3 | Awards can be granted for no consideration or for such minimal cash consideration as may be required by applicable law. |
| 4 | Awards may be granted alone or in addition or in tandem with any other Award and/or any award under any other plan of the Company or any Subsidiary. Awards granted in addition or in tandem with any other Award and/or any award under any other plan of the Company or any Subsidiary may be granted simultaneously or at different times. |
| 5 | Each Award shall be evidenced by an Award Agreement entered into between the Company and the Participant concerned. Until an Award Agreement has been entered into between the Company and the relevant Participant, no rights can be derived from the Awards concerned by such Participant. |
| 6 | Plan Shares, including Awards in the form of SGAs or Shares of Restricted Stock, shall be delivered in book-entry form to the relevant Participant's account with the Company's U.S. transfer agent in such form(s) as may be determined by the Committee and shall be subject to such stop transfer orders and other restrictions as the Committee may deem required or advisable. Furthermore, the Committee may determine that certificates for such Shares shall bear an appropriate legend referring to the terms, conditions and restrictions applicable thereto. Plan Shares shall be delivered as promptly as reasonably practicable following the exercise or settlement of the relevant Award, but in no event later than 30 days following such exercise of settlement. Plan Shares shall be delivered through the records of the Company's transfer agent. |
| 7 | The terms and conditions applicable to Awards, including the time(s) when Awards vest in whole or in part and any applicable Performance Criteria, shall be set by the Committee and may vary |
| between Awards and between Participants, as the Committee deems appropriate. Without prejudice to the settlement of SGAs upon vesting, the Committee may also determine whether and under which circumstances other Awards shall be settled automatically upon vesting, without being exercised by the Participant. |
| 8 | The term of an Award shall be determined by the Committee, but shall not exceed ten years from the applicable Grant Date. Unless determined otherwise by the Committee, if the exercise or settlement of an Award is prohibited by applicable law or the Company's insider trading policy on the last business day of the term of such Award, such term shall be extended for a period of one month following the end of such prohibition. |
| 9 | Unless determined otherwise by the Committee, Awards cannot be transferred, pledged or otherwise encumbered, except by testament or hereditary law as a result of death of the Participant concerned. For the avoidance of doubt, Plan Shares delivered upon the exercise or settlement of an Award can be freely transferred, subject to restrictions under applicable law and the Company's insider trading policy. |
| 1 | the number of Plan Shares available under this Plan; |
| 2 | the number of Plan Shares underlying outstanding Awards; and/or |
| 3 | the Exercise Price or other terms applicable to outstanding Awards. |
| 11 | Any rights, payments and benefits under any Award shall be subject to repayment and/or recoupment by the Company in accordance with applicable law, stock exchange rules and such policies and procedures as the Company may adopt from time to time. |
| 12 | The Company shall report the additional income due to any grant of Awards and delivery of Plan Shares to a Participant in accordance with the prevailing income tax reporting requirements in the respective period. The taxable event in connection with any delivery of Plan Shares shall be considered to occur, to the extent permitted under applicable law, on the date of such delivery through the records of the Company's transfer agent and shall be reported by the Company in U.S. dollars, converted to the local currency applicable in the jurisdiction where the relevant Participant has his or her tax residency (if applicable). |
TYPES OF AWARDS
PERFORMANCE CRITERIA
| 5 | |
| 1 | The Committee may condition the right of a Participant to exercise one or more of his Awards, and the timing thereof, upon the achievement or satisfaction of such Performance Criteria as may be determined by the Committee, within periods specified by the Committee. |
| 2 | If an Award is subject to Performance Criteria which must be achieved or satisfied within a period |
| specified by the Committee for that purpose, such Award can only be exercised or settled at or after the end of that period. |
