UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 20-F



(Mark One)

| | ☐ | REGISTRATION
                                         STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



OR

| | ☒ | ANNUAL
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



OR

| | ☐ | TRANSITION
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to .
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



OR

| | ☐ | SHELL
                                         COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Date of event requiring this shell company report
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Commission
file number: 	001-36826



Advanced
Accelerator Applications S.A.(Exact name of Registrant as specified in its charter)



France
(Jurisdiction of incorporation or organization)



20 rue Diesel01630 Saint Genis Pouilly, France
(Address of principal executive offices)Heinz Mäusli+33 (0) 4 50 99 30 70
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person) Copies to:



John Crowley
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017



Securities registered or to be registered
pursuant to Section 12(b) of the Act:

|Title
        of each class                                                                | Name
        of each exchange on which registered
|------------------------------------------------------------------------------------------ | -------------------------------------------------
|American Depositary Shares, each representing 2 Ordinary Shares, par value €0.10 per share | The NASDAQ Global Select Market                  
|Ordinary Shares, par value €0.10 per share                                                 | The NASDAQ Global Select Market*                 



| | * | Not listed for trading, only in connection with the listing
of the American Depositary Shares on The NASDAQ Global Select Market.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



Securities registered or to be registered
pursuant to Section 12(g) of the Act:



None



Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:



None



Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report: 87,952,657 Ordinary Shares,
par value €0.10 per share.



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.



Yes ☐               	No ☒



If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.



Yes ☐               	No ☒



Note – Checking the box above will not relieve
any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations
under those Sections.



Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.



Yes ☒	               No
☐



If applicable, place an X in the box to designate the appropriate
rule provision relied upon in conducting this transaction:



Exchange Act Rule 13e-4(i) (Cross-Border
Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act. (Check one):



|Large Accelerated Filer  ☒ | Accelerated Filer  ☐ | Non-accelerated Filer  ☐
|-------------------------- | -------------------- | ------------------------



Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:



|☐U.S. GAAP | ☒International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐Other
|---------- | ------------------------------------------------------------------------------------------------------ | ------



If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow.



☐ Item 17               	☐ Item 18



If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes ☐	               No
☒


















Advanced
Accelerator Applications S.A.



TABLE
OF CONTENTS








|PRESENTATION OF FINANCIAL AND OTHER INFORMATION               | iii
|------------------------------------------------------------- | ---
|FORWARD-LOOKING STATEMENTS                                    | iv 
|ENFORCEMENT OF JUDGMENTS                                      | vi 
|PART I                                                        | 1  
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1  
|A.   Directors and Senior Management                          | 1  
|B.   Advisers                                                 | 1  
|C.   Auditors                                                 | 1  
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE               | 1  
|A.   Offer Statistics                                         | 1  
|B.   Method and Expected Timetable                            | 1  
|ITEM 3. KEY INFORMATION                                       | 1  
|A.   Selected Financial Data                                  | 1  
|B.   Capitalization and Indebtedness                          | 6  
|C.   Reasons for the Offer and Use of Proceeds                | 6  
|D.   Risk Factors                                             | 6  
|ITEM 4. INFORMATION ON THE COMPANY                            | 43 
|A.   History and Development of the Company                   | 43 
|B.   Business Overview                                        | 44 
|C.   Organizational Structure                                 | 95 
|D.   Property, Plant and Equipment                            | 95 
|ITEM 4A. UNRESOLVED STAFF COMMENTS                            | 97 
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS          | 97 
|A.   Operating Results                                        | 97 
|B.   Liquidity and Capital Resources                          | 108
|C.   Research and Development, Patents and Licenses, etc.     | 116
|D.   Trend Information                                        | 117
|E.   Off-balance Sheet Arrangements                           | 117
|F.   Tabular Disclosure of Contractual Obligations            | 117
|G.   Safe Harbor                                              | 117
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            | 118
|A.   Directors and Senior Management                          | 118
|B.   Compensation                                             | 120
|C.   Board Practices                                          | 123
|D.   Employees                                                | 125
|E.   Share Ownership                                          | 125
|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS     | 126
|A.   Major Shareholders                                       | 126
|B.   Related Party Transactions                               | 127
|C.   Interests of Experts and Counsel                         | 129
|ITEM 8. FINANCIAL INFORMATION                                 | 130
|A.   Consolidated Statements and Other Financial Information  | 130
|B.   Significant Changes                                      | 130
|ITEM 9. THE OFFER AND LISTING                                 | 131
|A.   Offering and Listing Details                             | 131
|B.   Plan of Distribution                                     | 131
|C.   Markets                                                  | 131
|D.   Selling Shareholders                                     | 131
|E.   Dilution                                                 | 131
|F.   Expenses of the Issue                                    | 131





i


Table of Contents




|ITEM 10. ADDITIONAL INFORMATION                                                       | 132
|------------------------------------------------------------------------------------- | ---
|A.   Share Capital                                                                    | 132
|B.   Articles of Association                                                          | 132
|C.   Material Contracts                                                               | 147
|D.   Exchange Controls                                                                | 147
|E.   Taxation                                                                         | 147
|F.   Dividends and Paying Agents                                                      | 153
|G.   Statement by Experts                                                             | 153
|H.   Documents on Display                                                             | 153
|I.   Subsidiary Information                                                           | 153
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   | 154
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       | 155
|A.   Debt Securities                                                                  | 155
|B.   Warrants and Rights                                                              | 155
|C.   Other Securities                                                                 | 155
|D.   American Depositary Shares                                                       | 155
|PART II                                                                               | 157
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              | 157
|A.   Defaults                                                                         | 157
|B.   Arrears and Delinquencies                                                        | 157
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 157
|A.   Material modifications to instruments                                            | 157
|B.   Material modifications to rights                                                 | 157
|C.   Withdrawal or substitution of assets                                             | 157
|D.   Change in trustees or paying agents                                              | 157
|E.   Use of proceeds                                                                  | 157
|ITEM 15. CONTROLS AND PROCEDURES                                                      | 158
|A.    Disclosure Controls and Procedures                                              | 158
|B.   Management’s Annual Report on Internal Control over Financial Reporting          | 158
|C.   Attestation Report of the Registered Public Accounting Firm                      | 160
|D.   Changes in Internal Control over Financial Reporting                             | 160
|ITEM 16. [RESERVED]                                                                   | 160
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            | 160
|ITEM 16B. CODE OF ETHICS                                                              | 161
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      | 161
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  | 161
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      | 161
|ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT                                | 161
|ITEM 16G. CORPORATE GOVERNANCE                                                        | 161
|ITEM 16H. MINE SAFETY DISCLOSURE                                                      | 161
|PART III                                                                              | 162
|ITEM 17. FINANCIAL STATEMENTS                                                         | 162
|ITEM 18. FINANCIAL STATEMENTS                                                         | 162
|ITEM 19. EXHIBITS                                                                     | 162
|Index to Financial Statements                                                         | F-1







ii


Table of Contents




PRESENTATION
OF FINANCIAL AND OTHER INFORMATION



Certain Definitions



Unless otherwise indicated or the context
otherwise requires, all references in this annual report on Form 20-F to “AAA” or the “Company,” “we,”
“our,” “ours,” “us” or similar terms refer to Advanced Accelerator Applications S.A., together
with its subsidiaries.



Unless the context otherwise indicates
or requires, all product names and trade names used in this Annual Report are our trademarks, some of which may be registered in
certain jurisdictions. Although we have omitted the “®”and “TM” trademark designations for some of
such marks in this Annual Report, all rights to such trademarks are nevertheless reserved.



Financial Statements



Our consolidated financial statements are
presented in Euros. All references in this annual report on Form 20-F to “$,” “US$,” “U.S. dollars,”
“dollars” and “USD” mean U.S. dollars and all references to “€” and “Euros”
mean Euros, unless otherwise noted. Throughout this annual report on Form 20-F references to ADSs mean ADSs or ordinary shares
represented by ADSs, as the case may be.



Unless indicated otherwise, all U.S. dollar
amounts are converted from Euros at the noon buying rate (as certified by the Federal Reserve Bank of New York) of €1.00=US$1.0552
at December 31, 2016. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates” for
information regarding exchange rates for the Euro since 2011.



We maintain our books and records in Euros
and prepare our consolidated financial statements in accordance with the International Financial Reporting Standards, or IFRS,
as issued by the International Accounting Standards Board. The financial information contained in this annual report on Form 20-F
includes our consolidated financial statements at and for the years ended December 31, 2016, 2015 and 2014, which have been audited
by KPMG S.A., independent accountants as stated in their report appearing herein.



Our fiscal year ends on December 31. References
in this annual report to a fiscal year, such as “fiscal year 2016,” relate to our fiscal year ended on December 31
of that calendar year.



Market Share and Other Information



Market data and certain industry forecast
data used in this annual report on Form 20-F were obtained from internal reports and studies, where appropriate, such as the 2016
and 2017 MEDraysintell editions “Nuclear medicine – World Market Report & Directory,” an April 2014 report
from Bio-Tech Systems, Inc. and data from published studies by doctors and medical professionals relating to clinical data, as
well as estimates, market research, publicly available information and industry publications. Industry publications generally state
that the information they include has been obtained from sources believed to be reliable, but that the accuracy and completeness
of such information is not guaranteed. However, we believe such data is accurate and agree that we are responsible for the accurate
extraction of such information from such sources and its correct reproduction in this annual report on Form 20-F.



Rounding



We have made rounding adjustments to some
of the figures included in this annual report on Form 20-F. Accordingly, numerical figures shown as totals in some tables or in
certain discussions may not be an arithmetic aggregation of the figures that preceded them.



iii


Table of Contents




FORWARD-LOOKING
STATEMENTS



This annual report on Form 20-F contains
statements that constitute forward-looking statements. Many of the forward-looking statements contained in this annual report on
Form 20-F can be identified by the use of forward-looking words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “plan,”
“potential,” “predict” “project,” “should,” “target,” “will”
and “would,” among others.



Forward-looking statements appear in a
number of places in this annual report on Form 20-F and include, but are not limited to, statements regarding our intent, belief
or current expectations. Forward-looking statements are based on our management’s beliefs and assumptions and on information
currently available to our management. Such statements are subject to risks and uncertainties, and actual results may differ materially
from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those
identified under the section entitled “Risk Factors” in this annual report on Form 20-F. These risks and uncertainties
include factors relating to:



| | · | the timing of, and our ability to, obtain and/or maintain regulatory approvals for our products and product candidates and
the rate and degree of market acceptance of our products and product candidates, including lutetium Lu 177 dotatate (Lutathera®);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to successfully commercialize lutetium Lu 177 dotatate (Lutathera®), our Somakit products (NETSPOT® and
SomaKit TOCTM) and our other product candidates;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to secure all necessary authorizations and licenses to manufacture lutetium Lu 177 dotatate (Lutathera®) at
our Millburn, NJ production site;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our estimates regarding the market opportunity for our existing products, lutetium Lu 177 dotatate (Lutathera®) and our
other product candidates;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to maintain or expand sales of Gluscan and our other products;
| | - | --------------------------------------------------------------------------



| | · | the clinical utility of lutetium Lu 177 dotatate (Lutathera®), our Somakit products, Annexin V-128 and our other product
candidates;
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | the expected timeline of our completion of the required trial results analysis for lutetium Lu 177 dotatate (Lutathera®)
and other product candidates, including clinical trial milestones, analysis of primary endpoints, primary events, anticipated timing
for conclusion of data analysis and related events;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to identify, develop and advance new targets to create additional product candidates;
| | - | -------------------------------------------------------------------------------------------------



| | · | the expected timeline of our development program for our product candidates, including statements about clinical trials and
regulatory milestone dates;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to maintain orphan drug status or otherwise gain or maintain other protection from competition for lutetium Lu
177 dotatate (Lutathera®) and our other product candidates;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the occurrence of side effects or SAEs caused by or associated with diagnostic and therapeutic products and product candidates;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | our plans to pursue R&D in connection with our product candidates;
| | - | ------------------------------------------------------------------



| | · | the extensive costs, time and uncertainty associated with new product development, including new and existing product development
in cooperation with a development partner or partners;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to procure adequate quantities of necessary supplies and raw materials, including Lu-177 for lutetium Lu 177 dotatate
(Lutathera®), and other chemical compounds that are acceptable for use in our manufacturing processes from our suppliers;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





iv


Table of Contents




| | · | our ability to implement our growth strategy, including geographic and manufacturing expansion in the United States;
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | our ability to sustain and create additional sales, marketing and distribution capabilities;
| | - | --------------------------------------------------------------------------------------------



| | · | our ability to organize timely and safe delivery of our products and product candidates by third parties;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | problems with the manufacture, quality or performance of our products and product candidates;
| | - | ---------------------------------------------------------------------------------------------



| | · | our belief that our relationships with our industry partners will continue without disruption;
| | - | ----------------------------------------------------------------------------------------------



| | · | our anticipation that we will generate higher sales as we diversify our sales base by increasing the number of products we
offer;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | our intellectual property and licensing position;
| | - | -------------------------------------------------



| | · | the success of operating initiatives, including advertising and promotional efforts and new product and concept development
by us and our competitors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to successfully identify, integrate and complete acquisitions and achieve expected synergies, and the reliability
and quality of clinical data and products of our acquisition targets;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to compete and conduct our business in the future;
| | - | --------------------------------------------------------------



| | · | the impact of geographic and product mix on our total sales and net income (loss);
| | - | ----------------------------------------------------------------------------------



| | · | the availability of qualified personnel and our ability to motivate and retain such personnel;
| | - | ----------------------------------------------------------------------------------------------



| | · | changes in commodity costs, labor, distribution and other operating costs, or in our estimates of our decommissioning and decontamination
costs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in government regulation and tax matters;
| | - | -------------------------------------------------



| | · | legislation or regulation in countries where we sell our products and product candidates that affect product pricing, reimbursement,
access or distribution channels;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fluctuations in inflation and exchange rates in Europe, the United States, and elsewhere;
| | - | -----------------------------------------------------------------------------------------



| | · | general economic, political, demographic and business conditions in Europe, the United States and elsewhere;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | other factors that may affect our financial condition, liquidity and results of operations; and
| | - | -----------------------------------------------------------------------------------------------



| | · | other risk factors discussed under “Item 3. Key Information—D. Risk Factors.”
| | - | -----------------------------------------------------------------------------



Forward-looking statements speak only as
of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments
or to release publicly any revisions to these statements in order to reflect later events or circumstances or to reflect the occurrence
of unanticipated events except as required by law.



v


Table of Contents




ENFORCEMENT
OF JUDGMENTS



We are a corporation organized under the
laws of France. The majority of our directors are citizens and residents of countries other than the United States, and the majority
of our assets are located outside of the United States. Accordingly, it may be difficult for investors:



| | · | to obtain jurisdiction over us or our non-U.S. resident officers and directors in U.S. courts in actions predicated on the
civil liability provisions of the U.S. federal securities laws;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | to enforce judgments obtained in such actions against us or our non-U.S. resident officers and directors;
| | - | ---------------------------------------------------------------------------------------------------------



| | · | to bring an original action in a French court to enforce liabilities based upon the U.S. federal securities laws against us
or our non-U.S. resident officers or directors; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | to enforce against us or our directors in non-U.S. courts, including French courts, judgments of U.S. courts predicated upon
the civil liability provisions of the U.S. federal securities laws.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Nevertheless, a final judgment for the
payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated
solely upon the U.S. federal securities laws, would be recognized and enforced in France provided that a French judge considers
that this judgment meets the French legal requirements concerning the recognition and the enforcement of foreign judgments and
is capable of being immediately enforced in the United States. A French court is therefore likely to grant the enforcement of a
foreign judgment without a review of the merits of the underlying claim, only if (1) the foreign court has indirect jurisdiction,
based on the connection between the dispute and the court seized, (2) the judgment is not contrary to substantive and procedural
international public policy and (3) the judgment is not tainted with fraud. The French court would also require that the U.S. judgment
is not incompatible with a judgment rendered by a French court in the same matter, or with an earlier judgment rendered by a foreign
court in the same matter.



In addition, French Law guarantees full
compensation for the harm suffered but is limited to the actual damages, so that the victim does not suffer or benefit from the
situation. Such system excludes damages such as, but not limited to, punitive and exemplary damages.



As a result, the enforcement, by U.S. investors,
of any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities
law against us or members of our board of directors, officers or certain experts named herein who are residents of France or countries
other than the United States would be subject to the above conditions.



Finally, there may be doubt as to whether
a French court would impose civil liability on us, the members of our board of directors, our officers or certain experts named
herein in an original action predicated solely upon the U.S. federal securities laws brought in a court of competent jurisdiction
in France against us or such members, officers or experts, respectively.



vi


Table of Contents




PART I



ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS



A.       Directors and
Senior Management



Not applicable.



B.       Advisers



Not applicable.



C.       Auditors



Not applicable.



ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE



A.       Offer Statistics



Not applicable.



B.       Method and
Expected Timetable



Not applicable.



ITEM 3. KEY INFORMATION



A.       Selected Financial
Data



The income statement and statement of financial
position data as of and for the years ended December 31, 2016, 2015, and 2014 for AAA are derived from our consolidated financial
statements included elsewhere in this annual report on Form 20-F, which have been audited by KPMG S.A., an independent registered
public accounting firm, as stated in their report appearing herein. We have derived our income statement and statement of financial
position data as of and for the year ended December 31, 2013 and 2012 from our Annual Consolidated Financial Statements not included
in this annual report on Form 20-F.



We maintain our books and records in Euros
and prepare our consolidated financial statements in accordance with IFRS.



This financial information should be read
in conjunction with “Presentation of Financial and Other Information,” “Item 5. Operating and Financial Review
and Prospects—A. Operating Results” and our consolidated financial statements, including the notes thereto, included
elsewhere in this annual report on Form 20-F. Our historical results are not necessarily indicative of results for future periods.



|                                                                                     |  | Year Ended December 31,                                                                      
|------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------
|                                                                                     |  | 2016                                                                                         
|                                                                                     |  | US$(1)                                                                                       
|                                                                                     |  | (US Dollars and Euros in thousands unless otherwise noted except share and per share amounts)
|Consolidated Statements of Income:                                                   |  |                                                                                              
|Sales                                                                                |  |                                                                                              
|Raw materials and consumables used                                                   |  |                                                                                              
|Personnel costs                                                                      |  |                                                                                              
|Other operating expenses                                                             |  |                                                                                              
|Other operating income                                                               |  |                                                                                              
|Depreciation and amortization                                                        |  |                                                                                              
|Operating loss                                                                       |  |                                                                                              
|Finance income (including changes in fair value of contingent consideration)         |  |                                                                                              
|Finance costs (including changes in fair value of contingent consideration)          |  |                                                                                              
|Financial loss                                                                       |  |                                                                                              
|Loss before income taxes                                                             |  |                                                                                              
|Income taxes                                                                         |  |                                                                                              
|Net loss for the period                                                              |  |                                                                                              
|Attributable to owners of the company                                                |  |                                                                                              
|Non-controlling interests                                                            |  |                                                                                              
|Loss per share:                                                                      |  |                                                                                              
|Basic (US$ and € per share)                                                          |  |                                                                                              
|Diluted (US$ and € per share)                                                        |  |                                                                                              
|Weighted average ordinary shares outstanding used
    in computing per share amounts |  |                                                                                              
|Basic                                                                                |  |                                                                                              
|Diluted                                                                              |  |                                                                                              








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------





1


Table of Contents




|                                               |  | Year Ended December 31,            
|---------------------------------------------- |  | -----------------------------------
|                                               |  | 2016                               
|                                               |  | US$(1)                             
|                                               |  | (US Dollars and Euros in thousands)
|Consolidated Statements of Financial Position: |  |                                    
|Assets                                         |  |                                    
|Non-current assets                             |  |                                    
|Goodwill                                       |  |                                    
|Other intangible assets                        |  |                                    
|Property, plant and equipment                  |  |                                    
|Financial assets                               |  |                                    
|Other non-current assets                       |  |                                    
|Deferred tax assets                            |  |                                    
|Current assets                                 |  |                                    
|Inventories                                    |  |                                    
|Trade and other receivables                    |  |                                    
|Other current assets                           |  |                                    
|Cash and cash equivalents                      |  |                                    
|Total assets                                   |  |                                    
|                                               |  |                                    
|Equity and liabilities                         |  |                                    
|Equity attributable to owners of the company   |  |                                    
|Share capital                                  |  |                                    
|Share premium                                  |  |                                    
|Reserves and retained earnings                 |  |                                    
|Net profit/(loss) for the period               |  |                                    
|Non-controlling interests                      |  |                                    
|Total equity                                   |  |                                    
|Non-current liabilities                        |  |                                    
|Non-current provisions                         |  |                                    
|Non-current financial liabilities              |  |                                    
|Deferred tax liabilities                       |  |                                    
|Other non-current liabilities                  |  |                                    
|Current liabilities                            |  |                                    
|Current provisions                             |  |                                    
|Current financial liabilities                  |  |                                    
|Trade and other payables                       |  |                                    
|Other current liabilities                      |  |                                    
|Total liabilities                              |  |                                    
|Total Equity and liabilities                   |  |                                    








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------





2


Table of Contents




Other Financial Metrics



|                          |  | Year Ended December 31,            
|------------------------- |  | -----------------------------------
|                          |  | 2016                               
|                          |  | US$(1)                             
|                          |  | (US Dollars and Euros in thousands)
|Adjusted EBITDA(2)        |  |                                    
|Adjusted EBITDA margin(3) |  |                                    








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31, 2016.
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (2) | To provide investors with additional information regarding our financial results, we have used Adjusted EBITDA, a financial
measure not calculated in accordance with IFRS, within this annual report on Form 20-F. We define Adjusted EBITDA as net income
(loss) calculated in accordance with IFRS plus: (i) finance income (including changes in fair value of contingent consideration);
(ii) finance costs (including changes in fair value of contingent consideration); (iii) income tax; and (iv) depreciation and amortization.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have included Adjusted EBITDA
in this annual report on Form 20-F because it is a key measure used by our management and board of directors to understand and
evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term
operational plans. In particular, we believe that the exclusion of the expenses eliminated in calculating Adjusted EBITDA can provide
a useful measure for period-to-period comparisons of our business. Accordingly, we believe that Adjusted EBITDA provides useful
information to investors and others in understanding and evaluating our operating results in the same manner as our management
and board of directors.



Although Adjusted EBITDA measures
are frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA measures each have
limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results
of operations as reported under IFRS. Some of these limitations are:



| | · | although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced
in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital
expenditure requirements;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | adjusted EBITDA does not reflect finance income or costs;
| | - | ---------------------------------------------------------



| | · | adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
| | - | -------------------------------------------------------------------------------------------------



| | · | adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and
| | - | ---------------------------------------------------------------------------------------------------------



| | · | other companies, including companies in our industry, may calculate Adjusted EBITDA or similarly titled measures differently,
which reduces its usefulness as a comparative measure.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Because of these and other limitations,
you should consider Adjusted EBITDA alongside IFRS-based financial performance measures, including various cash flow metrics, net
income (loss) and our other IFRS financial results. Management addresses the inherent limitations associated with using Adjusted
EBITDA through disclosure of such limitations, presentation of our financial statements in accordance with IFRS and reconciliation
of Adjusted EBITDA to the most directly comparable IFRS measure, net income (loss). Further, management also reviews IFRS measures
and measures such as our level of capital expenditures, R&D expenditures, and interest expense, among other items.



| | (3) | We define Adjusted EBITDA margin as Adjusted EBITDA divided by sales.
| | --- | ---------------------------------------------------------------------



3


Table of Contents




The following table presents a reconciliation
of Adjusted EBITDA to net income (loss), the most comparable IFRS measure, for each of the periods identified. It also presents
the Adjusted EBITDA margin.



|                                                                             |  | Year Ended December 31,            
|---------------------------------------------------------------------------- |  | -----------------------------------
|                                                                             |  | 2016                               
|                                                                             |  | US$(1)                             
|                                                                             |  | (US Dollars and Euros in thousands)
|Net profit/(loss) for the period                                             |  |                                    
|Adjustments:                                                                 |  |                                    
|Finance income (including changes in fair value of contingent consideration) |  |                                    
|Finance costs (including changes in fair value of contingent consideration)  |  |                                    
|Income taxes                                                                 |  |                                    
|Depreciation and amortization                                                |  |                                    
|Adjusted EBITDA                                                              |  |                                    
|Sales                                                                        |  |                                    
|Adjusted EBITDA margin                                                       |  |                                    








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------



4


Table of Contents




Exchange Rates and Exchange Controls



The following table sets forth, for each
period indicated, the low and high exchange rates for Euros expressed in U.S. dollars, the exchange rate at the end of such period
and the average of such exchange rates on each day during a monthly period and on the last day of each month during quarterly and
annual periods, based on the noon buying rate of the Federal Reserve Bank of New York for the Euro. As used in this document, the
term “noon buying rate” refers to the rate of exchange for the Euro, expressed in U.S. dollars per Euro, as certified
by the Federal Reserve Bank of New York.



As of March 24, 2017, the noon buying rate
of the Federal Reserve Bank of New York for the Euro was US$1.0810.



|                                       |  | Period-End |  | Average for
    Period |  | Low |  | High  
|-------------------------------------- |  | ---------- |  | ---------------------- |  | --- |  | ------
|                                       |  | US$        |  | US$                    |  | US$ |  | US$   
|                                       |  | (€ per $) 
|Year Ended December 31:                |  |            |  |                        |  |     |  |       
|2012                                   |  |            |  | 1.3186                 |  |     |  | 1.2909
|2013                                   |  |            |  | 1.3779                 |  |     |  | 1.3303
|2014                                   |  |            |  | 1.2101                 |  |     |  | 1.3210
|2015                                   |  |            |  | 1.0859                 |  |     |  | 1.1032
|2016                                   |  |            |  | 1.0552                 |  |     |  | 1.1029
|                                       |  |            |  |                        |  |     |  |       
|Quarter Ended:                         |  |            |  |                        |  |     |  |       
|March 31, 2016                         |  |            |  | 1.1390                 |  |     |  | 1.1034
|June 30, 2016                          |  |            |  | 1.1032                 |  |     |  | 1.1295
|September 30, 2016                     |  |            |  | 1.1238                 |  |     |  | 1.1163
|December 31, 2016                      |  |            |  | 1.0552                 |  |     |  | 1.0780
|                                       |  |            |  |                        |  |     |  |       
|Month Ended:                           |  |            |  |                        |  |     |  |       
|October 31, 2016                       |  |            |  | 1.0962                 |  |     |  | 1.1014
|November 30, 2016                      |  |            |  | 1.0578                 |  |     |  | 1.0792
|December 31, 2016                      |  |            |  | 1.0552                 |  |     |  | 1.0545
|January 31, 2017                       |  |            |  | 1.0794                 |  |     |  | 1.0635
|February 28, 2017                      |  |            |  | 1.0618                 |  |     |  | 1.0650
|March 31, 2017(through March 24, 2017) |  |            |  | 1.0810                 |  |     |  | 1.0666





5


Table of Contents




B.       Capitalization
and Indebtedness



Not applicable.



C.       Reasons for
the Offer and Use of Proceeds



Not applicable.



D.       Risk Factors



You should carefully consider the risks
and uncertainties described below and the other information in this annual report on Form 20-F before making an investment decision
regarding our securities, including our audited consolidated financial statements and the related notes appearing elsewhere in
this annual report on Form 20-F. Our business, financial condition and results of operations could be materially and adversely
affected if any of these risks materializes and as a result, the market price of our American Depositary Shares, or ADSs, could
decline and you could lose all or part of your investment.



This annual report on Form 20-F also
contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.” Our actual
results could differ materially and adversely from those expressed or implied in these forward-looking statements as a result of
certain factors, including the risks facing our Company described below and elsewhere in this annual report on Form 20-F.



Commercialization Risks



Our business currently depends significantly
on sales of Gluscan, our most important PET product. Any adverse market event with respect to Gluscan could have a material adverse
effect on our business, financial condition and results of operations.



We rely heavily upon sales of our most
important PET product, Gluscan. Sales from Gluscan comprised 39.8%, 47.5% and 46.8% of our total sales for the years ended December 31,
2016, 2015 and 2014, respectively. If our sales of Gluscan were to decrease significantly, or such sales were substantially or
completely displaced in the market, we would lose a significant and material source of our total sales. Gluscan is our branded
version of a generic FDG product, which is vulnerable to competition and also a decline in sales as a result of being a generic
product. Gluscan faces competition from FDG products from other manufacturers, principally IBA Molecular, as well as larger healthcare
companies and local competitors in geographic markets in Europe. See “Item 4. Information on the Company—B. Business
Overview—Our Competition.” These competitors may create pressures on the price of, and margin that we are able to earn
on, Gluscan, which could reduce our sales.



In addition, if Gluscan or similar products
from our competitors were to become the subject of litigation and/or an adverse governmental action requiring us or such competitors,
as applicable, to cease sales of Gluscan, such an event could have a material adverse effect on our business, financial condition
and results of operations.



We depend heavily on the success of our
lead radiotherapeutic product candidate, lutetium Lu 177 dotatate (Lutathera®), which we are developing for the treatment of
inoperable progressive midgut NETs. We received a complete response letter from the FDA in response to our lutetium Lu 177 dotatate
(Lutathera®) non-disclosure agreement, or NDA, submission. If we are unable to address the issues identified in the complete
response letter, we may not obtain regulatory approval for lutetium Lu 177 dotatate (Lutathera®). If we are unable to commercialize
lutetium Lu 177 dotatate (Lutathera®), or experience significant delays in doing so, our business will be materially harmed.



We have invested a significant portion
of our efforts and financial resources in the development of lutetium Lu 177 dotatate (Lutathera®) for the treatment of inoperable
progressive midgut NETs. Our ability to generate significant product revenues from sales of lutetium Lu 177 dotatate (Lutathera®)
will depend primarily on the successful development and commercialization of lutetium Lu 177 dotatate (Lutathera®), which depend
on a number of factors, including:



| | · | obtaining regulatory approval for lutetium Lu 177 dotatate (Lutathera®) from the Food and Drug Administration in the United
States (FDA) and/or European Medicines Agency (EMA);
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





6


Table of Contents




| | · | the establishment of an expanded international commercial infrastructure capable of supporting product sales, marketing and
distribution of lutetium Lu 177 dotatate (Lutathera®);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | implementing marketing and distribution relationships with third parties in territories where we do not pursue direct commercialization
of lutetium Lu 177 dotatate (Lutathera®);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | successful negotiation of favorable pricing and reimbursement in the countries which require such negotiation and in which
we obtain regulatory approval for lutetium Lu 177 dotatate (Lutathera®);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the timing and scope of the commercial launch of lutetium Lu 177 dotatate (Lutathera®);
| | - | ---------------------------------------------------------------------------------------



| | · | acceptance of lutetium Lu 177 dotatate (Lutathera®) by patients, the medical community and third-party payors; and
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | Lutetium Lu 177 dotatate (Lutathera®)’s ability to effectively compete with other therapies.
| | - | --------------------------------------------------------------------------------------------



If we do not achieve one or more of these
factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize lutetium
Lu 177 dotatate (Lutathera®), which would materially harm our business. We received a complete response letter from the FDA
in December 2016 identifying deficiencies with our clinical datasets for lutetium Lu 177 dotatate (Lutathera®), among other
issues, which we are working on resolving. Obtaining regulatory approval depends on our ability to address these deficiencies satisfactorily
(see “—Regulatory and Compliance Risks—In response to a complete response letter issued by the FDA in connection
with our NDA for lutetium Lu 177 dotatate (Lutathera®), we must revise our data format and resolve the issues identified, which
has delayed the review of lutetium Lu 177 dotatate (Lutathera®)’s NDA).



Our business currently depends on sales
of our products in the European Union, our most important geographic market. An adverse market event or deteriorating economic
conditions in Europe or the European Union may have a significant impact on our overall sales and could have a material adverse
effect on our business, financial condition and results of operations.



We rely heavily upon sales in the European
Union, which comprised 91.3%, 91.6% and 90.9% of our total sales for the years ended December 31, 2016, 2015 and 2014, respectively.
If our European Union sales were significantly impacted by either material changes to reimbursement regulations or private payor
reimbursement in the European jurisdictions in which we operate, other regulatory developments, competition or other factors, this
impact could have a material adverse effect on our business, financial condition and results of operations. Since our current PET
and SPECT products are not proprietary, we are vulnerable to increased competition in the European PET and SPECT markets, and such
competition may result in decreased sales or lower margins for our products.



If we are unable to successfully introduce
new products for clinical indications or fail to keep pace with advances in molecular nuclear medicine or medical research or technology,
our business, financial condition and results of operations could be adversely affected.



We operate in highly innovative
businesses within the molecular nuclear medicine field. We currently rely on sales of Gluscan for a significant portion of
our total sales. However, our continued growth depends in large part on our ability to develop and obtain approval of new
products and new indications for our products and product candidates. In particular, obtaining EMA marketing authorization
and FDA approval for lutetium Lu 177 dotatate (Lutathera®) is critical to our business plan. In addition, FDG products
such as Gluscan are likely to face increasing competition from Gallium-labeled products in PET diagnostics that may offer
advantages over existing FDG radiopharmaceuticals labeled with SomaKit TOCTM in the EU, for the diagnosis of
NET lesions. It will be important for us to successfully develop and obtain marketing authorization for F-18 products. Both
SomaKit TOCTMand NETSPOT® (formerly known as Somakit-TATE) are complementary to lutetium Lu 177
dotatate (Lutathera®), an investigational therapy for NETs. We obtained approval in 2016 for our two compounds NETSPOT®
and SomaKit TOCTM in the United States and in Europe, respectively. These are diagnostic kits to be labelled with Ga68
for the diagnosis of NET patients. They have the potential to effectively support the use of lutetium Lu 177 dotatate
(Lutathera®), our product candidate for the treatment of NET patients. Failure to obtain regulatory approval of lutetium
Lu 177 dotatate (Lutathera®) or of any of our other product candidates or approval for additional indications, or failure
to advance new formulations of PET, SPECT or other products and product candidates to meet new or changing demand could have
a material adverse effect on our business, financial condition and results of operations.





7


Table of Contents




The development of innovative products
and medical technologies that improve efficacy, safety, patients’ and clinicians’ ease of use and cost-effectiveness
involves significant technical and business risks. The success of new product offerings will depend on many factors, including
our ability to properly anticipate and satisfy customer needs, adapt to new technologies, obtain regulatory approvals on a timely
basis, demonstrate satisfactory clinical results, manufacture products in an economic and timely manner, and differentiate our
products from those of our competitors. If we cannot successfully introduce new products or product candidates, adapt to changing
technologies or anticipate changes in our current and potential customers’ requirements, our products may become obsolete,
which could have a material adverse effect on our business, financial condition and results of operations.



We face substantial competition in the
commercialization of molecular nuclear medicine products, which may result in others developing or commercializing products before
or more successfully than we do.



There are numerous proprietary molecules
for molecular nuclear medicine products currently in development by other companies. We may face future competition with respect
to our products, any products that we acquire, our current product candidates and any products or product candidates we may seek
to develop or commercialize in the future from other pharmaceutical companies and governments, universities and other non-profit
research organizations, which are increasingly aware of the commercial value of their research. Our competitors may develop products
that are safer, more effective, more convenient or less costly than products that we may develop or market. Our competitors may
devote greater resources to market or sell their products, adapt more quickly to new technologies and scientific advances, initiate
or withstand substantial price competition more successfully than we can, or more effectively negotiate third-party licensing and
collaborative arrangements.



We consider IBA Molecular, in the area
of PET and SPECT diagnostics to be our main competitor in the European molecular nuclear medicine market due to its significant
know-how, manufacturing capacity and geographic presence. We also face competition in the field of PET diagnostic products from
smaller suppliers who operate within specific geographic areas. While these smaller competitors may have more limited manufacturing
infrastructure than we do, they may have greater experience than we do or a more established reputation than we do in such areas.
We face competition in the field of SPECT diagnostic products from a greater number of SPECT manufacturers than we do in PET, given
the more established and widespread use of SPECT imaging. Our competitors in SPECT include both large healthcare companies and
smaller diagnostic imaging companies. In the field of molecular nuclear therapy, we face competition from local companies and university
hospitals that operate within specific geographic areas. While these competitors may have more limited manufacturing infrastructure
than we do, they may have greater experience or a more established reputation in these geographic areas. Each of the above-mentioned
competitors, in particular the larger healthcare companies, may have greater resources to devote to manufacturing, marketing or
selling products than we do. Any reduction in demand for our products as a result of one or more competing products could lead
to reduced sales, reduced margins, reduced levels of profitability or loss of market share for our products.



We commercialize almost all of our products
without patent protection. Gluscan and our proprietary products containing 18F-choline and 18F-DOPA (FLUOROCHOL/ AAACholine and
DOPAVIEW), are currently not covered by any issued patents. Moreover, the patents covering claims related to lutetium Lu 177 dotatate
(Lutathera®) have expired. Without patent protection for these products and product candidates, we currently face competition
from generic drug manufacturers and we may be unable to prevent additional generic drug manufacturers from developing, manufacturing
or commercializing competing products. In addition, competition for our products may be affected by follow-on products in Europe
and the United States and other jurisdictions. The existence of generic products may also result in decreased pricing for our products,
which we have experienced in certain geographic areas in relation to Gluscan.



Any or all of these competitive pressures
could have a material adverse effect on our business, financial condition and results of operations.





8


Table of Contents




We rely on maintaining orphan drug designation
and obtaining market exclusivity for lutetium Lu 177 dotatate (Lutathera®) and our Somakit products. Orphan drug designation
may not ensure that we will obtain orphan market exclusivity upon approval in a particular market. In addition, we may not obtain
orphan drug market exclusivity if another drug containing the same active moiety is approved first, or we may lose market exclusivity
if a later product demonstrates clinical superiority to lutetium Lu 177 dotatate (Lutathera®) or our Somakit products.



Lutetium Lu 177 dotatate (Lutathera®)
and our Somakit products have been granted orphan drug designation by the FDA and the EMA. If, our Somakit products or any of our
other product candidates that receive orphan drug designation were to lose orphan drug designation, or if 177 Lutetium Dotatate
were to fail to obtain orphan drug market exclusivity upon approval, our business, financial condition and results of operations
could be materially adversely affected. Obtaining regulatory market exclusivity for lutetium Lu 177 dotatate (Lutathera®) is
particularly important due to the expiration of patents covering claims related to lutetium Lu 177 dotatate (Lutathera®).



In the United States, a product candidate
with orphan drug designation qualifies for market exclusivity for up to seven years after FDA approval if it is approved for the
designated use and no other product containing the same active moiety has existing market exclusivity. Thus, if lutetium Lu 177
dotatate (Lutathera®) is approved in the United States for the indication for which the applicable product has obtained orphan
drug designation before any other product containing the same active moiety is approved and obtains market exclusivity, the FDA
may not approve another product containing the same active moiety for the same indication during the market exclusivity period
unless the second product is demonstrated to be clinically superior to lutetium Lu 177 dotatate (Lutathera®). A product can
demonstrate clinical superiority over another product if it is safer, more effective or makes a major contribution to patient care.
In addition, a chemically dissimilar product would not be affected by lutetium Lu 177 dotatate (Lutathera®)’s U.S. market
exclusivity and could obtain approval and, if designated as an orphan drug, market exclusivity in the United States.



In the European Union, EMA regulations
provide market exclusivity for ten years for orphan drugs, subject to certain exceptions, including the demonstration of “clinically
relevant superiority” by a similar medicinal product. EMA orphan drug market exclusivity applies to drug products for the
same indication but which can be chemically dissimilar. As a result, if lutetium Lu 177 dotatate (Lutathera®) obtains marketing
authorization from the EMA before competing therapeutic candidates for the same indication that use the same mechanism of action,
the EMA or any other EU national competent authority may not grant marketing authorization to the competing therapeutic candidates
for a period of ten years. However, if a competing therapeutic candidate is approved by the EMA before lutetium Lu 177 dotatate
(Lutathera®), that drug could end lutetium Lu 177 dotatate (Lutathera®)’s market exclusivity in the European Union
by demonstrating clinically relevant superiority. We received marketing authorization for NETSPOT® in the United States in
June 2016, which includes a seven year orphan market exclusivity in the United States. We received marketing authorization for
SomaKit TOCTM in the European Union in December 2016, which includes a ten year orphan drug designation in the EU. The loss
of market exclusivity for lutetium Lu 177 dotatate (Lutathera®), our Somakit products or our other product candidates that
we intend to commercialize in the European Union or the United States could have a material adverse effect on our business, financial
condition and results of operations.



The commercial success of our molecular
nuclear medicine products and product candidates will depend upon public perception of radiopharmaceuticals and the degree of their
market acceptance by physicians, patients, healthcare payers and others in the medical community.



Adverse events in clinical trials of our
product candidates or in clinical trials of others developing similar products and the resulting negative publicity, as well as
any other adverse events in the field of molecular nuclear medicine that may occur in the future, could result in a decrease in
demand for our products or any product candidates that we may develop. If public perception is influenced by claims that molecular
nuclear medicine or specific therapies within molecular nuclear medicine are unsafe, our products or product candidates may not
be accepted by the general public or the medical community.





9


Table of Contents




In particular, the continued or future
commercial success of Gluscan, lutetium Lu 177 dotatate (Lutathera®) and our other products and product candidates, as applicable,
depends and will depend upon, among other things, these products and product candidates gaining and maintaining acceptance by physicians,
patients, third-party payers and other members of the medical community as efficacious and cost-effective alternatives to competing
products and treatments. If any of our products or product candidates does not achieve and maintain an adequate level of acceptance,
we may not generate material sales of that product or product candidate or be able to successfully commercialize it. The degree
of market acceptance of our products and product candidates will depend on a number of factors, including:



| | · | our ability to provide acceptable evidence of safety and efficacy;
| | - | ------------------------------------------------------------------



| | · | the prevalence and severity of any side effects;
| | - | ------------------------------------------------



| | · | availability, relative cost and relative efficacy of alternative and competing treatments;
| | - | ------------------------------------------------------------------------------------------



| | · | the ability to offer our products for sale at competitive prices;
| | - | -----------------------------------------------------------------



| | · | the relative convenience and ease of administration of our products and product candidates;
| | - | -------------------------------------------------------------------------------------------



| | · | the willingness of the target patient population to try new products and product candidates and of physicians to prescribe
these products and product candidates;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the strength of marketing and distribution support;
| | - | ---------------------------------------------------



| | · | publicity concerning our products and product candidates or competing products and treatments; and
| | - | --------------------------------------------------------------------------------------------------



| | · | the sufficiency of coverage or reimbursement by third parties.
| | - | --------------------------------------------------------------



If our products or product candidates do
not become widely accepted by potential customers, physicians, patients, third-party payers and other members of the medical community,
such a lack of acceptance could have a material adverse effect on our business, financial condition and results of operations.



Reimbursement policies or a lack of reimbursement,
changes in healthcare systems and third-party payer policies could result in a decline in our potential sales of our products.



In the European Union, the United States
and other jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding such jurisdictions’
respective healthcare systems. These changes, particularly in the European Union and/or the United States, could prevent or delay
EMA marketing authorization and/or FDA approval of our product candidates, restrict or regulate post-approval activities and affect
our ability to profitably sell any products for which we obtain EMA marketing authorization and/or FDA approval, as applicable.



In the United States, there have been,
and we expect that there will continue to be, a number of federal and state proposals to implement additional governmental controls
over the healthcare system, including but not limited to efforts to control drug prices and overall healthcare costs. While we
currently have a limited presence in the United States, recent U.S. legislation, rules and regulations instituted significant changes
to the U.S. healthcare system that could have a material adverse effect on our business, financial condition and results of operations
now or in the future as we consider expanding our U.S. business. We cannot predict what effects, if any, this legislation might
have on us and our products, nor can we predict whether additional legislative or regulatory proposals may be adopted.



In addition, in the European Union, the
United States and elsewhere, sales of therapeutic and other pharmaceutical products depend, in part, on the availability of reimbursement
from third-party payers, such as governments and private insurance plans. Third-party payers are increasingly challenging the prices
charged for medical products and services and they may limit access to radiopharmaceutical products through the use of prior authorizations.
Any reimbursement granted may not be maintained, or limits on reimbursement available from third parties may reduce the demand
for, or negatively affect the price and profitability, of those products. Third-party payers may pursue aggressive cost cutting
initiatives such as comparing the effectiveness, benefits and costs of similar treatments, which could result in lower reimbursement.
Policies that decrease reimbursement, or the loss of availability or lack of reimbursement from third-party payers, could harm
our ability to successfully commercialize our products and product candidates, including lutetium Lu 177 dotatate (Lutathera®),
as well as the demand for our products and product candidates, including lutetium Lu 177 dotatate (Lutathera®), which could
have a material adverse effect on our business, financial condition and results of operations.





10


Table of Contents




In certain markets, reimbursement is dependent
on budgets set by the government, which may place limits on reimbursements. For example, in many European countries, government
healthcare entities that purchase PET products from us are constrained by budgetary limits, regardless of the demand for our PET
products, such as Gluscan. In these and in other markets, if third-party payers are not willing or able to supply reimbursement
to make up the difference between budget limits and demand for our products or product candidates, or if economic or other conditions
cause governments or other reimbursing parties to revise their budgets for radiopharmaceutical products downward, our sales in
that market could suffer significantly, which could have a material adverse effect on our business, financial condition and results
of operations.



The implementation of, and uncertainty
surrounding, the 2010 healthcare reform law in the United States and other healthcare reform measures may adversely affect our
business.



Our industry is highly regulated and changes
in law may adversely impact our business. The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care
and Education Reconciliation Act of 2010 (collectively, the “healthcare reform law”), is a sweeping measure intended
to expand healthcare coverage within the United States, primarily through the imposition of health insurance mandates on employers
and individuals and expansion of the Medicaid program. Several provisions of the law, which have varying effective dates, may affect
us as we seek to expand our presence in the United States and will likely increase certain of our costs. For example, an increase
in the Medicaid rebate rate from 15.1% to 23.1% of the average manufacturer price for branded drugs became effective as of January 1,
2010, and the volume of rebated drugs was expanded to include beneficiaries in Medicaid managed care organizations, effective as
of March 23, 2010.



The reforms imposed by the new law may
significantly impact the pharmaceutical industry; however, the full effects of the healthcare reform law cannot be known until
these provisions are implemented and the Centers for Medicare and Medicaid Services and other federal and state agencies issue
applicable regulations or guidance. Moreover, there likely will be U.S. federal legislative and administrative efforts to repeal,
substantially modify or invalidate some or all of the provisions of the health care reform law. In January 2017, Congress voted
to adopt a budget resolution for fiscal year 2017 (the “Budget Resolution”), that authorizes the implementation of
legislation that would repeal portions of the health care reform law. Further, on January 20, 2017, President Trump signed an Executive
Order directing federal agencies with authorities and responsibilities under health care reform law to waive, defer, grant exemptions
from, or delay the implementation of any provision of health care reform law that would impose a fiscal or regulatory burden on
states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also
could consider subsequent legislation to replace elements of the health care reform law that are repealed. There is no assurance
that the health care reform law, as currently enacted or as amended in the future, will not adversely affect our business and financial
results, and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform
will affect our business.



In addition, other legislative changes
have been proposed and adopted since the healthcare reform law was enacted. These changes included aggregate reductions to Medicare
payments to providers and suppliers of up to 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative
amendments to the statute, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013,
President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments
to several providers and suppliers, and increased the statute of limitations period for the government to recover overpayments
to providers from three to five years. These new laws and future healthcare reform laws may result in additional reductions in
Medicare and other healthcare funding.



There also have been, and likely will continue
to be, legislative and regulatory proposals at the federal and state levels in the United States and elsewhere that may affect
the healthcare industry. In addition, there has recently been heightened governmental scrutiny over the manner in which manufacturers
set prices for their marketed products. The new U.S. presidential administration and the control of the U.S. Congress by a single
political party create additional uncertainty with regard to healthcare regulations and programs. Additional changes could be made
to governmental healthcare programs that could significantly impact the success of our products or product candidates. We cannot
predict the initiatives that may be adopted in the future but will continue to evaluate trends and changes that may be encouraged
by legislation and that may potentially impact our business over time.





11


Table of Contents




Manufacturing Risks



Our molecular nuclear medicine products
and product candidates are complex to manufacture and ship, which could cause us to experience delays in product manufacturing
or development and resulting delays in sales.



Manufacturing molecular nuclear medicine
products and product candidates, especially in large quantities, is complex. The products and product candidates must be made consistently
and in compliance with a clearly defined manufacturing process. In Europe, our production sites where we source manufacturing for
European Union sales must comply with cGMP. The products and product candidates must also be delivered in accordance with local
and international regulations applicable to the delivery of radioactive materials, in the case of our radiolabeled products and
product candidates, and pharmaceuticals. Problems may arise during manufacturing for a variety of reasons, including problems with
raw materials, equipment malfunctions and failures to follow specific protocols and procedures. In addition, slight deviations
anywhere in the manufacturing process, including obtaining materials, filling, labeling, packaging, storage, shipping and quality
control testing, may result in lot failures or manufacturing shut-down, delays in the release of product batches, product recalls,
spoilage or regulatory action. Such deviations may require us to revise manufacturing processes or change suppliers or delivery
mechanisms and may take significant time and resources to resolve. If unresolved, such deviations may affect manufacturing output
and could cause us to fail to satisfy customer orders or contractual commitments, lead to a termination of one or more of our contracts,
lead to delays in our clinical trials, result in litigation or regulatory action against us or cause the EMA, the FDA or other
regulatory bodies to cause us to cease releasing products until the deviations are explained and corrected. The design of the manufacturing
and storage processes for our radioactive compounds may not completely eliminate the risk of exposure of our employees and others
to radioactive materials and may need to be reworked in order to keep in compliance with national radio-protection laws in the
jurisdictions in which we operate.



Additionally, as our equipment ages, it
will need to be replaced. Replacement of equipment has the potential to introduce variations in the manufacturing process that
may result in lot failures or manufacturing shut-down, delay in the release of product batches, product recalls, spoilage or regulatory
action. Success rates can also vary dramatically at different stages of the manufacturing process, which can reduce yields and
increase costs. In addition, the aging and eventual retirement of our cyclotrons will involve substantial costs associated with
decontaminating and decommissioning the sites where they are used and regulatory risks in the event that the decontamination and
decommissioning process is not done correctly or according to applicable regulatory requirements.



Any of these risks could result in considerable
financial or other harm that could be costly to us, damage our reputation and have a material adverse effect on our business, financial
condition and results of operations.



Our molecular nuclear medicine products
and product candidates have limited shelf lives that make them susceptible to damage and loss, which could adversely affect our
business, financial condition and operating results.



Our PET products, including Gluscan, and
our PET product candidates have a shelf life of approximately ten hours, and our therapy product candidates, such as lutetium Lu
177 dotatate (Lutathera®), have a shelf life of approximately three days. These products and product candidates accordingly
require production facilities located in close proximity to their final customers and reliable transportation to avoid spoilage,
damage and/or loss. The failure of third parties with whom we contract to deliver these products and product candidates within
the scope of their limited shelf lives could result in the loss of a given shipment and the sales associated with it. In addition,
for those products with radioactive elements, such as our F-18 PET products, any delay in shipment results in a loss of the radioactive
dose as a result of radioactive decay, with the risk that the entire useful dose may be lost. Moreover, since each order is made
individually or in small batches and delivered with dedicated transportation in compliance with local and international regulations
applicable to the delivery of radioactive materials, we do not have readily available replacements to substitute for a lost delivery
if circumstances beyond our control, such as delays or problems caused by weather changes or a failure in the transportation system
operated by third parties that we hire, prevent the timely delivery of a batch, or if our facilities fail to distribute the ordered
batch in a timely fashion in accordance with specifications. If such losses or failures were to occur, we could suffer harm to
our reputation and a loss of customers and sales, which could have a material adverse effect on our business, financial condition
and results of operations.





12


Table of Contents




In addition, if one or more of our facilities
were to experience downtime, the limited shelf life of our products and product candidates, particularly those with radioactive
components or elements, would make it difficult for us to replace such facilities’ production since the replacement product
or product candidate may need to be delivered from a facility that is geographically distant from ordering customers. The logistical
complexity of fulfilling such customer orders through an alternate, more geographically removed facility may make it impracticable
or unduly costly to fulfill the orders of customers in a region where our facility or facilities are experiencing downtime. If
we are unable to fulfill orders from our customers in such regions, we may lose such customers, which could have a material adverse
effect on our business, financial condition and results of operations.



We are expanding our production facilities with a near-term focus on manufacturing and distribution of lutetium Lu 177 dotatate (Lutathera®)
in the United States and modifications to one or more production sites in Europe. Delay or failure to develop production capacity
or delays or failures in obtaining regulatory approvals for any new production facilities could limit our ability to expand our
sales.



In anticipation of potential FDA approval
for lutetium Lu 177 dotatate (Lutathera®), we purchased a Millburn, NJ facility to develop manufacturing capacity and support
our commercialization of lutetium Lu 177 dotatate (Lutathera®) in the United States. We intend to start manufacturing operations
at the Millburn facility once we receive FDA approval for lutetium Lu 177 dotatate (Lutathera®) and after receiving all necessary
authorizations and licenses. We cannot guarantee that we will receive all required authorizations and licenses to start manufacturing.
The Millburn, NJ site, and any additional U.S. production site that we may develop, as well as the execution of our plan to expand
into the U.S. market for our products, and in particular lutetium Lu 177 dotatate (Lutathera®), will be important to our growth
strategy. We also modified our F-18 production site in Zaragoza, Spain in order to enable it to produce lutetium Lu 177 dotatate
(Lutathera®).



The process for qualifying and validating
one or more U.S. facilities and additional European facilities, obtaining associated regulatory approvals and complying with cGMP
regulations or similar regulatory requirements for sales of our products or product candidates may be significant and may result
in unanticipated delays or costs, which could limit our ability to expand sales and have a material adverse effect on our business,
financial condition and results of operations.



Facilities that we own or that we may
acquire are subject to risk of damage or interference and resulting delays, which could adversely affect our business and growth
plans.



We have experienced in the past, and may
experience in the future, damage of or interference with the ongoing operations of production facilities that we own or may acquire.
For example, a few days before we signed the acquisition agreement for a PET production site in Europe, the site experienced significant
flooding that delayed the consummation of the transaction for several months while the problem was addressed. The resulting delay
in our entrance into that geographic market limited our ability to compete in that market for product distribution in the market
as other companies gained authorization to produce PET products and began selling it at low prices, which created more difficult
competitive conditions for us. We also suffered fire damage to our Marseille, France facility that impeded the site’s completion
and accordingly delayed our ability to compete in the Marseille geographic market. In the event that our facilities or the third-party
transportation infrastructure upon which we rely is damaged or disrupted as a result of natural conditions or other events or actions,
our ability to manufacture and ensure the delivery of products to customers could be limited, which could have a material adverse
effect on our business, financial condition and results of operations.



In particular, we have two facilities in
Italy, our laboratory near Ivrea and our laboratory in Meldola which are approved by the Agenzia Italiana del Farmaco (the Italian
Medicines Agency), or AIFA, to produce lutetium Lu 177 dotatate (Lutathera®), our lead radiotherapeutic product candidate.
If either or both sites were to experience a shutdown or otherwise became unable to produce lutetium Lu 177 dotatate (Lutathera®),
we also have a production site in Zaragoza, Spain, which could serve as a back-up facility once it is approved for the production
of lutetium Lu 177 dotatate (Lutathera®). While we may be able to secure approvals for other sites for the production of lutetium
Lu 177 dotatate (Lutathera®) in the future, we cannot assure you that we will be able to do so in a timely manner, as approvals
of a facility or facilities in one country may not assure our ability to obtain similar approvals for other facilities or in other
countries. In the event that we were to suffer a loss of capacity to produce lutetium Lu 177 dotatate (Lutathera®), and were
unable to replace the lost capacity with production from other sites approved to manufacture lutetium Lu 177 dotatate (Lutathera®),
our business, financial condition and results of operations could be materially adversely affected.





13


Table of Contents




If we are unable to obtain supplies for
the manufacture of Gluscan, lutetium Lu 177 dotatate (Lutathera®) or our other products and product candidates in sufficient
quantities and at an acceptable cost, our ability to manufacture Gluscan or lutetium Lu 177 dotatate (Lutathera®) or to manufacture,
develop and commercialize our other products and product candidates could be impaired, which could harm our sales, lead to a termination
of one or more of our contracts, lead to delays in clinical trials or otherwise harm our business.



We depend on third parties for certain
materials and services necessary for the manufacture of Gluscan, lutetium Lu 177 dotatate (Lutathera®) and our other products
and product candidates that we do not manufacture in our own facilities. These third parties include suppliers of Lu-177 radioisotope,
consumable and vial suppliers, suppliers of certain precursor elements of radiopharmaceuticals and sterility subcontractors. A
disruption in the availability of such materials or services from these and other suppliers could require us to qualify and validate
alternative suppliers. If we are unable to locate or establish alternative suppliers, our ability to increase or maintain our current
manufacturing levels for our products and product candidates could be adversely affected and could harm our sales, cause us to
fail to satisfy contractual commitments, lead to the termination of one or more of our contracts or lead to delays in our clinical
trials, any of which could be costly to us and otherwise have a material adverse effect on our business, financial condition and
results of operations. We have however taken steps to mitigate the risk in particular in the supply of Lu-177 radioisotope, by
acquiring the IDB Group in Holland, or IDB, one of the leading producers of this product, at the beginning of January 2016.



Our business, and in particular the production
of PET products and product candidates, requires substantial capital, including potential investments in large capital projects,
to operate and grow.



