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Document and Entity Information	12 Months Ended
Document and Entity Information	Dec. 31, 2017 shares
Document Information [Line Items]
Document Type	20-F/A
Amendment Flag	false
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Trading Symbol	ERYP
Entity Registrant Name	ERYTECH PHARMA S.A.
Entity Central Index Key	0001624422
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding	17,937,559

Consolidated Statements of Income (Loss) - EUR (€) € in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Operating income
Revenues	€ 0	€ 0	€ 0
Other income	3,364	4,138	2,929
Total operating income	3,364	4,138	2,929
Operating expenses
Research and development expenses	(25,463)	(19,720)	(10,776)
General and administrative expenses	(8,791)	(6,808)	(7,736)
Total operating expenses	(34,254)	(26,528)	(18,512)
Operating loss	(30,889)	(22,390)	(15,583)
Financial income	539	558	631
Financial expenses	(3,183)	(70)	(64)
Financial income	(2,644)	488	567
Income tax	3	(10)	3
Net loss	€ (33,530)	€ (21,913)	€ (15,013)
Basic / Diluted loss per share (€/share)	€ (2.95)	€ (2.74)	€ (2.16)

Consolidated Statements of Comprehensive Income (Loss) - EUR (€) € in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Net loss	€ (33,530)	€ (21,913)	€ (15,013)
Elements that may be reclassified subsequently to income (loss)
Foreign subsidiary - Currency translation adjustment	(38)	21	(9)
Elements that may not be reclassified subsequently to income (loss)
Actuarial gains on defined benefits liability	8	(30)	8
Tax effect	(3)	10	(3)
Other comprehensive income (loss)	(33)	1	(3)
Total comprehensive loss	€ (33,563)	€ (21,912)	€ (15,017)

- Definition

The total of income less expenses, excluding the components of other comprehensive income. [Refer: Other comprehensive income]

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Name IAS
-Number 7
-IssueDate 2017-01-01
-Paragraph 18
-Subparagraph b
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IAS&num=7&date=2017-03-01&anchor=para_18_b&doctype=Standard
-URIDate 2017-03-09

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Name IFRS
-Number 1
-IssueDate 2017-01-01
-Paragraph 24
-Subparagraph b
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=1&date=2017-03-01&anchor=para_24_b&doctype=Standard
-URIDate 2017-03-09

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Name IFRS
-Number 1
-IssueDate 2017-01-01
-Paragraph 32
-Subparagraph a
-Clause ii
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=1&date=2017-03-01&anchor=para_32_a_ii&doctype=Standard
-URIDate 2017-03-09

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Name IFRS
-Number 8
-IssueDate 2017-01-01
-Paragraph 28
-Subparagraph b
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=8&date=2017-03-01&anchor=para_28_b&doctype=Standard
-URIDate 2017-03-09

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Name IFRS
-Number 8
-IssueDate 2017-01-01
-Paragraph 23
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=8&date=2017-03-01&anchor=para_23&doctype=Standard
-URIDate 2017-03-09

Reference 6: http://www.xbrl.org/2003/role/exampleRef
-Name IFRS
-Number 12
-IssueDate 2017-01-01
-Paragraph B10
-Subparagraph b
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=12&date=2017-03-01&anchor=para_B10_b&doctype=Appendix&seq=2
-URIDate 2017-03-09

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Name IAS
-Number 1
-IssueDate 2017-01-01
-Paragraph 106
-Subparagraph d
-Clause i
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IAS&num=1&date=2017-03-01&anchor=para_106_d_i&doctype=Standard
-URIDate 2017-03-09

Reference 8: http://www.xbrl.org/2003/role/exampleRef
-Note Effective on first application of IFRS 9
-Name IFRS
-Number 4
-IssueDate 2017-01-01
-Paragraph 39L
-Subparagraph e
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IFRS&num=4&date=2017-03-01&anchor=para_39L_e&doctype=Standard
-URIDate 2017-03-09

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Name IAS
-Number 1
-IssueDate 2017-01-01
-Paragraph 81A
-Subparagraph a
-URI http://eifrs.ifrs.org/eifrs/XBRL?type=IAS&num=1&date=2017-03-01&anchor=para_81A_a&doctype=Standard
-URIDate 2017-03-09

+ Details

Consolidated Statements of Financial Position - EUR (€) € in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Non-current assets
Intangible assets	€ 53	€ 57	€ 61
Property, plant and equipment, net	3,406	2,245	918
Other non-current financial assets	234	132	97
Total non-current assets	3,693	2,434	1,076
Current assets
Inventories	176	145	166
Trade and other receivables	76	218	424
Other current assets	5,791	4,524	5,705
Cash and cash equivalents	185,525	37,646	45,634
Total current assets	191,568	42,533	51,929
TOTAL ASSETS	195,261	44,967	53,004
Shareholders' equity
Share capital	1,794	873	792
Premiums related to share capital	281,745	105,090	95,931
Reserves	(68,386)	(48,247)	(34,578)
Translation reserve	(203)	(165)
Net loss for the period	(33,530)	(21,913)	(15,013)
Total shareholders' equity	181,419	35,638	47,132
Non-current liabilities
Long-term provisions	214	163	100
Financial liabilities - Non-current portion	2,019	2,816	151
Deferred tax	3	3
Total Non-current liabilities	2,236	2,982	251
Current liabilities
Provisions - current portion			81
Financial liabilities - current portion	824	50	557
Trade and other payables	8,076	4,832	3,672
Other current liabilities	2,706	1,465	1,311
Total current liabilities	11,606	6,347	5,621
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	€ 195,261	€ 44,967	€ 53,004

Consolidated Statements of Cash Flow - EUR (€) € in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities
Net loss	€ (33,530)	€ (21,913)	€ (15,013)
Reconciliation of net loss and the cash used for operating activities
Loss on exchange	3,159
Amortization and depreciation	532	425	288
Provision - non-current portion	57	31	20
Expense related to share-based payments	1,769	1,178	2,716
Interest expense	23	13	30
Income tax expense	(3)	10	(3)
Change in trade and payables in foreign currency	(38)
Operating cash flow before change in working capital	(28,031)	(20,255)	(11,962)
Increase in inventories	(31)	21	32
Increase in trade and other receivables	142	206	(319)
Increase in other current assets	(1,266)	1,181	(3,470)
Increase in trade and other payables	3,243	1,160	1,588
Increase in other current liabilities	1,241	154	(528)
Increase in provision - current portion		(81)	81
Change in working capital	3,329	2,641	(2,616)
Net cash flow used in operating activities	(24,702)	(17,614)	(14,578)
Cash flows from investing activities
Acquisition of property, plant and equipment	(1,664)	(1,726)	(220)
Acquisitions of intangible assets	(25)	(25)	(49)
Acquisition of other non-current financial assets	(102)	(40)	(15)
Disposal of property, plant and equipment	0	0	0
Disposal of non-current financial assets		5
Net cash flow used in investing activities	(1,791)	(1,786)	(284)
Cash flows from financing activities
Capital increases, net of transaction costs	177,576	9,239	23,544
Proceeds from borrowings	421	2,717
Repayment of borrowings	(452)	(563)	(85)
Treasury shares			64
Net cash flow from financing activities	177,545	11,393	23,524
Change rate effect on cash in foreign currency	(3,183)	19	(16)
Increase / Decrease in cash and cash equivalents	147,869	(7,988)	8,646
Net Cash and cash equivalents at the beginning of the period	37,646	45,634	36,988
Bank overdraft	11
Net Cash and cash equivalents at the closing of the period	185,525	37,646	45,634
Supplemental disclosure of cash flows information
Cash paid for interest	115	72	34
Cash paid for income tax	€ 0	€ 0	€ 0

Description of the Business

12 Months Ended

Dec. 31, 2017

Description of the Business

1. DESCRIPTION OF THE BUSINESS

ERYTECH Pharma S.A. (“ERYTECH” together with its subsidiary the “Company”) is incorporated in Lyon, France, and was founded in 2004 to develop and market innovative therapies for acute leukemia and other orphan diseases. The Company’s most advanced product candidates are being developed for the treatment of pancreatic cancer, acute lymphoblastic leukemia, or ALL, and acute myeloid leukemia, or AML.

The Company completed its initial public offering on Euronext Paris in May 2013, raising €17.7 million and a follow-on offering of €30.0 million (on a gross basis before deducting offering expenses), in October 2014. The initial public offering triggered the conversion of the totality of the convertible bonds previously issued. Two private placements of respectively 940,000 ordinary and 793,877 ordinary shares for €25.4 million and €9.9 million (on a gross basis before deducting offering expenses) were completed in December 2015 and 2016 with institutional investors in the United States and in Europe. In April 2017, the Company completed a follow-on offering of €70.5 million (on a gross basis before deducting offering expenses). The Company completed an initial public offering on the Nasdaq Global Select Market raising €124 million ($144 million on a gross basis before deducting offering expenses) (see below “Major events of 2017”).

The Company has incurred losses and negative cash flows from operations since its inception and had shareholders’ equity of €181,419 thousand as at December 31, 2017 as a result of several financing rounds, including an initial public offering.

The Company anticipates incurring additional losses until such time, if ever, that it can generate significant revenue from its product candidates in development. Substantial additional financing will be needed by the Company to fund its operations and to commercially develop its product candidates.

The Company’s future operations are highly dependent on a combination of factors, including: (i) the success of its research and development; (ii) regulatory approval and market acceptance of the Company’s proposed future products; (iii) the timely and successful completion of additional financing; and (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies. As a result, the Company is and should continue, in the short to mid-term, to be financed through partnership agreements for the development and commercialization of its drug candidates and through the issuance of new equity instruments.

The accompanying consolidated financial statements and related notes (the “Consolidated Financial Statements”) present the operations of ERYTECH Pharma S.A. and its subsidiary, ERYTECH Pharma, Inc., incorporated in April 2014, which headquarters are in Cambridge, Massachusetts – United States of America. The activity of this subsidiary had no material impact on any of the years presented.