| 3 | Performance Criteria may be measured on an absolute or relative basis and may be established on a Company-wide basis or with respect to one or more business units, divisions, Subsidiaries and/or business segments. Relative performance may be measured against a group of peer companies determined by the Committee, financial market indices and/or other objective and quantifiable indices. Performance Criteria may relate to performance by the Company and/or by the Participant concerned. |
| 4 | If the Committee determines that a change in the business, operations, group structure or capital structure of the Company, or other events or circumstances, render certain Performance Criteria applicable to outstanding Awards unsuitable or inappropriate, the Committee may amend or waive such Performance Criteria, in whole or in part, as the Committee deems appropriate. |
PLAN SHARES AVAILABLE FOR AWARDS
VESTING, EXERCISE AND SETTLEMENT
| 7 | |
| 1 | Each Award Agreement shall contain the vesting schedule, where relevant, delivery schedule (which may include deferred delivery later than the vesting dates) for the relevant Awards. Except with respect to Awards granted to Supervisory Directors, a one-year cliff vesting schedule shall apply to all Awards (i.e., the entire Award time-vests on the first anniversary of the Grant Date (or such other date as determined by the Committee instead of the Grant Date), subject to any Performance Criteria or other vesting conditions imposed by the Committee), provided that the Committee may decide to deviate from such one-year vesting schedule for specific Awards. |
| 2 | Only vested Awards may be exercised or settled in accordance with their terms. An Award can only be exercised (to the extent it is not settled automatically) by or on behalf of the Participant holding such Award. |
| 3 | An Award can only be exercised through the use of an electronic system or platform to be |
| designated by the Committee (if and when such system or platform has been set up by the Company), or otherwise by delivering written notice to the Company in a form approved by the Committee. |
| 4 | Subject to Article 9.1, the Committee shall determine the Exercise Price, provided that the Exercise Price for an Award which can be exercised or settled in the form of Plan Shares shall not be less than the aggregate nominal value of such Plan Shares. |
| 5 | Upon the exercise of an Award, the applicable Exercise Price must immediately be paid in cash, wire transfer of immediately available funds or by check payable to the order of the Company, provided that the Committee, subject to applicable law, may allow that such Exercise Price is satisfied on a cashless basis as follows: |
| 1 | by means of an immediate sale of Plan Shares underlying the Award concerned, with sale proceeds equal to the Exercise Price being paid to the Company on behalf of the relevant Participant and any remaining sale proceeds (less applicable costs and taxes, if any) being paid to such Participant; |
| 2 | as a result of the relevant Participant forfeiting his entitlement to receive part of the Plan Shares underlying the Award concerned at FMV on the Exercise Date and charging the aggregate nominal value of the remaining Plan Shares underlying such Award against the Company's reserves; and/or |
| 3 | as a result of the relevant Participant surrendering and transferring Shares to the Company (which may include Plan Shares underlying the Award concerned) at FMV on the Exercise Date. |
| 6 | The Company is authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Shares, other Awards, other property, net settlement or any combination thereof) of applicable taxes and fees incurred or due in respect of an Award, its exercise or settlement or any payment or transfer under such Award or under the Plan and to take such other action as may be necessary in the option of the Company to satisfy all obligations for the payment of such taxes |
| 7 | When an Award is exercised or settled in the form of Plan Shares, the Company may, at the discretion of the Committee, subject to applicable law and the Company's insider trading policy: |
| 1 | issue new Plan Shares to the relevant Participant; or |
| 2 | transfer existing Plan Shares held by the Company to the relevant Participant, |
provided, in each case, that Plan Shares may be delivered in the form of book-entry securities representing those Plan Shares (or beneficial ownership of those Plan Shares entitling the holder to exercise or direct the exercise of voting rights attached thereto) credited to the securities account designated by the relevant Participant.