Manufacturing and developing PET products,
such as Gluscan, SPECT products and our product candidates, such as lutetium Lu 177 dotatate (Lutathera®), is capital-intensive
and requires significant investments in manufacturing and distribution infrastructure, R&D and facility maintenance. In order
to obtain EMA, FDA and other regulatory approval for product candidates and new indications for existing products, we may be required
to enhance the facilities in which, and processes by which, we manufacture existing products, to develop new product delivery mechanisms
for existing products and to develop innovative product additions and conduct clinical trials. Any enhancements to our production
facilities necessary to obtain EMA or FDA approval for product candidates or new indications for existing products could require
large capital projects. In addition, if we acquire or build new facilities to manufacture any of our products or product candidates,
we would need to obtain regulatory approval for the construction and operation of, and for such manufacturing at any new facility
before we could begin marketing such product. We may also undertake capital projects in order to facilitate compliance with cGMP
or expand capacity. Capital projects of these types involve technology and project management risks. Technologies that have worked
well in a laboratory or in a pilot program may cost more or not perform as well, or at all, in full-scale operations. Projects
may run over budget or be delayed. We cannot be certain that these projects will be completed in a timely manner or that we will
comply with cGMP, and we may need to spend additional amounts to achieve compliance.



Additionally, by the time these capital
projects are completed, market conditions may differ significantly from our assumptions regarding competitors, customer demand,
alternative therapies, reimbursement and public policy, and, as a result, capital returns may not be realized. At the same time,
failure to invest in large capital projects may harm our competitive position and financial condition. In addition, to fund large
capital projects, we may need to incur future debt or issue additional equity, and we may not be able to structure our debt obligations
or issue equity on favorable economic terms, if at all. A failure to fund these activities, or a failure to realize capital returns
in them, may harm our growth strategy, competitive position and quality compliance, and could have a material adverse effect on
our business, financial condition and results of operations.









14


Table of Contents




Research and Product Development Risks



Clinical drug development involves a
lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of our product candidates are
prolonged or delayed, or if we are required to conduct additional clinical trials for certain of our product candidates, in particular
for lutetium Lu 177 dotatate (Lutathera®), we or any industry partners involved in the conduct of such trials may be unable
to obtain required regulatory approvals, and therefore may be unable to commercialize our product candidates on a timely basis
or at all.



To obtain the requisite regulatory approvals
to market and sell any of our product candidates, we and/or our industry partners for such candidate typically must demonstrate
through extensive preclinical and clinical trials that our product candidates are safe and effective in humans. The process for
obtaining relevant governmental approvals to market our products is rigorous, time-consuming and costly. It is also impossible
to predict the extent to which this process may be affected by legislative and regulatory developments. Due to these and other
factors, our current product candidates or any of our other future product candidates could take a significantly longer time to
gain regulatory approval than expected or may never gain regulatory approval. This could delay or eliminate any potential sales
that we might earn from these product candidates due to the lost time before potential commercialization and potential changes
in the competitive landscape by the time such product candidates are commercialized, if they are commercialized at all. We may
also suffer reputational harm from such delays or failures that could affect our business more broadly.



Clinical trials must be conducted in accordance
with EMA, FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject
to oversight by these governmental agencies and Institutional Review Boards, or IRBs, at the medical institutions where the clinical
trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under cGMP
and other requirements. We depend on our industry partners, including medical institutions and in particular Clinical Research
Organizations, or CROs, to conduct clinical trials in compliance with Good Clinical Practice, or GCP, and in compliance with other
applicable regulatory and technical requirements. To the extent they fail to do so, we may be affected by increased costs, program
delays or both, which may harm our business. We have been affected in the past, and may be affected in the future, by technical
issues on the part of industry partners in conducting clinical trials, including documentation failures that have resulted in,
and may in the future result in, significant delays in product commercialization. We have also been affected in the past, and may
be affected in the future, by difficulties in conducting our own trials that may require us to revise our protocol for such trials,
revise patient enrollment targets and make other changes that have the effect of delaying completion of such trials and in turn
the commercialization of our product candidates that depends upon such trials.



We have completed a Phase 3 clinical trial
required for the approval of our lead radiotherapeutic product candidate, lutetium Lu 177 dotatate (Lutathera®). The trial
concluded recruitment in February 2015, and we finalized the trial database on September 14, 2015, and after confirming the occurrence
of the predefined number of progression events required to conclude the trial to enable conclusive statistical analysis on the
primary end-point. We submitted an NDA to the FDA for NETSPOT® which was approved in June 2016, and a MAA to the EMA, for SomaKit
TOCTM which was approved in December 2016. NETSPOT® is our diagnostic product to lutetium Lu 177 dotatate (Lutathera®).
Our regulatory applications were based on data published by third parties and, in the case of the MAA, our study in the United
Kingdom, which supplemented existing published data on product candidates similar to our Somakit products with further information
neither of which may be as reliable as data generated from our clinical studies.



In certain cases, obtaining marketing authorization
following our trials for specific product candidates, or in the case of our Somakit products, based on existing study data for
similar products, depends on satisfactory documentation that is largely controlled by third parties with whom we partner for such
product candidates’ European and/or U.S. commercialization or by third parties with whom we have little or no direct involvement
and whose documentation we have not independently verified. It is possible that during the review of these applications the FDA
and EMA may request additional clinical data or trials.



In connection with our lutetium Lu 177
dotatate (Lutathera®) NDA, we received a complete response letter from the FDA in December 2016 identifying deficiencies with
our clinical datasets, among other issues, which we are working on resolving. No additional clinical studies were requested in
the complete response letter (see “—Regulatory and Compliance Risks—In response to a complete response letter
issued by the FDA in connection with our NDA for lutetium Lu 177 dotatate (Lutathera®), we must revise our data format and
resolve the issues identified, which has delayed the review of lutetium Lu 177 dotatate (Lutathera®)’s NDA).





15


Table of Contents






In addition, the commencement and completion
of clinical trials for other product candidates may be delayed, suspended or terminated as a result of many factors, including
but not limited to:



| | · | negative or inconclusive results, which may require us to conduct additional preclinical studies or clinical trials or to abandon
projects that we expected to be promising;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | safety or tolerability concerns that could cause us to suspend or terminate a trial if we find that the participants are being
exposed to unacceptable health risks;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the delay or refusal of regulators or IRBs to authorize us to commence a clinical trial at a prospective trial site and changes
in regulatory requirements, policies and guidelines;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | regulators or IRBs requiring that we or our investigators suspend or terminate clinical research for various reasons, including
noncompliance with regulatory requirements;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | delays or failure to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial
sites;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | delays resulting from the need to obtain regulatory approval of changes to existing trial protocols;
| | - | ----------------------------------------------------------------------------------------------------



| | · | delays in patient enrollment and variability in the number and types of patients available for clinical trials;
| | - | ---------------------------------------------------------------------------------------------------------------





| | · | the inability to enroll a sufficient number of patients in trials to ensure adequate statistical power to detect statistically
significant treatment effects, including as a result of small eligible patient populations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | lower than anticipated retention rates of patients and volunteers in clinical trials;
| | - | -------------------------------------------------------------------------------------



| | · | our third-party research contractors failing to comply with regulatory requirements or to meet their contractual obligations
to us in a timely manner, or at all;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
| | - | ----------------------------------------------------------------------------------------------



| | · | delays in establishing the appropriate dosage levels;
| | - | -----------------------------------------------------



| | · | the difficulty in certain countries in identifying the sub-populations that we are trying to treat in a particular trial, which
may delay enrollment and reduce the power of a clinical trial to detect statistically significant results;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the quality or stability of a product candidate falling below acceptable standards;
| | - | -----------------------------------------------------------------------------------



| | · | the inability to produce or obtain sufficient quantities of a product candidate to complete clinical trials; and
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | exceeding budgeted costs due to difficulty in predicting accurately costs associated with clinical trials.
| | - | ----------------------------------------------------------------------------------------------------------



Even if we obtain regulatory approval,
our product candidates may be approved for fewer or more limited indications than we request, such approval may be contingent on
the performance of costly post-marketing clinical trials, or we may not be allowed to include the labeling claims necessary or
desirable for the successful commercialization. In addition, if a product candidate produces unexpected side effects or safety
issues, the EMA or the FDA may require the implementation of restrictive measures, or a comparable foreign regulatory authority
may require the establishment of a similar strategy, that may, for instance, limit the distribution of such product candidate and
impose burdensome implementation requirements on us.





16


Table of Contents




We depend in part on the success of
lutetium Lu 177 dotatate (Lutathera®), our Somakit products and our other product candidates. Certain of our product
candidates are still in clinical and preclinical development. Clinical trials of our product candidates may not be
successful. If we are unable to successfully commercialize lutetium Lu 177 dotatate (Lutathera®), our Somakit products
and our other product candidates, or experience significant delays in doing so, our business, financial condition and results
of operations could be materially adversely affected.



We have invested a significant portion
of our efforts and financial resources into the development of lutetium Lu 177 dotatate (Lutathera®), our Somakit products
and our other product candidates. While we have already begun generating sales from lutetium Lu 177 dotatate (Lutathera®) in
certain countries in Europe on a compassionate use and named patient basis, our ability to continue to
generate sales from lutetium Lu 177 dotatate (Lutathera®), our Somakit products and other product candidates will depend heavily
on the successful development and eventual commercialization of lutetium Lu 177 dotatate (Lutathera®), our Somakit products
and our other product candidates. The success of lutetium Lu 177 dotatate (Lutathera®), our Somakit products and our other
product candidates will depend on several factors, including the following:



| | · | successful efforts in completing clinical trials of, receipt of regulatory approval for and commercialization of such product
candidates;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | for the product candidates to which we retain rights under relevant agreements, completion of preclinical studies and clinical
trials of, receipt of marketing approvals for, establishment of commercial manufacturing capabilities for and successful commercialization
of such product candidates; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | acceptance of our product candidates by patients, the medical community and third-party payers, effectively competing with
other therapies, a continued acceptable safety profile following approval, and qualifying for, maintaining, enforcing and defending
our intellectual property rights and claims.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If we or the parties with whom we partner
do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability
to successfully commercialize lutetium Lu 177 dotatate (Lutathera®), our Somakit products and our other product candidates,
which could materially adversely affect our business, financial condition and results of operations.



Because we are developing product candidates
for the treatment of diseases in which there is limited clinical experience and, in some cases, using new methodologies, there
is more risk that the outcome of our clinical trials will not be favorable or may not lead to approval of our product candidates.



There are currently few approved radiopharmaceutical
therapeutic products. In addition, there has been limited historical clinical trial experience generally for the development of
radiopharmaceutical therapeutics. As a result, the design and conduct of clinical trials for these drugs are uncertain and subject
to increased risk.



We may experience setbacks with our current
or future clinical trials for our product candidates. We may not achieve the pre-specified endpoints with statistical significance
in the trials of our product candidates, which would decrease the chance of obtaining, or could prevent, marketing approval for
such product candidates, or the FDA may not determine that a given product candidate’s clinical and other benefits outweigh
its safety risks. We could also face similar challenges in designing clinical trials and obtaining regulatory approval for future
product candidates, which could have a material adverse effect upon our business, financial condition and results of operations.



We anticipate that our expenses will
increase as compared to prior periods in connection with seeking approval for our lead radiotherapeutic product candidate, lutetium
Lu 177 dotatate (Lutathera®), from the FDA and EMA and building a commercialization infrastructure to support lutetium Lu 177
dotatate (Lutathera®)’s anticipated launch.



As a result of our continued investment
in lutetium Lu 177 dotatate (Lutathera®), our expenses will increase due to costs we will incur in connection with responding
to EMA and FDA requests as to obtain EMA marketing authorization and FDA approval for lutetium Lu 177 dotatate (Lutathera®)
for treatment of progressive midgut NETs in the European Union and the United States, respectively, and as a result of increased
headcount, including management personnel, to support our clinical, manufacturing and sales activities. We will incur additional
costs in connection with our response to the complete response letter we received from the FDA in December 2016 regarding the lutetium
Lu 177 dotatate (Lutathera®) NDA, which identified deficiencies with our clinical datasets, among other issues (see “—Regulatory
and Compliance Risks—In response to a complete response letter issued by the FDA in connection with our NDA for lutetium
Lu 177 dotatate (Lutathera®), we must revise our data format and resolve the issues identified, which has delayed the review
of the lutetium Lu 177 dotatate (Lutathera®)’s NDA). These costs will be in addition to those associated with our expanded
infrastructure, increased legal, compliance, accounting and investor and public relations expenses associated with being a public
company and increased insurance premiums, among other factors. We are party to agreements, including an acquisition agreement with
BioSynthema, that impose royalty, milestone and earn-out payment obligations on us in connection with our achievement of specific
clinical, regulatory and commercial milestones with respect to lutetium Lu 177 dotatate (Lutathera®). We are also party to
a related license agreement with Mallinckrodt, Inc., or Mallinckrodt, that requires us to pay a royalty payment to Mallinckrodt
at a percentage in the low teens of our net sales of lutetium Lu 177 dotatate (Lutathera®) for each quarter until the first
quarter of 2020, a letter of agreement with Erasmus University Medical Center, or Erasmus, that requires us to pay Erasmus a low
single-digit percentage royalty on net sales of lutetium Lu 177 dotatate (Lutathera®), which is capped based on the number
of clinical trials required by the FDA, with a current maximum of €2.0 million (US$2.1 million), and a license and royalty
agreement for rights relating to a somatostatin analogue that requires us to pay a low single-digit percentage royalty on net sales
of lutetium Lu 177 dotatate (Lutathera®). See “Item 4. Information on the Company—B. Business Overview—Other
Contracts” for more information.





17


Table of Contents




Positive or timely results from preclinical
trials do not ensure positive or timely results in late stage clinical trials or product approval by the EMA, the FDA or other
regulatory authorities.



Our product candidates that show positive
preclinical, Phase 1, Phase 2 or Phase 1/2 (if the trials are combined) results may not show sufficient safety or efficacy
to obtain regulatory approvals and therefore fail in later-stage clinical trials. The EMA, the FDA and other regulatory authorities
have substantial discretion in the approval process and in determining when or whether regulatory approval will be granted for
any of our product candidates. Even if we believe the data collected from clinical trials of our product candidates are promising,
such data may not be sufficient to support approval by the EMA, the FDA or any other regulatory authority.



The data obtained from Phase 1/2 trials
we have completed may not be convincing and are not as reliable as late-stage clinical trials that are generally larger and conducted
with more statistical rigor. For example, the Phase 1/2 trial for lutetium Lu 177 dotatate (Lutathera®) was not controlled.
As a result, the data obtained from the trial are not directly comparable to data from other products or other studies. In addition,
because the trial was investigator-initiated, the trial did not have the proper controls or the proper level of homogeneity. The
historical data to which we compare our Phase 1/2 results vary in quality and are considered less reliable than other forms of
data. These same concerns over reliability and comparability of data may arise in future clinical trials.



The FDA has not asked us to conduct an
additional Phase 3 trial of lutetium Lu 177 dotatate (Lutathera®). However, it is possible that the FDA may not consider the
results of a single Phase 3 clinical trial of lutetium Lu 177 dotatate (Lutathera®) to be sufficient for the approval of lutetium
Lu 177 dotatate (Lutathera®). In general, two adequately designed, powered and well-controlled trials are required to demonstrate
effectiveness sufficient for approval of a new drug. For example, the usual threshold level for statistical significance, consisting
of a p-value of less than .05, or p<.05, may not be sufficient for approval based on a single study, and a more robust showing
of statistical significance may be required. Even with favorable results in the Phase 3 trial of lutetium Lu 177 dotatate (Lutathera®),
the FDA may nonetheless require that we conduct additional clinical trials, possibly using a different design. If we are required
to conduct an additional Phase 3 trial for lutetium Lu 177 dotatate (Lutathera®) we would incur significant additional clinical
trial expenses. In addition, we could be further delayed in obtaining regulatory approval for lutetium Lu 177 dotatate (Lutathera®)
and may not be able to quantify the delay, which would impact our commercialization strategy for lutetium Lu 177 dotatate (Lutathera®).



It is also possible that our product candidates
will not complete clinical trials in the markets in which we intend to sell those product candidates. If this were to happen, we
would not receive the regulatory approvals needed and neither we nor our industry partners would be able to market our product
candidates in such markets. Significant clinical trial delays could also allow our competitors to bring products to market before
we do, shorten any periods during which we have the exclusive right to commercialize our product candidates and impair our ability
to commercialize our product candidates, any of which may harm our business, financial condition and results of operations.



Approval by one regulatory authority does
not ensure approval by regulatory authorities in other jurisdictions. If we fail to obtain approval in any jurisdiction, the geographic
market for our product candidates could be limited. Similarly, regulatory agencies may not approve the labeling claims that are
necessary or desirable for the successful commercialization of our product candidates. Failure to obtain EMA marketing authorization,
FDA approval, or other necessary regulatory approvals, as applicable, for our product candidates would result in our being unable
to market and sell such product candidates on a commercial basis, which would materially adversely affect our business, financial
condition and results of operations.



If serious adverse, undesirable or unacceptable
side effects are identified during the development of our product candidates, we may need to abandon our development of such product
candidates.



If our product candidates are associated
with serious adverse, undesirable or unacceptable side effects, we may need to abandon their development or limit development to
certain uses or sub-populations in which such side effects are less prevalent, less severe or more acceptable from a risk-benefit
perspective. Many compounds that initially show promise in early-stage or clinical testing are later found to cause side effects
that prevent or limit further development of the compound.



In a safety analysis performed in 615 patients
in the Phase 1/2 trial for lutetium Lu 177 dotatate (Lutathera®), which we refer to as the Erasmus Study, the most common side
effects observed, occurring within 24 hours of administration of the lutetium Lu 177 dotatate (Lutathera®) injection, were
transitory alopecia (38% of administrations), nausea (28% of administrations), vomiting (15% of administrations) and abdominal
discomfort or pain (16% of administrations). The primary form of toxicity to patients treated with lutetium Lu 177 dotatate (Lutathera®)
was hematological, with 13% of the Erasmus Study patients experiencing one or more serious adverse effects, or SAEs.





18


Table of Contents




The Erasmus Phase 1/2 trial continued after
the first independent assessment conducted in 2011, and we resumed data collection in 2015 with the objective of including an updated
Clinical Study Report in the NDA submission. The second analysis includes follow-up data of the original 615 patients and an additional
599 patients who were enrolled in the study between March 2007 and December 2012. The safety analysis (SAF) dataset consisted of
1,214 patients; 629 (51.8%) experienced an adverse event, and 193 (15.9%) experienced an SAE at least possibly related to the study
medication. Those with the highest frequencies were pancytopenia (8.0%), anemia (4.4%), diarrhea (4.7%); death (4.5%); abdominal
pain (5.8%), vomiting (3.8%), nausea (3.2%) and thrombocytopenia (3.0%). See “Item 4. Information on the Company—B.
Business Overview—Our Product Candidates in Clinical Development—Lead Investigational Therapeutic Candidate—lutetium
Lu 177 dotatate (Lutathera®).” There may also be potential long-term toxicity to certain patients’ bone marrow
associated with treatment using lutetium Lu 177 dotatate (Lutathera®), with evidence of such toxicity observed in between 1%
and 3% of the patients in our Phase 1/2 trial. An accurate assessment of this potential side effect has not yet been completed.



We believe that the safety profile of lutetium
Lu 177 dotatate (Lutathera®) in our pivotal Phase 3 trial is consistent with the safety information generated from the Erasmus
Study, as the nature of, and percentage of patients experiencing, adverse events in the two trials were similar. The primary form
of toxicity to patients treated with lutetium Lu 177 dotatate (Lutathera®) in the Phase 3 trial was hematological, with 9%
of the patients in the lutetium Lu 177 dotatate (Lutathera®) arm of the trial experiencing one or more SAEs. See “Item
4. Information on the Company—B. Business Overview—Our Product Candidates in Clinical Development—Lead Investigational
Therapeutic Candidate—lutetium Lu 177 dotatate (Lutathera®)—Phase 3 Trial—Initial Safety Analysis.”
However, a full safety analysis has yet to be completed and, depending on the results of the complete safety analysis, SAEs or
side effects may be observed that could be raised by the EMA, the FDA and other regulatory authorities and could be an impediment
to receipt of EMA marketing authorization or FDA approval, or physician or patient acceptance of lutetium Lu 177 dotatate (Lutathera®)
or our other product candidates because of concerns related to safety. The full safety analysis report of the NETTER-1 Phase 3
trial was available in the first quarter of 2016 and the clinical study report was finalized in April 2016. In the overall safety
population (221 patients), 129 patients (58.4%) experienced treatment emergent adverse events related to treatment (ADR), 95 (86%)
in the lutetium Lu 177 dotatate (Lutathera®)arm and 34 (31%) and in the Octreotide LAR arm. There were 683 ADR episodes, 611
for patients in the lutetium Lu 177 dotatate (Lutathera®) arm and 72 for patients in the Octreotide LAR arm. The most frequent
ADR episodes in the lutetium Lu 177 dotatate (Lutathera®) are were “nausea” and “vomiting” (125 “nausea”
episodes in the lutetium Lu 177 dotatate (Lutathera®) arm vs 4 in the Octreotide LAR arm and 98 “vomiting” episodes
in the lutetium Lu 177 dotatate (Lutathera®) arm vs 1 in the Octreotide LAR arm); in the lutetium Lu 177 dotatate (Lutathera®)
arm, the majority (about 75%) of these “nausea” and “vomiting” episodes were considered related to the
amino acid co-infusion by the Investigators. Safety data are not available from the compassionate use and named patient programs
in which lutetium Lu 177 dotatate (Lutathera®) has been used. Our inability to timely market or sell lutetium Lu 177 dotatate
(Lutathera®) because of safety concerns or regulatory impediments could have a material adverse effect upon our business, financial
condition and results of operations.



We may become exposed to costly and damaging
liability claims, either when testing our product candidates in the clinic or at the commercial stage, and our product liability
insurance may not cover all damages from such claims.



We are exposed to potential product liability
and professional indemnity risks that are inherent in the research, development, manufacturing, marketing and use of radiopharmaceutical
products. The current and future use of our existing products and our product candidates by us and our industry partners in clinical
trials, and the sale of current products and any approved products in the future, may expose us to liability claims. These claims
might be made by patients that use the product or product candidate, healthcare providers, pharmaceutical companies, our industry
partners or others selling such products. Insurance against such claims is more expensive, in the case of our radioactive products,
due to the increased potential for harm and the increased price of raw materials, relative to non-radioactive products. We maintain
insurance policies on a country-by-country basis and typically insure ourselves against the following risks, among others:





19


Table of Contents




| | · | risks related to construction of production sites;
| | - | --------------------------------------------------



| | · | risks related to the manufacture, distribution and use of our products and product candidates;
| | - | ----------------------------------------------------------------------------------------------



| | · | director and officer liability risks;
| | - | -------------------------------------



| | · | property damage risks; and
| | - | --------------------------



| | · | risks related to clinical trials.
| | - | ---------------------------------



We
maintain liability insurance through a global master program covering our activities for up to approximately €20 million
(US$ 21.1 million) in aggregate claims across the principal jurisdictions in which we operate, with varying amounts of coverage
in specific jurisdictions depending on the extent of our operations in those jurisdictions and local law.



As
of January 2017, our subsidiaries in France, Portugal, Italy, Spain, Poland, Switzerland, the United Kingdom, Germany, the Netherlands
and the United States had aggregate annual liability insurance for up to approximately €20 million (US$21.1 million). This
amount includes nuclear liability coverage of up to €10 million (US$10.6 million) annually.



In
addition to such insurance coverage, we maintain separate insurance coverage for our clinical trials covering our products and
services. We believe our insurance coverage and related policy limits are customary for similarly situated companies and adequate
to provide us with insurance coverage for foreseeable risks. However any claims against us, regardless of their merit, could be
difficult and costly to defend and could result in:



| | · | decreased demand for any product candidates or products that we may develop;
| | - | ----------------------------------------------------------------------------



| | · | termination of clinical trial sites or entire trial programs;
| | - | -------------------------------------------------------------



| | · | injury to our reputation and significant negative media attention;
| | - | ------------------------------------------------------------------



| | · | withdrawal of clinical trial participants;
| | - | ------------------------------------------



| | · | significant costs to defend the related litigation;
| | - | ---------------------------------------------------



| | · | substantial monetary awards to trial subjects or patients;
| | - | ----------------------------------------------------------



| | · | loss of sales;
| | - | --------------



| | · | diversion of management and scientific resources from our business operations;
| | - | ------------------------------------------------------------------------------



| | · | the inability to commercialize any products that we may develop; and
| | - | --------------------------------------------------------------------



| | · | an increase in product liability insurance premiums or an inability to maintain product liability insurance coverage.
| | - | ---------------------------------------------------------------------------------------------------------------------



Although the clinical trial process is
designed to identify and assess potential side effects, it is possible that a product candidate, even after regulatory approval,
may exhibit unforeseen side effects. If any of our product candidates were to cause adverse side effects during clinical trials
or after approval of the product candidate, we may be exposed to substantial liabilities. Physicians and patients may not comply
with any warnings that identify known potential adverse effects and patients who should not use our product candidates.



Although we maintain limited product liability
insurance for our products and product candidates, it is possible that our liabilities could exceed our insurance coverage. We
intend to expand our insurance coverage for the sale of commercial products to include additional product candidates, if any, for
which we obtain EMA marketing authorization or FDA approval. However, we may not be able to maintain insurance coverage at a reasonable
cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise. If a successful product liability
claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not
be sufficient to cover such claims and our business operations could be impaired.



Any of the events described above could
have a material adverse effect on our business, financial condition and results of operations.

20


Table of Contents








Regulatory and Compliance Risks



In response to a complete response letter
issued by the FDA in connection with our NDA for lutetium Lu 177 dotatate (Lutathera®), we must revise our data format and
resolve the issues identified, which has delayed the review of lutetium Lu 177 dotatate (Lutathera®)’s NDA.



In December 2016, the FDA issued a complete
response letter regarding our NDA for lutetium Lu 177 dotatate (Lutathera®). The complete response letter came after the issuance
in November of a Discipline Review Letter raising the same issues. The complete response letter referred to issues with the format,
traceability, uniformity and completeness relating to the NETTER-1 and Erasmus clinical datasets, which precluded the FDA reviewers
from performing the required independent analysis of these clinical studies. In addition, the complete response letter requests
subgroup analyses for gender, age and racial subgroups, as well as other stratification factors and important disease characteristics.
A safety update on clinical and non-clinical studies was also requested in the complete response letter. Finally, the complete
response letter noted that any observations made during inspections of manufacturing facilities supporting the NDA need to be resolved
prior to approval of the NDA. No additional clinical studies were requested in the complete response letter.



We cannot guarantee that lutetium Lu 177
dotatate (Lutathera®) will be approved by the FDA and the additional time and effort to respond to the matters raised in the
complete response letter will have the effect of delaying the approval and development of lutetium Lu 177 dotatate (Lutathera®).



Failure to obtain or maintain regulatory
approval in international jurisdictions could prevent us from marketing our products abroad and could limit the growth of our business.



We currently sell or intend to sell our
products and product candidates in the European Union, the United States and around the world. To market our products elsewhere
in Europe and other foreign jurisdictions, we may need to obtain separate regulatory approvals and comply with numerous and varying
regulatory requirements. Approval by the EMA and/or FDA does not ensure approval by foreign regulatory authorities. The approval
procedures in foreign jurisdictions can vary widely and can involve additional clinical trials and data review. We and our industry
partners may not be able to obtain foreign regulatory approvals on a timely basis, if at all, and therefore we may be unable to
commercialize our products in these countries and new markets, which may adversely impact our business, financial condition and
results of operations.



Even if our product candidates obtain
regulatory approval, they will be subject to continual regulatory review.



Our product candidates that have obtained,
or will obtain, EMA marketing authorization or FDA approval will remain subject to continual review and therefore their approval
could be subsequently withdrawn or restricted. We are subject to ongoing obligations and oversight by regulatory authorities, including
adverse event reporting requirements, requirements pertaining to advertising and promotion of our products, requirements to manufacture
our products in accordance with cGMP and other post-marketing obligations.



If we, our product candidates or the manufacturing
facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:



| | · | issue warning letters or untitled letters;
| | - | ------------------------------------------



| | · | mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | require us to enter into a consent decree, which can include the imposition of various fines, reimbursements for inspection
costs and penalties for noncompliance, and require due dates for specific actions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | seek an injunction, impose civil penalties or monetary fines or pursue criminal prosecution;
| | - | --------------------------------------------------------------------------------------------





21


Table of Contents




| | · | suspend or withdraw regulatory approval;
| | - | ----------------------------------------



| | · | suspend any ongoing clinical trials;
| | - | ------------------------------------



| | · | refuse to approve pending applications or supplements to applications filed by us;
| | - | ----------------------------------------------------------------------------------



| | · | suspend or impose restrictions on operations, including costly new manufacturing requirements; or
| | - | -------------------------------------------------------------------------------------------------



| | · | seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
| | - | ------------------------------------------------------------------------------------------------------------------------



If any of these events occurs, our ability
to sell such products may be impaired, and we may incur substantial additional expense to comply with regulatory requirements,
which could materially adversely affect our business, financial condition and results of operations.



Regulatory approval for our products
is limited by the EMA, the FDA and similar authorities in other jurisdictions to those specific indications and conditions for
which clinical safety and efficacy have been demonstrated, and the prescription or promotion of off-label uses could adversely
affect our business.



Any regulatory approval of our products
is limited to those specific indications for which our products have been deemed safe and effective by the EMA, the FDA or similar
authorities in other jurisdictions and therefore approved. In addition to the regulatory approval required for new formulations,
any new indication for an approved product also requires regulatory approval. Once we distribute a therapy, PET or SPECT product
or product candidate, we rely on physicians to prescribe and administer it for the indications described and as directed in the
product’s labeling. However, in certain cases physicians may prescribe a product for unapproved, or “off-label”
uses, or in a manner that is inconsistent with the product’s labeling, including its prescription information. To the extent
such off-label uses and departures from the approved labeling become pervasive and produce results such as reduced efficacy or
other adverse effects, the reputation of our products or product candidates in the marketplace may suffer.



Furthermore, while physicians may choose
to prescribe drugs for uses that are not described in the product’s or product candidates’ labeling and for uses that
differ from those approved by regulatory authorities, our ability to promote the products or product candidates is limited to those
indications that are specifically approved by the EMA, the FDA or other regulators. Although regulatory authorities generally do
not regulate the behavior of physicians, they do restrict communications by companies on the subject of off-label use. If our promotional
activities fail to comply with these regulations or guidelines, we may be subject to warning or untitled letters from, or enforcement
action by, these authorities. In addition, failure to follow EMA and FDA rules and guidelines relating to promotion and advertising
can result in the EMA’s or FDA’s refusal to approve a product, the suspension or withdrawal of an approved product
from the market, product recalls, fines, disgorgement of money, operating restrictions, injunctions or criminal prosecution, any
of which could have a material adverse effect upon our business, financial condition and results of operations.



Our operations and the administration
of certain of our products and product candidates, including lutetium Lu 177 dotatate (Lutathera®), involve the use of hazardous
materials, and require us and third parties to comply with complex and stringent regulatory requirements and could expose us to
significant potential liabilities.



Our operations involve the use of hazardous
materials, including radioactive materials, and may produce dangerous waste products. Accordingly, we, along with the third parties
that conduct clinical trials for and manufacture our products and product candidates on our behalf, are subject to numerous local
and foreign laws and regulations that govern, among other things, the use, manufacture, distribution, storage, handling, exposure,
disposal and recordkeeping with respect to these materials. Third parties who administer our products and product candidates, including
lutetium Lu 177 dotatate (Lutathera®), which is generally administered by radiation oncologists, are also subject to such laws
and regulations. Compliance with current or future laws and regulations can result in significant costs and we could be subject
to substantial fines and penalties and other sanctions in the event of noncompliance. Past inspections of our facilities have noted
certain deviations that required corrective and preventative action, though they did not result in any restrictions on our ability
to produce or deliver radioactive products, and they did not result in any fines. We must also comply with special regulations
relating to radioactive materials administered by national radioactive and pharmaceutical regulatory bodies, such as the Autorité
de Sureté Nucléaire (French Nuclear Safety Authority), the Agence Nationale de Sécurité du Médicament
et des Produits de Santé (National Security Agency of Medicines and Health Products) and AIFA, as well as similar agencies
in the jurisdictions in which we operate.Any related cost or liability might not be fully covered by insurance, could exceed
our resources and could have a material adverse effect on our business, financial condition and results of operations.





22


Table of Contents




We are required to comply with human
health and safety and environmental laws and regulations, which could require us to incur significant costs or result in significant
liabilities.



We are subject to a variety of human health
and safety and environmental laws and regulations relating to, among other matters, the use, storage, treatment, discharge, transportation,
handling and disposal of hazardous wastes and hazardous materials used to manufacture our products, including radioactive materials
and gas, permitting and decommissioning and decontamination, or D&D, obligations. As a result of our establishment of a site
in Millburn, NJ and our ongoing modifications of our F-18 production site in Zaragoza, Spain, we may be required to obtain permits
or other authorizations under such laws, rules and regulations. Authorities in the relevant jurisdictions could, among other sanctions,
impose fines, suspend production, alter our manufacturing processes or stop our operations if we do not comply with these laws
or regulations. Environmental laws and regulations are becoming increasingly stringent and we may have to incur significant costs
to comply with such laws and regulations in the future.



The risk of contamination or injury from
these hazardous and radioactive materials or wastes, including the disposal and transportation thereof, cannot be completely eliminated.
In such event, we could be held liable for substantial damages or costs associated with the cleanup of, or exposure to, hazardous
or radioactive materials or wastes. Our insurance policies may not fully cover any claims asserted against us in the future related
to environmental contamination or required remediation. Any such costs or liability related to noncompliance or contamination would
decrease our cash reserves and could harm our business or profitability.



Our use of facilities that use and produce
radioactive materials subjects us to compliance with D&D requirements when we close those facilities or at the end of the useful
life of our cyclotrons, exposing us to potentially significant costs. Our products and product candidates are manufactured using
radioactive components, such as the radioisotopes F-18 and Lu-177. When one of such facilities or a cyclotron reaches the end of
its useful life or if we need to abandon such facility for any other reason, we are obligated under the laws and regulatory rules
of the various jurisdictions in which we operate to decommission and decontaminate such facility or cyclotron. We have no experience
with D&D, and the costs of such D&D may be substantial. Estimating the amount and timing of such future D&D costs includes,
among other factors, country-specific requirements and projections as to when a facility will retire or the useful life of a cyclotron.
If we do not conduct D&D properly at any of our sites, we may suffer significant additional costs to remediate any D&D
deficiencies, fines, regulatory or criminal charges or other sanction or legal action, any of which could have a material adverse
effect upon our business, financial condition and results of operations. Although we have estimated our future D&D costs and
recorded a liability for such costs, there can be no assurances that we will not incur material D&D costs beyond such estimates
or our provisions.



The regulatory regimes to which we are
subject may directly impact our management, members of whom may inadvertently become subject to enforcement actions or otherwise
be distracted by regulatory actions.



We are subject to numerous and overlapping
regulatory regimes in the jurisdictions in which we operate, many of which have stringent rules and regulations that may extend
to our key executives and management. Our senior management has in the past had to devote time to addressing regulatory inquiries
and demands, and may need to devote time and resources to inquiries, demands, investigations or regulatory actions in the future,
including investigations or regulatory actions that result from inadvertent violations of certain regulations in particular jurisdictions,
whether or not the member of management was directly involved or related to, or played any role in, such violations. The distraction
or loss of time or resources caused by such instances may be significant and could result in a material adverse effect on our business,
financial condition or results of operations.



Our international operations increase
our risk of exposure to potential claims of bribery and corruption.



As a result of our international operations
and commercialization efforts, we are subject to an increased risk of inadvertently conducting activities in a manner that violates
the U.S. Foreign Corrupt Practices Act, or FCPA, the UK Bribery Act, or other similar foreign laws which prohibit corporations
and individuals from paying, offering to pay, or authorizing the payment of anything of value to any foreign government official,
government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence
a person working in an official capacity. In the course of establishing and expanding our commercial operations and seeking regulatory
approvals in the European Union, the United States, and internationally, we will need to establish and expand business relationships
with various third parties and will interact more frequently with foreign officials, including regulatory authorities and physicians
employed by state-run healthcare institutions who may be deemed to be foreign officials under the FCPA or similar foreign laws.
If our business practices are found to be in violation of the FCPA or similar foreign laws, we and our senior management may be
subject to significant civil and criminal penalties, potential debarment from public procurement and reputational damage, which
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.





23


Table of Contents




Brexit could adversely impact our business,
results of operations and financial condition.



On June 23, 2016 the UK voted to leave
the EU in a referendum (the “Brexit”). For now, the United Kingdom remains a member of the EU and there will not be
an immediate change in either EU or UK law as a consequence of the “leave” vote. EU law does not govern contracts and
the United Kingdom is not part of the EU’s monetary union. However, the “leave” vote signals the beginning of
a lengthy process under which the terms of the United Kingdom’s withdrawal from, and future relationship with, the EU will
be negotiated and legislation to implement the United Kingdom’s withdrawal from the EU will be enacted. The ultimate impact
of the “leave” vote will depend on the terms that are negotiated in relation to the United Kingdom’s future relationship
with the EU. Although the timetable for UK withdrawal is not at all clear at this stage, it is likely that the withdrawal of the
United Kingdom from the EU will take more than two years to be negotiated and conclude.



Brexit could impair our ability to transact
business in EU countries. We derived 15.0% of our sales as at December 31, 2016 from the United Kingdom and maintain a presence
in the country through our acquisition in February 2014 of IEL, a privately held UK distributor of nuclear medicine products and
technologies. We intend to commercialize our Somakit products and lutetium Lu 177 dotatate (Lutathera®) in the United Kingdom
as well as in the other EU5 countries (France, Germany, UK, Italy, Spain). Brexit has already and could continue to adversely affect
European and/or worldwide economic and market conditions and could continue to contribute to instability in the global financial
markets and volatility in the value of the Pound Sterling or other currencies, including the Euro. The long-term effects of Brexit
will depend in part on any agreements the United Kingdom makes to retain access to EU markets following the United Kingdom’s
withdrawal from the EU.



We expect that Brexit could lead to legal
uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which EU laws to replicate
or replace. If the United Kingdom were to significantly alter its regulations affecting the pharmaceutical industry, we could face
significant new costs. It may also be time-consuming and expensive for us to alter our internal operations in order to comply with
new regulations. Altered regulations could also add time and expense to the process by which our product candidates receive regulatory
approval in the United Kingdom and EU, and may affect our current drug approvals. The EMA is currently based in London and although
Brexit is unlikely to have an effect on drugs currently under review, it may lead to a lengthier process in the future and we may
need to engage in a separate drug approval process with the UK’s Medical & Healthcare Products Regulatory Agency (MHRA).



Similarly, it is unclear at this time what
Brexit’s impact will have on our intellectual property rights and the process for obtaining and defending such rights. It
is possible that certain intellectual property rights, such as trademarks, granted by the EU will cease being enforceable in the
UK absent special arrangements to the contrary. With regard to existing patent rights, the effect of Brexit should be minimal considering
enforceable patent rights are specific to the UK, whether arising out of the European Patent Office or directly through the UK
patent office.



Any of these effects of Brexit, and others
we cannot anticipate, could adversely affect our business, business opportunities, results of operations, financial condition and
cash flows.





24


Table of Contents




Intellectual Property, Licensing Dependence and Information
Technology Risks



Our lead radiotherapeutic product candidate,
lutetium Lu 177 dotatate (Lutathera®), is not covered by any patents and will not be covered by any patents in the time before,
during and/or after the period of its commercialization, and our competitors may be able to develop and commercialize similar or
identical products, which could adversely affect our ability to successfully commercialize lutetium Lu 177 dotatate (Lutathera®).



The patent rights covering lutetium Lu
177 dotatate (Lutathera®) that are licensed to us have expired. We submitted the NDA to the FDA and the MAA to the EMA for
lutetium Lu 177 dotatate (Lutathera®) in April 2016. As a result, if we obtain marketing authorization or FDA approval for
lutetium Lu 177 dotatate (Lutathera®) but are not able to maintain regulatory marketing exclusivity through its orphan drug
designation or other regulatory measures, we may not be able to exclude competitors from commercializing products similar or identical
to ours if such competitors are able to obtain necessary marketing authorizations. The launch of a competing version of one of
our products, including lutetium Lu 177 dotatate (Lutathera®) if approved, would likely result in a substantial reduction in
the demand for and sales attributable to such product, which could have a material adverse effect on our business, financial condition
and results of operations.



Our business could be adversely affected
if we are unable to gain access to relevant intellectual property rights of third parties, or if our licensing partners terminate
our rights to license relevant intellectual property rights.



We currently rely, and may in the future
rely, on certain intellectual property rights licensed from third parties to protect our technology. We are also party to license
agreements with Erasmus and Mallinckrodt for the commercialization of lutetium Lu 177 dotatate (Lutathera®) and a license agreement
with Stanford University with respect to Annexin V-128.



We also rely on licenses to intellectual
property rights for certain product candidates under development. For more information, see “Item 4. Information on the Company—B.
Business Overview—Licensing.”



Under certain of our licenses from third
parties, we have the responsibility to maintain and control the licensed intellectual property portfolio; however, to the extent
our relevant counterparty is responsible for maintaining, controlling or enforcing the licensed intellectual property, we cannot
ensure that the licensed rights will be adequately maintained, controlled and enforced by such counterparty. In addition, our licensed
rights may expire or be suspended, terminated or otherwise lost in consequence of a breach of the agreements or due to other relevant
facts and circumstances such as insolvency of the licensor. Our ability to comply with our contractual obligations may be affected
by factors that we can only partially influence or control.



The continuation of a good relationship
with our licensing and distribution agreement counterparties and the ability to extend the agreements that we have in place is
important to our business prospects. If our counterparties were to terminate their licenses with us or successfully challenge our
use of their intellectual property, or if our licenses were to expire prior to the expiration of the rights granted under such
licenses, we would be prevented from continuing our use of the relevant technology in clinical trials or, if our products are approved
for marketing, from using the relevant technology in products that could be sold commercially. Because of the complexity of our
product candidates and the patent rights we have licensed, determining the scope of the licenses and related obligations may be
difficult and could lead to disputes between us and our licensors. The loss of rights under any such license could preclude us
from further developing, manufacturing, commercializing and marketing our products, which could have a material adverse effect
on our business, financial condition and results of operations.





25


Table of Contents




We rely on patents and other intellectual
property rights to protect certain of our products, product candidates and technologies, the maintenance, enforcement and defense
of which may be challenging and costly. Failure to enforce or defend these rights adequately could harm our ability to compete
and impair our business.



Our commercial success depends in part
on obtaining and maintaining patents and other forms of intellectual property rights for certain of our products and product candidates,
including the methods used to manufacture those products and the methods for treating patients using those products, as well as
in-licensing such rights. The patent applications that we own or in-license may fail to result in issued patents with claims that
cover our products or product candidates in the relevant jurisdiction. Even if our owned and in-licensed patent applications do
successfully issue, third parties may challenge their validity, scope, enforceability or ownership, which may result in such patents,
or our rights to such patents, being narrowed or invalidated. Furthermore, even if our owned and in-licensed patents and patent
applications are unchallenged, they may not adequately protect our intellectual property or prevent others from designing around
our claims. For instance, others may be able to make and commercialize compounds that are the same as or similar to our product
candidates but that are not covered by the claims of the patents that we own or have exclusively licensed. Others may also independently
develop similar or alternative products or duplicate any of our technologies without infringing our intellectual property rights.
Failure to protect or to obtain, maintain or extend adequate patent protection and other intellectual property rights could materially
adversely affect our ability to develop and market our products and product candidates.



To protect our competitive position, we
may from time to time need to resort to litigation in order to enforce or defend any patents or other intellectual property rights
owned by or licensed to us, or to determine or challenge the scope, validity, enforceability or ownership of patents or other intellectual
property rights of third parties. If we were to initiate legal proceedings against a third party to enforce a patent covering one
of our products, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the
United States and in Europe, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. The outcome following
legal assertions of invalidity and unenforceability during patent litigation is unpredictable. If a defendant were to prevail on
a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection
on one or more of our products or product candidates or certain aspects of our technology. Such a loss of patent protection could
have a material adverse impact on our business.



Third-party claims of intellectual property
infringement may prevent or delay our development and commercialization efforts or otherwise affect our business.



There is a substantial amount of litigation
involving patent and other intellectual property rights in the pharmaceutical industry, including patent infringement lawsuits,
interferences, oppositions, reexaminations, and inter partes review proceedings. Third parties have previously initiated,
and may in the future initiate, such proceedings challenging our owned and in-licensed patents. Numerous European and U.S. issued
patents and pending patent applications owned by third parties exist in the fields in which we and our collaborators are developing
product candidates. As we gain greater visibility and market exposure as a public company, the risk increases that our products,
product candidates and other business activities may be subject to claims of infringement of the patent and other proprietary rights
of third parties.



Third parties may assert that we are employing
their proprietary technology without authorization. We are aware of a U.S. patent owned by a third party that contains claims that
could be found to cover our Somakit products. The owner of this patent may allege that our Somakit products infringe its patent
rights, including by bringing a patent infringement lawsuit against us, which if successful could materially affect any commercialization
of our Somakit products contemplated by us in the United States. There may be other third-party patents or patent applications
with claims that may relate to materials, formulations, methods of manufacture or methods of treatment related to the composition,
use or manufacture of our products or product candidates. Because patent applications can take many years to issue, patent applications
covering our products or product candidates could have been filed by others without our knowledge. Additionally, pending patent
applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our products,
product candidates or their use. The expiration dates of issued patents can be difficult to determine accurately and may be subject
to extensions, which could expose us to the risk of unanticipated patent claims by third parties and delays in the development,
manufacture, commercialization or marketing of our products and product candidates. The granting of orphan drug designation in
respect of lutetium Lu 177 dotatate (Lutathera®), our Somakit products or any of our other product candidates does not guarantee
our freedom to operate and is separate from our risk of possible infringement of third parties’ intellectual property rights.





26


Table of Contents




If a third party were to assert a patent
against us, we would potentially be required to challenge the validity of the patent or otherwise seek to license any rights to
the patent necessary for the commercialization of our applicable product or product candidate in the relevant jurisdiction. There
is no assurance that a court would find the asserted claims to be invalid or that we would be able to obtain a license to any necessary
rights on reasonable terms, or at all. If any third-party patents are successfully asserted against us such that they are found
to be valid and enforceable and infringed by our products or product candidates, we may not be able to successfully settle or otherwise
resolve such infringement claims. If we are unable to successfully settle future claims on terms acceptable to us, we may be required
to engage in or continue costly, unpredictable and time-consuming litigation and may be prevented from, or experience substantial
delays in, developing, manufacturing, commercializing or marketing our products or product candidates. In addition, there could
be public announcements of the results of hearings, motions or other interim proceedings or developments, and if securities analysts
or investors perceive these results to be negative, such results could have a substantial adverse effect on the price of our ordinary
shares and our ADSs. Such litigation or proceedings could substantially increase our operating losses and reduce our resources
available for development activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings
adequately. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If we fail in any such dispute, we may be subject to significant
liability for damages, potentially including treble damages and attorneys’ fees if we are found to have willfully infringed
a patent. In addition to any such damages, we or our licensees may be temporarily or permanently prohibited from developing and
commercializing any of our products and product candidates that are held to be infringing unless we obtain a license to such patents,
which may not be available on commercially reasonable terms or at all. We might, if possible, also be forced to redesign products
so that we no longer infringe the third-party intellectual property rights, which could also be costly and result in substantial
delays in the development and commercialization of such products.



We may also be subject to claims that we
are infringing other intellectual property rights, such as trademarks or copyrights, or misappropriating the trade secrets of others,
and to the extent that our employees, consultants or contractors use intellectual property or proprietary information owned by
others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions. Any of these
events, even if we were ultimately to prevail, could require us to divert substantial financial and management resources that we
would otherwise be able to devote to our business. Uncertainties resulting from the initiation and continuation of intellectual
property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.



We enjoy only limited geographical protection
with respect to certain patents and may face difficulties in certain jurisdictions, which may diminish the value of intellectual
property rights in those jurisdictions.



We generally file our first patent application
(i.e., priority filing) at the European Patent Office, or EPO, or at a national patent office, such as the National Industrial
Property Institute, or NIPI, in France. International applications under the Patent Cooperation Treaty, or PCT, are usually filed
within twelve months of the priority filing. Based on the PCT filing, we may file national and regional patent applications in
the United States, Australia, New Zealand, Japan, and Canada and all European Patent Convention, or EPC, member states by filing
at the EPO and, depending on the individual case, also in any or all of, among other countries, China, India, Singapore and Israel.
As yet, we have not filed for patent protection in all national and regional jurisdictions where such protection may be available.
In addition, we may decide to abandon national and regional patent applications before they ever issue as patents. Finally, the
grant proceeding of each national/regional patent is an independent proceeding which may lead to situations in which applications
might in some jurisdictions be refused by the relevant registration authorities, while granted by others. It is also quite common
that, depending on the country, the scope of patent protection may vary for the same product candidate and/or technology.



The laws of some jurisdictions do not protect
intellectual property rights to the same extent as the laws in the European Union and the United States, and many companies have
encountered significant difficulties in protecting and defending such rights in such jurisdictions. If we or our licensors encounter
difficulties in protecting, or are otherwise precluded from effectively protecting, the intellectual property rights important
for our business in such jurisdictions, the value of these rights may be diminished and we may face additional competition from
others in those jurisdictions.



Many countries have compulsory licensing
laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability
of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies,
which could materially diminish the value of such patent. If we or any of our licensors is forced to grant a license to third parties
with respect to any patents relevant to our business, our competitive position may be impaired and our business and results of
operations may be adversely affected.





27


Table of Contents




Changes in patent laws or patent jurisprudence
could diminish the value of patents in general, thereby impairing our ability to protect our products.



As is the case with other pharmaceutical
companies, our success is heavily dependent on intellectual property, particularly patents or licenses to patents necessary to
develop product candidates and commercialize products. Obtaining and enforcing patents in the radiopharmaceutical industry involves
both technological and legal complexity. Therefore, obtaining and enforcing radiopharmaceutical patents is costly, time-consuming
and inherently uncertain. In addition, the America Invents Act has been recently enacted in the United States, resulting in significant
changes to the U.S. patent system. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the
scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts,
and the U.S. Patent and Trademark Office, the laws and regulations governing patents could change in unpredictable ways that could
weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. Similarly,
the complexity and uncertainty of European patent laws has also increased in recent years. In addition, the European patent system
is relatively stringent with regard to the type of amendments that are allowed during prosecution. These changes could limit our
ability to obtain new patents in the future that may be important for our business.



In addition to patented technology, we
rely on our unpatented proprietary technology, trade secrets, processes and know-how.



We rely on proprietary information (such
as trade secrets, know-how and confidential information) to protect intellectual property that may not be patentable, or that we
believe is best protected by means that do not require public disclosure. For example, our products lutetium Lu 177 dotatate (Lutathera®),
Gluscan and our proprietary products 18F-choline and 18F-DOPA are not currently covered by any issued patents or pending patent
applications in any jurisdiction, and we rely in part on owned and licensed know-how to maintain our competitive advantage with
respect to these products. To protect this type of information against disclosure or appropriation by competitors, our policy is
to require our employees, consultants, contractors and advisors to agree to confidentiality provisions in employment agreements
with us. Any new employee contract into which we enter contains confidentiality obligations and, for key personnel who will have
access to our know-how and/or confidential information, a non-competition clause. We also typically execute confidentiality agreements
with third parties before we initiate discussions relating to our know-how or proprietary information. However, trade secrets and/or
confidential know-how are difficult to maintain as confidential. Current or former employees, consultants, contractors and advisers
may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide
an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained
illegally and is using trade secrets and/or confidential know-how is expensive, time-consuming and unpredictable. Moreover, the
enforceability of confidentiality agreements may vary from jurisdiction to jurisdiction.



We have limited control over the protection
of trade secrets used by our industry partners and suppliers and could lose future trade secret protection if any unauthorized
disclosure of such information occurs. In addition, our proprietary information may otherwise become known or be independently
developed by our competitors or other third parties, and such third parties may even apply for patent protection in respect of
the same. If successful in obtaining such patent protection, our competitors could limit our use of our trade secrets, know-how
and confidential information. Under certain circumstances, we may also decide to publish certain know-how to reduce the likelihood
that others will obtain patent rights covering such know-how. To the extent that our employees, consultants, contractors, scientific
advisors and other third parties use intellectual property owned by others in their work for us, disputes may arise as to the rights
in related or resulting know-how and inventions. Costly and time-consuming litigation could be necessary to enforce and determine
the scope of our proprietary rights, and failure to obtain or maintain protection for our proprietary information could adversely
affect our competitive business position. Furthermore, laws regarding trade secret rights in certain markets where we operate may
afford little or no protection to our trade secrets. Failure to obtain or maintain trade secrets and protection of know-how and
other confidential information could adversely affect our competitive position.



We also rely on physical and electronic
security measures to protect our proprietary information, but we cannot guarantee that these security measures will not be breached
or provide adequate protection for our property. There is a risk that third parties may obtain and improperly utilize our proprietary
information to our competitive disadvantage. We may not be able to detect or prevent the unauthorized use of such information or
take appropriate and timely steps to enforce our intellectual property and other proprietary rights.





28


Table of Contents




Our information technology systems could
face serious disruptions that could adversely affect our business.



Our information technology and other internal
infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic
failure that could disrupt our operations. A significant disruption in the availability of our information technology and other
internal infrastructure systems could cause interruptions in our collaborations with our partners and delays in our R&D, which
could have a material adverse effect on our business, financial condition and results of operations.



Risks Related to our Reliance on Third Parties



We rely on third parties to provide services
in connection with our preclinical and clinical development programs, in particular CROs. The inadequate performance by or loss
of any of these service providers could negatively affect our product candidate development.



We rely on third parties, especially CROs,
in connection with our preclinical and clinical development of certain product candidates, in particular for lutetium Lu 177 dotatate
(Lutathera®). Although we do not exercise control over the day-to-day activities of our CROs, we are responsible for ensuring
that our studies are conducted in accordance with applicable regulations and guidelines. In the past, errors made by third parties
on which we rely have resulted in delays in our product development, including for lutetium Lu 177 dotatate (Lutathera®). Additionally,
if these CROs or other third parties who help facilitate the development of our product candidates were to perform inadequately
or to provide data on an untimely basis in their provision of services or conduct of preclinical or clinical activities, or if
we were to lose the services of such third parties, the inadequate performance of or loss of such parties’ services could
delay, undermine the reliability of, or otherwise negatively impact our preclinical or clinical trials, as well as the prospects
for regulatory approval and commercialization of the relevant product candidates that depend upon the successful completion of
such trials. The failure of a third party upon whom we depend to adequately provide such services may also result in exposure to
liability, regulatory sanction and loss of reputation for us, any of which could have a material adverse effect upon our business,
financial condition or results of operations.



We rely on third parties to deliver our
products and these third parties may not perform.



We do not deliver our radiopharmaceutical
products to hospitals and imaging centers ourselves. We depend, and we will likely depend in the future, on contracted third parties
to deliver our products, which in many cases must be delivered in accordance with stringent local and international regulations
applicable to the delivery of radioactive materials. Failure of these third parties to deliver our products to others in compliance
with these regulations, whether inadvertent or intentional, could subject us to demands, investigations or regulatory actions in
the future. Our ability to manufacture and ensure the delivery of products to customers could be limited in the event such actions
were taken against us. In addition, if these third parties fail to deliver our products to our customers in a timely manner, we
may suffer significant harm to our reputation and lose sales, which could have a material adverse effect on our business, financial
condition and results of operations.



In addition, a portion of our sales is
obtained through third parties. As a result, we rely on the commercialization strength of these distributors and the distribution
channels through which they operate. We may not be able to retain these distribution relationships indefinitely and these distributors
may not adequately support the sales, marketing and distribution efforts of our products in these significant markets. If third
parties do not successfully carry out their contractual duties in maximizing the commercial potential of our products, or if there
is a delay or interruption in the distribution of our products, it could negatively impact our sales of such products and could
have a material adverse effect on our business, financial condition and results of operations.



If we choose not to rely on such third
parties for distribution of our products in the future, for instance in the United States, where we are expanding our existing
presence, we will have to distribute our products ourselves and will be directly subject to the same local and international regulations
described above and risks associated with non-compliance. Our failure to establish appropriate distribution networks of our own
in the United States or elsewhere or our failure to do so in a cost-effective manner or in a manner that satisfies such regulations
could have a material adverse effect on our business, financial condition and results of operations.





29


Table of Contents




Risks Related to our Business, Growth and Employees



We have experienced losses in the past
and we may not become profitable in the future.



We have incurred significant accumulated
losses to date, in large part due to our investment in and costs relating to our R&D activities and contingent financial liabilities
relating to the acquisition of product candidates. Our financial results are significantly impacted by sales estimates of lutetium
Lu 177 dotatate (Lutathera®), and, to a lesser extent, by sales estimates of Annexin V-128 and related contingent consideration,
licensing and royalty obligation estimates, which are accounted for in our consolidated financial statements as a liability under
IFRS rules, and which may increase in the future if our estimates of future lutetium Lu 177 dotatate (Lutathera®) and Annexin
V-128 sales increase as well. We experienced a net loss of  €25.3 million (US$26.7 million), €17.0 million (US$17.9
million) and €10.8 million (US$11.4 million) for the years ended December 31, 2016, 2015 and 2014, respectively, and had an
accumulated deficit of  €44.1 million (US$46.5 million) as of December 31, 2016. Depending on our level of R&D
investment, the number of product candidates we undertake to develop, our sales and forecasts of our royalty obligations, we anticipate
incurring continued net losses for the next three or more fiscal years. We also anticipate that our operating expenses will increase
substantially in the foreseeable future as we continue to invest to grow our business and develop our product candidates, particularly
lutetium Lu 177 dotatate (Lutathera®), while expanding geographically and complying with the requirements of being a public
company. These efforts may prove to be more expensive than we currently anticipate, and we may not succeed in increasing our sales
sufficiently to offset these higher expenses. Many of our efforts to generate sales from our product candidates are unproven or
have yielded limited sales, and any failure to increase our sales or generate sales from new product candidates could prevent us
from attaining profitability. If we are unable to effectively manage these risks and difficulties as we encounter them, we may
suffer a material adverse effect on our business, financial condition and results of operations.