Major events of 2017

Eryaspase

The Company announced positive topline results from its Phase 2b clinical study evaluating its product candidate, eryaspase (GRASPA^®), in combination with chemotherapy for the treatment of second-line metastatic pancreatic cancer.

The multicenter, randomized Phase 2b study met its prespecified co-primary endpoints, and showed improvement in both progression-free survival (PFS) and overall survival (OS) in patients treated with eryaspase combined with chemotherapy compared to chemotherapy alone.

The Phase 2b study evaluated eryaspase, L-asparaginase encapsulated in red blood cells, as a second-line treatment in combination with chemotherapy in patients with metastatic pancreatic cancer. In this 141patient study, conducted in France, eryaspase was added to the standard of care (gemcitabine or FOLFOX) and compared to the standard of care alone in a 2-to-1 randomization.

The Company has resubmitted to the European Medicine Agency (EMA) its Marketing Authorization Application (MAA) for eryaspase (GRASPA^®) for the treatment of patients with relapsed or refractory (R/R) acute lymphoblastic leukemia (ALL). The MAA resubmission includes the data from ERYTECH’s GRASPALL 2009-06 Phase 2/3 clinical trial in children and adults with R/R ALL as well as additional data to address the outstanding questions of the Committee for Medicinal Products for Human Use (CHMP) of the EMA.

An investigator-initiated clinical trial has been launched to evaluate eryaspase, also known by the trade name GRASPA^®, in patients with acute lymphoblastic leukemia (ALL). The study takes place in seven Nordic countries and is being conducted in collaboration with the Nordic Society of Pediatric Hematology and Oncology (NOPHO). This clinical trial is co-financed by ERYTECH Pharma and Orphan Europe.

The open-label, randomized, multi-center clinical study, evaluated eryaspase in newly diagnosed AML patients over the age of 65 and unfit for intensive chemotherapy. The study enrolled a total of 123 patients at 30 European sites. The median age of the patients was 78 years. Patients were randomized two-to-one to receive eryaspase in combination with low-dose cytarabine (LDAC) versus LDAC alone. The primary endpoint in this proof-of concept study was overall survival (OS). The key secondary endpoints included progression free survival, overall response and toxicity. The study was performed in collaboration with Orphan Europe (Recordati Group), ERYTECH’s partner for the anticipated commercialization of GRASPA^® for the treatment of ALL and AML in Europe. The study did not meet its primary endpoint of overall survival (OS).

The recommended pivotal Phase 3 dosing from its U.S. Phase 1 dose escalation study with eryaspase (GRASPA^®) has been determined in first line treatment of adult ALL patients.

Erymethionase

The Company pursues the development of its second product-candidate erymethionase also based on the ERYCAPS technology and with methioninase as the active drug substance.

The Company presented preclinical data on its erymethionase product candidate at the American Society of Clinical Oncology’s Gastrointestinal Cancers Symposium in January 2017 and at the American Association for Cancer Research’s Annual Meeting in April 2017. Based on these preclinical studies, we believe that erymethionase represents a promising new treatment approach against a broad range of cancers that rely on methionine metabolism. We expect to commence a Phase 1 clinical trial in Europe by the end of 2018.

The development of this product-candidate is part of the TEDAC research program and reached the milestone n°4 in 2016 which allowed the payment of subsidies and conditional advances.

The Company has initiated a project of change in manufacturing process. The project has reached the milestone n°3 of the development and capitalized €766 thousand which amounted to a cumulated total asset of €1,596 thousand as of December 31, 2017.

Funds raised and Global Offering

In April 2017, the Company issued an aggregate of 3,000,000 ordinary shares in an offering to institutional investors in the United States and in Europe, at an issue price of €23.50 per share, including share premium, for a total amount subscribed of €70.5 million (gross amount before deducting offering expenses), representing approximately 25.55% of the share capital of the Company. The issue price of the new shares represented a discount of 5.62% from the closing price on April 12, 2017 and 6.37% from the weighted average share price of the Company’s shares on the regulated market of Euronext Paris during the 20 trading days preceding the determination of the issue price on April 12, 2017.

The Company completed an offering in November 2017 on the Nasdaq Global Select Market and Euronext Paris for an aggregate gross proceeds of 144 million (€124 million), in the context of an initial public and a follow-on offering to specified categories of investors of an aggregate of 5,374,033 new ordinary shares, comprising an offer of 4,686,106 ordinary shares in the form of American Depositary Shares, each representing one ordinary share (“ADSs”), in the United States at an offering price of $23.26 (€20) per ADS and a concurrent private placement in Europe (including France) and other countries outside of the United States and Canada of 687,927 ordinary shares at the corresponding offering price of $23.26 (€20) per ordinary share (together, the “Global Offering”), for aggregate gross proceeds of $124 million (€108 million) before deducting underwriting commissions and estimated expenses payable by the Company. By virtue of the delegation of authority granted by the Company’s annual general meeting of June 27, 2017, the Board at a meeting held on November 6, 2017 approved the offering which was executed by the CEO on November 9, 2017. In addition, ERYTECH had granted the underwriters a 30-day option to purchase up to 806,104 additional ADSs and/or ordinary shares on the same terms and conditions, representing 15% of the ADSs and/or ordinary shares to be issued by the Company in the Global Offering. The gross proceeds of the additional offering amounted to $19 million (€16 million).

The offering price per ADS in the U.S. offering corresponds to the offering price of €20 per ordinary share (based on the November 9, 2017 exchange rate of €1.00 = $1.163). The offering price represented a discount of 9.79% from the volume-weighted average price of the Company’s ordinary shares on the regulated market of Euronext Paris during the three trading days preceding the date of determination of the offering price on November 9, 2017 (i.e. November 7, 8 and 9, 2017).

Following the additional closing, aggregate net proceeds to ERYTECH, after deducting underwriting commissions and estimated offering expenses payable by ERYTECH, were $130 million (€112 million).

Management

The Board of Directors held on January 8, 2017 and the Chief Executive Officer granted share-based payments as follows:

•

15,000 AGA₂₀₁₆ to Alexander Scheer;

•

15,000 BSA₂₀₁₆ (share warrants) to Allene Diaz; and

•

3,000 SO₂₀₁₆ to an ERYTECH Pharma, Inc. employee.

The Board of Directors held on June 27, 2017 and the Chief Executive Officer granted share-based payments as follows:

•

8,652 AGA₂₀₁₆ to ERYTECH Pharma S.A employees; and

•

18,000 SO₂₀₁₆ to ERYTECH Pharma, Inc. employees.

By virtue of the delegation of authority granted by the Company’s annual general meeting of June 27, 2017, the Board at a meeting held on June 27, 2017 approved the following share-based payments:

•

55,000 BSA₂₀₁₇to independent members of the Board of Directors

•

74,475 AGA₂₀₁₇to ERYTECH Pharma S.A employees; and

•

22,200 SO₂₀₁₇ to ERYTECH Pharma, Inc. employees.

By virtue of the delegation of authority granted by the Company’s annual general meeting of June 27, 2017, the Chief Executive Officer on October 3, 2017 approved the following share-based payments:

•

16,650 AGA₂₀₁₆ to ERYTECH Pharma S.A employees; and

•

30,000 SO₂₀₁₆ to ERYTECH Pharma, Inc. employees.

Basis of Preparation

12 Months Ended

Dec. 31, 2017

Basis of Preparation

2. BASIS OF PREPARATION

The Consolidated Financial Statements as of December 31, 2015, 2016 and 2017 have been prepared under the responsibility of the management of the Company in accordance with the underlying assumptions of going concern as the Company’s loss-making situation is explained by the innovative nature of the products developed, therefore involving a multi-year research and development phase.

The general accounting conventions were applied in compliance with the principle of prudence, in accordance with the underlying assumptions namely (i) going concern, (ii) permanence of accounting methods from one year to the next and (iii) independence of financial years, and in conformity with the general rules for the preparation and presentation of consolidated financial statements in accordance with IFRS, as defined below.

All amounts are expressed in thousands of euros, unless stated otherwise.

Statement of Compliance

12 Months Ended

Dec. 31, 2017

Statement of Compliance

3. STATEMENT OF COMPLIANCE

The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board (“IASB”) and were approved and authorized for issuance by the Board of Directors of the Company on March 9, 2018.

Due to the listing of ordinary shares of the Company on Euronext Paris and in accordance with the European Union’s regulation No. 1606/2002 of July 19, 2002, the Consolidated Financial Statements of the Company are also prepared in accordance with IFRS, as adopted by the European Union (EU).

As of December 31, 2017, all IFRS that the IASB had published and that are mandatory are the same as those endorsed by the EU and mandatory in the EU, with the exception of IAS 39 Financial Instruments: Recognition and Measurement (revised December 2003), which the EU only partially adopted. The part not adopted by the EU has no impact on the Consolidated Financial Statements of the Company. As a result, the Consolidated Financial Statements comply with International Financial Reporting Standards as published by the IASB and as adopted by the EU.

IFRS include International Financial Reporting Standards (IFRS), International Accounting Standards (“IAS”), as well as the interpretations issued by the Standing Interpretations Committee (“SIC”), and the International Financial Reporting Interpretations Committee (“IFRIC”). The main accounting methods used to prepare the Financial Statements are described below. These methods were used for all periods presented.

The Group adopted the following standards, amendments and interpretations that are applicable as at January 1, 2017:

•

Amendments to IAS 7 – Disclosure initiative;

•

Amendments to IAS 12 – Income taxes; and

•

Amendments to IFRSs 2014-2016 Cycle, for amendments effective for annual periods beginning on or after January 1, 2017.

These new texts did not have any significant impact on the Group’s results or financial position.

The standards and interpretations that are optionally applicable as at December 31, 2017 were not applied in advance.

Recently issued accounting pronouncements that may be relevant to the Company’s operations but have not yet been adopted are as follows:

•

IFRS 2 Classification and measurement of share-based payment transactions et Amendments to IFRSs 2014-2016 Cycle, effective for annual periods beginning on or after January 1, 2018 (IAS 28).

•

IFRS 9 Financial Instruments will be effective for the Group on January 1, 2018, with early adoption permitted. The Group does not expect its adoption to have a material impact on its consolidated financial statements.

