(000’s omitted)		Pro Forma Condensed Balance Sheet As of September 30, 2005
		Historical (Unaudited)			Pro Forma Adjustment			Pro Forma
Assets
Cash and cash equivalents		€	7,012		€	8,200		€	15,212
Receivables			909						909
Inventories			1,683						1,683
Prepaid expenses and other current assets			1,075						1,075
Total Current Assets			10,679			8,200			18,879
Property, manufacturing facility and equipment, net			8,526						8,526
Intangible and other assets, net			845						845
		€	20,050		€	8,200		€	28,250
Liabilities and Shareholders’ Equity
Payables, accruals, other current liabilities		€	3,368		€			€	3,368
Current maturities of long-term debt			895						895
Deferred income			350						350
Total Current Liabilities			4,613			—			4,613
Long-term debt, net of current maturities			2,577						2,577
Termination indemnities			693						693
Total Liabilities			7,883			—			7,883
Total Shareholders’ Equity			12,167			8,200			20,367
		€	20,050		€	8,200		€	28,250

-8-

---

 

The following table summarizes certain of our statement of operations data for the year ended December 31, 2004 on an actual basis and on a pro forma basis adjusted to reflect:

 

·	our receipt of the net proceeds from the sale of $8.010 million of our Series A senior convertible promissory notes from October through January 2005 as if we had received the net proceeds on January 1, 2004; and

 

·

our receipt and use of the net proceeds from the sale of 2,400,000 of our ordinary shares in June 2005 in our initial public offering and 300,000 of our ordinary shares in July 2005 from the exercise of part of the underwriters’ over-allotment option, after deducting underwriting discounts and commissions and offering expenses, as if we had received and used the net proceeds on January 1, 2004.

 

		Pro Forma Condensed Statement of Operations For the Year Ended December 31, 2004
(000s omitted except per share data)		Historical (Audited)			Pro Forma Adjustments			Pro Forma
Revenues:
Sales to affiliates		€	2,870		€			€	2,870
Third party product sales			243						243
Total product sales			3,113						3,113
Other income and revenues			583						583
Total revenues			3,696						3,696
Operating costs and expenses:
Cost of goods sold			2,579						2,579
Charges from affiliates			1,665						1,665
Research and development			2,922						2,922
General and administrative			815						815
Non-cash compensation			379						379
Depreciation and amortization			89						89
			8,449						8,449
Operating loss			(4,753	)					(4,753	)
Foreign currency exchange loss, net			(55	)					(55	)
Interest income (expense), net			(2,192	)		3,784			(5,976	)
Pre-tax loss			(7,000	)		3,784			(10,784	)
Income tax expense (benefit):
Current			65						65
Deferred			(37	)					(37	)
			28						28
Net loss		€	(7,028	)	€	3,784		€	(10,812	)

 

·

The net proceeds of our initial public offering were used to repay part of our Series A senior convertible promissory notes, loans from our affiliate Sirton and for working capital. In addition, at the time of our initial public offering, the holder of $2.912 million of our Series A notes elected to convert its notes into our ordinary shares.

 

·

If these transactions had occurred on January 1, 2004, the pro forma impact on our operating results for the year ended December 31, 2004 would have been that (i) we would not have incurred interest paid and accrued in the amount of €53 thousand and (ii) we would have incurred additional non-cash interest of €3.837 million from the write-off of the issue discount and debt issue costs associated with the portion of our Series A notes that were redeemed.

 

-9-

---

 

The following table summarizes certain of our statement of operations data for the nine months ended September 30, 2005 on an actual basis and on a pro forma basis adjusted to reflect:

 

·	our receipt and use of the net proceeds from the sale of $1.912 million of our Series A notes in January 2005 as if we had received and used the net proceeds on January 1, 2005; and

 

·

our receipt and use of the net proceeds from the sale of 2,400,000 of our ordinary shares in June 2005 in our initial public offering and 300,000 of our ordinary shares in July 2005 from the exercise of part of the underwriters’ over-allotment option after deducting underwriting discounts and commissions and offering expenses, as if we had received and used the net proceeds on January 1, 2004.

