Prospectus. Nordic Nanovector AS

Transcription

1 Prospectus Nordic Nanovector AS (A private limited company incorporated under the laws of Norway) Offering of up to 2,000,000 Subsequent Offering Shares with Subscription Rights for Eligible Shareholders as of 27 June 2014 at a Subscription Price of NOK 25 per Subsequent Offering Share Managers 28 August 2014

2 NORDIC NANOVECTOR AS (A private limited company incorporated under the laws of Norway) Offering of up to 2,000,000 Subsequent Offering Shares with Subscription Rights for Eligible Shareholders as of 27 June 2014 at a Subscription Price of NOK 25 per Subsequent Offering Share The information in this prospectus (the Prospectus ) relates to the subsequent offering (the Subsequent Offering ) in Nordic Nanovector AS (the Company ), a private limited company incorporated under the laws of Norway, of up to 2,000,000 new shares with a nominal value of NOK 0.20 each (the Subsequent Offering Shares ) at a subscription price of NOK 25 per Subsequent Offering Share (the Subscription Price ) as resolved by the general meeting of the Company held on 27 June The shareholders of the Company as of 27 June 2014 (and being registered as such in the Norwegian Central Securities Depository (the VPS ) on 2 July 2014 pursuant to the three days settlement procedure in VPS (the Record Date )), other than shareholders in jurisdictions other than Norway and where an offer to participate in the share issue is not allowed or would require approval or registration of a prospectus or similar measures, may subscribe for and be allocated Subsequent Offering Shares in the Subsequent Offering (the Eligible Shareholders ). The Eligible Shareholders, other than those shareholders who participated in the Private Placement (as hereinafter defined), will be granted 0.4 nontransferable subscription right (the Subscription Rights ) for each existing Share registered as held by such Eligible Shareholders as of the Record Date. Each Subscription Right provides a preferential right to subscribe to and to be allocated one Subsequent Offering Share at the Subscription Price in the Subsequent Offering. Other investors than Eligible Shareholders may not subscribe for or be allocated Subsequent Offering Shares in the Subsequent Offering. If not all Subscription Rights are used, then the remaining Subsequent Offering Shares will be allocated to Eligible Shareholders who oversubscribe or subscribe to Subsequent Offering Shares without the use of Subscription Rights. The allocation of the remaining Subsequent Offering Shares shall take place on the basis of the shareholding as of 27 June 2014 (as registered as of the Record Date) of those Eligible Shareholders who subscribe to the remaining Subsequent Offering Shares, but so that Shares allocated to the relevant Eligible Shareholder in the Private Placement or pursuant to Subscription Rights shall be deemed to be allocated Shares. The subscription period in the Subsequent Offering will commence on 1 September 2014 and expire at 16:00 hours, Central European Time ( CET ), on 12 September 2014 (the Subscription Period ). Subscription Rights that are not used to subscribe for Subsequent Offering Shares before the expiry of the Subscription Period will have no value and will lapse without compensation to the holder. Except where the context requires otherwise, references in this Prospectus to Shares will be deemed to include the existing Shares and the Subsequent Offering Shares. All of the Shares are registered in the VPS and are in book-entry form. All of the Shares rank pari passu with one another and each carry one vote. THE SUBSCRIPTION RIGHTS AND SUBSEQUENT OFFERING SHARES, HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITES ACT OF 1933, AS AMENDED (THE US SECURITIES ACT ) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION IN THE UNITED STATES OF AMERICA (THE UNITED STATES ), AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO US PERSONS AS DEFINED IN REGULATIONS EXCEPT TO QUIBS IN RELIANCE ON AN EXCEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE US SECURITES ACT, OR OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE US SECRURITIES ACT. THIS PROSPECTUS HAS NOT BEEN APPROVED OR REVIEWED BY THE US SECURITIES AND EXCHANGE COMMISSION AND IS NOT FOR GENERAL DISTRIBUTION IN THE UNITED STATES. FOR CERTAIN OTHER SELLING AND TRANSFER RESTRICTIONS, SEE SECTION 15 SELLING AND TRANSFER RESTRICTIONS. The due date for the payment of the Subsequent Offering Shares is expected to be on or about 17 September Delivery of the Subsequent Offering Shares is expected to take place on or about 22 September 2014 through the facilities of the VPS. Investing in the Shares, including the Subsequent Offering Shares involves a high degree of risk. See Section 2 Risk Factors beginning on page 10 and Section 4 General Information. Managers ABG Sundal Collier DNB Markets The date of this Prospectus is 28 August 2014

3 IMPORTANT INFORMATION This Prospectus has been prepared in connection with the Subsequent Offering of the Subsequent Offering Shares in the Company. This Prospectus has been prepared to comply with the Norwegian Securities Trading Act of 29 June 2007 no. 75 (the Norwegian Securities Trading Act ) and related secondary legislation, including the Commission Regulation (EC) no. 809/2004 implementing Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 regarding information contained in prospectuses, as amended, and as implemented in Norway (the EU Prospectus Directive ). This Prospectus has been prepared solely in the English language. The Financial Supervisory Authority of Norway (Nw.: Finanstilsynet) (the Norwegian FSA ) has reviewed and approved this Prospectus in accordance with Sections 7-7 and 7-8 of the Norwegian Securities Trading Act. The Norwegian FSA has not controlled or approved the accuracy or completeness of the information included in this Prospectus. The approval by the Norwegian FSA only relates to the information included in accordance with predefined disclosure requirements. The Norwegian FSA has not made any form of control or approval relating to corporate matters described in, or referred to in, this Prospectus. For definitions of certain other terms used throughout this Prospectus, see Section 17 Definitions and Glossary. The Company has engaged ABG Sundal Collier Norge ASA ( ABG Sundal Collier ) and DNB Markets, a part of DNB Bank ASA ( DNB Markets ) as Managers for the Subsequent Offering. The information contained herein is current as of the date hereof and subject to change, completion and amendment without notice. In accordance with Section 7-15 of the Norwegian Securities Trading Act, significant new factors, material mistakes or inaccuracies relating to the information included in this Prospectus, which are capable of affecting the assessment by investors of the Subsequent Offering Shares between the time of approval of this Prospectus by the Norwegian FSA and the expiry of the Subscription Period, will be included in a supplement to this Prospectus. Neither the publication nor distribution of this Prospectus, nor the sale of any Subsequent Offering Share, shall under any circumstances imply that there has been no change in the Company s affairs or that the information herein is correct as of any date subsequent to the date of this Prospectus. No person is authorised to give information or to make any representation concerning the Company or in connection with the Subsequent Offering or the sale of the Subsequent Offering Shares other than as contained in this Prospectus. If any such information is given or made, it must not be relied upon as having been authorised by the Company or the Managers or by any of the affiliates, representatives, advisors or selling agents of any of the foregoing. The distribution of this Prospectus and the offer and sale of the Subsequent Offering Shares in certain jurisdictions may be restricted by law. This Prospectus does not constitute an offer of, or an invitation to purchase, any of the Subsequent Offering Shares in any jurisdiction in which such offer or sale would be unlawful. Neither this Prospectus nor any advertisement or any other offering material may be distributed or published in any jurisdiction except under circumstances that will result in compliance with applicable laws and regulations. Persons in possession of this Prospectus are required to inform themselves about and to observe any such restrictions. In addition, the Shares are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under applicable securities laws and regulations. Investors should be aware that they may be required to bear the financial risks of this investment for an indefinite period of time. Any failure to comply with these restrictions may constitute a violation of applicable securities laws. See Section 15 Selling and Transfer Restrictions. This Prospectus and the terms and conditions of the Subsequent Offering as set out herein and any sale and purchase of Subsequent Offering Shares hereunder shall be governed by and construed in accordance with Norwegian law. The courts of Norway, with Oslo as legal venue, shall have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Subsequent Offering or this Prospectus. The Subscription Rights and the Subsequent Offering Shares are being offered only in those jurisdictions in which, and only to those persons to whom, offers and sales of the Subsequent Offering Shares (pursuant to the exercise of the Subscription Rights or otherwise) may lawfully be made. The Subscription Rights and the Subsequent Offering Shares have not been, and will not be, registered under the U.S. Securities Act, or under the securities laws of any state or other jurisdiction of the United States and may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in compliance with any applicable securities law of any state or other jurisdiction of the United States. Pursuant to this Prospectus, the Subscription Rights and Subsequent Offering Shares are being offered and sold outside the United States in reliance on Regulation S. The Subsequent Offering will not be made to persons who are residents of Australia, Canada, Japan or the United States or in any jurisdiction in which such offering would be unlawful. For more information regarding restrictions in relation to the Subsequent Offering pursuant to this Prospectus, see Section 15 Selling and Transfer Restrictions. The Company is a private limited company incorporated under the laws of Norway. As a result, the rights of holders of the Company s Shares will be governed by Norwegian law and its articles of association (the Articles of Association ). The rights of shareholders under Norwegian law may differ from the rights of shareholders of companies incorporated in other jurisdictions. The members of the Company s board of directors (the Board Members and the Board of Directors, respectively) and the members of the Company s senior management team (the Management ) are not residents of the United States, and a substantial portion of the Company s assets are located outside the United States. As a result, it may be difficult for investors in the United States to effect service of process on the Company or its Board Members and the members of the Management in the United States or to enforce in the United States judgments obtained in U.S. courts against the Company or those persons based on the civil liability provisions of the federal securities laws of the United States or other laws of the United States or any state thereof. Uncertainty exists as to whether courts in Norway will enforce judgments obtained in other jurisdictions, including the United States, against the Company or Board Members or members of the Management under the securities laws of those jurisdictions or entertain actions in Norway against the Company or its directors or officers under the securities laws of other jurisdictions. The United States and Norway do not currently have a treaty providing for reciprocal recognition and enforcement of judgements (other than arbitral awards) in civil and commercial matters. In making an investment decision, prospective investors must rely on their own examination, and analysis of, and enquiry into the Company and the terms of the Subsequent Offering, including the merits and risks involved. None of the Company or the Managers, or any of their respective representatives or advisers, is making any representation to any offeree or purchaser of the Subsequent Offering Shares regarding the legality of an investment in the Subsequent Offering Shares by such offeree or purchaser under the laws applicable to such offeree or purchaser. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Subsequent Offering Shares. All Sections of the Prospectus should be read in context with the information included in Section 4 General Information.