•

IFRS 15—Revenue from Contracts with Customers will be effective for the Group on January 1, 2018 with early adoption permitted. The Group does not expect its adoption to have a material impact on its consolidated financial statements. Revenue is generated mainly by the Research Tax Credit.

•

IFRS 16—Leases will be effective for the Group on January 1, 2019, with early adoption permitted if applied at the same time as IFRS 15. The Group does not plan to early adopt this standard and does not expect its adoption to have a material impact on its consolidated financial statements.

•

IAS 40 – Transfers of investment property.

•

IFRIC 22 – Foreign currency transactions and advance consideration.

•

IFRIC 23 – Uncertainty over income tax treatments.

•

Amendments to IFRSs 2014-2016 Cycle, for amendments effective for annual periods beginning on or after January 1, 2018.

These new texts are not expected to have any significant impact on the Group’s results or financial position.

Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Significant Accounting Policies

4. SIGNIFICANT ACCOUNTING

POLICIES

4.1 Basis of consolidation

In accordance with IFRS 10 Consolidated Financial Statements, an entity is consolidated when it is controlled by the Company. The Company controls an entity when it is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. All intra-company balances, transactions, unrealized gains and losses resulting from intra-group transactions and dividends are eliminated in full. As of December 31, 2017, the Company has one subsidiary for which no non-controlling interest is recognized.

Details of the Company’s subsidiary as of December 31, 2017 are as follows:


	Date of Incorporation	Percent of Ownership Interest			Accounting Method
ERYTECH Pharma, Inc.	April 2014		100	%	Fully consolidated

4.2 Intercompany transactions

Transactions involving reciprocal assets and liabilities, as well as income and expense, between ERYTECH and ERYTECH Pharma, Inc. are eliminated in the Consolidated Financial Statements.

4.3 Foreign currencies

Functional Currency and Translation of Financial Statements in Presentation Currency

The Consolidated Financial Statements are presented in euros, which is also the functional currency of the parent company, ERYTECH Pharma S.A. (the “Parent Company”). The statements of financial position of the consolidated entity having a functional currency different from the euro are translated into euros at the closing exchange rate (spot exchange rate at the statement of financial position date) and the statements of income (loss), statements of comprehensive income (loss) and statements of cash flow of such consolidated entity are translated at the average exchange rate for the period, except if exchanges rates fluctuate significantly. The resulting translation adjustment is included in other comprehensive income (loss) as a cumulative translation adjustment.

Conversion of Foreign Currency Transactions

Foreign currency transactions are converted to functional currency (euros) at the rate of exchange applicable on the transaction date. At period-end, foreign currency monetary assets and liabilities are converted at the rate of exchange prevailing on that date. The resulting exchange gains or losses are recorded in the Consolidated Statements of Income in “Financial income (loss)”.

The loan in U.S. dollars from ERYTECH Pharma S.A. to ERYTECH Pharma, Inc. is considered as part of the net investment in a foreign operation. Exchange differences on this loan are recognized in other comprehensive income.

4.4 Consolidated statements of cash flows

The consolidated statements of cash flows are prepared using the indirect method and separately present the cash flows associated with operating, investment, and financing activities.

Operating activities correspond to the Company primary income-generating activities and all the other activities that do not meet the investment or financing criteria. The Company has decided to classify grants received such as the Research Tax Credit (Credit d’Impôt Recherche) as an operating activity in the consolidated statement of cash flows.

Cash flows associated with investment activities correspond to cash flows associated with the purchase of property, plant and equipment, net of asset supplier payables, and with the disposal of assets and other investments.

Financing activities are operations that result in changes in the amount and composition of the share capital and borrowings of the entity. Capital increases and the obtaining or repayment of loans are classified under this category. The Company has chosen to classify the conditional advances under this category.

The increases in assets and liabilities with non-cash effects are eliminated. As such, the assets financed through a finance lease are not included in the investments for the period presented. The decrease in financial liability associated with leases is therefore included under the caption ‘repayment of borrowings’ for the period.

4.5 Use of estimates and judgments

Preparation of the financial statements in accordance with the rules prescribed by the IFRS requires the use of estimates and the formulation of assumptions having an impact on the financial statements. These estimates can be revised where the circumstances on which they are based change. The actual results may therefore differ from the estimates initially formulated. The use of estimates and judgment relate primarily to the measurement of share-based payments (Note 4.15 and Note 5.3) and accruals of hospital costs. Hospital costs are estimated using revised budgets of clinical studies currently being completed, and also using information collected from hospital centers included in the clinical study.

4.6 Intangible assets

Internally generated intangible assets – Research and development costs

In accordance with IAS 38 Intangible Assets (“IAS 38”), research expenditures are expensed in the period during which they are incurred.

An internally generated intangible asset relating to a development project is recorded as an asset if, and only if, the following criteria are met:

(a) it is technically feasible to complete the development project;

(b) intention on the part of the Company to complete the project and to utilize it;

(d) proof of the probability of future economic benefits associated with the asset;

(e) availability of the technical, financial, and other resources for completing the project; and

(f) reliable evaluation of the development expenses.

The initial measurement of the asset is the sum of expenses incurred starting on the date on which the development project meets the above criteria.

Because of the risks and uncertainties related to regulatory authorizations and to the research and development process, the Company believes that the six criteria stipulated by IAS 38 have not been fulfilled to date and the application of this principle has resulted in all development costs being expensed as incurred in all periods presented.

Other intangible assets

The costs related to the acquisition of software licenses are recognized as assets on the basis of the costs incurred to acquire and to implement the software.

They are amortized using the straight-line method over a period of one to five years depending on the anticipated period of use.

An impairment is recorded when the asset’s carrying amount is greater than its recoverable value (see Note 4.8).

4.7 Property, plant and equipment

Property, plant and equipment are recorded at their acquisition cost, comprised of their purchase price and all the direct costs incurred to bring the asset to the location and working condition for its use as intended by the company’s management.

Property, plant, and equipment are depreciated on the basis of the straight-line method over the estimated useful life of the property. The fixtures of property rented are depreciated over the term of their own lifetime or of the term of the rental agreement, whichever is shorter.

The depreciation periods used are the following:


PROPERTY, PLANT, AND EQUIPMENT ITEM		DEPRECIATION PERIOD
Industrial equipment Fixtures and improvements in structures		1 to 5 years 3 to 10 years
Office equipment		3 years
Furniture		3 to 5 years

The useful lives of property, plant and equipment as well as any residual values are reviewed at each year end and, in the event of a significant change, result in a prospective revision of the depreciation pattern.

4.8 Impairment tests

According to IAS 36 Impairment of Assets (“IAS 36”), a loss in value must be recognized where the carrying value of an asset, or the cash generating unit to which the asset belongs (if it is not possible to estimate the recoverable amount of the individual asset), is lower than its recoverable value.

The property, plant, and equipment and intangible assets that have a finite life are subject to an impairment test when the recoverability of their carrying value is called into question by the existence of indications of impairment. An impairment is recognized in the Consolidated Financial Statements up to the amount of the excess of the value over the recoverable value of the asset. The recoverable value of an asset corresponds to its fair value less costs to sell or its value in use, whichever is higher.

4.9 Financial assets and liabilities – Measurement and Presentation

The valuation and the accounting treatment of the financial assets and liabilities are defined by IAS 39 Financial Instruments: Recognition and Measurement (“IAS 39”). The Company does not use derivative instruments to hedge its currency exposure.

Loans and receivables

These instruments are initially recognized in the Consolidated Financial Statements at their fair value and then at the amortized cost calculated with the effective interest rate (“EIR”) method. The short-term receivables without an interest rate are valued at the amount of the original invoice, unless the application of an implicit interest rate has a material effect.

The loans and receivables are monitored for any objective indication of impairment. A financial asset is impaired if its carrying value is greater than its recoverable amount. The impairment is recognized in the statement of income (loss).

Financial liabilities at the amortized cost

Loans and other financial liabilities are initially measured at their fair value less transaction costs directly attributable, and then at the amortized cost, calculated using the EIR method.

Presentation of financial assets and financial liabilities measured at fair value

In accordance with IFRS 13 Fair Value Measurement, financial instruments are presented in three categories based on a hierarchical method used to determine their fair value:

•

level 1: fair value calculated using quoted prices in an active market for identical assets and liabilities;

•

level 2: fair value calculated using valuation techniques based on observable market data such as prices of similar assets and liabilities or parameters quoted in an active market;

•

level 3: fair value calculated using valuation techniques based wholly or partly on unobservable inputs such as prices in an inactive market or a valuation based on multiples for unlisted securities.

4.10 Inventories

In compliance with the IAS 2 Inventories, inventories are recognized at their cost or at their net realizable value, whichever is lower. Cost is determined on a First-In First-Out (FIFO) cost basis. Management periodically reviews the inventory for obsolescence and adjusts as necessary.

4.11 Cash and cash equivalents

The item “cash and cash equivalents” in the consolidated statement of financial position includes bank accounts and highly liquid securities. They are readily convertible into a known amount of cash and are subject to a negligible risk of change in value.

They are recorded as assets in Cash equivalents, measured at their fair value, and the changes in value are recognized through financial income or loss.

The cash equivalents classification is made if the following criteria are fulfilled:

•

held for the purpose of meeting short term cash commitments rather than for investment or other purposes.

•

exit options exist:

•

exercisable at any time at least every three months

•

initially included in the contract and this exit option is always provided in the initial contract

•

exercisable without exit penalty and without significant risk of change in the amount received as cash reimbursement

•

there is no value risk related to the level of minimum compensation acquired (i.e. that obtained in the event of early exit) because over the entire duration and at each moment this remuneration will be identical to that obtained from an investment of no more than three months that meets the definition of a cash equivalent. This can be the case when the rate is variable or revisable.

4.12 Provisions

A provision is recognized where the Company has a current or implicit legal obligation resulting from a past event, where the obligation can be reliably estimated, and where it is probable that an outflow of resources representing economic benefits will be necessary to settle the obligation. The portion of a provision that become due in less than one year is recorded under current liabilities, and the balance under non-current liabilities. The provisions are discounted when the impact is material.