 

		Pro Forma Condensed Statement of Operations For the Nine Months Ended September 30, 2005
(000s omitted except per share data)		Historical (Unaudited)			Pro Forma Adjustments			Pro Forma
Revenues:
Sales to affiliates		€	1,900		€			€	1,900
Third party product sales			95						95
Total product sales			1,995						1,995
Other income and revenues			210						210
Total revenues			2,205						2,205
Operating costs and expenses:
Cost of goods sold			1,721						1,721
Charges from affiliates			781						781
Research and development			3,117						3,117
General and administrative			1,375						1,375
Non-cash compensation			363						363
Depreciation and amortization			78						78
			7,435						7,435
Operating loss			(5,230	)					(5,230	)
Foreign currency exchange loss, net			(435	)					(435	)
Interest income (expense), net			(4,197	)		258			(3,939	)
Pre-tax loss			(9,862	)		258			(9,604	)
Income tax benefit:
Current			48						48
Deferred			—						—
			48						48
Net loss		€	(9,910	)	€	258		€	(9,652	)

 

·

The net proceeds of our initial public offering were used to repay part of our Series A senior convertible promissory notes, loans from our affiliate Sirton on and for working capital. In addition, at the time of our initial public offering, the holder of $2.912 million of our Series A notes elected to convert its notes into our ordinary shares.

 

·

If these transactions had occurred on January 1, 2005, the pro forma impact on our operating results for the nine month period ended September 30, 2005 is that we would not have incurred interest paid and accrued in the amount of €258 thousand. Therefore, our operating results still reflect the non-cash interest expense from the write-off of the issue discount and debt issue costs associated with the redemption of a portion of our Series A notes.

 

-10-

---

 

RISK FACTORS

 

This offering involves a high degree of risk. You should carefully consider the risks described below, in conjunction with the other information and financial statements and related notes included elsewhere in this prospectus, before making an investment decision. You should pay particular attention to the fact that we conduct our operations in Italy and are governed by a legal and regulatory environment that in some respects differs significantly from the environment that prevails in other countries with which you may be familiar. Our business, financial condition or results of operations could be affected materially and adversely by any or all of these risks. In that event, the market price of our ordinary shares could decline and you could lose all or part of your investment.

 

Risks Relating to Our Business

 

We have generated limited revenues from commercial sales of our products to date, our revenues fluctuated significantly in 2003 compared to 2004 and in the nine months ended September 30, 2004 compared to the same period in 2005, and we do not know whether we will ever generate significant revenues or achieve profitability.

 

We are focused on product development and have generated limited revenue from commercial sales of our products to date. In 2003, we had revenues of €6.5 million and in 2004, we had revenues of €3.1 million, primarily from sales of active pharmaceutical ingredients and existing products to Sirton, our affiliate. Our 2004 revenues were substantially less than our 2003 revenues due to the need to temporarily cease operations for seven months in 2004 at our manufacturing facility for an upgrade to the facility and our increase in production at the facility in 2003 to stockpile inventory in anticipation of this cessation and because Sirton had a decrease in demand for some of the products we sell to them, as discussed below. In the nine months ended September 30, 2004, we had revenues of €2.463 million and in the nine months ended September 30, 2005 we had revenues of €2.205 million.

 

We do not expect our revenues to materially increase unless we are able to sell our product candidates, and we will continue to incur significant expenses as we research, develop, test and seek regulatory approval for these product candidates. While we were profitable in 2002 and 2003, we incurred a net loss of €581 thousand in 2001, a net loss of €7.0 million in 2004 and a net loss of €9.910 million for the nine months ended September 30, 2005. Our general and administrative expenses have increased as we added personnel to support our operations in connection with our development of our product candidates, internalized certain administrative services that were performed for us by our largest shareholder, FinSirton, and our affiliate, Sirton, and supported our operations in connection with being a public company. As a result, we anticipate incurring substantial and increasing losses for the foreseeable future. We cannot assure you that we will ever become profitable. If we fail to achieve profitability within the time frame expected by investors or securities analysts, the market price of our ordinary shares may decline.

 

Most of our revenues are from sales to Sirton, our affiliate; those sales have declined over the past several years and may continue to decline in the future.