| 8 | If an Award is exercised or settled in the form of Plan Shares and such Award does not relate to a whole number of Plan Shares, the number of Plan Shares underlying such Award shall be rounded |
| down to the nearest integer. |
PRICING RESTRICTIONS FOR OPTIONS AND SARS
| 1 | Except for Replacement Awards, the Exercise Price for an Option or SAR shall not be less than the higher of: |
| 1 | the FMV of a Plan Share on the applicable Grant Date and, in case of a SAR being granted in connection with an Option, on the Grant Date of such Option; or |
| 2 | the nominal value of a Plan Share (i.e., EUR 0.12). |
| 2 | Except as provided in Article 4.10, the Committee may not, without prior approval of the General Meeting, seek to effect any re-pricing of any outstanding "underwater" Option or SAR by: |
| 1 | amending or modifying the terms of such Award to lower the Exercise Price; |
| 2 | cancelling such Award and granting in exchange either (i) replacement Options and/or SARs having a lower Exercise Price, or (ii) Restricted Stock, RSUs, PSUs or Other Awards; or |
| 3 | cancelling or repurchasing such Award for cash, assets or other securities. |
| 3 | Options and SARs will be considered to be "underwater" within the meaning of Article 9.1 at any time when the FMV of the Plan Shares underlying such Awards is less than the applicable Exercise Price. |
U.S. PARTICIPANTS
| 1 | With respect to any Award subject to Section 409A IRC, this Plan and the applicable Award Agreement are intended to comply with the requirements of Section 409A IRC, the provisions of this Plan and such Award Agreement shall be interpreted in a manner that satisfies the requirements of Section 409A IRC, and this Plan shall be operated accordingly. If any provision of this Plan or any term or condition of any Award subject to Section 409A IRC would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict. |
| 2 | If all or part of any payments made, or other benefits conferred, under any Award subject to Section 409A IRC constitutes deferred compensation for purposes of Section 409A IRC as a result of a "separation from service" of the relevant Participant (other than due to his death) within the meaning of Section 409A IRC while such Participant is a "specified employee" under Section 409A IRC, then such payment or benefit shall not be made or conferred until six months and one business day have elapsed after the date of such "separation from service", except as permitted under Section 409A IRC. |
| 3 | If an Award subject to Section 409A IRC includes a "series of installment payments" within the meaning of Section 1.409A-2(b)(2)(iii) of the United States Treasury Regulations, the right of the relevant Participant to such series of installment payments shall be treated as a right to a series of separate payments and not as a right to a single payment, and if such an Award includes "dividend equivalents" within the meaning of Section 1.409A-3(e) of the United States Treasury Regulations, the right of the relevant Participant to such dividend equivalents shall be treated separately from the right to other amounts or other benefits under such Award. |
| 4 | For any Award subject to Section 409A IRC that provides for accelerated distribution on a Change of Control of amounts that constitute "deferred compensation" as defined in Section 409A IRC, if the event that constitutes such Change of Control does not also constitute a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the Company's assets (in either case, as defined in Section 409A IRC), such amount shall not be distributed on such Change in Control but instead shall vest as of the date of such Change of Control and shall be paid on the scheduled payment date specified in the applicable Award Agreement, except to the extent that earlier distribution would not result in the relevant Participant incurring any additional tax, penalty, interest or other expense under Section 409A IRC. |
| 5 | Notwithstanding the foregoing in this Article 10, the tax treatment of the benefits provided under this Plan or any Award Agreement is not warranted or guaranteed, and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest or other expenses that may be incurred by a U.S. Participant on account of non-compliance with Section 409A IRC. |
| 6 | A U.S. Participant is not eligible to receive Awards in the form of RSUs or PSUs. |
LEAVER
| 10.1 | If a Participant becomes a Good Leaver, unless otherwise determined by the Committee or set forth in an Award Agreement: |
| 1. | all vested Awards that have not yet been exercised or settled must be exercised or settled in accordance with their terms within a 6-month period and, if such Awards are not exercised or (through no fault of the Participant concerned) not settled within such period, they shall be cancelled automatically without compensation for the loss of such Awards; and |
| 2. | all unvested Awards of such Participant shall be cancelled automatically without compensation for the loss of such Awards, unless the Committee decides otherwise. |
CHANGE OF CONTROL
| 11.2 | If, in connection with a Change of Control, outstanding Awards are not replaced by long-term incentive awards as described in Article 12.1, or are replaced by long-term incentive awards which the Committee does not consider to be sufficiently equivalent to such outstanding Awards, then such Awards shall immediately vest and, where relevant, settle in full, unless the Committee decides otherwise. |
LOCK-UP
In connection with any registration of the Company's securities, to the extent requested by the Company or the underwriters managing any public offering of the Company's securities, and except (a) as otherwise approved by the Committee, or (b) pursuant to any exceptions approved by the underwriters, Shares acquired by a Participant pursuant to the issuance, vesting, exercise, or settlement of any Award granted hereunder may not be sold, transferred, or otherwise disposed of prior to such period following the effective date of such registration as designated by the underwriters, not to exceed 180 days following such registration (the "Lock-Up Period"). The Company may impose stop-transfer instructions with respect to the Shares subject to the foregoing restriction until the end of such Lock-Up Period.