Provisions recognized in the consolidated statement of financial position mainly include obligations pertaining to retirement indemnities and provisions for risks.

Disclosure is made in the detailed notes on any contingent assets and liabilities where the impact is expected to be material, except where the probability of occurrence is low.

Provisions for retirement indemnities—defined benefit plans

The employees of the Company receive the retirement benefits stipulated by law in France:

•

a compensation paid by the Company to employees upon their retirement (defined-benefit plan) and;

•

a payment of retirement pensions by the social security agencies, which are financed by the contributions made by companies and employees (defined contribution plans in France).

For the defined-benefit plans, the costs of the retirement benefits are estimated by using the projected credit unit method. According to this method, the cost of the retirement benefit is recognized in the statement of income (loss) so that it is distributed uniformly over the term of the services of the employees. The retirement benefit commitments are valued at the current value of the future payments estimated using, for discounting, the market rate for high quality corporate bonds with a term that corresponds to the estimated term for the payment of the benefits.

The Company appoints external actuaries to conduct an annual review of the valuation of these plans.

The difference between the amount of the provision at the beginning of a period and at the close of that period is recognized through profit or loss for the portion representing the costs of services rendered and the net interest costs, and through other comprehensive income for the portion representing the actuarial gains and losses.

The Company’s payments for the defined-contribution plans are recognized as expenses on the statement of income (loss) of the period in which they become payable.

Provisions for risks

The provisions for risks correspond to the commitments resulting from litigations and various risks whose due dates and amounts are uncertain.

The amount recognized in the Consolidated Financial Statements as a provision is the best estimate of the expenses necessary to extinguish the obligation.

4.13 Lease agreements

The leases involving property, plant, and equipment are classified as finance lease agreements when the Company bears substantially all the benefits and risks inherent in the ownership of the property. The assets that are covered under finance lease agreements are capitalized as of the beginning date of the rental agreement on the basis of the fair value of the rented asset or the discounted values of the future minimum payments, whichever is lower. Each rental payment is distributed between the debt and the financial cost in such a manner to determine a constant interest rate on the principal that remains due. The corresponding rental obligations, net of the financial expenses, are classified as financial liabilities. The property, plant, or equipment acquired within the framework of a finance lease agreement is amortized over the useful life or the term of the lease agreement, whichever is shorter.

The rental agreements for which a significant portion of the risks and advantages is preserved by the lessor are classified as operating leases. The payments made for these operating leases, net of any incentive measures, are recognized as expenses on the consolidated statement of income (loss) on a straight-line basis over the term of the agreement.

4.14 Share capital

Common shares are classified under shareholders’ equity. The costs of share capital transactions that are directly attributable to the issue of new shares or options are recognized in shareholders’ equity as a deduction from the proceeds from the issue, net of tax.

4.15 Share-based payment

The Company has applied IFRS 2 Share-based payment (“IFRS 2”) to all equity instruments e.g. free shares (“AGAP”), stock options (“SO”), share subscription warrants (“BSA”) and founder subscription warrants (“BSPCE”) granted since inception to its employees, members of the Board of Directors or other individuals. Pursuant to IFRS 2, the cost of the remuneration paid with equity instruments is recognized as an expense in exchange for an increase in the shareholders’ equity for the vesting period during which the rights to be enjoyed from the equity instruments are acquired. As such, changes in value subsequent to the grant date have no effect on this initial measurement.

Fair value is estimated using the Black & Scholes valuation model (for BSA, SO and BSPCE valuation), Monte-Carlo valuation model (for AGAP valuation) and Cox-Ross-Rubinstein valuation model (for 2016 and 2017 BSA valuation). These models allow the Company to take into account the characteristics of the plan (vesting price, vesting period), the market data at the grant date (volatility, expected dividends, repo margin), possible performance conditions attached to warrants and recipient behavior assumptions.

4.16 Other income

Research tax credit

The research tax credit (Crédit d’Impôt Recherche or “CIR”) (the “Research Tax Credit”) is granted to companies by the French tax authorities in order to encourage them to conduct technical and scientific research. Companies that prove that they have expenditures that meet the required criteria (research expenditures located in France or, since January 1, 2005, within the European Union or in another State that is a party to the Agreement on the European Economic Area that has concluded a tax treaty with France that contains an administrative assistance clause) receive a tax credit that can be used for the payment of the corporate tax due for the fiscal year in which the expenditures were made and the next three fiscal years, or, as applicable, can be reimbursed in cash. The expenses taken into account for the calculation of the Research Tax Credit involve only research expenses.

The Company has received the Research Tax Credit since its inception.

The receivable in the consolidated statement of financial position as at December 31, 2017 includes the CIR for 2017 (see Note 6.6).

The CIR is presented under other income in the consolidated statement of income (loss) as it meets the definition of government grant as defined in IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Subsidies and conditional advances

Due to the innovative nature of its product candidate development programs, the Company has benefited from certain sources of financial assistance from Banque Publique d’Investissement (“BPI France”). BPI France provides financial assistance and support to emerging French enterprises to facilitate the development and commercialization of innovative technologies.

The funds received by the Company are intended to finance its research and development efforts and the recruitment of specific personnel. The Company has received such funding in the form of non-refundable subsidies and conditional advances.

Subsidies

Subsidies received are grants that are not repayable by the Company and are recognized in the financial statements as operating income where there exists reasonable assurance that the Company will comply with the conditions attached to the subsidies and the subsidies will be received.

Subsidies that are upfront payments are presented as deferred revenue and recognized ratably through income over the duration of the research program to which the subsidy relates.

A public subsidy that is to be received either as compensation for expenses or for losses already incurred, or for immediate financial support of the Company without associated future costs, is recognized in the Consolidated Financial Statements as other income when there exists reasonable assurance that the subsidies will be received.

Conditional advances

Funds received from BPI France in the form of conditional advances are recognized as financial liabilities, as the Company has a contractual obligation to reimburse BPI France for such conditional advances in cash based on a repayment schedule provided the conditions are complied with. Each award of an advance is made to help fund a specific development milestone. The details concerning the conditional advances are provided in Note 6.10.

Receipts or reimbursements of conditional advances are reflected as financing transactions in the statement of cash flows.

The amount resulting from the benefit of conditional advances that do not bear interest at market rates is considered a subsidy. This benefit is determined by applying a discount rate equal to the rate the Company would have to pay for a bank borrowing over a similar maturity.

The implicit interest rate resulting from taking into account all the repayments plus the additional payments due in case of commercial success as described in Note 6.10 is used to determine the amount recognized annually as a finance cost.

In the event of a change in payment schedule of the stipulated repayments of the conditional advances, the Company recalculates the net book value of the debt resulting from the discounting of the anticipated new future cash flows at the initial effective interest rate. The adjustment that results therefrom is recognized in the consolidated statement of income (loss) for the period during which the modification is recognized.

The conditional advances that can be subject to this type of modification are the advances received from BPI France, presented in Note 6.10.

Partnership with Orphan Europe AML clinical trial

As a result of its partnership agreement with Orphan Europe related to the development of Acute Myeloid Leukemia (“AML”), the Company re-invoices, with no margin, certain clinical costs incurred and invoiced to the Company by external providers.

In application of IAS 18 Revenue, the Company considers that, within the context of this partnership, it acts as agent regarding these reinvoiced external costs, as:

•

The Company does not have primary responsibility for provision of the goods or service, the majority of services being provided by third parties, the most significant of which, the Contract Research Organization (“CRO”), directly invoices Orphan Europe. The Company is directly invoiced only for the secondary services.

•

The Company bears no inventory risk,

•

The Company has no capacity to determine prices, all of the external costs being reinvoiced for the exact amount of the initial invoice, with no margin, and it is not affected by any price changes applied by the suppliers.

•

The Company bears a credit risk considered to be not significant.

Within the context of this same agreement, the Company also invoiced certain internal clinical costs, such as personnel costs associated with the management of clinical trials, or personnel involved in the production of batches necessary for the AML clinical trial together with internal costs related to the AML clinical trial.

Consequently, the re-invoicing of these external costs to Orphan Europe is presented as a decrease in corresponding research and development expenses incurred by the Company. For the year ended December 31, 2017 there was no re-invoicing in the context of the AML clinical trial.

Partnership with Orphan Europe NOPHO clinical trial

These invoiced external costs are classified by the Company as “other income” in the consolidated statement of income (loss) and within the context of this agreement, amounted to €177.5 thousand for the year ended December 31, 2017.

4.17 Financial income and expense

Financial results relate to loans, gains and losses on exchange rate variations and other financial debts (notably overdrafts and finance leases) and includes interest expenses incurred on financial liabilities and the related amortization of debt issuance costs, and income received from cash and cash equivalents. For the year ended December 31, 2017 financial expenses are mainly composed of currency exchange losses.

4.18 Income taxes

Current taxes

Considering the level of tax loss carryforwards not recognized, no current tax expense is recognized.

Deferred taxes

Except in specific cases, deferred taxes are calculated for the temporary differences between the carrying value of an asset or a liability and its tax value. Changes in the tax rates are recorded in the results of the financial year during which the rate change is decided. Deferred tax assets resulting from temporary differences or tax losses carried forward are limited to the deferred tax liabilities with the same maturity, except where their allocation on future taxable income is probable. Deferred taxes are calculated based on the most recent tax rates adopted at the date of each financial year-end.

Deferred tax assets and liabilities are not discounted and are classified in the consolidated statement of financial position under non-current assets and liabilities.

In addition, the Parent Company, as an entity incorporated in France, is subject to the territorial economic contribution (Contribution Economique Territoriale—CET), which combines the corporate real estate contribution (cotisation foncière des entreprises—CFE) and the corporate value-added contribution (cotisation sur la valeur ajoutée des entreprises—CVAE):

•

the corporate real estate contribution, the amount of which depends on property rental values and which can, where applicable, have a ceiling at a percentage of the value added, presents significant similarities to the former business tax and is recognized under operating expenses;

•

the corporate value-added contribution meets, based on the Company’s analysis, the definition of an income tax as established under IAS 12 Income Taxes (“IAS 12”) paragraph 2 (“taxes owing based on taxable income”). To enter within the scope of IAS 12, a tax must be calculated based on a net amount of income and expenses, and this net amount can be different from the net book results. The Company has judged that the corporate value-added contribution satisfies the characteristics outlined in this conclusion, insofar as the value added constitutes the intermediate level of income that systematically serves as the basis, according to French tax law, for determining the amount owing in relation to the corporate value-added contribution.