4 TABLE OF CONTENTS 1 SUMMARY RISK FACTORS RESPONSIBILITY FOR THE PROSPECTUS GENERAL INFORMATION REASONS FOR THE SUBSEQUENT OFFERING DIVIDENDS AND DIVIDEND POLICY INDUSTRY AND MARKET OVERVIEW BUSINESS OF THE COMPANY CAPITALISATION AND INDEBTEDNESS SELECTED FINANCIAL AND OTHER INFORMATION BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES AND CORPORATE GOVERNANCE CORPORATE INFORMATION AND DESCRIPTION OF SHARE CAPITAL TAXATION THE COMPLETED PRIVATE PLACEMENT AND THE SUBSEQUENT OFFERING SELLING AND TRANSFER RESTRICTIONS ADDITIONAL INFORMATION DEFINITIONS AND GLOSSARY APPENDICES APPENDIX A ARTICLES OF ASSOCIATION... A1 APPENDIX B FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2013 AND B1 APPENDIX C UNAUDITED INTERIM FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE C1 APPENDIX D SUBSCRIPTION FORM... D1 1

5 1 SUMMARY Summaries are made up of disclosure requirements known as Elements. These Elements are numbered in Sections A E (A.1 E.7) below. This summary contains all the Elements required to be included in a summary for this type of securities and the issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of not applicable. Section A Introduction and Warnings A.1 Warning This summary should be read as introduction to the Prospectus; any decision to invest in the securities should be based on consideration of the Prospectus as a whole by the investor; where a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff investor might, under the national legislation of the Member States, have to bear the costs of translating the Prospectus before the legal proceedings are initiated; and civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus or it does not provide, when read together with the other parts of the Prospectus, key information in order to aid investors when considering whether to invest in such securities. A.2 Warning Not applicable; no consent is granted by the Company for the use of the Prospectus for subsequent resale or final placement of the Shares. Section B - Issuer B.1 Legal and commercial name Nordic Nanovector AS. B.2 Domicile and legal form, legislation and country of incorporation B.3 Current operations, principal activities and markets The Company is a private limited company organised and existing under the laws of Norway pursuant to the Norwegian Private Limited Companies Act. The Company was incorporated in Norway on 2 July The Company s registration number in the Norwegian Register of Business Enterprises is The Company was established in 2009 by Roy H. Larsen and Inven2 AS on behalf of co-inventors of Betalutin TM, Øyvind S. Bruland and Jostein Dahle. The Company s mission is to develop innovative radioimmunotherapeutics that target difficult to treat cancers using the Company s proprietary nanovector targeting technology. The Company s lead product candidate, Betalutin, is a radionuclide conjugated to a tumour seeking carrier/antibody. Betalutin aims to prolong and improve the quality of life of people who suffer from non-hodgkin Lymphoma ( NHL ). The product candidate is currently undergoing phase II of a phase I/II dose-escalating clinical trial for treatment of relapsed NHL. It has been demonstrated in phase I that Betalutin TM can be safely administered to patients with NHL. It has also been observed that Betalutin TM has a clinically relevant effect at all dose levels administered during phase I. The primary objective in phase II is to investigate tumour response rate in patients receiving Betalutin TM. Secondary objectives include confirming the recommended dose of Betalutin TM, to investigate the safety and toxicity, to estimate progression free survival and to estimate overall survival. See Section 8 Business of the Company for more information regarding the Company s business. The Company intends to commercialise its product candidates through strategic alliances and partnerships with experienced oncology businesses and by establishing its own sales and marketing capabilities 2

6 in selected markets. B.4a Significant recent trends The Company has not experienced any changes or trends outside the ordinary course of business that are significant to the Group between 31 December 2013 and the date of this Prospectus, nor is the Group aware of such changes or trends outside the ordinary course of business that may or are expected to be significant to the Group for the current financial year, other than the overall market situation and trends described elsewhere in this Prospectus. B.5 Description of the Group The Company is not part of a group and has therefore no interests in other companies. B.6 Interests in the Company and voting rights As of 25 August 2014, the Company had 345 shareholders. The table below shows the Company s 20 largest shareholders as of 25 August Shareholders Number of Shares Percent HealthCap VI L.P.... 3,466, % Inven2 AS ,216, % Sciencons AS (Roy Hartvig Larsen)... 1,162, % Artic Funds PLC , % Storebrand Vekst , % Linux Solutions Norge AS ,106 3,20% Radiumhospitalets Forskningsstiftelse , % Roy Hartvig Larsen , % Portia AS , % Verdipapirfondet Storebrand Optima , % Must Invest AS , % Varak AS , % Holberg Norge , % OM Holding AS , % Canica AS , % J.P. Morgan Chase bank (nominee) , % Mininaste AS , % Storebrand Norge , % Spar Kapital Investor AS , % Jostein Dahle ,358 1,17% Others ,714, % HealthCap VI L.P.... 3,466, % 1 Co-founder Jostein Dahle (CSO) has acquired 250,358 shares from Inven2 AS at an average price of approximately NOK 3 per share 14 August 2014, while inventor Øyvind Bruland (member of the nomination committee, clinical advisory board and scientific advisory board of the Company) is the beneficial owner of and has the right to acquire 125,180 shares from Inven2 at the same price. Inventor of HH1, Steinar Funderud, is the beneficial owner of and has the right to acquire 39,137 shares from Inven2 at average price of approximately NOK 1.70 per share. Furthermore, inventor of HH1, Erlend Smeland, is the beneficial owner of and has the right to acquire 39,137 shares from Inven2 at average price of approximately NOK 1.70 per share. 2 Remaining 328 shareholders. There are no differences in voting rights between the shareholders. To the extent known to the Company, there are no persons or entities that, directly or indirectly, jointly or severally, exercise or could exercise control over the Company. The Company is not aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company. B.7 Selected historical key financial information The following selected financial information is derived from the Company s audited financial statements as of, and for the year ended, 31 December 2013, with comparable figures for 2012 (the Financial Statements), as well as the unaudited interim financial information as of, and for the three and six months ended, 30 June 2014 and 2013 (the Interim Financial Statements). The Financial Statements as of, and for the year ended, 31 December 2013, with comparable figures for 2012 have been prepared in accordance with IFRS. The Interim Financial Statements have been prepared in accordance with IAS 34. 3

7 The selected financial information presented herein should be read in connection with the Financial Statements and Interim Financial Statements (included in Appendix B and Appendix C to the Prospectus). (In NOK) Three months ended 30 June Six months ended 30 June Year ended 31 December (unaudited) (unaudited) (unaudited) (unaudited) Statement of comprehensive income Operating revenue ,143 56, , , , ,145 Operating profit (EBIT)... (15,714,697) (3,144,801) (27,606,260) (5,328,552) (18,111,110) (13,745,405) Profit/(loss) for the period... (15,218,663) (3,074,658) (26,566,019) (5,233,297) (17,010,937) (13,449,788) Statement of financial position Total non-current assets... N/A N/A 666,840 N/A 380, ,460 Total current assets... N/A N/A 58,529,823 N/A 85,641,960 10,669,189 Total assets... N/A N/A 59,196,663 N/A 86,022,709 10,975,649 Total equity... N/A N/A 52,210,215 N/A 78,785,292 7,681,131 Total non-current liabilities... N/A N/A 0 N/A 0 0 Total current liabilities... N/A N/A 6,986,448 N/A 7,237,417 3,294,518 Total liabilities... N/A N/A 6,986,448 N/A 7,237,417 3,294,518 Total equity and liabilities... N/A N/A 59,196,663 N/A 86,022,709 10,975,649 Statement of cash flow Net cash flows from operating activities... N/A N/A (28,012,439) (6,834,760) (14,228,175) (10,797,879) Net cash flows from investing activities... N/A N/A (444,792) 0 (296,277) (78,041) Net cash flows from financing activities... N/A N/A 535,000 62,245,093 87,423, ,000 Net change in cash and cash equivalents... N/A N/A (27,922,231) 55,410,333 72,899,067 (10,740,920) Cash and cash equivalents at period end... N/A N/A 51,646,771 62,080,268 79,569,002 6,669,935 The following events have had a significant change to the Company s financial condition and operating results: - In 2012, the Company obtained the regulatory approval to proceed to phase I/II clinical trials in Sweden and Norway. Furthermore, the first patient was included in the Betalutin TM clinical trial. These events have been necessary for the further development of the Company s product candidate Betalutin TM. - In 2013, the Company completed a private placement of NOK 60 million. - In 2013, HealthCap VI L.P ( HealthCap ) commits to invest NOK 50 million in the Company. The investment will be made in two tranches, each of NOK 25 million. The first tranche was issued in October 2013 as an interest-free loan that is convertible into 1,666,667 ordinary shares in the Company at a price per share of NOK 15. HealthCap converted the loan into shares 13 May The second tranche of 1,666,667 shares will be issued and fully paid before or on 15 October The issue price per share is NOK 15 also for the second tranche. - In 2014, the Company s lead product candidate, Betalutin TM had been granted orphan-drug designation for treatment of follicular lymphoma in the USA and Europe. Such orphan-drug designation will provide the Company with several advantages, including reduced costs related to the clinical development program, as well as commercial exclusivity for seven years in the USA and ten years in Europe, once the product reaches the market. - In 2014, Betalutin TM clinical trial advances to phase II. - On 24 May 2014, the conversion of a convertible loan in the amount of NOK 25,000,005 was registered in the Norwegian Register of Business Enterprises. - In 2014, Betalutin TM patent was approved in both the US and in Europe. - The Company, with assistance from the Managers invited certain existing shareholders as well as certain 4

8 new institutional and professional investors to participate in a bookbuilding process in the Private Placement. The bookbuilding period lasted from 6 June 2014 and until 17 June On the basis of orders received in the bookbuilding process the Board of Directors allocated 10,000,000 new Shares at a price of NOK 25 per Share, raising NOK 250 million in gross proceeds, subject to the approval of the general meeting. The general meeting of the Company approved the Private Placement on 27 June B.8 Selected key pro forma financial information Not applicable. There is no pro forma financial information. B.9 Profit forecast or estimate Not applicable. No profit forecast or estimate is made. B.10 Audit report qualifications Not applicable. There are no qualifications in the audit reports. B.11 Insufficient working capital Not applicable. The Company is of the opinion that the working capital available to the Company is sufficient for the Company s present requirements, for the period covering at least 12 months from the date of this Prospectus. Section C - Securities C.1 Type and class of securities admitted to trading and identification number The Company has one class of shares in issue, and all shares in that class have equal rights to all such other shares in that class as set out in the Company s Articles of Association. The Shares are registered with the VPS in book-entry form under ISIN NO C.2 Currency of issue The Shares are issued in NOK. C.3 Number of shares in issue and par value As of the date of this Prospectus, the Company s share capital is NOK 4,564,275 divided into 22,821,375 Shares with each Share having a nominal value of NOK All the Shares have been created under the Norwegian Private Limited Companies Act, and are validly issued and fully paid. Provided that the Subsequent Offering will be fully subscribed, the Company s share capital will be increased by NOK 400,000 from NOK 4,564,275 to a maximum of NOK 4,964,275, divided into 24,821,375 Shares by issuing 2,000,000 new Shares, all with a nominal value of NOK 0.20 per Share, which will give a further increase in the Company s total share capital from NOK 4,564,275 to a maximum of NOK 4,964,275, divided into 24,821,375 Shares. In addition, as described in the Company s press release dated 27 September 2013, 1,666,666 shares will no later than 15 October 2014 be issued to HealthCap VI L.P. at a subscription price of NOK 15 in connection with the private placement completed in September The Company s share capital will be increased by NOK 333, from NOK 4,964,275 to NOK 5,297, divided into 26,488,041 Shares. C.4 Rights attaching to the securities Eligible Shareholders not being allocated shares in the Private Placement will receive 0.4 non-transferable Subscription Rights for each Share held as of 27 June 2014 (as registered in VPS on the Record Date). Each Subscription Right gives a preferential right to subscribe for, and be allocated, one Subsequent Offering Share. Fractional Subscription Rights will not be issued, and the number of Subscription Rights issued to those Eligible Shareholders who would otherwise be entitled to fractions of Subscription Rights will be rounded down to the nearest whole number. The Company has one class of Shares in issue, and in accordance with the Norwegian Private Limited Companies Act, all Shares in that class provide equal rights in the Company. Each of the Company s Shares carries one vote. C.5 Restrictions on transfer The Articles of Association do not provide for any restrictions on the transfer of Shares, or a right of first refusal. Share transfers are not subject to approval by the Board of Directors. 5

9 C.6 Admission to trading The Company has not applied for admission to trading of the Shares on any stock exchange or regulated market. The Company aims for a listing of the Shares on Oslo Børs or another stock exchange or regulated market before 31 March C.7 Dividend policy The Company will strive to follow a dividend policy favourable to the shareholders. The amount of any dividends to be distributed will be dependent on, inter alia, the Company s investment requirements and rate of growth. As of the date of this Prospectus, the Company is in a development phase and is not in a position to pay any dividends. There can be no assurance that in any given year a dividend will be proposed or declared, or if proposed or declared, that the dividend will be as contemplated by the policy. The Company has not paid any dividends for the years ended 31 December 2013 and 2012 or previous years. Section D - Risks D.1 Key risks specific to the Company or its industry Risks related to the Company and the industry in which the Company operates The Company is in an early stage of development and the Company s clinical studies may not prove to be successful. The Company has incurred significant operating losses since its inception. The Company expects to incur losses over the next several years and may never achieve or maintain profitability. Obtaining regulatory approvals is required for commercialisation of the Company s products. The financial success of the Company requires obtaining acceptable price and reimbursement. The success, competitive position and future revenues will depend in part on the Company s ability to protect intellectual property and know-how. The Company may not be able to maintain sufficient insurance to cover all risks related to its operations. The Company operates in a highly competitive industry. The Company relies, and will continue to rely, upon third-parties for clinical trials and manufacturing. The Company may not be able to develop new product candidates. The Company may not be able to enter into partner agreements. The proceeds of the Private Placement are not expected to fund the Company until a commercial stage has been reached. The Company faces an inherent business risk of liability claims in the event that the use or misuse of the compounds results in personal injury or death. The Company is reliant on key personnel and the ability to attract new, qualified personnel. Most of the Company s expenses have since inception been related to research and development and accordingly, the Company has accumulated substantial net losses and expects such losses to continue as it continues product and clinical development and with the aim to obtain regulatory marketing authorisation of products derived from its technology. The Company s results will be exposed to exchange rate risks. The Company is exposed to commercial risk. The Company may face competition from low-cost generic products. 6