DATA PROTECTION
| 13.2 | Each Participant's personal data shall be handled by the Company in a proper and careful manner in accordance with applicable law, including the General Data Protection Regulation (GDPR) and the rules and regulations promulgated pursuant thereto. Participants have the right to lodge complaints with an applicable supervisory authority regarding the Company's processing of personal data pursuant to this Plan. |
| 13.3 | The Company shall implement technical and organisational measures designed to protect |
| personal data processed pursuant to Article 14.1. Personnel or third parties that have access to such personal data shall be bound by confidentiality obligations. |
| 13.4 | The Company shall abide by any statutory rights the Participants may have regarding their respective personal data processed pursuant to Article 14.1, which includes the right to access, rectification, erasure, restriction of processing, objection to processing and portability of such personal data. |
| 13.5 | In connection with the administration and operation of this Plan, the Company may transfer personal data processed pursuant to Article 14.1 to one or more third parties, provided that there is a legitimate interest in doing so. Where such third parties are located outside the European Economic Area in countries that are not considered to provide for an adequate level of data protection, the Company shall ensure that sufficient data protection safeguards are put in place, failing which explicit consent for such transfer shall be obtained from the Participant(s) concerned. |
| 13.6 | The Company may establish one or more privacy policies providing further information on data protection and applying to the processing of personal data of the Participants by the Company in connection with the administration and operation of this Plan. |
INSIDER TRADING
All transactions in connection with the operation of this Plan are subject to the stipulations set forth in the Company's Insider Trading Policy as well as applicable laws, regulations and stock exchange rules.
AMENDMENT AND TERMINATION
Pursuant to a resolution to that effect, the Supervisory Board may amend, supplement or terminate this Plan, provided that no such amendment, supplement or termination shall take effect without:
GOVERNING LAW AND JURISDICTION
This Plan shall be governed by and shall be construed in accordance with the laws of the Netherlands.
Subject to Article 3.1 paragraph g., any dispute arising in connection with these rules shall be submitted to the exclusive jurisdiction of the competent court in Amsterdam, the Netherlands.
Exhibit 8.1
List of subsidiaries
Subsidiaries of the Registrant | ||
| | |
Entity name |
| Jurisdiction of organization |
Centogene GmbH | Germany | |
Centogene FZ-LLC | United Arab Emirates | |
Centogene US, LLC | Delaware, USA | |
Centogene India Pvt. Ltd | | India |
Centogene Switzerland AG | Switzerland | |
Centosafe B.V. | Netherlands | |
Centogene d.o.o Belgrade | Serbia | |
Genomics Innovations Company Limited | | United Arab Emirates |
Exhibit 12.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kim Stratton, certify that:
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: May 15, 2024 | |
| |
/s/ Kim Stratton | |
Kim Stratton | |
Chief Executive Officer | |
Exhibit 12.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Miguel Coego Ríos, certify that:
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting.
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: May 15, 2024 | |
| |
/s/ Miguel Coego Ríos | |
Miguel Coego Ríos | |
Chief Financial Officer | |
Exhibit 13.1
CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Centogene N.V. (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, Kim Stratton, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 15, 2024 | |
| |
/s/ Kim Stratton | |
Kim Stratton | |
Chief Executive Officer | |
Exhibit 13.2
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Centogene N.V. (the “Company”) for the fiscal year ended December 31, 2023 (the “Report”), I, Miguel Coego Ríos, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: May 15, 2024 | |
| |
/s/ Miguel Coego Ríos | |
Miguel Coego Ríos | |
Chief Financial Officer | |
Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-234551) pertaining to the Centogene N.V. Long-Term Incentive Plan of our report dated May 15, 2024, with respect to the consolidated financial statements of Centogene N.V. included in this Annual Report (Form 20-F) for the year ended December 31, 2023 filed with the Securities and Exchange Commission.
/s/ EY GmbH & Co. KG Wirtschaftsprüfungsgesellschaft
Berlin, Germany
May 15, 2024
Exhibit 97.1
CLAWBACK POLICY
CENTOGENE N.V.