In conformity with the provisions of IAS 12, qualification of the corporate value-added contribution as an income tax leads to the recognition of deferred taxes relative to temporary differences existing at year end, with a contra-entry of a net expense in that year’s statement of net income (loss). Where applicable, this deferred tax expense is presented on the line income tax. For the moment, the Company does not pay the CVAE.

4.19 Earnings per share

The basic earnings per share are calculated by dividing the Company’s net income (loss) by the weighted average number of shares in circulation during the corresponding period.

The diluted earnings per share are calculated by dividing the results by the weighted average number of common shares in circulation, increased by all dilutive potential common shares. The dilutive potential common shares include, in particular, the share subscription warrants, stock options, free shares and founder subscription warrants as detailed in note 5.3 and 6.8.

Dilution is defined as a reduction of earnings per share or an increase of loss per share. When the exercise of outstanding share options and warrants decreases loss per share, they are considered to be anti-dilutive and excluded from the calculation of loss per share. Thus, basic and diluted loss per share are equal as all equity instruments issued, representing 865,760 potential additional ordinary shares, have been considered anti-dilutive.

4.20 Segment reporting

In accordance with IFRS 8 Operating Segments, reporting by operating segment is derived from the internal organization of the Company’s activities; it reflects management’s viewpoint and is established based on internal reporting used by the chief operating decision maker (the Chief Executive Officer and Chairman of the Board of Directors) to allocate resources and to assess performance.

The Company operates in a single operating segment: the conducting of research and development in the area of treatment of acute leukemia and other orphan diseases in order to market them in the future. The assets, liabilities, and operating loss realized are primarily located in France.

4.21 Off-balance sheet commitments

The Company has defined and implemented monitoring for its off-balance sheet commitments so as to know their nature and object. Off-balance sheet items identified mainly relate to:

•

future costs relate to clinical trials for which recruitment has begun,

•

operating leases, purchase and investment commitments.

4.22 Events After the Close of the Reporting Period

The consolidated statement of financial position and the consolidated statement of income (loss) of the Company are adjusted to reflect the subsequent events that alter the amounts related to the situations that exist as of the closing date. Modifications can be made until the date the Consolidated Financial Statements are approved and authorized for issuance by the Board of Directors.

By virtue of the delegation of authority granted by the Company’s annual general meeting of June 27, 2017, the Board at a meeting held on January 7, 2018 approved the following share-based payments:

•

40,500 AGA₂₀₁₆ to ERYTECH Pharma S.A. executive officers;

•

40,500 BSA₂₀₁₇ to independent members of the Board of Directors;

•

27,000 AGA₂₀₁₇ to ERYTECH Pharma S.A. employees; and

•

40,500 SO₂₀₁₇to ERYTECH Pharma, Inc. employees.

By virtue of the delegation of authority granted by Board of Directors held on June 27, 2017, the Chief Executive Officer at a meeting held on January 7, 2018 approved the following share-based payments:

•

86,940 AGA₂₀₁₇ to ERYTECH Pharma S.A. executive officers; and

•

56,703 SO₂₀₁₇to ERYTECH Pharma, Inc. employees.

This event after the close of the reporting period did not lead to an adjustment of the consolidated financial statements.

ERYTECH conducted a comprehensive evaluation to determine other potential solid-tumor indications for developing eryaspase. Metastatic Triple-Negative Breast Cancer (TNBC) has now been selected as the next indication to expand the potential use of eryaspase in solid tumors. TNBC is an aggressive and metabolically active form of breast cancer with high rates of symptomatic metastases. This event after the close of the reporting period did not lead to an adjustment of the consolidated financial statements.

The Company evaluated subsequent events that occurred after December 31, 2017 through the date of approval and authorization of issuance of the Consolidated Financial Statements and determined that there are no significant events that require adjustments in such Consolidated Financial Statements.

Notes Related to the Consolidated Statement of Income (Loss)

12 Months Ended

Dec. 31, 2017

5. NOTES RELATED

TO THE CONSOLIDATED STATEMENT OF INCOME (LOSS)

5.1 Operating income

Operating income consists of the following:


	For the year ended December 31,
	2015		2016		2017
	(in thousands of euros)
Research Tax Credit		2,219		3,347		3,187
Subsidies		368		463		—
Other income		341		327		178

Total		2,929		4,138		3,364

The operating income was primarily generated by the CIR (research tax credit), and the subsidies associated with the pre-clinical research programs in partnership with BPI France.

Other income totaled €341 thousand, €327 thousand and €178 thousand in 2015, 2016 and 2017, respectively, representing the re-invoicing of the internal costs incurred by the Company within the context of the AML study in 2015 and 2016 and within the context of the NOPHO study in 2017. The global amount financed by Orphan Europe is €600 thousand for the NOPHO study.

The Research Tax Credit and the subsidies decreased in 2017 as compared to 2016. Clinical study expenses increased in 2017, but this increase is mainly related to vendors that are not eligible for the research tax credit, and therefore the increase in clinical study expenses does not result in an increase in the research tax credit in 2017.

The increase in the research tax credit between 2015 and 2016 is related to the increase in clinical study expenses.

The Company receives subsidies through the TEDAC project financed by BPI France; the decrease in subsidies is related to the technical milestone of the TEDAC program which is not reached as at December 31, 2017 and therefore the Company is not eligible to receive the subsidy for the 5^th milestone of the project.

5.2 Operating expenses by nature

For the year ended

December 31, 2015

(amounts

in thousands of euros)

Research and
development
expenses

of which other
R&D expenses

of which
clinical
studies

of which
intellectual
property

General and
administrative
expenses

Total

Consumables

1,040

244

796

—

1,076

Rental and maintenance

462

204

259

—

304

767

Services, subcontracting and fees

4,475

1,539

2,570

366

3,022

7,497

Personnel expenses

3,977

1,506

2,384

1,627

5,603

Other

572

513

2,627

3,200

Depreciation and amortization

250

224

—

120

369

Total général

10,776

3,575

6,745

456

7,736

18,512

For the year ended

December 31, 2016

(amounts

in thousands of euros)

Research
and
development
expenses

of which
other R&D
expenses

of which
clinical
studies

of which
intellectual
property

General and
administrative
expenses

Total

Consumables

2,071

917

1,153

—

2,136

Rental and maintenance

645

161

484

—

511

1,156

Services, subcontracting and fees

11,409

2,547

8,410

453

2,793

14,203

Personnel expenses

5,282

1,173

4,070

2,713

7,995

Other

—

577

613

Depreciation and amortization

277

252

—

148

425

Total

19,720

4,831

14,397

491

6,808

26,528

For the year ended

December 31, 2017

(amounts

in thousands of euros)

Research
and
development
expenses

of which
other R&D
expenses

of which
clinical
studies

of which
intellectual
property

General and
administrative
expenses

Total

Consumables

2,391

1,859

532

—

148

2,539

Rental and maintenance

636

140

496

—

894

1,531

Services, subcontracting and fees

14,175

1,423

12,407

345

2,867

17,042

Personnel expenses

7,916

2,023

5,828

3,688

11,604

Other

927

1,008

Depreciation and amortization

263

169

—

266

530

Total

25,463

5,559

19,476

428

8,791

34,254

The increase in research and development expenses in 2017 for €5,743 thousand is primarily related to:

•

the increase of external services by €2,766 thousand related to the MAA re-submission, the phase 2 of the AML study and the phase 2 of the pancreatic cancer clinical trial.

•

the increase of personnel expenses for €2,634 thousand (see below note 5.3)

The increase in general and administrative expenses by €1,983 thousand is due to:

•

The increase in personnel expenses for an amount of €975 thousand, +36% following the staff hiring plan (see below note 5.3)

•

The increase of rental and maintenance costs for €383 thousand, +75%, the Company has a new building lease related to its development; the Company’s development required new office space in Lyon and IT service costs as well.

•

The increase of “Other” costs including an increase of €325 thousand related to warrants allocated to Directors and Board fees.

The increase in research and development expenses from 2015 to 2016 of €8,944 thousand is primarily related to

•

The increase in external services amounting to €6,934 thousand for the development of the TEDAC program and costs incurred in relation with the MAA submission; and

•

The increase of personnel expenses by €1,305 thousand.

The decrease in General and Administrative expenses for an amount of €928 thousand between 2015 and 2016 is mainly due to a decrease in “Other” of €2,050 thousand, which is mainly related to warrants (BSA₂₀₁₄) granted to the Board of Directors, which amounted to €1,593 thousand in 2015.

5.3 Personnel expenses

The personnel expenses are detailed as follows:

For the year ended

December 31, 2015

(amounts in thousands of euros)

Research
and
development
expenses

of which
other
R&D
expenses

of which
clinical
studies

of which
intellectual
property

General and
administrative
expenses

Total

Wages and salaries

2,235

953

1,238

896

3,131

Share-based payments

822

126

678

302

1,124

Social security expenses

920

427

468

429

1,348

Total personnel expenses

3,977

1,506

2,384

1,627

5,604

For the year ended

December 31, 2016

(amounts in thousands of euros)

Research and
development
expenses

of which
other R&D
expenses

of which
clinical
studies

of which
intellectual
property

General and
administrati
ve expenses

Total

Wages and salaries

3,371

688

2,670

1,486

4,857

Share-based payments

688

136

532

490

1,178

Social security expenses

1,224

350

868

736

1,960

Total personnel expenses

5,282

1,173

4,070

2,713

7,995

For the year ended

December 31, 2017

(amounts in thousands of euros)

Research and
development
expenses

of which
other R&D
expenses

of which
clinical
studies

of which
intellectual
property

General and
administrative
expenses

Total

Wages and salaries

5,229

1,166

4,028

1,990

7,218

Share-based payments

833

279

541

642

1,475

Social security expenses

1,854

578

1,259

1,057

2,911

Total personnel expenses

7,916

2,023

5,828

3,688

11,604

The increase in personnel expenses of €3,609 thousand between 2016 and 2017 is mainly due to:

•

the increase in share-based compensation expenses for an amount of €297 thousand

•

the increase in personnel expenses (wages and salaries) of research and development for €2,488 thousand following the staffing for the launching of the new phase 2 and 3 clinical trials

•

the increase in wages and salaries of general and administrative for an amount of €824 thousand to support the increase in operating research and development activities

The increase in personnel expenses of €2,392 thousand between 2015 and 2016 is mainly due to the increase in wages and salaries of the subsidiary ERYTECH Pharma Inc. in the amount of €1,194 thousand and the Parent Company in the amount of €1,198 thousand following the increase in headcount (73 employees in 2016 and 49 employees in 2015).