10 The Company s results may be affected by changes in public sentiment. The Company s business involves use of hazardous materials, chemicals, biological and radioactive compounds and is thus exposed to environmental risks. Risks related to laws, regulations and litigation The Company is exposed to risks related to changes in regulatory environment. Even if the Company obtains regulatory approval for a product candidate, the Company s products will remain subject to regulatory scrutiny. If the Company fails to complete clinical development and clinical trials, obtain regulatory approval, or successfully commercialize the Company s product, the Company s business would be significantly harmed. Risks related to the financing and market risk In order to execute the Company s growth strategy, the Company may require additional capital in the future, which may not be available. Future debt levels could limit the Company s flexibility to obtain additional financing and pursue other business opportunities. Interest rate fluctuations could affect the Company s cash flow and financial condition in addition to the price of the Shares. One of the factors that may influence the price of the Shares is its annual dividend yield as compared to yields on other financial instruments. Thus, an increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the price of the Shares. The Company may encounter financial reporting risks. D.3 Key risks specific to the securities Risks related to the Shares The market value of the Shares may fluctuate significantly, which could cause investors to lose a significant part of their investment. The Company s ability to pay dividends is dependent on the availability of distributable reserves. Future sales, or the possibility for future sales, including by existing shareholders, of substantial number of shares may affect the Shares market price. Future issuances of Shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares. Pre-emptive rights to secure and pay for Shares in any additional issuance may not be available to U.S. or other shareholders. Investors may not be able to exercise their voting rights for Shares registered in a nominee account. The Company may be unwilling or unable to pay any dividends in the future. Investors may be unable to recover losses in civil proceedings in jurisdictions other than Norway. Norwegian law may limit shareholders ability to bring an action against the Company. The transfer of Shares is subject to restrictions under the securities laws of the United States and other jurisdictions. Shareholders outside of Norway are subject to exchange rate risk. 7

11 Section E - Offer E.1 Net proceeds and estimated expenses The transaction costs for the Company related to the Private Placement and Subsequent Offering is estimated to be NOK 11 million (including VAT) based on the assumption that 2,000,000 Subsequent Offering Shares are applied for and allocated in the Subsequent Offering. Based on the same assumption, the net proceeds of the Private Placement and Subsequent Offering will be approximately NOK 289 million out of which NOK 48.7 million is net proceeds from the Subsequent Offering. E.2a Reasons for the Offering and use of proceeds The Subsequent Offering is conducted in order to provide the Eligible Shareholders who did not participate in the Private Placement with the opportunity to subscribe to and be allotted Shares at the same subscription price as that applied in the Private Placement. The principal intended use of the net proceeds from the Subsequent Offering and the Private Placement will be towards the continued development of lead product candidate Betalutin TM in non-hodgkin Lymphoma, to finance the clinical trials of Betalutin TM phase II and to expand the number of potential indications for Betalutin TM. E.3 Terms and conditions of the Offering The Private Placement: The Company, with assistance from the Managers invited certain existing shareholders as well as certain new institutional and professional investors to participate in a bookbuilding process in the Private Placement. The bookbuilding period lasted from 6 June 2014 and until 17 June On the basis of orders received in the bookbuilding process the Board of Directors allocated 10,000,000 new Shares at a price of NOK 25 per Share, raising NOK 250 million in gross proceeds, subject to the approval of the general meeting. The general meeting of the Company approved the Private Placement on 27 June The Subsequent Offering: The Subsequent Offering consists of an offer by the Company to issue up to 2,000,000 Subsequent Offering Shares at a Subscription Price of NOK 25 per Subsequent Offering Share, being equal to the subscription price in the Private Placement. Subject to all Subsequent Offering Shares being issued, the Subsequent Offering will result in NOK 50 million in gross proceeds to the Company. Eligible Shareholders, being shareholders of the Company as of 27 June 2014 (and being registered as such in the VPS on the 2 July 2014 pursuant to the three days settlement procedure in VPS) other than shareholders in jurisdictions other than Norway and where an offer to participate in the share issue is not allowed or would require approval or registration of a prospectus or similar measures, may subscribe for and be allocated new Shares in the Subsequent Offering. Other investors than Eligible Shareholders may not subscribe for or be allocated Shares in the Subsequent Offering. The Eligible Shareholders, other than those shareholders who participated in the Private Placement (as hereinafter defined), will be granted 0.4 Subscription Right for each existing Share registered as held by such Eligible Shareholders as of the Record Date. Each Subscription Right provides a preferential right to subscribe to and to be allocated one Subsequent Offering Share at the Subscription Price. The number of Subscription Rights issued to each shareholder will be rounded downwards to the nearest whole number of rights. If not all Subscription Rights are used, then the remaining Subsequent Offering Share will be allocated to Eligible Shareholders who oversubscribe or subscribe to Subsequent Offering Shares without the use Subscription Rights. The allocation of the remaining Subsequent Offering Share shall take place on the basis of the shareholding as of 27 June

12 (as registered as of the Record Date) of those Eligible Shareholders who subscribe to the remaining Subsequent Offering Shares, but so that Shares allocated to the relevant Eligible Shareholder in the Private Placement or pursuant to Subscription Rights shall be deemed to be allocated Shares. The Subscription Period will commence on 1 September 2014 and end on 12 September 2014 at 16:00 hours (CET). Subscription Rights which are not exercised before 12 September at 16:00 hours (CET) will have no value and will lapse without compensation to the holder. The completion of the Subsequent Offering Shares is not dependent upon any conditions. The Company will announce the definitive amount of the Subsequent Offer on 15 September 2014 by a press release on the Company s website. The payment of the Subsequent Offering Shares allocated to a subscriber falls due on 17 September The delivery of the Subsequent Offering Shares allocated to such subscriber in the Subsequent Offering is expected to take place on or about 22 September E.4 Material and confliction interests The Managers or their affiliates have provided from time to time, and may provide in the future, investment and commercial banking services to the Company and its affiliates in the ordinary course of business, for which they may have received and may continue to receive customary fees and commissions. The Managers do not intend to disclose the extent of any such investments or transactions otherwise than in accordance with any legal or regulatory obligation to do so. Beyond the abovementioned, the Company is not known with any interest of natural and legal persons involved in the Private Placement or the Subsequent Offering. E.5 Selling shareholders and lock-up agreements There are no selling shareholders in connection to the Private Placement or the Subsequent Offering. Pursuant to the Lock-up Undertaking, each of the members of the Board of Directors, key employees and Vidar Hansson have given an undertaking that will restrict its ability to issue, offer, sell or transfer Shares, as applicable, for a period of six months from 27 June The Lock-up Undertaking will not apply to (i) Shares acquired in the Private Placement or after 27 June 2014, (ii) the sale of Shares to finance the strike price for share options or the tax triggered by such sale or the exercise of share options; or (iii) the acceptance of an offer for all shares in the Company. E.6 Dilution resulting from the Offering The percentage of immediate dilution resulting from the Private Placement for the Company s shareholders who did not participate in the Private Placement is approximately 41%. The percentage of immediate dilution resulting from the Subsequent Offering, based on an issuance of 2,000,000 Subsequent Offering Shares under the Subsequent Offering, for the existing shareholders who do not participate in the Subsequent Offering is approximately 8%. E.7 Estimated expenses charged to investor Not applicable. The expenses related to the Subsequent Offering will be paid by the Company. 9

13 2 RISK FACTORS An investment in the Subsequent Offering Shares involves inherent risk. Before making an investment decision with respect to the Subsequent Offering Shares, investors should carefully consider the risk factors and all information contained in this Prospectus, including the financial statements and related notes. The risks and uncertainties described in this Section 2 are the material known risks and uncertainties faced by the Company as at the date hereof that the Company believes are relevant to an investment in the Subsequent Offering Shares. An investment in the Subsequent Offering Shares is suitable only for investors who understand the risks associated with this type of investment and who can afford to lose all or part of their investment. The absence of negative past experience associated with a given risk factor does not mean that the risks and uncertainties described are not a genuine potential threat to an investment in the Subsequent Offering Shares. If any of the following risks were to materialise, individually or together with other circumstances, they could have a material adverse effect on the Company and/or its business, financial condition, results of operations, cash flows and/or prospects, which may cause a decline in the value and trading price of the Subsequent Offering Shares, resulting in the loss of all or part of an investment in the same. The order in which the risks are presented does not reflect the likelihood of their occurrence or the magnitude of their potential impact on the Company s business, financial condition, results of operations, cash flows and/or prospects. The risks mentioned herein may materialise individually or cumulatively. The information in this Section 2 is as at the date of this Prospectus. 2.1 Risks related to the Company and the industry in which the Company operates The Company is in an early stage of development and the Company s clinical studies may not prove to be successful The development of pharmaceuticals involves significant risk, and failure may occur at any stage during development and after marketing approvals have been received, due to safety or clinical efficacy issues. Drug development involves moving drug candidates through research and extensive testing of activity and side effects in preclinical models before authorisation is given for further testing in humans in the clinical stage. The clinical stage is divided into three consecutive phases (I, II and III) with the aim to elucidate the safety and efficacy of a drug candidate before an application for marketing authorisation can be filed with the health authorities. Each individual development step is associated with the risk of failure, hence an early stage drug candidate carries a considerable higher risk of failure than a later stage candidate. Moreover, the commencement and completion of clinical trials may be delayed by several factors, including but not limited to unforeseen safety issues, issues related to determination of dose, lack of effectiveness during clinical trials, slower than expected patient recruiting, inability to monitor patients adequately during or after treatment, inability or unwillingness of medical investigators to follow the proposed clinical protocols and termination of licence agreements necessary to complete trials The Company has incurred significant operating losses since its inception. The Company expects to incur losses over the next several years and may never achieve or maintain profitability Since inception, the Company have incurred significant losses. As of 31 December 2013, the loss of the year was NOK 17,010,937 and for the same period for 2012 the Company s loss was NOK 13,449,788. To date, the Company has financed its operations mainly through private placements. The Company has devoted substantially all of the Company s financial resources and efforts to research and development, including preclinical studies and, since December 2012, clinical trials. The Company expects to continue to incur significant expenses and losses over the next several years. The Company s net losses may fluctuate from quarter to quarter. To become and remain profitable, the Company must succeed in developing and eventually commercializing products that generate revenue. This will require the Company to be successful in a range of challenging activities, including completing preclinical testing and clinical trials of the Company s products, discovering additional product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which the Company may obtain regulatory approval. The Company is only in the preliminary stages of these activities. The Company may never succeed in these activities and, even if it does, may never generate revenue that is significant enough to achieve profitability Obtaining regulatory approvals is required for commercialisation of the Company s products The Company will need approvals from the U.S. Food and Drug Administration (FDA) to market in the US and from the European Medicines Agency (EMA) to market in Europe, as well as equivalent regulatory authorities in other foreign jurisdictions to commercialise in those regions. It cannot be assured that the Company will receive such regulatory approvals necessary to commercialise the final products. Regulatory approvals may be denied, delayed or limited for a number of reasons, as different regulatory authorities around the world have different requirements for approving 10