We are dependent on the continued service
of our senior management team, the loss or diminished performance of any member of which could have a material adverse effect on
our business.



Our performance is substantially dependent
on our senior management, which includes Stefano Buono, our CEO, Heinz Mäusli, our CFO, Gérard Ber, our COO, and Claude
Hariton, our Global Head of R&D. In addition, our success depends upon the continued contributions of our senior and other
members of key management, scientific and technical personnel many of whom have substantial experience with us or have been instrumental
for us and our molecular nuclear medicine therapy and related technologies.



The loss of any member of senior management,
managers in charge of overall operations in a specific country or senior scientists could delay our R&D activities. In addition,
the competition for qualified personnel in the radiopharmaceutical and pharmaceutical field is intense, and our future success
depends upon our ability to attract, retain and motivate highly-skilled scientific, technical and managerial employees. We face
competition for personnel from other companies, universities, public and private research institutions and other organizations.
Some of the entities with which we compete for management personnel have greater financial and other resources than we do or are
located in geographic areas which may be considered by some to be more desirable places to live. We cannot be sure that any member
of our senior management will remain with us or that any such member will not compete with us in the future. If our recruitment,
retention and motivation efforts are unsuccessful in the future, it may be difficult for us to implement our business strategy,
which could have a material adverse effect on our business.



We have identified material weaknesses
in our internal control over financial reporting. If the since-implemented internal controls fail to be effective, such failure
could result in material misstatements in our financial statements, cause investors to lose confidence in our reported financial
and other public information and have a negative effect on the trading price of our shares.



Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures,
are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations. Section 404 of the Sarbanes-Oxley Act, or SOX, requires
management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness
thereof. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected
on a timely basis.





30


Table of Contents




In connection with the preparation of the
2016 annual financial statements, our management, including our Chief Executive Officer and Chief Financial Officer, identified
material weaknesses in our internal controls over financial reporting. We also identified a larger number of significant deficiencies
in our internal controls. As a result of these material weaknesses, management has concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2016 (see “Item 15. Controls And Procedures—B.
Management’s Annual Report on Internal Control over Financial Reporting”).



We cannot assure you that we have identified
all of our existing material weaknesses, or that we will not in the future have additional material weaknesses. Undetected material
weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.
If we fail to address these issues or should not manage to have effective internal controls in place, we may risk having material
errors in our financial statements. This may result in the loss of investor confidence, possibly subject us to regulatory scrutiny
and sanctions and reduce the company’s market value.



We expect to hire a significant number
of new employees and expand our development, regulatory and sales, marketing and distribution capabilities, and as a result, we
may encounter difficulties in managing our growth, which could disrupt our operations.



We expect to experience significant growth
in the number of our employees and the scope of our operations, particularly in the areas of clinical development, regulatory affairs
and sales, marketing and distribution as we work toward anticipated EMA marketing authorization and FDA approval for lutetium Lu
177 dotatate (Lutathera®), and as we expand our operations into the United States. To manage our anticipated future growth,
we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue
to recruit and train additional qualified personnel.We may not be able to effectively manage the expansion of our operations
or recruit and train additional qualified personnel.The expansion of our operations may lead to significant costs and may
divert our management and business development resources.Any inability to manage growth could delay the execution of our
business plans or disrupt our operations and have a material adverse effect on our business, financial condition and results of
operations.



Acquisitions that we have completed and
any future acquisitions, strategic investments, partnerships or alliances could be difficult to integrate and/or identify, divert
the attention of key management personnel, disrupt our business, dilute shareholder value and adversely affect our financial results,
including impairment of goodwill and other intangible assets.



We have acquired, and in the future may
acquire or make, strategic investments in complementary businesses, radiopharmaceutical technologies or production and other services
or enter into strategic partnerships or alliances with third parties to enhance our business or to expand into commercially attractive
geographic markets. If we do identify suitable candidates, we may not be able to complete transactions on terms commercially acceptable
to us, if at all. These types of transactions involve numerous risks, including:



| | · | risks associated with reorganizing acquisition targets to bring them to our manufacturing and quality standards; clinical trial
data obtained by acquisition targets related to their products or product candidates that we acquire may be problematic or insufficient,
requiring us to either conduct new trials or abandon the trials or the acquired product candidate;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | difficulties in integrating operations, technologies, accounting and personnel and achieving anticipated synergies;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | difficulties in supporting and transitioning clients of our acquired companies or strategic partners;
| | - | -----------------------------------------------------------------------------------------------------



| | · | diversion of financial and management resources from existing operations;
| | - | -------------------------------------------------------------------------



| | · | risks of entering new markets;
| | - | ------------------------------



| | · | potential loss of key team members;
| | - | -----------------------------------





31


Table of Contents




| | · | failure to quickly and effectively leverage the increased scale, if any, resulting from such transactions;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | inability to generate sufficient sales to offset transaction costs; and
| | - | -----------------------------------------------------------------------



| | · | unknown liabilities.
| | - | --------------------



Our organizational structure could make
it difficult for us to efficiently integrate acquired businesses or technologies into our ongoing operations and assimilate employees
of those businesses into our culture and operations. Accordingly, we might fail to realize the expected benefits or strategic objectives
of any acquisition we undertake. Any such failure to integrate an acquired company or impairment of assets of any such company
could have a material adverse impact on our business, financial condition and results of operations.



It is also possible that we may not identify
suitable acquisition targets, strategic investments or partnerships or alliance candidates. Our inability to identify such opportunities,
or our inability to complete such transactions, may negatively affect our competitiveness and growth prospects. Moreover, if we
fail to properly evaluate acquisitions, alliances or investments, we may not achieve the anticipated benefits of any such transaction
and we may incur costs in excess of what we anticipate.



Historically, we have financed our acquisitions
through a combination of cash and ordinary shares. As of December 31, 2016, we had agreed to issue, pursuant to our acquisition
agreement with the former owners of BioSynthema, as contingent consideration, shares having an aggregate market price of up to
€4.6 million (US$4.9 million), provided certain conditions are met, at market prices to be determined at the applicable date
and to make a total cash payment of €0.75 million (US$0.79 million) based on the same milestone conditions. We completed
the acquisition of IDB in January 2016. We financed the initial €20 million (US$21.1 million) purchase price with cash on
hand and paid earn-outs (including the settlement of the net financial position at acquisition date) through January 2017 totaling
€4.45 million (US$4.7 million).



Future acquisitions financed with our own
cash could deplete the cash and working capital available to adequately fund our operations. We may also finance future transactions
through debt financing, the issuance of our equity securities, existing cash, cash equivalents or investments or a combination
of the foregoing. Acquisitions financed with the issuance of our equity securities in addition to those listed above could be further
dilutive, which could further affect the market price of our ADSs. Acquisitions financed with debt could require us to dedicate
a substantial portion of our cash flows to principal and interest payments and could subject us to restrictive covenants.



Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse
effect on our business.



We are exposed to the risk of employee
fraud or other misconduct. Misconduct by employees could include intentional failures to:



| | · | comply with EMA or FDA regulations or similar regulations of comparable foreign regulatory authorities;
| | - | -------------------------------------------------------------------------------------------------------



| | · | provide accurate information to the EMA or the FDA or comparable foreign regulatory authorities;
| | - | ------------------------------------------------------------------------------------------------



| | · | comply with cGMP regulations and manufacturing standards that we have established, comply with applicable healthcare fraud
and abuse laws and regulations in the jurisdictions in which we operate;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | report financial information or data accurately; or
| | - | ---------------------------------------------------



| | · | disclose unauthorized activities to us.
| | - | ---------------------------------------



In particular, sales, marketing and business
arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing
and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve
the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious
harm to our reputation. The precautions we take to detect and prevent this misconduct may not be effective in controlling unknown
or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful
in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations,
including the imposition of significant fines or other sanctions.





32


Table of Contents




Our failure to maintain certain tax benefits
applicable to us as a French R&D company may adversely affect our results of operations.



As a French radiopharmaceutical company,
we have benefited from certain tax advantages, including the French research tax credit (crédit d’impôt recherche),
or the CIR. The CIR is a French tax credit aimed at stimulating R&D. The CIR can be offset against French corporate income
tax due and the portion in excess (if any) may be refunded at the end of a three fiscal-year period. The CIR is calculated based
on our claimed amount of eligible R&D expenditures in France and represented income of €1.9 million (US$2.0 million),
€4.2 million (US$4.4 million) and €3.3 million (US$3.5 million) in fiscal years 2016, 2015 and 2014, respectively.



The French tax authorities and the French
Research and Technology Agency audit us on a regular basis. We were audited for the fiscal years 2007, 2008, 2009, 2011 and 2012
and our CIR benefit determination was not challenged for those periods. We are currently being audited for the fiscal years 2013,
2014 and 2015 by the French tax authorities. The preliminary report established by the assigned CIR expert challenges the eligibility
of several of our R&D projects and expenses. The claims include, but are not limited to, not recognizing the required innovativeness
of our projects and missing or insufficient documentation. The financial consequences of this audit remain uncertain. With the
support of qualified external experts from a company specializing in CIR matters we have reviewed all of our projects and expenses
for the period from 2013 to 2016. As a consequence of this review and on the recommendation of these experts, we have taken a provision
of €5.1 million in our financial statements closed at December 31, 2016. This provision corresponds to our current best estimate
of the CIR amount we may eventually not be able to claim. We may reassess this provision based on our discussion with the fiscal
authorities.



Furthermore, the French Parliament may
decide to eliminate, or reduce the scope or the rate of, the CIR benefit at any time. These actions could have a material adverse
effect on our business, financial condition and results of operations.



Dividends, if any, paid by us to ADS
holders who are not U.S. residents for taxation purposes may be subject to French withholding tax at the domestic rate of 30%,
regardless of whether these non-U.S.-resident holders are residents of a country that has entered into a double tax treaty with
France.



Except for the double income tax treaty
entered into between France and the United States on August 31, 1994, as amended from time to time, none of the double tax
treaties entered into by France and other jurisdictions contain provisions with respect to holders of U.S. ADSs. As a consequence,
dividends, if any, that we would pay to the ADS Depositary for the benefit of non-U.S.-resident holders of ADSs would be subject
to a French withholding tax levied at the domestic rate of 30%. U.S. resident holders of ADSs that are eligible for the income
tax treaty between France and the United States would be subject to French withholding tax at the reduced treaty rate.



Transfer pricing rules may adversely
affect our corporate income tax expense.



Many of the jurisdictions in which we conduct
business have detailed transfer pricing rules which require that all transactions with non-resident related parties be priced using
arm’s-length pricing principles. Contemporaneous documentation must exist to support this pricing. The tax authorities in
these jurisdictions could challenge the propriety of our related party arm’s-length transfer pricing policies and as a consequence
the tax treatment of corresponding expenses and income. International transfer pricing is an area of taxation that depends heavily
on the underlying facts and circumstances and generally involves a significant degree of judgment. If any of these tax authorities
were successful in challenging our transfer pricing policies, we may be liable for additional corporate income tax, and penalties
and interest related thereto, which may have a significant impact on our results of operations and future cash flows.





33


Table of Contents




Our results of operations could be materially
adversely affected by fluctuations in foreign currency exchange rates.



We incur portions of our expenses and have
sales in currencies other than the Euro, including the UK Pound Sterling, Swiss Franc, U.S. Dollar, Israeli Shekel and Japanese
Yen. As a result, we are exposed to foreign currency exchange risk arising from future commercial transactions, recognized assets
and liabilities and net investments in foreign operations. We do not have any exchange rate hedging arrangements in place except
for a forward contract entered into to protect a small part of our U.S. Dollar cash reserves against variations in the exchange
rate to the Euro. We may continue using such financial instruments in the future to protect ourselves against currency volatility.
Without hedging, for example, an increase in the value of the Euro against the U.S. dollar could be expected to have a negative
impact on our sales and earnings growth as U.S. dollar sales and earnings, if any, in the future, would be translated into Euros
at a reduced value. We cannot predict the impact of foreign currency fluctuations, and foreign currency fluctuations in the future
may adversely affect our financial condition, results of operations and cash flows.



We could be subject to strict restrictions
on the movement of cash and the exchange of foreign currencies.



In some countries, we could be subject
to strict restrictions on the movement of cash and the exchange of foreign currencies, which would limit our ability to use this
cash across our global operations. This risk could increase to the extent that we continue our geographic expansion in emerging
markets, which are more likely to impose these restrictions than more established markets.



International hostilities, terrorist
activities, natural disasters, pandemics and infrastructure disruptions could prevent us from effectively serving our clients and
thus adversely affect our results of operations.



Acts of terrorist violence, political unrest,
armed regional and international hostilities and international responses to these hostilities, natural disasters, global health
risks or pandemics or the threat of or perceived potential for these events could have a negative impact on us. These events could
adversely affect our customers and precipitate sudden significant changes in regional and global economic conditions and cycles.
These events also pose significant risks to our people and to physical facilities and operations around the world, whether the
facilities are ours or those of our alliance partners or customers. By disrupting communications and travel and increasing the
difficulty of obtaining and retaining highly skilled and qualified personnel, these events could make it difficult or impossible
for us to deliver our products and product candidates to our customers. Extended disruptions of electricity, other public utilities
or network services at our facilities, as well as system failures at, or security breaches in, our facilities or systems, could
also adversely affect our ability to serve our customers. We might be unable to protect our people, facilities and systems against
all such occurrences. We generally do not have insurance for losses and interruptions caused by terrorist attacks, conflicts and
wars. If these disruptions prevent us from producing our products or product candidates and delivering them to our customers, our
business, financial condition and results of operations could be adversely affected.



In the past, we have not been, and in
the future, we may not be, the sole owner of subsidiaries of ours that develop product candidates or conduct other activities that
are important for our product pipeline. Therefore, we may not be able to control the timing of development efforts, associated
costs, or important operations of such entities that we do not solely own.



Until December 2014, we were not the sole
owner of certain subsidiaries of ours, including Atreus (of which we were previously a 50.1% owner), the developer of Annexin V-128,
one of our lead product candidates. We may in the future participate in similar arrangements or make similar majority acquisitions
of companies that develop product candidates that we believe will be beneficial for our product portfolio, or enter into acquisitions
or joint ventures relating to other assets that we anticipate will create value for us. In such cases, we may be subject to agreements
that allow other shareholders, entities or certain other subsidiaries to influence certain decisions and operations within those
subsidiaries in ways with which we may not agree or which may be contrary to our own business strategy. These subsidiaries may
in the future provide in these agreements for supermajority votes on important matters where even our majority interest may not
be sufficient to cause the subsidiary to take certain actions, or take actions within certain timeframes which may include but
are not limited to the pursuit of key trials and pursuit of approvals that are important to our business. Such parties’ interests
may not be aligned with our own in certain cases and they may not agree with us as to particular actions. This limited ability
to exercise control over the operations of future subsidiaries or in connection with future joint ventures may have a material
adverse effect on our business, financial condition and results of operations.





34


Table of Contents




We are a multinational company that faces
complex taxation regimes in various jurisdictions. Changes in our level of taxes, and audits, investigations and tax proceedings
could have a material adverse effect on our business, results of operations and financial condition.



We are subject to income taxes in numerous
jurisdictions. We calculate and provide for income taxes in each tax jurisdiction in which we operate. Tax accounting often involves
complex matters and judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We
are subject to ongoing tax audits in various jurisdictions. Tax authorities have disagreed, and may in the future disagree, with
our judgments, or may take increasingly aggressive positions with respect to the judgments we make. We regularly assess the likely
outcomes of these audits in order to determine the appropriateness of our tax liabilities. However, our judgments might not be
sustained as a result of these audits, and the amounts ultimately paid could be different from the amounts previously recorded.
In addition, our effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities and changes in tax laws. Tax rates
in the jurisdictions in which we operate may change as a result of macroeconomic or other factors outside of our control. Increases
in the tax rate in any of the jurisdictions in which we operate could have a negative impact on our profitability. In addition,
changes in tax laws, treaties or regulations, or their interpretation or enforcement, including the French CIR, may be unpredictable,
particularly in less developed markets, and could become more stringent, which could materially adversely affect our tax position.
Any of these occurrences could have a material adverse effect on our results of operations and financial condition.



There can be no assurance that we will
not be a passive foreign investment company, or PFIC, for any taxable year. If we are a PFIC for any taxable year, this could result
in adverse U.S. federal income tax consequences to U.S. investors.



Under the Internal Revenue Code of 1986,
as amended, or the Code, we will be a PFIC for any taxable year in which, after the application of certain “look-through”
rules with respect to subsidiaries, either (i) 75% or more of our gross income consists of “passive income,” or
(ii) 50% or more of the average quarterly value of our assets consist of assets that produce, or are held for the production of,
“passive income.” Passive income generally includes interest, dividends, rents, certain non-active royalties and gains
from the disposition of assets that produce passive income. Based upon the nature of our business and estimates of the valuation
of our assets, including goodwill, which is based, in part, on the trading price of the ADSs, we do not believe that we were a
PFIC for the year ended at December 31, 2016. However, because PFIC status depends on the composition of our income and assets
and the relative fair market value of our assets from time to time, there can be no assurance that we will not be a PFIC for any
taxable year.



If we are a PFIC for any taxable year during
which a U.S. investor holds ordinary shares or ADSs, the U.S. investor may be subject to adverse tax consequences. See “Item
10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations for U.S. Holders—Passive foreign
investment company rules.”



Our business is subject to the risks
generally associated with international business operations.



We engage in business activities throughout
Europe, in the United States and across the world. For the fiscal years ended December 31, 2016, 2015 and 2014, we derived
portions of our sales from the following countries: France, Italy, the United Kingdom, Germany, Switzerland, Spain, Portugal, Poland,
Israel and the Netherlands, among others. As a result, our business is and will continue to be subject to the risks generally associated
with international business operations, including:



| | · | changes in social, political and economic conditions;
| | - | -----------------------------------------------------



| | · | transportation delays;
| | - | ----------------------



| | · | limitations on foreign investment;
| | - | ----------------------------------



| | · | restrictions on currency convertibility and volatility of foreign exchange markets;
| | - | -----------------------------------------------------------------------------------



| | · | import-export quotas;
| | - | ---------------------



| | · | changes in local labor conditions;
| | - | ----------------------------------





35


Table of Contents




| | · | changes in tax and other laws and regulations;
| | - | ----------------------------------------------



| | · | expropriation and nationalization of our assets in a particular jurisdiction; and
| | - | ---------------------------------------------------------------------------------



| | · | restrictions on repatriation of dividends or profits.
| | - | -----------------------------------------------------



Some of the countries in which we operate
have been subject to social and political instability in the past, and interruptions in operations could occur in the future. Our
sales could be adversely affected by any of the foregoing factors.



Risks Relating to the ADSs and Our Ordinary Shares



The market price for the ADSs may be
volatile or may decline regardless of our operating performance and you may not be able to resell the ADSs at or above the price
at which you acquired them.



The trading prices of the securities of
pharmaceutical and biotechnology companies have been highly volatile. The market price of the ADSs may fluctuate significantly
in response to numerous factors, many of which are beyond our control, including:



| | · | results from our clinical trials and our ability to commercialize our products;
| | - | -------------------------------------------------------------------------------



| | · | actual or anticipated fluctuations in our sales and other results of operations;
| | - | --------------------------------------------------------------------------------



| | · | the financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | changes in financial estimates by financial analysts, or any failure by us to meet or exceed any of these estimates, or changes
in the recommendations of any financial analysts that elect to follow the ADSs or the shares of our competitors;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | announcements by us or our competitors of significant contracts or acquisitions;
| | - | --------------------------------------------------------------------------------



| | · | future sales of our ordinary shares or ADSs;
| | - | --------------------------------------------



| | · | lawsuits threatened or filed against us; and
| | - | --------------------------------------------



| | · | investor perceptions of us and the industries in which we operate.
| | - | ------------------------------------------------------------------



In addition, the stock market in general
has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance
of particular companies affected. These broad market and industry factors may materially harm the market price of our ADSs, regardless
of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities,
securities class action litigation has been instituted against these companies. This litigation, if instituted against us, could
adversely affect our financial condition or results of operations.



If securities or industry analysts do
not publish research or publish inaccurate or unfavorable research about our business, the price of our ordinary shares and the
ADSs and trading volume could decline.



The trading market for the ADSs depends
in part on the research and reports that securities or industry analysts publish about us or our business. If no or few securities
or industry analysts cover our Company, the trading price for the ADSs would likely be negatively impacted. If one or more of the
analysts who covers us downgrades the ADSs or publishes incorrect or unfavorable research about our business, the price of the
ADSs would likely decline. If one or more of these analysts ceases coverage of our Company or fails to publish reports on us regularly,
or downgrades the ADSs, demand for the ADSs could decrease, which could cause the price of the ADSs or trading volume to decline.





36


Table of Contents




We do not currently intend to pay dividends
on our securities and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price
of our ordinary shares and the ADSs. In addition, any distribution of dividends must be in accordance with the rules and restrictions
applying under French law.



We have never declared or paid any cash
dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. We currently intend to invest
our future earnings, if any, to fund our growth. Therefore, you are not likely to receive any dividends on your ADSs for the foreseeable
future and the success of an investment in ADSs will depend upon any future appreciation in its value. Consequently, investors
may need to sell all or part of their holdings of ADSs after price appreciation, which may never occur, as the only way to realize
any future gains on their investment. There is no guarantee that the ADSs will appreciate in value or even maintain the price at
which our shareholders have purchased the ADSs. Investors seeking cash dividends should not purchase the ADSs.



Further, under French law, the determination
of whether we have been sufficiently profitable to pay dividends is made on the basis of our statutory financial statements prepared
and presented in accordance with accounting principles generally accepted in France, or French GAAP. Moreover, pursuant to French
law, we must allocate 5% of our unconsolidated net profit for each year, less any previous losses, to our legal reserve fund before
dividends, should we propose to declare any, may be paid for that year, until the amount in the legal reserve is equal to 10% of
the aggregate nominal value of our issued and outstanding share capital. In addition, payment of dividends may subject us to additional
taxes under French law. See “Item 10. Additional Information—B. Articles of Association—Key Provisions of Our
By-laws and French Law Affecting Our Ordinary Shares—Rights, Preferences and Restrictions Attaching to Ordinary Shares”
for further details on the limitations on our ability to declare and pay dividends and the taxes that may become payable by us
if we elect to pay a dividend. Therefore, we may be more restricted in our ability to declare dividends than companies not based
in France.



In addition, exchange rate fluctuations
may affect the amount of Euros that we are able to distribute, and the amount in U.S. dollars that our shareholders receive upon
the payment of cash dividends or other distributions we declare and pay in Euros, if any. These factors could harm the value of
the ADSs, and, in turn, the U.S. dollar proceeds that holders receive from the sale of the ADSs.



We may need additional capital in the
future to meet our financial obligations and to pursue our business objectives. Additional capital may not be available on favorable
terms, or at all, which could compromise our ability to meet our financial obligations and grow our business.



We believe that our existing cash and cash
equivalents will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months.
We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently
expect. We may require additional capital to finance acquisitions, to complete the clinical study and seek regulatory approval
for lutetium Lu 177 dotatate (Lutathera®), development of our Somakit products, Annexin V-128, PSMA-R2 and NeoBOMB1 projects
and other therapeutic and diagnostic candidates, expansion of our commercialization network for lutetium Lu 177 dotatate (Lutathera®),
and construction of other production sites in the United States to produce lutetium Lu 177 dotatate (Lutathera®), development
of an increasing presence within the United States and the recruitment and training of a significant number of employees to be
part of our U.S. sales force.



The maintenance and improvement of our
business require successful development of experimental products for use in clinical trials, the design of clinical study protocols
acceptable to the EMA, the FDA and other regulatory authorities, the successful outcome of clinical trials, scaling our manufacturing
processes to produce commercial quantities or successfully transition technology, obtaining EMA, FDA and other regulatory approvals
of our products or processes, responding to EMA and FDA comments and successfully marketing an approved product or new product
with our new process. To finance these various activities, we may need to incur future debt or issue additional equity, and we
may not be able to structure our debt obligations or issue equity on favorable economic terms. A failure to fund these activities
may harm our growth strategy, competitive position, quality compliance and could have a material adverse effect on our business,
financial condition and results of operations.



If adequate funds are not available on
acceptable terms and on a timely basis, we may be required to delay, reduce the scope of or eliminate material parts of our business
strategy, including forgoing development of existing and new product candidates. In addition, we may be unable to implement our
business strategy and fund the expansion of our marketing, sales and R&D efforts, increase working capital, take advantage
of acquisition or other opportunities, or adequately respond to competitive pressures, which could seriously harm our business
and results of operations. If we incur debt, the debt holders would have rights senior to shareholders to make claims on our assets,
and the terms of any debt could restrict our operations, including our ability to pay dividends on our ordinary shares.





37


Table of Contents




Furthermore, if we issue additional equity
securities, shareholders will experience dilution, and we could issue securities with rights that are senior to those of our ordinary
shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond
our control, we cannot predict or estimate the amount, timing or nature of our future offerings. As a result, our shareholders
bear the risk of our future securities offerings reducing the market price of the ADSs and diluting their interest.



Future sales of our ordinary shares and
ADSs by existing shareholders or by us to raise capital or the issuance of ordinary shares upon the exercise of currently outstanding
options and warrants could cause the market price of our ordinary shares and ADSs to drop significantly, even if our business is
doing well.



Most of our ordinary shares and ADSs are
freely tradable. Some of these shares are currently “restricted” securities as a result of securities laws, but may
be sold, subject to any applicable volume limitations under federal securities laws with respect to affiliate sales. As such, sales
of a substantial number of our ordinary shares or ADSs in the public market could occur at any time. These sales, by us or others,
or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price
of our ordinary shares or ADSs.



In addition, we have a significant number
of shares that are subject to outstanding options and warrants and we have granted rights to acquire free shares pursuant to our
Free Share Plans.



We have filed and may file in the future
additional registration statements on Form S-8 with the SEC registering a number of ADSs for future issuance under our current
and future equity incentive plans. Upon effectiveness of such registration statements, any ordinary shares subsequently issued
under such plans will be eligible for sale in the public market, except to the extent that they are restricted by the lock-up agreements
referred to above and subject to compliance with Rule 144 in the case of our affiliates. Sales of a large number of the ordinary
shares issued under these plans in the public market could have an adverse effect on the market price of the ADSs.



Our by-laws and French corporate law
contain provisions that may delay or discourage a takeover attempt.



Provisions contained in our by-laws and
the corporate laws of France, the country in which we are incorporated, could make it more difficult for a third party to acquire
us, even if doing so might be beneficial to our shareholders. In addition, provisions of our by-laws impose various procedural
and other requirements, which could make it more difficult for shareholders to effect certain corporate actions. These provisions
include the following:



| | · | under French law, a non-resident of France may have to file an administrative notice with French authorities in connection
with a direct or indirect investment in us, as defined by administrative rulings; see “Item 10. Additional Information—B.
Articles of Association—Limitations Affecting Shareholders of a French Company”;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a merger (i.e., in a French law context, a share for share exchange following which our Company would be dissolved into the
acquiring entity and our shareholders would become shareholders of the acquiring entity) of our Company into a company incorporated
in the European Union would require the approval of our board of directors as well as a two-thirds majority of the votes held by
the shareholders present, represented by proxy or voting by mail at the relevant meeting;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a merger of our Company into a company incorporated outside of the European Union would require 100% of our shareholders to
approve it;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | our shareholders may grant in the future our board of directors broad authorizations to increase our share capital or to issue
additional ordinary shares or other securities (for example, warrants) to our shareholders, the public or qualified investors,
including as a possible defense following the launching of a tender offer for our ordinary shares;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





38


Table of Contents




| | · | our board of directors has the right to appoint directors to fill a vacancy created by the resignation or death of a director,
subject to the approval by the shareholders of such appointment at the next shareholders’ meeting, which prevents shareholders
from having the sole right to fill vacancies on our board of directors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our board of directors can only be convened by our chairman (including upon request by a managing director to convene the board
for a specific matter) or, when no board meeting has been held for more than two consecutive months, by directors representing
at least one third of the total number of directors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our board of directors meetings can only be regularly held if at least half of the directors attend either physically or by
any other way, such as videoconference or teleconference, enabling the directors’ identification and ensuring their effective
participation in the board’s decisions;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | approval of at least a majority of the votes held by shareholders present, represented by a proxy, or voting by mail at the
relevant ordinary shareholders’ general meeting is required to remove directors with or without cause;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | advance notice is required for nominations to the board of directors or for proposing matters to be acted upon at a shareholders’
meeting, except that a vote to remove and replace a director can be proposed at any shareholders’ meeting without notice;
and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | pursuant to French law, the sections of our by-laws relating to the number of directors and election and removal of a director
from office may only be modified by a resolution adopted by two-thirds of the votes of our shareholders present, represented by
a proxy or voting by mail at the meeting.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



You may not be able to exercise your
right to vote the ordinary shares underlying your ADSs.



Holders of ADSs may exercise voting rights
with respect to the ordinary shares represented by the ADSs only in accordance with the provisions of the deposit agreement. The
deposit agreement provides that, upon receipt of notice of any meeting of holders of our ordinary shares, the depositary will fix
a record date for, among other things, the determination of ADS holders who shall be entitled to give instructions for the exercise
of voting rights. Upon timely receipt of notice from us, if we so request, the depositary shall distribute to the holders as of
the record date (1) the notice of the meeting or solicitation of consent or proxy sent by us; (2) a statement as to the manner
in which instructions may be given by the holders and (3) a statement that the holders as of the record date will be entitled to
instruct the depositary as to the exercise of the voting rights pertaining to the underlying shares of the ADSs.



You may instruct the depositary of your
ADSs to vote the ordinary shares underlying your ADSs. Otherwise, you will not be able to exercise your right to vote, unless you
withdraw the ordinary shares underlying the ADSs you hold. However, you may not know about the meeting far enough in advance to
withdraw those ordinary shares. If we ask for your instructions, the depositary, upon timely notice from us, will notify you of
the upcoming vote and arrange to deliver our voting materials to you. We cannot guarantee you that you will receive the voting
materials in time to ensure that you can instruct the depositary to vote your ordinary shares or to withdraw your ordinary shares
so that you can vote them yourself. If the depositary does not receive timely voting instructions from you, it may give a proxy
to a person designated by us to vote the ordinary shares underlying your ADSs. In addition, the depositary and its agents are not
responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that
you may not be able to exercise your right to vote, and there may be nothing you can do if the ordinary shares underlying your
ADSs are not voted as you requested.





39


Table of Contents




Your right as a holder of ADSs to participate
in any future preferential subscription rights or to elect to receive dividends in ordinary shares may be limited, which may cause
dilution to your holdings.



According to French law, if we issue additional
securities for cash, current shareholders will have preferential subscription rights for these securities on a pro rata basis unless
they waive those rights at an extraordinary meeting of our shareholders (by a two-thirds majority vote) or individually by each
shareholder. However, ADS holders in the United States will not be entitled to exercise or sell such rights unless we register
the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements
is available. In addition, the deposit agreement provides that the depositary need not make rights available to you unless the
distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act of 1933,
as amended, or the Securities Act, or exempted from registration under the Securities Act. Further, if we offer holders of our
ordinary shares the option to receive dividends in either cash or ordinary shares, under the deposit agreement the depositary may
require satisfactory assurances from us that extending the offer to holders of ADSs does not require registration of any securities
under the Securities Act before making the option available to holders of ADSs. We are under no obligation to file a registration
statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective.
Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may
be unable to participate in our rights offerings or to elect to receive dividends in ordinary shares and may experience dilution
in their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the
sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these
rights.



You may be subject to limitations on
the transfer of your ADSs and the withdrawal of the underlying ordinary shares.



Your ADSs, which may be evidenced by ADRs,
are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when
it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register
transfers of your ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary
think it is advisable to do so because of any requirement of law, government or governmental body, or under any provision of the
deposit agreement, or for any other reason subject to your right to cancel your ADSs and withdraw the underlying ordinary shares.
Temporary delays in the cancellation of your ADSs and withdrawal of the underlying ordinary shares may arise because the depositary
has closed its transfer books or we have closed our transfer books, the transfer of ordinary shares is blocked to permit voting
at a shareholders’ meeting or we are paying a dividend on our ordinary shares. In addition, you may not be able to cancel
your ADSs and withdraw the underlying ordinary shares when you owe money for fees, taxes and similar charges and when it is necessary
to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADSs or to the withdrawal of
ordinary shares or other deposited securities. There is currently no market for our underlying ordinary shares.



As a FPI, we are exempt from a number
of rules under the U.S. securities laws and are permitted to file less information with the SEC than a U.S. company; our ordinary
shares are not listed, and we do not currently intend to list our ordinary shares, on any market in France, our home country. This
may limit the information available to holders of the ADSs.



We are a “foreign private issuer,”
as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements
applicable to public companies organized within the United States. For example, we are exempt from certain rules under the Exchange
Act that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations
applicable to a security registered under the Exchange Act, including the U.S. proxy rules under Section 14 of the Exchange Act.
We are also exempt from Regulation FD, which regulates selective disclosures of material information by issuers. In addition, our
officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of
the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, even though we submit
quarterly interim consolidated financial data to the SEC on Form 6-K, we are not required to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. public companies and are not required to file quarterly reports on
Form 10-Q or current reports on Form 8-K under the Exchange Act. Furthermore, our ordinary shares are not listed, and we do not
currently intend to list our ordinary shares, on any market in France, our home country. As a result, we are not subject to the
reporting and other requirements of listed companies in France. In addition, we are not required to publish quarterly or semiannual
financial statements in France. Accordingly, there will be less publicly available information concerning our Company than there
would be if we were a U.S. public company.



As a FPI, we are permitted to adopt certain
home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing
standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate
governance listing standards.



As a FPI listed on the Nasdaq Global Select
Market, we are subject to corporate governance listing standards. However, rules permit a FPI like us to follow the corporate governance
practices of its home country. Certain corporate governance practices in France, which is our home country, may differ significantly
from corporate governance listing standards. For example, neither the corporate laws of France nor our by-laws require a majority
of our directors to be independent and our independent directors would not necessarily hold regularly scheduled meetings at which
only independent directors are present.



40


Table of Contents






Currently, we comply with the corporate
governance listing standards of Nasdaq relating to a majority independent board to the extent possible under French law. However,
if we choose to change such practice to follow home country practice in the future, our shareholders may be afforded less protection
than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.



We may lose our FPI status in the future,
which could result in significant additional cost and expense.



While we currently qualify as a FPI, the
determination of FPI status is made annually on the last business day of an issuer’s most recently completed second fiscal
quarter.



In the future, we would lose our FPI status
if we fail to meet the requirements necessary to maintain our FPI status as of the relevant determination date. For example, if
more than 50% of our securities are held by U.S. residents and more than 50% of our executive officers or members of our board
of directors are residents or citizens of the United States, we would lose our FPI status.



The regulatory and compliance costs to
us under U.S. securities laws as a U.S. domestic issuer may be significantly more than costs we incur as a FPI. If we are not a
FPI, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which
are more detailed and extensive in certain respects than the forms available to a FPI. We would be required under current SEC rules
to prepare our financial statements in accordance with U.S. GAAP, rather than IFRS, and modify certain of our policies to comply
with corporate governance practices associated with U.S. domestic issuers. Such conversion of our financial statements to U.S.
GAAP would involve significant time and cost. In addition, we may lose our ability to rely upon exemptions from certain corporate
governance requirements on U.S. stock exchanges that are available to FPIs such as the ones described above and exemptions from
procedural requirements related to the solicitation of proxies.



U.S. investors may have difficulty enforcing
civil liabilities against our Company and directors and senior management and the experts named in this annual report on Form 20-F.



Most of our directors and certain members
of senior management, those of certain of our subsidiaries and the experts named in this annual report on Form 20-F are non-residents
of the United States, and all or a substantial portion of our assets and the assets of such persons are located outside of the
United States. As a result, it may not be possible to serve process on such persons or us in the United States or to enforce judgments
obtained in U.S. courts against them or us based on civil liability provisions of the securities laws of the United States. Additionally,
it may be difficult to assert U.S. securities law claims in actions originally instituted outside of the United States. Foreign
courts may refuse to hear a U.S. securities law claim because foreign courts may not be the most appropriate forums in which to
bring such a claim. Even if a foreign court agrees to hear a claim, it may determine that the law of the jurisdiction in which
the foreign court resides, and not U.S. law, is applicable to the claim.



Further, if U.S. law is found to be applicable,
the content of applicable U.S. law must be proved as a fact, which can be a time-consuming and costly process, and certain matters
of procedure would still be governed by the law of the jurisdiction in which the foreign court resides. In particular, there is
some doubt as to whether French courts would recognize and enforce certain civil liabilities under U.S. securities laws in original
actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions
brought in the United States or elsewhere may be unenforceable in France. An award for monetary damages under the U.S. securities
laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered but is intended to
punish the defendant. The enforceability of any judgment in France will depend on the particular facts of the case as well as the
laws and treaties in effect at the time. The United States and France do not currently have a treaty providing for recognition
and enforcement of judgments (other than arbitration awards) in civil and commercial matters. See “Enforcement of Judgments.”



The rights of shareholders in companies
subject to French corporate law differ in material respects from the rights of shareholders of corporations incorporated in the
United States.



We are a French company with limited liability.
Our corporate affairs are governed by our by-laws and by the laws governing companies incorporated in France. The rights of shareholders
and the responsibilities of members of our board of directors are in many ways different from the rights and obligations of shareholders
in companies governed by the laws of U.S. jurisdictions. For example, in the performance of its duties, our board of directors
is required by French law to consider the interests of our Company, which also includes the interests of our shareholders, our
employees and other stakeholders, rather than solely our shareholders and/or creditors. It is possible that some of these parties
will have interests that are different from, or in addition to, your interests as a holder of ADSs. See “Item 6. Directors,
Senior Management and Employees—C. Board Practices—Corporate Governance Practices” and “Item 10. Additional
Information—B. Articles of Association.”





41


Table of Contents




Transformation into a public company
increases our costs and disrupts the regular operations of our business.



Our initial public offering had a significant
and transformative effect on us. Our business historically has operated as a privately owned company, and we now incur and expect
to continue incurring significant additional legal, accounting, reporting and other expenses as a result of having publicly traded
ADSs. We incur costs which we have not incurred previously, including, but not limited to, costs and expenses for directors’
fees, increased director and officer liability insurance, investor relations expenses and various other costs of a public company.



We also incur costs associated with corporate
governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq.
We expect these rules and regulations to increase our legal and financial compliance costs and make certain management and corporate
governance activities more time-consuming and costly. These rules and regulations may make it more difficult and more expensive
for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage
or incur substantially higher costs to obtain the same or similar coverage. This could have an adverse impact on our ability to
recruit independent board members.



The additional demands associated with
being a public company may disrupt regular operations of our business by diverting the attention of some of our senior management
team away from sales-producing activities to management and administrative oversight, adversely affecting our ability to attract
and complete business opportunities and increasing the difficulty in both retaining professionals and managing and growing our
businesses. Any of these effects could harm our business, financial condition and results of operations.



42


Table of Contents




ITEM 4. INFORMATION ON THE COMPANY



A.       History and
Development of the Company



We were incorporated as a société
à responsabilité limitée, or SARL, under the laws of the French Republic on March 4, 2002 and converted
into a société anonyme, or S.A., on August 19, 2002. We are registered on the Registry of Commerce and Companies
of Bourg-en-Bresse under the number 441 417 110. Our principal executive offices are located at 20 Rue Diesel 01630 Saint Genis
Pouilly, France, and our telephone number is +33 (0) 4 50 99 30 70.



Our website is www.adacap.com. The information
contained on our website is not a part of this annual report on Form 20-F.



We were founded in 2002 by Stefano Buono,
our CEO and a physicist who had previously worked at the European Organization for Nuclear Research, or CERN, with Nobel Physics
Prize winner Carlo Rubbia, Paolo Pomé, a private equity firm partner, Gérard Ber, our COO and a pharmacist with more
than 30 years’ experience in pharmaceutical and molecular nuclear medicine sales and marketing, and Enrico De Maria, an engineer
and the CEO of our Italian subsidiary. In 2003 we constructed our first radiopharmaceutical laboratory in Saint-Genis-Pouilly,
Rhône-Alpes, France, the first of six laboratories that we constructed between 2003 and 2009. In December 2004 we obtained
our first marketing authorization from Swiss authorities to commercialize Gluscan in Switzerland. We began production of Gluscan
at our Saint-Genis-Pouilly site and have since added production sites in France, Germany, Italy, Spain and Portugal.



In December 2008, we acquired Gipharma,
an Italian pharmaceutical contract manufacturer for small-volume injectable and freeze-dried solutions, specializing in SPECT radiopharmaceuticals.
In 2010 we made an initial equity investment in Atreus Pharmaceuticals Corporation, or Atreus, a development-stage biopharmaceutical
company headquartered in Ottawa, Canada, to help progress its lead compound Annexin V-128 into a Phase 1/2 trial for early diagnosis
of rheumatoid arthritis. In 2010, we also acquired BioSynthema Inc., or BioSynthema, which specialized in molecular nuclear medicine
discovery, and with it lutetium Lu 177 dotatate (Lutathera®), our lead investigational radiotherapeutic product candidate,
which we have advanced through a pivotal Phase 3 trial for the treatment of progressive midgut NETs.



In November 2015, we completed our initial
public offering pursuant to which we received net proceeds of approximately US$80.4 million after deducting underwriting discounts
and commissions and other expenses. We completed a follow-on capital increase which provided net proceeds of approximately US$140
million in October 2016. Together, these capital increases provide additional financing for the expansion of the marketing, manufacturing
and commercialization capabilities of lutetium Lu 177 dotatate (Lutathera®), funding clinical trials and other R&D efforts,
expanding our manufacturing infrastructure and general corporate purposes.



Over the last several years, we have expanded
our existing operations by:



| | · | acquiring the rights to operate two F-18 radiopharmaceutical production sites in South Germany, which we refer to as the PetNet
business acquisition, in May 2016. The first site, located in Erlangen, is wholly owned and operated by our subsidiary AAA Germany
GmbH. The second site, located in Munich, remains the property of the University Hospital of Munich (Klinikum der Universität
München or KUM), with AAA Germany GmbH responsible for production and commercialization onsite. The Munich contract includes
a long-term F-18 in-house supply agreement with the KUM. We also entered into an agreement with Itel Telecomunicazioni Srl (ITEL)
to manufacture and commercialize F-18 radiopharmaceuticals for hospitals and imaging centers in selected regions of Southern Italy;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | acquiring 100% of the shares of IDB Group in January 2016. IDB is a leading manufacturer of Lu-177. IDB produces markets and
sells Lu-177 under the brand name LuMark®, which it has established as the leading brand of Lu-177 worldwide. LuMark® is
the only Lu-177 product to have received European marketing authorization. We believe that, in line with our vertical integration
strategy, acquiring IDB will enable AAA to obtain a reliable supply of Lu-177 for production of lutetium Lu 177 dotatate (Lutathera®),
and certain of our future potential product candidates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | acquiring a production site in Millburn, NJ in July 2015, to establish manufacturing capacity to support our future commercialization
of lutetium Lu 177 dotatate (Lutathera®), in the United States. Upon receipt of FDA approval and all other necessary authorizations
and licenses for lutetium Lu 177 dotatate (Lutathera®), we intend to use this site to manufacture and distribute our product
to the North American market. This site is currently being used for distribution of NETSPOT® and is preparing to manufacture
lutetium Lu 177 dotatate (Lutathera®),for the U.S. Expanded Access Program; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | completing private placements in May and June 2015 through which we raised a total of  €23.1 million (US$24.4 million),
providing additional financing for clinical development of our portfolio of molecular nuclear medicine diagnostic and therapeutic
products.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





43


Table of Contents






B.       Business Overview



We are an innovative radiopharmaceutical
company that develops, produces and commercializes radiolabeled pharmaceuticals and diagnostic nuclear medicines. Our products
use trace amounts of radioactive compounds to treat diseases such as cancer or create functional images of organs and lesions.
Our lead investigational radiotherapeutic product, lutetium Lu 177 dotatate (Lutathera®) is a novel compound in development
for the treatment of neuroendocrine tumors, or NETs, a heterogeneous group of tumors arising from cells of the endocrine and nervous
systems. Lutetium Lu 177 dotatate (Lutathera®) is designed to target somatostatin receptor positive NETs. Somatostatin is overexpressed
in approximately 80% of NETs. Based on U.S. census data and European Union census data, we estimate the incidence of NETs for the
combined populations of the United States and the European Union in 2016 was approximately 48,000. There are currently no approved
radiotherapeutic products for the treatment of NETs and a limited number of current therapeutic treatment alternatives, mostly
directed at symptom management. In April 2016, following completion of a pivotal Phase 3 trial of lutetium Lu 177 dotatate (Lutathera®)
we submitted an NDA to the FDA for the treatment of gastroenteropancreatic NETs, including foregut, midgut, and hindgut NETs in
adults. In December 2016, we received a complete response letter from the FDA in connection with our lutetium Lu 177 dotatate (Lutathera®),
NDA. The complete response letter referred to deficiencies with our clinical datasets, among other issues, which precluded the
FDA reviewers from performing the required independent analysis of our clinical studies. We are working to remediate these issues.
We also submitted an MAA to the EMA for lutetium Lu 177 dotatate (Lutathera®) for the same indication in April 2016. In September
2016, we received requests from the EMA for additional clarifications. We are engaged in a review process to address these clarifications.
Additionally, the EMA requested to inspect one of our contract research organizations. This inspection has been completed.



We are also developing additional
radiopharmaceutical therapeutics and diagnostics and are planning clinical studies to evaluate their efficacy and safety. In
addition to our radiolabeled pharmaceuticals portfolio, we have also built a leadership position in nuclear medicine
diagnostics in Europe. In June 2016, we gained approval from the FDA for NETSPOT®,a novel, patent-pending, sterile and
easy-to-use kit designed to diagnose and monitor the presence of somatostatin-receptor-positive NETs, which we believe will
serve to further diversify our leadership position in the accurate diagnosis and treatment of NETs. In August 2016,
NETSPOT® was administered to its first patient in the United States. NETSPOT® received Transitional Pass-Through
status from the Centers for Medicare and Medicaid Services (CMS) in December 2016 for drug reimbursement and it was recently
included in the National Comprehensive Cancer Network, or NCCN, Clinical Practice Guidelines in Oncology update for the
evaluation of NETs. In December 2016, the European Commission approved SomaKit TOCTM, another product developed to
diagnose and monitor the presence of somatostatin-receptor-positive NETs. We believe NETSPOT® and SomaKit TOCTM,
which we refer to as our Somakit products, will help improve diagnosis and staging of NET patients. We also manufacture and
commercialize a broad portfolio of six other diagnostic products, including Gluscan, for a number of clinical indications.
Our total sales have grown from €88.6 million (US$93.5 million) for the year ended December 31, 2015 to
€109.3 million (US$115.4 million) for the year ended December 31, 2016.



Lutetium Lu 177 dotatate (Lutathera®)—
an investigational innovative radiopharmaceutical for the treatment of NETs



Lutetium Lu 177 dotatate (Lutathera®)
is an investigational, ready-to-inject solution of a Lu-177-labeled analogue of somatostatin, a hormone that acts as an important
regulator of the endocrine system. Lutetium Lu 177 dotatate (Lutathera®)is comprised of a peptide that carries a radioactive
isotope within its overall structure, which binds to somatostatin receptors type 2 (sstr2), which are overexpressed by NETs. lutetium
Lu 177 dotatate (Lutathera®), or Lutathera® belongs to a class of therapy called Peptide Receptor Radionuclide Therapy,
or PRRT, which is an emerging form of treatment for patients with inoperable somatostatin-receptor-positive NETs. Lutetium Lu 177
dotatate (Lutathera®), is the first ever investigational PRRT radiopharmaceutical product to have completed a Phase 3 trial
for the treatment of progressive midgut NETs. Lutetium Lu 177 dotatate (Lutathera®) has received orphan drug designation from
the EMA and FDA for the treatment of NETs. Many patients with NETs do not exhibit symptoms or their symptoms are unspecific and
the correct diagnosis is often delayed. The current standard of care is surgery to remove the tumor for operable NETs. If the tumor
has progressed beyond surgical intervention, or if there are a limited number of treatment options to delay progression, somatostatin
analogues are used to manage symptoms. Lutetium Lu 177 dotatate (Lutathera®) selectively binds to somatostatin receptors overexpressed
by NETs and delivers radiation within the cancer cell to cause tumor death.





44


Table of Contents




In September 2015, we presented the results
of our pivotal Phase 3 NETTER-1 trial evaluating lutetium Lu 177 dotatate (Lutathera®) for the treatment of inoperable progressive
midgut NETs at the European Society of Molecular Oncology conference. Updated information was also presented at the North American
Neuroendocrine Tumor Society conference in October 2015, the Gastrointestinal Cancers Symposium of the American Society for Clinical
Oncology in January 2016 and the European Neuroendocrine Tumor Society conference in March 2016, and the American Society for Clinical
Oncology and Society of Nuclear Medicine and Molecular Imaging conference in June 2016. The NETTER-1 results were also published
in the January 12, 2017 issue of The New England Journal of Medicine. The NETTER-1 trial was a multi-center, randomized,
comparator-controlled, parallel-group study evaluating the efficacy and safety of lutetium Lu 177 dotatate (Lutathera®) administered
in combination with Octreotide LAR 30 mg compared to Octreotide LAR 60 mg alone. lutetium Lu 177 dotatate (Lutathera®) demonstrated
a significant improvement in the primary endpoint, assessing progression free survival, or PFS. There were 23 confirmed progression
event deaths in the lutetium Lu 177 dotatate (Lutathera®) arm and 68 confirmed progression event deaths in the Octreotide LAR
60 mg arm. The median PFS for the Octreotide LAR 60 mg arm was 8.4 months while the median PFS for the lutetium Lu 177 dotatate
(Lutathera®) arm had not yet been reached by the time of the analysis, meaning that more than 50% of the patients in the lutetium
Lu 177 dotatate (Lutathera®) arm had survived without any progression event at that time. lutetium Lu 177 dotatate (Lutathera®)
is also currently administered on a compassionate use and named patient basis for the treatment of NETs in ten European countries
and in the United States under an Expanded Access Program. We estimate that over 4,400 doses of lutetium Lu 177 dotatate (Lutathera®),
have been provided to over 1,588 patients with NETs in Europe and the U.S. under these programs.



Upon approval, we intend to commercialize
lutetium Lu 177 dotatate (Lutathera®) in the United States with a targeted oncology-focused sales force, which we are currently
ramping up. We have identified approximately 64 centers in the United States that we believe treat over 80% of midgut NET patients
in the United States. Similarly, we have identified approximately 80 centers in the EU5 (France, Germany, Italy, Spain and the
United Kingdom) that we believe treat over 80% of midgut NET patients in the EU5. We believe we can efficiently target these centers
with a specialty sales force of approximately 25 customer-facing representatives in the U.S. and 40 in the EU5.



We have formulated lutetium Lu 177 dotatate
(Lutathera®) with a three-day shelf life, which we believe will enable us to efficiently produce and distribute it in Europe
through our European manufacturing and commercialization infrastructure. In the United States, we have opened a production facility
in Millburn, New Jersey, that will produce the North American supply of lutetium Lu 177 dotatate (Lutathera®). To further support
our production of lutetium Lu 177 dotatate (Lutathera®) and future product candidates, we acquired IDB, a leading manufacturer
of Lu-177, in January 2016, providing us with what we believe to be a reliable production source of Lu-177. In May 2016, we increased
our production capacity at our Ivrea site in Italy for lutetium Lu 177 dotatate (Lutathera®) production in anticipation of
NDA and MAA approvals and ahead of FDA inspections of such facilities. We expect that these sites in Europe and the United States
will be sufficient to produce our forecasted global demand for lutetium Lu 177 dotatate (Lutathera®).



In June 2015, we entered into an exclusive
distribution and license agreement for lutetium Lu 177 dotatate (Lutathera®) in Japan with FUJIFILM RI Pharma, Co., Ltd., or
FRI, a leading in-country distributor of nuclear medicine and diagnostic imaging products. Our agreement calls for FRI to finance
and conduct its own bridging study, and then to submit its findings to the applicable regulatory authorities in Japan for approval.
We intend to support this process by manufacturing lutetium Lu 177 dotatate (Lutathera®) for FRI’s study and providing
supplementary data from our previous clinical trials.





45


Table of Contents




In its December 2016 complete response
letter, the FDA identified issues with the format, traceability, uniformity and completeness of our lutetium Lu 177 dotatate (Lutathera®)
trial datasets, including the data associated with our NETTER-1 trial. These issues precluded the FDA reviewers from performing
the required independent analysis of these clinical studies. In addition, the complete response letter requested subgroup analyses
for gender, age and racial subgroups, as well as other stratification factors and important disease characteristics. A safety update
on clinical and non-clinical studies, which is already in process, was also requested in the complete response letter. Finally,
the complete response letter noted that any observations made during inspections of manufacturing facilities supporting the NDA
need to be resolved prior to approval of the NDA. The FDA did not request additional clinical studies in connection with its complete
response letter. We are working on our response to the FDA with our contract research organizations to remediate these issues.



Other Nuclear Medicine Therapeutic and
Diagnostic Candidates



We are developing 177Lu-PSMA-R2 and 68Ga-PSMA-R2
to treat, image, monitor and stage prostate cancer. 177Lu-PSMA-R2 will be aimed at treating and monitoring prostate cancer and
68Ga-PSMA-R2 will help diagnose and stage the disease. In November 2015, we signed an exclusive license agreement with Johns Hopkins
University in Baltimore, Maryland, to develop and market this radiolabeled ligand in prostate cancer. A proof-of-concept study
in humans is planned for 2017.



We are developing 177Lu-NeoBOMB1 and 68Ga-NeoBOMB1
to treat various types of cancer, such as gastrointestinal stromal tumors, prostate cancer and breast cancer. NeoBOMB1 is a unique
new generation antagonist bombesin analogue targeting GRPR-expressing malignancies. We plan to radiolabel NeoBOMB1 to develop a
theragnostic pair: 177Lu-NeoBOMB1 for treatment and 68Ga-NeoBOMB1 for diagnosis. We have signed an exclusive license agreement
with Erasmus and Demokritos National Center for Scientific Research to develop NeoBOMB1. We are currently planning three clinical
studies in different indications including gastrointestinal stromal tumors, prostate cancer and breast cancer.



Nuclear Medicine Diagnostic Portfolio



We are a leading player in nuclear medicine
diagnostics with a portfolio of nine diagnostic positron emission tomography, or PET, and single-photon emission computed tomography,
or SPECT, products, including Gluscan®. PET and SPECT are imaging techniques with applications in clinical oncology, cardiology,
neurology and inflammatory/infectious diseases. Our leading diagnostic product is Gluscan®, our branded FDG PET imaging agent.
Gluscan® assists in the diagnosis of serious medical conditions, primarily in oncology, by assessing glucose metabolism. We
are building on our diagnostics foundation by developing additional diagnostic product candidates to further strengthen our existing
portfolio. In June 2016, the FDA approved NETSPOT® for the localization of somatostatin receptor positive NETs in adult and
pediatric patients. In August 2016, NETSPOT® was first administered to a patient in the United States. NETSPOT® received
Transitional Pass-Through status from CMS in December 2016 for drug reimbursement and it was recently included in the NCCN Clinical
Practice Guidelines in Oncology update for the evaluation of NETs.



In December 2016, the European
Commission approved SomaKit TOCTM for injection in adult patients with confirmed or suspected well-differentiated
gastroenteropancreatic neuroendocrine tumors (GEPNETs). We believe NETSPOT® and SomaKit TOCTM, which we refer to as
our Somakit products, will serve to provide improved diagnosis of NETs and have the potential to serve as a diagnostic PET
products for lutetium Lu 177 dotatate (Lutathera®). We believe that our SomaKit products will offer significant potential
improvements compared to the currently approved diagnostic products – improved sensitivity and specificity, reduced
radiation exposure of patients, better patient acceptability, time saving procedure for the hospital (2 hours vs. 24 hours),
and no radioactive product-related delivery restrictions in its kit form. Both NETSPOT® and SomaKit TOCTM have
received orphan drug designation in the European Union and the United States. We partnered with four U.S.-based radiopharmacy
companies, Cardinal Health, Inc., Zevacor Pharma, Inc., Triad Isotopes, Inc., and Nuclear Diagnostic Products to establish a
network to prepare and deliver ready-to-use NETSPOT® injections to advanced medical imaging sites in key metropolitan
areas where high demand is anticipated. We also initiated several Phase 1/2 and Phase 2 clinical trials for Annexin V-128, a
SPECT product candidate for the imaging of apoptotic and necrotic lesions, which has potential applications in a broad range
of indications such as assessment of rheumatoid arthritis and spondyloarthritis, diagnosis of atherosclerosis and
atherosclerosis advanced lesions, and assessment of chemotherapy-induced cardiotoxicity in breast cancer patients.





46


Table of Contents




Our PET production sites are strategically
positioned close to our customers. We manufacture a majority of our products at our 19 production sites currently in operation
as of December 31, 2016. In May 2016, our subsidiary, AAA Germany GmbH acquired the rights to operate two additional F-18 radiopharmaceutical
production sites in south Germany. Our Millburn facility also serves as a distribution center for NETSPOT®. Our PET manufacturing
site in Murcia, Spain was also recently opened and approved to commence operations. The global molecular nuclear medicine market,
which includes radiopharmaceuticals, was estimated at approximately US$4.3 billion in 2015 (with 92% of sales in diagnostics and
8% of sales in therapeutics) according to MEDraysintell 2016 Edition. While the market is largely concentrated in diagnostics,
where we believe we have a leading position in Europe, therapeutics represents a fast-growing field within molecular nuclear medicine.
MEDraysintell projects that therapeutic sales may constitute up to US$15.0 billion of total molecular nuclear medicine sales of
US$25.0 billion by 2030, representing a compound annual growth rate of 27%.