(the “Company”)
INTRODUCTION
1. | Article 1 |
a. | This clawback policy (this “Policy”) sets out the Company’s Clawback Policy as mandated by the SEC pursuant to the Dodd-Frank Act. This Policy (i) provides for the recoupment of certain Incentive Compensation in the event of a Financial Restatement resulting from material noncompliance with financial reporting requirements under U.S. federal securities laws and (ii) reflects certain Dutch legal provisions relating to the recoupment and/or adjustment of a Bonus from Managing Directors under certain circumstances defined by Dutch law, each in accordance with the terms and conditions set forth herein. This Policy is intended to comply with the requirements of Section 10D of the Exchange Act. |
b. | This clawback policy´s scope covers: |
i. | Directors or Employees of the CENTOGENE Group that are subject to Incentive Compensation as outlined in this policy; |
ii. | Any Incentive Compensation received by a current or former individual in scope as per the aforementioned definition during the applicable recoupment period; |
iii. | Any Bonus received by a Managing Director, irrespective of whether the Bonus was received before or after the Effective Date. |
DEFINITIONS
2. | Article 2 |
In this policy the following definitions shall apply:
Bonus | Any variable Managing Director compensation that is partly or entirely conditional on the achievement of certain targets or the occurrence of certain events (e.g., signing bonuses, severance pay, cash bonuses, performance awards and contributions to pension funds). |
Code | The U.S. Internal Revenue Code, as amended. |
Covered Compensation | Any Incentive Compensation received by a current or former Executive Officer during the applicable Recoupment Period; provided that |
1 |
|
CLAWBACK POLICY
| (i). such Covered Compensation was received by such Executive Officer (A) after the Effective Date, (B) after he or she commenced service as an Executive Officer and (C) while the Company had a class of securities publicly listed on a national securities exchange; and (ii). such Executive Officer served as an Executive Officer at any time during the performance period in respect of such Incentive Compensation. For purposes of this Policy, Covered Compensation is “received” by an Executive Officer during the fiscal period in which the Financial Reporting Measure applicable to such Covered Compensation (or portion thereof) is attained, even if the payment or grant of such Covered Compensation occurs thereafter. |
Dodd-Frank Act | The Dodd-Frank Wall Street Reform and Consumer Protection Act, US federal law enacted on 21st of July 2010. |
Effective Date | The date at which this policy is implemented: December 01, 2023 |
Exchange Act | U.S. Securities Exchange Act of 1934, as amended. |
Executive Officer | Any (a) individual who the Supervisory Board has determined is (i) the president, principal financial officer, principal accounting officer (or controller), (ii) any vice president of the Company in charge of a principal business unit, division or function, or (iii) any other officer of the Company who performs a policymaking function, (b) other individual who is required to be covered by this Policy pursuant to Section 10D of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed and (c) other employees of the Company and its subsidiaries identified by the Supervisory Board from time to time. |
Financial Reporting | Any (i) measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements (and any measures that are derived wholly or in part from any such measure), (ii) stock price measure or (iii) total shareholder return measure. For the avoidance of doubt, a Financial Reporting Measure does not need to be presented within the Company’s financial statements or included in a filing with the SEC. |
Financial Restatement | A restatement of the Company’s Financial Statements due to the material noncompliance of the Company with any financial reporting requirement under U.S. federal securities laws that is required in order to correct: (a) an error in previously issued financial statements that is material to the previously issued financial statements; or (b) an error that would result in a material misstatement if (A) the error were corrected in the current period or (B) left uncorrected in the current period. |
Financial Restatement Preparation Date | The earlier of (i) the date that the Supervisory Board (or a committee thereof, or the officer(s) of the Company authorized to take such action if the Supervisory Board action is not required) concludes, or reasonably should have concluded, that the Company is required to prepare a Financial Restatement, and (ii) the date on which a court, regulator or other legally authorized body causes the Company to prepare a Financial Restatement. |
2 |
|
CLAWBACK POLICY
Financial Statements | Includes any statement of financial position, statement of comprehensive income, statement of cash flows, statement of stockholder’s equity, related schedules, and accompanying footnotes. |