The employee staff increased from 44 (weighted average full-time employees for the year) in 2015 to 66 into 2016 and to 98 into 2017.

Share-based payments (IFRS 2)

Share-based awards have been granted to the directors, to certain employees, as well as to members of the Board of Directors in the form of share subscription warrants (“BSA”), stock options (“SO”), free shares (“AGAP”) or founder subscription warrants (“BSPCE”). The Board of Directors has been authorized by the general meeting of the shareholders to grant warrants in the form of AGAP, SO, BSA and BSPCE through the following plans:

“2012 Plan”

Within the scope of the BSA₂₀₁₂ plan, the Board of Directors meeting of April 29, 2015 and August 3, 2015 allocated respectively 2,150 and 3,585 BSA₂₀₁₂ to the directors without acquisition conditions.

Allocation of 2,150 BSA on April 29, 2015

The main assumptions used to determine the fair value are:

•

Price of the underlying share: €31.19 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the BSA)

•

Risk-free rate: between (0.07) % (in line with the zero-coupon government bond rates curve);

•

Expected dividends: 0%;

•

Volatility: 20.5% based on the historical volatility observed on the NextBiotech index;

•

Expected maturity: 2.5 years.

The fair value of warrants allocated in April 2015 in relation to the 2012 plan was valued at €512 thousand and was fully recognized in the consolidated statement of income (loss) for 2015 (G&A expenses) in the absence of vesting conditions.

Allocation of 3,585 BSA on August 31, 2015.

The main assumptions used to determine the fair value are:

•

Price of the underlying share: €37.52 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the BSA)

•

Risk-free rate: between (0.08) % (in line with the zero-coupon government bond rates curve);

•

Expected dividends: 0%;

•

Volatility: 22.5% based on the historical volatility observed on the NextBiotech index;

•

Expected maturity: 2.36 years.

The fair value of warrants allocated in April 2015 in relation to the 2012 plan was valued at €1,081 thousand and was fully recognized in the consolidated statement of income (loss) for 2015 (G&A expenses) in the absence of vesting conditions.

At the end of 2015, the subscription warrants for the 2012 plan are as follows:


Types of securities	BSPCE₂₀₁₂	BSA₂₀₁₂
Number of warrants that the company is authorized to issue, for all types of warrants	45,500
Number of warrants granted	33,788		10,760
Number of warrants exercised	16,352		5,525
Date of General Meeting	May 21, 2012
Exercise price per new share subscribed (in €)	€7,362
Final date for exercising warrants	May 20, 2020
Parity	1 warrant for 10 shares		1 warrant for 10 shares
General conditions of exercise	The warrants are exercisable as of their acquisition date
Maximum number of new shares that can be issued	231,730

“2014 Plan”

On January 22, 2014, the Board of Directors used the delegation granted by the mixed general shareholders meeting of April 2, 2013, to grant a free allocation of 22,500 founder share subscription warrants (hereinafter entitled BSPCE₂₀₁₄) to ERYTECH senior management (12,000) and to certain employees (10,500). 3,000 BSPCE₂₀₁₄ were converted to BSA₂₀₁₄.

Within the scope of the BSPCE₂₀₁₄/ BSA₂₀₁₄ plan, the Board of Directors meeting of May 6, 2016 allocated 5,000 BSPCE₂₀₁₄ to the employees.

At the end of 2017, the subscription warrants for the 2014 plan are as follows:


Types of securities	BSPCE₂₀₁₄	BSA₂₀₁₄
Number of warrants that the company is authorized to issue, for all types of warrants	22,500
Number of warrants granted	19,500	3,000
Number of warrants exercised	1,500	100
Number of obsolete warrants	1,090	0
Date of General Meeting	January 22, 2014
Exercise price per new share subscribed (in €)	€12,250
Final date for exercising warrants	January 22, 2024
Parity	1 warrant for 10 shares	1 warrant for 10 shares
General conditions of exercise	The warrants are exercisable as of their acquisition date
Maximum number of new shares that can be issued	198,100

In the event of a beneficiary departure from the Company for any reason whatsoever, this beneficiary shall retain the BSPCE₂₀₁₄ to which he subscribed prior to his departure. However, in the event of a beneficiary departure from the Company, for any reason whatsoever, prior to subscription of the BSPCE₂₀₁₄ to which the beneficiary has a right, the BSPCE₂₀₁₄ will be forfeited. In this situation, the BSPCE₂₀₁₄ not subscribed may be re-allocated to other beneficiaries within the same category and/or replacing the person who left the Company.

Following the resignation of Yann Godfrin in January 2016, 1,000 BSPCE of the 3,000 BSPCE initially allocated have been forfeited and will not be granted.

The main assumptions used to determine the fair value of the 5,000 BSPCE₂₀₁₄ allocated to employees are:

•

Price of the underlying share: €24.75 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the BSPCE)

•

Risk-free rate: between -0.18% and -0.11% according to the tranches (according to the zero-coupon government bond rates curve);

•

Expected dividends: 0%;

•

Volatility: 21.25% to 22.27% based on the historical volatility observed on the NextBiotech index;

•

Expected maturity: between 5 and 5.51 years in function of the tranches allocated.

The residual fair value of the plan was estimated at €636 thousand. This expense will be recorded gradually over the duration of the 2-year plan in accordance with IFRS 2 (graded vesting method). A personnel expense of €245 thousand was recognized in the consolidated statement of income (loss) (R&D for €165 thousand and G&A for €81 thousand), for the year ended December 31, 2017, €498 thousand for the year ended December 31, 2016. €1,133 thousand were recognized for the year ended December 31, 2015 for the previous allocation.

“2016 Plan”

On October 3, 2016, the Board of Directors used the delegation granted by the mixed general shareholders meeting of June 24, 2016, to grant a free allocation including on a service condition of 111,261 free shares (hereinafter entitled AGAP₂₀₁₆) to ERYTECH Pharma S.A senior management and employees, 44,499 stock options (hereinafter entitled SO₂₀₁₆) to ERYTECH Pharma, Inc. and 45,000 share subscription warrants (hereinafter entitled BSA₂₀₁₆) to members of the Board of Directors.

At the end of 2017, the subscription warrants for the 2016 plan are as follows:


Types of securities	AGAP₂₀₁₆	SO₂₀₁₆	BSA₂₀₁₆
Number of shares that the company is authorized to issue	350 000
Number of free shares / stock options / warrants granted	151,563	95,499	60,000
Date of General Meeting	03-oct-16 8-jan-17 27-jun-17 03-oct-17	03-oct-16 8-jan-17 27-jun-17 03-oct-17	03-oct-16 8-jan-17 27-jun-17 03-oct-17
Number of tranches	3	2	2
Vesting period	Tranche 1: 1 year Tranche 2: 2 years Tranche 3: 3 years	Tranche 1: 2 years Tranche 2: 3 years	Tranche 1: 1 year Tranche 2: 2 years
General conditions of exercise	Tranche 1 : 1 year Tranche 2 and 3 : NA	NA	NA
Maximum number of new shares that can be issued	142,972	95,499	60,000

Allocation of 111,261 free shares (AGAP₂₀₁₆) on October 3, 2016

The assumptions used to determine the fair value of these instruments are:

•

Price of the underlying share: €18.52 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGAP)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 45% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

•

Performance criteria: progression of the quoted market share price between the allocation date and the tranche acquisition date

•

ERYP2017: average price of the 40-quoted market share price days before the allocation date, which was €24.48

•

ERYPi : average price of the 40-quoted market share price days before the acquisition date,

•

Tri: ERYPi / (ERYP2017-1)

•

If TRi <=0 % no shares granted are acquired If Tri>100% all the shares granted are acquired

•

If 0%<TRi<100% shares granted are acquired following the TRi percentage

The fair value of the plan was estimated at €974 thousand. This expense will be recorded gradually over the duration of the 1-year, 2-year and 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €533 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €217 thousand and under G&A personnel expenses for €316 thousand, for the year ended December 31, 2017. For 2016 an expense of €151 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €61 thousand and under G&A personnel expense for €90 thousand.

Allocation of 44,499 stock options (SO₂₀₁₆) on October 3, 2016

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €18.52

•

Price of the underlying share: €18.52 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the SO)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 45% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €202 thousand. This expense will be recorded gradually over the duration of the 2-year and 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €90 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for the year ended December 31, 2017. An expense of €22 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for the year ended December 31, 2016.

Allocation of 45,000 share subscription warrants (BSA₂₀₁₆) on October 3, 2016

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €18.52

•

Price of the underlying share: €18.52 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the BSA)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 45% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €198 thousand. This expense will be recorded gradually over the duration of the 2-year plan in accordance with IFRS 2 (graded vesting method). An expense of €126 thousand was recognized in the consolidated statement of income (loss) under G&A expenses for the year ended December 31, 2017. An expense of €37 thousand was recognized in the consolidated statement of income (loss) under G&A expenses for the year ended December 31, 2016.