Our Strengths



| | · | A late-stage radiopharmaceutical therapeutic candidate targeting foregut, midgut and hindgut NETs: lutetium Lu 177 dotatate
(Lutathera®) is an innovative therapeutic candidate with orphan drug status in the United States and the European Union. We
believe that lutetium Lu 177 dotatate (Lutathera®), along with the diagnostic agents NETSPOT® and SomaKit TOCTM, have
the potential to become a new paradigm for the treatment of midgut NETs and of NETs more broadly.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Leveraging our leadership position and vertical integration to produce differentiated molecular nuclear medicine products:
We have developed significant expertise and established an integrated R&D, manufacturing and commercialization infrastructure
to become a leading player in the growing molecular nuclear medicine market. We believe our leading position in molecular nuclear
medicine is underpinned by our (i) pan-European presence and future U.S. manufacturing and distribution capabilities, (ii) proximity
to our more than 200 principal customers through our PET production facilities, a key advantage given the short half-life of PET
and other molecular nuclear medicine products, (iii) scalable and modular manufacturing, (iv) extensive scientific know-how and
(v) ongoing interaction with the healthcare field through hospitals, universities and research centers. We have R&D teams based
in seven of our production facilities (in addition to our dedicated R&D facility in Nantes, France), which allows them to link
practical manufacturing know-how to pipeline product candidate development to maximize the opportunity for commercial success.
This arrangement allows us to exploit synergies between manufacturing and R&D and enabled us to advance lutetium Lu 177 dotatate
(Lutathera®) with a new formulation targeting midgut NETs soon after we acquired it.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Diversified, attractive product candidate development pipeline: We leverage our successful diagnostics business to invest
in multiple avenues of growth by developing product candidates across the therapy, PET and SPECT categories of radiopharmaceuticals,
including mid- and late-stage product candidates. We seek to leverage diagnostic candidates to improve the efficacy of our therapeutic
candidates and improve the standard of care for indications with significant unmet need.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Established molecular nuclear medicine platform in a market characterized by significant barriers to entry: Our network
of 19 production facilities across Europe, all of which we believe operate in conformity with cGMP, our pan-European platform,
our developing U.S. manufacturing and distribution capabilities, our production infrastructure and our proven and reliable logistical
capabilities have enabled us to secure significant customer loyalty and establish our position as a partner for global players,
such as GE Healthcare and Eli Lilly, for the production of their molecular diagnostic products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Highly qualified and experienced management team with a proven track record of launching innovative products and successfully
integrating acquired companies: Our senior management team combines extensive experience in molecular nuclear medicine and
our founding members still direct our strategy and development 15 years after our inception. We have successfully acquired businesses
and promising product candidates that further leverage our logistical infrastructure, as well as manufacturing facilities to expand
our existing network and enable us to enter into new markets.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





47


Table of Contents




Our Strategy



| | · | Obtain approval for lutetium Lu 177 dotatate (Lutathera®) in the United States and Europe: We believe lutetium Lu
177 dotatate (Lutathera®) is a promising therapeutic candidate, initially for progressive midgut NETs, a significant unmet
medical need, and potentially for related indications. The FDA and the EMA have historically allowed approval based on a single
Phase 3 trial where the trial is well-designed, well-conducted and internally consistent, and provides statistically persuasive
efficacy findings such that confirmation of the trial results in a second trial would be ethically or practically impossible. We
believe that our Phase 3 trial results will meet this threshold based upon (i) our discussions with the FDA and the EMA regarding
the allowance of market access based upon a single trial (if successful), (ii) our Phase 3 trial’s large randomized patient
pool, which has allowed us to demonstrate what we believe to be a significant improvement in primary endpoint PFS, as well as improvement
in overall survival, compared to the current standard of care, (iii) the current lack of available therapy for patients in lutetium
Lu 177 dotatate (Lutathera®)’s targeted indication and (iv) the receipt of Priority Review from the FDA for lutetium
Lu 177 dotatate (Lutathera®)’s NDA. We are currently working on our response to the FDA with our contract research organizations
to remediate the issues identified in the FDA’s December 2016 complete response letter.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Commercialize lutetium Lu 177 dotatate (Lutathera®) in the United States and Europe: We anticipate commencing marketing
for lutetium Lu 177 dotatate (Lutathera®) in the United States and EU5 soon after we receive FDA and / or EMA approval. Our
commercial leadership team is already in place and we are currently in the early stages of establishing our commercial infrastructure.
We intend to contract with select partners to commercialize lutetium Lu 177 dotatate (Lutathera®) outside the U.S. and EU5.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expand access to high value, differentiated radiopharmaceutical and diagnostic nuclear medicine: We aim to broaden our
customer base by entering into new manufacturing and licensing agreements in our existing markets, targeting hospitals with which
we do not currently have relationships and marketing our diagnostic nuclear medicine products in new markets.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pursue strategic acquisitions: We aim to continue our track record of identifying, acquiring and integrating businesses
and assets into our company that we believe hold strategic value to us. We have successfully acquired and integrated seven commercial-stage
companies, two development-stage companies, one promising product candidate and three manufacturing facilities since 2009. We expect
to continue to target acquisitions that will further build our product pipeline and expand our production capacity and geographic
coverage.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Leverage our platform to pursue additional strategic partnerships: We plan to explore new opportunities to work with
global pharmaceutical companies that would supplement our current production of their diagnostic products and strengthen our business
relationships. In addition, we plan to establish important new industry partnerships by: (i) leveraging our manufacturing expertise
to in-license additional compounds; (ii) capitalizing on our R&D efforts and healthcare industry connections to strategically
out-license our products to others; and (iii) using our expertise in manufacturing diagnostics to explore the potential for working
with pharmaceutical companies to develop diagnostics with those companies.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Industry



Molecular nuclear medicine is a medical
specialty that involves the use of trace amounts of radioactive substances called radiopharmaceuticals or radiotracers to create
functional images of the body and its organs (molecular nuclear diagnostics) and to treat various diseases, such as cancer (molecular
nuclear therapeutics). Radiopharmaceuticals injected into patients before a molecular nuclear diagnostic procedure leave a radioactive
trace that is detected by special PET and SPECT cameras, which utilize different processes in tandem with computers to provide
detailed functional images of the areas of the body being investigated. These images allow physicians to see the body’s internal
workings and to analyze its chemical and biological processes.



Nuclear medicine procedures can identify
abnormalities very early in the progress of a disease—often before many medical problems become apparent with conventional
imaging such as radiological imaging or ultrasound. Diagnostics procedures provide what we believe are significant advantages over
traditional diagnostic imaging because they:



| | · | enable drug tracing and provide functional images of molecular-level physiological functions;
| | - | ---------------------------------------------------------------------------------------------



| | · | provide an alternative to more invasive procedures such as biopsy or surgery;
| | - | -----------------------------------------------------------------------------



| | · | enable cost savings and improve patient comfort versus invasive procedures;
| | - | ---------------------------------------------------------------------------





48


Table of Contents




| | · | provide support in the development of new treatments and in the monitoring of patients; and
| | - | -------------------------------------------------------------------------------------------



| | · | provide support to the physicians in the disease management process (treatment algorithm decision process).
| | - | -----------------------------------------------------------------------------------------------------------



The global molecular nuclear medicine market
was estimated at approximately US$4.3 billion in 2015(with 92% of sales in diagnostics and 8% of sales in therapeutics) according
to MEDraysintell 2016 Edition While the market is largely concentrated in diagnostics, where we believe we have a leading position
in Europe, therapeutics represents a fast-growing field in molecular nuclear medicine. MEDraysintell projects that therapeutics
sales may constitute up to US$15.0 billion of total molecular nuclear medicine sales of US$25.0 billion by 2030, representing a
compound annual growth rate of 27% from 2015 to 2030. New indications are increasingly being evaluated for molecular nuclear medicine
radiopharmaceuticals, particularly in the diagnosis and treatment of cognitive diseases, which are a growing medical burden across
many countries due to the aging global population.



It is estimated that about 48.4 million
nuclear medicine procedures took place in 2015 globally. According to the 2016 MEDraysintell report, about 11.8 million procedures
were performed in the European Union and about 22.2 million procedures were performed in the United States.



Below is a graph showing the worldwide
diagnostic and therapeutic nuclear medicine market between 1990 and 2030.














Source:   MEDraysintell, Nuclear Medicine.
World Market Report & Directory, 2016 edition



Therapeutics



Molecular nuclear therapeutics is an innovative
therapeutic modality that combines two approaches: tumor targeting and radiation. Tumor targeting allows drugs to selectively enter
unhealthy cells due to the affinity between the drug and certain receptors expressed by the diseased cells. The few molecular nuclear
therapeutic products registered as of December 31, 2016 are anti-cancer drugs. Unlike traditional chemotherapy drugs, which
target both cancerous and healthy cells, this approach can enable a more tailored and effective treatment with minimal side effects.
Two types of radiation can be emitted by these products: a gamma ray, used to make SPECT images, or a beta particle, an energetic
electron that destroys the DNA of the tumor.





49


Table of Contents




Therapeutics are projected to be a significant
long-term growth driver of the molecular nuclear medicine market with an estimated annual growth of 27% between 2015 and 2030,
according to MEDraysintell. Therapeutics have the potential to generate high margins as costs for therapeutic products can be reimbursed
at a rate of up to 100 times the cost of diagnostic products. Most of the therapeutics products in development are found at smaller
companies. We believe that there are currently three notable radiopharmaceutical products in the market:



| | · | Xofigo®, from Bayer Pharmaceuticals (acquired from Algeta), indicated for the treatment of patients with castration-resistant
prostate cancer, symptomatic bone metastases and no known visceral metastatic disease;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Zevalin®, from Spectrum Pharmaceuticals, a radiolabeled antibody for the treatment of relapsed or refractory
low grade, follicular, or transformed B-cell non-Hodgkin’s lymphoma, including patients with Rituxan refractory follicular
NHL; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Bexxar®, from GSK, indicated for the treatment of patients with CD20-positive relapsed or refractory, low grade,
follicular or transformed non-Hodgkin’s lymphoma.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Product Candidates in Clinical Development



Lead Investigational Therapeutic Candidate
— lutetium Lu 177 dotatate (Lutathera®)



Lutetium Lu 177 dotatate (Lutathera®)
is a ready-to-inject solution of a Lu-177-labeled analogue of somatostatin, a hormone that acts as an important regulator of the
endocrine system. Somatostatin analogues are synthetic versions of this hormone and have been approved for symptomatic treatment
of NETs since 1987. Many radiolabeled analogues have been used in past published studies to treat NETs expressing somatostatin
receptors. A radiolabeled analogue is a peptide that carries a radioactive isotope such as Lu-177 within its overall structure.
Lutetium Lu 177 dotatate (Lutathera®) has three components:



| | · | the somatostatin analogue Octreotate (the peptide targeting the NET cells);
| | - | ---------------------------------------------------------------------------



| | · | DOTA, a compound able to combine metals (such as Lu-177) into complexes through a ring structure; and
| | - | -----------------------------------------------------------------------------------------------------



| | · | Lu-177, a radioisotope.
| | - | -----------------------



Lutetium Lu 177 dotatate (Lutathera®)
is the first ever PRRT radiopharmaceutical product candidate to have completed a Phase 3 trial for the treatment of progressive
midgut NETs. Existing approaches to treatment of progressive midgut NETs, described below, are associated with serious side effects
and low-to-moderate efficacy and there are currently no approved radiopharmaceutical treatments available for progressive midgut
NETs (a subgroup of all NETs).



Accordingly, we believe that lutetium Lu
177 dotatate (Lutathera®) addresses a significant unmet medical need, a belief supported by the FDA’s grant of Priority
Review for lutetium Lu 177 dotatate (Lutathera®) in June 2016. Priority review is assigned to applications for drugs that treat
serious conditions and would, if approved, provide significant improvements in the safety or effectiveness of the treatment, diagnosis
or prevention of serious conditions. Similarly, lutetium Lu 177 dotatate (Lutathera®) has been granted an Authorization for
Temporary Use from the Agence Nationale de Sécurité du Médicament et des Produits de Santé in
France in order to facilitate its development and expedite review, as well as provide immediate access to patients while we are
in the process of preparing the relevant regulatory submissions in the European Union. We also believe that lutetium Lu 177 dotatate
(Lutathera®)’s potential to provide imaging data at the same time as it treats progressive midgut NETs is an improvement
towards tailored treatment of patients, as it would allow physicians to monitor each patient’s responsiveness to the therapy
throughout the treatment process, should they wish to do so. lutetium Lu 177 dotatate (Lutathera®) has been approved on a compassionate
use and named patient basis in ten European countries and in the United States not only for the treatment of midgut NETs, but for
all NETs expressing somatostatin receptors (approximately 80% of all NETs).





50


Table of Contents




The table below shows overall incidence
of NETs versus all malignant neoplasms.
















Source:   Yao et al., One hundred years after
“carcinoid”: epidemiology of and prognostic factors for NET in 35,825 cases in the US. J. Clinical Oncology 26:3063-3072;
SEER: National Cancer Institute’s Surveillance, Epidemiology and End Results.



The Treatment Opportunity



NETs are rare, heterogeneous tumors originating
from dispersed neuroendocrine cells that are distributed throughout the body. The term “neuroendocrine” relates to
the ability of these cells to synthesize, store and secrete neuro-hormones, neuro-transmitters or neuro-modulators, which are produced
by both the endocrine and the nervous systems. NETs arising in the neuroendocrine cells of the gastroenteropancreatic tract are
the second most common type of gastrointestinal malignancy in the United States. It is estimated that approximately two thirds
of all NETs are NETs located in the gastroenteropancreatic tract. The age-adjusted incidence rate, representing the number of new
cases in the United States for the years 2003 – 2007, for NETs is 5.76 per 100,000 inhabitants, according to
data from the National Cancer Institute Surveillance, Epidemiology and End Results (SEER) database, as presented in an article
in the Journal of Clinical Endocrinology & Metabolism in 2011. Based on U.S. Census data and European Union census data, we
estimate the incidence for NETs for the combined populations of the United States and the European Union in 2016 was approximately
48,000. Midgut NETs, which are those NETs that arise in the small bowel and the first portion of the colon (the midgut), make up
approximately 20.47% of patients from the SEER database of all NETs for 2000 – 2007. Based on U.S. Census data
and European Union census data, we estimate that the number of patients in the combined populations of the United States and European
Union was approximately 9,690 in 2016. According to an article published in the European Journal of Nuclear Medicine and Molecular
Imaging, 96% of midgut NETs over-express SSTR2 (which is the target receptor for our diagnostic and therapeutic product candidates).
As a result, we estimate, based on U.S. Census data and European Union census data, that approximately 9,300 patients had SSTR2-positive
midgut NETs in 2016.



Because midgut NETs are generally slow-growing
tumors, the number of existing patients is significantly larger than the yearly incidence number. According to an article published
in the Journal of Clinical Oncology in 2008 that analyzes SEER data from 1973 – 2004, we estimate the prevalence
of midgut NETs today to be approximately 58,900 patients in total in the United States and the European Union, of which approximately
56,500 over-express SSTR2 receptors. Very limited anti-proliferative treatments are currently available in the midgut NET indication,
meaning that lutetium Lu 177 dotatate (Lutathera®) has the potential to be used in treatment of a significant number of midgut
NET patients. We believe that, in addition to the incidence of midgut NETs increasing, the number of patients diagnosed with midgut
NETs is also increasing due to better diagnostic tools and other factors leading to more frequent identification of these tumors
in patients.





51


Table of Contents




As an investigational product candidate
designed to treat these tumors, lutetium Lu 177 dotatate (Lutathera®) has received orphan drug designation in the United States
and in the European Union from the FDA and the EMA, respectively, for all NETs. In the United States, orphan drugs are defined
as drugs that treat diseases or conditions that affect 200,000 or fewer individuals in the country. In the European Union, orphan
drugs are defined as medicinal products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically
debilitating condition affecting not more than five out of 10,000 individuals in the European Union.



We believe that there are significant benefits
to orphan drug designation, particularly where, as is the case for lutetium Lu 177 dotatate (Lutathera®) and our Somakit products,
product candidates have no or limited patent protection. If EMA marketing authorization and FDA approval are granted to an orphan
drug, subject to certain exceptions, the drug will be entitled to up to ten years of marketing exclusivity in the European Union
and up to seven years of marketing exclusivity in the United States, respectively, with such protection being independent of the
patent status of the drug. However, the registration has been granted for SomaKit TOCTM and NETSPOT® and the associated
regulatory exclusivity has been granted for SomaKit TOCTM in the EU and the United States. In addition, if an orphan drug
demonstrates compelling results, it may be possible to obtain EMA marketing authorization or FDA approval based on a single pivotal
Phase 3 trial, instead of the two pivotal Phase 3 trials generally required for approval by regulatory agencies.



Existing Treatments in NETs



Most patients with NETs do not exhibit
symptoms and their tumors are discovered only upon unrelated surgery or exams. Although functioning NETs that produce certain hormones
and other chemicals often cause patients to exhibit symptoms, the non-specific nature of these symptoms can lead to delayed diagnosis.
By the time patients with NETs are diagnosed, their cancer has usually metastasized, with regional or distant metastasis observed
in approximately 50% of cases. Once they have metastasized, NETs cannot be effectively treated by surgery alone and generally are
not curable. As a result, there is a significant need for non-surgical treatments of metastatic NETs, given that patients with
NETs often exhibit cancer symptoms only after the tumors have metastasized and surgery can no longer be an effective solution by
itself.



NETs are typically considered slow-growing
tumors and therefore treatments employing standard chemotherapeutic agents (which attack both healthy and malignant cells) have
been of limited value in treating inoperable, metastatic NETs, with historic response rates (partial and complete) of approximately
20% (calculated as the mean value of partial and complete responses), as shown in Table 1 below.



Table 1 below, drawn from a study in the
Journal of Clinical Oncology, summarizes the published efficacy data from numerous historical studies for treatment of NET patients
under various regimens, including the 310 evaluable NET patients that were treated with lutetium Lu 177 dotatate (Lutathera®)
between January 2000 and August 2006 in the Erasmus Study. There are two criteria that need to be met in order to meaningfully
compare patient populations from different studies: (1) the patient populations must be similar, as is the case below, where the
matched subgroup is selected from the Erasmus Study NET patient population treated with lutetium Lu 177 dotatate (Lutathera®)
and (2) tumor response rates must be measured by CT or magnetic resonance imaging according to standardized criteria and not solely
by physical examination, palpation or biochemical markers. A subgroup of Erasmus patients that met these criteria was used for
the comparison shown in Table 1. Where the data for certain responses to particular treatment regimens was insufficiently robust
or was not reported (and therefore could not be used for the comparison), the relevant space in the table is marked with a “N/A,”
for “not applicable.”



The figures may differ from those reported
in other tables within this section that refer to the same Erasmus Study, as those figures were obtained after a separate, retrospective
independent data analysis performed in 2011 that analyzed slightly different patient subgroups.





52


Table of Contents




Table 1:   Response to
treatments:   Partial Response (PR)/Complete Response (CR), progression-free survival (PFS) and overall survival
(OS) of NET patients treated with chemotherapy regimens or with lutetium Lu 177 dotatate (Lutathera®).



|Regimen(1)               |  | Type
of Tumor(1) |  | Number
of Patients |     | PR/CR |  | MedianPFS |     | Median
Overall Survival |  | Study
|------------------------ |  | ---------------- |  | ------------------ | --- | ----- |  | --------- | --- | ----------------------- |  | -----
|                         |  |                  |  |                    |     |       |  |           | (%) |                         |  |      
|STZ + DOX                |  | NEP              |  |                    | 16  |       |  |           | 6   |                         |  |      
|DAC                      |  | Carc             |  |                    | 56  |       |  |           | 16  |                         |  |      
|DAC                      |  | Carc             |  |                    | 7   |       |  |           | 14  |                         |  |      
|FU + IFN-α               |  | Carc/NEP         |  |                    | 24  |       |  |           | 21  |                         |  |      
|MIT                      |  | Carc/NEP         |  |                    | 30  |       |  |           | 7   |                         |  |      
|PAC                      |  | Carc/NEP         |  |                    | 24  |       |  |           | 4   |                         |  |      
|STZ + FU + DOX           |  | NEP              |  |                    | 84  |       |  |           | 39  |                         |  |      
|DOX + FU                 |  | Carc             |  |                    | 85  |       |  |           | 13  |                         |  |      
|STZ + FU                 |  | Carc             |  |                    | 78  |       |  |           | 15  |                         |  |      
|IRI + FU                 |  | Carc/NEP         |  |                    | 20  |       |  |           | 5   |                         |  |      
|OXA + CAP                |  | Well-diff NET    |  |                    | 27  |       |  |           | 30  |                         |  |      
|lutetium Lu 177 dotatate |  | Carc/NEP         |  |                    | 310 |       |  |           | 30  |                         |  |      








| | (1) | STZ, Streptozocin; DOX, Doxorubicin; DAC, Dacarbazine; FU, 5-Fluorouracil; IFN-α Interferon-α; MIT, Mitoxantron;
PAC, Paclitaxel; IRI, Irinotecan; OXA, Oxaliplatin; CAP, Capecitabine; Lutate, Lu-177 Dotatate; Carc, carcinoids; NEP, neuroendocrine
pancreatic tumors (Kwekkeboom et al., 2008). Dr. Kwekkeboom owned less than 0.016% of our outstanding ordinary shares as of March
2017. Dr. Kwekkeboom became one of our shareholders in 2010 when we acquired BioSynthema. He was previously a BI Shareholder and
a portion of the acquisition consideration consisted of newly issued ordinary shares of ours. Dr. Kwekkeboom received his shares
as part of the acquisition and he also provides certain consulting services for us on an arm’s length basis.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As shown in Table 1 above, tumor response
rates, PFS and overall survival, or OS, time data for lutetium Lu 177 dotatate (Lutathera®) generally compared favorably to
other chemotherapeutic drugs. There are limitations on the usefulness of the above data because, in clinical development, a retrospective
study (such as the one from which the above table is derived) will review data already available, while a prospective study will
generate the data that will be analyzed to support a hypothesis. From a methodological perspective, data from a prospective study
is generally considered preferable for the generation of robust data, and sources of error due to confounding factors and bias
are more common in retrospective studies than in prospective studies. Nevertheless, we believe that the above data reflects promising
potential benefits of treatment with lutetium Lu 177 dotatate (Lutathera®).



Within the field of NET treatment, somatostatin
analogues such as Sandostatin®, from Novartis, are used to control certain clinical syndromes (collectively referred
to as carcinoid syndrome) such as severe diarrhea and flushing episodes associated with metastatic carcinoid tumors. Most NETs
overexpress somatostatin receptors, which are protein receptors within human cells that sense molecules outside of the cell and
activate cellular responses to somatostatin, a short-lasting endogenous hormone. Somatostatin is an important regulator of the
endocrine system, and somatostatin analogues mimic its activity with more potent inhibition of growth hormone, glucagon and insulin,
which are often produced by carcinoid tumors. The presence of the outsized number of these somatostatin receptors in NET cancer
cells provides a specific target for nuclear medicine. In 2014, Novartis reported US$1.7 billion of sales of Sandostatin®,
its somatostatin analogue treatment for carcinoid syndrome. However, treatment of carcinoid syndrome is distinct from treating
metastatic NETs themselves. For treatment of NETs themselves, Ipsen S.A.’s, or Ipsen’s, Somatuline®
Depot® (lanreotide) Injection 120 mg, or Somatuline®, was approved by the FDA in December 2014 for
the treatment of adult patients with unresectable, well-differentiated or moderately-differentiated, locally advanced or metastatic
NETs in the gastroenteropancreatic tract. According to Ipsen, Somatuline® was approved based on a demonstration
of improved PFS in Ipsen’s placebo controlled study, which enrolled 204 patients with unresectable, well- or moderately-differentiated
(WHO G I-II, Ki-67 <10%), locally advanced or metastatic, non-functioning NETs in the gastroenteropancreatic tract. According
to Ipsen, the median PFS in the Somatuline® arm of the study had not been reached at the time of the study’s
final analysis, and was therefore determined to be greater than 22 months, while the median PFS in the placebo arm was 16.6 months.
The aim of the study, according to an article discussing the study that was published in The New England Journal of Medicine, was
to introduce Somatuline® as early as possible in the management of the patients’ condition, since the patients’
tumors were non-functioning (and accordingly mostly asymptomatic) and such patients were potentially in a deferred treatment condition
(known as a “wait and see” policy). At baseline, the disease was stable for a total of 96% of the patients in this
seven-year study, according to Ipsen.





53


Table of Contents




In the treatment of pNETs, chemotherapeutic
agents have become the standard of care. Response rates vary according to tumor aggressiveness but are estimated to be between
approximately 30% and 50%. Two targeted therapies have been approved for the second line treatment of progressive non-functioning
pNETs, with limited PFS:



| | · | Afinitor® (everolimus), a mammalian target of the rapamycin (mTOR) inhibitor, was approved by the FDA for the
treatment of adult patients with pNETs with unresectable, locally advanced or metastatic disease on the basis of PFS of 11 months
observed in Phase 3 trials. In February 2016, it was approved in the United States for the treatment of adult patients with progressive,
well-differentiated, non-functional NETs of gastrointestinal or lung origin with unresectable, locally advanced or metastatic disease.
We believe that this new Afinitor® indication will have a limited impact on lutetium Lu 177 dotatate (Lutathera®)
sales mainly because the positioning of Afinitor treatment is aimed at non-functioning patients whereas lutetium Lu 177 dotatate
(Lutathera®) will be for both functioning and non-functioning patients, and the limited PFS demonstrated by Afinitor®
in the Radiant 4 trial 11 months PFS for Afinitor® versus 3.9 months for the placebo arm, whereas lutetium Lu 177
dotatate (Lutathera®) has demonstrated a theoretical PFS of 40 months, versus an active comparator arm of 8.4 months with midgut
NET patients. Afinitor® is also approved for the treatment of other cancer indications such as HER2-negative breast
cancer and renal cell carcinoma. In 2014, Novartis reported €1.4 billion (US$1.5 billion) of sales of Afinitor®
in all of its five approved indications. Treatment with Afinitor® may cause severe skin and gastrointestinal disorders,
kidney and liver toxicity and bone marrow damage.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Sutent® (sunitinib), a multi-targeted receptor tyrosine kinase inhibitor, or RTK, was approved by the FDA and
the EMA for the treatment of unresectable or metastatic, well-differentiated pNETs with disease progression in adults on the basis
of PFS of 11.4 months observed in Phase 3 trials. Sutent® is also approved for the treatment of gastrointestinal
stromal tumors and metastatic renal cell carcinoma. In 2013, Pfizer reported €870.9 million (US$919.0 million) of sales of
Sutent® in all of its indications. Treatment with Sutent® may cause severe side effects such as renal
failure, heart failure, gastrointestinal disorders, hemorrhages and hematological disorders (e.g., neutropenia, thrombocytopenia,
and anemia), which are among its most common adverse drug reactions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Solution: lutetium Lu 177 dotatate (Lutathera®)



In light of the current limited options
and effectiveness for treatment of NETs overall and the lack of treatments for progressive midgut NETs specifically, we believe
lutetium Lu 177 dotatate (Lutathera®) can meet a significant medical need by potentially improving patient outcomes in the
treatment of progressive midgut NETs, as well as other somatostatin-receptor-positive tumors. We acquired the rights to lutetium
Lu 177 dotatate (Lutathera®), which was initially developed by BioSynthema under an exclusive worldwide license from Mallinckrodt,
as part of our 2010 acquisition of BioSynthema and have reworked it into its current formulation. lutetium Lu 177 dotatate (Lutathera®)
treats certain NETs by selectively binding to SSTR2 receptors that are overexpressed in those NET cells. lutetium Lu 177 dotatate
(Lutathera®) then destroys NET cells in a targeted fashion by delivering a local emission of high-energy electrons. Because
lutetium Lu 177 dotatate (Lutathera®) also emits gamma radiation, we believe it will also function as a disease management
tool, as the gamma radiation it emits can be captured with a SPECT camera. We believe this diagnostic potential will allow the
treating physician to monitor the efficacy of the treatment concurrently with its administration to the patient, should the physician
wish to do so.





54


Table of Contents




Phase 3 Trial



In September 2015, we obtained data from
lutetium Lu 177 dotatate (Lutathera®)’s pivotal Phase 3 trial for the treatment of inoperable progressive midgut NETs
following an analysis of the data in the trial database that was finalized in September 2015. The Phase 3 trial is a multi-center,
randomized, comparator-controlled, parallel-group study evaluating the efficacy and safety of lutetium Lu 177 dotatate (Lutathera®)
(using total cumulative administered radioactivity of 29.6 GBq) combined with Sandostatin® LAR 30 mg intramuscular
injections compared to Sandostatin® LAR 60 mg intramuscular injections (referred to by its generic name, Octreotide
LAR, in the table below). We administered lutetium Lu 177 dotatate (Lutathera®) every eight weeks to patients with inoperable,
progressive, somatostatin-receptor-positive, midgut NETs under Sandostatin® LAR 30 mg. The structure of the trial
is represented below:









The trial, which commenced in September
2012, enrolled a total of 229 randomized patients across 36 European sites and 15 American sites, each of whom was assigned to
open-label treatment. The primary endpoint of the trial was the assessment of PFS, with additional endpoints assessing objective
response rate, overall survival, time to tumor progression, safety and quality of life. A dosimetry, pharmacokinetics and electrocardiography
assessment was also conducted in a subset of 20 patients at selected sites to provide a more complete assessment of the safety
profile of lutetium Lu 177 dotatate (Lutathera®). The Phase 3 trial concluded recruitment in February 2015, and we finalized
the trial database (confirming that all data contained therein is final) after verifying and ensuring incorporation of all trial
data, and after confirming the occurrence of the predefined number of progression events required to conclude the trial to enable
conclusive statistical analysis. Upon finalizing the trial database in September 2015, we completed an analysis of the trial primary
endpoint of PFS. The statistical analysis was performed on the entire patient population, also known as the Intent-To-Treat, or
ITT, population, which accordingly did not yet exclude those patients who had significant deviations from the protocol. Patients
who had significant deviations from protocol consist of those patients who did not comply sufficiently with the underlying treatment
model (for example, by failing to have a CT scan taken in the prescribed window) and thereby impacted the reliability of the observed
efficacy or safety profile of the treatment for such patients. As expected, a complete safety and efficacy analysis for the trial
was available in the first quarter of 2016, and the clinical study report has been finalized in April 2016. We are currently working
with our contract research organizations on remediating the issues identified by the FDA in its December 2016 complete response
letter in connection with our lutetium Lu 177 dotatate (Lutathera®) NDA (see “Item 3. Key Information—D. Risk Factors—Regulatory
and Compliance Risks—In response to a complete response letter issued by the FDA in connection with our NDA for lutetium
Lu 177 dotatate (Lutathera®), we must revise our data format and resolve the issues identified, which has delayed the review
of lutetium Lu 177 dotatate (Lutathera®)’s NDA).



Study Population



The studied population included patients
who fulfilled the following criteria:



| | · | the patient must be 18 years of age or older;
| | - | ---------------------------------------------



| | · | the patient must have metastatic or locally advanced, inoperable, histologically proven, midgut NETs, with a Ki67 index <20%.
Ki67 is a tumoral marker used to define an index of tumor proliferation, and a Ki67 index value of less than or equal to 20% corresponds
to Grade 1-2 tumors. Tumoral markers are biological markers found in the blood, urine, or body tissues that can be modified or
abnormal in cancer patients; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the patient must have somatostatin-receptor-positive disease with a progressive on uninterrupted fixed dose of Octreotide LAR
(20-30 mg every 3-4 weeks).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------





55


Table of Contents




The population included patients with functioning
and non-functioning NETs. A functioning NET is a NET that shows symptoms of carcinoid syndrome, including increased hormone secretion,
inducing diarrhea and flushing, and eventually secondary restrictive cardiomyopathy. Table 2 below presents the population
characteristics at enrollment:



Table 2: NETTER-1 population characteristics
at enrollment. BMI refers to Body Mass Index.



|                          |  | 177Lu-Dotatate
    (n=116) |  | Octreotide
    LAR 60mg (n=113)
|------------------------- |  | -------------------------- |  | -------------------------------
|Gender, n (%)             |  |                            |  |                                
|Male                      |  | 53 (46%)                   |  | 60 (53%)                       
|Female                    |  | 63 (54%)                   |  | 53 (47%)                       
|Age (years), mean (SD)    |  | 63 (±9)                    |  | 64 (±10)                       
|BMI(Kg/sgm), mean (SD)    |  | 25 (±5)                    |  | 26 (±7)                        
|Primary tumor site, n (%) |  |                            |  |                                
|Jejunum                   |  | 6 (5%)                     |  | 9 (8%)                         
|Ileum                     |  | 86 (74%)                   |  | 82 (73%)                       
|Appendix                  |  | 1 (1%)                     |  | 2 (2%)                         
|Right colon               |  | 3 (3%)                     |  | 1 (1%)                         
|Other                     |  | 20 (17%)                   |  | 19 (17%)                       
|Site of metastasis, n (%) |  |                            |  |                                
|Liver                     |  | 97 (84%)                   |  | 94 (83%)                       
|Lymph nodes               |  | 77 (66%)                   |  | 65 (58%)                       
|Bone                      |  | 13 (11%)                   |  | 12 (11%)                       
|Lungs                     |  | 11 (10%)                   |  | 5 (4%)                         
|Other (*)                 |  | 40 (35%)                   |  | 37 (33%)                       










| | (*) | Mainly peritoneal and mesenteric.
| | --- | ---------------------------------



Tumor characteristics in terms of NET tumoral
markers and somatostatin receptor imaging were also identical in the two treatment groups, as shown in Table 3 and Table 4 below.



Table 3:   NET tumoral
markers in the NETTER-1 population. SRS refers to Somatostatin Receptor Scintigraphy, which is an imaging procedure to visualize
somatostatin receptors in human tissue, using specialized cameras to detect a radionuclide bound to a targeting agent. Krenning
Scale refers to a scale indicating the uptake of Octreoscan, an imaging product used for the SRS (1: Lowest (worst), 4: Highest
(best)). Chromogranin-A refers to a neuroendocrine protein secreted in the body that is used as a marker to gauge NET proliferation
and is detected in the blood. 5-HIAA refers to 5-hydroxyindolacetic acid, which is detected in larger amounts in the urine of patients
with NETs.



|                                 |  | 177Lu-Dotatate(n=116) |  | Octreotide
LAR 60mg(n=113)
|-------------------------------- |  | --------------------- |  | --------------------------
|Ki67, n (%)                      |  |                       |  |                           
|ENETS G1/G2                      |  | 76/40 (66/34%)        |  | 81/32 (72/28%)            
|SRS, Krenning scale, n (%)       |  |                       |  |                           
|Grade 2                          |  | 13 (11%)              |  | 14 (12%)                  
|Grade 3                          |  | 34 (29%)              |  | 32 (28%)                  
|Grade 4                          |  | 69 (60%)              |  | 67 (59%)                  
|Chromogranin A (ug/L), mean (SD) |  | 649 (420)             |  | 670 (422)                 
|5-HIAA (mg/24h), mean (SD)*      |  | 100 (183)             |  | 77 (83)                   





56


Table of Contents




Table 4:   NET tumoral
markers in the NETTER-1 population. Tissue markers: Synaptophysin and Chromogranin-A are neuroendocrine secretory proteins used
as markers of NET proliferation.



|                          |  | 177Lu-Dotatate(n=116) |  | Octreotide
LAR 60mg(n=113)
|------------------------- |  | --------------------- |  | --------------------------
|Synaptophysin, n (%)      |  |                       |  |                           
|0% positive cells         |  | 1 (0.9%)              |  | 0 (0.0%)                  
|1 – 50% positive cells    |  | 3 (2.6%)              |  | 4 (3.5%)                  
|>50% positive cells       |  | 111 (95.7%)           |  | 108 (95.6%)               
|Not evaluable             |  | 1 (0.9%)              |  | 1 (0.9%)                  
|Chromogranin A, n
    (%) |  |                       |  |                           
|0% positive cells         |  | 2 (1.7%)              |  | 1 (0.9%)                  
|1 – 50% positive cells    |  | 5 (4.3%)              |  | 5 (4.4%)                  
|>50% positive cells       |  | 107 (92.2%)           |  | 106 (93.8%)               
|Not evaluable             |  | 2 (1.7%)              |  | 1 (0.9%)                  



Table 5:   Overall Tumor
Burden in the NETTER-1 population.



|                            |  | 177Lu-Dotatate(n=116) |  | Octreotide
LAR 60mg(n=113)
|--------------------------- |  | --------------------- |  | --------------------------
|Overall tumor burden, n (%) |  |                       |  |                           
|Limited                     |  | 99 (85.3%)            |  | 98 (86.7%)                
|Moderate                    |  | 13 (11.2%)            |  | 13 (11.5%)                
|Extensive                   |  | 4 (3.4%)              |  | 2 (1.8%)                  



Table 6, Table 7 and Table 8 below respectively
show that (i) prior treatments, (ii) times since first diagnosis, disease progression and diagnosis of metastasis and (iii) reasons
for ending prior treatment were similar in the case of the two treatment groups.



Table 6:   Prior treatments
in the NETTER-1 population.



|                                       |  | 177Lu-Dotatate(n=116) |  | Octreotide
LAR 60mg(n=113)
|-------------------------------------- |  | --------------------- |  | --------------------------
|Prior resection, n (%)                 |  | 90 (78%)              |  | 93 (82%)                  
|Prior ablation, n (%)                  |  | 6 (5%)                |  | 11 (10%)                  
|Chemo-embolization, n (%)              |  | 14 (12%)              |  | 11 (10%)                  
|Time since last intervention, yrs (SD) |  | 4.7 (±3.3)            |  | 5.7 (±3.6)                
|Type of previous treatment             |  |                       |  |                           
|Radiotherapy                           |  | 7 (4%)                |  | 8 (5%)                    
|PRRT                                   |  | 1 (1%)                |  | 0 (0%)                    
|Chemotherapy                           |  | 47 (27%)              |  | 51 (30%)                  
|Other                                  |  | 48 (28%)              |  | 40 (24%)                  



Table 7:   Times since
first diagnosis, first disease progression and diagnosis of metastasis in the NETTER-1 population.



|                                             |  | 177Lu-Dotatate(n=116) |      | Octreotide
    LAR 60mg (n=113) |  | Statistical
Significance
|-------------------------------------------- |  | --------------------- | ---- | ------------------------------- |  | ------------------------
|Time since first diagnosis (years)           |  |                       | 5.13 |                                 |  |                         
|Time since first disease progression (years) |  |                       | 2.73 |                                 |  |                         
|Time since diagnosis of metastasis (years)   |  |                       | 4.28 |                                 |  |                         





57


Table of Contents




Table 8:   Reasons for
end of treatment in the NETTER-1 population.



|                                        |  |  | 177Lu-Dotatate
                                         (n=116) |  |  | Octreotide
LAR 60mg (n=113)
|--------------------------------------- |  |  | --------------------------------------------------------------- |  |  | ---------------------------
|Reason for end of treatment phase n (%) |  |  |                                                                 |  |  |                            
|Consent withdrawal                      |  |  | 9 (8%)                                                          |  |  | 9 (8%)                     
|Best subject interest                   |  |  | 10 (9%)                                                         |  |  | 9 (8%)                     
|Adverse event                           |  |  | 7 (6%)                                                          |  |  | 7 (6%)                     
|Disease progression                     |  |  | 19 (16%)                                                        |  |  | 58 (51%)                   



Efficacy Analysis



In the efficacy analysis that we completed,
lutetium Lu 177 dotatate (Lutathera®) demonstrated an improvement in the primary endpoint, assessing PFS. There were 23 confirmed
progression event deaths in the lutetium Lu 177 dotatate (Lutathera®) arm and 68 confirmed progression event deaths in the
Octreotide LAR 60 mg arm. The median PFS for the Octreotide LAR 60 mg arm was 8.4 months while the median PFS for the lutetium
Lu 177 dotatate (Lutathera®) had not yet been reached. Median PFS is calculated as the amount of time after which 50% of patients
in a trial arm have progressed, or died, and 50% have survived without any progression event. The improvement in median PFS in
the lutetium Lu 177 dotatate (Lutathera®) arm was statistically significant (p <0.0001) with a hazard ratio of 0.21 (95%
Confidence Interval (CI): 0.13-0.33). A hazard ratio is a measure of the probability of a patient experiencing death due to a progression
event and enables estimates as to the risk of death for a set of patients relative to a study’s control group. The hazard
ratio in the Phase 3 study demonstrates a risk reduction of 79% in the likelihood of a death due to a progression event for patients
treated with lutetium Lu 177 dotatate (Lutathera®) and Octreotide LAR together versus a treatment with a double-dose of Octreotide
LAR (the control group).



As shown in Table 9 below, at the time
of the analysis of the primary end-point in the Phase 3 study, the Octreotide LAR arm had already demonstrated a median PFS of
8.4 months. Patients in the lutetium Lu 177 dotatate (Lutathera®) arm, however, did not experience an aggregate number of progression
events sufficient to result in a median PFS, meaning that more than 50% of the patients in the lutetium Lu 177 dotatate (Lutathera®)
arm had survived without any progression event as of the conclusion of the study.





58


Table of Contents




Table 9:   Kaplan-Meier
function for Progression Free Survival in the NETTER-1 study: Final analysis.







Within the evaluable patient dataset for
tumor responses at the time of the analysis of the primary end-point consisting of 201 patients, the objective response rate, or
ORR, based upon the number of complete tumoral responses, or CR, and partial tumoral responses, or PR, was 18 (18%) in the lutetium
Lu 177 dotatate (Lutathera®) arm and 3 (3%) in the Octreotide LAR 60 mg arm. This improvement was statistically significant
(p=0.0008), with a p-value much lower, and therefore more robust, than the usually accepted threshold of p<0.05. Table 10 below
shows the range of tumoral responses for each arm of the trial.



Table 10:   Tumoral responses
in the NETTER-1 population assessed according to the Response Evaluation Criteria in Solid Tumor (RECIST). Exclude patients with
no post-baseline scans or central response available.



|                                 |  | 177Lu-Dotatate
    (n=101) |             | Octreotide
    LAR 60mg (n=100)
|-------------------------------- |  | -------------------------- | ----------- | -------------------------------
|Complete Response (n)            |  |                            | 1           |                                
|Partial Response (n)             |  |                            | 17          |                                
|Objective Response Rate (CI 95%) |  |                            | 18 (10-25)% |                                
|Progressive Disease (n, %)       |  |                            | 6 (5%)      |                                



Complete Response (CR) above indicates
disappearance of all target lesions, while Partial Response (PR) indicates at least a 30% decrease in the sum of the diameters
of the target lesions. Progressive Disease (PD) indicates at least a 20% increase in the sum of diameters of the target lesions,
and an absolute increase of at least 5 mm, while Stable Disease (SD) indicates neither sufficient shrinkage to suggest Partial
Response nor sufficient increase to suggest Progressive Disease. Objective Response measures the sum of CR and PR, while Objective
Response Rate the percentage of objective responses.



At the time of the analysis prior to finalizing
the clinical study report for the submission to the FDA and the EMA, the number of deaths was 14 in the lutetium Lu 177 dotatate
(Lutathera®) arm and 26 in the Octreotide LAR 60 mg arm (p=0.004 at interim analysis) with a hazard ratio of 0.40 (95% CI:
0.21 – 0.77), which suggests an improvement in OS.





59


Table of Contents




Table 11:   Kaplan-Meier
function for Overall Survival in the NETTER-1 study: Interim analysis.







Initial Safety Analysis



The safety profile for lutetium Lu 177
dotatate (Lutathera®) that we initially observed in the study was consistent with that observed in the Phase I-II Erasmus Study.
A complete analysis of the safety profile was available in April 2016. The total number of patients experiencing adverse events
in each arm is shown in Table 12 below. Adverse events are any undesired harmful effect resulting from a medication or other interventions
related to the use of a medicinal product, such as significant change in the blood cell count or another physiological parameter.
In the Phase 3 trial, a number of these adverse events consisted of vomiting and nausea related to the use of an amino acid co-injection
that was administered alongside lutetium Lu 177 dotatate (Lutathera®) to help protect against renal injury from exposure to
the treatment. We are considering cGMP manufacturing of, and obtaining marketing authorization for, an amino acid co-injection
that we believe is significantly improved and which we believe will reduce the number of events of vomiting and nausea in lutetium
Lu 177 dotatate (Lutathera®) patients when co-injected, while continuing to help protect patients against renal injury. We
believe this improved amino acid co-injection formulation is eligible for orphan drug designation in the United States and European
Union and we plan to file a MAA and an NDA with the EMA and FDA, respectively, as soon as sufficient data are gathered.



Table 12:   Number of
patients experiencing adverse events in each arm (safety dataset includes patients who received at least one administration of
studied products).



|                                  |  |  | 177Lu-Dotatate
                                         (n=111) |  |  | Octreotide LAR
    60mg (n=110)
|--------------------------------- |  |  | --------------------------------------------------------------- |  |  | -------------------------------
|Any adverse event                 |  |  | 106 (96%)                                                       |  |  |                                
|Related to treatment              |  |  | 95 (86%)                                                        |  |  |                                
|Serious adverse events            |  |  | 29 (26%)                                                        |  |  |                                
|Related to treatment              |  |  | 10 (9%)                                                         |  |  |                                
|Withdrawals due to adverse events |  |  | 7 (6%)                                                          |  |  |                                
|Related to treatment              |  |  | 5 (5%)                                                          |  |  |                                





60


Table of Contents




Our adverse event assessment was performed
according to the grading system of the National Cancer Institute’s Common Terminology Criteria for Adverse Events. The number
of adverse event episodes in these patients are shown in Table 13 below.



Table 13:   Number and
grading of treatment emergent adverse event episodes in patients experiencing adverse events and who received at least one administration
of product in each arm.



|Maximal
    Severity, number of episodes |  | 177Lu-Dotatate
    (n=111) |     | Octreotide
    LAR 60mg (n=110)
|---------------------------------------- |  | -------------------------- | --- | -------------------------------
|Grade 1 (mild)                           |  |                            | 861 |                                
|Grade 2 (moderate)                       |  |                            | 339 |                                
|Grade 3 (severe)                         |  |                            | 78  |                                
|Grade 4 (threatening / disabling)        |  |                            | 5   |                                
|Grade 5 (death)                          |  |                            | 5   |                                
|Missing                                  |  |                            | 15  |                                



The SAEs reported in the lutetium Lu 177
dotatate (Lutathera®) arm that were related to treatment are presented in Table 14 below.



Table 14:   Serious adverse
events reported in the lutetium Lu 177 dotatate (Lutathera®) arm that were related to treatment.



|                          |  | SAE
|------------------------- |  | ---
|Blood & lymphatic system  |  |    
|Lymphocytopenia           |  |    
|Thrombocytopenia          |  |    
|Neutropenia               |  |    
|Pancytopenia              |  |    
|Bicytopenia               |  |    
|Renal & urinary disorders |  |    
|Acute kidney injury       |  |    
|Renal failure             |  |    
|Vascular disorders        |  |    
|Portal hypertension       |  |    



The adverse events reported in the Phase
3 study are presented in the following Table:



Table 15:   Percentages
and grading of adverse events reported in at least 10% of patients treated with lutetium Lu 177 dotatate (Lutathera®) vs patients
receiving Octreotide LAR 60 mg (SAF dataset, n=221).





61


Table of Contents




|                                                   |  |  | 177Lu-Dotatate(n=111)                               |   |  |  | Octreotide
                                         LAR 60 mg (n=110) |  
|-------------------------------------------------- |  |  | --------------------------------------------------- | - |  |  | --------------------------------------------------------------------- | -
|System
    Organ Class/ Preferred Term             |  |  | All
                                         grades |   |  |  | Grade
                                         3-4                    |  
|                                                   |  |  | %                                                   |   |  |  | %                                                                     |  
|Gastrointestinal disorders                         |  |  |                                                     |   |  |  |                                                                       |  
|Nausea                                             |  |  | 59                                                  | % |  |  | 4                                                                     | %
|Vomiting                                           |  |  | 47                                                  | % |  |  | 7                                                                     | %
|Diarrhea                                           |  |  | 29                                                  | % |  |  | 3                                                                     | %
|Abdominal pain                                     |  |  | 26                                                  | % |  |  | 3                                                                     | %
|Abdominal distension                               |  |  | 13                                                  | % |  |  | 0                                                                     | %
|General disorders & administration site conditions |  |  |                                                     |   |  |  |                                                                       |  
|Fatigue / asthenia                                 |  |  | 40                                                  | % |  |  | 2                                                                     | %
|Edema peripheral                                   |  |  | 14                                                  | % |  |  | 0                                                                     | %
|Blood and lymphatic system disorders               |  |  |                                                     |   |  |  |                                                                       |  
|Thrombocytopenia                                   |  |  | 25                                                  | % |  |  | 2                                                                     | %
|Lymphopenia                                        |  |  | 18                                                  | % |  |  | 9                                                                     | %
|Anemia                                             |  |  | 14                                                  | % |  |  | 0                                                                     | %
|Leukopenia                                         |  |  | 10                                                  | % |  |  | 1                                                                     | %
|Neutropenia                                        |  |  | 5                                                   | % |  |  | 1                                                                     | %
|Musculoskeletal & connective tissue disorders      |  |  |                                                     |   |  |  |                                                                       |  
|Musculoskeletal pain                               |  |  | 29                                                  | % |  |  | 2                                                                     | %
|Metabolism & nutrition disorders                   |  |  |                                                     |   |  |  |                                                                       |  
|Decreased appetite                                 |  |  | 18                                                  | % |  |  | 0                                                                     | %
|Nervous system disorders                           |  |  |                                                     |   |  |  |                                                                       |  
|Headache                                           |  |  | 16                                                  | % |  |  | 0                                                                     | %
|Vascular disorders                                 |  |  |                                                     |   |  |  |                                                                       |  
|Dizziness                                          |  |  | 11                                                  | % |  |  | 0                                                                     | %
|Flushing                                           |  |  | 13                                                  | % |  |  | 1                                                                     | %
|Skin & subcutaneous tissue disorders               |  |  |                                                     |   |  |  |                                                                       |  
|Alopecia                                           |  |  | 11                                                  | % |  |  | 0                                                                     | %
|Respiratory, thoracic & mediastinal disorders      |  |  |                                                     |   |  |  |                                                                       |  
|Cough                                              |  |  | 11                                                  | % |  |  | 0                                                                     | %



In the overall safety dataset population
(221 patients), 129 patients (58.4%) experienced treatment emergent adverse events related to treatment (ADR), 95 (86%) in the
lutetium Lu 177 dotatate (Lutathera®) arm and 34 (31%) and in the Octreotide LAR arm. There were 683 ADR episodes, 611 for
patients in the lutetium Lu 177 dotatate (Lutathera®) arm and 72 for patients in the Octreotide LAR arm. The most frequent
ADR episodes in the lutetium Lu 177 dotatate (Lutathera®) are were “nausea” and “vomiting” (125 “nausea”
episodes in the lutetium Lu 177 dotatate (Lutathera®) arm vs 4 in the Octreotide LAR arm and 98 “vomiting” episodes
in the lutetium Lu 177 dotatate (Lutathera®) arm vs 1 in the Octreotide LAR arm); in the lutetium Lu 177 dotatate (Lutathera®)
arm, the majority (about 75%) of these “nausea” and “vomiting” episodes were considered related to the
amino acid co-infusion by the Investigators.



The treatment exposure to lutetium Lu 177
dotatate (Lutathera®) was assessed in all patients. The patients who have not received the full treatment have either progressed
or withdrawn from the study, and therefore their treatment was interrupted. Most of the patients (74%) received a full lutetium
Lu 177 dotatate (Lutathera®) treatment (four administrations of 200 millicuries, or mCi, a standard radiation measurement,
once every eight weeks, for a total dose of 800 mCi). Table 16 below presents the exposure data.



Table 16:   lutetium
Lu 177 dotatate (Lutathera®) dose exposure (n=111).



|                                 |  | Nb
    of Patients
|-------------------------------- |  | ------------------
|Drug exposure, n (%)             |  |                   
|600 - 800 mCi                    |  |                   
|400 – 600 mCi                    |  |                   
|200 – 400 mCi                    |  |                   
|200 mCi                          |  |                   
|Not recorded                     |  |                   
|Number of administrations, n (%) |  |                   
|4                                |  |                   
|3                                |  |                   
|2                                |  |                   
|1                                |  |                   
|0                                |  |                   





62


Table of Contents




During treatment with lutetium Lu 177 dotatate
(Lutathera®), a dose reduction can be performed within the frame of the Dose Modifying Toxicity, or DMT, scheme, a set of guidelines
to address toxicity directly related to the amount of treatment administered, and which requires a 50% dose reduction in case of
certain adverse events, primarily Grade 2 events for blood platelet count, or Grade 3 or 4 hematological toxicity or any other
Grade 3 or 4 toxicity. These toxicity events are of particular concern due to their impact on an oncology product’s safety
for patients. The DMT scheme may also apply if the administration of lutetium Lu 177 dotatate (Lutathera®) is thought to severely
and clinically significantly worsen the applicable patient’s lymphocyte count and liver function. During the Phase 3 trial,
the dose had to be reduced for toxicity events in six patients, or 5% of the 111 treated patients.







Preliminary Findings



We submitted the NDA to the FDA and the
MAA to the EMA for lutetium Lu 177 dotatate (Lutathera®) in April 2016. In response to a complete response letter issued by
the FDA in connection with our NDA, we must revise our data format and resolve the issues identified, which has delayed the approval
of lutetium Lu 177 dotatate (Lutathera®) (see “Item 3. Key Information—D. Risk Factors—Regulatory and Compliance
Risks—In response to a complete response letter issued by the FDA in connection with our NDA for lutetium Lu 177 dotatate
(Lutathera®), we must revise our data format and resolve the issues identified, which has delayed the review of lutetium Lu
177 dotatate (Lutathera®)’s NDA).



Commercialization Plans for lutetium Lu 177
dotatate (Lutathera®)



We intend to commercialize lutetium Lu
177 dotatate (Lutathera®) with our own sales force in the United States, as well as in the EU5. Because midgut NET is an orphan
indication with a limited number of available treatment options, patient populations are often highly organized, including through
the formation of patient advocacy groups, which may facilitate our identification of and access to patients. The midgut NET indication’s
orphan disease designation also means that treatment trends are heavily influenced by key opinion leaders located in a limited
number of centers of excellence. We have identified approximately 64 nuclear medicine centers in the United States that we believe
treat over 80% of midgut NET patients in the United States. Similarly, we have identified approximately 80 nuclear medicine centers
in the EU5 that we believe treat over 80% of midgut NET patients in the EU5. We believe we can efficiently target these nuclear
medicine centers with a specialty sales force of approximately 25 customer facing representatives in the United States and 40 in
the EU5. Our commercial leadership team is already in place and we are currently expanding our commercial infrastructure, including
sales representatives, medical affairs, marketing, market access, market research, sales force effectiveness and strategic planning.
We anticipate commencing marketing for lutetium Lu 177 dotatate (Lutathera®) in these geographic areas soon after FDA and/or
EMA approval. Outside of the United States and EU5 we intend to contract with select partners to commercialize lutetium Lu 177
dotatate (Lutathera®). We have already contracted with many partners in Europe to provide access to lutetium Lu 177 dotatate
(Lutathera®) on a compassionate use and named patient basis, and in June 2015 we entered into an exclusive distribution and
license agreement for lutetium Lu 177 dotatate (Lutathera®) in Japan with FRI to finance and conduct its own bridging study,
and then to submit its findings to the applicable regulatory authorities in Japan for approval. We intend to support this process
by manufacturing lutetium Lu 177 dotatate (Lutathera®) for FRI’s study and providing supplementary data from our previous
clinical trials.



Supply chain — lutetium Lu 177 dotatate
(Lutathera®)



For lutetium Lu 177 dotatate (Lutathera®),
we have the capability to supply the U.S. market from multiple European sites and have verified this capability during the course
of the past two years as we plan for lutetium Lu 177 dotatate (Lutathera®)’s potential U.S. launch. However, to improve
the efficiency of our supply chain for the U.S. market, we have established a Millburn, NJ facility to produce lutetium Lu 177
dotatate (Lutathera®) principally for the market in North America. We plan to obtain qualification of the site in order to
achieve FDA authorization for the site and start manufacturing operations after receiving all necessary authorizations and licenses.



Our plan is to ship lutetium Lu 177 dotatate
(Lutathera®), initially from Europe, and soon after from Millburn, NJ, to hospitals around North America, typically by plane,
for injection within 24 to 48 hours after production. We have experience shipping F-18-labeled products that are typically injected
two to four hours after production due to such products’ significantly shorter half-lives. Because of this prior experience,
we believe that we will be able to facilitate reliable delivery of lutetium Lu 177 dotatate (Lutathera®) during the time windows
within which it must be delivered to its clinical destinations.



We have further strengthened our lutetium
Lu 177 dotatate (Lutathera®) supply chain by acquiring, at the beginning of January 2016, IDB in Holland, one of the leading
producers of the Lu-177 radioisotope.





63


Table of Contents




Other Studies Involving lutetium Lu 177 dotatate
(Lutathera®)



lutetium Lu 177 dotatate (Lutathera®)
is also being studied in six ongoing investigator-sponsored studies in a total of 1,064 patients to explore its potential use in
additional indications. We believe there are several indications, including different somatostatin-receptor-positive tumor types
such as pNETs, glioblastomas and medulloblastomas, with significant unmet medical needs for which lutetium Lu 177 dotatate (Lutathera®)
may have future applications.