14 pharmaceuticals. The authorities have wide discretion in their drug approval process and may request further testing before approval or post marketing. Delays in obtaining regulatory approvals may delay commercialisation and the ability to generate revenues from product candidates, impose extra cost on the Company, diminish competitive advantages and, after product approval, safety or efficacy issues may emerge during post-marketing surveillance which may result in withdrawal or restriction of the product approval. The Company s future earnings are likely to be largely dependent on the timely approval of Betalutin TM for various indications. No assurances can be given with respect to obtaining such approvals or the timing thereof The financial success of the Company requires obtaining acceptable price and reimbursement In most markets, drug prices and reimbursement levels are regulated or influenced by authorities, other healthcare providers, insurance companies or health maintenance organisations. Furthermore, the overall healthcare costs to society have increased considerably over the last decades and governments all over the world are striving to control them. There can be no guarantee that the Company s drugs will obtain the selling prices or reimbursement levels foreseen by the Company. If actual prices and reimbursement levels granted to the Company s products happen to be lower than anticipated it would likely have a negative impact on its products profitability and/or marketability The success, competitive position and future revenues will depend in part on the Company s ability to protect intellectual property and know-how This will require the Company to obtain and maintain patent protection for its products, methods, processes and other technologies, to preserve trade secrets, to prevent third parties from infringing on proprietary rights and to operate without infringing the proprietary rights of third parties. To date, the Company holds certain exclusive patent rights in major markets, however, the Company cannot predict the degree and range of protection any patents will afford against competitors and competing technologies, including whether third parties will find ways to invalidate or otherwise circumvent the patents, if and when additional patents will be issued, whether or not others will obtain patents claiming aspects similar to those covered by the Company s patents and patents applications, whether the Company will need to initiate litigation or administrative proceedings, or whether such litigation or proceedings are initiated by third parties against the Company which may be costly or whether third parties will claim that the Company s technology infringes upon their rights The Company may not be able to maintain sufficient insurance to cover all risks related to its operations The Company s business is subject to a number of risks and hazards, including, but not limited to industrial accidents, labour disputes and changes in the regulatory environment. Such occurrences could result in damage to properties, personal injury, monetary losses and possible legal liability. Although the Company seeks to maintain insurance or contractual coverage to protect against certain risks in such amounts as it considers reasonable, its insurance may not over all the potential risks associated with the Company s operations. Any material risks in respect of which the Company does not have sufficient insurance coverage may result in a material adverse effect on its financial condition, operating results and/or cash flows The Company operates in a highly competitive industry The biotechnology and pharmaceutical industries are highly competitive with many large players and subject to rapid and substantial technological change. Developments by others may render the product candidates or technologies obsolete or non- competitive. The Company s drug candidates may not gain the market acceptance required to be profitable even if they successfully complete initial and final clinical trials and receive approval for sale by the relevant regulatory authorities. Many of the Company s competitors and potential competitors have substantially greater capital resources, research and development resources, regulatory and operational experience, manufacturing and marketing experience and production facilities. If the Company fails to ultimately commercialise products or product candidates and/or achieve or maintain profitability, an investment in the Shares could ultimately result in a significant or total loss of the investment The Company relies, and will continue to rely, upon third-parties for clinical trials and manufacturing The Company cannot be certain that it will be able to enter into satisfactory agreements with third-party suppliers or manufacturers. The Company s failure to enter into agreements with such suppliers or manufacturers on reasonable terms, if at all, could have a material and adverse effect on the business, financial condition and results of operations. The Company needs to ensure that the manufacturing process complies with applicable regulations and manufacturing practices as well as the Company s own high quality standards. Any product/product candidate, however, will require technically complex manufacturing processes or require a supply of highly specialized raw materials. As a result of these factors, the production of any product/product candidate may be disrupted from time to time. The Company may also not be able to rapidly alter production volumes to respond to changes in future commercial sale or demand 11

15 of a product. Poor manufacturing performance of third party manufacturers, a disruption in the supply or the Company s failure to accurately predict the demand for any future commercial sale of a product could have a significant adverse effect on the Company s business, financial condition or results of operations. In addition, because the Company s products are intended to promote the health of patients, any supply disruption could lead to allegations that the public health has been endangered and could subject the Company to lawsuits The Company may not be able to develop new product candidates The Company s future success will depend to a large extent upon the Company s ability to develop its lead product candidate Betalutin TM. The Company may not have the ability to invent, explore and develop product candidates that are of value to the medical market. Furthermore, the Company depends upon independent investigators and collaborators, such as universities and medical institutions, to do the practical part of the chemical, pharmaceutical, analytical, preclinical and clinical research and development. These collaborators are not employees of the Company and the amount or timing of the resources they devote to the programs cannot be fully controlled by the Company The Company may not be able to enter into partner agreements The Company s business strategy is to commercialise its technology partly through collaborative agreements with pharmaceutical or biotechnology companies. The Company cannot give any assurance that such agreements will be obtained on acceptable terms, nor that the Company will be able to enter into any such agreements at all. Furthermore, should such agreements be executed, there can be no assurance that the agreements are not terminated by the other party The proceeds of the Private Placement are not expected to fund the Company until a commercial stage has been reached The Company funds, and will continue to fund, the research and development of the product and product candidates to the stage where a license agreement can be obtained, profitability is attained or the development is discontinued. There can be no assurance that the proceeds from the Private Placement will be sufficient for the Company to complete such research and development of any products or product candidates. Consequently, the Company may seek to raise capital through equity and debt financings or from other sources, collaborative arrangements or strategic alliances. However, the Company may prove unable to raise such additional capital on commercially acceptable terms, if at all. If the Company is unable to generate adequate funds from operations or from additional sources, then the business, results of operations and financial condition may be materially and adversely affected The Company faces an inherent business risk of liability claims in the event that the use or misuse of the compounds results in personal injury or death The Company has not experienced any clinical trial liability claims to date, but it may experience such claims in the future. The Company currently maintains clinical trial liability insurance for each trial in each country. The insurance policy may not be sufficient to cover claims that may be made against the Company. Clinical trial liability insurance may not be available in the future on acceptable terms, if at all. Any claims against the Company, regardless of their merit, could materially and adversely affect its financial condition, because litigation related to these claims would strain the financial resources in addition to consuming the time and attention of the management The Company is reliant on key personnel and the ability to attract new, qualified personnel The Company is highly dependent upon having a highly qualified senior management and scientific team. The loss of a key employee might impede the achievement of the scientific development and commercial objectives. Competition for key personnel with the experience that is required is intense and is expected to continue to increase. There is no assurance that the Company will be able to retain key personnel, nor can assurances be given that the Company will be able to recruit new key personnel in the future. In addition, the Company relies on its Board Members, members of the scientific and clinical advisory boards and consultants to assist it in formulating the research and development strategy. All of the Board Members, the members of the scientific and clinical advisory boards and all of the consultants are otherwise employed and each such member or consultant may have commitments to other entities that may limit their availability to the Company Most of the Company s expenses have since inception been related to research and development and accordingly, the Company has accumulated substantial net losses and expects such losses to continue as it continues product and clinical development and with the aim to obtain regulatory marketing authorisation of products derived from its technology The Company has not yet generated revenues from the sale of any commercial pharmaceutical products, and does not expect to generate such revenues for several years. The Company expects to continue to incur substantial operating 12

16 losses until and if such time as licensing revenues and/or product sales generates sufficient revenues to fund continuing operations. The Company may never be able to generate any revenues from the sale of any commercial pharmaceutical products or any further revenues from the licensing of its product candidates or attain profitability. The Company has never paid dividend to its Shareholders and does not anticipate paying any dividends in the foreseeable future The Company s results will be exposed to exchange rate risks The value of non-norwegian currency denominated revenues and costs will be affected by changes in currency exchange rates or exchange control regulations. The Company undertakes various transactions in foreign currencies and is consequently exposed to fluctuations in exchange rates. The exposure arises largely from research expenses. The Company is mainly exposed to fluctuations in euro (EUR) and pounds sterling (GBP). A 10% strengthening/weakening of NOK against the EUR would have a NOK 303,035 positive/negative impact on the Company s profit or loss and equity in The corresponding amount for 2012 is NOK 16,435. A 10% strengthening/weakening of NOK against the GBP would have a NOK 31,533 positive/negative impact on the Company s profit or loss and equity in The corresponding amount for 2012 is NOK 7, The Company is exposed to commercial risk The market for cancer products has to date shown itself to be relatively price insensitive to therapy costs. Healthcare budgets worldwide are however under severe stress. There is a risk that pricing of the kind experienced to date will become difficult to achieve. Once approval is obtained for a product there is no certainty that the Company or its licensees will achieve commercial success since several factors will determine this, including clinical performance of the product, approved indication, competitive environment, pricing and reimbursement. There is no guarantee that after regulatory approval reimbursement authorities will agree to cover the cost of the product. Delays in reimbursement or its denial will limit adoption of the product in the market The Company may face competition from low-cost generic products In the long term the Company expects to face competition from lower-cost generic products. The Company s product candidate is or is expected to be protected by patent rights that are expected to provide the Company with exclusive marketing rights in various countries. However, patent rights are of varying strengths and durations. Loss of market exclusivity and the introduction of a generic version of the same or a similar medicine typically results in a significant and sharp reduction in net sales for the relevant product, given that generic manufacturers typically offer their versions of the same medicine at sharply lower prices. The Company s results may be affected by changes in public sentiment. The pharmaceutical industry is under the close scrutiny of the public, governments and the media. In addition, there is significant pressure on the industry from certain nations to make the products available to their population at drastically lower costs. Any increase in such negative public sentiment or increase in public scrutiny or pressure from such nations could lead, among other things, to changes in legislation, to changes in the demand for the products, additional pricing pressures with respect to the products, or increased efforts to undercut intellectual property protections. Such changes could adversely affect the Company s business, financial condition or results of operations The Company s business involves use of hazardous materials, chemicals, biological and radioactive compounds and is thus exposed to environmental risks The Company believes that its safety procedures for handling and disposing of such materials comply with the stateof-art standards, however, there will always be a risk of accidental contamination or injury. By law, radioactive materials may only be disposed of at certain approved facilities. The Company currently stores some of its radioactive materials on-site. The Company may incur substantial costs related to the disposal of such materials. If liable for an accident, or if it suffers an extended facility shutdown, the Company could incur significant costs, damages or penalties that could have a material adverse effect on its business, financial condition and results of operations. 2.2 Risks related to laws, regulations and litigation The Company is exposed to risks related to changes in regulatory environment The Company s international operations could be affected by changes in intellectual property legal protections and remedies, trade regulations and procedures and actions affecting approval, production, pricing, reimbursement and marketing of products, as well as by unstable governments and legal systems and inter-governmental disputes. Any of these changes could adversely affect the Company s business. 13