Allocation of 16,650 free shares (AGAP₂₀₁₆) on October 3, 2017

The assumptions used to determine the fair value of these instruments are:

•

Price of the underlying share: €24.48 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGAP)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €180 thousand. This expense will be recorded gradually over the duration of the 1-year, 2-year and 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €27 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €22 thousand and under G&A personnel expenses for €5 thousand, for the year ended December 31, 2017.

Allocation of 30,000 stock options (SO₂₀₁₆) on October 3, 2017

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €23.59

•

Price of the underlying share: €24.70 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the SO)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €208 thousand. This expense will be recorded gradually over the duration of the 2-year and 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €23 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €9 thousand and under G&A personnel expenses for €14 thousand, for the year ended December 31, 2017.

Allocation of 16,650 free shares (AGA₂₀₁₆) on October 3, 2017

The assumptions used to determine the fair value of these instruments are:

•

Price of the underlying share: €24.48 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGA)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

Allocation of 30,000 stock options (SO₂₀₁₆) on October 3, 2017

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €23.59

•

Price of the underlying share: €23.59 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGAP)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

“2017 Plan”

On June 27, 2017 and on October 3, 2017, the Board of Directors used the delegation granted by the mixed general shareholders meeting of June 27, 2017, to grant a free allocation including a service condition of 83,127 free shares (hereinafter entitled AGAP₂₀₁₇) to ERYTECH Pharma S.A senior management and employees, 40,200 stock options (hereinafter entitled SO₂₀₁₇) to ERYTECH Pharma, Inc. and 55,000 share subscription warrants (hereinafter entitled BSA₂₀₁₇) to members of the Board of Directors.

At the end of 2017, the subscription warrants for the 2017 plan are as follows:


Types of securities	AGAP₂₀₁₇	SO₂₀₁₇	BSA₂₀₁₇
Number of shares that the company is authorized to issue	420,000
Number of free shares / stock options / warrants granted	74,475	22,200	55,000
Date of General Meeting	27-June-17	27-June-17	27-June-17
Number of tranches	3	2	3
Vesting period	Tranche 1: 1 year Tranche 2: 2 years Tranche 3: 3 years	Tranche 1: 2 years Tranche 2: 3 years	Tranche 1: 1 year Tranche 2: 2 years Tranche 3: 3 years
General conditions of exercise	NA	NA	NA
Maximum number of new shares that can be issued	74,475	22,200	55,000

Allocation of 74,475 free shares (AGA₂₀₁₇) on June 27, 2017

The assumptions used to determine the fair value of these instruments are:

•

Price of the underlying share: €26.47 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGAP)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

•

Performance criteria: progression of the quoted market share price between the allocation date and the tranche acquisition date

•

ERYP2017: average price of the 40-quoted market share price days before the allocation date, which was €24.48

•

ERYPi: average price of the 40-quoted market share price days before the acquisition date,

•

Tri: ERYPi / (ERYP2017-1)

•

If TRi <=0 % no shares granted are acquired

•

If Tri>100% all the shares granted are acquired

•

If 0%<TRi<100% shares granted are acquired following the TRi percentage

The fair value of the plan was estimated at €1,081 thousand. This expense will be recorded gradually over the duration of the 1-year, 2-year and 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €348 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €180 thousand and under G&A personnel expenses for €168 thousand, for the year ended December 31, 2017.

Allocation of 22,200 stock options (SO₂₀₁₇) on June 27, 2017

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €26.47

•

Price of the underlying share: €26.47 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the SO)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €308 thousand. This expense will be recorded gradually over the duration of the 3-year plan in accordance with IFRS 2 (graded vesting method). An expense of €65 thousand was recognized in the consolidated statement of income (loss) under R&D personnel expenses for €50 thousand and under G&A personnel expenses for €15 thousand, for the year ended December 31, 2017.

Allocation of 55,000 share subscription warrants (BSA₂₀₁₇) on June 27, 2017

The assumptions used to determine the fair value of these instruments are:

•

Exercise price: €26.47

•

Price of the underlying share: €26.47 (based on the quoted market price of the ordinary shares of the Company as of the date of the Board of Directors that granted the AGA)

•

Attrition rate: 0%;

•

Expected dividends: 0%;

•

Volatility: 48% based on the historical volatility observed on the ERYP index;

•

Repo margin: 5%

•

Maturity: 3 years

The fair value of the plan was estimated at €394 thousand. This expense will be recorded gradually over the duration of the 2-year plan in accordance with IFRS 2 (graded vesting method). An expense of €165 thousand was recognized in the consolidated statement of income (loss) under G&A expenses for the year ended December 31, 2017.

Breakdown of allocations plan


Plan name	Amount in P&L in euros thousands as of December 31, 2017		of which employees		of which Executive		of which Directors
Allocation of AGAP on 3 October 2016		533		250		283		—
Allocation of SO on 3 October 2016		90		45		44		—
Allocation of BSA on 3 October 2016		126		—		—		126
Allocation of AGAP on 7 January 2017		92		—		92		—
Allocation of SO on 7 January 2017		46		46		—		—
Allocation of BSA on 7 January 2017		10		—		—		10
Total allocation October, 2016		896		*341*		*419*		*135*

Allocation of BSPCE on 6 May 2016		138		94		44		—
Allocation of BSPCE on 22 January 2014		7		—		7		—
Allocation of BSPCE on 1 September 2015		51		—		51		—
Allocation of BSA on 23 June 2015		50		—		50		—

Total allocation 2014		245		94		*152*		—

Allocation of AGAP on 26 June 2017		348		156		192		—
Allocation of SO on 26 June 2017		65		44		21		—
Allocation of BSA on 26 June 2017		165		—		—		165

Total allocation June, 2017		578		*200*		*213*		*165*

Allocation of AGAP on 3 October 2017		27		27		—		—
Allocation of SO on 3 October 2017		23		23		—		—

Total allocation October, 2017		49		49		—		—

TOTAL IFRS 2 EXPENSES		1,769		*685*		*784*		*300*


Plan name	Amount in P&L in euros thousands as of December 31, 2016		of which employees		of which Executive		of which Directors
Allocation of AGAP on 3 October 2016		151		71		80		—
Allocation of SO on 3 October 2016		22		11		11		—
Allocation of BSA on 3 October 2016		37		—		—		37
Allocation of AGAP on 7 January 2017		—		—		—		—
Allocation of SO on 7 January 2017		—		—		—		—
Allocation of BSA on 7 January 2017		—		—		—		—

Total allocation 10.2016		210		82		91		37

Allocation of BSPCE on 6 May 2016		498		339		159
Allocation of BSPCE on 22 January 2014		21		—		21		—
Allocation of BSPCE on 1 September 2015		261		—		261		—
Allocation of BSA on 23 June 2015		187		—		187		—

Total allocation 2014		968		*339*		*629*		—

Allocation of AGAP on 26 June 2017		—		—		—		—
Allocation of SO on 26 June 2017		—		—		—		—
Allocation of BSA on 26 June 2017		—		—		—		—

Total allocation 06.2017		—		—		—		—

Allocation of AGAP on 3 October 2017		—		—		—		—
Allocation of SO on 3 October 2017		—		—		—		—

Total allocation 10.2017		—		—		—		—

TOTAL IFRS 2 EXPENSES		1,178		*421*		*720*		37


Plan name	Amount in P&L in euros thousands as of December 31, 2015		of which employees		of which Executive		of which Directors
Allocation of BSPCE on 22 January 2014		12		—		12		—
Allocation of BSPCE on 23 June 2015		517		517		—		—
Allocation of BSPCE on 1 September 2015		209		—		209		—
Allocation of BSA on 23 June 2015		385		—		385		—

Total plan 2014		1,124		*517*		*607*		—

Allocation of BSA on 29 April 2015		512		—		—		512
Allocation of BSA on 31 August 2015		1,081		—		—		1,081

Total plan 2012		1,593		—		—		*1,593*

TOTAL IFRS 2 EXPENSES		2,716		*517*		*607*		*1,593*

5.4 Depreciation and amortization expense


	For the year ended December 31,
	2015		2016		2017
(in thousands of euros)
Clinical studies		224		252		169
Other research and development expenses		26		26		94

Research and development expenses		250		277		263
General and administrative expenses		39		148		266

Total		288		425		530

5.5 Financial income and expense


	For the year ended December 31,
	2015			2016			2017
(in thousands of euros)
Interest expense on finance leases		(5	)		(4	)		(8	)
Interest expense related to borrowings		—			—			(7	)
Interest expense on repayable loan		(25	)		—			—
Other finance expenses		(34	)		(66	)		(3,168	)

Total finance expense		(64	)		(70	)		(3,183	)
Income from short term deposits		523			545			405
Other finance income		108			13			134
Total finance income		631			558			539

		567			488			(2,644	)

Other finance expenses are related to foreign currency exchange losses related to the bank account in U.S. dollars and purchases of services in U.S. dollars.

Finance income consists of interest accrued on short term deposits as well as foreign exchange gains related to purchases of services in U.S. dollars.

Financial expenses increased significantly by €3,113 thousand as at December 31, 2017. These financial expenses are related mainly to the conversion into euros of the USD bank account as at December 31, 2017. The impact in the financial result is the difference of the exchange rate between the date of the global offering in the United States and a listing on Nasdaq (1€=1.1630$ on November 9, 2017) and the closing of the period (1€=1.1993$ on December 31, 2017).

5.6 Deferred tax balances

Reconciliation of effective tax rate


	For the year ended December 31,
	2015			2016			2017
(in thousands of euros)
Loss before tax		(15,016	)		(21,902	)		(33,533	)
Theoretical tax expense or income		5,170			7,541			11,545
Current year loss not capitalized		(5,001	)		(8,303	)		(12,071	)
CICE (employment and competitiveness tax credit) not included in taxable income		18			24			34
Research tax credits		764			1,144			1,097
Tax rate differences		(7	)		(51	)		0
Share-based compensation expense		(935	)		(398	)		(592	)
Permanent differences								(10	)
Other differences		(6	)		33			0

Effective tax (loss)/income		3			(10	)		3

As of December 31, 2015, 2016 and 2017, the amount of accumulated tax loss carryforwards since inception was €59,682 thousand, €80,281 thousand and €128,802 thousand respectively with no expiration date. The tax proof has been calculated based on the French tax rate which is 34.43%.