Based on the favorable safety and efficacy
profile observed in previous clinical studies, lutetium Lu 177 dotatate (Lutathera®) was also made available for compassionate
use and on a named patient basis to treatment programs in Austria, Denmark, Estonia, Finland, France, Greece, Portugal, Spain,
Switzerland, the United Kingdom and the United States. We estimate that over 4,400 doses of lutetium Lu 177 dotatate (Lutathera®)
have been provided to over 1,588 patients with NETs in Europe and the U.S. under these programs.



In addition, lutetium Lu 177 dotatate (Lutathera®)
is the only Phase 3 therapeutic candidate utilizing PRRT, which has been incorporated into the treatment guidelines for NETs published
by the European Neuroendocrine Tumor Society since 2009. As a consequence of its inclusion into the European Neuroendocrine Tumor
Society guidelines, in 2010 the European Society for Medical Oncology, or ESMO, included PRRT in its therapeutic algorithm, suggesting
the use of PRRT in the event that existing approaches or registered products were ineffective.



Phase 1/2 Study



Lutetium Lu 177 dotatate (Lutathera®)’s
Phase 1/2 Erasmus Study started in January 2000 as an open, single arm study. At the start of the study, a biodistribution and
dosimetry assessment was performed in order to evaluate the kidney protection benefit of amino acid co-infusion and to provide
a first estimate for the maximum safe dose for treatments. The biodistribution and dosimetry assessment was followed by an ascending
dose study to determine if observed toxicities from the single administered dose and resulting cumulative administered radioactivity
remained below acute toxicity limits to the critical organs (bone marrow and kidneys). From these studies the maximum activity
to be administered was determined at a cumulative administration of 800 mCi with four intravenous administrations of 200 mCi of
lutetium Lu 177 dotatate (Lutathera®) at four to 13 week intervals. The primary endpoints were tumor responses, disease progression,
OS, quality of life and safety.



The Phase I-II Erasmus study data have
been analyzed in two separate time periods:



1. The first analysis was conducted in
2011 and included 615 patients who were enrolled in the study between January 2000 and March 2007 (follow-up cut-off date as of
February 2010). The results of the source data verification and analyses conducted at that time were provided to the FDA at the
time of the Investigational New Drug Application, or IND, submission and before the initiation of the pivotal Phase III NETTER-1
study.



2. The Erasmus Phase 1/2 trial continued
after this first independent assessment and AAA resumed the data collection in 2015 with the objective of including an updated
Clinical Study Report in the NDA and MAA submission. The second analysis includes follow-up data of the original 615 patients and
an additional 599 patients who were enrolled in the study between March 2007 and December 2012.



Lutetium Lu 177 dotatate (Lutathera®)
generated positive safety and efficacy data for the 1,214 patients in the Phase 1/2 study. Clinical data collected over this period
were retrospectively reviewed by an independent clinical research organization in order to assess and verify the source data and
perform a statistical analysis of the study results. In this independent reassessment of data, special attention was paid to patients
with the same diagnosis as proposed for our Phase 3 trial. We believe the results of this comprehensive analysis should be considered
as reliable and supportive of the results of our pivotal Phase 3 trial, and we expect to be able to rely on the observations relating
to efficacy from this analysis in seeking regulatory approvals for lutetium Lu 177 dotatate (Lutathera®) because it was conducted
by trained radiologists and data management professionals. The results of the review indicated that lutetium Lu 177 dotatate (Lutathera®)
may prolong PFS and OS as compared to the treatments listed in Table 1 above, while improving patients’ self-assessed quality
of life. Both acute and late adverse events after treatment with lutetium Lu 177 dotatate (Lutathera®) were generally milder
for these patients than other treatments to which lutetium Lu 177 dotatate (Lutathera®) was compared (i.e., the treatments
listed in Table 1 above). This favorable safety profile was also supported by the retrospective analyses performed on all 615 patients
included in the Phase 1/2 study.





64


Table of Contents




Due to the lack of available treatment
for the NET family of tumors, the 1,214 patients included in the Phase 1/2 study are a mixed population in terms of tumor type.
All such patients were included in the safety evaluation performed at the completion of the study. A retrospective efficacy evaluation
was performed on certain of the 404 patients diagnosed with NET tumors. From this group of 404 patients, 265 patients with NETs
met specific evaluation criteria for tumor type and severity and were included in the retrospective efficacy analysis. These 265
selected patients were those who had received at least one treatment with lutetium Lu 177 dotatate (Lutathera®) and had at
least one valid primary efficacy variable measurement after their entry into the Phase 2 study to measure the effects of lutetium
Lu 177 dotatate (Lutathera®). The patients all had NETs, including foregut and hindgut carcinoid tumors, and an Octreoscan
tumor uptake score of  ≥ 2 in order to confirm adequate tumor uptake by target tumoral lesions expressing somatostatin
2 receptor uptake.



Subgroup analyses of tumor response (the
primary endpoint) and PFS (as a secondary endpoint) have been performed on various subgroups specified in the overall retrospective
analysis with different tumor types, the results of which are described below. The results for objective tumor response (combining
complete response, or CR, partial response, or PR, and minor response, or MR) to treatment with lutetium Lu 177 dotatate (Lutathera®)
according to standardized criteria are summarized in Table 17 below:



Table 17:   Objective
tumor Response (CR, PR and MR) to lutetium Lu 177 dotatate (Lutathera®) by main tumor types according to RECIST 1.1 standardized
criteria (Full Analysis dataset, n=575).



|                  |  | Patients |     | NE |  | ORR* 95% CI
|----------------- |  | -------- | --- | -- |  | -----------
|Tumor Type        |  | N        |     | N  |  | %          
|Pancreatic NET    |  |          | 168 |    |  |            
|Foregut NET       |  |          | 12  |    |  |            
|Hindgut NET       |  |          | 13  |    |  |            
|Unknown NET       |  |          | 86  |    |  |            
|Bronchial NET     |  |          | 21  |    |  |            
|Midgut NET        |  |          | 218 |    |  |            
|Other             |  |          | 19  |    |  |            
|Thyroid Carcinoma |  |          | 20  |    |  |            
|Paraganglioma     |  |          | 18  |    |  |            












| | * | Objective Response Rate: ORR (Complete Response + Partial
Response), CR: Complete Response; PR: Partial Response; NE: Non-Evaluable
| | - | -----------------------------------------------------------------------------------------------------------------------------------



PFS rates are shown in Table 18 below.
The overall median PFS was 28 months with a 95% CI of 25 – 30 months.



Table 18:   Summary statistics
of median PFS (months) by tumor type/overall (FAS, n=575)



|                  |  | Nb. of Patients |     | Median Progression Free Survival – 95% CI
|----------------- |  | --------------- | --- | -----------------------------------------
|                  |  | Total           |     | Events                                   
|Overall           |  |                 | 575 |                                          
|Pancreatic NET    |  |                 | 168 |                                          
|Hindgut NET       |  |                 | 13  |                                          
|Unknown NET       |  |                 | 86  |                                          
|Midgut NET        |  |                 | 218 |                                          
|Paraganglioma     |  |                 | 18  |                                          
|Bronchial NET     |  |                 | 21  |                                          
|Other             |  |                 | 19  |                                          
|Thyroid carcinoma |  |                 | 20  |                                          
|Foregut NET       |  |                 | 12  |                                          



A subset of 51 patients diagnosed with
midgut progressive NETs (the same indication that is being evaluated in our Phase 3 trial for lutetium Lu 177 dotatate (Lutathera®))
was further evaluated for PFS, OS and tumor response. Within this retrospective analysis, we only included patients with the same
diagnosis that would qualify them for enrollment in the Phase 3 trial for lutetium Lu 177 dotatate (Lutathera®). Two different
standardized criteria were used for this analysis: the Southwest Oncology Group, or SWOG, criteria, a standard evaluation method
based on tumor dimension, and the Response Evaluation Criteria in Solid Tumors, or RECIST, criteria, which is the most widely accepted
current standard. The median PFS of these subjects was:





65


Table of Contents




| | · | 45 months (95% CI 22 – 57 months) according to RECIST criteria; and
| | - | -------------------------------------------------------------------



| | · | 39 months (95% CI 18 – 57 months) according to SWOG criteria; and
| | - | -----------------------------------------------------------------



| | · | The median OS estimate was 47.3 months with a 95% CI of 27.7 – 75.3 months.
| | - | ---------------------------------------------------------------------------



The findings of the Phase 1/2 study indicated
that there may be a substantial anti-tumor effect in NET patients treated with lutetium Lu 177 dotatate (Lutathera®). The treatment
resulted in a significant improvement in clinical endpoint responses (PFS and OS) as compared to the responses reported in the
literature for NET patients treated with the current standard of care, Sandostatin®, though no statistical analysis
comparing them could be conducted due to the data for Sandostatin® and lutetium Lu 177 dotatate (Lutathera®)
being reported from different studies. Furthermore, the treatment with a cumulative administered dose of 29.6 GBq (GBq refers to
a gigabecquerel, a unit of radiation measurement) of lutetium Lu 177 dotatate (Lutathera®) was shown to be safe relative to
other therapies.



In the Phase 1/2 trial, the endpoints were
defined as follows:



| | · | Time to progression, or TTP, was calculated from the first day of treatment to the day of documented progression. Deaths were
not included in the TTP analyses.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | PFS was defined as the time from first treatment until objective tumor progression or death from any cause.
| | - | -----------------------------------------------------------------------------------------------------------



| | · | OS was calculated from the first day of treatment until the day of death or until the last date of follow-up for patients who
were lost to follow-up.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Objective tumor response was the sum of complete, partial and minor tumoral responses according to SWOG criteria.
| | - | -----------------------------------------------------------------------------------------------------------------



The safety profile of lutetium Lu 177 dotatate
(Lutathera®) was supported by both by serum and urine analyses performed during the study. The evaluation of the dosimetry
data collected on all treated patients indicated that there was no correlation between creatinine clearance loss per year (as indicator
of kidney function) and the administration of lutetium Lu 177 dotatate (Lutathera®). In the overall population, the incidence
of both nausea and vomiting increase from baseline after the first and after each subsequent administration but declined down to
levels below baseline thereafter. Malaise was the highest reported symptom at baseline (60.1%), decreasing after each treatment
to reach 25.3% at 6-month follow-up before gradually increasing again (41.2% at 30-month follow-up). The number of patients reporting
pain decreased for the duration of treatment but increased afterwards being maximum and higher than baseline at the 30-month follow-up
(48.5% versus 42.6%). The number of subjects experiencing hair loss increased from 10% at baseline to just over 40% after each
of the first 3 treatments but started reducing thereafter, returning back to baseline levels at the 3-month follow-up (9.4%). The
incidence of diarrhea showed a gradual decrease over time whereas that of flushes fluctuated between 26.7% and 36.8% with no correlation
with treatment. The incidence of stomatitis and hand and foot syndrome remained low throughout. The SAEs with the highest frequencies
were in decreasing order: pancytopenia (8.0%), anemia (4.4%), diarrhea (4.7%); death (4.5%); abdominal pain (5.8%), vomiting (3.8%),
nausea (3.2%) and thrombocytopenia (3.0%). The evaluation of both acute and late adverse events of lutetium Lu 177 dotatate (Lutathera®)
in comparison with literature data supports a favorable safety profile of the treatment. The side effects of lutetium Lu 177 dotatate
(Lutathera®) treatment were generally milder than those induced by other anti-tumor agents.



An update on the safety profile of lutetium
Lu 177 dotatate (Lutathera®) was presented in an Oral Presentation at the Presidential Session on September 27, 2015 at the
ESMO conference. Updated information was also presented at the North American Neuroendocrine Tumor Society conference in October
2015, the Gastrointestinal Cancers Symposium of the American Society for Clinical Oncology in January 2016, the European Neuroendocrine
Tumor Society conference in March 2016, and the American Society for Clinical Oncology and Society of Nuclear Medicine Imaging
conferences in June 2016. See “—Our Product Candidates in Clinical Development—Lead Investigational Therapeutic
Candidate—lutetium Lu 177 dotatate (Lutathera®)—Phase 3 Trial—Initial Safety Analysis.” As expected,
the complete safety analysis for the trial was available in the first quarter of 2016, and the clinical study report has been finalized
in April 2016.





66


Table of Contents




Overview of Radioisotopes



Our products contain radioisotopes, which
are radioactive elements that enable the creation of diagnostic images and can be used to treat diseases. A radioisotope is an
unstable form of a chemical element that emits radiation (a process also known as radioactive decay) to achieve stability. Such
radiation can consist of:



| | · | gamma rays, which are high-energy photons that allow SPECT imaging;
| | - | -------------------------------------------------------------------



| | · | positrons, which are antiparticles of the electrons that allow PET imaging; or
| | - | ------------------------------------------------------------------------------



| | · | electrons, which are particles used for many years in external radiotherapy to treat diseases.
| | - | ----------------------------------------------------------------------------------------------



Radioisotopes are obtained by using specialized
equipment to excite the nucleus of atoms and altering the number of protons or neutrons in the target nuclei. When this process
artificially produces a combination of neutrons and protons that does not already exist in nature, the atom is unstable, resulting
in a radioactive isotope or radioisotope. The radioisotope’s decay and resulting emission of one of the three forms of radiation
described above enables molecular nuclear medicine procedures. Molecular nuclear medicine radioisotopes decay over a time span
ranging from a few seconds to several days, allowing the radioactivity from radioisotopes in our products and product candidates
to completely disappear after use. The radioactive decay process is typically measured in half-lives, the time needed for half
of the excited atoms in the unstable element to return to stability. The half-life of our PET products is approximately two hours.
In general, after ten half-lives all molecular nuclear medicine products are considered to no longer be radioactive.



Radioisotopes can be manufactured in several
ways. A common method is by neutron activation in a nuclear reactor. This involves the capture of a neutron by the nucleus of the
target atom, resulting in an excess of neutrons, as in the case of Lu-177, the radioisotope used for lutetium Lu 177 dotatate (Lutathera®).
We do not operate a nuclear reactor and obtain radioisotopes for Lu-177 production through sub-contract with third parties. The
acquisition in January 2016 of IDB allowed us to reduce our reliance on third-party supply of Lu-177. We will continue sourcing
some of our Lu-177 needs from third-party suppliers to ensure production reliability. The radioisotopes that we manufacture are
produced in our particle accelerators, known as cyclotrons, as in the case of the F-18 that we use in Gluscan and our other PET
products, described below. To make F-18, the Oxygen-18 (O-18) contained in water is bombarded by protons in our cyclotrons. Protons
can knock out neutrons from O-18 atoms, transforming them into F-18. On average, after approximately two hours the F-18 decays,
emitting a positron, which can be used for PET imaging via detection of the positron with a PET camera. Each of our PET manufacturing
sites has at least one cyclotron to produce F-18.



In addition to their incorporation of a
radioactive element such as F-18 to enable imaging, molecular nuclear medicine products and procedures require a mechanism for
effective disease targeting. This can be achieved by designing molecules to selectively reach unhealthy cells by using molecular
pathways or by targeting receptor expressions specific to diseased cells. Radiopharmaceuticals are a combination of these molecular
entities that target diseases, also known as vectors, and radioactive atoms, which are attached to or combined with a relevant
vector.



When the decay of a radioisotope results
in both an electron and a gamma ray (or positron) being emitted, it is possible to treat and image a particular disease at the
same time. We believe lutetium Lu 177 dotatate (Lutathera®) has the potential to achieve such simultaneous treatment and imaging
of NETs using SPECT cameras.



Overview of PET Products



PET products or tracers are injected into
patients to enable high-quality imaging by PET cameras. PET is a state-of-the-art diagnostic technique in molecular nuclear diagnostic
that is mainly used in clinical oncology, cardiology and neurology.



PET scans with FDG have been a significant
breakthrough in cancer treatment. Because FDG is a radiopharmaceutical molecule that accumulates in many tumors, it allows physicians
to more accurately determine the precise stage of many tumors, localize unknown metastases and monitor therapeutic efficacy or
the reoccurrence of cancers. We produce and sell FDG under the brand name of Gluscan. FDG is produced by attaching the short-lived
radioactive tracer F-18 to glucose, or sugar, molecules, which are then immediately injected into patients. Certain cancer cells
and other inflammatory cells are hyperactive and hungry for sugar molecules, so they easily absorb FDG. Once inside these cells,
FDG releases positrons that collide with the electrons in the body, producing energy in the form of opposite rays. These rays are
detected by a PET camera, which produces a high-quality image of the lesion. Most PET cameras are now coupled with a computerized
tomography, or CT, scan to facilitate better tumor/lesion localization by combining the functional imaging of PET with the morphological
imaging of CT. Other PET radiopharmaceuticals use different molecular pathways to accumulate in lesions, but the imaging mechanism
is the same as for FDG.





67


Table of Contents




F-18 has a half-life of approximately two
hours. PET products with F-18 have a useful life that expires after five or six half-lives. After the expiration of these half-lives,
the injections containing F-18 lose too much of their radioactive element to be an effective diagnostic in normal doses. Gluscan
has a shelf life of approximately ten hours, consistent with other F-18 PET products. As a result of this limitation, the distribution
of PET products involves complex logistics. Manufacturing sites for the products must be located within a practical distance from
nuclear medicine facilities, such as those within hospitals, that allows for their delivery to occur within a very limited timeframe
of less than ten hours. Because the products include radioactive materials, each customer order must be delivered using dedicated
transportation in accordance with local regulations applicable to the handling and transportation of hazardous and/or radioactive
materials in each country. The required capital-intensive infrastructure and logistical complexity of distributing PET products
in a safe and timely manner create significant barriers to entry into the PET market for potential competitors. At the same time,
the PET market is an attractive one for us, as it has enjoyed a double-digit growth rate, according to data from MEDraysintell.



This strong growth has been driven by the
increased imaging quality and technological advancement of PET-CT imaging, and has resulted in most diagnostics-related radiopharmaceutical
research being concentrated in PET during the past 15 years. We believe there are as many as 42 PET tracers worldwide in different
stages of development (from preclinical to Phase 3), compared with only 12 tracers in SPECT.



Overview of SPECT Products



The majority of SPECT products have a different
manufacturing process from that used for PET products and as a result are sold according to a different business model. SPECT products
are often sold in what are known as “cold” kits (because they are not radioactive, or “hot”), to be labeled,
or fused with, the radioisotope Tc-99. Tc-99 has a half-life of approximately six hours, but it is extracted by generators that
are sold separately to the end-user, thus allowing the Tc-kits to have a longer shelf life.



The Tc-99 generators have a shelf life
of one week. We do not sell these generators; in Europe, third parties sell them directly to the molecular nuclear medicine departments
within particular hospitals and, in the United States, to specialized radiolabeling facilities called radiopharmacies, where they
are labeled and distributed into syringes.



Although in the United States hospitals
can have departments acting as radiopharmacies, more than 95% of syringes in the United States containing radiolabeled products
are prepared through external third-party facilities and delivered daily to hospitals’ and other entities’ departments.
By contrast, in Europe, the use of external radiopharmacies is available only in the Netherlands, Spain and the United Kingdom,
so the molecular nuclear medicine departments in most hospitals or clinics label their SPECT products internally.



Because our SPECT products are all “cold”
kits to be labeled with Tc-99 at the end-user’s facilities, they are not subject to delivery-related restrictions such as
Dangerous Goods Regulations, which apply to radioactive goods and products.



Lead PET Product— NETSPOT®
(United States)/SomaKit TOCTM (EU)



NETSPOT® and SomaKit TOCTM, together
our Somakit products, are a novel, patent-pending, sterile and easy-to-use freeze-dried, or lyophilized reconstitution kit that
we have developed for the direct Gallium-68, or Ga-68, labeling of somatostatin analogue peptides (Dotatate and Dotatoc) for the
localization of primary and/or metastatic lesions of NETs. As a product designed to initially diagnose the presence of somatostatin-receptor-positive
NETs, we believe that our Somakit products constitute a promising diagnostic agent for lutetium Lu 177 dotatate (Lutathera®),
with which they share similar chemical features.





68


Table of Contents




Our Somakit products radioactive Ga-68
Dotatate and Ga-68 Dotatoc peptides have a strong affinity for SSTR2, which the majority of NETs overexpress. As a result, these
peptides bind to SSTR2 receptors in NETs and allow imaging of NETs by emitting localized radiation that PET cameras can detect
and translate into diagnostic images. In addition, we believe our Somakit products will provide gains in efficiency for hospitals
and other customers. NETSPOT® can be prepared using our kit, for which we have a patent pending, which would be reconstituted
in hospital radiopharmacies without the use of a radiochemistry module, thus making the product available to all hospitals, even
those that do not have a fully equipped cGMP-compliant radiopharmacy unit. This feature would limit the need for expensive equipment
and procedures such as synthetic modules and high-performance liquid chromatography, and could lead to a reduced number of confirmatory
local quality control tests since all specification tests would be performed on our Somakit products at the manufacturing facility
before they are delivered to the end-user. Additionally, we believe that our Somakit products may improve on existing exams by
potentially reducing the timeframe during which the diagnostic exam must be conducted from 24 hours (for current approved procedures)
to two hours.



We received orphan drug designation for
NETSPOT® from the FDA in December 2013 and from the EMA in February 2014 for its use as a diagnostic agent for GEP NETs, and
orphan designation for SomaKit TOCTM from the EMA in March 2015 and FDA in July 2015. We have implemented a strategy of developing
these two similar, but structurally different, Somakit products to help ensure regulatory exclusivity for one or both Somakit products
in the European Union and the United States. We prepared and filed the IND submission for NETSPOT® in the United States in
October 2014. The NDA for NETSPOT® was submitted on July 1, 2015 and approved in June 2016.



In the European Union, we filed a MAA for
SomaKit TOCTM with the EMA on the basis of a bibliographic review, and we obtained marketing authorization in December 2016



Supply chain — NETSPOT®/SomaKit
TOCTM



For NETSPOT® and SomaKit TOCTM,
our kit approach significantly simplifies the requirements to produce an injectable dose by eliminating the need for a chemistry
synthesis process and many complex quality control steps. By reducing the process to less than 20 minutes, with what we believe
are easy-to-follow instructions, we believe that our Somakit products can be used directly by any hospital that chooses to purchase
a small Ga-68 generator.



NETSPOT® was launched in the United States in the second
half of 2016 as (i) a preparatory kit for hospitals that possess Ga68 generators, and (ii) as a ready-to-use dose delivered from
our nationwide network of partner radiopharmacies. At the end of 2016, our partners had begun to deliver doses from 20 radiopharmacies,
and by mid-year 2017, we expect that approximately 40 pharmacies will begin to deliver doses. NETSPOT® received Transitional
Pass-Through status from CMS in December 2016 for drug reimbursement and it was recently included in the NCCN Clinical Practice
Guidelines in Oncology update for the evaluation of NETs.



Lead SPECT Product Candidate —
Annexin V-128



Annexin V-128, which is labeled with Technetium-99m
(Tc-99m), is a SPECT radiopharmaceutical product candidate that aims to detect early cell stress and apoptosis to assess programmed
cell death in many pathological conditions, including rheumatoid arthritis. Annexin V-128 was developed by Atreus in Canada through
an exclusive worldwide license from a third party. In December 2014, we became the sole owner of Atreus and have an exclusive option
to sublicense rights to Annexin V-128 for marketing and distribution in the territories of the European Union. We are responsible
for conducting pivotal studies and for regulatory approval in the European Union.



Based on the results of previous trials,
including multiple human trials using other forms of Annexin and publications in peer-reviewed international scientific journals,
we believe that there is significant promise in the use of Annexin V-128 for the imaging of cellular apoptosis and necrosis. Cellular
apoptosis and necrosis are associated with a variety of debilitating or fatal medical conditions including rheumatoid arthritis,
Crohn’s disease, Alzheimer’s disease, myocarditis, cardiac transplant rejection, acute myocardial infarction and unstable
atherosclerotic carotid artery disease and the assessment of cardiotoxicity induced by chemotherapy in breast cancer patients.
In addition, we believe Annexin V-128 could be effective in evaluating patient responses to treatment for lymphoma and lung cancer.



We also believe we may be able to overcome
difficulties that have hampered the development of other forms of Annexin, including manufacturing issues, such as difficulties
in lyophilization of the product and limitations related to the biodistribution of the agent due to challenges in targeting its
uptake to specific organs (which interferes with the detection of apoptosis in the targeted area). Drawing on our R&D expertise
and manufacturing know-how, we believe we have met some of these challenges by developing and manufacturing a single-vial lyophilized
kit with an extended shelf life and reduced cost of manufacture, and an improved formulation with better biodistribution in animal
and human testing compared to other forms of Annexin due to the specific properties of Annexin V-128.





69


Table of Contents




Specifically, the previous forms of Tc-99m-labeled
Annexin relied on a chelator, or “linker,” called hydrazinonicotinamide, or “Hynic.” The inclusion of Hynic
proved to be an impediment to optimizing the lyophilization process and the product ultimately needed to be shipped frozen. The
current formulation of Annexin V-128, by contrast, has an endogenous Tc-99m binding site, and as a result, does not need a linker,
allowing us to successfully lyophilize the product. This makes it simpler to ship and prepare, and extends its shelf life. Furthermore,
in the previous formulation the inclusion of the Hynic resulted in the prior formulation staying in the kidneys longer, rather
than being distributed through the body. This negative effect on biodistribution increased the radiation dose to the patient and
interfered with imaging performance. By omitting the Hynic in our formulation, we believe we have been able to create superior
biodistribution of Annexin V-128.



Other forms of Annexin have been widely-used
in at least 29 clinical studies, including sponsored trials (e.g., previous trials sponsored by the Theseus Corporation) and non-sponsored,
or spontaneous, trials, as well as comprehensive preclinical studies. These compounds were based on a previous version of Annexin
that was not optimized in terms of formulation or technical performance. We have developed Annexin V-128 in a new recombinant form
that allows direct Tc-99m labeling and possesses what we believe are favorable characteristics for commercialization and imaging
performance. In December 2014, we completed a Phase 1 trial to assess the safety, tolerability, biodistribution and dosimetry in
Canada at the Ottawa Heart Institute. In addition, a Phase 1/2 clinical trial is ongoing at Centre Hospitalier Universitaire Vaudois
in Lausanne, Switzerland. This study is designed to assess the safety, tolerability biodistribution and dosimetry of Annexin V-128,
as well as its ability to evaluate the presence of lesions before and after drug treatment in patients with rheumatoid arthritis
or ankylosing spondylitis. A total of 20 patients will be enrolled to receive two doses of Annexin V-128, one at baseline (before
drug treatment) and one after drug treatment.



We had a pre-IND meeting regarding Annexin
V-128 with the FDA on June 2, 2011 regarding its development program through Phase 1 and 2 (or Phase 1/2) trials. We initiated
two Phase 2 clinical trials in August 2016, one in artherosclerotic carotid plaque indication, and one in early detection of chemotherapy-induced
cardiotoxicity in breast cancer patients. In addition to the two Phase 2 clinical trials initiated in August2016, a Phase 2 study
is ongoing to assess the imaging potential in infective endocarditis and atrial thrombus indication. This trial is sponsored by
the French National Institute of Health and Medical Research (INSERM). If initial safety, tolerability and efficacy data from our
Phase 1/2 trials for Annexin V-128 are positive, we plan to submit our initial results to the EMA and the FDA and seek their scientific
advice in the second half of 2017 in order to finalize the proposed indication for Annexin V-128 and design an appropriate Phase
3 trial.



Our Research and Development Efforts



Our R&D team is committed to the development
of new product candidates. With almost 8% of our employees in R&D and significant expertise located in both Europe and the
United States, this team has implemented a strategy with five integrated prongs:



| | · | identification of new diagnostic and therapeutic candidates to address unmet medical needs;
| | - | -------------------------------------------------------------------------------------------



| | · | support of existing therapeutic product areas with external strategic collaborations;
| | - | -------------------------------------------------------------------------------------



| | · | development of innovative formulations for both reconstituted kits and ready-to-inject solutions;
| | - | -------------------------------------------------------------------------------------------------



| | · | early identification of promising candidate molecules through the integration of radiochemistry, pharmacology, dosimetry, and
Proof of Concept (PoC) in humans; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | pursuit of a theragnostic approach combining complementary diagnostic and therapeutic aspects.
| | - | ----------------------------------------------------------------------------------------------



We believe that in-depth imaging
expertise is key to the development of innovative imaging technologies and product candidates. We have accordingly established
a multi-imaging solution platform, Ephoran Multi Imaging Solutions, to cover imaging techniques ranging from those techniques used
extensively in preclinical settings and in clinics (e.g., MRI, PET, CT, SPECT, US) to optical imaging (OI, visible light and near-infra-red).
We believe this platform can also be used to partner with external companies to improve and accelerate their product development.
In addition, we believe our platform is uniquely positioned in preclinical imaging, allowing for serial/longitudinal imaging experiments
during pharmacology and toxicology animal studies, and it is closely connected to and works with the Centre of Excellence in Preclinical
Imaging at the University of Turin.





70


Table of Contents




The R&D group assumes leadership of
our efforts in the identification and development of promising new candidates that target orphan diseases and unmet medical needs
in the field of oncology, cardiology, neurology and inflammation. By integrating diagnostics and therapy, we work toward targeted
and personalized medicine that tailors treatments to individual patient needs. Through our R&D senior management group we direct
the overall strategy for developing our pipeline of product candidates while strictly adhering to international radiopharmaceutical
regulations and guidelines. The R&D management group has significant expertise and know-how across the entire product development
chain and is supported by experienced staff in radiochemistry, pharmaceutical, preclinical and clinical development. In addition,
we maintain continuous interactions with the healthcare field through hospitals, universities and research centers of excellence
as a part of our strategy to foster a robust R&D pipeline.



Our Commercial Products



The table below summarizes our principal
PET and SPECT products:



|Product                        | Description                                                                                                                                                                       | Applications                                                                                                                                                                                                                   | Marketing
        Authorizations                                                                                                                                 
|------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Gluscan/Gluscan 500/ Barnascan | Our brand names for FDG (concentration = 600MBq*/ml and 500MBq*/ml at calibration time for Gluscan and Gluscan 500, respectively; 3,000MBq*/ml for Barnascan at calibration time) | PET tracer for oncology, cardiology, neurology and infectious/inflammatory diseases                                                                                                                                            | Gluscan: Belgium, France, Italy, Luxembourg, Switzerland
        
        Gluscan 500: France, Germany, Poland, Portugal, Spain
        
        Barnascan: Spain
|DOPAVIEW                       | Our brand name for 6-fluoro-(18F)-L-DOPA, a DOPA analogue                                                                                                                         | PET tracer for diagnostic use, with key applications in neurology and oncology                                                                                                                                                 | France; Switzerland                                                                                                                                              
|FluoroChol                     | Our brand name for 18F-choline (FCH)                                                                                                                                              | PET tracer for detecting metastasis of prostate cancer and hepatocellular carcinoma (liver cancer)                                                                                                                             | Fluorochol: France AAACholine: Switzerland                                                                                                                       
|MIBITEC/Adamibi                | Our brand names for a generic version of a widely-used SPECT cardiac imaging agent                                                                                                | SPECT tracer for myocardial exploration, localization of parathyroid tissue and breast cancer diagnosis                                                                                                                        | MIBITEC: Austria, France, Germany, Luxembourg, Poland,
        Slovenia
        
        Adamibi: Greece, Italy                                                  
|Leukokit                       | Medical device for the separation and labeling of autologous leukocytes                                                                                                           | Identifies sites of infection or inflammation in the body                                                                                                                                                                      | CE mark: can be commercialized throughout Europe                                                                                                                 
|Neurolite                      | Kit for the preparation of 99mTc-Bisicate for SPECT imaging                                                                                                                       | Diagnosis/evaluation of regional cerebral perfusion abnormalities in adult patients with central nervous system disorders                                                                                                      | Distribution agreement for France and Spain
        
        (MA holder Lantheus corp)                                                                           
|SomaKit TOC 40 micrograms      | Kit for radiopharmaceutical preparation
        
        For radiolabelling with
        gallium (68Ga) chloride solution.                                                        | Indicated for Positron Emission Tomography (PET) imaging, localization of primary tumours and metastases in patients with confirmed or suspected well-differentiated gastro-enteropancreatic neuroendocrine tumours (GEP-NET). | Date of issue of marketing authorisation valid throughout the European Union: December 8, 2016                                                                   
|NETSPOT                        | Kit for the preparation of gallium Ga68 dotatate injection),
        for intravenous use.
        
        For radiolabelling with gallium (68Ga) chloride solution.              | Indicated for use with positron emission tomography (PET) for localization of somatostatin receptor positive neuroendocrine tumors (NETs) in adult and pediatric patients                                                      | FDA approval: June 1, 2016                                                                                                                                       








| | * | only countries to which AAA delivers the products are
listed
| | - | ------------------------------------------------------------





71


Table of Contents




Leading PET Product — Gluscan



Gluscan, which includes Gluscan 500 and
Barnascan, is our leading PET product. Its active ingredient is FDG, the most widely used PET tracer. Gluscan contains a radioactive
marker that enables the detection of a number of conditions in oncology, neurology, cardiology and inflammatory and infectious
disease. We have marketing authorizations for Gluscan in Belgium, France, Germany, Italy, Luxembourg, Poland, Portugal, Spain and
Switzerland.



We manufacture and organize distribution
for Gluscan from our production sites in France, Italy, Portugal and Spain. Gluscan addresses a growing market in Europe and is
currently our top-selling product, accounting for approximately 66.1% of the sales from our PET portfolio and 39.8% of total sales
for the year ended December 31, 2016 and 70.3% of the sales from our PET portfolio and 47.5% of total sales for the year ended
December 31, 2015. We are a leading supplier of FDG in Europe, and develop, manufacture and distribute our FDG products in
an integrated fashion through our operating facilities, enabling reliable production, service and delivery to nuclear medicine
end-users.



Because the market for PET products is
growing and is expected to continue to grow, we expect to increase our capacity to produce Gluscan to meet potentially increasing
demand at a local level and to possibly address new geographical markets. We are in the process of qualifying a new production
site in Murcia (Spain), which is expected to be operational in the second half of 2016.





72


Table of Contents




Other PET Products



We have developed our own F-18 DOPA product,
DOPAVIEW, as well as our own FCH product. These products received regulatory approval in France on September 16, 2015 and have
obtained approval in Switzerland on September 21st 2016. We started commercialization of both products in France in the fourth
quarter of 2016.We started commercialization of FCH in Switzerland in the first quarter of 2017. Our plan is to gradually submit
both product candidates for approval in all other European countries where we have production sites (mutual recognition applications
have been submitted and evaluation is in progress for FCH by concerned member states).



We intend to reinforce our strong position
in the growing PET market in Europe by adding to our portfolio of PET products and extending our geographical coverage through
both internal growth and selective acquisitions.



SPECT Products



MIBITEC and Adamibi



MIBITEC and Adamibi are our brand names
for a generic version of a widely-used SPECT cardiac imaging agent, Tetrakis (2-methoxyisobutyl isonitrile) copper (I) tetrafluoroborate.
They are approved for myocardial exploration, localization of parathyroid tissue and breast cancer diagnosis. MIBITEC was first
launched in France in late 2010 and its marketing authorization has been extended to Austria, Germany, Poland, Luxembourg and Slovenia.
We also market it in Greece and Italy under the name Adamibi. We intend to expand our sales of MIBITEC and Adamibi by selling them
in new markets and are currently seeking marketing authorizations for MIBITEC and Adamibi in other European countries.



Leukokit



Leukokit is a registered single-use medical
device that contains all the necessary materials (with the exception of the radiopharmaceutical agent) to carry out separation
and labeling of autologous leukocytes. The resulting labeled leukocytes are administered to patients to identify sites of infection
or inflammation in the body. The use of Leukokit simplifies the procedure for identifying such sites and improves the operator’s
safety and the microbiological quality of the labeled cell preparation. Its use only requires a bench centrifuge, basic equipment
often present in laboratories, enabling radiolabeling without expensive equipment. Leukokit meets the essential requirements of
all relevant European Medical Device Directives and carries the CE-mark, a legal requirement permitting the marketing of a medical
device throughout the European Union.



Our Somakit Products



Our Somakit products comprise a kit for
radiopharmaceutical preparation containing (1) a vial of white lyophilised powder for injection; and (2) a reaction buffer solution.
The solution of gallium (68Ga) edotreotide obtained is indicated for Positron Emission Tomography (PET) imaging of somatostatin
receptor overexpression in adult patients with confirmed or suspected well-differentiated gastro-enteropancreatic neuroendocrine
tumours (GEP-NET) for localizing primary tumours and their metastases.



NETSPOT Product



Our NETSPOT products comprise a kit for
the preparation of gallium Ga68 dotatate injection, for intravenous use. NETSPOT is supplied as a single dose kit containing 40
mcg of dotatate and 1ml of reaction buffer solution. The kit is used, after radiolabeling with Ga68, for use with positron emission
tomography (PET) for localization of somatostatin receptor positive neuroendocrine tumors (NETs) in adult and pediatric patients.



Strategic Relationships



We manufacture several diagnostic products
and product candidates for third parties, including GE Healthcare and Eli Lilly in Europe. These contract manufacturing agreements
enable us to optimize our production capacity and leverage our core strengths in the manufacture of radiopharmaceuticals and our
experience in organizing their distribution. These relationships demonstrate that our expertise and the strength of our production
network position us as a key molecular nuclear medicine player in Europe, and we intend to build on these relationships to explore
additional opportunities with these partners. We also intend to seek new partners in the pharmaceutical industry.





73


Table of Contents




We also work with Bracco to advance Cardiogen,
an existing product in the Bracco portfolio that is already approved for the U.S. market, through the trials and regulatory approvals
required to commercialize Cardiogen in new markets in Europe. On September 18, 2015, we received a positive opinion from Swiss
regulatory authorities on the last variation needed to commercialize this product in the territory. In July 2016 we filed Cardiogen
with the French regulatory authorities utilizing the well-established use procedure.



Marshall Isotopes Enriched Water



We acquired Marshall Isotopes Ltd., or
Marshall, as part of a cost control and vertical integration strategy, since Marshall was one of only seven suppliers of enriched
water — an essential component in the production of radiopharmaceuticals — in the world. We have recently increased
the capacity of Marshall’s enriched water production facilities to 150 kilograms as of July 31, 2015, from 90 kilograms
in June 2011 when we first acquired the company. This capacity expansion was achieved through an investment program of €1.2
million (US$1.3 million) by building two new lines of production. We sell all excess production that we do not require for our
own radiopharmaceutical production pursuant to short-term and long-term contracts in Australia, Canada, China, Hong Kong, Japan,
New Zealand, Singapore, South Korea, the United States and several countries in the European Union. We expect to continue to sell
excess enriched water in the future.



IDB Group Lutetium 177



We acquired IDB in January 2016 as part
of cost-control and vertical integration strategy, since IDB was one of our two providers of Lu-177 for lutetium Lu 177 dotatate
(Lutathera®). IDB is a leading manufacturer of Lutetium 177 (Lu-177). IDB produces markets and sells Lu-177 under the brand
name LuMark®, and has established this product as the leading brand of Lutetium 177 worldwide. LuMark® is the only Lu-177
(with direct routing Lu-176->Lu-177 irradiation) product to have received European Marketing Authorization. Owning IDB will
help AAA maintain a reliable supply of Lu-177 for the production of lutetium Lu 177 dotatate (Lutathera®) and AAA’s future
product candidates. The current capacity of the IDB facility is a weekly production yield of 7 TBq (5 production days and 2 targets
per day for 10 targets per week). The facility operates today on average at 30% of its production capacity.



Our Competition



We are engaged in sectors of the radiopharmaceutical
and pharmaceutical industry that are competitive and rapidly changing. Large pharmaceutical, specialty pharmaceutical, radiopharmaceutical
and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are
commercializing or pursuing the development of products that aim to diagnose and treat serious conditions affecting patients. The
diagnostic and therapeutic products and product candidates that they develop and/or produce may target the same conditions and
cancers our products and product candidates aim to diagnose and/or treat. Our products face competition in the field of molecular
nuclear medicine and we expect our product candidates, if approved, to face significant and increasing competition as new products
enter the molecular nuclear medicine market from competitors that have been or will be able to overcome the molecular nuclear medicine
market’s barriers to entry, and as advanced technologies become available.



Our product candidates are expected to
face competition based on their safety and effectiveness, the timing and scope of regulatory approvals, the availability and cost
of supply, our marketing, sales and service capabilities, reimbursement coverage, price, patent position and other factors. Our
competitors may succeed in developing competing products before we do, obtaining regulatory approval for products or gaining acceptance
for the same markets that we are targeting. If one or more of our competitors is “first to market” with a product that
competes with one of our product candidates, such as lutetium Lu 177 dotatate (Lutathera®) or our Somakit products, our competitive
position could be compromised because it may be more difficult for us to obtain marketing approval for that product candidate and/or
successfully market that product candidate as a second product to market, in particular because we will not benefit from orphan
drug market protections.





74


Table of Contents




Therapeutics



Our lead radiotherapeutic product candidate,
lutetium Lu 177 dotatate (Lutathera®), is the first ever radiopharmaceutical product candidate to have completed a European
and U.S. Phase 3 clinical trials for the treatment of progressive midgut NETs. However, lutetium Lu 177 dotatate (Lutathera®)
faces competition from existing cancer treatments, including standard chemotherapy treatments that are not approved for the midgut
NET indication. Competing drugs that target the same or similar NETs targeted by lutetium Lu 177 dotatate (Lutathera®) (though
they are not approved for the same indication as lutetium Lu 177 dotatate (Lutathera®)) include Sandostatin®
and Afinitor®, both from Novartis, Somatuline® from Ipsen and Sutent® from Pfizer.



We may also face competition in midgut
NET treatment from conventional oncology therapies and existing approaches, such as cytotoxic therapy and molecular targeted therapy
from established healthcare and pharmaceutical companies, such as Ipsen (Somatuline®), Novartis (Sandostatin LAR®,
Afinitor®), Pfizer (Sutent®), Roche (Avastin®, Octreolin®) and Lexicon
(LX1032®). We will compete with such companies both in terms of efficacy and on the basis of price. While we believe
our therapeutic approaches have significant advantages compared to conventional approaches, we may still face competition from
conventional approaches for reasons of cost or familiarity of hospitals and doctors with existing treatments. However, if approved,
we believe that lutetium Lu 177 dotatate (Lutathera®) would be the first product indicated for the treatment of progressive
midgut NETs where existing treatments fail to halt patient progression.



PET



Because PET products have a short shelf
life of approximately ten hours, our competition is limited to companies and organizations with manufacturing infrastructure located
within a distance that allows for rapid delivery to nuclear medicine facilities. We face competition in the field of PET from other
manufacturers of PET products, principally IBA Molecular, our main competitor in the European molecular nuclear medicine market
due to its significant know-how, manufacturing capacity and geographic presence. We also face competition in the field of PET diagnostic
products from smaller suppliers who operate within specific geographic areas.



SPECT



We face competition in the field of SPECT
from a greater number of SPECT manufacturers than we do in PET, given the more established and widespread use of SPECT imaging.
Our competitors include both large healthcare companies such as GE Healthcare and IBA Molecular, and smaller diagnostic imaging
companies.



Licensing



We have entered into various licensing
agreements related to certain of our products and product candidates. We summarize the principal licensing agreements below.



Somatostatin Analogue License Agreement



In June 2007, we entered into the
Somatostatin Analogue License Agreement with Erasmus, pursuant to which we received a worldwide, irrevocable, non-exclusive license
to develop, make, use, sell and distribute certain products related to patents pertaining to labeled somatostatin analogues. We
may sublicense our rights under the agreement, subject to the counterparty’s right to disapprove and block a proposed sublicense.



Financial Terms



We are obligated to pay a low- to
mid-single-digit royalty on net sales of lutetium Lu 177 dotatate (Lutathera®) for the longer of (i) the period that the
use or sale of lutetium Lu 177 dotatate (Lutathera®) is covered by a valid patent licensed under the agreement, or (ii)
ten years from first commercial sale, in each case on a country-by-country basis.



In addition, we are obligated in turn to
pay Erasmus a low single-digit percentage royalty on net sales of lutetium Lu 177 dotatate (Lutathera®) in exchange for the
exclusive rights to use certain data of Erasmus relating to lutetium Lu 177 dotatate (Lutathera®). This royalty is capped based
on the number of clinical trials required by the FDA (if the FDA was to require more than one pivotal Phase 3 trial for lutetium
Lu 177 dotatate (Lutathera®)), with a current maximum of €2.0 million (US$2.1 million).





75


Table of Contents




Supply Obligations



In the event that lutetium Lu 177 dotatate
(Lutathera®) is approved for patient use by Erasmus, we are required to supply lutetium Lu 177 dotatate (Lutathera®) for
all of Erasmus’ product needs at the best price at which the product is sold in the European Union.



Term and Termination



The agreement, unless terminated earlier
by either party, will remain in effect on a country-by-country basis until our payment obligations expire for each applicable country.
The agreement provides that either party may terminate the agreement if the other party willfully breaches the agreement and does
not cure such breach within 90 days, or such additional time as may be reasonably necessary to rectify the breach, after receiving
written notice of such breach. Additionally, only if required by law, either party may terminate the agreement in the event of
the other party’s insolvency, bankruptcy or related events or proceedings.



Mallinckrodt License Agreement



We are party to a license agreement with
Mallinckrodt, pursuant to which we received an exclusive, worldwide license (with the right to sublicense) to patents owned by
Mallinckrodt to develop, manufacture and commercialize a Lu-177 radiolabeled somatostatin peptide analogue compound for radio-therapeutic
and dosimetric use in the field of oncology. We are currently developing our product candidate lutetium Lu 177 dotatate (Lutathera®)
under this Mallinckrodt license.



Financial Terms



We are obligated to make quarterly royalty
payments to Mallinckrodt calculated at a percentage in the low teens of our net sales of lutetium Lu 177 dotatate (Lutathera®)
for the preceding quarter through January 1, 2020. We will not have to make royalty payments on sales of lutetium Lu 177 dotatate
(Lutathera®) in any country where a court of competent jurisdiction has ruled that the licensed Mallinckrodt patents are invalid.



Diligence and Manufacturing Obligations



We must use commercially reasonable efforts
to develop and commercialize lutetium Lu 177 dotatate (Lutathera®) and are responsible for manufacturing lutetium Lu 177 dotatate
(Lutathera®) in accordance with good manufacturing practices to meet the requirements for development and patient use following
the first commercial sale of lutetium Lu 177 dotatate (Lutathera®).



Term and Termination



The license agreement, unless terminated
earlier by either party, will remain in effect through January 1, 2020. The agreement provides that either party may terminate
the agreement in the event of the other party’s insolvency, bankruptcy or related events or proceedings, or if the other
party materially breaches the agreement and does not cure such breach within 90 days after receiving written notice of such breach.
Upon expiration or termination of the license agreement, our license to Mallinckrodt’s patents will terminate and will revert
to Mallinckrodt.



In the event that Mallinckrodt terminates
the agreement pursuant to its terms, we must assign Mallinckrodt our rights to third-party sublicenses under the agreement and,
at Mallinckrodt’s election, transfer certain inventory and packaging at cost, as well as marketing authorizations and data
related to lutetium Lu 177 dotatate (Lutathera®). We must also grant Mallinckrodt an exclusive royalty-bearing, worldwide license,
and right to sublicense, in and to certain intellectual property rights, know-how and clinical data owned or licensed by us relating
to a Lu-177 radiolabeled somatostatin peptide analogue for radio-therapeutic and dosimetric use in the field of oncology and a
right of first offer within 90 days after the termination on the sale of our lutetium Lu 177 dotatate (Lutathera®)-related
manufacturing assets, including related intellectual property and, if exercised, a right to better any subsequent third-party offer
for a period of 12 months following the date of termination.





76


Table of Contents




IASON Know-How and Trademark License
Agreement



In January 2009, we entered into a
license agreement with IASON under which we received an exclusive license to produce and sell IASOcholine, IASOflu and IASOdopa.
This license agreement was terminated on November 20, 2016. As of December 31, 2016, AAA has no more obligations under this agreement.



In order to ensure delivery of 18F-choline
and 18F-DOPA based products to current customers, we have developed proprietary products containing the same active substances
(FLUOROCHOL/AAACholine and DOPAVIEW), which obtained marketing authorizations in France in 2015 and in Switzerland in 2016. We
are planning to extend these marketing authorizations into other European countries in 2017 and 2018 via the mutual recognition
procedure.



Intellectual Property



Our success depends in part on our ability
to obtain and maintain proprietary protection for our products, product candidates, technology and know-how, to operate without
infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect the
products, product candidates, proprietary processes and other inventions that we believe are important to the development of our
business by, among other methods, filing patent applications and maintaining, defending and enforcing issued patents in Europe,
the United States and various other foreign jurisdictions. We also rely on trade secrets, know-how, continuing technological innovation
and in-licensing opportunities to develop and maintain our proprietary position. For more information, please see “Item 3.
Key Information—D. Risk Factors—Intellectual Property, Licensing Dependence and Information Technology Risks.”



The patents covering lutetium Lu 177 dotatate
(Lutathera®) have expired. With respect to our products Gluscan, FLUOROCHOL/ AAACholine and DOPAVIEW, we rely on a combination
of marketing authorization and owned and licensed know-how, technology and trademarks to maintain our competitive advantage. We
hold a trademark registration for GLUSCAN in France and as an international registration under the Madrid system. These products
are not currently covered by any issued patents or pending patent applications in any jurisdictions.



As of February 2017, we owned or exclusively
licensed a total of approximately 44 issued patents and 13 patent applications covering certain aspects of Annexin
V-128 and our Somakit products in various jurisdictions throughout the world, including original filings, continuations and divisional
applications. Our owned and licensed patents and patent applications relating to these key product candidates are described below:



| | · | Annexin V-128.  Our licensed patents related to Annexin V-128, including five U.S. issued patents and
13 issued patents in various other jurisdictions throughout the world, including the European Union and Japan, cover an in vivomethod of imaging pain and cell death by use of a radioisotope-labeled Annexin and are expected to expire between April 29,
2018 and October 5, 2029 in the United States and between April 28, 2018 and April 3, 2022 in all other jurisdictions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Somakit products.  Our 26 issued patents and 13 patent applications in various other jurisdictions
throughout the world (including one U.S. patent application) related to our Somakit products, if issued, would cover a process
wherein the Ga-68 is effectively complexed by a chelator-functionalized molecule in an aqueous buffer of formic acid/format and
in the presence of compounds capable of chelating metal cations. The issued patents are expected to expire between August 12, 2031
and August 10, 2032, and the patent applications, if issued, would be expected to expire in 2035.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to Annexin V-128 and our Somakit
products, our portfolio includes approximately 22 families of patents and patent applications covering certain aspects of our other
molecular nuclear medicine products, product candidates and discovery programs. Each patent family typically consists of patents
and patent applications in the European Union, as well as broadly equivalent patents and patent applications in various other key
jurisdictions, including, for example, the United States, France, the United Kingdom, Italy, Spain, Poland, Portugal, Switzerland,
Germany and Canada. We expect these other issued patents and patent applications, if issued and if the appropriate maintenance,
renewal, annuity and other government fees are paid, to expire between 2020 and 2035, before taking into account any potential
adjustments, terminal disclaimers, extensions or other market exclusivity that may be available to us.





77


Table of Contents




The term of individual patents depends
upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent
term is 20 years from the earliest date of filing a non-provisional patent application. The term of a European patent is 20 years
from its filing date. In the United States, a patent’s term may be shortened if a patent is terminally disclaimed over another
patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by patent term
adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent.



The term of a European patent covering
a product or method of manufacture or use that requires national marketing authorization is subject to extensions on a country-by-country
basis among the contracting states under the EPC. In general, only the specific molecule that receives marketing authorization
(and the formulation of which is well-described in its patent) can receive extended protection. In the United States, the term
of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration
as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration
Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent.
The length of the patent term extension is related to the length of time the drug or biologic is under regulatory review. Patent
extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one
patent applicable to an approved drug may be extended. Similar provisions are available in other jurisdictions to extend the term
of a patent that covers an approved drug. In the future, if and when our products receive marketing authorization, we expect to
apply for patent term extensions on patents covering those products. We anticipate that some of our issued patents may be eligible
for patent term extensions. For more information, please see “—Regulation—United States—Hatch-Waxman Amendments
to the FDCA” and “— Regulation—European Union.”



We may rely, in some circumstances, on
trade secrets and know-how to protect our technology. However, trade secrets can be difficult to preserve. We seek to protect our
proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors
and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical
security of our premises and physical and electronic security of our information technology systems.



Our Customers



The customers for our products include
public and private hospitals, universities, third-party research laboratories, clinical centers and pharmaceutical companies. None
of our customers account for 10% or more of our sales, with our most significant customer accounting for 4.1% and 3.2% of our sales
and our top ten customers accounting for a combined total of 16.5% and 16.0% of our sales for the year ended December 31,
2016 and for the year ended December 31, 2015, respectively.



As of December 31, 2016, PET product
sales, represented over 60.8 % of our sales while SPECT products represented 8.7% of our total sales. Our radiopharmaceutical customers
are handled by key account managers who accompany them and act as advisers for hospital personnel and any others involved in patient
management.



Other Contracts



BioSynthema Sale and Purchase Agreement



We acquired BioSynthema in 2010, pursuant
to a sale and purchase agreement with the BI Shareholders, under which we acquired 100% of BioSynthema’s shares.



Financial Terms



The acquisition price is primarily performance-based.
The initial consideration consisted of a cash payment of €0.4 million (US$0.4 million) and payment of ordinary shares having
an aggregate market value of €2.3 million (US$2.4 million), as well as three potential milestone payments. Each milestone
payment consists of €0.4 million (US$0.4 million) in cash and ordinary shares having an aggregate market value of €2.3
million (US$2.4 million), for a total possible acquisition price of €1.5 million (US$1.6 million) in cash and €9.2
million (US$9.7 million) in ordinary shares.





78


Table of Contents




We made the first milestone payment in
October 2012 when the FDA and the EMA approved the initiation of Phase 3 clinical trials for lutetium Lu 177 dotatate (Lutathera®).
The second milestone is payable when lutetium Lu 177 dotatate (Lutathera®) has obtained both EMA marketing authorization and
FDA approval. The final milestone is payable when the global aggregate commercial net sales of lutetium Lu 177 dotatate (Lutathera®)
or a substitute product, each as defined in the agreement, have reached €10 million (US$11 million). The number of our ordinary
shares to be issued in the remaining two milestone payments is calculated by dividing the payment owed by the market price of our
ordinary shares when payment is due.



The agreement also requires that we
pay an additional contingent consideration (consisting of a royalty) to the BI Shareholders calculated at a low- to
mid-single-digit percentage of annual net sales of lutetium Lu 177 dotatate (Lutathera®), if our gross profit margin
(with respect to sales of lutetium Lu 177 dotatate (Lutathera®) or a substitute product), as defined in the agreement,
within that year exceeds 30%. The percentage paid depends on the amount of net sales, and will be paid until the earlier
of  (i) ten years following our first commercial sale (as defined by the FDA and/or the EMA) of lutetium Lu 177
dotatate (Lutathera®) or (ii) ten years following the first commercial sale of any substitute product that we
manufacture. Payment is due within 90 days following the end of each fiscal year.



Atreus Purchase Agreement



In December 2014, we acquired the remaining
49.9% of Atreus that we did not already own to become its sole owner pursuant to a share purchase agreement with Atreus Holdco.
We paid an upfront cash payment for the acquisition and are obligated to pay additional anniversary payments to Atreus Holdco,
as well as milestone payments in connection with obtaining potential EMA marketing authorizations or FDA approvals for Annexin
V-128. If we obtain such marketing authorization or approval, respectively, we will be obligated to pay a low single-digit percentage
royalty on global sales of Annexin V-128 for ten years thereafter.



Accelovance Clinical Services Agreement



We are party to a service agreement with
Accelovance Europe S.r.l., or Accelovance. The initial agreement was entered into with Pierrel Research Italy S.p.A., or Pierrel
(a predecessor company to Accelovance). As part of the service agreement, Accelovance provides us with clinical research services,
in particular packaging and logistics, in support of our pivotal Phase 3 trial for lutetium Lu 177 dotatate (Lutathera®). In
September 2016, we entered into a letter of agreement with Accelovance to expand the scope of their work.



We are obligated to pay Accelovance according
to a cost grid provided in the agreement for the various packaging and logistic services that Accelovance provides, depending on
the service and subject to certain assumptions, on an ongoing basis through the completion date of our Phase 3 trial. In connection
with this agreement and raw materials provided by Pierrel, as the predecessor company, and now Accelovance, we have paid €3.5
million (US$3.7 million), €6.3 million (US$6.6 million) and €5.1 million (US$5.4 million) during the years ended December
31, 2016, 2015 and 2014, respectively.



FRI License Agreement



We entered into an exclusive license agreement
with FUJIFILM RI Pharma, Co., Ltd., or FRI in June 2015, under which we provided FRI and its affiliates an exclusive, royalty-bearing
license, without the right to sublicense, under certain patent rights, know-how and trademarks to develop, commercialize and sell
lutetium Lu 177 dotatate (Lutathera®) in Japan for the treatment of tumors bearing somatostatin receptors, including NETs,
for an initial term that commenced in June 2015 and will continue until ten years after the granting of the first marketing authorization
for lutetium Lu 177 dotatate (Lutathera®) in Japan. Pursuant to the license agreement, we are eligible to receive a royalty
on net sales, at a percentage ranging from the low single digits to the low teens. We are also eligible to receive under the agreement
milestone payments in an aggregate of up to €4.5 million (US$4.7 million) depending upon receipt of marketing authorization
for lutetium Lu 177 dotatate (Lutathera®) in Japan and based upon FRI reaching specified levels of annual sales of lutetium
Lu 177 dotatate (Lutathera®) in Japan. During the initial term, either party may terminate upon prior written notice upon the
other party’s material breach, insolvency, or failure to achieve certain diligence obligations. We can terminate the agreement
upon prior written notice in the event of change of control in FRI under certain circumstances. After the initial term, the agreement
will be automatically renewed for successive two year periods unless either party gives written notice of termination a specified
number of days prior to the expiration of the then-current term or terminated by either party upon prior written notice for breach,
subject to a cure period.