17 2.2.2 Even if the Company obtains regulatory approval for a product candidate, the Company s products will remain subject to regulatory scrutiny Any product candidate for whom the Company obtains marketing approval, along with the manufacturing processes, qualification testing, post-approval clinical data, labelling and promotional activities for such product, will be subject to continual and additional requirements of the FDA and other regulatory authorities. These requirements include submissions of safety and other post-marketing information, reports, registration and listing requirements, good manufacturing practices, or GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA and other regulatory authorities closely regulates the post-approval marketing and promotion of pharmaceutical and biological products to ensure such products are marketed only for the approved indications and in accordance with the provisions of the approved labelling. In addition, late discovery of previously unknown problems with the Company s products, manufacturing processes, or failure to comply with regulatory requirements, may lead to various adverse results, including, but not limited to, restrictions on such products, manufacturers or manufacturing processes, requirements to conduct post-marketing clinical trials, withdrawal of the products from the market, refusal to approve pending applications or supplements to approve applications that the Company submits and refusals to permit the import or export of the Company s products. The FDA s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of the Company s product candidates. If the Company is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if the Company is not able to maintain regulatory compliance, it may lose any marketing approval that it may have obtained, which would adversely affect the Company s business, prospects and ability to achieve or sustain profitability If the Company fails to complete clinical development and clinical trials, obtain regulatory approval, or successfully commercialize the Company s product, the Company s business would be significantly harmed The Company has not completed clinical development for its product candidate and will only obtain regulatory approval to commercialize a product candidate if the Company can demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities in well-designed and conducted clinical trials that the product candidate is safe, pure and potent, or effective, and otherwise meets the appropriate standards required for approval for a particular indication. Clinical trials are lengthy, complex and extremely expensive processes with uncertain results. A failure of one or more clinical trials may occur at any stage. The Company has never obtained marketing approval from the FDA or any comparable foreign regulatory authority for any product candidate. The Company s ability to obtain regulatory approval of its product candidates depends on, among other things, completion of additional preclinical studies and clinical trials, whether the Company s clinical trials demonstrate statistically significant efficacy with safety issues that do not potentially outweigh the therapeutic benefit of the product candidates, and whether the regulatory agencies agree that the data from the Company s future clinical trials are sufficient to support approval for any of the Company s product candidates. The final results of the Company s current and future clinical trials may not meet the FDA s or other regulatory agencies requirements to approve a product candidate for marketing, and the regulatory agencies may otherwise determine that its manufacturing processes or facilities are insufficient to support approval. The Company may need to conduct more clinical trials than it currently anticipate. Even if the Company receives FDA or other regulatory agency approval, the Company may not be successful in commercializing approved product candidates. If any of these events occur the Company s business could be materially harmed and the value of the Company s common stock would likely decline. 2.3 Risks related to financing and market risk In order to execute the Company s growth strategy, the Company may require additional capital in the future, which may not be available To the extent the Company does not generate sufficient cash from operations, the Company may need to raise additional funds through debt or additional equity financings to execute the Company s growth strategy and to fund capital expenditures. Adequate sources of capital funding may not be available when needed or may not be available on favourable terms. The Company s ability to obtain such additional capital or financing will depend in part upon prevailing market conditions as well as conditions of its business and its operating results, and those factors may affect its efforts to arrange additional financing on satisfactory terms. If the Company raises additional funds by issuing additional shares or other equity or equity-linked securities, it may result in a dilution of the holdings of 14

18 existing shareholders. If funding is insufficient at any time in the future, the Company may be unable to fund acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could adversely impact the Company s results of operations, cash flow and financial condition Future debt levels could limit the Company s flexibility to obtain additional financing and pursue other business opportunities The Company may incur additional indebtedness in the future. This level of debt could have important consequences to the Company, including the following: the Company s ability to obtain additional financing for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may be unavailable on favourable terms; the Company s costs of borrowing could increase as it becomes more leveraged; the Company may need to use a substantial portion of its cash from operations to make principal and interest payments on its debt, reducing the funds that would otherwise be available for operations, future business opportunities and dividends to its shareholders; the Company s debt level could make it more vulnerable than its competitors with less debt to competitive pressures, a downturn in its business or the economy generally; and the Company s debt level may limit its flexibility in responding to changing business and economic conditions. The Company s ability to service its future debt will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions as well as financial, business, regulatory and other factors, some of which are beyond its control. If the Company s operating income is not sufficient to service its current or future indebtedness, the Company will be forced to take action such as reducing or delaying its business activities, acquisitions, investments or capital expenditures, selling assets, restructuring or refinancing its debt or seeking additional equity capital. The Company may not be able to affect any of these remedies on satisfactory terms, or at all Interest rate fluctuations could affect the Company s cash flow and financial condition in addition to the price of the Shares The Company is exposed to interest rate risk primarily in relation to its future interest bearing debt issued at floating interest rates and to variations in interest rates of bank deposits. Consequently, movements in interest rates could have material adverse effects on the Company s cash flow and financial condition. The Company tries to minimize the interest rate risk by depositing funds in a number of financial institutions, and by using fixed interest rate deposits One of the factors that may influence the price of the Shares is its annual dividend yield as compared to yields on other financial instruments. Thus, an increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect the price of the Shares. The Company may encounter financial reporting risks. As part of its responsibility to prevent and detect errors and fraud affecting its financial statements, the Company s management has set up specific accounting and reporting procedures in relation to, amongst other things, revenue recognition process, taxation and other complex accounting issues. Any failure to prevent and detects errors and fraud within the implementation of such procedures may affect its reputation, business, financial results as well as its ability to meet its objectives. 2.4 Risks related to the Shares The market value of the Shares may fluctuate significantly, which could cause investors to lose a significant part of their investment An investment in the Shares may decrease in market value as well as increase. The market value of the Shares could fluctuate significantly in response to a number of factors beyond the Company s control, including quarterly variations in operating results, adverse business developments, changes in financial estimates and investment recommendations or ratings by securities analysts, announcements by the Company or its competitors of new product and service offerings, significant contracts, acquisitions or strategic relationships, publicity about the Company, its products and 15

19 services or its competitors, lawsuits against the Company, unforeseen liabilities, changes in management, changes to the regulatory environment in which it operates or general market conditions The Company s ability to pay dividends is dependent on the availability of distributable reserves Norwegian law provides that any declaration of dividends must be adopted by the shareholders at the Company s general meeting of shareholders (the General Meeting ). Dividends may only be declared to the extent that the Company has distributable funds and the Company s Board of Directors finds such a declaration to be prudent in consideration of the size, nature, scope and risks associated with the Company s operations and the need to strengthen its liquidity and financial position. As the Company s ability to pay dividends is dependent on the availability of distributable reserves, it is, among other things, dependent upon receipt of dividends and other distributions of value from its subsidiaries and companies in which the Company may invest. As a general rule, the General Meeting may not declare higher dividends than the Board of Directors has proposed or approved. If, for any reason, the General Meeting does not declare dividends in accordance with the above, a shareholder will, as a general rule, have no claim in respect of such non-payment, and the Company will, as a general rule, have no obligation to pay any dividend in respect of the relevant period Future sales, or the possibility for future sales, including by existing shareholders, of substantial number of shares may affect the Shares market price The market price of the Shares could decline as a result of sales of a large number of Shares in the market after the Offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for the Company to sell equity securities in the future at a time and at a price that it deems appropriate. The Company cannot predict what effect, if any, future sales of the Shares, or the availability of Shares for future sales, will have on their market price. Sales of substantial amounts of the Shares in the public market following the Offering, or the perception that such sales could occur, may adversely affect the market price of the Shares, making it more difficult for holders to sell their Shares or the Company to sell equity securities in the future at a time and price that they deem appropriate Future issuances of Shares or other securities may dilute the holdings of shareholders and could materially affect the price of the Shares It is possible that the Company may in the future decide to offer additional Shares or other equity-based securities through directed offerings without pre-emptive rights for existing holders. Any such additional offering could reduce the proportionate ownership and voting interests of holders of Shares, as well as the earnings per Share and the net asset value per Share Pre-emptive rights to secure and pay for Shares in any additional issuance may not be available to U.S. or other shareholders Under Norwegian law, unless otherwise resolved at a General Meeting, existing shareholders have pre-emptive rights to participate on the basis of their existing share ownership in the issuance of any new shares for cash consideration. Shareholders in the United States, however, may be unable to exercise any such rights to subscribe for new shares unless a registration statement under the U.S. Securities Act is in effect in respect of such rights and shares or an exemption from the registration requirements under the U.S. Securities Act is available. Shareholders in other jurisdictions outside Norway may be similarly affected if the rights and the new shares being offered have not been registered with, or approved by, the relevant authorities in such jurisdiction. The Company is under no obligation to file a registration statement under the U.S. Securities Act or seek similar approvals under the laws of any other jurisdiction outside Norway in respect of any such rights and shares and doing so in the future may be impractical and costly. To the extent that the Company s shareholders are not able to exercise their rights to subscribe for new shares, their proportional interests in the Company will be reduced Investors may not be able to exercise their voting rights for Shares registered in a nominee account Beneficial owners of the Shares that are registered in a nominee account (such as through brokers, dealers or other third parties) may not be able to vote for such Shares unless their ownership is re-registered in their names with the VPS prior to the general meetings. The Company can provide no assurances that beneficial owners of the Shares will receive the notice of a general meeting in time to instruct their nominees to either effect a re-registration of their Shares or otherwise vote for their Shares in the manner desired by such beneficial owners. 16

20 2.4.7 The Company may be unwilling or unable to pay any dividends in the future Pursuant to the Company s dividend policy, dividends are only expected to be paid if certain conditions described in Section 6.1 Dividend policy are fulfilled. In addition, the Company may choose not, or may be unable, to pay dividends in future years. The amount of dividends paid by the Company, if any, for a given financial period, will depend on, among other things, the Company s future operating results, cash flows, financial position, capital requirements, the sufficiency of its distributable reserves, the ability of the Company s subsidiaries to pay dividends to the Company, credit terms, general economic conditions, legal restrictions (as set out in Section 6.2 Legal constraints on the distribution of dividends ) and other factors that the Company may deem to be significant from time to time Investors may be unable to recover losses in civil proceedings in jurisdictions other than Norway The Company is a private limited company organised under the laws of Norway. All of the Board Members and the members of the Management reside in Norway, except from Björn Odlander who resides in Switzerland. As a result, it may not be possible for investors to effect service of process in other jurisdictions upon such persons or the Company, to enforce against such persons or the Company judgments obtained in non-norwegian courts, or to enforce judgments on such persons or the Company in other jurisdictions Norwegian law may limit shareholders ability to bring an action against the Company The rights of holders of the Shares are governed by Norwegian law and by the Articles of Association. These rights may differ from the rights of shareholders in other jurisdictions. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. For instance, under Norwegian law, any action brought by the Company in respect of wrongful acts committed against the Company will be prioritised over actions brought by shareholders claiming compensation in respect of such acts. In addition, it may be difficult to prevail in a claim against the Company under, or to enforce liabilities predicated upon, securities laws in other jurisdictions The transfer of Shares is subject to restrictions under the securities laws of the United States and other jurisdictions The Shares have not been registered under the U.S. Securities Act or any U.S. state securities laws or any other jurisdiction outside of Norway and are not expected to be registered in the future. As such, the Shares may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act and applicable securities laws. See Section 15 Selling and Transfer Restrictions. In addition, there can be no assurances that shareholders residing or domiciled in the United States will be able to participate in future capital increases or rights offerings Shareholders outside of Norway are subject to exchange rate risk The Shares are priced in NOK, and any future payments of dividends on the Shares will be denominated in NOK. Accordingly, investors outside Norway are subject to adverse movements in the NOK against their local currency, as the foreign currency equivalent of any dividends paid on the Shares or of the price received in connection with any sale of the Shares could be materially adversely affected. 17

21 3 RESPONSIBILITY FOR THE PROSPECTUS This Prospectus has been prepared in connection with the Subsequent Offering described herein. The Board of Directors of Nordic Nanovector AS accepts responsibility for the information contained in this Prospectus. The members of the Board of Directors confirm that, having taken all reasonable care to ensure that such is the case, the information contained in the Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. 28 August 2014 The Board of Directors of Nordic Nanovector AS Roy Hartvig Larsen Chairman Jónas Einarsson Board member Olav Steinnes Board member Alexandra Morris Board member Theresa Comiskey Olsen Board member Bente-Lill Bjerkelund Romøren Board member Ludvik Sandnes Board member Björn Ingemar Odlander Board member 18