 

Substantially all of our product sales in 2001, 2002 and 2003, approximately 92% of our product sales in 2004 and approximately 95% of our product sales in the nine months ended September 30, 2005 have been from the sale of our active pharmaceutical ingredients and products to Sirton, which has recently experienced financial difficulties. Sirton sells its finished products, including calcium heparin, primarily to one customer, Crinos, which sells them to the retail market. Calcium heparin, which is one of the active pharmaceuticals ingredients that we sell to Sirton to make into a finished product for sale by Crinos, has seen decreased demand over the past several years due to a new competitive product, low molecular weight heparin, made by Aventis and other companies. Also, Crinos has limited its sale of urokinase to a single dose, which has a more limited market than multiple doses. As a result, Sirton’s demand for these products has decreased over the past several years, and may continue to decrease over the next several years until and unless both we and Sirton develop new customers. If we and Sirton are unsuccessful at developing new customers and the demand for our products continues to decrease, it could increase our need for additional capital, and our business could be adversely affected.

 

We currently do not have any regulatory approvals to sell defibrotide to treat or prevent VOD or defibrotide to treat multiple myeloma or any of our other product candidates and we cannot guarantee that we will ever be able to sell any of these products anywhere in the world.

 

-11-

---

 

We must demonstrate that our product candidates satisfy rigorous standards of safety and effectiveness before the FDA, the European Commission and other regulatory authorities will approve the products for commercial marketing. We or others must conduct clinical trials of those products which must be approved by the FDA or other regulatory agencies. These trials are time consuming and expensive, and we cannot guarantee whether they will be successful. Currently, the only regulatory approvals we have relate to the use of defibrotide to prevent vascular disease with risk of thrombosis in Italy. We do not have approval to sell defibrotide to treat or prevent VOD, defibrotide to treat multiple myeloma or any of our other product candidates anywhere in the world. We will need to conduct significant additional research, preclinical testing and clinical testing before we can file applications with the FDA, the European Commission and other regulatory authorities for approval of our product candidates. In addition, to compete effectively, our future products must be easy to use, cost-effective and economical to manufacture on a commercial scale. We may not achieve any of these objectives, and, as a result, may not be able to sell any of our product candidates anywhere in the world.

 

Our most advanced product candidate, defibrotide to treat VOD with multiple-organ failure, has a very limited market and will not generate a large amount of revenue.

 

Our most advanced product candidate is defibrotide to treat VOD with multiple-organ failure, which the FDA has designated an “orphan drug.” Orphan drug status is granted to products that treat rare diseases or conditions and generally means that fewer than 200,000 people are affected by the disease or condition. We believe that as few as 1,500 people in the United States may need treatment for VOD with multiple-organ failure each year. As a result, we believe that there is a very limited market for this use of defibrotide, and we do not expect to generate a large amount of revenue from sales of defibrotide to treat VOD with multiple-organ failure.

 

The FDA and other regulatory authorities may require us to conduct a new clinical trial of defibrotide to treat VOD with multiple-organ failure using a control group.

 

The Dana-Farber Cancer Institute at Harvard University conducted a Phase II clinical trial in the United States for the use of defibrotide to treat VOD with multiple-organ failure that concluded in December 2005. Based on our review of more than 200 articles in the medical literature, we believe that the survival rate for this disease is only approximately 20%. As a result of this fact and the fact that we and the clinical investigators believe that there are no approved treatments available at this time, the clinical investigators did not establish a control group of patients who do not receive the drug, as is customarily done in the FDA approval process. The FDA has stated a preference for a double-blind study that utilizes a control group but indicated that they would review a trial using a historical control only. Our Phase III clinical trial that is currently underway uses historical control only. The FDA, upon reviewing this trial, may require us to conduct a new clinical trial using a control group and other regulatory authorities may take the same position. This could significantly delay the filing of a New Drug Application with the FDA or applications for other regulatory approval for this use because one or more of the clinical centers where the clinical trial is to be conducted may not be willing to conduct such a clinical trials on the basis that it is unethical to refuse treatment to patients when the treatment being investigated could potentially save their lives. The committee of clinical investigators who sponsored a Phase II/III clinical trial of defibrotide to treat VOD in Europe conducted by Consorzio Mario Negri Sud, which had a control group, cancelled the trial in October 2005 due to a lack of patients enrolling. We believe that patients were reluctant to enroll due to the possibility of being placed into the control group and not receiving treatment. A requirement for a control group would also require the expenditure of more funds on clinical trials and delay our ability to generate revenue from this product candidate.