79


Table of Contents




Regulation



Our business is subject to extensive government
regulation. Regulation by governmental authorities in the United States, the European Union and other jurisdictions is a significant
factor in the development, manufacture and marketing of any drugs and in ongoing R&D activities. Our products are subject to
rigorous preclinical and clinical trials and other pre-marketing approval requirements by the FDA, the EMA and other regulatory
authorities in the United States, the European Union and in other jurisdictions. A process of managing a product during the course
of its life cycle is performed after any approval in order to keep up to date any EMA marketing authorization and/or FDA approval,
touching on three focus areas: quality, safety and efficacy. Our departments of regulatory affairs, pharmacovigilance, quality
and medical information are dedicated to monitoring post-marketing activities in line with the safety profiles of our products
and the applicable regulations.



United States



In the United States, the FDA regulates
drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and regulations implemented by the agency. If we fail to comply
with the applicable United States requirements at any time during the product development process, including non-clinical testing,
clinical testing, the approval process or after approval, we may become subject to administrative or judicial sanctions. These
sanctions could include, but are not limited to, the FDA’s refusal to allow us to proceed with clinical testing, refusal
to approve pending applications, withdrawal of an approval, warning letters, adverse publicity, product recalls, product seizures,
total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution.



Approval of Drugs



The process required by the FDA before
a drug may be marketed in the United States generally involves satisfactorily completing each of the following:



| | · | preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the FDA’s Good
Laboratory and Good Manufacturing Practice regulations, as applicable;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission to the FDA of an IND application for human clinical testing, which must become effective before human clinical trials
may begin;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed
indication, conducted in accordance with federal regulations and GCPs;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission of data supporting safety and efficacy as well as detailed information on the manufacture and composition of the
product in clinical development and proposed labeling;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission to the FDA of a NDA;
| | - | -------------------------------



| | · | satisfactory completion of an FDA inspection of the manufacturing facility or facilities, including those of third parties,
at which the product is produced to assess compliance with strictly enforced cGMP;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | potential FDA audit of the non-clinical and clinical trial sites that generated the data in support of the NDA; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | FDA review and approval of the NDA before any commercial marketing, sale or shipment of the product.
| | - | ----------------------------------------------------------------------------------------------------



The testing, collection and submission
of data and the preparation of necessary applications are expensive and time-consuming. The FDA may not act quickly or favorably
in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals
that could delay or preclude us from marketing our products.





80


Table of Contents




Preclinical Studies and IND Application



Preclinical tests include laboratory evaluations
of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess
the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing
must comply with federal regulations and requirements. The results of the preclinical tests, together with manufacturing information
and analytical data, are submitted to the FDA as part of an IND application. The IND becomes effective 30 days after receipt by
the FDA, unless the FDA raises concerns or questions about the conduct of the proposed clinical trial, including concerns that
human research subjects will be exposed to unreasonable health risks. In that case, the IND sponsor and the FDA must resolve any
outstanding FDA concerns before the clinical trial can begin. Submission of the IND may result in the FDA not allowing the trials
to commence or not allowing the trial to commence on the terms originally specified in the IND. If the FDA raises concerns or questions
either during this initial 30 day period, or at any time during the IND process, the FDA may choose to impose a partial or complete
clinical hold. This order issued by the FDA would delay either a proposed clinical study or cause suspension of an ongoing study,
until all outstanding concerns have been adequately addressed and the FDA have notified the company that investigations may proceed.
This could cause significant delays or difficulties in completing planned clinical studies in a timely manner.



Clinical Trials



Clinical trials involve the administration
of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and
the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. An IRB must also review
and approve the clinical trial before it can begin and monitor the study until it is completed. The IRB will consider, among other
things, clinical trial design, patient informed consent, ethical factors, the safety of human subjects and the possible liability
of the institution. The FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time or impose sanctions
for various reasons, including a finding that the clinical trial is not being conducted in accordance with FDA requirements or
the subjects are being exposed to an unacceptable health risk. Clinical trials must be conducted in compliance with federal regulations,
including regulations related to informed consent and in compliance with GCP, an international standard meant to protect the rights
and health of patients and to define the roles of clinical trial sponsors, administrators and monitors.



Clinical trials typically are conducted
in three sequential phases, but the phases may overlap or be combined. Additional studies may be required after approval.



Phase 1 clinical trials are
initially conducted in a limited population to test the product candidate for safety, dose tolerance, absorption, metabolism, distribution
and excretion in healthy humans or, on occasion, in patients, such as cancer patients.



Phase 2 clinical trials are
generally conducted in a limited patient population to identify possible adverse effects and safety risks, determine the efficacy
of the product candidate for specific targeted indications and determine dose tolerance and optimal dosage. Multiple Phase 2 clinical
trials may be conducted by the sponsor to obtain information prior to beginning larger and more costly Phase 3 clinical trial.



Phase 3 clinical trials proceed
if the Phase 2 clinical trials demonstrate that a dose range of the product candidate is effective and has an acceptable safety
profile. Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number
of patients, typically at geographically dispersed clinical trial sites, to permit FDA to evaluate the overall benefit-risk relationship
of the drug and to provide adequate information for the labeling of the drug. In most cases FDA requires two adequate and well-controlled
Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be
sufficient in rare instances where the study is a large multicenter trial demonstrating internal consistency and a statistically
very persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with
a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.





81


Table of Contents




In some cases, the FDA may condition approval
of a NDA for a product candidate on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s
safety and effectiveness after NDA approval. Such post-approval trials are typically referred to as Phase 4 clinical trials. These
studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication and to document
a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a
company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical
trials to meet all or part of any Phase 4 clinical trial requirement. Failure to promptly conduct Phase 4 clinical trials could
result in withdrawal of approval for products.



New Drug Application



The results of product candidate development,
preclinical testing and clinical trials are submitted to the FDA as part of a NDA. The NDA also must contain extensive manufacturing
information and detailed information on the composition of the product and proposed labeling as well as payment of a user fee.
The FDA has 60 days from its receipt of a NDA to determine whether the application will be accepted for filing based on the agency’s
threshold determination that it is sufficiently complete to permit substantive review. Once the submission has been accepted for
filing, the FDA begins an in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription
Drug User Fee Act, or the PDUFA, the FDA has ten months from the filing date in which to complete its initial review of a standard
NDA and respond to the applicant, and six months from the filing date for a priority NDA. The FDA does not always meet its PDUFA
goal dates for standard and priority NDAs. The review process is often significantly extended by FDA requests for additional information
or clarification. The review process and the PDUFA goal date may be extended by three months if the FDA requests, or the NDA sponsor
otherwise provides additional information or clarification regarding information already provided in the submission within the
last three months before the PDUFA goal date.



Before approving a NDA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities
at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMP is satisfactory and the NDA
contains data that provide substantial evidence that the drug is safe and effective in the indication studied.



At the conclusion of the FDA’s review,
it will issue either an approval letter or a complete response letter. If the FDA’s evaluations of the NDA and the clinical
and manufacturing procedures and facilities are favorable and there are no outstanding issues, the FDA will issue an approval letter.
If the application is not approved, the FDA will issue a complete response letter, which generally outlines the deficiencies in
the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application.
Sponsors that receive a complete response letter may submit to the FDA information that represents a complete response to the issues
identified by the FDA. Such resubmissions are classified under PDUFA as either Class 1 or Class 2. The classification of a resubmission
is based on the information submitted by an applicant in response to an action letter. Under the goals and policies agreed to by
the FDA under PDUFA, the FDA has two months to review a Class 1 resubmission and six months to review a Class 2 resubmission. The
FDA will not approve an application until issues identified in the complete response letter have been addressed. If, or when, those
deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.



The FDA may also refer the NDA to an advisory
committee for review, evaluation and recommendation as to whether the application should be approved. The FDA is not bound by the
recommendation of the advisory committee, but it generally follows such recommendations. The FDA may withdraw a drug approval if
ongoing regulatory requirements are not met or if safety problems occur after the drug reaches the market. In addition, the FDA
may require further testing, including Phase 4 clinical trials, and surveillance programs to monitor the effect of approved drugs
which have been commercialized. The FDA has the power to prevent or limit further marketing of a drug based on the results of these
post-marketing programs. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved
labeling. Further, if there are any modifications to a drug, including changes in indications, labeling or manufacturing processes
or facilities, a sponsor is required to submit and obtain FDA approval of a new NDA or NDA supplement, which may require the development
of additional data or the conduct of additional preclinical studies and clinical trials.





82


Table of Contents




Breakthrough Therapy Designation



Breakthrough therapy designation is intended
to expedite the development and review of products for serious and life-threatening conditions. Preliminary clinical evidence must
demonstrate the drug may have substantial improvement over other available therapy. This designation conveys all of the same features
of fast track designation, as well as more intensive FDA guidance throughout the development program. This guidance can include
meetings throughout the development cycle, providing timely advice to ensure both the nonclinical and clinical programs are as
efficient as practicable, and includes involvement of senior managers and experienced staff in cross-disciplinary and collaborative
reviews. In general, sponsors must apply for breakthrough therapy designation, although the FDA may suggest to the sponsor that
they consider submitting a request for the designation.



Fast Track Designation



The FDA’s fast track program is intended
to facilitate the development and expedite the review of drugs that are intended for the treatment of a serious or life-threatening
condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the
condition. Under the fast track program, the sponsor of a new product candidate may request the FDA to designate the product candidate
for a specific indication as a fast track drug concurrent with or after the filing of the IND for the product candidate. The FDA
must determine if the product candidate qualifies for fast track designation within 60 days of receipt of the sponsor’s request.



If fast track designation is obtained,
the FDA may initiate review of sections of a NDA before the application is complete. This rolling review is available if the applicant
provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user
fees. However, the time period specified in the PDUFA, which governs the time period goals the FDA has committed to reviewing an
application, does not begin until the complete application is submitted. Additionally, the fast track designation may be withdrawn
by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.



Lutetium Lu 177 dotatate (Lutathera®)
has been granted Fast-Track designation by the FDA. Fast-Track is designed to facilitate the development of and expedite review
of, product candidates that treat serious conditions and fill an unmet medical need.



In some cases, either a breakthrough therapy
or a fast-track-designated product candidate may also qualify for one or more of the following programs:



Priority Review.Under
FDA policies, a product candidate is eligible for priority review, or review within six months from the time a complete NDA is
accepted for filing, if the product candidate provides a significant improvement compared to marketed drugs in the treatment, diagnosis
or prevention of a disease. Under PDUFA, the FDA is further entitled to take 60 days to determine that an application is sufficiently
complete to allow the filing, therefore a priority review timetable may be 60 days before acceptance plus review. We cannot guarantee
any of our product candidates will receive a priority review designation, or, if such a priority designation is received, that
review or approval will be faster than conventional FDA procedures, or that the FDA will ultimately grant approval.



Lutetium Lu 177 dotatate (Lutathera®)
has been granted Priority Review designation by the FDA.



Accelerated Approval.Under
the FDA’s accelerated approval regulations, the FDA is authorized to approve product candidates that have been studied for
their safety and effectiveness in treating serious or life-threatening illnesses, and that provide meaningful therapeutic benefit
to patients over existing treatments based upon either a surrogate endpoint that is reasonably likely to predict clinical benefit
or on the basis of an effect on a clinical endpoint other than patient survival. In clinical trials, surrogate endpoints are alternative
measurements of the symptoms of a disease or condition that are substituted for measurements of observable clinical symptoms. A
product candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion
of Phase 4 or post-approval clinical trials to validate the surrogate endpoint or confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies, or to validate a surrogate endpoint or confirm a clinical benefit during post-marketing
studies, will allow the FDA to withdraw the drug from the market on an expedited basis. All promotional materials for product candidates
approved under accelerated regulations are subject to prior review by the FDA.





83


Table of Contents




When appropriate, we intend to seek breakthrough
therapy, fast track designation, priority review or accelerated approval for our products. We cannot predict whether any of our
products will obtain a breakthrough therapy, fast track designation, priority review or accelerated approval or the ultimate impact,
if any, of these programs on the approval process, on the timing, or the likelihood of FDA approval of any of our product candidates.



Orphan Drug Designation



Orphan drug designation in the United States
is designed to encourage sponsors to develop drugs intended for rare diseases or conditions. In the United States, a rare disease
or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the United States or that affects
more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing
and making available the drug for the disease or condition will be recovered from sales of the drug in the United States.



Orphan drug designation qualifies a company
for tax credits and market exclusivity for seven years following the date of the drug’s marketing approval if granted by
the FDA. An application for designation as an orphan product can be made any time prior to the filing of an application for approval
to market the product. The Office of Orphan Products Development, or OOPD, at the FDA is responsible for designating drugs as orphan
drugs based on acceptable confidential requests made under the regulatory provisions. The drug must then go through the new drug
approval process like any other drug. Orphan drug designations are decided solely by the OOPD staff, but the OOPD occasionally
will request opinions from the Center for Drug Evaluation and Research, especially when dealing with issues such as the appropriateness
of the requested indication or the scientific rationale described by the sponsor.



A sponsor may request orphan drug designation
of a previously unapproved drug or new orphan indication for an already marketed drug. In addition, a sponsor of a drug that is
otherwise the same drug as an already approved drug may seek and obtain orphan drug designation for the subsequent drug for the
same rare disease or condition if it can present a plausible hypothesis that its drug may be clinically superior to the first drug.
Clinical superiority can be demonstrated on the basis of superior safety, superior efficacy, or a major contribution to patient
care. More than one sponsor may receive orphan drug designation for the same drug for the same rare disease or condition, but each
sponsor seeking orphan drug designation must file a complete request for designation.



Lutetium Lu 177 dotatate (Lutathera®)
and our Somakit products were each granted orphan drug designation in the United States.



The period of exclusivity begins on the
date that the marketing application is approved by the FDA and applies only to the indication for which the drug has been designated.
The FDA could approve a second application for the same drug for a different use or a second application for a clinically superior
version of the drug for the same use. The FDA cannot, however, approve the same drug made by another manufacturer for the same
indication during the market exclusivity period absent a demonstration of clinical superiority unless it has the consent of the
sponsor or the sponsor is unable to provide sufficient quantities.



Hatch-Waxman Amendments to the FDCA



In addition, under the FDCA, as amended
by the Hatch-Waxman Amendments, a drug can be classified as a new chemical entity if the FDA has not previously approved any other
new drug containing the same active moiety. Under sections 505(c)(3)(D)(ii) and 505(j)(5)(D)(ii) of the FDCA, as amended by the
Hatch-Waxman Amendments, the first applicant to gain approval of a NDA for a new chemical entity may, in the absence of patent
protections, be eligible for five years of market exclusivity in the United States following regulatory approval.



During the five-year exclusivity period,
the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA, submitted by a competitor for
another version of such drug, where the applicant does not own or have a legal right of reference to all the data required for
approval. Protection under the Hatch-Waxman Amendments will not prevent the filing or approval of another full NDA, but the applicant
would be required to conduct its own adequate and well-controlled clinical trials to demonstrate safety and effectiveness. The
Hatch-Waxman Amendments also provides three years of marketing exclusivity for a NDA, 505(b)(2) NDA or supplements to existing
NDAs if new clinical investigations are essential to the approval of the applications, for new indications, dosages, or strengths
of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and
does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs filed by competitors for drugs containing the original active
agent or uses not protected by the exclusivity.





84


Table of Contents




The Hatch-Waxman Amendments also permits
a patent restoration term of up to five years as compensation for the portion of a drug’s patent term lost during product
development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent
beyond a total of 14 years. The patent term restoration period is generally one-half the time between the effective date of an
IND, and the submission date of a NDA, plus the time between the submission date of a NDA and the approval of that application.
Only one patent applicable to an approved drug is eligible for the extension and it must be applied for prior to expiration of
the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for
any patent term extension or restoration. In the future, we may consider applying for restorations of patent term for some of our
currently owned or licensed patents to add patent life beyond the current expiration date, depending on the expected length of
clinical trials and other factors involved in the filing of the relevant NDA.



Post-approval Regulation



If regulatory approval for marketing of
a product or new indication for an existing product is obtained, a manufacturer is required to comply with all regular post-approval
regulatory requirements as well as any post-approval requirements that the FDA have imposed as part of the approval process. Manufacturers
are required to report certain adverse reactions and production problems to the FDA, provide updated safety and efficacy information
and comply with requirements concerning advertising and promotional labeling requirements. Drug manufacturers and certain of their
subcontractors are required to register their establishments with the FDA and certain state agencies, and are subject to periodic
unannounced inspections by the FDA and certain state agencies for compliance with ongoing regulatory requirements, including cGMP,
which impose certain procedural and documentation requirements upon drug manufacturers. Accordingly, NDA holders and third-party
manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance
with cGMP and other regulatory requirements. Discovery of problems with a product after approval for marketing may result in restrictions
on a product, manufacturer, or holder of an approved NDA, including withdrawal of the product from the market.



European Union



The process regarding approval of medicinal
products in the European Union follows roughly the same lines as in the United States and likewise generally involves satisfactorily
completing each of the following:



| | · | preclinical laboratory tests, animal studies and formulation studies all performed in accordance with the applicable EU Good
Laboratory Practice regulations;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission to the relevant national authorities of a clinical trial application, or CTA, which must be approved before human
clinical trials may begin;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | performance of adequate and well-controlled clinical trials to establish the safety and efficacy of the product for each proposed
indication;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission to the relevant competent authorities of a MAA, which includes the data supporting safety and efficacy and proposed
indications as well as detailed information on the pharmaceutical development, manufacturing process and controls;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | satisfactory completion of an inspection by the relevant national authorities of the manufacturing facility or facilities,
including those of third parties, at which the product is produced to assess compliance with strictly enforced cGMP;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | potential audits of the non-clinical and clinical trial sites that generated the data in support of the MAA; and
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | review and approval by the relevant competent authority of the MAA before any commercial marketing, sale or shipment of the
product.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



Pharmaceutical development and Preclinical
Studies



Pharmaceutical development activities include
laboratory evaluations of product chemistry, formulation and stability. Preclinical tests include studies to evaluate pharmacology,
pharmacokinetics and toxicology in animal models, in order to assess the potential safety and efficacy of the product and gather
essential data required for first-in-human studies. The conduct of the preclinical tests and formulation of the compounds for testing
must comply with the relevant EU regulations and requirements. The results of the preclinical tests, together with relevant manufacturing
information and analytical data, are submitted as part of the CTA.





85


Table of Contents




Clinical Trial Application



Pursuant to the Clinical Trials Directive
2001/20/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national
legislation of the member states. Under this system, approval must be obtained from the competent national authority of a European
Union member state in which a study is planned to be conducted. To this end, a CTA is submitted, which must be supported by an
investigational medicinal product dossier, or IMPD, and further supporting information prescribed by the Clinical Trials Directive
and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has
issued a favorable opinion on the CTA in that country.



Efforts are being made by the regulators
and related stakeholders to implement the new clinical trial regulation (Regulation EU No 536/2014), which has yet to become applicable.



Clinical drug development is often described
as consisting of four temporal phases (Phase 1 – 4), see EMA’s note for guidance on general considerations
for clinical trials (CPMP/ICH/291/95).



| | · | Phase 1 (Most typical kind of study: Safety and Pharmacokinetics);
| | - | ------------------------------------------------------------------



| | · | Phase 2 (Most typical kind of study: Therapeutic Exploratory);
| | - | --------------------------------------------------------------



| | · | Phase 3 (Most typical kind of study: Therapeutic Confirmatory); and
| | - | -------------------------------------------------------------------



| | · | Phase 4 (Variety of Studies: Therapeutic Use).
| | - | ----------------------------------------------



Studies in Phase 4 are all studies (other
than routine surveillance) performed after drug approval and related to the approved indication.



The phase of development provides an inadequate
basis for classification of clinical trials because one type of trial may occur in several phases. The phase concept is a description,
not a set of requirements. The temporal phases do not imply a fixed order of studies since for some drugs in a development plan
the typical sequence will not be appropriate or necessary.



Manufacturing of investigational products
is subject to the holding of authorization and must be carried out in accordance with cGMP.



Health Authority Interactions



During the development of a medicinal product
and life cycle management of a product, frequent interactions with the EU regulators are vital to make sure all relevant input
and guidelines/regulations are taken into account in the overall program. We have established an ongoing dialogue with the EMA
and certain national authorities by making use of the mechanisms that exist for interaction and input. We also manage the timing
and communication about any process improvement, production site additions or safety variations, which is crucial for our business
in addition to being important information to provide to patients and/or stakeholders.



Available Authorization Procedures



Authorization to market a product in the
European Union member states proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition
procedure, a decentralized procedure or a national procedure.



| | · | Centralized authorization procedure.  Certain drugs, such as those defined as medicinal products developed
by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which,
if granted, is automatically valid in all European Union member states. The EMA and the European Commission administer the centralized
authorization procedure.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





86


Table of Contents




| | · | Pursuant to Regulation 726/2004, this procedure is mandatory for:
| | - | -----------------------------------------------------------------



| | · | medicinal products developed by means of one of the following biotechnological processes:
| | - | -----------------------------------------------------------------------------------------



| | · | recombinant DNA technology;
| | - | ---------------------------



| | · | controlled expression of genes coding for biologically active proteins in prokaryotes and eukaryotes including transformed
mammalian cells; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



| | · | hybridoma and monoclonal antibody methods;
| | - | ------------------------------------------



| | · | advanced therapy medicinal products as defined in Article 2 of Regulation 1394/2007 on advanced therapy medicinal products;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | medicinal products for human use containing a new active substance which, on the date of entry into force of this Regulation,
was not authorized in the European Union, for which the therapeutic indication is the treatment of any of the following diseases:
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | acquired immune deficiency syndrome;
| | - | ------------------------------------



| | · | cancer;
| | - | -------



| | · | neurodegenerative disorder;
| | - | ---------------------------



| | · | diabetes;
| | - | ---------



| | · | auto-immune diseases and other immune dysfunctions;
| | - | ---------------------------------------------------



| | · | viral diseases; and
| | - | -------------------



| | · | medicinal products that are designated as orphan medicinal products pursuant to Regulation 141/2000.
| | - | ----------------------------------------------------------------------------------------------------



The
centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the
applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation
or that the granting of authorization is in the interest of patients at a European Community level.



Under the centralized authorization procedure, the
Committee for Medicinal Products for Human Use, or CHMP, serves as the scientific committee that renders opinions about the safety,
efficacy and quality of human products on behalf of the EMA. The CHMP is composed of experts nominated by each member state’s
national drug authority, with one of them appointed to act as Rapporteur for the co-ordination of the evaluation with the possible
assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor
the product throughout its life cycle. The CHMP has 210 days, to adopt an opinion as to whether a marketing authorization should
be granted. In practice the process takes longer as additional information is requested, which triggers clock-stops in the procedural
timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number
of experts. Once the procedure is completed, a European Public Assessment Report is produced. If the opinion is negative, information
is given as to the grounds on which this conclusion was reached. The opinion produced by the CHMP is sent to the European Commission
and used in reaching the final decision.



In general, if the centralized procedure is not followed,
there are three alternative procedures. If marketing authorization in only one member state is preferred, an application can be
filed to the national competent authority of a member state. The other two options are a mutual recognition by European Union member
states and the decentralized procedure, both under Directive 2001/83. A marketing authorization may be granted only to an applicant
established in the European Union.





87


Table of Contents




| | · | Mutual recognition procedure.If an authorization has been granted by one member state, or the Reference
Member State, an application may be made for mutual recognition in one or more other member states, or the Concerned Member State(s).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Decentralized procedure.  The third option is the decentralized procedure. The decentralized procedure may
be used to obtain a marketing authorization in several European member states when the applicant does not yet have a marketing
authorization in any country.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | National procedure.  Applicants following the national procedure will be granted a marketing authorization
that is valid only in a single member state. Furthermore, this marketing authorization is not based on recognition of another marketing
authorization for the same product awarded by an assessment authority of another member state. The national procedure can also
serve as the first phase of a mutual recognition procedure.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



It is not always possible for applicants to follow
the national procedure. In the case of medicinal products in the category for which the centralized authorization procedure is
compulsory, that procedure must be followed. In addition, the national procedure is not available in the case of medicinal product
dossiers where the same applicant has already obtained marketing authorization in one of the other European Union member states
or has already submitted an application for marketing authorization in one of the other member states and the application is under
consideration. In the latter case, applicants must follow a mutual recognition procedure.



After a drug has been authorized and launched, it
is a condition of maintaining the marketing authorization that all aspects relating to its quality, safety and efficacy must be
kept under review. Sanctions may be imposed for failure to adhere to the conditions of the marketing authorization. In extreme
cases, the authorization may be revoked, resulting in withdrawal of the product from sale.



Accelerated Assessment Procedure



When appropriate, we may seek accelerated
assessment for our products being submitted under centralized procedure. When an application is submitted for a marketing authorization
in respect of a drug for human use which is of major interest from the point of view of public health and in particular from the
viewpoint of therapeutic innovation, the applicant may request an accelerated assessment procedure pursuant to article 14, paragraph
9 of Regulation 726/2004. On September 20, 2016, we announced that lutetium Lu 177 dotatate (Lutathera®)’s accelerated
review was modified to a standard review period due to additional clarifications requested by the EMA, as well as their request
to inspect one of the contract research organizations used by us.



Conditional Approval



As per Regulation EC 726/2004, Art. 14(7),
a medicine that would fulfill an unmet medical need may, if its immediate availability is in the interest of public health, be
granted a conditional marketing authorization on the basis of less complete clinical data than are normally required, subject to
specific obligations being imposed on the authorization holder. These specific obligations are to be reviewed annually by the EMA.
The list of these obligations shall be made publicly accessible. Such an authorization shall be valid for one year, on a renewable
basis.



Exceptional Circumstances



As per Regulation EC 726/2004, Art. 14(8),
products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of
Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for
marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit
balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional
circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead
to the completion of a full dossier/approval.



We cannot predict which of our products
will obtain any of such designations or predict the ultimate impact, if any, of such designations on the timing, conditions or
likelihood of EMA authorization.





88


Table of Contents




Period of Authorization and Renewals



Marketing authorization shall be valid
for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of
the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization
holder shall provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and
efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing
authorization ceases to be valid. Once renewed, the marketing authorization shall be valid for an unlimited period, unless the
Commission or the competent authority decides, on justified grounds, to proceed with one additional five-year renewal. Any authorization
which is not followed by the actual placing of the drug on the EU market (in case of centralized procedure) or on the market of
the authorizing member state within three years after authorization shall cease to be valid (the so-called sunset clause).



Orphan Drug Designation



Regulation 141/2000 states that a drug
shall be designated as an orphan drug if its sponsor can establish:



| |  | (a)(i) that it is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating
                                                                                                     condition affecting not more than five in ten thousand persons in the European Community when the application is made, or
                                                                                                     (ii) that it is intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious
                                                                                                     and chronic condition in the European Community and that without incentives it is unlikely that the marketing of the drug in
                                                                                                     the European Community would generate sufficient return to justify the necessary investment; and
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(b)
that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized
in the European Community or, if such method exists, the drug will be of significant benefit to those affected by that condition.



Regulation 847/2000 holds criteria for
the designation of orphan drugs.



An application for designation as an orphan
product can be made any time prior to the filing of an application for approval to market the product. Marketing authorization
for an orphan drug leads to a ten-year period of market exclusivity. This period may, however, be reduced to six years if, at the
end of the fifth year, it is established that the product no longer meets the criteria for orphan drug designation, perhaps because
the product is sufficiently profitable not to justify market exclusivity. Market exclusivity can be revoked only in very selected
cases, such as consent from the marketing authorization holder, inability to supply sufficient quantities of the product, demonstration
of “clinically relevant superiority” by a similar medicinal product, or, after a review by the Committee for Orphan
Medicinal Products, requested by a member state in the fifth year of the marketing exclusivity period (if the designation criteria
are believed to no longer apply). Medicinal products designated as orphan drugs pursuant to Regulation 141/2000 shall be eligible
for incentives made available by the European Community and by the member states to support research into, and the development
and availability of, orphan drugs.



We have applied for and been granted orphan
status in the European Union for lutetium Lu 177 dotatate (Lutathera®), 68Ga-DOTATATE and 68Ga-DOTATOC and 68Ga-NeoBOMB1.



Regulatory Data Protection



Without prejudice to the law on the protection
of industrial and commercial property, all full applications for marketing authorization following Article 8(3) of the Directive
2001/83/EC as amended receive an 8+2+1 protection regime.



This regime consists of a regulatory data
protection period of eight years commencing on the date of marketing authorization with a concurrent market exclusivity of ten
years plus an additional market exclusivity of one further year if, during the first eight years of those ten years, the marketing
approval holder obtains an approval for one or more new therapeutic indications which, during the scientific evaluation prior to
their approval, are determined to bring a significant clinical benefit in comparison with existing therapies. Under the current
rules, a third party may reference the preclinical and clinical data of the original sponsor beginning eight years after first
approval, but the third party may market a generic version after only ten (or eleven) years have lapsed.





89


Table of Contents




As indicated, additional data protection
can be applied for when an applicant has complied with all requirements as set forth in an approved PIP.



Manufacturing



The manufacturing of authorized drugs,
for which a separate manufacturer’s license is mandatory, must be conducted in strict compliance with European cGMP requirements
and comparable requirements of other regulatory bodies, which mandate the methods, facilities and controls used in manufacturing,
processing and packing of drugs to assure their safety and identity. The EMA enforces its cGMP requirements through mandatory registration
of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility
for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure
to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost sales, and could subject
the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing,
seizure of product, injunctive action or possible civil and criminal penalties.



Marketing and Promotion



The marketing and promotion of authorized
drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or
the general public, are strictly regulated in the European Community notably under Directive 2001/83 in the European Community
code relating to medicinal products for human use as amended by Directive 2004/27. The applicable regulation aims to ensure that
information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects
the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to
comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and
criminal penalties.



Life Cycle Management of a Marketed Product



After receiving marketing authorization
approval, various aspects of the life cycle of a product with marketing authorization must be managed and properly undertaken.
These include:



| | · | variations (single or grouping type IA, IB, II variations);
| | - | -----------------------------------------------------------



| | · | extension applications;
| | - | -----------------------



| | · | annual reassessments (in case of conditional approval or approval under exceptional circumstances);
| | - | ---------------------------------------------------------------------------------------------------



| | · | certain post-authorization measures (such as post-authorization efficacy or safety studies, or PAES or PASSs, if any);
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | renewal of marketing authorization (after five years in the European Union);
| | - | ----------------------------------------------------------------------------



| | · | Article 46 pediatric study submissions;
| | - | ---------------------------------------



| | · | periodic safety update reports, or PSURs;
| | - | -----------------------------------------



| | · | marketing and cessation notifications, where required;
| | - | ------------------------------------------------------



| | · | sunset clause monitoring; and
| | - | -----------------------------



| | · | product information review and confirmation.
| | - | --------------------------------------------





90


Table of Contents




Pharmacovigilance



The pharmacovigilance system in the European
Union operates with the management and involvement of regulatory authorities in member states, the European Commission and the
EMA. In some member states, regional centers are in place under the coordination of the national competent authority.



Within this system, the EMA’s role
is to coordinate the EU pharmacovigilance system and to ensure the provision of advice for the safe and effective use of medicines.



Updated pharmacovigilance legislation (Regulation
(EU) No 1235/2010 and Directive 2010/84/EU) was adopted by the European Parliament and European Council in December 2010.
The legislation was the biggest change to the regulation of human medicines in the European Union since 1995. It has significant
implications for applicants and holders of EU marketing authorizations.



The EMA, the EU member states and the European
Commission are responsible for implementing much of the new legislation, which has been effective since July 2012. The EMA
plays a key role in coordinating activities relating to the authorization and supervision of medicines, including safety monitoring,
across this network.



The EMA is working with a wide range of
stakeholders, including the European Commission, pharmaceutical companies, national medicines regulatory authorities, patients
and healthcare professionals, to ensure effective implementation. The majority of the legislation was implemented in 2016.



Background to the Legislation



A strong factor in the development of the
new Directive and Regulation is the incidence of so-called adverse drug reactions, which are responses to a medicine that are “noxious
and unintended.” Adverse drug reactions are estimated to cause 197,000 deaths per year in the European Union. A strengthened
European safety monitoring system aims to reduce the number of adverse drug reactions.



The European Commission began a review
of the European system of safety monitoring in 2005, including an independent study sponsored by the European Commission and extensive
public consultation in 2006 and 2007. The resulting legislation was adopted by the European Parliament and Council of Ministers
in December 2010.



The legislation forms part of a three-piece
“pharmaceutical package” and amends existing pharmacovigilance legislation contained in Directive 2001/83/ EC and Regulation
(EC) No. 726/2004.



Impacts of the Legislation on Marketing
Authorization Holders



Marketing authorization applicants and
holders are impacted by the legislation in a number of key areas. The legislation aims to:



| | · | make roles and responsibilities clear;
| | - | --------------------------------------



| | · | minimize duplication of effort;
| | - | -------------------------------



| | · | free up resources by rationalizing and simplifying PSURs and adverse drug reaction reporting; and
| | - | -------------------------------------------------------------------------------------------------



| | · | establish a clear legal framework for post-authorization monitoring.
| | - | --------------------------------------------------------------------



Examples of impacts on marketing authorization
holders and applicants include:



| | · | EudraVigilance/adverse drug reaction reporting:  Following a successful audit, marketing authorization holders
submit adverse drug reaction reports only into EudraVigilance. Previously, reports went via the individual national competent authority,
including reporting of medication errors that resulted in an adverse reaction.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Simplified safety monitoring:
| | - | -----------------------------



| | · | PSURs have a single assessment for the same active substance or a combination of active substances;
| | - | ---------------------------------------------------------------------------------------------------





91


Table of Contents




| | · | routine PSUR reporting is no longer necessary for products with low risk or for old or established products unless concerns
arise;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | PSUR reporting is electronic following the establishment of an EU repository. PSURs are sent directly to the EMA;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | there is a strengthened legal basis for requesting post-authorization safety studies, or PASSs, and post-authorization efficacy
studies, or PAESs from the pharmaceutical industry; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | risk management systems are required for all newly authorized medicines.
| | - | ------------------------------------------------------------------------



| | · | Referrals:  All pharmacovigilance referrals are discussed by the Pharmacovigilance Risk Assessment Committee
and the CHMP, or the Coordination Group for Mutual Recognition and Decentralised Procedures — Human. Opinions are adopted
as a result.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Inspections and pharmacovigilance systems:  Marketing authorization holders are required to maintain a pharmacovigilance
system master file, or PSMF permanently available for submission or inspection by the national competent authority. The PSMF replaced
the detailed description of the pharmacovigilance system, or DDPS.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Supply of medicinal product information to the EMA:  Regulation 1235/2010 states that by July 2, 2012,
marketing authorization holders must have submitted information to the EMA on medicinal products for human use authorized or registered
in the European Union using an electronic format provided by the EMA. Marketing authorization holders are also responsible for
maintaining this information once submitted.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We have also organized a governance system
to facilitate the respect of ethical standards and the safety, well-being and health of volunteers and patients engaged in medical
activities related to the conduct of clinical trials. These activities include clinical development, commercialization or any other
related activity such as R&D, investigator-sponsored trials, investigator medicinal grants or compassionate use. The pharmacovigilance
system promotes patients’ safety when using medicinal products.



Within the pharmaceutical business sector,
marketing authorization holders and other competent authorities are responsible for ensuring that a structure is in place so that
individual case safety reports are captured at a local level and properly reported into central functions. Ongoing monitoring and
evaluation of reported cases are diligently performed to timely detect any early safety signals. Appropriate corrective measures
are applied whenever necessary, and are covered by various quality tools, templates, record-keeping mechanisms, and other functions.



We have established multidisciplinary teams
and pharmacovigilance officers and committees to oversee first-in-man studies, evaluate and decide upon amendments to clinical
study protocols, assess the benefit-risk ratio of studies and other courses of action as well as major medical or medical-device-related
safety matters. The latter are also addressed within the ambit of specific customer complaint quality documentation.



Quality Assurance for Radiopharmaceuticals



We have established various interrelated
and controlled activities in order to work effectively and efficiently. We try to ensure that all processes required for the delivery
of products by third parties and services are identified and planned. We perform and control the following tasks in connection
with any project, service or production:



| | · | identify key processes that define the critical path of any project/service/production;
| | - | ---------------------------------------------------------------------------------------



| | · | define their interaction, if any, supported by a risk assessment analysis;
| | - | --------------------------------------------------------------------------



| | · | ensure and assess their performance and controllability based on measurable indicators;
| | - | ---------------------------------------------------------------------------------------



| | · | render them uniquely traceable through assigned and controlled documentation; and
| | - | ---------------------------------------------------------------------------------



| | · | seek to continually enrich/improve their content and performance.
| | - | -----------------------------------------------------------------





92


Table of Contents






Common features of our processes and sub-processes
include:



| | · | defined and agreed starting point;
| | - | ----------------------------------



| | · | processed inputs based on outputs from organizations such as suppliers;
| | - | -----------------------------------------------------------------------



| | · | sequence of activities that are logically and or chronologically related;
| | - | -------------------------------------------------------------------------



| | · | processed outputs that generate added value for us and our partners;
| | - | --------------------------------------------------------------------



| | · | defined ending point, which becomes the next input for a subsequent process;
| | - | ----------------------------------------------------------------------------



| | · | assessment of process output by defining markers (e.g., key performance indicators); and
| | - | ----------------------------------------------------------------------------------------



| | · | assignment of a process owner and clear roles and responsibilities.
| | - | -------------------------------------------------------------------



Following those common features, processes
are usually designed along a process chain which may be formulated throughout a product life cycle according to the research and
development of a new radiopharmaceutical product; within those processes, technology transfer activities are also covered by quality
control systems.



Our board of directors assumes the leadership
of quality control and continual improvement as a strategic pillar of our business by establishing a corporate-level quality control
structure and its implementation.



Customer satisfaction and compliance with
regulatory requirements are the most fundamental aspects that our quality control systems aim to serve. By maintaining close contact
with customers and interested third parties, we work to meet expectations (business contractual, technical and quality expectations)
on consistent basis. Direct and indirect gauging of customer satisfaction and complaints also assists us in defining metrics and
maintaining and enhancing trust and performance between all parties. Feedback from customers, informal escalation or formal complaints
are all treated with care and diligence.



Dangerous Goods Transportation



All radiopharmaceutical products (except
“cold” kit radiopharmaceuticals, such as certain SPECT products) are considered dangerous goods and have to respect
specific regulation to be transported. Our products are transported in a specific package named package type A (UN2915) generally
by road to the end-user, or by air.



Legislation governing the carriage of dangerous
goods by road in particular countries and throughout Europe, adopted by 46 countries worldwide, is based on the Agreement Concerning
the International Carriage of Dangerous Goods by Road. The structure is consistent with that of the United Nations Recommendations
on the Transport of Dangerous Goods, Model Regulations, and the Technical Instructions for the Safe Transport of Dangerous Goods
by Air (of the International Civil Aviation Organization). This agreement has been in place for over 50 years, and is amended every
two years.



The law in relation to the carriage of
dangerous goods by road sets out duty holders/participants with certain responsibilities. The participants with specific legal
duties are the consignor, carrier, driver and vehicle crew, packer, filler, loader, unloader, tank-container/portable tank operator,
consignee and the Dangerous Goods Safety Adviser.



Seasonality



Historically, we have not experienced material
fluctuations in our sales over any quarterly period in the year.



Environmental, Health and Safety Issues



We are subject to various environmental,
health and safety laws, rules and regulations, including those relating to the use, storage, treatment, release, transportation
and disposal of radioactive and hazardous materials and wastes, and permitting and D&D obligations. Except as discussed below
in connection with D&D, we believe that compliance with these laws, rules and regulations will not materially affect our results
of operations or our position with respect to our competitors. However, we can provide no assurance of the effect that any possible
future environmental laws, rules or regulations will have on our business, operating results or financial condition.





93


Table of Contents




Some of these laws and regulations provide
for liability in the event of contamination at our facilities or in connection with the transportation of our products. We could
be held liable for the costs of cleanup or be subject to third-party claims, including claims for personal injury or property damage,
should contamination of the environment or exposure to radioactive or hazardous materials occur. We could also be subject to, among
other sanctions and significant fines for failure to comply with applicable environmental, health and safety laws and regulations.



Our facilities where cyclotrons are installed
and our cyclotrons eventually will need to be decommissioned and decontaminated and such facilities must be returned to their original
state at the end of a facility’s useful life. In connection with this process, we will incur D&D costs and we have recorded
a liability for such costs. We estimate the costs associated with D&D for a cyclotron-equipped production site to be approximately
€0.6 million (US$0.6 million) per cyclotron. This estimate may differ based on factors such as country-specific requirements.
Estimating the amount and timing of such future D&D costs includes, among other factors, making projections as to when a facility
will retire or the useful life of a cyclotron.



Environmental, health and safety laws and
regulations are complex, change frequently and have become more stringent over time. We cannot assure you that our costs of complying
with current or future environmental, health and safety laws and regulations will not exceed our estimates or adversely affect
our results of operations and financial condition. Further, we cannot assure you that we will not be subject to environmental,
health and safety claims in the future.



Legal Proceedings



From time to time we may become involved
in legal proceedings that arise in the ordinary course of business. As of the date of this annual report on Form 20-F, there are
no material ongoing litigation, regulatory or other proceedings and we have no knowledge of any investigations by governmental
or regulatory authorities in which we are a target that could have a material adverse effect on our current business. During the
period covered by the audited and approved financial statements contained herein, we have not been a party to or paid any damages
in connection with litigation that has had a material adverse effect on our financial position. No assurance can be given that
future litigation will not have a material adverse effect on our financial position



Dividends and Dividend Policy



We have not declared or paid any cash dividends
on our ordinary shares and do not currently intend to pay cash dividends on our ordinary shares in the foreseeable future. We intend
to retain all available funds and any future earnings to fund the development and expansion of our business. Dividends, if any,
on our outstanding ordinary shares, will be proposed by our board of directors and must be approved by our shareholders. Even if
our board of directors decides to propose dividends in the future, the form, frequency and amount of such dividends will depend
upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions
and other factors our board of directors may deem relevant.



Subject to the requirements of French law,
dividends may only be distributed from our statutory retained earnings. Moreover, we must allocate 5% of our unconsolidated net
profit for each year, less any previous losses, to our legal reserve fund before dividends, should we propose to declare any, may
be paid for that year, until the amount in the legal reserve is equal to 10% of the aggregate nominal value of our issued and outstanding
share capital. See “Item 10. Additional Information—B. Articles of Association—Key Provisions of Our By-laws
and French Law Affecting our Ordinary Shares—Rights, Preferences and Restrictions Attaching to Ordinary Shares” for
further details on the limitations on our ability to declare and pay dividends. Dividend distributions, if any, will be made in
Euros and converted into U.S. dollars with respect to the ADSs, as provided in the deposit agreement.





94


Table of Contents




C.       Organizational
Structure



We were incorporated as a société
à responsabilité limitée, or SARL, under the laws of the French Republic on March 4, 2002 and converted
into a société anonyme, or S.A, on August 19, 2002. Prior to our initial public offering, we were a privately
owned company. We are registered in Bourg en Bresse, France. Our principal executive offices are located at 20 rue Diesel, 01630
Saint Genis Pouilly, France and our telephone number at this address is +33 (0) 4 50 99 30 70.



For a list of our subsidiaries as of December
31, 2016, see section 7 of our consolidated financial statements.



D.       Property, Plant
and Equipment



We have developed a pan-European manufacturing
network with 19 production facilities (including seven with R&D capabilities) and one facility dedicated exclusively to R&D
in Nantes, France. We are in the process of opening our first U.S. manufacturing facility in Millburn, NJ to produce lutetium Lu
177 dotatate (Lutathera®). Our Millburn facility will serve as a distribution center for NETSPOT®. Commercial production
of GLUSCAN started at the new Murcia site in February 2017. Our sales and distribution network is based in 9 countries and reaches
markets in 19 countries excluding IDB markets. We have a total of 27 production and R&D sites and office locations (we house
two of our entities at the same offices in Geneva, Switzerland), in 13 countries.



|Location                                                | Offices
        Only | PET
        Production | SPECT
        Production | Enriched
        Water Production | Therapy | R&D
|------------------------------------------------------- | -------------------- | ---------------------- | ------------------------ | --------------------------------- | ------- | ---
|Saint-Genis-Pouilly, France (Headquarters)              |                      | x                      |                          |                                   |         | x  
|Troyes, France                                          |                      | x                      |                          |                                   |         |    
|Béthune, France                                         |                      | x                      |                          |                                   |         |    
|Nantes, France                                          |                      |                        |                          |                                   |         | x  
|St. Cloud, Paris, France                                |                      | x                      |                          |                                   |         | x  
|Marseille, France                                       |                      | x                      |                          |                                   |         | x  
|Colleretto Giacosa, Italy                               |                      | x                      |                          |                                   | x       | x  
|Saluggia, Italy (Gipharma)                              |                      |                        | x                        |                                   | x       | x  
|Meldola, Italy                                          |                      | x                      |                          |                                   |         | x  
|Pozzilli, Italy                                         |                      | x                      |                          |                                   |         |    
|Almuna de Dona Godina, Spain                            |                      | x                      |                          |                                   | x       |    
|Barcelona, Spain (Barnatron)                            |                      | x                      |                          |                                   |         | x  
|Barcelona, Spain (Cadisa)                               |                      |                        | x                        |                                   |         |    
|Madrid, Spain                                           | x                    |                        |                          |                                   |         |    
|Murcia, Spain                                           |                      | x                      |                          |                                   |         |    
|Porto, Portugal                                         |                      | x                      |                          |                                   |         |    
|Lisbon, Portugal                                        | x                    |                        |                          |                                   |         |    
|Geneva, Switzerland (AAA Switzerland/AAA International) | x                    |                        |                          |                                   |         |    
|Bonn, Germany                                           |                      | x                      |                          |                                   |         |    
|Munich, Germany                                         |                      | x                      |                          |                                   |         |    
|Erlangen, Germany                                       |                      | x                      |                          |                                   |         |    
|Warsaw, Poland                                          |                      | x                      |                          |                                   |         |    
|Baarle-Nassau, The Netherlands                          |                      |                        |                          |                                   | x       |    
|Ravels, Belgium                                         | x                    |                        |                          |                                   |         |    
|Beer Tuvia, Israel (Marshall Isotopes)                  |                      |                        |                          | x                                 |         |    
|Chilcompton, United Kingdom (IEL)                       | x                    |                        |                          |                                   |         |    
|New York, USA                                           | x                    |                        |                          |                                   |         |    
|Millburn, USA                                           |                      |                        |                          |                                   | x       |    
|Ottawa, Canada (Atreus)                                 | x                    |                        |                          |                                   |         |    



We believe that all of our laboratories
operate according to cGMP in accordance with European regulations.





95


Table of Contents




Our production capacity and extent of utilization
of our facilities is as follows:



| | · | PET production facilities:  all sites combined are generally capable of producing up to 55 batches (at six curies
of FDG, or 60 – 100 doses) per day, or between 12,000 and 13,000 batches per year, of F-18 products, with actual
production estimated at approximately 75% of capacity, or approximately 9,000 to 10,000 batches. Due to the short half-life of
F-18, exact capacity and utilization in terms of doses can differ significantly as a further delivery distance and more time (with
resulting decay of the FDG) results in a higher dosage of FDG required in each batch produced.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | SPECT production facilities:  all sites combined are capable of producing approximately 5 million vials of SPECT
product per year, with an average utilization rate of approximately 44% during the past five years, or approximately 2.2 million
vials actually produced.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Enriched water: our enriched water facilities have a production capacity of 150 kilograms of water per year. Any enriched
water which we do not immediately sell or use can be stored for short-term future sale.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The current capacity of the IDB facility, the company which we acquired in January 2016, is a weekly production yield of 7
TBq (5 production days and 2 targets per day for 10 targets per week). The facility operates today on average at 30% of its production
capacity.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our production and R&D resources represent
what we believe to be one of our key competitive strengths, as they allow us to develop, manufacture and sell therapeutic and diagnostic
products in all significant European markets while positioning us as a licensing and manufacturing partner for companies such as
GE Healthcare and Eli Lilly that require qualified manufacturers for their existing and new PET products. Our manufacturing footprint
is scalable. We currently manufacture lutetium Lu 177 dotatate (Lutathera®) at two facilities in Italy where we have the capacity
to produce commercial-scale supplies of lutetium Lu 177 dotatate (Lutathera®). We are modifying our facility in Zaragoza, Spain,
in order to have an additional production site for lutetium Lu 177 dotatate (Lutathera®) for the commercial launch of the product.
In order to support the commercial launch of lutetium Lu 177 dotatate (Lutathera®) and to simplify our manufacturing logistics,
we purchased a site in Millburn, NJ at a cost of approximately €8.9 million (US$9.4 million), to produce lutetium Lu 177 dotatate
(Lutathera®) in the United States. We intend to commercialize lutetium Lu 177 dotatate (Lutathera®) with our own sales
force in France, Germany, Italy, Spain, Portugal, Switzerland, The Netherlands, Belgium, Canada, Poland, the United Kingdom and
the United States, and with partners in other countries.



96


Table of Contents




ITEM 4A. UNRESOLVED STAFF COMMENTS



None.



ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS



The following discussion of our financial
condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes
thereto, included elsewhere in this annual report on Form 20-F, as well as the information presented under “Presentation
of Financial and Other Information” and “Item 3. Key Information—A. Selected Financial Data.”



The following discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ materially from those expressed or implied in the
forward-looking statements as a result of various factors, including those set forth in “Forward-Looking Statements”
and “Item 4. Information on the Company—D. Risk Factors” and elsewhere in this annual report on Form 20-F.



A.       Operating Results



Overview



We are an innovative radiopharmaceutical
company that develops, produces and commercializes radiolabeled pharmaceuticals and diagnostic nuclear medicines. Our products
use trace amounts of radioactive compounds to treat diseases such as cancer or create functional images of organs and lesions.
Our lead investigational radiotherapeutic product, lutetium Lu 177 dotatate (Lutathera®) is a novel compound in development
for the treatment of neuroendocrine tumors, or NETs, a heterogeneous group of tumors arising from cells of the endocrine and nervous
systems. Lutetium Lu 177 dotatate (Lutathera®) is designed to target somatostatin receptor positive NETs. Somatostatin is overexpressed
in approximately 80% of NETs. Based on U.S. census data and European Union census data, we estimate the incidence of NETs for the
combined populations of the United States and the European Union in 2016 was approximately 48,000. There are currently no approved
radiotherapeutic products for the treatment of NETs and a limited number of current therapeutic treatment alternatives, mostly
directed at symptom management. In April 2016, following completion of a pivotal Phase 3 trial of lutetium Lu 177 dotatate (Lutathera®)
we submitted an NDA to the FDA for the treatment of gastroenteropancreatic NETs, including foregut, midgut, and hindgut NETs in
adults. In December 2016, we received a complete response letter from the FDA in connection with our lutetium Lu 177 dotatate (Lutathera®),
NDA. The complete response letter referred to deficiencies with our clinical datasets, among other issues, which precluded the
FDA reviewers from performing the required independent analysis of our clinical studies. We are working to remediate these issues.
We also submitted an MAA to the EMA for lutetium Lu 177 dotatate (Lutathera®) for the same indication in April 2016. In September
2016, we received requests from the EMA for additional clarifications. We are engaged in a review process to address these clarifications.
Additionally, the EMA requested to inspect one of our contract research organizations. This inspection has been completed.



Key Metrics



|                                          |  | Year Ended December 31,                               
|----------------------------------------- |  | ------------------------------------------------------
|                                          |  | 2016                                                  
|                                          |  | US$(1)                                                
|                                          |  | (US Dollars and Euros in thousands except percentages)
|Financial metrics                         |  |                                                       
|Sales                                     |  |                                                       
|Year-over-year percentage change          |  |                                                       
|Operating income/(loss)                   |  |                                                       
|Net loss for the period                   |  |                                                       
|Adjusted EBITDA(2)                        |  |                                                       
|Adjusted EBITDA margin(2)                 |  |                                                       
|Net cash (used)/from operating activities |  |                                                       
|Cash and cash equivalents                 |  |                                                       








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (2) | Adjusted EBITDA and Adjusted EBITDA margin are not calculated in accordance with IFRS. A reconciliation of these non-IFRS measures
to their most directly comparable IFRS-based measures along with a summary of the measures and their material limitations are included
in “Item 3. Key Information—A. Selected Financial Data—Other Financial Metrics.”
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





97


Table of Contents




We monitor the key financial and operating
metrics set forth in the preceding table to help us evaluate trends, establish budgets, measure the effectiveness and efficiency
of our operations and gauge our cash generation. We discuss sales and the components of net income (loss) in “—A. Results
of Operations,” Adjusted EBITDA and Adjusted EBITDA margin in footnotes 2 and 3, respectively, in “Item 3. Key Information—A.
Selected Financial Data—Other Financial Metrics” and cash flows provided by operating activities in “—B.
Liquidity and Capital Resources” below.



IFRS Financial Statements



We operate in a single segment. Under IFRS,
income and expenses must be classified by their nature or by their function in the consolidated statements of income. We present
our consolidated statements of income by nature. As a result, income and expenses are aggregated in the consolidated statements
of income according to their nature, and are not reallocated among functions.



Factors Affecting Our Results of Operations



Growing Demand and Sales



Over the past few years, we have seen an
increase in demand for molecular nuclear medicine products as a result of an increased focus on tailored patient treatment. Improvements
in PET and SPECT technology, as well as our manufacturing expertise and know-how, have enabled us to innovate in our development
of molecular nuclear diagnostics for and molecular nuclear therapeutic treatment of serious conditions.



We realize sales from our PET and SPECT
products, enriched water and product candidates, including lutetium Lu 177 dotatate (Lutathera®). We also realize sales of
products and product candidates we manufacture for third parties. Sales are recognized when the following conditions are met: there
is an agreement between the parties; the goods have been delivered or the services rendered; the price is fixed or can be reliably
measured; and it is probable that future economic benefits from the transaction will flow to us. Rebates and discounts granted
to customers are deducted from the corresponding sales.



Our total sales were €109.3 million
(US$115.4 million) for the year ended December 31, 2016, €88.6 million (US$93.5 million) for the year ended December 31,
2015, and €69.9 million (US$73.8 million) for the year ended December 31, 2014. Historically, we have derived most of
our sales from the sale of Gluscan, which represented 39.8%, 47.5% and 46.8% of our total sales in fiscal years 2016, 2015 and
2014, respectively. We expect that sales of Gluscan and our other PET products will grow over the coming years as we seek new markets,
obtain new customers for Gluscan and obtain marketing approval for FLUOROCHOL/ AAACholine and DOPAVIEW in additional European countries.
In addition, with one of the largest manufacturing networks and one of the broadest product portfolios in the European market,
we expect to be able to successfully compete to manufacture and/or distribute new proprietary third-party products that are expected
to enter the PET market and to increase our sales by working with the owners of these products. We expect sales of our SPECT products
to grow modestly as we continue to develop or seek to acquire products or promising product candidates.



We believe that lutetium Lu 177 dotatate
(Lutathera®), our principal therapeutic molecular nuclear medicine candidate, will generate demand with significant growth
potential due to its potential ability to provide improved patient outcomes in the treatment of midgut NETs, a significant unmet
medical need. We submitted the NDA to the FDA and the MAA to the EMA for lutetium Lu 177 dotatate (Lutathera®) in April 2016.
The FDA accepted our NDA in June 2016 and granted it Priority Review. We received a complete response letter from the FDA in December
2016 identifying deficiencies with our clinical datasets for lutetium Lu 177 dotatate (Lutathera®), among other issues, which
we are working on resolving with our contract research organizations (see “Item 3. Key Information—D. Risk Factors—Regulatory
and Compliance Risks—In response to a complete response letter issued by the FDA in connection with our NDA for lutetium
Lu 177 dotatate (Lutathera®), we must revise our data format and resolve the issues identified, which has delayed the review
of lutetium Lu 177 dotatate (Lutathera®)’s NDA). We expect to commence commercial sales of lutetium Lu 177 dotatate (Lutathera®)
as soon as practicable following FDA approval or EMA marketing authorization.





98


Table of Contents




Costs of Raw Materials



The costs of our raw materials are generally
subject to price fluctuations. Historically, however, other than enriched water, we have not experienced significant price fluctuations
from our principal suppliers, although we can provide no assurance on price fluctuations or the lack thereof in the future.



As a result of experiencing significant
price fluctuations for enriched water, a key component in our radiopharmaceutical manufacturing, we acquired Marshall in 2011 to
secure our own price-stable source of enriched water. We have taken similar actions with our most recent acquisition of IDB and
may take similar actions in the future to in-source other raw materials for our manufacturing. To date, we have been able to mitigate
raw material cost increases due to our significant scale and the resulting efficiencies in our supply chain.



Raw materials for the production of lutetium
Lu 177 dotatate (Lutathera®) historically represented a high percentage of sales in the early stages of our compassionate use
and named patient basis programs, but this percentage has decreased due to the increase in sales volume and our implementation
of a new pricing policy for lutetium Lu 177 dotatate (Lutathera®). We expect these costs to further decrease on a percentage
basis primarily due to the recent acquisition of IDB, the lower cost of sourcing of Lutetium and the expected sales price of lutetium
Lu 177 dotatate (Lutathera®) once we will be able to sell following the required Marketing Authorization.