Incentive Compensation | Any compensation (including, for the avoidance of doubt, any cash or equity or equity-based compensation) that is granted, earned and/or vested based wholly or in part upon the achievement of a Financial Reporting Measure. |
Managing Director | A member of the management board of Centogene N.V. |
Scope of Incentive | Incentive Compensation includes: ● Nonequity incentive plan awards that are earned based wholly or in part on satisfying a financial reporting measure performance goal; ● Bonuses paid from a “bonus pool,” the size of which is determined based wholly or in part on satisfying a financial reporting measure performance goal; ● Other cash awards based wholly or in part on satisfaction of a financial reporting measure performance goal; ● Restricted stock, restricted stock units (RSUs), performance-based restricted stock units (PSUs), stock options and stock appreciation rights (SARs) that are granted or become vested based wholly or in part on satisfying a Financial Reporting Measure; and ● Proceeds received upon the sale of shares acquired through an incentive plan that were granted or vested based wholly or in part on satisfying a Financial Reporting Measure. |
Not in scope of Incentive Compensation | Incentive Compensation excludes: ● Base salary; ● Time-vesting awards or compensation that is awarded solely at the discretion of the Supervisory Board, in each case as long as their grant was not based on the achievement of a financial performance measure; ● Any and all incentive-compensation awarded based on subjective standards; ● Any and all incentive-compensation awarded based on operational measures; and ● Erroneously awarded incentive compensation contributed to tax-qualified retirement plans. |
Recoupment Period | The three fiscal years completed immediately preceding the date of any applicable Financial Restatement Preparation Date. |
SEC | The United States Securities Exchange Commission. |
3 |
|
CLAWBACK POLICY
TSR | Total Shareholder Return |
FINANCIAL RESTATEMENT PROCESS
3. | Article 3 |
This article sets out the annual review process to determine the existence of a clawback trigger in the event of a Financial Restatement. The activities hereunder occur in such chronological order as set out below:
| ● | Upon each annual earnings publication on form 20-F, the Audit Committee, with delegated powers of the Supervisory Board, directs the Management Board to initiate the clawback review; |
| ● | The Management Board determines the competent authority (internal or external) (the “Competent Authority”) to carry out the review; |
| ● | Within one month of the review process initiation, the Management Board is notified by the Competent Authority of the existence and/or non-existence of a condition requiring a Financial Restatement; |
| ● | In case of a determination by the Management Board that there is the existence of a condition requiring a Financial Restatement, the Management Board next determines whether the error meets the materiality definition, based on the relevant facts and circumstances and consistent with SEC guidance. Materiality analysis should consider the effects of the error not only on the fact of the financial statements, but also on the footnotes to the financial statements and should include evaluation of both quantitative and qualitative factors. This entirety of activities is carried out by the Management Board under the oversight of the Audit Committee and the Supervisory Board. |
| ● | In the event that the Management Board determines that the condition is not material, the review documentation is archived and the Audit Committee confirms that no further action is to be taken. |
CLAWBACK PROCESS
4. | Article 4 |
In the event the Supervisory Board determines that a Financial Restatement is required pursuant to Article 3, the Supervisory Board will then determine the amount of Covered Compensation subject to recovery (the “Recoverable Amount”). The Recoverable Amount is calculated by the Supervisory Board as follows:
| ● | Cash: With respect to Covered Compensation that was received by any current or former Executive Officer in the form of cash, the amount of Covered Compensation which will be treated as the Recoverable Amount is the difference between what was paid to such Executive Officer and what would have been paid had the Covered Compensation payout been calculated based on the restated financial information. |
| ● | Equity: With respect to Covered Compensation that was received by any current or former Executive Officer in the form of equity or equity-based awards, the amount of Covered Compensation which will be treated as the Recoverable Amount will depend on the status of the applicable award. The |
4 |
|
CLAWBACK POLICY
Company must recover the excess portion of the equity award that would not have been granted, vested or earned based on the Financial Restatement (considering the conditions thereto exist).