Notes Related to the Consolidated Statements of Financial Position

12 Months Ended

Dec. 31, 2017

6 NOTES RELATED TO THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

6.1 Intangible assets


	As of December 31,
(in thousands of euros)	2015			2016			2017
Other intangible assets		184			209			234

Total historical cost		184			209			234

Accumulated amortization of other intangible assets		(122	)		(152	)		(180	)

Total accumulated amortization and depreciation		(122	)		(152	)		(180	)

Total, net		61			57			53

6.2 Property, plant and equipment

At December 31, 2017, property, plant and equipment are composed as follows:


(in thousands of euros)	As of January 1, 2017			Increase			Decrease		As of December 31, 2017
Laboratory equipment		974								974
Assets under construction		862			868					1,730
Plant, equipment, and tooling		850			270			—		1,121
General equipment, fixtures and fittings		1,466			389			—		1,855
Office equipment and computers		531			137			—		668

Total gross value		4,684			1,664			—		6,349

Accumulated depreciation of laboratory equipment		(882	)		(48	)		—		(930	)
Accumulated depreciation of plant, equipment and tooling		(523	)		(118	)		—		(641	)
Accumulated depreciation of general equipment, fixtures and fittings		(909	)		(207	)		—		(1,116	)
Accumulated depreciation of office equipment and computers		(125	)		(129	)		—		(255	)

Total accumulated depreciation		(2,439	)		(503	)		—		(2,439	)

Total net value		2,245			1,161			—		3,407

Property, plant and equipment held under finance leases amounts to €203 thousand and €116 thousand as of December 31, 2016 and 2017, respectively.

At December 31, 2016, property, plant and equipment are composed as follows:


(in thousands of euros)	As of January 1, 2016			Increase			Decrease			As of December 31, 2016
Laboratory equipment		974									974
Assets under construction		44			862			(44	)		862
Plant, equipment, and tooling		727			123			—			850
General equipment, fixtures and fittings		1,079			387			—			1,466
Office equipment and computers		134			397			—			531

Total gross value		2,958			1,770			(44	)		4,684

Accumulated depreciation of laboratory equipment		(831	)		(51	)		—			(882	)
Accumulated depreciation of plant, equipment and tooling		(426	)		(98	)		—			(523	)
Accumulated depreciation of general equipment, fixtures and fittings		(733	)		(175	)		—			(909	)
Accumulated depreciation of office equipment and computers		(51	)		(74	)		—			(125	)

Total accumulated depreciation		(2,041	)		(398	)					(2,439	)

Total net value		918			1,372			(44	)		2,245

Property, plant and equipment held under finance leases amounts to €143 thousand and €203 thousand as of December 31, 2015 and 2016, respectively.

At December 31, 2015, property, plant and equipment are composed as follows:


(in thousands of euros)	As of January 1, 2015			Increase			Decrease			As of December 31, 2015
Laboratory equipment		974			—			—			974
Assets under construction		112			29			(98	)		44
Plant, equipment, and tooling		617			110			—			727
General equipment, fixtures and fittings		959			120			—			1,079
Office equipment and computers		76			59			—			134

Total gross value		2,738			318			(98	)		2,958

Accumulated depreciation of laboratory equipment		(753	)		(78	)		—			(831	)
Accumulated depreciation of plant, equipment and tooling		(346	)		(79	)		—			(426	)
Accumulated depreciation of general equipment, fixtures and fittings		(636	)		(98	)		—			(733	)
Accumulated depreciation of office equipment and computers		(36	)		(15	)		—			(51	)

Total accumulated depreciation		(1,771	)		(270	)		—			(2,041	)

Total net value		967			48			(98	)		918

6.3 Other non-current financial assets

The other non-current financial assets correspond mainly to deposits paid in relation to the rental of our premises for €97 thousand, €132 thousand and €168 thousand as of December 31, 2015, 2016 and 2017, respectively.

6.4 Inventories

As of December 31,

2015

2016

2017

(in thousands of euros)

Production inventory

104

Laboratory inventory

Total inventory

166

145

176

6.5 Trade and other receivables

The receivables relate mainly to the receivables on Orphan Europe as regards the re-invoicing of the clinical studies AML 2012-10 and NOPHO, and amounted to €424 thousand, €218 thousand and €76 thousand as of December 31, 2015, 2016 and 2017, respectively.

6.6 Other current assets


	As of December 31,
	2015		2016		2017
(in thousands of euros)
Research Tax Credit		3,743		3,321		3,326
Tax receivables (e.g. VAT) and other receivables		1,190		863		1,114
Cash to be received from bank related to exercise of warrants		553		—		23
Prepayments		220		339		1,327

Total		5,705		4,524		5,791

Research Tax Credit

The Company benefits from the provisions in Articles 244 quater B and 49 septies F of the French Tax Code related to the Research Tax Credit. In compliance with the principles described in Note 4.16, the Research Tax Credit is recognized in the consolidated statement of income (loss) in “other income” during the year in which the eligible research expenditures are incurred.

The amount as of December 31, 2017 is mainly the CIR receivable for the 2017 period.

Prepayments as at December 31, 2017 relate to the building leases for 2018 first quarter, the D&O insurance for one-year period amounting to €373 thousand and an invoice received for a payment in advance for purchase ordered from MEDAC for an amount of €570 thousand, for which the payment in advance occurred in January 2018.

6.7 Cash and cash equivalents

As of December 31,

(in thousands of euros)

2015

2016

2017

Cash and cash equivalents

45,634

37,646

185,525

Total cash and cash equivalents as reported in statement of financial position

45,634

37,646

185,525

Bank overdrafts

—

Total cash and cash equivalents as reported in statement of cash flow

45,634

37,646

185,515

At December 31, 2015, the cash position is composed of the following items: (i) €20.2 million in current accounts and (ii) €25.4 million in term deposits, with maturities of 1 month to 3 years, but readily available without penalty subject to a 32-day notice.

At December 31, 2016, the cash position is composed of the following items: (i) €10.6 million in current accounts and (ii) €27.0 million in term deposits, with maturities of 1 month to 3 years, but readily available without penalty subject to a 32-day notice.

At December 31, 2017, the cash position is composed of the following items: (i) €174.5 million in current accounts and (ii) €11.0 million in term deposits, with a maturity as of January 1, 2019, but readily available without penalty subject to a 32-day notice.

6.8 Shareholders’ equity

We manage our capital to ensure that the Company will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. Our capital structure consists of financial liabilities as detailed in Notes 6.10 offset by cash and bank balances and equity (comprising issued capital, reserves and retained earnings). We are not subject to any externally imposed capital requirements.

As of December 31, 2016, the capital of the Parent Company consisted of 8,732,648 shares, fully paid up, with a nominal value of 0.10 euro. Following the private placement completed in April 2017 and the IPO in November 2017, as well as the exercise of subscription warrants, the capital was increased to 17,937,559 shares with a nominal value of 0.10 euro as at December 31, 2017.


Nature of transactions	Number of shares
Balance as of January 1, 2015		6,882,761
Exercise of share warrants		101,850
Private placement with institutional investors		940,000
Balance as of January 1, 2016		7,924,611
Follow-on offering		793,877
Exercise of share warrants		14,160
Balance as of January 1, 2017		8,732,648
Exercise of share warrants		17,200
Free shares / Stock options / Share warrants		7,574
Private placement with institutional investors in April		3,000,000
Initial Public Offering (including 5,389,021 ordinary shares in the form of ADSs)		6,180,137

Total as of December 31, 2017		17,937,559

The costs of issuing ordinary shares amounted to €16,722 thousand and were deducted from the share premium increase. These costs were related to bank fees, legal counsels, advisors and auditors’ fees.

Basic earnings per share and diluted earnings (loss) per share


	For the year ended December 31,
(in thousands of euros)	2015			2016			2017
Net loss (in thousands of euros)		(15,013	)		(21,913	)		(33,530	)
Weighted number of shares for the period		6,957,654			7,983,642			11,370,557
Basic loss per share (€/share)		(2,16	)		(2.74	)		(2.95	)

Diluted loss per share (€/share)		(2.16	)		(2.74	)		(2.95	)

At December 31, 2015, 2016 and 2017, the potential shares that could be issued within the context of exercising warrants issued (455,330, 626,000 and 858,186 as at December 31, 2015, 2016 and 2017, respectively) were not taken into consideration in the calculation of the diluted earnings, as their effect would be anti-dilutive.

2,500 shares are held by the Company as treasury shares (and recognized as a deduction of shareholders’ equity) and will be cancelled.

6.9 Provisions

The provisions can be detailed as follows:

As of

December 31,

(in thousands of euros)

2015

2016

2017

Provision for retirement indemnities

100

163

214

Provisions for disputes

—

Total

181

163

214

The regime for retirement indemnities applicable at the Parent Company, is defined by the collective agreement for the pharmaceutical industry in France.

The Company recognizes actuarial differences in other comprehensive income. The pension commitments are not covered by plan assets. The portion of the provision for which the maturity is less than one year is not significant.

As part of the estimate of the retirement commitments, the following assumptions were used for all categories of employees:


	2015			2016			2017
Discount rate		2.03	%		1.36	%		1.30	%
Wage increase		2	%		2	%		2	%
Social welfare contribution rate		Non-executive 44	%		Non-executive 44	%		Non-executive 44	%
		Executive 54	%		Executive 54	%		Executive 54	%
Expected staff turnover		0-10	%		0-10	%		0-10	%
Age of retirement:		65-67 years			65-67 years			65-67 years
Mortality table		INSEE 2014			INSEE 2014			INSEE 2014

The Company has settled the dispute with BPI France related to the GR-SIL subsidy for €81 thousand as well as the residual conditional advance for €23 thousand. The reimbursement was made in January 2016 for €104 thousand.

The breakdown of provisions is as follows:


In thousands of euros	Opening		Other ⁽¹⁾			Provisions		Reversals		Closing
Period from January 1 to December 31, 2015
Retirement indemnity provision		89		(8	)		20		—		100
Provision for disputes		—		—			81