22 4 GENERAL INFORMATION 4.1 Other important investor information The Company has furnished the information in this Prospectus. No representation or warranty, express or implied is made by the Managers as to the accuracy, completeness or verification of the information set forth herein, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. The Managers assume no responsibility for the accuracy or completeness or the verification of this Prospectus and accordingly disclaims, to the fullest extent permitted by applicable law, any and all liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this Prospectus or any such statement. Neither the Company nor the Managers, or any of their respective affiliates, representatives, advisers or selling agents, is making any representation to any offeree or purchaser of the Subsequent Offering Shares regarding the legality of an investment in the Subsequent Offering Shares. Each investor should consult with his or her own advisors as to the legal, tax, business, financial and related aspects of a purchase of the Subsequent Offering Shares. Investing in the Subsequent Offering Shares involves a high degree of risk. See Section 2 Risk Factors beginning on page Presentation of financial and other information Financial information The Company s audited financial statements as of, and for the year ended, 31 December 2013, with comparable figures for 2012, have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ( IFRS ) (collectively referred to as the Financial Statements ). The Company s unaudited interim financial information as of and for the three and six months ended 30 June 2014 and 2013 (the Interim Financial Information ), have been prepared in accordance with International Accounting Standard ( IAS ) 34. The Financial Statements and Interim Financial Information are attached hereto as Appendix B and Appendix C, respectively. The Financial Statements for the years ended 2013 and 2012 have been audited by Ernst & Young AS ( EY ), as set forth in its report thereon included herein. The Interim Financial Information has not been audited or reviewed. The Financial Statements and the Interim Financial Information is together referred to as the Financial Information Industry and market data This Prospectus contains statistics, data, statements and other information relating to markets, market sizes, market shares, market positions and other industry data pertaining to the Company s business and the industries and markets in which it operates. Unless otherwise indicated, such information reflects the Company s estimates based on analysis of multiple sources, including data compiled by professional organisations, consultants and analysts and information otherwise obtained from other third party sources, such as annual and interim financial statements and other presentations published by listed companies operating within the same industry as the Company, as well as the Company s internal data and its own experience, or on a combination of the foregoing. Unless otherwise indicated in the Prospectus, the basis for any statements regarding the Company s competitive position is based on the Company s own assessment and knowledge of the market in which it operates. The Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified. The Company does not intend, and does not assume any obligations to update industry or market data set forth in this Prospectus. Industry publications or reports generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. The Company has not independently verified and cannot give any assurances as to the accuracy of market data contained in this Prospectus that was extracted from these industry publications or reports and reproduced herein. Market data and statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market. 19

23 As a result, prospective investors should be aware that statistics, data, statements and other information relating to markets, market sizes, market shares, market positions and other industry data in this Prospectus (and projections, assumptions and estimates based on such information) may not be reliable indicators of the Company s future performance and the future performance of the industry in which it operates. Such indicators are necessarily subject to a high degree of uncertainty and risk due to the limitations described above and to a variety of other factors, including those described in Section 2 Risk Factors and elsewhere in this Prospectus Other information In this Prospectus, all references to NOK are to the lawful currency of Norway, all references to EUR are to the lawful common currency of the EU member states who have adopted the Euro as their sole national currency, and all references to USD or U.S. Dollar are to the lawful currency of the United States. No representation is made that the NOK, EUR or USD amounts referred to herein could have been or could be converted into NOK, EUR or USD, as the case may be, at any particular rate, or at all. The Financial Information is published in NOK Rounding Certain figures included in this Prospectus have been subject to rounding adjustments (by rounding to the nearest whole number or decimal or fraction, as the case may be). Accordingly, figures shown for the same category presented in different tables may vary slightly. As a result of rounding adjustments, the figures presented may not add up to the total amount presented. 4.3 Cautionary note regarding forward-looking statements This Prospectus includes forward-looking statements that reflect the Company s current views with respect to future events and financial and operational performance. These forward-looking statements may be identified by the use of forward-looking terminology, such as the terms anticipates, assumes, believes, can, could, estimates, expects, forecasts, intends, may, might, plans, should, projects, will, would or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements as a general matter are all statements other than statements as to historic facts or present facts and circumstances. They appear in the following Sections in this Prospectus, Section 7 Industry and Market Overview, Section 8 Business of the Group and Section 10 Selected Financial and Other Information, and include statements regarding the Company s intentions, beliefs or current expectations concerning, among other things, financial strength and position of the Company, operating results, liquidity, prospects, growth, the implementation of strategic initiatives, as well as other statements relating to the Company s future business development and financial performance, and the industry in which the Company operates. Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that the Company s actual financial position, operating results and liquidity, and the development of the industry and market in which the Company operates, may differ materially from those made in, or suggested by, the forward-looking statements contained in this Prospectus. The Company cannot guarantee that the intentions, beliefs or current expectations upon which its forward-looking statements are based will occur. By their nature, forward-looking statements involve, and are subject to, known and unknown risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur in the future. Because of these known and unknown risks, uncertainties and assumptions, the outcome may differ materially from those set out in the forward-looking statements. Important factors that could cause those differences include, but are not limited to: implementation of its strategy and its ability to further expand its business and growth; technology changes and new products and services introduced into the Company s market and industry; ability to develop new products and enhance existing products; the competitive nature of the business the Company operates in and the competitive pressure and changes to the competitive environment in general; loss of important clients; earnings, cash flow, dividends and other expected financial results and conditions; fluctuations of exchange and interest rates; changes in general economic and industry conditions; 20

24 political and governmental and social changes; changes in the legal and regulatory environment; environmental liabilities; changes in consumer trends; access to funding; and legal proceedings. The risks that are currently known to the Company and which could affect the Company s future results and could cause results to differ materially from those expressed in the forward-looking statements are discussed in Section 2 Risk Factors. The information contained in this Prospectus, including the information set out under Section 2 Risk Factors, identifies additional factors that could affect the Company s financial position, operating results, liquidity and performance. Prospective investors in the Shares are urged to read all Sections of this Prospectus and, in particular, Section 2 Risk Factors for a more complete discussion of the factors that could affect the Company s future performance and the industry in which the Company operates when considering an investment in the Company. These forward-looking statements speak only as at the date on which they are made. The Company undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company s behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Prospectus. 21

25 5 REASONS FOR THE SUBSEQUENT OFFERING The Subsequent Offering is conducted in order to provide the Eligible Shareholders who did not participate in the Private Placement with the opportunity to subscribe to and be allotted Shares at the same subscription price as that applied in the Private Placement. Further, if not all Subscription Rights are exercised, the Subsequent Offering will give Eligible Shareholders who participated in the Private Placement or who use Subscription Rights the possibility to subscribe to and, on the basis of shareholding as of 27 June 2014 (as registered as of the Record Date) and subject to allocation to such Eligible Shareholders in the Private Placement or on the basis of Subscription Rights, be allocated Subsequent Offering Shares. The maximum gross proceeds from the Subsequent Offering are NOK 50 million and the maximum net proceeds are approximately NOK 48.3 million. The principal intended use of the net proceeds from the Subsequent Offering will be towards the continued development of lead product candidate Betalutin TM in non-hodgkin Lymphoma, to finance the clinical trials of Betalutin TM phase II/III and to expand the number of potential indications for Betalutin TM. See Section 14 The completed Private Placement and the Subsequent Offering for more information regarding the Private Placement and Subsequent Offering. Further, see Section Research and development for more information on how the Company is developing Betalutin TM. 22

26 6 DIVIDENDS AND DIVIDEND POLICY 6.1 Dividend policy In deciding whether to propose a dividend and in determining the dividend amount, the Board of Directors will take into account legal restrictions, as set out in the Norwegian Private Limited Companies Act of 13 June 1997 no. 44 (the Norwegian Private Limited Companies Act ) (see Section 6.2 Legal constraints on the distribution of dividends ), the Company s capital requirements, including capital expenditure requirements, its financial condition, general business conditions and any restrictions that its contractual arrangements in place at the time of the dividend may place on its ability to pay dividends and the maintaining of appropriate financial flexibility. Except in certain specific and limited circumstances set out in the Norwegian Private Limited Companies Act, the amount of dividends paid may not exceed the amount recommended by the Board of Directors. The Company will strive to follow a dividend policy favourable to the shareholders. The amount of any dividends to be distributed will be dependent on, inter alia, the Company s investment requirements and rate of growth. As of the date of this Prospectus, the Company is in a development phase and is not in a position to pay any dividends. There can be no assurance that in any given year a dividend will be proposed or declared, or if proposed or declared, that the dividend will be as contemplated by the policy. The Company has not paid any dividends for the years ended 31 December 2013 and 2012 or previous years. 6.2 Legal constraints on the distribution of dividends Dividends may be paid in cash, or in some instances, in kind. The Norwegian Private Limited Companies Act provides the following constraints on the distribution of dividends applicable to the Company: Section 8-1 of the Norwegian Private Limited Companies Act provides that the Company may distribute dividends to the extent that the Company s net assets following the distribution cover (i) the share capital, (ii) the reserve for valuation variances and (iii) the reserve for unrealised gains. The amount of any receivable held by the Company which is secured by a pledge over Shares in the Company, as well as the aggregate amount of credit and security which, pursuant to Section 8 7 to Section 8-10 of the Norwegian Private Limited Companies Act fall within the limits of distributable equity, shall be deducted from the distributable amount. The calculation of the distributable equity shall be made on the basis of the balance sheet included in the approved annual accounts for the last financial year, provided, however, that the registered share capital, as of the date of the resolution to distribute dividends, shall be applied. Following the approval of the annual accounts for the last financial year, the General Meeting may also authorise the Board of Directors to declare dividends on the basis of the Company s annual accounts. Dividend may also be resolved by the General Meeting based on an interim balance sheet which has been prepared and audited in accordance with the provisions applying to the annual accounts and with a balance sheet date no earlier than six months before the date of the General Meeting s resolution. Dividends can only be distributed to the extent that the Company s equity and liquidity following the distribution is considered sound. The Norwegian Private Limited Companies Act does not provide for any time limit after which entitlement to dividends lapses. Subject to various exceptions, Norwegian law provides a limitation period of three years from the date on which an obligation is due. There are no dividend restrictions or specific procedures for non-norwegian resident shareholders to claim dividends. For a description of withholding tax on dividends applicable to non-norwegian residents, see Section 13 Taxation. 6.3 Manner of dividend payment Any dividend will be paid to the shareholders through the VPS. Investors registered in the VPS whose address is outside Norway and who have not supplied the VPS with details of any NOK account, will however receive dividends by check in their local currency, as exchanged from the NOK amount distributed through the VPS. If it is not practical in the sole opinion of DNB Bank ASA, being the Company s VPS registrar, to issue a check in a local currency, a check will be issued in U.S. dollars. The issuing and mailing of checks will be executed in accordance with the standard procedures of DNB Bank ASA, Foreign Payments Department. The exchange rate(s) that is applied will be DNB Bank ASA s exchange rate on the date and time of day for execution of the exchange for the issuance of cheque. Dividends will be credited automatically to the VPS registered shareholders NOK accounts, or in lieu of such registered NOK account, by check, without the need for shareholders to present documentation proving their ownership of the Shares. 23

27 7 INDUSTRY AND MARKET OVERVIEW 7.1 The pharmaceutical industry International trends The global pharmaceutical industry has demonstrated strong growth with a compound annual growth rate ( CAGR ) of 4.0% for several years spanning from 2009 to The world pharmaceutical industry is currently estimated at USD billion. According to Pharmaceuticals Global Industry Guide, the market is expected to grow at a CAGR of 4.9% until 2018 and reach USD 1,024.5 billion. 1 Increasing in 2012, the US market generated 39.2% of the total revenues in the pharmaceutical industry, compared to Europe s 24.4%. Sales in emerging markets have been the main driver behind the growth in total revenues, for example sales in China and Brazil have grown by 21% and 16% respectively. Sales in the US and Europe have experienced little or no growth. 2 Global pharmaceuticals sales from 2011 to 2013 (by region) Key drivers Source: (20/06/2014) The pharmaceutical market is currently exposed to opposing forces that will determine the industry s future. A key positive driver is the demographic shift towards a lager elderly population as well as a longer life expectancy. The middle class is growing fast, and the social focus on healthcare is increasing. In addition, the number of patients with chronic diseases is rising as the world population is growing, and new diseases are evolving. These factors are expected to increase the demand for healthcare products and services in the future. 1 Global Industry Guide, Market Line, The Pharmaceutical Industry in Figures 2013, Efpia,