R&D Costs and Investments



Since our founding, we have focused on
building a broad portfolio of molecular nuclear medicine products. Building this portfolio requires significant up-front costs.



As discussed above, our financial statements
are presented by nature and not by function. We therefore do not present R&D costs as a single line item in our financial statements.
Instead, R&D costs are recorded in our consolidated statements of income by their nature: in personnel costs, raw materials
and consumables used and other operating expenses. Expenditure incurred during research phases is expensed as incurred. Expenditure
incurred during development phases is capitalized as intangible assets if it meets certain criteria. Such criteria are considered
not to have been met until a regulatory filing has been made in a major market and approval is considered highly probable. As a
result of this policy, no development costs have been capitalized to date. See “— Critical Accounting Policies—Internally
Generated Intangible Assets.”



Our R&D costs include clinical trials
to obtain regulatory approvals, personnel costs for our R&D team and the acquisition of specific R&D materials and manufacturing
equipment.



Total expenditures on R&D for fiscal
year 2016 were €13.8 million (€14.7 million and €10.5 million for fiscal years 2015 and 2014 respectively), primarily
related to the development of lutetium Lu 177 dotatate (Lutathera®). These consist of personnel costs of €4.0 million,
including share-based payments for R&D personnel, for fiscal year 2016 (€2.2 million and €2.4 million for fiscal
years 2015 and 2014 respectively), and other operating costs amounting to €9.8 million for fiscal year 2016 (€12.5 million
and €8.1 million for fiscal years 2015 and 2014 respectively).



At December 31, 2015, R&D costs recorded
in our statement of financial position as other intangible assets consisted of acquired in-process R&D for €17.1 million
principally resulting from the acquisitions of Atreus and BioSynthema in 2010 (€16.1 million in 2014). The carrying value
of these intangible assets increased to €17.8 million at December 31, 2016, primarily due to exchange rate fluctuations.



R&D costs may fluctuate from period
to period, as our product candidates enter various stages of development. For example, for the years ended December 31, 2016,
2015 and 2014, we incurred significant development costs related to our Phase 3 trial for lutetium Lu 177 dotatate (Lutathera®).
We expect to continue to incur development costs related to lutetium Lu 177 dotatate (Lutathera®), as well as other planned
or future clinical trials for the other products candidates in our pipeline. See “Item 4. Information on the Company—B.
Business Overview—Our Product Candidates in Clinical Development.”



Changes in Fair Value of Contingent Consideration
and Their Effects on Financial Results



The change in fair value of contingent
consideration is recorded in financial results and primarily represents the variation and adjustment relating to our valuation
of other long-term liabilities due to the former shareholders of BioSynthema, or the BI Shareholders, and former shareholders of
Atreus, or the Atreus Shareholders, which results from our earn-out obligations to such former shareholders of these acquired companies.





99


Table of Contents




For fiscal year ended December 31,
2016, we recorded a net financial loss of €5.5 million, consisting of finance income of €8.1 million and finance
costs of €13.6 million. Of these finance costs, €12.5 million was related to an increase in our other long-term
liabilities following the update of contingent consideration amounts due principally to the former BI Shareholders and Atreus Shareholders
described below. Of these finance income, €6.9 million was related to the net foreign exchange gain mainly due to the conversion
of the U.S. dollar denominated cash position into our Euro reporting currency.



For fiscal year ended December 31,
2015, we recorded a net financial loss of €6.7 million, consisting of finance income of €1.2 million and finance
costs of €7.9 million. €5.3 million of these finance costs were related to an increase of our other long-term
liabilities, following the update of contingent consideration amounts due principally to the BI Shareholders and Atreus Shareholders
described below.



Under the BioSynthema sale and
purchase agreement, we are required to pay a variable royalty amount to the BI Shareholders, consisting of a low- to
mid-single-digit percentage of annual net sales of lutetium Lu 177 dotatate (Lutathera®), if our gross profit margin with
respect to sales of lutetium Lu 177 dotatate (Lutathera®), as defined in the agreement, within that year exceeds 30%.
This consideration is payable annually for ten years following EMA marketing authorization or FDA approval for lutetium Lu
177 dotatate (Lutathera®).



The aggregate variable and fixed milestone payments due to the
BI Shareholders pursuant to the BioSynthema sale and purchase agreement are considered to be a liability classified contingent
consideration under IFRS-3. The fair value of this contingent consideration was recognized initially as part of the consideration
transferred, measured at its acquisition date fair value. The contingent consideration liability is remeasured to fair value at
each reporting date until the contingency is resolved. Changes in the fair value of this contingent consideration liability are
recognized in the income statement as finance cost or income. For the six months ended June 30, 2015 and for the fiscal year 2014,
our principal assumption for purposes of determining the net present value of this financial obligation was, other than sales forecasts,
a 67% probability of successfully commercializing lutetium Lu 177 dotatate (Lutathera®) and obtaining reimbursement, estimated
by us based on the stage of lutetium Lu 177 dotatate (Lutathera®)’s development at period end. Since September 30, 2015,
we have revised this probability to 80% following the substantial completion of lutetium Lu 177 dotatate (Lutathera®)’s
pivotal Phase 3 trial and based on the current stage of the product development at that date. The contingent liability owed to
the BI Shareholders has increased to €46.2 million at December 31, 2016 versus €33.8 million at December 31, 2015. The
increase versus December 31, 2015 is due to an updated business case with modified assumptions regarding prices and dose numbers
sold as well as launch schedules in the different countries in which we forecast to sell the product once we have obtained marketing
approval. If the probability of successfully bringing lutetium Lu 177 dotatate (Lutathera®) to commercialization with reimbursement
were to be increased to 100%, our contingent consideration liability would have amounted to €57.7 million at December 31,
2016. We also applied a discount rate of 10% to the expected cash outflows to reflect the time value of money and the estimated
risks to realizing the future cash flows. An increase or decrease of 1 percentage point in the discount rate would lead to a decrease
of €2.3 million or an increase of €2.5million of our contingent consideration liability, respectively at
December 31, 2016. An increase or decrease of 5% in the value of the Euro against foreign currencies would lead to a decrease of €1.5
million or an increase of  €1.7 million of our contingent consideration liability, respectively, at December 31, 2016.
Other items could have an impact on the contingent consideration such as the timing of marketing authorization in the various jurisdictions
or the future selling prices.



For the change in the fair value of the
BioSynthema contingent consideration liability, we recorded finance costs of €12.4 million and €3.9 million for
the year ended December 31, 2016 and December 31, 2015, respectively The charge for the year ended 2016 is mainly due to the
updating of future sales projections including the payment schedule, and to a lesser extent by the exchange rate fluctuations
between the U.S. dollar and the Euro, and by the unwinding of the discount. We revised our business plan to take into account some
modified assumptions. These consist primarily of revised sales price assumptions and a revised sales launch schedule in the United
States and in some European countries compared to the previously assumed single launch date for all the major European countries.
The total contingent consideration liability amounted to €46.2 million, €33.8 million and €29.8 million at December
31, 2016, 2015 and 2014, respectively.





100


Table of Contents




Under the Atreus sale and purchase agreement
which was concluded on December 18, 2014, we are required to pay fixed anniversary and milestone payments prior to having obtained
marketing authorization for Annexin V-128. We are also required to pay a low single digit percentage royalty on sales for a duration
of ten years following receipt of the first market authorization. Our principal assumptions at December 31, 2016 were that (1)
we would obtain such regulatory approvals in 2022 (assumed 2019 in our 2015 financial statement and 2018 in our 2014 financial
statements) (2) with a probability of occurrence of 70% for 2017 anniversary payments and milestones payments, 50% for 2018 and
2019 anniversary payments and milestones payments, 20% for 2020 and 2021 anniversary payments and milestones payments, and 30%
for further milestone payments and for royalty payments (3) a discount rate of 10% on expected cash flows.



On this basis, the contingent consideration
amounted to €5.5 million, €6.3 million and €6.0 million at December 31, 2016, 2015 and 2014, respectively. A payment
of €0.3 million explains the decrease between years 2016 and 2015. The resulting finance income of €0.5 million
for the year ended December 31, 2016 is mainly due to the revised business plan and revised future sales projections of Annexin,
partially offset by the unwinding of certain discounts. If the probability of successfully bringing Annexin V-128 to commercialization
with reimbursement were to be increased to 100%, our contingent consideration would have amounted to €17.8 million at December
31, 2016. An increase or decrease of 1 percentage point in the discount rate would respectively result in a decrease of €0.5
million or an increase of €0.5 million in the contingent consideration liability. An increase or decrease of 5 percentage
points in the value of the Canadian dollar against the Euro would result in a decrease of €0.1 million or an increase of €0.2
million in the contingent consideration liability. Other items could have an impact on the contingent consideration such as the
timing of marketing authorization in the various jurisdictions or the future selling prices.



Acquisitions



Our results of operations are significantly
affected by our past acquisitions. We incorporate an acquired business into our results of operations on the date we obtain control
of the business, which affects the comparability of sales for such period with prior periods. Similarly, our results for the year
ended December 31, 2016 may not be directly comparable to the results for the year ended December 31, 2015, which do not reflect
the effect on our results of operations of the acquisition of IDB in January 2016 and the PetNet business in May 2016.



Part of our strategy is to acquire and
consolidate complementary businesses and assets, such as promising product candidates. Any future acquisitions could limit year-to-year
comparisons of our results of operations. We may also incur substantial debt, issue additional equity securities or use other funding
sources to fund future acquisitions.



Personnel Costs, Including Share-Based
Compensation



Personnel costs consist of compensation
for employees in all functions (including salaries, social charges such as pension and medical plans and share-based compensation).
We expect our personnel costs to increase in absolute Euros as we continue to expand our operations in Europe and the United States
and hire additional personnel, particularly since we intend to establish our own sales and distribution network in the United States
for lutetium Lu 177 dotatate (Lutathera®) and potentially other product candidates.



Since becoming a public company our personnel
costs have increased and we expect this to continue. In addition, we incurred additional personnel costs related to our initial
public offering in the second half of 2015 as a result of bonuses paid to management and certain employees totaling approximately
€1.2 million.



Share-based compensation consists of grants
of rights to acquire free shares pursuant to our Free Share Plans and also of stock options and warrants. Share-based compensation
expense is measured based on the estimated fair value of the awards on the date of grant. For the Free Share Plans which were implemented
before our initial public offering, the fair value of the share price at the date of the grant was determined by reference to the
subscription price used for the most recent share capital increase that occurred prior to the date of the grant. Since the IPO,
the fair value of the share grants has been determined by reference to the share market price. For the stock option plan and the
2015 and 2016 warrant plans, the fair values have been determined by using the Black-Scholes option pricing model. For a summary
of our capital raises, see “Item 10. Additional Information—B. Articles of Association—History of Securities
Issuances.” There are only service-based vesting conditions attached to these plans. Based on historical trends, we have
assumed that 95% of the free shares allocated pursuant to our Free Share Plans will eventually be acquired by our employees. We
have also assumed that approximately 95% of the stock options allocated will be exercised and 100% of the warrants. In 2015, the
warrants were granted to six non-executive board members and in 2016, to seven non-executive board members (out of which only five
members decided to subscribe); we assumed that 100% of these warrants will be used and exchanged into shares.



Share-based compensation expense is recorded
under personnel costs and is recognized over the service period.





101


Table of Contents








Subsidies, Including the Crédit
d’Impôt Recherche (Research Tax Credit) (CIR)



We benefit from subsidies, primarily from
the CIR in France. The CIR is calculated on our claimed amount of eligible R&D expenditures in France and represented income
of €1.9 million (US$2.0 million) €4.2 million (US$4.4 million) and €3.3 million (US$3.5 million) in fiscal
years 2016, 2015 and 2014 respectively. Costs and expenditures that are eligible for the calculation and eventual claim of the
CIR are determined by the Agence Nationale de la Recherche (The French Research and Technology Agency). We record these
subsidies in our consolidated statement of income under “Other operating income”.



We are currently being audited for the
fiscal years 2013, 2014 and 2015 by the French tax authorities. The preliminary report established by the assigned CIR expert challenges
the eligibility of several of our R&D projects and expenses. The claims include, but are not limited to, not recognizing the
required innovativeness of our projects and missing or insufficient documentation. The financial consequences of this audit remain
uncertain. With the support of qualified external experts from a company specializing in CIR matters, we have reviewed all of our
projects and expenses for the period from 2013 to 2016. As a consequence of this review and on the recommendation of these experts,
we have taken a provision of €5.1 million in our financial statements closed at December 31, 2016. This provision corresponds
to our current best estimate of the CIR amount we may eventually not be able to claim. We may reassess this provision based on
our discussion with the fiscal authorities.



Other Components of Our Results of Operations



Other Operating Expenses



Other operating expenses principally consist
of third-party transport costs of PET products delivered to our customers, consulting and other professional services, such as
legal services, operating lease expenses and various administrative expenses, repairs and maintenance of production equipment and
the buildings in which such equipment is located, non-inventoried purchases, travelling expenses and communication costs and services
relating to R&D provided by external experts and companies. Since becoming a public company we incurred additional expenses
related to outside legal counsel, accounting and auditing activities, compliance with public company reporting and corporate governance
requirements, increased insurance requirements and enhancing our internal control environment.



Depreciation and Amortization



Depreciation and amortization primarily
corresponds to depreciation of tangible assets, including property, plants and equipment and amortization of intangible assets,
such as patents and customer relationships. It also includes impairment to goodwill and other assets.



Finance Income and Finance Costs



Finance income and finance costs primarily
relate to the change in fair value of contingent consideration relating to our valuation of long-term liabilities due to the BI
Shareholders and the Atreus Shareholders. See “— Factors Affecting Our Results of Operations—Changes in
Fair Value of Contingent Consideration and Their Effects on Financial Results.”



Income Taxes



We are subject to income taxes in France
and in other jurisdictions in which we operate. We do not have the ability to offset the taxes we are required to pay across borders.
Our operations are taxed in each country in which we operate.





102


Table of Contents




Net Loss for the Period Attributable
to Owners of the Company



Net loss for the period attributable to owners
of the company reflects net loss for the period less non-controlling interest. Our non-controlling interests consisted primarily
of the 49.9% interest we did not own in each of Atreus and Umbra (now AAA Germany GmbH) until December 2014. We acquired the non-controlling
interests in AAA Germany GmbH and Atreus in the last quarter of 2014 and as a consequence do not show any non-controlling interest
in the financial statements at and for the years ended December 31, 2015 and 2016.Year ended December 31, 2016 compared to
year ended December 31, 2015



The following table summarizes certain
of our financial and operating data for the years ended December 31, 2016 and 2015:



|                                                                                  |  | Year
    Ended December 31,                                                                      
|--------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                                                                  |  | 2016                                                                                             
|                                                                                  |  | US$(1)                                                                                           
|                                                                                  |  | (US Dollars and
    Euros in thousands unless otherwise noted except share and per share amounts)
|Consolidated Statements of Income:                                                |  |                                                                                                  
|Sales                                                                             |  |                                                                                                  
|Raw materials and consumables used                                                |  |                                                                                                  
|Personnel costs                                                                   |  |                                                                                                  
|Other operating expenses                                                          |  |                                                                                                  
|Other operating income                                                            |  |                                                                                                  
|Depreciation and amortization                                                     |  |                                                                                                  
|Operating loss                                                                    |  |                                                                                                  
|Finance income (including changes in fair value of contingent consideration)      |  |                                                                                                  
|Finance costs (including changes in fair value of contingent consideration)       |  |                                                                                                  
|Net Finance Loss                                                                  |  |                                                                                                  
|Loss before income taxes                                                          |  |                                                                                                  
|Income taxes                                                                      |  |                                                                                                  
|Net loss for the period                                                           |  |                                                                                                  
|                                                                                  |  |                                                                                                  
|Non-controlling interests                                                         |  |                                                                                                  
|Loss per share:                                                                   |  |                                                                                                  
|Basic (US$ and € per share)                                                       |  |                                                                                                  
|Diluted (US$ and € per share)                                                     |  |                                                                                                  
|Weighted average ordinary shares outstanding used in computing per share amounts: |  |                                                                                                  
|Basic                                                                             |  |                                                                                                  
|Diluted                                                                           |  |                                                                                                  








| | (1) | Translated solely for convenience into dollars at the noon buying rate of  €1.00=US$1.0552 at December 31,
2016.
| | --- | ----------------------------------------------------------------------------------------------------------------



Sales



Sales increased by 23%, or €20.7 million,
from €88.6 million for the year ended December 31, 2015 to €109.3 million for the year ended December 31, 2016. The increase
was due to:



| | · | the impact of the acquisitions of IDB for €7.9 million and of the PetNet business for €1.4 million;
| | - | ---------------------------------------------------------------------------------------------------



| | · | the increased sales of lutetium Lu 177 dotatate (Lutathera®) of  €3.8 million on both a named patient and compassionate
use basis;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



| | · | the continued growth in PET sales for €4.8 million; and
| | - | -------------------------------------------------------



| | · | a remaining net increase of € 2.8 million mainly due to the increase in sales of Others products partially offset by unfavorable
foreign exchange differences mainly due to the Pound Sterling.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





103


Table of Contents






Raw Materials and Consumables Used



Raw materials and consumables used increased
40% from €18.3 million for the year ended December 31, 2015 to €25.7 million for the year ended December 31, 2016. The
change was mainly the result of an increase in sales and changes to our product mix.



Personnel Costs



Personnel costs increased 41% from €29.5
million for the year ended December 31, 2015 to €41.7 million for the year ended December 31, 2016, primarily due to an increase
in the number of employees from 403 employees at December 31, 2015 to 501 employees at December 31, 2016.



The increase in the number of employees
resulted in increased salaries and social charges and other benefits. Social charges and other benefits, such as retirement and
healthcare plans, which are generally subject to inflation, are paid according to industry conventions and/or national guidelines.



Also, in preparation for the potential
launch of lutetium Lu 177 dotatate (Lutathera®) in the United States and in Europe, we hired senior and other personnel at
generally higher salaries than our previous average salary costs.



Furthermore, the adoption and use of a
new Stock Option Plan in 2016 resulted in additional costs that we did not have in the year ended December 31, 2015. The expense
recognized for stock options and free share plans in the consolidated statement of income (loss) for the year ended December 31,
2016 was €7.2 million versus €1.8 million for the year ended December 31, 2015.



Other Operating Expenses



Other operating expenses increased 20%
from €44.8 million for the year ended December 31, 2015 to €53.7 million for the year ended December 31, 2016, primarily
as a result of (1) €5.1 million provision for risk related to the audit of research tax credits in France, (2) communication
costs (an increase of   €1.6 million), (3) repairs and maintenance (an increase of  €0.9 million),
(4) travel expenses (an increase of  €1.2 million), (5) lease and other administrative expenses (an increase of 
€1.8 million), (6) third-party transportation expenses (an increase of  €1.0 million), principally attributable
to increased sales, and (7) use of consulting and other professional services (an increase of   €1.2 million),
partially offset by a decrease of  €2.6 million in external R&D services.



Other Operating Income



Other operating income decreased 27% from
€5.8 million for the year ended December 31, 2015 to €4.2 million for the year ended December 31, 2016.



Depreciation and Amortization



Depreciation and amortization increased
6%, from €11.3 million for the year ended December 31, 2015 to €12.0 million for the year ended December 31, 2016.



Operating Loss



As a result of the above, we had an operating
loss of €19.5 million for the year ended December 31, 2016, compared to an operating loss of €9.5 million for the year
ended December 31, 2015, an increase in loss of €10.0 million.



Finance Income (Including Changes in
Fair Value of Contingent Consideration)



Finance income increased 598% from €1.2 million for the
year ended December 31, 2015 to €8.1 million for the year ended December 31, 2016 of which €6.9 million was the result
of a favorable foreign exchange gain mostly due to the gain on cash and cash equivalents held in USD.





104


Table of Contents




Finance Costs (Including Changes in Fair
Value of Contingent Consideration)



Finance costs increased 73% from €7.9 million for the year
ended December 31, 2015 to €13.6 million for the year ended December 31, 2016. The increase of €5.7 million was
primarily due to a €7.1 million increase in the contingent consideration charge partially offset by a reduction of 
€1.3 million in net foreign exchange loss. See “— Factors Affecting Our Results of Operations — Changes
in Fair Value of Contingent Consideration and Their Effects on Financial Results.”



Income Taxes



The net income tax expense decreased from €0.8 million
for the year ended December 31, 2015 to €0.3 million for the year ended December 31, 2016. The net income tax expense at December
31, 2016 results from:



| | · | a deferred tax income of €2.2 million (€1.8
million at December 31, 2015) mainly related to the recognition of a deferred tax income on AAA USA tax loss for the period that
can be utilized against available taxable temporary differences;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a current tax expense of € 2.5 million (€
2.5 million at December 31, 2015) mainly generated in Italy, the Netherlands, Israel and Spain.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



The income tax rate in most of the countries
in Europe in which we operate is between 15% and 32.8%. Our entities in France, the United States, Canada, Poland and Germany did
not generate taxable income for the year ended December 31, 2016 or for the year ended December 31, 2015. The current income tax
expense was mainly generated in Italy, the Netherlands, Israel and Spain.



Net Loss for the Period



Net loss for the period increased €8.3
million from €17.0 million for the year ended December 31, 2015 to €25.3 million for the year ended December 31, 2016.



Year ended December 31, 2015 compared
to year ended December 31, 2014



The following table summarizes certain
of our financial and operating data for the years ended December 31, 2015 and 2014:



|                                                                                  |  | Year
    Ended December 31,                                                                      
|--------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------
|                                                                                  |  | 2015                                                                                             
|                                                                                  |  | US$(1)                                                                                           
|                                                                                  |  | (US Dollars and
    Euros in thousands unless otherwise noted except share and per share amounts)
|Consolidated Statements of Income:                                                |  |                                                                                                  
|Sales                                                                             |  |                                                                                                  
|Raw materials and consumables used                                                |  |                                                                                                  
|Personnel costs                                                                   |  |                                                                                                  
|Other operating expenses                                                          |  |                                                                                                  
|Other operating income                                                            |  |                                                                                                  
|Depreciation and amortization                                                     |  |                                                                                                  
|Operating loss                                                                    |  |                                                                                                  
|Finance income (including changes in fair value of contingent consideration)      |  |                                                                                                  
|Finance costs (including changes in fair value
    of contingent consideration)   |  |                                                                                                  
|Financial Loss                                                                    |  |                                                                                                  
|Loss before income taxes                                                          |  |                                                                                                  
|Income taxes                                                                      |  |                                                                                                  
|Net loss for the period                                                           |  |                                                                                                  
|Attributable to owners of the company                                             |  |                                                                                                  
|Non-controlling interests                                                         |  |                                                                                                  
|Loss per share:                                                                   |  |                                                                                                  
|Basic (US$ and € per share)                                                       |  |                                                                                                  
|Diluted (US$ and € per share)                                                     |  |                                                                                                  
|Weighted average ordinary shares outstanding used in computing per share amounts: |  |                                                                                                  
|Basic                                                                             |  |                                                                                                  
|Diluted                                                                           |  |                                                                                                  








| | (1) | Translated solely for convenience into dollars at the noon buying rate of  €1.00=US$1.0552 at December 31,
2016.
| | --- | ----------------------------------------------------------------------------------------------------------------





105


Table of Contents




Sales



Sales increased 26.8%, or €18.7 million,
from €69.9 million for the year ended December 31, 2014 to €88.6 million for the year ended December 31, 2015. The increase
was due to changes in our product mix and increased volumes as follows:



| | · | €10.9 million resulted from increased PET sales, including Gluscan, to new and existing customers, with €1.9 million
of such sales resulting from an increase in sales of IASOcholine;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the remainder resulted from increased sales of lutetium Lu 177 dotatate (Lutathera®) on both a named patient and compassionate
use basis and increased sales of other products to existing and new customers; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the increase in our product sales resulted primarily from our retention and development of existing and new client relationships,
as well as increased demand for PET products in the markets in Europe where we market and sell our products.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Raw Materials and Consumables Used



Raw materials and consumables used increased
26% from €14.6 million for the year ended December 31, 2014 to €18.3 million for the year ended December 31, 2015. The
change was mainly the result of an increase in sales and changes to our product mix.



Personnel Costs



Personnel costs increased 40% from €21.1
million for the year ended December 31, 2014 to €29.5 million for the year ended December 31, 2015, primarily due to an increase
in the number of employees from 332 employees at December 31, 2014 to 403 employees at December 31, 2015.



Also, in preparation for the potential
launch of lutetium Lu 177 dotatate (Lutathera®) in the United States and in the European Union we hired senior and other personnel
at generally higher salaries than our previous average salary costs. Furthermore the adoption and use of a new Stock Option Plan
in the second half of 2015 resulted in costs that were not represented previously. The expense recognized for stock options in
the consolidated statement of income (loss) for the year ended December 31, 2015 was €0.6 million. We also incurred one-time
costs due to the award of an initial public offering bonus (IPO Bonus) of €1.2 million to senior management and certain of
our employees.



Other Operating Expenses



Other operating expenses increased 28%
from €35.0 million for the year ended December 31, 2014 to €44.8 million for the year ended December 31, 2015, primarily
as a result of  (1) external R&D services (an increase of  €3.2 million), (2) lease and other administrative
expenses (an increase of €1.2 million), (3) communication (an increase of  €1.2 million), (4) use of consulting
and other professional services (an increase of  €1.0 million), (5) third-party transportation expenses (an increase
of  €1.0 million), principally attributable to increased sales, (6) travel expenses (an increase of  €0.5
million) and (7) taxes (an increase of  €0.5 million).





106


Table of Contents




Other Operating Income



Other operating income increased 38% from
€4.2 million for the year ended December 31, 2014 to €5.8 million for the year ended December 31, 2015, primarily as
a result of increased income from the CIR, and an increase in subsidies received in France.



Depreciation and Amortization



Depreciation and amortization decreased
5.6%, from €12.0 million for the year ended December 31, 2014 to €11.3 million for the year ended December 31, 2015.
Of the €0.7 million total decrease, €1.7 million is attributable to the decrease in Portugal assets impairment charge
partly offset by €1.0 million increase in depreciation mainly in France (€0.3 million), Italy (€0.2 million) and
due to a new production site in Germany (€0.3 million).



Operating Loss



As a result of the above, we had an operating
loss of €9.5 million for the year ended December 31, 2015, compared to an operating loss of €8.6 million for the
year ended December 31, 2014, an increase in loss of €0.9 million.



Finance Income (Including Changes in
Fair Value of Contingent Consideration)



Finance income increased 199% from €0.6
million for the year ended December 31, 2014 to €1.2 million for the year ended December 31, 2015. The increase is primarily
due to the gain on derivatives related to the foreign exchange contracts concluded by the Company in 2015.



Finance Costs (Including Changes in Fair
Value of Contingent Consideration)



Finance costs increased 330% from €2.4
million for the year ended December 31, 2014 to €7.9 million for the year ended December 31, 2015. The increase of 
€5.7 million is primarily due to an increase of  €3 million in the charge for a change in value of the contingent
consideration related to our acquisition of BioSynthema, an increase of €0.8 million in the charge for a change in value of
contingent consideration related to our acquisition of GE Healthcare’s Italian FDG-PET imaging agent business and an increase
of  €0.6 million in the charge for a change in value of the contingent consideration related to our acquisition of
Atreus for the year ended December 31, 2015 compared to the year ended December 31, 2014. See “— Factors Affecting
Our Results of Operations — Changes in Fair Value of Contingent Consideration and Their Effects on Financial
Results.” Finance costs are also impacted by a €1.4 million increase in foreign exchange loss mostly due to foreign
currencies fluctuations against the Euro with main impacts in France on USD cash assets and in Israel on EUR loans to affiliates.



Income Taxes



Income taxes expenses increased 91% at
€0.8 million for the year ended December 31, 2015 compared to €0.4 million for the year ended December 31, 2014. The
income tax rate in most of the countries in Europe in which we operate is between 15% and 35%. Our entities in France, the United
States, Canada, Poland and Germany did not generate taxable income for the year ended December 31, 2015 or for the year ended December
31, 2014. The current income tax expense was mainly generated in Italy, Spain and the United Kingdom.



Net Loss for the Period



Net loss for the period increased €6.2
million from €10.8 million for the year ended December 31, 2014 to €17.0 million for the year ended December 31, 2015.



Net Loss for the Period Attributable
to Owners of the Company



Net loss for the period attributable to
owners of the company increased €7.5 million from €9.5 million for the year ended December 31, 2014 to €17.0 million
for the year ended December 31, 2015.





107


Table of Contents




Net Loss for the Period Attributable
to Non-Controlling Interests



Net loss for the period attributable to
non-controlling interests was €1.3 million for the year ended December 31, 2014. There is no further loss attributable
to non-controlling interests for the year ended December 31, 2015 as we acquired the remaining non-controlling interest in
Umbra (now AAA Germany GmbH) and Atreus at the end of 2014.



B.       Liquidity and
Capital Resources



Funding Requirements



We primarily use cash to fund working capital
requirements, R&D costs, capital expenditures and acquisitions of other businesses. To date, we have financed our operations
primarily through sales of our ordinary shares and through loans. We have historically used a combination of cash and ordinary
shares to finance our strategic acquisitions. At December 31, 2016 and December 31, 2015 we had €222.1 million and €118.9
million, respectively, of cash and cash equivalents.



Our financial condition and liquidity is
and will continue to be influenced by a variety of factors, including:



| | · | our ability to generate cash flows from our operations;
| | - | -------------------------------------------------------



| | · | the level of our outstanding indebtedness and the interest we are obligated to pay on this indebtedness;
| | - | --------------------------------------------------------------------------------------------------------



| | · | changes in exchange rates, which will impact our generation of cash flows from operations when measured in Euros; and
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | our capital expenditure requirements.
| | - | -------------------------------------



Our future funding requirements will depend
on many factors, including but not limited to:



| | · | the scope, rate of progress, results and cost of our clinical trials, nonclinical testing and other related activities;
| | - | -----------------------------------------------------------------------------------------------------------------------



| | · | the cost, timing and outcomes of regulatory approvals;
| | - | ------------------------------------------------------



| | · | in addition to enhancing our European sales force, additional sales, marketing and distribution set-up costs associated with
establishing a U.S. sales force;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the cost of manufacturing clinical supplies and establishing commercial supplies of our product candidates and any products
that we may develop;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the terms and timing of any collaborative, licensing and other arrangements that we may establish, including any required milestone
and royalty payments thereunder;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the number and characteristics of product candidates that we pursue;
| | - | --------------------------------------------------------------------



| | · | our acquisition of other businesses or assets, including the acquisition of minority interests in operators or intellectual
property rights relating to existing or future product candidates; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | expansion of our PET and SPECT production network.
| | - | --------------------------------------------------



Adequate funds may not be available on
a timely basis, on acceptable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement
our business strategy. If we are not able to raise capital when needed, we could be forced to delay, reduce or eliminate our product
development programs or commercialization efforts.



We may raise additional capital through
the sale of equity or convertible debt securities. In such an event, your ownership interest will be diluted, and the terms of
these securities may include liquidation or other preferences that adversely affect your rights as a holder of the ADSs and their
underlying ordinary shares.





108


Table of Contents




A change in the outcome of any of these
variables with respect to the development of lutetium Lu 177 dotatate (Lutathera®) or any other product candidate could mean
a significant change in the costs and timing associated with the development of that product candidate. For example, if the EMA
or the FDA or other regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate
will be required for the completion of clinical development of lutetium Lu 177 dotatate (Lutathera®) or any other product candidate,
or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant
additional financial resources and time on the completion of clinical development.



For more information as to the risks associated
with our future funding needs, see “Item 3. Key Information—D. Risk Factors.”



Comparative Cash Flows



The following table sets forth our cash
flows for the periods indicated:



|                                                             |  | Year Ended December 31,            
|------------------------------------------------------------ |  | -----------------------------------
|                                                             |  | 2016                               
|                                                             |  | US$(1)                             
|                                                             |  | (US Dollars and Euros in thousands)
|Net cash used in operating activities                        |  |                                    
|Net cash used in investing activities                        |  |                                    
|Net cash from financing activities                           |  |                                    
|Net increase/(decrease) in cash and cash equivalents         |  |                                    
|Effect of exchange rate changes on cash and cash equivalents |  |                                    
|Cash and cash equivalents at the end of the year             |  |                                    








| | (1) | Translated solely for convenience into dollars at the noon buying rate of €1.00=US$1.0552 at December 31,
2016.
| | --- | ---------------------------------------------------------------------------------------------------------------



Operating Activities



Net cash used in operating activities was
€5.0 million for the year ended December 31, 2016 compared to €3.8 million for the year ended December 31, 2015. The
increased use of cash from operating activities is primarily explained by an increase in working capital and the ongoing expansion
of the company and corresponding increases in personnel costs, office rent and general administrative expenses, partially offset
by our increase in sales.



Net cash used in operating activities was
€3.8 million for the year ended December 31, 2015 compared to €2.4 million net cash for the year ended December 31,
2014. The decrease was primarily due to a significant increase in working capital as well as the increased charges for our R&D
efforts, primarily in the development of lutetium Lu 177 dotatate (Lutathera®) and the ongoing development of the Company and
corresponding increased personnel costs, office rent and general administrative expenses, partially offset by our increase in sales.



Investing Activities



Net cash used in investing activities increased
€23.7 million from €11.7 million for the year ended December 31, 2015 to €35.4 million for the year ended December
31, 2016. The increase was primarily due to the acquisition of the PetNet business in May 2016 for €2.2 million and the acquisition
of IDB in January 2016 for a net cash outflow of  €20.2 million as well as €1.3 million in aggregate of deposits,
intangible assets partly offset by interest received.



Net cash used in investing activities increased
38.7% from €8.4 million for the year ended December 31, 2014 to €11.7 million for the year ended December 31,
2015. The increase was primarily due to an increase in cash used for acquisition of property, plants and equipment of €2.4
million, mainly for the new production site under construction in the United States.



Financing Activities



Net cash provided by financing activities
increased €46.4 million from €90.1 million generated for the year ended December 31, 2015 to €136.5 million generated
during the year ended December 31, 2016.





109


Table of Contents




The increase resulted primarily from our
issuance of 4,539,473 American Depositary Shares (“ADSs”), which includes the full exercise of the underwriters’
option to purchase additional shares, as part of our share capital increase in October 2016 for total proceeds of €146.5
million, versus proceeds of  €97.1 million in 2015 from the issuance of 15,327,170 ordinary shares (this figure includes
the issue of 755,000 employee free shares, which resulted in no cash inflow) for the period ended December 31, 2015.



The remainder is largely due to interest
charges paid for loans and leases obtained from banks and other financial institutions, by the repayment of existing borrowings
net of proceeds from new borrowings and by the payment of contingent liabilities to former owners of acquired companies for a total
of €3.0 million.



Net cash provided by financing activities
increased €52.7 million from €37.4 million for the year ended December 31, 2014 to €90.1 million for the year
ended December 31, 2015. The increase resulted primarily from our issuance of 15,327,170 ordinary shares (this figure includes
the issue of 755,000 employee shares, which resulted in no cash inflow) as part of our share capital increases, including our initial
public offering, for the period ended December 31, 2015 for total proceeds of €97.1 million, versus proceeds of 
€40.7 million in 2014 from the issuance of 8,212,295 ordinary shares as part of our share capital increase in February 2014.



The remainder is explained by interest
charges paid for loans and leases obtained from banks and other financial institutions, by the repayment of existing borrowings
net of proceeds from new borrowings and by the payment of contingent liabilities to former owners of acquired companies for a total
of €3.2 million.



Financial Liabilities



At December 31, 2016, we had €16.3
million in financial current and non-current liabilities, including accrued interest, consisting of €4.4 million of
financial lease obligations and €11.9 million of loans, a decrease of 28% and 24%, respectively, compared to the corresponding
amounts at December 31, 2015.



At December 31, 2015, we had €21.8
million in financial current and non-current liabilities, including accrued interest, consisting of  €6.1 million of
financial lease obligations and €15.7 million of loans, a decrease of 28.2% and 14.9%, respectively, compared to the corresponding
amounts at December 31, 2014.



We provided guarantees in the form of rights
to trade receivables, inventory, equipment, land and by a mortgage for a building on €5.1 million of loans as at December
31, 2016, €8.9 million as at December 31, 2015 and €10.9 million as at December 31, 2014. We benefited from the guarantee
by OSÉO (now Banque Publique d’Investissement, or the Public Investment Bank) for €2.5 million of our
loans at December 31, 2016, €3.5 million at December 31, 2015 and €4.5 million at December 31, 2014. The Public Investment
Bank is a French public institution whose goal is to promote the development and financing of small and medium sized companies.
We have used these loans and leases primarily for expanding our production footprint and acquiring property, plants and equipment.
These loans and leases typically have a duration of five to ten years.



At December 31, 2016, €4.6 million
of the total amount of financial liabilities bore interest at a floating rate and €11.7 million bore interest at a fixed rate.
These loans and leases range from €0.1 million to €3.0 million in size with typical maturities in the range of five to
ten years. The average annual interest rate for loans and leases financed at variable interest rates was1.96% while the average
for loans or leases financed at fixed interest rates was 2.36%.At December 31, 2015, €6.1 million of the total amount of financial
liabilities was at a floating interest rate and €15.6 million was at a fixed interest rate. These loans and leases range from
€0.2 million to €3.0 million in size with typical maturities in the range of five to ten years. The average annual interest
rate for loans and leases financed at variable interest rates was 1.94% while the average for loans or leases financed at fixed
interest rates was 2.67%.



At December 31, 2014, €6.9 million
of the total amount of financial liabilities bore interest at a floating rate and €20 million bore interest at a fixed rate.
These loans and leases range from €0.1 million to €3.0 million in size with typical maturities in the range of five to
ten years. The average annual interest rate for loans and leases financed at variable interest rates was 2.0% while the average
for loans or leases financed at fixed interest rates was 2.7%



The following table presents information
relating to contractual obligations for our financial liabilities outstanding at December 31, 2016.





110


Table of Contents




|Contractual
    Obligations              |  | Less
    than 1 year                |       | Between
    1 and 5 years |  | More
    than 5 years |       | Total
|---------------------------------------- |  | ----------------------------------- | ----- | ------------------------- |  | --------------------- | ----- | -----
|                                         |  | Amounts in thousands
    of (Euros)
|Finance lease obligations(1)             |  |                                     | 1,002 |                           |  |                       | 3,018 |      
|Other loans and financial liabilities(1) |  |                                     | 3,015 |                           |  |                       | 5,471 |      
|Total                                    |  |                                     | 4,017 |                           |  |                       | 8,489 |      








| | (1) | Includes interest payments.
| | --- | ---------------------------



Other Non-Current Liabilities



At December 31, 2016, our other non-current
liabilities were €49.9 million, consisting of €49.3 million of contingent consideration and fixed milestone payments
due to the former owners of the acquired companies BioSynthema, Atreus, and GE Healthcare’s Italian FDG-PET imaging agent
business. The principal contingent consideration relates to the acquisition of BioSynthema and consists of four fixed tranches
of consideration, payable in cash and shares of the Company on reaching certain milestones as defined in the contract with BioSynthema.
For a description of these arrangement, see “—A. Operating Results—Factors Affecting Our Results of Operations—Changes
in Fair Value of Contingent Consideration and Their Effects on Financial Results.”



We have potential obligations and commitments
under various agreements and contracts that may result in additional cash and share payments to our counterparties under agreements
and contracts described below. The commitments and potential obligations are not recorded in our IFRS financial statements as they
do not meet the definition of a liability or a provision. The principal obligations are described below:



| | · | We have no more milestones obligation towards Marshall, which we acquired in 2011. Previously, we were obligated to make milestone
payments (50% paid in cash and 50% paid in our ordinary shares) if Marshall, comprising our enriched water operations, achieved
certain earnings targets during the employment of a certain Marshall manager; this obligation ended in 2016. The results for the
year 2015 were below the earn-out target and therefore AAA had no obligation to make any milestone payment in 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Under a license agreement with IASON relating to IASOcholine, IASOflu and IASOdopa, we are obligated to pay IASON royalties
for every batch of such products that we produce. In fiscal years 2014, 2015 and 2016, we recognized aggregate royalties of €0.4
million, €0.5 million and €0.4 million, respectively, to IASON.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Under a license agreement relating to products that are labeled with somatostatin analogues, we are obligated to pay a
                                                                                                               low- to mid-single-digit royalty on net sales of lutetium Lu 177 dotatate (Lutathera®), for the longer of (i) the period that
                                                                                                               the use or sale of lutetium Lu 177 dotatate (Lutathera®) is covered by a valid patent licensed under the agreement, or
                                                                                                               (ii) ten years from first commercial sale, in each case on a country-by-country basis.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, in the course of normal business
operations, we have agreements with contract service providers, such as Accelovance Europe S.r.l. and CROs to assist in the performance
of our R&D, clinical trial and manufacturing activities. Expenditures on services from CROs represent a significant cost in
clinical development. We could also enter into additional collaborative research, contract research, manufacturing, and supplier
agreements in the future, which may require upfront payments and even long-term cash commitments.



Internal Control Over Financial Reporting



Effective internal controls over financial
reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures,
are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations. Section 404 of the Sarbanes-Oxley Act, or SOX, requires
management of public companies to develop and implement internal controls over financial reporting and evaluate the effectiveness
thereof. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected
on a timely basis.





111


Table of Contents




In connection with the preparation of the
2016 annual financial statements, our management, including our Chief Executive Officer and Chief Financial Officer, identified
material weaknesses in our internal controls over financial reporting. We also identified a larger number of significant deficiencies
in our internal controls. As a result of these material weaknesses, management has concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2016. For additional information on internal controls over
financing reporting, see “Item 15. Controls And Procedures—B. Management’s Annual Report on Internal Control
over Financial Reporting”.



Critical Accounting Estimates and Judgments



Our management’s discussion and analysis
of our financial condition and results of operations is based on our financial statements, which we have prepared in conformity
with IFRS. The preparation of the consolidated financial statements in conformity with IFRS requires use of estimates and assumptions,
which have an impact on the amounts reported in our financial statements. These estimates may be revised if circumstances change
or if new information becomes available. The actual results may therefore differ from the initial estimates.



While our significant accounting policies
are more fully described in the notes to our consolidated financial statements appearing elsewhere in this annual report on Form
20-F, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating
our financial condition and results of operations.



Revenue Recognition



Sales are recognized when the following
conditions are satisfied:



| | · | there is an agreement between the parties;
| | - | ------------------------------------------



| | · | the goods have been delivered or the services rendered (i.e. the transfer of risks and benefits of ownership has taken place);
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | the price is fixed or can be reliably measured; and
| | - | ---------------------------------------------------



| | · | it is probable that future economic benefits from the transaction will flow to the Company.
| | - | -------------------------------------------------------------------------------------------



Rebates and discounts granted to customers
are deducted from the corresponding sales.



Certain of the products and product candidates
that we sell have a very short shelf life, in particular our PET products, which have a useful shelf life of approximately ten
hours. These PET products and product candidates are manufactured in batch processes overnight and delivered to customers, generally
located close to the production site, in the morning. The transfer of ownership occurs when the product is delivered to the customer,
which is also the date on which the sales are recognized in the consolidated statement of income.



We may enter into supply agreements with
certain large pharmaceutical groups for the production of PET products. Such agreements define the sale and invoicing of doses
during the distribution phase. Sales are recognized on product delivery, similar to other products that we manufacture and sell.
Such agreements may also include transfer of assets from customers. The related revenue recognition is spread over the term of
the contract under IFRIC18 as we consider such revenue transfer to be an integral part of the supply agreement.



Internally Generated Intangible Assets



Expenditure on research activities is expensed
as incurred.



Expenditure on development activities is
capitalized as an internally generated intangible asset resulting from a development project if, and only if, all of the following
criteria exist:



| | · | there is technical feasibility to complete the development project;
| | - | -------------------------------------------------------------------



| | · | we have the intention to complete the project and to use or sell it;
| | - | --------------------------------------------------------------------





112


Table of Contents




| | · | we have the ability to use the intangible asset;
| | - | ------------------------------------------------



| | · | probability that the intangible asset is likely to generate future economic benefits;
| | - | -------------------------------------------------------------------------------------



| | · | there is availability of adequate technical, financial and other resources to complete the development project; and
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | we have the ability to measure reliably the expenditures allocated to the development project.
| | - | ----------------------------------------------------------------------------------------------



A development project is initially recognized
corresponding to the sum of all expenditure incurred after the date on which the development project met all of the above criteria.
When all of the above criteria are not met, development expenditure is expensed as incurred. We have determined that the criteria
for capitalization are considered not to have been met until a regulatory filing has been made in a major market and approval is
considered highly probable.



In accordance with the above criteria,
there has been no R&D expenditure capitalized to date.



Business Combinations



In a business combination, and in accordance
with the revised IFRS 3, the consideration transferred, or acquisition cost, is measured at fair value, which is the sum of the
acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners
of the acquired assets and the equity interests issued by the acquirer. The identifiable assets acquired, and liabilities assumed
of the company, are assessed at their acquisition-date fair values. The costs directly attributable to the acquisition are accounted
for in “Other operating expenses.”



Goodwill represents the fair value of the
consideration transferred (including the fair value of any interest previously held in the acquiree) plus the carrying amount of
any non-controlling interest, less the amount recognized (in general at fair value) of the identifiable assets acquired and liabilities
assumed. For each business combination, we may elect to measure any non-controlling interest in the acquiree either at the non-controlling
interest’s proportionate share of the acquiree’s identifiable net assets or at fair value. Under the latter method
(called the full goodwill method), goodwill is recognized on the full amount of the identifiable assets acquired and liabilities
assumed.



In the case of a business combination achieved
in stages, the equity interest previously held by us is remeasured at its fair value at the acquisition date. Any resulting gain
or loss is recognized directly in profit or loss (“Other finance income” or “Other finance costs”).



The provisional amounts recognized at the
acquisition date may be adjusted retrospectively during a 12-month measurement period if new information is obtained about facts
and circumstances that existed as of the acquisition date. Goodwill cannot be adjusted after the measurement period. The subsequent
acquisition of non-controlling interests does not give rise to the recognition of additional goodwill.



Furthermore, any contingent consideration
is included in the cost of the acquisition at its acquisition-date fair value, even if it is not probable that an outflow of resources
reflecting economic benefits will be required to settle the obligation. Subsequent changes in the fair value of contingent consideration
due to facts and circumstances that existed as of the acquisition date are recorded by adjusting goodwill if they occur during
the measurement period or directly in profit or loss for the period (“Other finance income” or “Other finance
expenses”) if they arise after the measurement period, unless the obligation is settled in equity instruments, in which case
the contingent consideration is not remeasured.



If, after reassessment, the fair value
of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred measured at fair value and the
amount of any non-controlling interest in the acquiree, the excess is recognized immediately in profit or loss as a bargain.





113


Table of Contents




Contingent Consideration in the Context
of Completed Acquisitions



We are committed to paying contingent consideration
to certain former owners of certain acquired companies, as set forth in each acquisition agreement. As indicated above under “— Business
Combinations,” any contingent consideration is included in the acquisition cost at fair value at the acquisition date. Subsequent
changes in the fair value of contingent consideration occurring during the measurement period due to new information obtained about
facts and circumstances that existed as of the acquisition date are recorded by adjusting goodwill. Such subsequent changes are
recorded directly in the income statement (“Net finance costs”) if they arise after the measurement period, unless
the contingent consideration obligation is settled in equity instruments.



Our primary contingent consideration
liability relates to payments owed to the BI Shareholders. The payments consist of three fixed milestone payments in cash and
ordinary shares of the Company, in addition to the initial consideration of cash and shares paid. These milestones are based
on reaching certain targets in the development of lutetium Lu 177 dotatate (Lutathera®). At December 31, 2016, we
had paid the initial consideration and the first milestone payment. The contingent consideration also includes a variable
royalty amount calculated at a low- to mid-single-digit percentage of future annual net sales of lutetium Lu 177 dotatate
(Lutathera®), assuming that our gross profit margin with respect to lutetium Lu 177 dotatate (Lutathera®), as defined
in the BioSynthema sale and purchase agreement, exceeds 30% for the relevant year. At December 31, 2016, 2015 and 2014,
the main assumptions used in calculating the amount of this fixed and variable contingent consideration involved:



| | · | our sales forecasts for lutetium Lu 177 dotatate (Lutathera®), using our most recent respective business plans;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | a 80% at December 31, 2016 and 2015and a 67% at December 31, 2014, probability of successfully commercializing lutetium Lu
177 dotatate (Lutathera®) and obtaining reimbursement, estimated by us based on the stage of lutetium Lu 177 dotatate (Lutathera®)’s
development at the end of the reporting period; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a discount rate of 10% to the expected cash outflows to reflect the time value of money and the estimated risks to realizing
the future cash flows.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



On this basis, the contingent consideration liability amounted
to €46.2 million, €33.8 million and €29.8 million at December 31, 2016, 2015 and 2014, respectively. If the probability
of occurrence was to be increased to 100%, the contingent consideration would have amounted to €57.7 million at December 31,
2016. An increase or decrease of one percentage point in the discount rate would respectively lead to a decrease of €2.3
million or an increase of €2.5 million, in the contingent consideration liability at December 31, 2016. An increase
or decrease of 5 percentage points in exchange rate used in the calculation would respectively lead to a decrease of €1.5
million or an increase of €1.7 million in the contingent consideration liability at December 31, 2016. Other items
could have an impact on the contingent consideration such as the timing of market authorization in the various jurisdictions or
the future selling prices.



The resulting finance charge of 
€12.4 million over the year ended December 31, 2016 is mainly due to the updating of future sales projections including payment
schedules, and to a lesser extent due to the exchange rate fluctuations between the U.S. dollar and the Euro, and by the unwinding
of the discount. The finance charge of €3.9 million for the fiscal year 2015 is mainly due to the increase in the probability
of occurrence from 67% to 80% as the Company had substantially completed lutetium Lu 177 dotatate (Lutathera®) Phase 3 development
at December 31, 2015 and to a lesser extent to the exchange rate fluctuations between the U.S. dollar and the Euro, and to the
unwinding of the discount. Those impacts are partially offset by the updating of the business plan on future sales of lutetium
Lu 177 dotatate (Lutathera®).



The Company revised the business plan of
future sales of lutetium Lu 177 dotatate (Lutathera®) to take into account some modified assumptions. These consist primarily
of a revised sales price in the United States combined with a change in launch schedule for some countries in Europe compared to
the previously assumed launch date for all the major European countries.



On December 18, 2014, we acquired
the remaining 49.9% non-controlling interest in Atreus. As a result of this acquisition, we currently own 100% of Atreus. The consideration
to be paid for this acquisition is composed of fixed anniversary and milestone payments prior to having obtained marketing authorization
for Annexin V-128 and of contingent consideration based on a low single-digit percentage royalty on sales of Annexin V-128 for
a duration of 10 years following the receipt of marketing authorization.





114


Table of Contents




At December 31, 2016, the main assumptions
used in calculating the amount of this fixed and variable contingent consideration were the following:



| | · | Regulatory approval obtained in 2022 (previous assumption of 2018 was used until June 30, 2015);
| | - | ------------------------------------------------------------------------------------------------



| | · | Future sales of Annexin V-128 based on our most recent business plan;
| | - | ---------------------------------------------------------------------



| | · | Probability of occurrence: 70% for 2017, 50% for 2018 and 2019 anniversary payments and milestones payments, 20% for 2020 and
2021 anniversary payments and milestones payments and then 30% for further anniversary payments and milestone payments and for
royalty payments, all of which require regulatory approval and/or commercial sales of Annexin V-128, estimated by us based on the
stage of product development at the end of the reporting period; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Discount rate of 10% to reflect the time value of money and the estimated risk of not realizing future cash flows.
| | - | ------------------------------------------------------------------------------------------------------------------



On this basis, the contingent consideration
amounted to €5.5 million and €6.9 million at December 31, 2016 and 2015, respectively. The resulting finance loss of €0.5
million for the year ended December 31, 2016 is mainly due to the revised forecast revenues of Annexin, revised probability of
occurrence of successfully collecting anniversary and milestone payments and exchange rate fluctuations between the Canadian dollar
and the Euro.



If the probability of occurrence was to
be increased to 100% for all payments, the contingent consideration would have amounted to €17.8 million at December 31, 2016.
An increase or decrease of 1 percentage point in the discount rate would lead to a decrease of €0.5 million or an increase
of €0.5 million of the contingent consideration liability, respectively. An increase or decrease of 5 percentage points in
the Canadian dollar against the Euro would lead to a decrease of €0.1 million or an increase of €0.2 million in the contingent
consideration liability, respectively. Other items could have an impact on the contingent consideration such as the timing of marketing
authorization in the various jurisdictions or future selling prices.



Impairment Testing



In accordance with IAS 36, the carrying
amount of goodwill and intangible assets not subject to amortization is tested at least once a year or whenever events or changes
in the internal or external environment indicate a risk of loss of value. For property, plants and equipment or intangible assets
subject to amortization, such tests are carried out only when new events or circumstances indicate that their carrying amounts
may not be recoverable.



For the purposes of these tests, the carrying
amounts of assets are allocated to cash-generating units, or CGUs, or to groups of CGUs. Under IAS 36, an impairment loss is recognized
when the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or CGU is the higher of fair value
less costs to sell and value in use.



Fair value less costs to sell is the amount
obtainable from the sale of an asset or the price paid to transfer a liability in an orderly transaction between market participants
at the measurement date.



Value in use is the present value of estimated
future cash flows expected to be derived from the continuing use of the asset or CGU. It is determined from the estimated cash
flows based on budgets and business plans over periods ranging from five to ten years. Subsequent cash flows are estimated by applying
a constant rate of positive or negative growth. The discount rate reflects current market conditions, the time value of money and
the specific risks associated with the asset or CGU.



Key assumptions underlying the impairment
testing are the estimated future cash flows and the discount rates. Sensitivity analysis on changes in these assumptions are described
in note 5.4.2 to the consolidated financial statements as of December 31, 2016, 2015 and 2014 included elsewhere in this annual
report on Form 20-F. We have done new impairment tests for the consolidated financial statements as of, and for the year ended,
December 31, 2016. Those tests lead to a reversal of the impairment of €1.8 million for the Portugal CGU for the year
ended December 31, 2016. The increase in the Portugal CGU enterprise value is driven by an improvement of sales projections both
on existing products (other pharmaceutical products) and products under development (Annexin) compared to the projections made
for the test in 2015. Lutetium Lu 177 dotatate (Lutathera®)Share-Based Payments.





115


Table of Contents




We have implemented Free Share Plans in
which certain of our employees participate.



These plans provide for the grant of equity-settled
share-based payments that are measured at fair value on the grant date in accordance with IFRS 2. The cumulative expense recognized
is based on the fair value at the grant date. It is recognized over the vesting period in net operating income directly through
equity.



Compensation expense is recognized in the
consolidated statement of income based on the estimated fair value of the awards on the date of grant. The fair value of the share
price at the date of the grant was determined, prior to the initial public offering, by reference to the subscription price paid
in the most recent share capital increase that occurred prior to the date of the grant. As of the completion of the initial public
offering the fair value of the share price is the closing share price at the end of the day the share grant is made. For a summary
of our capital increases, see “Item 10. Additional Information—B. Articles of Association—History of Securities
Issuances.” There are only service-based vesting conditions for the free shares granted pursuant to our Free Share Plans.
Based on historical trends, we have assumed that 95% of the free shares allocated will eventually be acquired by our employees.



On November 10, 2015, the day of the initial
public offering pricing, the board of directors made use of a new Stock Option Plan which was authorized by shareholders in June
2015. A total of 3,947,625 stock options were granted in a first allocation round to employees. These stock options have an exercise
price of US$8.00 (€7.45 at the exchange rate at grant date). The vesting period is 3 years and one option entitles to buy
one ordinary share. The residual contractual life of these options was 8.85 years at December 31, 2016. In 2016, the board of directors
made two option allocations to employees. One allocation of 2,137,050 options was made on August 30, 2016 at an exercise price
of US$17.21 (valued at €15.41 as of the grant date). Another allocation of 100,000 options was made on December 22, 2016 at
an exercise price of US$13.89 (valued at €13.30 as of the grant date). The residual contractual life of these options was
9.67 years and 9.98 years respectively on December 31, 2016. No options were exercisable on December 31, 2016. The fair value of
options granted through these allocations was estimated by using the Black-Scholes option pricing model with assumptions as described
in note 4.3.2 to the consolidated financial statements.



Provision for the Decommissioning of PET Production Sites



The manufacture of certain products in
the field of molecular nuclear medicine generates radiation and causes the contamination of production site facilities (in particular
the cyclotron). Our subsidiaries producing PET products have a legal obligation to dismantle and decontaminate their site and production
equipment at the end of their useful lives. The provision is initially recognized through an additional cost of the related asset
which is then amortized over its useful life. The provision is updated at each reporting date; unwinding of the discounting of
the provision is recognized as a finance cost and any changes in the estimated ultimate costs of decommissioning are recognized
within the cost of the related asset.



At December 31, 2016, these provisions
amounted to €7.9 million. The increase of €0.8 million between December 31, 2015 and 2016 relates to the unwinding
of the discounting of the obligation and the acquisition of the Erlangen site via the PetNet business acquisition. At December
31, 2015, these provisions amounted to €7.2 million compared with €6.9 million at December 31, 2014. The increase of
approximately €0.3 million between 2014 and 2015 is due to the unwinding of the discounting of the obligation for €0.3
million and the installation of three new cyclotrons in Germany and France in 2014.



Decommissioning costs for a typical site
have been estimated by an independent expert. From this base cost and with annual inflation assumed to be 2%, we have estimated
the expected decommissioning costs at the forecast date for each site concerned. These costs are then discounted to the reporting
date. The discount rate applied is 4.33% (4.57% at December 31, 2015 and 2014). A change (decrease or increase) of 1 percentage
point in this rate would lead to a respective increase or decrease in the provision of €0.3 million and €0.2 million.