 

Our additional product candidates are at early stages of development and will require clinical trials which may not be successful.

 

We intend to apply for FDA and other regulatory agency approval for our additional product candidates, including other uses of defibrotide, in the future, and these additional product candidates will require that we conduct clinical trials and undergo the regulatory approval process. The commencement and completion of these clinical trials could be delayed or prevented by a variety of factors, including:

 

·  delays in identifying and reaching agreement on acceptable terms with institutional review boards of clinical trial providers and prospective clinical trial sites;

 

·  delays in obtaining FDA or other regulatory agency clearance to commence a clinical trial;

 

·  delays in the enrollment of patients;

 

·  lack of effectiveness of the product candidate during clinical trials; or

 

·  adverse events or safety issues.

 

We do not know whether these future clinical trials will be initiated or completed at all. Significant delays in clinical trials will impede our ability to commercialize these additional product candidates and generate revenue, and could significantly increase our development costs.

 

-12-

---

 

We may be required to suspend or discontinue clinical trials, including due to adverse events or other safety issues that could preclude approval of our products or due to difficulty enrolling participants.

 

Our clinical trials may be suspended at any time for a number of safety-related reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that our product candidates present an unacceptable risk to the clinical trial patients. In addition, institutional review boards of clinical trial providers or regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, including if they present an unacceptable safety risk to patients.

 

Administering any product candidate to humans may produce undesirable side effects. VOD and VOD with multiple-organ failure are complications associated with high dose chemotherapy and stem cell transplantation. Adverse events involving vascular disorders, coagulation, and potentially life-threatening bleeding have been reported in patients with VOD treated with defibrotide which potentially could be related to the defibrotide therapy. Hypotension has been reported as a possibly related serious adverse event in the trials of defibrotide to treat VOD with multiple-organ failure. Also, we discontinued a 69-patient Phase I/II clinical trial of defibrotide to prevent deep vein thrombosis after hip surgery in Denmark in 2002 after three patients experienced hypotension after receiving the defibrotide intravenously. That trial was discontinued due to the hypotension and because defibrotide can also be administered orally to prevent deep vein thrombosis. These adverse events reports will be weighed by FDA and other regulatory authorities in determining whether defibrotide can, from a risk-benefit perspective, be considered to be safe and effective to treat VOD with multiple-organ failure, to prevent deep vein thrombosis or any other indication for which approval is sought.

 

It is possible that as further data are collected and analyzed, additional adverse events or safety issues could emerge which could impact conclusions relating to the safety of these additional product candidates. As one of our current products and many of our product candidates utilize or will utilize defibrotide, any problems that arise from the use of this drug would severely harm our business operations, since most of our anticipated primary revenue sources would be negatively affected.

 

Furthermore, the committee of clinical investigators who sponsored a Phase II/III clinical trial of defibrotide to treat VOD in Europe that was conducted by Consorzio Mario Negri Sud cancelled the trial in October 2005 due to a lack of enrollees. In addition, the National Institute of Tumors in Milan cancelled a Phase I clinical trial of defibrotide to increase the number of stem cells available for transplant in December 2005 due to a lack of eligible enrollees. We are co-sponsoring with the European Group for Blood and Marrow Transplantation a Phase II/III clinical trial in Europe of defibrotide to prevent VOD in children, which is scheduled to begin enrolling participants in the first quarter of 2006, and a Phase II/III clinical trial in Europe of defibrotide to prevent VOD and transplant associated microangiopathy in adults, which is scheduled to begin enrolling participants in the second quarter of 2006. The participants in both of these trials will randomly receive either defibrotide or no treatment. We may have difficulty enrolling participants in these trials as patients may be reluctant to take the risk of not receiving treatment with defibrotide. Our other clinical trials may also be discontinued if we or the sponsors are not successful in enrolling participants.

 

Our products could be subject to restrictions or withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements, if and when any of our product candidates are approved.

