RISK FACTORS 4 result of the limited nature of our disaster recovery and business 4.7 continuity plans, which could have a material adverse effect RISKS RELATED TO FINANCES AND TAXATION on our business, financial condition, results of operations and prospects. We may lose access to research tax credits in the event of regulatory Our internal computer systems, or those of our collaborators or legislative changes or challenges by tax authorities. or other contractors or consultants, may fail or suffer security Since incorporation, we have received the CIR, which is granted breaches, which could result in a material disruption of our product to companies by the French tax authorities in order to encourage development programs. them to conduct technical and scientific research. For the year ended December 31, 2016, we recorded CIR in the amount Despite the implementation of security measures, our internal of approximately €2.9 mil lion, which was reimbursed in cash computer systems and those of our current and any future in August 2017. For the year ended December 31, 2017, we collaborators and other contractors or consultants are vulnerable recorded CIR in the amot of approximately €3.7 million, which un to damage from computer viruses, unauthorized access, natural we expect will be reimbursed during fiscal year 2018. disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system Companies demonstrating that they have expenditures that failure, accident or security breach, if such an event were to occur meet the required criteria, including research expenditures and cause interruptions in our operations, it could result in a located in France or, since January 1, 2005, within the European material disruption of our development programs and our business Community or in another State that is a party to the Agreement operations and delays in our research and development work, on the European Economic Area, or the EEA, that has concluded a whether due to a loss of our trade secrets or other proprietary tax treaty with France that contains an administrative assistance information or other similar disruptions. For example, the loss clause, receive a tax credit which can be used against the payment of clinical trial data from completed or future clinical trials could of the corporate tax due the fiscal year in which the expenditures result in delays in our regulatory approval efforts and significantly were made and during the next three fiscal years, or, as applicable, increase our costs to recover or reproduce the data. Any breach of can be reimbursed for the excess portion. The expenditures taken our data security, especially a breach resulting in the unauthorized into account for the calculation of the CIR only involve research use or disclosure of protected health information, personal ly expenses. identifiable information or other data subject to privacy laws, could damage our reputation and/or result in monetary damages or Legislative or regulatory changes relating to CIR or challenges other liabilities. To the extent that any disruption or security breachby the French tax authorities with respect to our research were to result in a loss of, or damage to, our data or applications, expenditures or our eligibility to receive CIR could have a material or inappropriate disclosure of confidential or proprietary adverse effect on our ability to operate our business and our information, we could incur liability, our competitive position could financial condition, results of operations and prospects. be harmed and the further development and commercialization of We may not be able to carry forward future losses as a result of our product candidates could be delayed. legislative or regulatory changes in corporate taxation in France. Related party transactions may be challenged by tax authorities. As of December 31, 2017, taking into account the net loss Many of the jurisdictions in which we conduct or may in the recorded during the year, our consolidated financial statements future conduct business have detailed transfer pricing rules showed accumulated tax losses to carry forward of €75.8 million. which require that al l transactions with related parties be As of the date of this Registration Document, these losses can be priced using arm’s-length pricing principles. Contemporaneous carried forward indefinitely and charged against future profits, in documentation must exist to support this pricing. The taxation accordance with current French tax laws. authorities in these jurisdictions could chal lenge our arm’s- In France, for financial years ending as from December 31, 2012, length related-party transfer pricing policies. International the set off of these losses is capped at €1 mil lion plus 50% of transfer pricing is an area of taxation that depends heavily on profits exceeding this cap. The unused balance of losses can be the underlying facts and circumstances and generally involves a carried forward to following financial years, and set off under the significant degree of judgment. If any of these taxation authorities same conditions with no time limit. are successful in chal lenging our transfer pricing policies, our income tax expense may be adversely affected and we could also We may not be able to set off prior losses against future profits, in be subjected to interest and penalty charges. Any increase in our whole or in part, in the event of legislative or regulatory changes income tax expense and related interest and penalties could have in corporate taxation, which could have an adverse effect on our a significant impact on our future earnings and future cash flows. results. GENSIGHT BIOLOGICS – 2017 Registration Document– 43