28 Expected number of people 60, 65 and 85 years and older in USA percent of total population Age 60 and older 15 Age 65 and older Age 85 and older (20/06/2014) Several key drivers are indicating potential for high growth in the industry, but there are also opposing forces currently impacting the market. Among the most important ones are governmental interference with current market conditions. Governments and regulatory authorities are trying to limit the power of pharmaceutical companies by instituting stricter price controls and regulations in order to keep healthcare costs down for the public. Governments are facing the dilemma of dealing with the conflicting interests as they attempt to keep healthcare costs down for the average citizen, while at the same time attempting to incentivize pharmaceutical companies to develop new drugs and treatments for chronic diseases and unmet medical needs. Drug regulation authorities are also facing a dilemma as they are trying to maintain high standards for the drugs that receive market authorisation, but at the same time attempting to limit the delay of entry onto the marketplace of many new effective treatments for unmet medical needs. History provides numerous examples of drugs that have passed governmental criteria, but later has to be taken off the market because of severe side-effects. Well known examples of such cases are the drug products Bextra and Vioxx which were withdrawn from the marketplace after fatalities attributed to the products were reported. 7.2 The cancer market General The market for cancer therapeutics has experienced lower growth than anticipated in recent years. World-wide spending on cancer drugs reached USD 91 billion in 2013, with a compound annual growth rate of 5.4% spanning from 2008 to The same market grew by a CAGR of 14.2% from 2003 to 2008, which indicates a severe slowdown that can be explained partly due to fewer major breakthroughs Cancer epidemiology World Health Organization s ( WHO ) Globocan report estimates that cancer accounted for 8.2 million deaths in 2012, which makes it the world s most deadly disease. In 2012, 32.6 million individuals lived with a 5-year cancer diagnosis, while 14.1 million new cases of cancer were reported. 4 By 2030 American Cancer Society expects the number of new incidents of cancer to be 21.3 million per year, and that the number of deaths by cancer will increase to 13.2 million Types of cancer treatments The cancer therapy (oncology) market is a broad market, and the optimal treatment depends on the type and state of the cancer, as well as the patient s overall physical condition. A patient s treatment plan may consist of one or many ca2RCRD&vgnextchannel=5ec1e590cb4dc310VgnVCM100000a48d2ca2RCRD&vgnextfmt=default (20/06/2014) 4 WHO Globocan Cancer Facts & Figures 2013, American Cancer Society,

29 different treatments, all depending on the situation. Some cancer patients suffer from extreme pain and want to increase their life quality for the remaining part of their lives, while for others being cured is the target. Among the most common treatments are: surgery, chemotherapy, radiation therapy, hormonal therapy and targeted therapy. Surgery Surgery is used to both diagnose and to treat cancer. During surgery is it possible to remove entire cancer tissue or parts of cancer tissues to test it to clarify the stage of cancer, and evaluate what measures can be taken in order to treat the patient. Surgery can in some cases cure the patient from cancer, given that the cancer has not spread to vital parts of the body prior to surgery being performed. 6 Chemotherapy Chemotherapy is a systematic cancer treatment that involves the use of cytotoxic drugs. This type of treatment may consist of one drug or a combination of different drugs, and the drugs are either administered intravenously or orally. Patients may experience severe side-effects from some chemotherapies that make them unable to enjoy their day-today lives. The reason why patients suffer from side-effects is that chemotherapy drugs indiscriminately target both normal healthy cells as well as cancer cells. 7 Radiation therapy Radiation therapy is a cancer treatment that involves the use of different types of high-energy external beam radiation to irradiate and destroy cancer cells. Radiation therapy can be used as part of a treatment plan or as monotherapy for cancer patients. It is a local treatment that targets only the tumour and the surrounding healthy tissue. 8 Immunotherapy Doctors and scientists agree that the immune system can be used to fight cancer, and have in recent years managed to design therapies that use a patient s own immune system against cancer. Immunotherapy is a form of therapy designed to activate a patient s immune system in the fight against cancer. The immune system can be utilized in several ways, but the most common is to increase or boost the immune system and to stimulate it to recognise the cancer cells as foreign bodies that are to be removed. This is normally achieved by giving the patients antibodies, vaccines or non-specific cancer immunotherapies and adjuvants. Immunotherapy is now an important form of treatment in the fight against many types of cancer. 9 Immunoconjugate Therapy Immunoconjugates are antibodies that are conjugated (joined) to a second molecule, usually a toxin, radioisotope or label. These conjugates are used as a targeted form of chemotherapy and are often referred to as antibody-drug conjugates. When an immunoconjugate consists of an antibody joined to a toxin (cytotoxic molecule) it is referred to as an immunotoxin. Immunotoxin therapy may be effective in treating cancers that do not respond sufficiently to immunotherapies. When the immunoconjugate consists of an antibody joined to a radioisotope it is refered to as a radioimmunotherapy. Radioimmunotherapy Radioimmunotherapy is a targeted form of cancer treatment that uses monoclonal antibodies to attack the cancer cells in two ways, first as an immunotherapy and secondly as a targeting agent for a radioactive payload. Radioimmunotherapy antibodies seek out and attach themselves to receptors (antigens) on the cancer cells. While the antibody is stimulating the patients immunosystem, the attached radioisotope administers a lethal cytotoxic dose of radiation to the DNA strands in cancer cell and surrounding cancer cells resulting in the death of multiple tumour cells. In cases where all other treatments have failed, radioimmunotherapy may succeed because of this double immunotherapy and radiation effect. Radioimmunotherapy is less harmful for the patients because it reduces the amount of radiation that reaches the healthy tissue in comparison to external beam radiation. The treatment reduces the amount of radiation that reaches the healthy tissue, but it may still cause side-effects (20/06/2014) 7 (20/06/2014) 8 (23/06/2014) 9 (23/06/2014) 10 (23/06/2014) 26

30 7.2.4 Non-Hodgkin lymphoma (NHL) Currently more than 200 different types of cancer exist, and can develop in 60 different organs in the body. Some cancer types are known for taking thousands of lives every year, and among these are: breast, lung, prostate, bowel, malignant melanoma and non-hodgkin Lymphoma cancer. Non-Hodgkin Lymphoma is a relatively common type of cancer that develops in either B lymphocytes or T lymphocytes, often referred to as B cells and T cells. B cells and T cells are white blood cells, but B cells make up 80% of the total lymphocytes, while T cells make up 20%. The lymphatic system is found throughout the body and as such NHL can start in any part of the body. This type of cancer can develop in a single lymph node, a group of lymph nodes or in an organ. Once a white blood cell has become a cancer cell, it can easily spread to vital organs including liver, bone marrow and spleen. In 2012, 386,000 new cases of NHL cancer were reported globally. 11 Expected increasing incidence in 7 major markets Incidence and mortality Source: 12 Source: SEER Cancer Statistics 2013, NHL market expected to reach approximately USD 7 billion by 2017 Top selling products in 2012 Source: Global Data Pharma E-track database 21/11/2013 Source: When analysing the pharmaceutical market for treatment of non-hodgkin lymphoma, it should be noted that clinical and pricing benchmarks have been established for treatment of non-hodgkin lymphoma and that existing treatments are viewed as successful. Rituxan (generic name: rituximab) and Treanda (generic name: bendamustin) are used in combination with each other and with other cytotoxic compounds (chemotherapies), as first-line treatments. Despite the success of existing therapies in first time disease, it is also to be noted that the mortality rate from relapsed disease is still approximately 50% of the incidence rate and that there is still a tremendous need for novel therapies (23/06/2014) 12 Globocan 2002 ( SEER ( National Cancer Center Hematology Division Cancer Research UK ( World Population Prospects ( Anderson, J. R., Armitage, J. O., & Weisenburger, D. D., (1998) Epidemiology of the non-hodgkin s lymphomas: distributions of the major subtypes differ by geographical locations. Annal Oncol, 9,

31 The NHL market is evolving with the recent introductions of new forms of treatment. Among the factors influencing this change is the launch of Imbruvica and pending launch of idelalisib. Another development is the introduction of new immunotherapy that target the CD20 antigen on NHL cells and that may replace the current treatment standard Rituxan. It is it likely that Gazyva will become the new standard for treatment of NHL replacing Rituxan, and that Rituxan biosimilars may become available during the fall of 2016 upon expiration of the patents protecting Rituxan. The drug product candidate Betalutin TM which is currently undergoing clinical testing is being developed for treatment of relapsed follicular lymphoma ( FL ) and relapsed diffuse large B-cell lymphoma ( DLBCL ). These two types of cancer are currently the most prevalent forms of NHL. There is a high unmet medical need for treatments targeting DLBCL patients who are not responding to current therapy. In addition is there a moderate to high unmet medical need for treatments for FL patients. The moderate to high need for FL treatments is based on the low cure rate, tempered by a slow disease progression. Follicular lymphoma A different type of NHL cancer is Follicular lymphoma (FL) which accounts for roughly 22% of all new cases. Each year it is estimated to be 16,000 new cases of FL in the US, and 6,000 new cases of FL in Germany/France/UK. According to EUcan, there is an estimated 2014 prevalent population of 140,000 (10,000 relapsed) in the US and 61,000 (4,000 relapsed) in Germany/France /UK. 13 FL is incurable and patients eventually relapse. The standard first line treatment for FL is R-CHOP. The current second line treatment standard of care is Rituxan-bendamustin. The median overall survival ( MOS ) for FL patients is usually 8-10 years, but the disease course often varies by patient. Various treatments are available, but R-bendamustine is emerging as the first line treatment of choice for FL. Use of R-bendamustine often involves an additional mix of other various chemotherapy regimens. Stem cell transplant is often used on healthy patients shortly after high doses of chemotherapy, but only about 20% of patients undergo stem cell transplantation in second line treatment or later. 14 The development pipeline of FL treatments is currently moderately intensive. Idelalisib with a new method of action ( MOA ) may be on the market in There is still a need for curative treatment options as well as treatments with low side-effects to replace current chemotherapy regimens for FL patients. Diffuse Large B-cell lymphoma Accounting for approximately one-third of newly diagnosed cases of NHL, DLBCL is the most common type of NHL cancer. The number of new cases of DLBCL every year is estimated to be 22,000 and 8,000, in US and Germany/France/UK respectively. Estimates from EU can suggests that there will be a prevalent population of 113,000 (16,000 relapsed) in the US, and 50,000 (7,000 relapsed) in Germany/France/UK in R-CHOP is a combination of Rituxan and a series of four chemotherapy agents and this combination is currently established as the standard first line treatment for DLBCL patients. R-CHOP has proven efficient, but high risk patients 10-20% of all DLBCL patients, are less likely to respond to this type of treatment and often quickly relapse. R-CHOP can achieve a permanent remission for more than 5 years for 65% of patients that undergo treatment. If a DLBCL patient relapses second line therapy is an option, but the optimal type of treatment varies by patient type. Stem cell therapy is currently used as second line therapy for 45-50% of patients. 16 There is a great unmet medical need for patients that do not respond to first line therapy. Due to the demand for new forms of therapy the DLBCL development pipeline is very competitive, with several drugs in late stages of clinical trials. Among these are ibrutinib and obinutuzumab, which both are looking at first line treatment in combination with standard therapy (07/07/2014) 14 (07/07/2014) (07/07/2014) (07/07/2014) 15 (07/07/2014) SKfSIhKvFseTAY1QhRDkjcBQvyKKbJnvDUfD_BwE (07/07/2014) and (07/07/2014) and 19 (07/07/2014) and 19 (07/07/2014) and 19 28