 

Any product for which we obtain marketing approval, together with the manufacturing processes, post-approval commitments, and advertising and promotional activities for such product, will be subject to continued regulation by the FDA and other regulatory agencies. Later discovery of previously unknown problems with our products or their manufacture, or failure to comply with regulatory requirements, may result in:

 

·  restrictions on such products or manufacturing processes;

 

·  withdrawal of the products from the market;

 

·  voluntary or mandatory recalls;

 

·  fines;

 

·  suspension of regulatory approvals;

 

·  product seizures; or

 

-13-

---

 

·  injunctions or the imposition of civil or criminal penalties.

 

If we are slow to adapt, or unable to adapt, to changes in existing regulatory requirements or adoption of new regulatory requirements or policies, we may lose marketing approval for our products when and if any of them are approved.

 

Our manufacturing facility is subject to continuing regulation by Italian authorities and is subject to inspection and regulation by the FDA and European regulatory. These authorities could force us to stop manufacturing our products if they determine that we are not complying with applicable regulations or require us to complete further costly alterations to our facility.

 

Although our main business is discovering, researching and developing drugs, we also manufacture drugs, active pharmaceutical ingredients and other products at our manufacturing facility located near Como, Italy. This facility is subject to continuing regulation by the Italian Health Authority and other Italian regulatory authorities. During a biannual inspection of our manufacturing facility by the Italian Health Authority in October 2004, the Italian Health Authority noted by way of observations certain deficiencies in regard to the operation of our facility. We are committed to complete appropriate corrective action prior to the next bi-annual inspection, and have kept the Italian Health Authority current with respect to the progress of our corrective actions, the majority of which has been completed. No penalties were imposed, our facility was not shut down and our manufacturing activities were not otherwise limited or curtailed as a result of the Italian Health Authorities’ notation of these deficiencies.

 

Our manufacturing facility is subject to inspection and regulation by the FDA and European regulatory authorities with respect to manufacturing our product candidates for investigational use. Also, part of the process for obtaining approval from the FDA and European regulatory authorities for our product candidates is approval by those authorities of our manufacturing facility’s compliance with current good manufacturing practices. After receiving initial approval, if any, the FDA or those European regulatory authorities will continue to inspect our manufacturing facility, including inspecting it unannounced, to confirm whether we are complying with the good manufacturing practices.

 

These regulators may require us to stop manufacturing our products and product candidates if they determine that we are not complying with applicable regulations or require us to complete costly alterations to our facility. We spent approximately €292 thousand in 2004 to correct the deficiencies noted by the Italian Health Authority and spent approximately €200 thousand in 2005 to complete these corrective actions. We spent approximately €7.2 million in 2004 to substantially upgrade our facility in anticipation of the FDA and European regulatory approval process for our product candidates.

 

If our third-party clinical trial vendors fail to comply with strict regulations, the clinical trials for our product candidates may be delayed or unsuccessful.

 

We do not have the personnel capacity to conduct or manage all of the clinical trials that we intend for our product candidates. We rely on third parties to assist us in managing, monitoring and conducting most of our clinical trials. We entered into a clinical trial agreement with the Dana-Farber Cancer Institute at Harvard University regarding a Phase II clinical trial of defibrotide to treat VOD with multiple-organ failure that concluded in December 2005. We have entered into similar arrangements with other clinical research organizations, including the European Group for Blood and Marrow Transplantation, which is co-sponsoring with us a Phase II/III clinical trial of defibrotide to prevent VOD in children in Europe and a Phase II/III clinical trial of defibrotide to prevent VOD and transplant associated microangiopathy in adults in Europe, both of which are scheduled to begin enrolling patients in 2006. We have entered into an agreement with Bradstreet Clinical Research & Associates, Inc. to perform clinical research project management services in connection with clinical trials conducted in the United States and agreements with KKS-UKT, GmbH and MDS Pharma Services Italy SpA to provide such services for our clinical trials in Europe. If these third parties fail to comply with applicable regulations or do not adequately fulfill their obligations under the terms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the clinical trials for our product candidates may be delayed or unsuccessful.

 

Furthermore, the FDA can be expected to inspect some or all of the clinical sites participating in our clinical trials, or our third party vendors’ sites, to determine if our clinical trials are being conducted according to current good clinical practices. If the FDA determines that our third-party vendors are not in compliance with applicable regulations, we may be required to delay, repeat or terminate the clinical trials. Any delay, repetition or termination of our clinical trials could materially harm our business.

 

-14-

---