ANNUAL FINANCIAL REPORT 2010 2010 - TiGenix

TiGenix’ expanded adipose derived stem cell (“eASC”)development stage products are today manufactured inTiGenix’ GMP certified facilities in Madrid. However, there canbe no assurance that the certification will never be interrupted,suspended or discontinued because of a failure to maintaincompliance or for any other reason, or that the facilities willcontinue to be fully aligned with EMA requirements.TiGenix’ inability to manage its expansion, bothinternally and externally, could have a materialadverse effect on its business.TiGenix announced the combination with Cellerix onFebruary 25, 2011 and future growth of the Company willdepend on its ability to successfully integrate the assets andinfrastructure of Cellerix. There can be no certainty that thepotential benefits of the combination with Cellerix will berealised. In particular the introduction of a new managementteam may disrupt the business and it may prove more difficultor more costly than expected to integrate the assets andinfrastructure of Cellerix.More generally, the Company has in recent years operated inEurope and expanded its operations through the establishmentof its U.S. subsidiary, TiGenix Inc., which in turn owned 50% inTC CEF LLC, in the U.S. However, with effect as of November23, 2010 TiGenix Inc. has withdrawn itself from TC CEF LLC andhas terminated its membership interests in TC CEF LLC. TheCompany has established a Dutch entity, TiGenix B.V., acquireda UK entity, Orthomimetics Limited (currently named TiGenixLtd.), spun off drug discovery assets to the Dutch entity ArcariosB.V. in which it holds a shareholding of 13.86%, and acquiredCellerix. The Company will be obliged to set up its commercialstructure in the different countries in Europe.TiGenix could acquire other businesses, companies withcomplementary technologies and products to expand itsactivities. As a consequence, intangible assets, includinggoodwill, could account for a larger part of the balancesheet total than is currently the case. Despite the fact thatTiGenix carefully investigates every acquisition, the riskremains, amongst others, that corporate cultures do notmatch, expected synergies do not fully realise, restructuringsprove to be more costly than initially anticipated andacquired companies prove to be more difficult to integratethan foreseen. The Company can therefore not guarantee asuccessful integration of these companies.The Company’s ability to manage its growth effectively willrequire it to continue to improve its operations, financial andmanagement controls, reporting systems and procedures, andto train, motivate and manage its employees and, as required,to install new management information and control systems.There can be no assurance that the Company will be able toimplement improvements to its management information andcontrol systems in an efficient and timely manner or that, ifimplemented, such improvements will be adequate to supportthe Company’s operations.Any inability of the Company to manage its expansionsuccessfully could have a material adverse effect on its business,results of operations and financial condition.TiGenix is working in a changing regulatoryenvironment. Future changes in anypharmaceutical or medical device legislation orguidelines could affect the Company’s business.Regulatory guidelines may change during the course of afuture product development and approval process, makingthe chosen development strategy suboptimal. This maydelay development, require extra clinical trials or result infailure of a future product to obtain marketing authorisationor the targeted price levels and could adversely impactcommercialisation of the authorised product. Market conditionsmay change resulting in the emergence of new competitorsor new treatment guidelines which may require alterationsin the development strategy. This may result in significantdelays, increased trial costs, significant changes in commercialassumptions or failure of future products to obtain marketingauthorisation.Although the basic regulatory frameworks appear to be inplace in Europe and in the U.S. for cell-based products andbiomaterials, it has to be realized that at present still littleexperience with such products exists, and that consequentlythe interpretation of these frameworks is sometimes difficultto predict and the regulatory frameworks themselves willcontinue to evolve. On a regular basis, EMA, FDA and NotifiedBodies are issuing new guidelines.The interpretation of existing rules or the issuance of newregulations may impose additional constraints on the research,development, regulatory approval, manufacturing and/ordistribution process of the current and future products ofTiGenix. The Company cannot predict what effect subsequentchanges in European or Belgian legislation may have on theCompany’s business.For further information on the regulatory background,reference is made to section 6.5.128 • TiGenix • Rights Offering