32 7.3 Drug development Overview The research and development of pharmaceutical product is a risk filled, time consuming and an expensive process, that, providing the drug is approved for marketing, has a potential for high returns on investment. On average, 5 out of 5,000 drugs make it through the preclinical phase, and historically only 1 out of these 5 is approved by the Food and Drug Administration ( FDA ) for marketing. It takes on average 12 years to develop a drug Phases The process of developing a drug product candidate is often divided into several phases, each used to describe the different aspects of the drug product candidate. The different phases are: the discovery phase, the preclinical development phase and the clinical research phase. If a drug proves functional through these phases and is accepted by the regulatory authorities, it can be marketed and sold to the public. The discovery phase is often a time-consuming and complicated process. It involves a lot of research time and effort as companies may often screen multiple therapeutic targets and several thousand potential drug candidates at this stage. Most of the potential drug candidates created in this phase do not make it into preclinical testing, but are discarded based on poor results. The drug candidates that do show promising results are tested more in depth in the next phase of the drug development. The first patent applications are normally also written at this stage. 18 In the preclinical development phase drug candidates that have shown promising results in the discovery phase are tested further in living organisms. The focus during the preclinical phase is on documenting of a drug candidate s safety, efficacy and toxicity in various animal models. Studying a drug s toxicity (side-effects) is a requirement and prerequisite to start trials that is imposed by the authorities in order to maximize patient safety during clinical trials. The preclinical phase also involves extensive testing of dosage and how the drug product candidate should be administered. If a drug satisfies the necessary requirements it can be tested on humans in what is referred to as the clinical phase. 19 The clinical phase involves extensive testing of the drugs effect on humans, and is divided into three sub-phases. Phase I Phase I involves testing on a small population of patients in order to establish the correct dosage and frequency of medication to be used in the subsequent clinical trials. The optimal dosage is found by gradually increasing the dosage, and evaluating how the side-effects change. Results describing how the drug is processed, absorbed and spread through the body is also collected. It is normal to have approximately 20 to 100 individuals under observation in this process. 20 Phase II Phase II involves more in-depth testing on how effective a drug product candidate is against a specific type of disease. The drug product candidates effect on the patients is evaluated, and the results indicate the potential efficacy of the drug product candidate. A wider population of as many as a couple of hundred volunteer patients participate in this part of the clinical trial. 21 Phase III If a drug product candidate successfully completes phase II and it can be evaluated in phase III setting. In this phase the drug is compared to medication alternatives already in the pharmaceutical market. This is the final step before the application for marketing of the drug is sent to the authorities, and therefore involves testing on a large population. The number of volunteers is often several thousand, in order to reduce uncertainty (23/06/2014) 18 (23/06/2014) 19 (23/06/2014) 20 (23/06/2014) 21 (23/06/2014) 22 (23/06/2014) 29

33 7.3.3 Development of cancer drugs The development of a cancer drug can often be shorter and less complicated than development of regular drugs, because of the great medical need for new therapies, the life threatening nature of the disease, as well as the low number of patients that can be cured of cancer. Phase I can involve testing on cancer patients, which will give an early indication of the drugs efficiency. In some cases promising results from phase II can be sufficient to receive a marketing approval of a drug product candidate. This is, often referred to as accelerated approval. Companies that receive an accelerated approval for a drug product candidate are normally required to conduct the rest of the clinical research program post-approval. It is possible to apply for fast track if a drug shows superior effectiveness, or avoids serious side effects compared to treatments that are currently available. A drug has a high probability of being awarded fast track if it shows exceptional results at an early stage and the market currently lacks any treatment alternatives. Health authorities in the USA, the EU and in Japan can also grant certain drugs orphan designation, if the drug treats a disease that only affects a small number of people. This is a way of stimulating research and development of drugs for less common diseases. An orphan drug designation can increase a firm s profitability because it can charge higher prices per treatment as well as pay lower fees to authorities. In addition can orphan drug designation grant exclusivity in a market for up to ten years The Orphan drug market The Orphan drug market is compared with the regular drug market exempted from several governmental regulations that can increase profitability, and make the research and development process cheaper. The market has shown promising signs of growth the last couple of years and in 2012 orphan drug sales increased 7.1% to USD 83 billion from the previous year. That compares with a 2.1% decline in overall prescription drug sales (excluding generics), which fell to USD 645 billion in the same period. The worldwide orphan drug market is estimated to grow USD 127 billion by 2018, at a compound annual growth rate double that of the overall prescription drug pharmaceutical market Development of haematological cancer drugs It is normal to differentiate between development of hematologic and solid tumour cancer drugs. Drug candidates for treatment of hematologic cancers have historically shown larger success rates in clinical development than solid tumour drug candidates. The total probability of success from phase I to approval is estimated to be 36.0% for hematologic cancers, versus only 9.8% for solid tumours. 25 Phase transition probabilities for cancer drugs Source: Tufts Centre for the Study of Drug Development 23 (23/06/2014) 24 Orphan Drug Report 2013, EvaluatePharma, Joseph A. DiMasi, Ph.D., Director of Economic Analysis at Tufts Center for the Study of Drug Development 30

34 8 BUSINESS OF THE COMPANY 8.1 Overview Nordic Nanovector AS was established in 2009 by Roy H. Larsen and Inven2 AS on behalf of co-inventors of Betalutin TM, Øyvind S. Bruland and Jostein Dahle. The Company s mission is to develop innovative radioimmunotherapeutics that target difficult to treat cancers using the Company s proprietary nanovector targeting technology. The Company s lead product candidate, Betalutin, is a radionuclide conjugated to a tumour seeking carrier/antibody. Betalutin aims to prolong and improve the quality of life of people who suffer from non-hodgkin Lymphoma ( NHL ). The product candidate is currently undergoing a phase I/II clinical trial for treatment of relapsed NHL. The Company has completed the work in phase I part of the clinical study, but cannot conclude this phase until final tests have been completed. The Company expects that these tests will be completed late in the third quarter of The Company s estimated completion date of the phase II part is third quarter of See the figure in Section Research and development for an indication of the timeline of the clinical studies. The Company intends to commercialise its product candidates through strategic alliances and partnerships with experienced oncology businesses and by establishing its own sales and marketing capabilities in selected markets. 8.2 Competitive strengths The Company believes that it has a number of competitive strengths that will enable it to successfully commercialize Betalutin. These strengths include: Potential best-in-class product candidate Betalutin TM which is based on a novel therapeutic target and which has highly promising early clinical data; Betalutin TM addresses B-cell non-hodgkin Lymphoma, an orphan drug indication with substantial unmet medical need; Strong IP and unique patented technology; Unencumbered assets with all options open to maximize shareholder value; and Leadership with strong expertise in nuclear medicine and oncology. 8.3 Strategy The Company has developed an overall strategy that includes the following elements: Market driven product development: NHL is a disease that is incurable in the majority of patients and that needs new forms of treatment. The Company is attempting to address the unmet medical need in the treatment of NHL by developing a product that targets a novel therapeutic receptor (CD-37) on cancer cells. By attacking the CD-37 receptor on the cancer cells, the Company hopes to successfully treat patients that fail to respond to currently approved therapies such as R-CHOP 26. Focused development of lead product candidate: The Company is using the majority of its research efforts on the development of Betalutin. In this way the Company expects to quickly address development related issues as they arise, and to shorten and minimize the development time prior to commercialization. Virtual product development: The Company is employing a virtual company approach to the development of Betalutin. 27 Most of the Company s research and development is carried out off-site by contract research organizations ( CRO s ) and contract manufacturing organizations ( CMO s ). The Company has employed experienced personnel that are capable of directing work that is performed by the CRO s and CMO s. This approach to product development allows the Company to quickly change research directions and efforts when needed and to quickly bring in new technologies and expertise when necessary. 26 R-CHOP consists of the pharmaceutical products: Rituxamab, cyclophosphamide, doxorubicin, vincristine, and prednisone. 27 A virtual company approach means to describe a business approach where most company activities (research studies, product production, quality control, etc) are carried out by third parties under contract to the company and where the company maintains a small, qualified management team to oversee the company operations. The advantages of such operation structure are that it allows the company to carry out its business without the need of large infrastructure, investment, and overhead costs. The Company believes that it is can more easily start up new activities without major investment, as well as downsize different activities if necessary without the need to decrease employee numbers. 31

35 The initial focus market area for the Company is the second-line of treatment of Follicular Lymphoma. The Company believes that its longer term potential lies in becoming part of the standard of care in the first-line of treatment of Follicular Lymphoma. See Section 8.7 Competition for more information regarding the Company s competitors. In the event the ongoing Phase I/II clinical trial demonstrates that Betalutin has a significant and lasting clinical effect on FL patients, the Company intends to pursue an accelerated approval process to bring the product to market more quickly than would normally be expected. See Section Research and development for an indication of the timeline of the clinical studies. The Company targets completion of its ongoing Phase I/II study in Q and the remaining clinical program in line with the figure below in Section Research and development. It cannot be guaranteed that the patient inclusion in various studies will proceed as planned. Accordingly, there is a risk of delay of the various clinical studies. 8.4 History and important events The table below provides an overview of key events in the history of the Company: Year Event Nordic Nanovector AS is established in Oslo, Norway st patent application filing for Betalutin TM st patent application approved in Norway The Company moves operations from the Norwegian Radium Hospital to Kjelsåsveien 168 B and first fulltime employees are hired Regulatory approval to proceed with phase I/II clinical trial in Sweden Regulatory approval to proceed with phase I/II clinical trial in Norway Ready-to-use Betalutin TM formulation developed First patient included in Betalutin TM clinical trial Inspection by Norwegian Medicines Agency successfully completed Successful closing of a Private Placement of NOK 60 million HealthCap VI L.P ( HealthCap ) commits to invest NOK 50 million Betalutin TM patent approved in the US New clinical advisory board established Betalutin TM patent granted in Europe Betalutin TM clinical trial advances to phase II Granted orphan-drug designation in the US and in EU Successful closing of NOK 250 million Private Placement 8.5 Overview of the Company s business The Company develops innovative anticancer therapeutics against therapeutic targets. The Company has developed a nanovector based on a tumour specific antibody and a radioactive nuclide. The nanovector seeks out the lymphoma cells and the radiation destroys them. The lead product candidate Betalutin consists of lutetium-177, conjugated to a tumour seeking murine monoclonal antibody, HH1 28, against CD-37 antigen, which can be used for irradiation of malignant metastasized tumours with minimal damage to nearby healthy normal tissue. This technology aims to prolong and improve the quality of life of people who suffer from hematologic cancer, in particular NHL. Figure 8.5: Graphic illustration of the lead product candidate Betalutin TM. Source: Company s management. 28 Antibody HH1 developed by the Norwegian Radium Hospital. 32

36 The Company uses third party contractors to produce Betalutin TM. See Section 8.10 Research and development, patents and licences for more information on the Company s research and method of production of Betalutin TM. 8.6 Customers In addition to treating the various payer groups in the different geographic markets as customers, e.g. US Government (Medicaid, Medicare Part B, VA/DOD and Medicare Part D), US commercial payers (employer-based insurance), and European social security systems in the various EU countries, the Company will focus marketing efforts towards the community based, hospital based, and tertiary centre based prescribing hematologists/oncologists and Nuclear Medicine specialists. Patients with lymphoma are generally referred to a hematologist or oncologist by their primary-care physician ( PCP ) in order to receive diagnosis and treatment of NHL. Lymphoma patients give a fairly typical presentation and are generally diagnosed by their PCP. Common symptoms are enlarged lymph node(s) which causes pain. A PCP may initially treat as an infection until the patient is referred to a hematologist or oncologist. Indolent lymphomas can be asymptomatic for long periods (months or years). Aggressive lymphomas are more likely diagnosed earlier as lymph nodes expand rapidly. Major prescribers of treatment of NHL are hematologists and oncologists in community or tertiary centres. 29 The US National Lymphocare Survey suggests that approximately 80% of NHL patients are initially treated in community settings. In the United Kingdom most patients are treated in tertiary centres. 8.7 Competition General information The current standard of care treatment regimes for the Indolent (represented by FL) and Aggressive (represented by DLBCL) forms of NHL are shown in the figure below. As can be seen in the figure, rituximab is predominant and used extensively in both forms of the disease. Rituximab in combination with various cytotoxic agents are the normal induction treatments in the first and second line setting. The company believes that Betalutin TM can be effective in second-line setting in patients that do not respond to rituximab and whose cancers are in progression. Figure: DLBCL means diffuse large B-cell lymphoma; FL means follicular lymphoma. R-CHOP means Rituximab, cyclophosphamide, doxorubicin, vincristine, prednisone. R-CVP means Rituximab, cyclophosphamide, vincristine, prednisone. R-DHAP means Rituximab, dexamethasone, cisplatin, cytarabine. R-ICE means Rituximab, ifosfamide, carboplatin, etoposide. Source: Company s Management. 29 Community centres are primary care centers and refers to health care given by care professional who act as a first point of consultation for all patients within the health care system. Secondary and tertiary care are specialised consultative health care, usually from referrals from a primary health professional, in a facility that has personnel and facilities for advanced medical investigation and treatment. Depending upon the locality, health system organizer, the organization of the health care system the referral process may differ. 33