| ● | For Covered Compensation that was determined based on TSR or stock price, the Recoverable Amount is calculated based on the Company’s reasonable estimate of the effect of the restatement on the Company’s stock price, as determined by the Supervisory Board in its sole discretion. |
| ● | All Recoverable Amounts will be determined on a pre-tax basis. |
The Recoverable Amount is endorsed vis-à-vis the allowable exceptions, being:
| ● | The Company reasonably determines that the expense paid to a third party to recover the incentive compensation would exceed the amount of the incentive compensation to be recovered, making recovery impracticable; |
| ● | The recovery of the incentive would violate a law of the Company’s home country that was passed before the final rule is published in the Federal Register, making this exception largely a nullity; or |
| ● | The recovery of the incentive compensation would draw from deferred compensation under tax-qualified retirement plans. |
Upon none of the three exceptions being applicable, the Company is eligible to recover the complete Recoverable Amount. The Supervisory Board may decide at its own discretion on the method of reclaiming excess incentive compensation in accordance with applicable law, including, without limitation, by (i) requiring reimbursement of Covered Compensation previously paid in cash; (ii) seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity or equity-based awards; (iii) offsetting the Recoverable Amount from any compensation otherwise owed by the Company or any of its affiliates to the Executive Officer; (iv) cancelling outstanding vested or unvested equity or equity-based awards; and/or (v) taking any other remedial and recovery action permitted by applicable law; provided that, to the extent necessary to avoid any adverse tax consequences to the Executive Officer pursuant to Section 409A of the Code, any offsets against amounts under any nonqualified deferred compensation plans (as defined under Section 409A of Code) shall be made in compliance with Section 409A of the Code.
RECOUPMENT AND ADJUSTMENT OF A BONUS UNDER DUTCH LAW
The Company may and, if so directed by the Supervisory Board shall, recoup all or part of a Bonus that has already been paid to a Managing Director, to the extent payment of such Bonus was based on inaccurate information as to the achievement of targets or the occurrence of events on which the Bonus was based (as determined by the Supervisory Board acting in good faith). The claim for recoupment of a Bonus will expire after a period of five years has elapsed after the Company became aware that the Bonus was based on inaccurate information.
In addition, the Supervisory Board may (but is not required to) adjust a Managing Director’s entitlement to a Bonus that has not yet been paid to an appropriate amount, if payment of the (unadjusted) Bonus would be unacceptable according to standards of reasonableness and fairness (as determined by the Supervisory Board acting in good faith).
DISCLOSURE OBLIGATIONS
5 |
|
CLAWBACK POLICY
5. | Article 5 |
The disclosure rules that apply are listed hereunder and need be followed.
| ● | This Policy must be filed as an exhibit to the annual report on Form 20-F. |
| ● | In case of recovery of Covered Compensation, the Company must disclose (a) the date of the relevant Financial Restatement and (b) detailed information regarding the recovery of excess Incentive Compensation, which shall include (i) the aggregate dollar amount of erroneously awarded Incentive Compensation attributable to that accounting restatement, (ii) if the financial reporting measure for the Incentive Compensation was stock price or TSR, the estimates used to determine the excess Incentive Compensation based on the Financial Restatement, (iii) the aggregate dollar amount of erroneously awarded Incentive Compensation that remains outstanding at the end of the last completed fiscal year, (iv) if recovery is impracticable, for each current or former named executive officer (on an individual basis) and for all other current and former Executive Officers as a group (on an aggregate basis), the amount of forgone recovery and a brief description of the reason the Company decided to not pursue recovery and (v) for each current and former named executive officer, disclose the amount of erroneously awarded compensation still owed that had been outstanding for 180 days or longer since the date the Company determined the amount owed. |
| ● | The Company shall comply with any additional disclosure requirements established by the SEC, including with respect to the Company’s proxy statements or annual reports. |
GOVERNING LAW AND JURISDICTION
Pursuant to a resolution to that effect, the Management Board may, with the approval of the Audit Committee, amend or supplement this policy and the rules therein subject to ongoing compliance with NASDAQ requirements, SEC rules and applicable law generally.
6. | Article 6 |
This policy shall be governed by and shall be construed in accordance with the laws of the Netherlands. Any dispute arising in connection with this policy shall be submitted to the exclusive jurisdiction of the competent court in Amsterdam, the Netherlands.
6 |
|