ANNUAL FINANCIAL REPORT 2010 2010 - TiGenix

There can be no assurance that the necessary insurance coverwill be available to TiGenix at an acceptable cost or at all, orthat, in the event of any claim, the level of insurance carried byTiGenix now or in the future will be adequate or that a productliability or other claim would not materially and adverselyaffect TiGenix’ business. If TiGenix cannot adequately protectitself against potential liability claims, it may find it difficult orimpossible to commercialise its products. Moreover, productliability claims may require significant financial and managerialresources, may cause harm to the Company’s reputation if themarket perceives its drugs or drug candidates to be unsafe orineffective due to unforeseen side effects, and may limit orprevent the further development or commercialisation of theCompany’s products and future products.TiGenix uses different chemical and biological products toconduct its research and to manufacture its medicines. Despitethe existence of strict internal controls, these products couldbe the object of unauthorised use or could be involved in anaccident that could cause personal injury to people or damagesto the environment, which could result in a claim againstTiGenix. The activities carried out by TiGenix are subject tospecific environmental regulations that impose obligationswhich, if not complied with, could give rise to third party and/or administrative claims and could even result in fines beingimposed or, in the worst case scenario, to the Company’soperations being suspended or shut down.Exchange rate fluctuations may negativelyaffect TiGenix’ financial position.TiGenix uses the Euro currency for financial reporting purposes.However, the Company may have a significant portion of itsoperating costs in U.S. Dollar (U.S. subsidiary, U.S. research anddevelopment collaborations, U.S. trial collaborations, and U.S.professional services) and GBP (UK subsidiary) and expectsto have a share of its future revenues in U.S. Dollar and GBP.TiGenix has not engaged in any active hedging techniquesnor has it employed any derivative instruments to date.Unfavourable fluctuations in the exchange rate between theEuro, the U.S. Dollar and GBP could have a negative impact onthe financial results of the Company.The allocation of the proceeds could harm theability to carry out the business plan.The Company will have significant flexibility and broaddiscretion to allocate and use the net proceeds of the Offering.If the proceeds are not wisely allocated it could harm theCompany’s ability to carry out its business plan. The Companyintends to use the net proceeds of the Offering for researchand development, clinical trials, working capital, capitalexpenditure, acquisitions if and when they present themselves,and other general corporate purposes. More specifically, theCompany intends to use the net proceeds of the Offering, interalia, to support the commercial launch, marketing and salesactivities, pricing and reimbursement of ChondroCelect andChondroMimetic, to promote the clinical development of stemcell-based products, to complete the manufacturing capacityexpansion in The Netherlands, and to broaden the commercialproduct portfolio. The Company’s Board of Directors andmanagement will determine, in their sole discretion andwithout the need for Shareholders’ approval, the amountsand timing of the Company’s actual expenditures which willdepend upon numerous factors, including the status of theCompany’s product development and commercialisationefforts, if at all, the amount of proceeds raised in the Offering,and the amount of cash received resulting from partnershipsand out-licensing activities. The Company constantly evaluatesopportunities to acquire businesses and technologies that itbelieves are complementary to its business activities.Risks related to the public tradingof the sharesSustainability of a liquid public market.An active public market for the TiGenix Shares may not besustained.Dilution in case of future capital increasescould adversely affect the price of the Sharesand could dilute the interests of ExistingShareholders.The Company may decide to raise capital in the future throughpublic or private placements, with or without preferentialsubscription rights, of equity or equity linked financialinstruments. Furthermore, Belgian law and the Articles ofAssociation provide for preferential subscription rights tobe granted to existing shareholders unless such rights aredisapplied by resolution of TiGenix’ shareholders’ meeting or,if so authorized by a resolution of such meeting, the board ofdirectors. However, certain shareholders in jurisdictions outsideof Belgium (including those in the United States, Australia orJapan) depending on the securities laws applicable in thosejurisdictions may not be entitled to exercise such rights unlessthe rights and Shares are registered or qualified for sale underthe relevant legislation or regulatory framework. As a result,certain holders of Shares outside Belgium may not be able32 • TiGenix • Rights Offering