Recent Accounting Pronouncements



See note 3.3 to the consolidated financial
statements.



C.       Research and
Development, Patents and Licenses, etc.



See “Item 4. Information on the Company—B.
Business Overview”





116


Table of Contents




D.       Trend Information



See “Item 5. Operating and Financial
Review and Prospects—A. Operating and Financial Review and Prospects.”



E.       Off-balance
Sheet Arrangements



We currently do not have any off-balance
sheet arrangements.



F.       Tabular Disclosure
of Contractual Obligations



See “Item 5. Operating and Financial
Review and Prospects—B. Liquidity and Capital Resources—Financial Liabilities.”



The Company has other obligations in connection
with retirement obligation which are described in note 5.12 to the Consolidated Financial Statements. As these obligations
are not contractually fixed as to timing and amount, they have not been included in this disclosure.



G.       Safe Harbor



See “Forward-Looking Statements.”



117


Table of Contents




ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES



A.       Directors and
Senior Management



The following table sets forth information
regarding our executive officers, key employees and directors. Ages are as of December 31, 2016.



|Name                                 | Age | Position                             | Initial
        Year of Appointment
|------------------------------------ | --- | ------------------------------------ | -----------------------------------
|Executive Officers and Key Employees |     |                                      |                                    
|Stefano Buono                        | 50  | Chief Executive Officer              | 2002                               
|Heinz Mäusli                         | 53  | Chief Financial Officer              | 2008                               
|Gérard Ber                           | 58  | Chief Operating Officer              | 2002                               
|Claude Hariton                       | 61  | Global Head of R&D                   | 2014                               
|                                     |     |                                      |                                    
|Board of Directors                   |     |                                      |                                    
|Claudio Costamagna                   | 60  | Chairman                             | 2010                               
|Stefano Buono                        | 50  | Director and Chief Executive Officer | 2002                               
|François Nader                       | 60  | Director                             | 2016                               
|Kapil Dhingra                        | 57  | Director                             | 2014                               
|Steve Gannon                         | 55  | Director                             | 2014                               
|Yvonne Greenstreet                   | 54  | Director                             | 2014                               
|Christian Merle                      | 63  | Director                             | 2014                               
|Leopoldo Zambeletti                  | 48  | Director                             | 2014                               



The following is a brief summary of the
business experience of our executive officers, key employees and directors:



Stefano Buono is the Chief Executive
Officer, a member of our board of directors, and a founder of AAA. Prior to founding AAA in 2002, Mr. Buono worked as a physicist
at the Centre for Advanced Studies, Research and Development, or CRS4. During his six years with CRS4, Mr. Buono headed a team
of engineers working on different international research projects in the field of energy production and nuclear waste transmutation.
For approximately ten years, he worked with Physics Nobel Laureate Carlo Rubbia at CERN, the world’s largest research laboratory
for particle physics. He actively participated in the development of CERN’s Adiabatic Resonance Crossing method. He is the
author of numerous scientific papers. Mr. Buono received his master’s degree in physics from the Universita degli Studi di
Torino in Turin, Italy in 1991.



Heinz Mäusli is the Chief Financial
Officer and a former member of our board of directors from 2008 to 2014. Mr. Mäusli joined AAA in 2003. He also serves as
a member of the boards of directors of several of AAA’s subsidiaries. Prior to joining AAA, Mr. Mäusli was a management
consultant for Accenture from 1996 to 2001 and Gemini Consulting from 1995 to 1996. Mr. Mäusli received a master’s degree
from the University of St. Gallen in St. Gallen, Switzerland in 1988 and a master’s degree in business administration from
Columbia Business School in New York City, New York in 1995.



Gérard Ber is the Chief Operating
Officer and a former member of our board of directors from 2002 to 2014. Mr. Ber joined AAA in 2002. Prior to joining AAA, Mr.
Ber served as the Director of OM Pharma’s Western European group from 2000 to 2002, the Director General and Director of
Marketing and Commerce for CIS Medipro from 1994 to 2000, and in various management roles at CIS Bio International from 1984 to
1994. He is also a member of the boards of directors of several of AAA’s subsidiaries. Mr. Ber received a PhD in pharmacy
and a master’s degree in advanced studies in food science from the Université Scientifique et Médicale de Grenoble
in Grenoble, France in 1983 and 1984, respectively, and a degree in marketing and international commerce from the Institut de Pharmacie
Industrielle de Paris in Paris, France in 1984.





118


Table of Contents




Claude Hariton joined AAA in February 2014
as Head of Clinical Development. He was appointed Global Head of Research and Development in January 2016. Over the last 25 years,
he has held senior positions in biotechnology and pharmaceutical companies in Switzerland, Canada, Australia, Germany, Spain and
the United Kingdom, with his most recent positions including Vice President, Global Head of Regulatory Affairs at Mayne Pharma,
Vice President, Clinical and Regulatory Affairs and Chief Medical Officer at Aeterna-Zentaris, Vice President, Scientific Affairs
at Fresenius and Vice President, Global Head of R&D at ISDIN. Dr. Hariton received his PhD in neuroscience from the University
of Sciences in Marseille, France in 1984 and conducted postdoctoral research at INSERM U278 also in Marseille, France. He received
his DSc in Pharmacology from the University of Medicine in Marseille, France in 1988 while leading drug development at Ciba Geigy
and Novartis in Switzerland, and was appointed Associate Professor at the School of Medicine in Marseille, France in 1998.



Claudio Costamagnais the Chairman
of our board of directors and was appointed to our board in January 2010. He is the founder and Chairman of the financial
advisory boutique CC&Co. and Chairman of Cassa Depositi e Prestiti S.p.A. (CDP). He also sits on the Board and is the Chair
of the Compensation Committee of FTI Consulting Inc. a company listed on the NYSE. He previously held senior positions at Citigroup,
Montedison, and most recently, Goldman Sachs, where he served until 2006 as Chairman of the Investment Banking division for Europe
and the Middle East. He has served as Independent Board Member of several public companies including, among others, Luxottica Group,
Bulgari S.p.A. and Virgin Group Holding. Mr. Costamagna holds a degree in Business Administration from Università Bocconi
in Milan.



François Nader became a member
of our board of directors in May 2016. From 2008 to 2015, Dr. Nader served as the President, Chief Executive Officer and a member
of the Board of Directors of NPS Pharmaceuticals, Inc. and previously served as Chief Operating Officer in 2007, and Chief Medical
and Commercial officer in 2006. He currently serves as Chairman of the Board of Acceleron Pharma, and as a member of the Board
of Directors of Clementia Pharmaceuticals and ArRETT Neurosciences. Dr. Nader was recognized as the EY US National Life Science
Entrepreneur of the Year® in 2013. Before joining NPS, Dr. Nader was a venture partner at Care Capital. Prior to that, he served
on the North America Leadership Team of Aventis and its predecessor companies holding a number of executive positions in the U.S.
and Canada, including Senior Vice President, U.S. integrated healthcare markets and North America medical and regulatory affairs.
Previously, he led the global commercial operations at the Pasteur Vaccines division of Rhone-Poulenc. Dr. Nader earned his French
Doctorate in Medicine from St. Joseph University in Lebanon in 1981 and his Physician Executive MBA from the University of Tennessee
in 2000.



Kapil Dhingra became a member of
our board of directors in March 2014. Dr. Dhingra founded and is the head of KAPital Consulting, a healthcare consulting firm.
Prior to joining AAA, Dr. Dhingra worked for over 25 years in oncology clinical research and drug development. His experience includes
nine years at Hoffman-La Roche, where he served in various positions, including Vice President, Head of the Oncology Disease Biology
Leadership Team and Head of Oncology Clinical Development. Prior to that, he worked as a Senior Clinical Research Physician at
Eli Lilly and Company. Dr. Dhingra specialized in internal medicine and medical oncology. He holds an MD (MBBS) degree from the
All India Institute of Medical Sciences in New Delhi, India, with subsequent residency in internal medicine at Lincoln Medical
and Mental Health Center in New York City, New York and New York Medical College in Valhalla, New York, and was a Fellow in hematology/oncology
at Emory University School of Medicine in Atlanta, Georgia. He has served as independent Board member of several public companies,
including Micromet, Algeta and, Five Prime.



Steven Gannon became a member of
our board of directors in June 2014. He was a Senior Vice President and the Chief Financial Officer and Treasurer at Aptalis
Pharma Inc. until February 2014, after which it was sold to Forest Laboratories. Prior to joining Aptalis Pharma Inc. in 2006,
Mr. Gannon served as the Chief Financial Officer for Cryocath Technologies, Inc. from 1999 to 2006, as the Director of Finance
and Administration of the Research Division of Astrazeneca Canada Inc. from 1996 to 1999, and as the Chief Financial Officer of
Mallinckrodt Medical Inc.’s Canadian operations from 1989 to 1995. Mr. Gannon serves as a member of the Board of Directors
of Xenon Pharmaceuticals Inc., Laborie Medical Technologies Inc. and EnGene Inc. He received a bachelor of commerce in accounting
and business systems from Concordia University in Montreal, Canada in 1983, and completed the Executive Program at the Richard
Ivey School of Business at the University of Western Ontario in Ontario, Canada in 1995. He has been a chartered accountant since
1985.





119


Table of Contents




Yvonne Greenstreetbecame a member
of our board of directors in June 2014. Dr. Greenstreet was a senior vice president and the Head of Medicines Development
at Pfizer from 2010 to 2013. Prior to joining Pfizer, Dr. Greenstreet served in various roles at GlaxoSmithKline from 1992 to 2010,
including Chief Medical Officer for Europe and Chief of Strategy. Dr. Greenstreet currently serves as the Chief Operating Officer
of Alnylam Pharmaceuticals and serves on the Advisory Board of the Bill and Melinda Gates Foundation and as a member of the
board of directors of Pacira, Moelis and Company and Indivior. She completed her medical training at the University of London Hospitals
in London, United Kingdom in 1990, and received her MBChB from the University of Leeds in Leeds, United Kingdom in 1985. She subsequently
completed a master’s degree in business administration at INSEAD in Fontainebleau, France in 1991.



Christian Merle became a member
of our board of directors in June 2014. Mr. Merle is the Managing Partner of Merle & Partners. Prior to founding Merle
& Partners in 2014, Mr. Merle was the Chief Executive Officer of Banque Espirito Santo from 2007 to 2013, the Managing Partner
of Gimar & Cie from 2003 to 2007 and the Chief Executive Officer of Banca Intesa from 1998 to 2003. Prior to joining Banca
Intesa, he served in various roles at Credit Agricole, including as the Executive Vice President of Credit Agricole Indosuez. He
also served in various roles in the French Treasury, including the Chief Representative in the United States from 1987 to 1990.
He received his undergraduate degree from the Institut d’Etudes Politiques de Paris in 1974 and a master’s degree in
economics from the Université de Paris I-Panthéon Sorbonne in 1975, both in Paris, France.



Leopoldo Zambeletti became a member
of our board of directors in June 2014. Mr. Zambeletti is an independent financial advisor in the Life Science sector. In
this capacity he has advised various companies on corporate finance matters including advising Nogra Pharma in the largest ever
out licensing to Celgene for a compound in development. Prior to becoming an advisor, Mr. Zambeletti was a managing director and
Head of European, India and MENA Healthcare Investment Banking at Credit Suisse and a managing director and the Head of the Ultra
High Net Worth group at Credit Suisse’s investment bank from 2007 to 2012. From 1994 to 2007, he held various positions at
J.P. Morgan, including as Head of Healthcare Investment Banking of Europe. He received a bachelor’s degree in business administration
from the Università Commerciale Luigi Bocconi in Milan, Italy in 1992. Mr. Zambeletti serves as a member of the board of
directors of Nogra Pharma, Summit Therapeutics Qardio, Dignity Biosciences, Faron Pharmaceuticals and Immelpis. He is also a trustee
of Saint Barts and the London Charity.



B.       Compensation



Compensation of Senior Management and the Board of Directors



The aggregate compensation paid and benefits
in kind granted by us to our senior management (consisting of CEO, COO, CFO and Global Head of R&D), including annual performance
bonus and social and pension benefits for the year ended December 31, 2016 was 4.1 million (US$4.4 million). In addition,
these four senior managers received in the financial year 2016 a total of 310,000 stock options. No employee shares were awarded
to these four individuals in 2016. See below the tables with details on share and options grants under “—Equity Awards
to Senior Management”.



Our non-employee directors were paid as
a group a total of €695,000 (US$733,364) for services rendered in board and audit, R&D and compensation committee meetings
(this excludes travel costs) in the year 2016. The fees members of the board were entitled to in 2016 are:



| | · | Attendance fees: €80,000 (US$84,416) for all board meetings; and
| | - | ----------------------------------------------------------------



| | · | Attendance fees for board committee: €15,000 (US$15,828) for members and €20,000 (US$21,104) for the Chairperson.
| | - | -----------------------------------------------------------------------------------------------------------------



Warrant Plans



We received shareholder approval for a
new warrant plan in 2016 for our non-executive Board Members. The extraordinary general meeting resolution of May 26, 2016 authorized
the board to implement a warrant plan within a period of 18 months following the meeting. The maximum exercise period is three
years as from the date of issuance of any warrants. The shareholders approved the issuance of up to 149,800 warrants. One warrant
entitles its owner to buy one ordinary share. The warrant subscription price and the share exercise price were determined with
the support of an external valuation specialist. As of October 7, 2016 a total of 112,500 warrants have been subscribed for and
paid for by our non-executive board members. Each warrant is exercisable from the date of issue until October 6, 2019, and may
be exercised in exchange for one ordinary share at a price of €14.58 per share. The remaining unexercised 37,300 warrants
may be issued before November 25, 2017. The warrant subscription price and share exercise price of any future issuances would be
determined by a future external valuation.





120


Table of Contents




Equity Awards to Senior Management



We granted stock-options to our senior
management in 2016 at US$17.21 with an expiration date of August 30, 2026 as follows:



|Senior
    Management                     |  | Stock
    Options |        
|----------------------------------------- |  | ----------------- | -------
|Stefano Buono (CEO)                       |  |                   | 120,000
|Gérard Ber (COO)                          |  |                   | 100,000
|Heinz Mäusli (CFO)                        |  |                   | 90,000 
|Claude Hariton (Global Head of R&D)       |  |                   | 50,000 
|Total Shares Granted to Senior Management |  |                   | 360,000



In addition to the above options a total
of 10,000 free shares were allocated to Claude Hariton in 2016. See “—Free share plans” below.



Free share plans



In 2006, we established the first plan
for the allocation of free shares, the 2006 Free Share Plan. In 2010, we established the second plan for the allocation of free
shares, the 2010 Free Share Plan. In 2013, we established the third plan for the allocation of free shares, the 2013 Free Share
Plan, and together with the 2010 Free Share Plan and the 2006 Free Share Plan, the Free Share Plans. Each of the Free Share Plans
was approved by our shareholders.



The right to acquire free shares (at zero
purchase costs for the beneficiary) is a contractual right to receive ordinary shares in the future if certain vesting conditions
are met. Following vesting, ordinary shares (the free shares) are issued in respect of such acquisition rights but generally remain
subject to a holding period during which transfer of the free shares is restricted. During the holding period, free shares carry
dividend, information and voting rights.



Prior Plans



The 2006 Free Share Plan and the 2010 Free
Share Plan are no longer used to make new grants of free shares. As of December 31, 2016, under the 2010 Free Share Plan, there
were 370,000 rights to acquire free shares that are not yet issued. The terms of the 2006 Free Share Plan and the 2010 Free Share
Plan are substantially similar to those of the 2013 Free Share Plan described below (except for the duration of the vesting and
holding periods for certain beneficiaries who are non-French tax residents).



2013 Plan



Administration. Our board of directors
has the authority to administer the 2013 Free Share Plan, subject to the provisions that fall within the exclusive competence of
an extraordinary general meeting of our shareholders. Subject to the terms of the 2013 Free Share Plan, our board of directors
determines recipients, dates of grant, the number of free shares to be granted and the terms and conditions of the free shares.



Eligibility. Our employees, corporate
officers, directors and those of our affiliated companies are eligible to be granted free shares under the 2013 Free Share Plan.
However no free share may be granted to a person holding more than 10% of our share capital or who would hold more than 10% of
our share capital as a result of such grant.



Share Reserve and use of this plan.
The maximum number of our ordinary shares that may be issued under the 2013 Free Share Plan is 500,000. In addition, under French
law, the number of free shares issued may not exceed 10% of the outstanding share capital on a non-diluted basis as at the date
of grant. As of December 31, 2016, all 500,000 rights to acquire free shares have been awarded under the 2013 Plan and the
first 140,000 shares have been acquired by the beneficiaries in November 2016. The remaining 360,000 may be acquired, subject to
certain service conditions, before the end of 2018.





121


Table of Contents




Vesting and Holding Periods. Awards
granted under the 2013 Free Share Plan must have a vesting period of at least two years from the date of grant of the right to
acquire free shares and a holding period of at least two years from the effective date of the acquisition of the free shares (which
is generally expected to be concurrent with vesting), except for certain beneficiaries who are non-French tax residents, who are
subject to a vesting period of at least four years and no holding period. Rights to acquire free shares will not vest during any
notice period following a resignation. During the vesting period, if an award recipient (i) experiences certain specified disabilities,
such recipient’s rights to acquire free shares will immediately vest but will remain subject to restrictions during the applicable
holding period, or (ii) dies, the recipient’s heirs have six months from the date of death to request that the recipient’s
free shares be issued to them; otherwise, the rights to acquire free shares will be cancelled. During the holding period, if a
free share recipient experiences a qualifying retirement, the restrictions on such recipient’s free shares will lapse.



Restructuring Impact. Vesting and
holding periods do not fall away in the event of an initial public offering or a merger transaction; provided, however,
that if a merger agreement does not provide for the assumption of awards under the 2013 Free Share Plan, the vesting of outstanding
awards will be accelerated upon approval of the merger by our board of directors and, further, at least 30 days in advance of the
general meeting to approve the merger, we will notify award recipients of the opportunity to be issued the free shares in advance
of such vesting event. Following an initial public offering, otherwise unrestricted free shares may not be sold either ten days
before or after consolidated or annual accounts are made public or during a period when the company has material nonpublic information
or for ten days thereafter. During the vesting period, award recipients benefit from anti-dilution protection. In the case of certain
recapitalization events, the Company shall either allow recipients to participate, immediately or upon vesting, in such events,
or adjust the number of free shares that such recipients are entitled to receive in order to cancel the dilutive effect of such
events.



Amendment and Termination. Our board
of directors has the authority to amend, alter, suspend, or terminate our 2013 Free Share Plan, as long as no grants have been
made under the plan, subject to shareholder approval of any amendment to the extent necessary and desirable to comply with applicable
laws. After grants have been made under the plan, the 2013 Free Share Plan cannot be amended, altered, suspended or terminated
without the consent of each award recipient.



Term. The board of directors was
granted shareholder approval to make use of share grants under the 2013 Plan until December 17, 2016.



Tax Considerations. Noncompliance
with reporting requirements by us, our affiliates or award recipients may result in the forfeiture of favorable tax treatment and
fines.



Option Plan



We entered into a stock option plan pursuant
to shareholder authorization granted on June 29, 2015, under which we expect to issue options to purchase up to 13 million newly-issued
ordinary shares to officers and employees of the Company and its subsidiaries. Pursuant to the shareholders authorization, the
Board is empowered, during a maximum period of 38 months from June 29, 2015, to grant options on an annual basis, subject to a
limit of 3% of the total number of outstanding shares per year, in 2016, 2017 and 2018 and with a maximum of 3 million new shares
per tranche. The options are to be issued at a subscription price to be determined at the date of issuance and in accordance with
a fair market value based on the market price of the Company’s share price at such date and applicable provisions of French
law.



Eligibility. Our employees and those
of our affiliated companies (i.e. AAA S.A. owns at least 10% directly or indirectly) are eligible to be beneficiaries of the stock
option plan. However no options may be granted to a person holding more than 10% of our share capital or who would hold more than
10% of our share capital as a result of such grant.



Vesting and Exercise Periods.Awards
granted under the 2015 Stock Option Plan have a vesting period of three years from the date of grant of the right to acquire options
and the beneficiary has to be an employee of AAA or one of our affiliated companies at the third anniversary of the grant date.
The vesting period can be reduced in exceptional circumstances such as disability, death with transfer to heirs within 6 months
of date of death or voluntary/compulsory retirement or having reached age limit for holding corporate office; in these cases the
beneficiary has the right to the full number of awarded options; in the cases of disability or death the exercise period would
be accelerated so that the options may be exercised before the exercise date. The exercise period cannot exceed 10 years as of
grant date. It can however be reduced by the board to comply with local laws.





122


Table of Contents




Incentive Plans



In addition to the equity awards described
above, our senior managers are eligible for an annual cash performance bonus. The relevant performance criteria are established
by the Compensation Committee in discussions with these managers and submitted for approval of the board of directors. The bonus
payments are approved by the board of directors and subject to a recommendation of the Compensation Committee. Bonuses are paid
after annual financial statements are published. The maximum size of such a cash performance bonus for 2016 was 60% of the annual
salary in the case of the Chief Executive Officer, 50% each for the Chief Operating Officer and the Chief Financial Officer and
up to 30% for other managers.



Limitations on Liability and Indemnification Matters



Under French law, provisions of by-laws
that limit the liability of directors are prohibited. However, French law allows sociétés anonymes to contract
for and maintain liability insurance against civil liabilities incurred by any of their directors and officers involved in a third-party
action, provided that they acted in good faith and within their capacities as directors or officers of the company. Criminal liability
cannot be indemnified under French law, whether directly by the company or through liability insurance.



We expect to maintain liability insurance
for our directors and officers, including insurance against liability under the Securities Act, as amended.



With certain exceptions and subject to
limitations on indemnification under French law, our liability insurance will provide for indemnification for damages and expenses
including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals
in any action or proceeding arising out of his or her actions in that capacity. We believe that this insurance policy is necessary
to attract and maintain qualified directors and executive officers.



This insurance policy may discourage shareholders
from bringing a lawsuit against our directors and executive officers for breach of their fiduciary duty. These provisions also
may have the effect of reducing the likelihood of derivative litigation against directors and executive officers, even though such
an action, if successful, might otherwise benefit us and our shareholders. Furthermore, a shareholder’s investment may be
adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to this
insurance policy



Certain
of our non-employee directors may, through their relationships with their employers or partnerships, be insured against certain
liabilities in their capacity as members of our board of directors.



| | C. | Board Practices
| | -- | ---------------



Board of Directors



Our board of directors is composed of eight
members, one of whom is an executive director. The Chairman of the board is Claudio Costamagna. Under French law and our by-laws,
our board of directors must be composed of between three and eighteen members. Within this limit, the number of directors is determined
by our shareholders. Directors are elected, re-elected and may be removed at a shareholders’ general meeting with a simple
majority vote of our shareholders. Pursuant to our by-laws, our directors are elected for one-year terms. In accordance with French
law, our by-laws also provide that our directors may be removed with or without cause by the affirmative vote of the holders of
at least a majority of the votes of the shareholders present, represented by a proxy or voting by mail at the relevant ordinary
shareholders’ meeting, and that any vacancy on our board of directors resulting from the death or resignation of a director,
provided there are at least three directors remaining, may be filled by vote of a majority of our directors then in office provided
that there has been no shareholders meeting since such death or resignation. Directors chosen or appointed to fill a vacancy shall
be elected by the board of directors for the remaining duration of the current term of the replaced director. The appointment must
then be ratified at the next shareholders’ general meeting. In the event the board of directors would be composed of less
than three directors as a result of a vacancy, the remaining directors shall immediately convene a shareholders’ general
meeting to elect one or several new directors so there are at least three directors serving on the board of directors, in accordance
with French law.



In addition, French law requires that companies
having at least 50 employees for a period of 12 months over the last three years set up a Comité d’Entreprise,
or Works’ Council, composed of representatives elected from among the employees. Our Works’ Council was formed in July 2011.
Two of these representatives are entitled to attend all meetings of the board of directors and the shareholders, in an observer
capacity.





123


Table of Contents




Director Independence



Our board of directors determined that
each of Yvonne Greenstreet, François Nader, Kapil Dhingra, Steven Gannon, Christian Merle and Leopoldo Zambeletti is an
“independent director” as that term is defined under the applicable rules and regulations of the SEC, and the listing
requirements and rules of Nasdaq that are generally applicable to a U.S. company. In making such determination, our board of directors
considered the relationships that each non-employee director has with us and all other facts and circumstances our board of directors
deemed relevant in determining the director’s independence, including the number of ordinary shares beneficially owned by
the director and his or her affiliated entities (if any).



Corporate Governance Practices



As a French société anonyme,
we are subject to various corporate governance requirements under French law. In addition, as a FPI listed on Nasdaq, we are subject
to the Nasdaq corporate governance listing standards. However, Nasdaq’s listing standards provide that FPIs are permitted
to follow home country corporate governance practices in lieu of Nasdaq rules, with certain exceptions. As a FPI, we are required
to comply with Rule 10A-3 of the Exchange Act, relating to audit committee composition and responsibilities. Rule 10A-3 provides
that the audit committee must have direct responsibility for the nomination, compensation and choice of our auditors, as well as
control over the performance of their duties, management of complaints made, and selection of consultants. However, if the laws
of an FPI’s home country require that any such matter be approved by the board of directors or the shareholders, the audit
committee’s responsibilities or powers with respect to such matter may instead be advisory. Under French law, the audit committee
may only have an advisory role and appointment of our statutory auditors, in particular, must be decided by the shareholders at
our annual meeting. Consistent with French Law, our by-laws provide that a quorum requires the presence of shareholders having
at least (1) 20% of the shares entitled to vote in the case of an ordinary shareholders’ general meeting or at an extraordinary
shareholders’ general meeting where shareholders are voting on a capital increase by capitalization of reserves, profits
or share premium or (2) 25% of the shares entitled to vote in the case of any other extraordinary shareholders’ general
meeting. If a quorum is not present, the meeting is adjourned. There is no quorum requirement when an ordinary general meeting
is reconvened, but the reconvened meeting may consider only questions which were on the agenda of the adjourned meeting. When an
extraordinary general meeting is reconvened, the quorum required is 20% of the shares entitled to vote, except where the reconvened
meeting is considering capital increases through capitalization of reserves, profits or share premium. For these matters, no quorum
is required at the reconvened meeting. If a quorum is not present at a reconvened meeting requiring a quorum, then the meeting
may be adjourned for a maximum of two months. See “Item 10. Additional Information—B. Articles of Association.”
In addition, neither the corporate laws of France nor our by-laws require a majority of our directors to be independent and our
independent directors would not necessarily hold regularly scheduled meetings at which only independent directors are present.



Board Committees



We are a foreign private issuer. As a result,
in accordance with the Nasdaq stock exchange listing requirements, we will rely on home country governance requirements and certain
exemptions thereunder rather than relying on the stock exchange corporate governance requirements.



Our audit committee operates pursuant to
a separate charter adopted by our board of directors. The composition and functioning of the committee complies with all applicable
requirements of the French commercial code, the Exchange Act, the exchange on which our ADSs are listed, and SEC rules and regulations.
In accordance with French law, the audit committee and all other committees of our board of directors only have an advisory role
and can only make recommendations to our board of directors. As a result, decisions are made by our board of directors taking into
account nonbinding recommendations of such committees, including the audit committee.



Audit Committee



The audit committee is chaired by Christian
Merle and includes Steven Gannon and Leopoldo Zambeletti, who are non-executive board members. The audit committee reviews our
internal accounting procedures, consults with and reviews the services provided by our independent registered public accountants
and assists our board of directors in its oversight of our corporate accounting and financial reporting. Our board has determined
that each member of our audit committee is independent within the meaning of the independence requirements contemplated by Rule
10A-3 under the Exchange Act and Nasdaq and SEC rules applicable to foreign private issuers. Our board of directors has further
determined that each member of our audit committee is an “audit committee financial expert” as defined by SEC rules.





124


Table of Contents




Compensation Committee



The compensation committee is chaired by
Yvonne Greenstreet and includes Kapil Dhingra and Leopoldo Zambeletti. The committee assists our board of directors in overseeing
our cash compensation and equity award recommendations for our directors, executive officers and employees along with the rationale
for such recommendations. In accordance with Nasdaq Listing Rule 5615(a)(3), we follow home country requirements with respect to
our compensation committee. As a result, our practice varies from the requirements of Nasdaq Listing Rule 5605(d), which sets forth
certain requirements as to the responsibilities, composition and independence of compensation committees.



R&D Steering Committee



The R&D Steering Committee consists
of Stefano Buono, Kapil Dhingra, Yvonne Greenstreet and François Nader, and oversees our R&D strategies and activities
and in pursuing new R&D opportunities, as well as providing the rationale for recommendations related to R&D oversight
and coordination.



Nominating Committee



The Nominating Committee was created in
June 2016 and is chaired by Claudio Costamagna. Other members are François Nader and Stefano Buono. The committee is responsible
for identifying individuals qualified to become members of the Board, to recommend Director nominees for each annual meeting of
the stockholders and nominees for election to fill any vacancies of the Board and to address related matters. The committee is
also responsible for reviewing the Company’s Corporate Governance Guidelines and for leading the annual review of the Board’s
performance.



D.       Employees



At December 31, 2016, we had 501 employees:
137 in Italy, 124 in France, 54 in Spain, 45 in the United States, 37 in the United Kingdom, 31 in Germany, 15 in Portugal, 16
in Switzerland, 15 in Israel, 14 in Poland and13 in the Netherlands. Since that date, we have continued to expand the number of
employees supporting our production, marketing and sales infrastructure.



E.       Share Ownership



See “Item 7. Major Shareholders and
Related Party Transactions—A. Major Shareholders.”



125


Table of Contents




ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS



A.       Major Shareholders



Our authorized share capital
at December 31, 2016 was  €8.8 million (US$9.3 million), consisting of 87,952,657 ordinary shares, nominal value
€0.10 per share. Each of our ordinary shares entitles its holder to one vote. As of December 31, 2016,
approximately 79,278,250 shares, representing 90.1% of our outstanding shares were held of record by three residents of the
United States. These numbers are not representative of the number of beneficial holders of our shares nor is it
representative of where such beneficial holders reside, since many of these shares were held of record by brokers or other
nominees.



The following table presents the beneficial
ownership of our ordinary shares as of the date of this annual report, referred to in the table below as the “Beneficial
Ownership Date,” by:



| | · | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our outstanding ordinary shares;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | each of our directors;
| | - | ----------------------



| | · | each of our senior management; and
| | - | ----------------------------------



| | · | all directors and senior management as a group.
| | - | -----------------------------------------------



Beneficial ownership is determined in accordance
with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power
as well as any shares that the individual has the right to acquire within 60 days of the Beneficial Ownership Date through the
exercise of any option, warrant or other right. Except as otherwise indicated, and subject to applicable community property laws,
the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person.



The percentage of ordinary shares beneficially
owned is based on 87,952,657 ordinary shares outstanding as of December 31, 2016 and assumes the exercise of warrants issued to
members of our board in September 2015, which are exercisable from the date of issue and until March 3, 2017 at a price of 
€6.10 per ordinary share. Ordinary shares that a person has the right to acquire within 60 days of the Beneficial Ownership
Date are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed
outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership
of all directors and senior management as a group. Unless otherwise indicated below, the address for each beneficial owner listed
is c/o 20 Rue Rudolf Diesel, 01630 Saint-Genis-Pouilly, France.



|                                                            |  |  | Ordinary
Shares Beneficially Owned |  |  |  |         |  
|----------------------------------------------------------- |  |  | ---------------------------------- |  |  |  | ------- | -
|Name of Beneficial Owner                                    |  |  | Number                             |  |  |  | Percent |  
|Directors and Senior Management                             |  |  |                                    |  |  |  |         |  
|Claudio Costamagna(1)                                       |  |  | 1,050,000                          |  |  |  | 1.2     | %
|Christian Merle(2)(3)                                       |  |  | 100,000                            |  |  |  | *       |  
|Kapil Dhingra(2)(3)                                         |  |  | 57,500                             |  |  |  | *       |  
|Leopoldo Zambeletti(2)                                      |  |  | 102,250                            |  |  |  | *       |  
|François Nader (3)                                          |  |  | 52,000                             |  |  |  | *       |  
|Stefano Buono (4)                                           |  |  | 4,749,400                          |  |  |  | 5.4     | %
|Steve Gannon(2)(3)                                          |  |  | 55,500                             |  |  |  | *       |  
|Yvonne Greenstreet(2)(3)                                    |  |  | 47,500                             |  |  |  | *       |  
|Gérard Ber                                                  |  |  | 1,436,600                          |  |  |  | 1.6     | %
|Heinz Mäusli                                                |  |  | 612,046                            |  |  |  | *       |  
|Claude Hariton                                              |  |  | 25,000                             |  |  |  | *       |  
|All directors and senior management as a group (11 persons) |  |  | 8,287,796                          |  |  |  | 9.4     | %
|5% Shareholders (9)                                         |  |  |                                    |  |  |  |         |  
|Andrea Ruben Osvaldo Levi(5)                                |  |  | 5,256,000                          |  |  |  | 6.0     | %
|FMR LLC(6)                                                  |  |  | 8,645,094                          |  |  |  | 9.8     | %
|HBM Healthcare Investments (Cayman) Ltd.(7)                 |  |  | 6,871,268                          |  |  |  | 7.8     | %
|T. Rowe Price Associates, Inc.(8)                           |  |  | 4,838,682                          |  |  |  | 5.5     | %










| | * | Indicates ownership of less than 1% of the total outstanding
ordinary shares.
| | - | -----------------------------------------------------------------------------





126


Table of Contents




| | (1) | Consists of  (i) 650,000 ordinary shares directly held by Mr. Costamagna and (ii) 400,000 ordinary shares held by CC
& Soci S.r.l. Because Mr. Costamagna is the chairman of the board of, and owns 90% of, CC & Soci S.r.l., Mr. Costamagna
may be deemed to beneficially own the 400,000 ordinary shares held by CC & Soci S.r.l.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes for all these persons of 37,500 ordinary shares issuable upon the exercise of warrants that are exercisable within
60 days at an exercise price per ordinary share of €6.10.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes for all these persons an applicable portion of 112,500 ordinary shares issuable upon the exercise of warrants that
are exercisable within 60 days at an exercise price per ordinary share of €14.58.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | Consists of (i) 4,702,400 ordinary shares directly held by Mr. Buono and (ii) 47,000 ordinary shares held by Mr. Buono’s
spouse, which may be deemed to be beneficially owned by Mr. Buono.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | Consists of  (i) 3,426,000 ordinary shares directly held by Mr. Levi; (ii) 1,000,000 ordinary shares held by Parabensa
S.r.l.; and (iii) 830,000 ordinary shares held by Dal 1802 Educazione Cultura Salute Ambiente Tecnologia S.r.l. Mr. Levi is the
sole director of Parabensa S.r.l. and has sole voting and disposition power with respect to the shares held by Parabensa S.r.l.
The principal business address of Mr. Levi and of Parabensa S.r.l. is Corso D’Azeglio 21, Torino 10126, Italy. Mr. Levi is
one of three members of the board of directors of Dal 1802 Educazione Cultura Salute Ambiente Tecnologia S.r.l. and has shared
voting and disposition power with respect to the 830,000 shares held by Dal 1802 Educazione Cultura Salute Ambiente Tecnologia
S.r.l. The principal business address of Dal 1802 Educazione Cultura Salute Ambiente Tecnologia S.r.l. is Via Principe Amedeo 11,
Torino 10123, Italy.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Consists of 8,645,094 ordinary shares beneficially owned by FMR LLC and certain of its subsidiaries and affiliates. FMR LLC
has sole voting power with respect to 611,406 ordinary shares and sole dispositive power with respect to 8,645,094 ordinary shares.
The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (7) | Consists of 6,871,268 ordinary shares held by HBM Healthcare Investments (Cayman) Ltd. The board of directors of HBM Healthcare
Investments (Cayman) Ltd. has sole voting and disposition power with respect to the shares held by such entity. The board of directors
of HBM Healthcare Investments (Cayman) Ltd. is comprised of Jean-Marc Lesieur, Richard Coles, Sophia Harris, Dr. Andreas Wicki,
and Paul Woodhouse, none of whom has individual voting or disposition power with respect to such shares and each of whom disclaims
beneficial ownership of the shares held by HBM Healthcare except to the extent of any pecuniary interest therein. The address of
HBM Healthcare Investments (Cayman) Ltd.’s headquarters is Governor’s Square, Suite No: 4-212-2, 213 Lime Tree Bay
Avenue, West Bay, Grand Cayman, Cayman Islands.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Consists of 4,838,682 ordinary shares beneficially owned by T. Rowe Price Associates, Inc. (“T. Rowe”). T. Rowe
has sole voting power with respect to 624,484 ordinary shares and sole dispositive power with respect to 4,838,682 ordinary shares.
The address of T. Rowe is 100 E. Pratt Street, Baltimore, Maryland 21202.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (9) | The information set forth for each of the 5% shareholders listed in the table is based solely on the disclosure set forth in
such shareholders’ most recent Schedules 13G filed with the SEC prior to March 1, 2017.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



B.       Related Party
Transactions



Transactions with our Principal Shareholders, our Board
Members and Senior Managers



The group of our board of directors, senior
managers and 5%+ shareholders purchased a total of 352,830 ADSs (equivalent to 705,660 ordinary shares) in the initial public offering
in November 2015. In addition, we granted a total of 360,000 stock options and 10,000 free shares to senior management in 2016.
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Equity Awards to Senior Management.”





127


Table of Contents




Shareholders’ Agreement



We entered into a second amended and restated
shareholders’ agreement with certain shareholders. The shareholders’ agreement, among other things:



| | · | contains certain restrictions on disposal and transfer of our ordinary shares and other securities;
| | - | ---------------------------------------------------------------------------------------------------



| | · | grants certain shareholders a right to tag along to another shareholder’s proposed transfer of our ordinary shares;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | grants certain shareholders, in connection with such shareholders’ proposed sale of our ordinary shares, a right to drag
the other shareholders along with such proposed sale; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | limits the ability of shareholder directors to compete with AAA or to hold interests exceeding 2% of the share capital of any
third party that competes with AAA, subject to exemption by a majority vote of the board.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The shareholders’ agreement will,
by its terms, terminate upon the earlier of February 28, 2019 or the listing of our ordinary shares or other securities on
any stock exchange. As a result, the shareholders’ agreement terminated upon the listing of our ADSs in November 2015.



Stock Option Plan



In connection with our initial public offering,
we entered into an option plan for the benefit of certain of our officers and employees and a New Free Share Plan, as described
in “Item 6. Directors, Senior Management and Employees—B. Compensation—Option Plan”.



Warrants



As of December 31, 2016, we had issued
an aggregate of 337,500 warrants to certain members of our Board pursuant to shareholder authorizations granted in June 2015 and
in May 2016. 225,000 warrants from the 2015 warrant allocation were exercised on March 3, 2017 for a price of €6.1 per ordinary
share. This resulted in the creation of 225,000 new ordinary shares. After this latest share issue the total number of shares issued
and registered is 88,177,657. 112,500 warrants are exercisable from the date of issue until October 6, 2019 and may be exercised
in exchange for one ordinary share at a price of €14.58 per share.



We also received shareholder approval for
a new warrant plan in 2016 for our non-executive Board members. The extraordinary general meeting resolution of May 26, 2016 authorized
the Board to implement a warrant plan within a period of 18 months following the meeting. The maximum exercise period is three
years as from the date of issuance of any warrants. The shareholders approved of the issuance of up to 149,800 warrants. One warrant
entitles its owner to buy one ordinary share. As of October 7, 2016 a total of 112,500 warrants have been subscribed for and paid
for in cash by our non-executive board members. Each warrant is exercisable from the date of issue until October 6, 2019, and may
be exercised in exchange for one ordinary share at a price of €14.58 per share. The remaining unexercised 37,300 warrants
may be issued before November 25, 2017. The warrant subscription price and share exercise price of any future issuances would be
determined by a future external valuation. See “Item 6. Directors, Senior Management and Employees—B. Compensation—Compensation
of Senior Management and the Board of Directors.”



Other Transactions



In connection with services relating to
our initial public offering, and subject to certain conditions, we have agreed to pay the chairman of our board, Claudio Costamagna,
a cash payment equivalent to 0.2% of the number of our ordinary shares issued and outstanding prior to the offering, multiplied
by the public offering price per ordinary share upon the listing of our shares on a public stock exchange. In addition to the above,
we agreed to pay certain members of our management and certain of our employees a one-time bonus upon the completion of our initial
public offering, in an aggregate amount of about €1.2 million (US$1.3 million). As of December 31, 2016, all of these bonuses
have been paid.





128


Table of Contents




We have in the past entered into agreements
with certain of our former directors or officers relating to services provided by such officers or directors or entities with which
such officers or directors were affiliated.



In addition, certain of our existing shareholders
have purchased our ordinary shares during the course of the private placements that we completed in May and June 2015 in arm’s
length transactions and may have bought ordinary shares (in the form of American Depositary Shares) during our SEC-registered follow-on
offering that we completed in October 2016.



C.       Interests of
Experts and Counsel



Not applicable.



129


Table of Contents




ITEM 8. FINANCIAL INFORMATION



A.       Consolidated
Statements and Other Financial Information



Financial statements



See “Item 18. Financial Statements,”
which contains our financial statements prepared in accordance with IFRS.



B.       Significant
Changes



A discussion of the significant changes
in our business can be found under “Item 4. Information on the Company—A. History and development of the company.”



130


Table of Contents




ITEM 9. THE OFFER AND LISTING



A.       Offering and
Listing Details



See “—C. Markets” below.



B.       Plan of Distribution



Not applicable.



C.       Markets



In
November, 2015 we completed our initial public offering and listed our ADSs on the NASDAQ Global Select Market, or the NASDAQ,
under the symbol “AAAP.” Our ordinary shares do not trade on any public market.



The
table below presents, for the periods indicated, the annual, quarterly and monthly high and low closing prices (in US$) of our
ADSs on the NASDAQ.



|Period                                       |  | High |       | Low
|-------------------------------------------- |  | ---- | ----- | ---
|Year Ended                                   |  |      |       |    
|2015 (from November 11, 2015)                |  | $    | 31.96 |    
|2016                                         |  |      | 38.96 |    
|Quarter Ended                                |  |      |       |    
|Fourth Quarter 2015 (from November 11, 2015) |  |      | 31.96 |    
|First Quarter 2016                           |  |      | 38.01 |    
|Second Quarter 2016                          |  |      | 36.81 |    
|Third Quarter 2016                           |  |      | 38.79 |    
|Fourth Quarter 2016                          |  |      | 38.96 |    
|                                             |  |      |       |    
|Month Ended                                  |  |      |       |    
|November 2016                                |  |      | 37.08 |    
|December 2016                                |  |      | 30.15 |    
|January 2017                                 |  |      | 32.37 |    
|February 2017                                |  |      | 37.94 |    
|March 2017 (through March 27, 2017)          |  |      | 39.58 |    



D.       Selling Shareholders



Not applicable.



E.       Dilution



Not applicable.



F.       Expenses of
the Issue



Not applicable.



131


Table of Contents




ITEM 10. ADDITIONAL INFORMATION



A.       Share Capital



Not applicable.



B.       Articles of
Association



The following description of our share
capital summarizes certain provisions of our By-laws. Such summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of our By-laws a copy of which have been filed as an exhibit.



General



Under French law, our By-laws set forth
only our issued and outstanding share capital as of the date of the By-laws on a non-diluted basis. Our fully diluted share capital
currently represents the amount of all issued and outstanding shares, plus the amount of the shares already granted to our directors
and employees under previous plans that are not issued yet.



History of Securities Issuances



At December 31, 2016 our outstanding share
capital consisted of a total of 87,952,657 ordinary shares, nominal value €0.10 per ordinary share, all issued and outstanding.
From January 1, 2014 through the date of this annual report, the following events have changed the number of our issued and
outstanding shares:



| | · | On February 14, 2014, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated June 22,
2010, the board of directors decided to issue 40,000 ordinary shares, increasing the share capital by €4,000. On the same
day and pursuant to two decisions at the Extraordinary General Meeting of the shareholders dated March 8, 2013, the board
of directors decided to issue an additional 8,507,038 ordinary shares, increasing the share capital by €850,703.80;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On March 27, 2014, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated October 18,
2013, the board of directors decided to issue 241,114 ordinary shares, increasing the share capital by €24,111.40;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On October 16, 2014, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated June 22, 2010, the
board of directors decided to issue 295,000 ordinary shares, increasing the share capital by €29,500;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On May 28, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated December 16, 2014, the
board of directors decided to issue 1,459,660 ordinary shares, increasing the share capital by €145,966;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On June 17, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated December 16, 2014,
the board of directors decided to issue 2,330,110 ordinary shares, increasing the share capital by €233,011;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On August 19, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated June 22, 2010, the
board of directors decided to issue 352,500 ordinary shares, increasing the share capital by €35,250;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On September 6, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated June 19,
2006, the board of directors decided to issue 235,000 ordinary shares, increasing the share capital by €23,500;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On September 28, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated June 22,
2010, the board of directors decided to issue 167,500 ordinary shares, increasing the share capital by €16,750;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





132


Table of Contents




| | · | On November 10, 2015, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated December 16, 2014,
the board of directors decided to issue 10,782,400 ordinary shares, increasing the share capital by €1,078,240;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On October 5, 2016, pursuant to a decision at the Extraordinary General Meeting of the shareholders dated September 26, 2016,
the board of directors decided to issue 9,078,946 ordinary shares, increasing the share capital by €907,894.60; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | On November 28, 2016, pursuant to decisions at the Extraordinary General Meetings of the shareholders dated June 22, 2010
and October 18, 2013, the board of directors decided to issue 317,500 ordinary shares, increasing the share capital by €31,750.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Each share is entitled to one vote on all
matters submitted to our shareholders.



As of December 31, 2016, we had issued
an aggregate of 337,500 warrants to certain members of our Board pursuant to shareholder authorizations granted in June 2015 and
in May 2016. 225,000 warrants from the 2015 warrant allocation were exercised on March 3, 2017 for a price of €6.1 per ordinary
share. This resulted in the creation of 225,000 new ordinary shares. After this latest share issue in March 2017 the total number
of shares issued and registered is 88,177,657. 112,500 warrants are exercisable from the date of issue until October 6, 2019 and
may be exercised in exchange for one ordinary share at a price of €14.58 per share. See “Item 6. Directors, Senior Management
and Employees—B. Compensation—Compensation of Senior Management and the Board of Directors.” Pursuant to a resolution
of the extraordinary general meeting of May 26, 2016, the board is authorized to implement a warrant plan under which it can issue
up to 149,800 warrants. As of October 7, 2016 a total of 112,500 warrants have been subscribed to and paid in cash by our non-executive
board members. The remaining not yet used 37,300 warrants in this plan may be issued before November 25, 2017. The warrant subscription
price and share exercise price of any future issuances would be determined by a future external valuation.



Key Provisions of Our By-laws and French Law Affecting
Our Ordinary Shares



The description below reflects the terms
of our By-laws and summarizes the material rights of holders of our ordinary shares under French law. Please note that this is
only a summary and is not intended to be exhaustive. For further information, please refer to the full version of our By-laws which
is included as an exhibit to this annual report.



Corporate Purpose



Our corporate purpose in France and abroad
includes:



| | · | sale of products, services and studies in the sector of medicine and industry, of applications of particles accelerators, of
pharmaceutical products, of chemical products, of artificial radio elements and of all other similar products;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | production, trade, distribution, transportation, exportation, importation and sale of radioactive isotopes for industrial and
medical applications;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | production, trade, distribution, transportation, exportation, importation and sale of chemical, pharmaceutical and medical
products and of all similar products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | production, trade, distribution, transportation, exportation, importation and sale of industrial and medical machines and consumables,
and ancillary services;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | participation of the Company, by all means, directly or indirectly, to all operations that are related to its corporate purpose,
through creation of new companies, contribution, subscription or acquisition of shares, merger or other similar means, through
creation, acquisition, leasing, lease-management, of any business assets or business goodwill or facility and through creation,
acquisition, use or transfer of all processes and patents related to the corporate purpose of the Company; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | and more generally, participation in any industrial, commercial, financial, civil, real estate operations that are related
directly or indirectly to the corporate purpose of the Company or to any similar or attached activity.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





133


Table of Contents






Directors



Quorum and Voting. The board of
directors can only deliberate if at least half of the directors attend the meeting in the manners provided for in our By-laws.
Our By-laws allow directors to attend meetings of the board of directors in person or, to the extent permitted by the internal
rules that may be adopted by the board of directors and applicable law, by videoconference or other telecommunications arrangements.
In addition, our By-laws allow a director to grant another director a proxy to represent him at a meeting of the board of directors,
but no director can hold more than one proxy at any meeting. Decisions of the board of directors are taken by the majority of votes
cast. In the event of a tied vote, the Chairman of the board of directors shall have a casting vote.



Directors’ Voting Powers on Proposal,
Arrangement or Contract in which any Director is Materially Interested. Under French law, any agreement entered into (directly
or through an intermediary) between us and any director that is not entered into (1) in the ordinary course of our business and
(2) upon standard market terms is subject to the prior authorization of the board of directors (it being specified that the interested
director cannot vote on such decision). The same provision applies to agreements between us and another company if one of our directors
is the owner or a general partner, manager, director, general manager or member of the executive or supervisory board of the other
company, as well as to agreements in which one of our directors has an indirect interest.



Directors’ Compensation. The
aggregate amount of attendance fees (jetons de presence) of the board of directors is determined at the shareholders’
annual ordinary general meeting. The board of directors then divides this aggregate amount among some or all of its members by
a simple majority vote. In addition, the board of directors may grant exceptional compensation (remunerations exceptionnelles)
to individual directors on a case-by-case basis for special and temporary assignments. The board of directors may also authorize
the reimbursement of reasonable travel and accommodation expenses, as well as other expenses incurred by directors in the corporate
interest. See “Item 6. Directors, Senior Management and Employees—B. Compensation” for a description of our compensation
policy for our non-employee directors.



Board of Directors’ Borrowing
Powers. There are currently no limits imposed on the amounts of loans or borrowings that the board of directors may approve.



Directors’ Age Limits. The
Directors’ age limit is 75 years old.



Employee Director Limits.  The
number of directors who are also party to employment contracts with the Company may not exceed a third of the directors in office.



Directors’ Share Ownership Requirements.  None.



Directors Mandate Duration.  Our
By-laws provide that members of our board of directors are elected for a tenure of one year.



Rights, Preferences and Restrictions
Attaching to Ordinary Shares



Dividends. We may only distribute
dividends out of our “distributable profits,” plus any amounts held in our reserves that the shareholders decide to
make available for distribution, other than those reserves that are specifically required by law.



“Distributable profits” consist
of our unconsolidated net profit in each fiscal year, plus any distributable reserves and “distributable premium”
that the shareholders decide to make available for distribution, other than those reserves that are specifically required by law,
as increased or reduced by any profit or loss carried forward from prior years, less any contributions to the reserve accounts
pursuant to French law (see below).



Legal Reserve. Pursuant to French
law, we must allocate 5% of our unconsolidated net profit for each year, less any previous losses, to our legal reserve fund before
dividends may be paid with respect to that year. Funds must be allocated until the amount in the legal reserve is equal to 10%
of the aggregate nominal value of the issued and outstanding share capital.





134


Table of Contents




Approval of Dividends. Pursuant
to French law, our board of directors may propose for a dividend to be distributed, or not distributed, to the shareholders at
the annual ordinary general meeting.



Upon recommendation of our board of directors,
our shareholders may decide to allocate all or part of any distributable profits to special or general reserves, to carry them
forward to the next fiscal year as retained earnings or to allocate them to the shareholders as dividends. However, dividends may
not be distributed when our net assets are or would become as a result of such distribution lower than the amount of the share
capital plus the amount of the legal reserves which, under French law, may not be distributed to shareholders (the amount of our
share capital plus the amount of our legal reserves which may not be distributed was equal to €8.2 million (US$8.7 million)
on December 31, 2015.



Our board of directors may distribute interim
dividends after the end of the fiscal year but before the approval of the financial statements for the relevant fiscal year when
the interim consolidated statement of financial position, established during such year and certified by an auditor, reflects that
we have earned distributable profits since the close of the last financial year, after recognizing the necessary depreciation and
provisions and after deducting prior losses, if any, and the sums to be allocated to reserves, as required by law, and including
any retained earnings. The amount of such interim dividends may not exceed the amount of the profit so defined.



Pursuant to recently passed legislation,
if a dividend is distributed we may be required to pay a dividend tax in an amount equal to 3% of the aggregate dividend paid by
us in cash.



Distribution of Dividends. Dividends
are distributed to shareholders pro rata according to their respective holdings of shares. The actual dividend payment date
is decided by the shareholders at an ordinary general shareholders’ meeting or by our board of directors in the absence of
such a decision by the shareholders. Shareholders that own shares on the actual payment date are entitled to the dividend.



Dividends may be paid in cash or, if the
shareholders’ meeting so decides, in kind, provided that all shareholders receive a whole number of assets of the same nature
paid in lieu of cash. French law provides that, subject to a decision of the shareholders’ meeting taken by ordinary resolution,
each shareholder may be given the choice to receive his dividend in cash or in shares.



Timing of Payment. Pursuant to French
law, dividends must be paid within a maximum of nine months after the close of the relevant fiscal year, unless extended by court
order. Dividends not claimed within five years after the payment date shall be deemed to expire and revert to the French state.



Voting Rights. We only have ordinary
shares outstanding. Each share shall entitle its holder to vote and be represented in the shareholders’ meetings in accordance
with the provisions of French law and of our By-laws. Ownership of one share implies, ipso jure, adherence to our By-laws
and the decisions of the shareholders’ meeting.



In general, each shareholder is entitled
to one vote per share at any general shareholders’ meeting.



Under French law, treasury shares or shares
held by entities controlled by us are not entitled to voting rights and do not count for quorum purposes.



Rights to Share in Our Profit. Each
share entitles its holder to a portion of the corporate profits and assets proportional to the amount of share capital represented
thereby.



Rights to Share in the Surplus in the
Event of Liquidation. If we are liquidated, any assets remaining after payment of the debts, liquidation expenses and all of
the remaining obligations will first be used to repay in full the nominal value of our shares. Any surplus will be distributed
pro rata among shareholders in proportion to the number of shares respectively held by them.









135


Table of Contents




Repurchase and Redemption of Shares.
Under French law, we may acquire our own shares for the following purposes only:



| | · | to decrease our share capital, provided that such a decision is not driven by losses and that a purchase offer is made to all
shareholders, with the approval of the shareholders at an extraordinary general meeting; following the purchase offer made to all
shareholders, in case the number of shares presented for repurchase by shareholders who agree to sell their shares is higher than
the number of shares to be purchased under the offer, the number of shares to be repurchased from each concerned shareholder will
be reduced on a pro rata basis of its participation. If the number of shares presented for repurchase by shareholders is lower
than the number of shares to be purchased under the offer, the board of directors shall confirm the repurchase of the concerned
shares, and may proceed to a new purchase offer. In this case, the shares repurchased must be cancelled within one month from their
repurchase date;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | to provide shares for distribution to employees, corporate officers and directors under a profit-sharing or equity compensation
plan; in this case the shares repurchased must be distributed within 12 months from their repurchase failing which they must be
cancelled; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | to facilitate an issue of additional shares or securities convertible or exchangeable into shares, a merger or a spin-off approved
by the shareholders at an ordinary general meeting; in this case, the shares repurchased cannot represent more than 0.25% of the
share capital in any fiscal year and must be immediately cancelled.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



No such repurchase of shares may result
in us holding, directly or through a person acting on our behalf, more than 10% of our issued share capital (5% in case of repurchase
of shares to be used in payment or in exchange for assets acquired by us). Shares repurchased by us continue to be deemed “issued”
under French law but are not entitled to dividends or voting rights so long as we hold them directly or indirectly.



Sinking Fund Provisions. Our by-laws
do not provide for any sinking fund provisions.



Liability to Further Capital Calls.
Shareholders are liable for corporate liabilities only up to the nominal of the shares they hold; they are not liable to further
capital calls.



Requirements for Holdings Exceeding
Certain Percentages. None except as described under the section “Form, Holding and Transfer of Shares — Ownership
of Shares by Non-French Persons.”



Actions Necessary to Modify Shareholders’
Rights



Shareholders’ rights may be modified
as allowed by French law. Only the extraordinary shareholders’ meeting is authorized to amend any and all provisions of our
By-laws. It may not, however, increase shareholder commitments without the prior approval of each shareholder.



Rules for Admission to and Calling Annual
Shareholders’ Meetings and Extraordinary Shareholders’ Meetings



Access to, Participation in and Voting
Rights at Shareholders’ Meetings. Shareholders may in accordance with legal and regulatory requirements, send their vote
or proxy either by hard copy or telecommunications means. Shareholders sending their vote within the applicable time limit, using
the form provided to them by us for this purpose, are deemed present or represented at the meeting.



Notice of Annual Shareholders’
Meetings. Shareholders’ meetings are convened by our board of directors, or, failing that, by the statutory auditors,
or by a court appointed agent or liquidator in certain circumstances, or by the majority shareholder following a public tender
or exchange offer or following a change of control. Meetings are held at our registered offices or at any other location indicated
in the convening notice. Subject to limited exceptions provided by French law, notices must be given at least 15 days before the
date of the meeting. When the shareholders’ meeting cannot deliberate due to the lack of the required quorum, the second
meeting must be called at least ten days in advance in the same manner as used for the first notice.



Agenda and Conduct of Annual Shareholders’
Meetings. The agenda of the shareholders’ meeting shall appear in the notice to convene the meeting and is set by the
author of the notice. The shareholders’ meeting may only deliberate on the items on the agenda except for the removal of
directors and the appointment of their successors which may be put to vote by any shareholder during any shareholders’ meeting.
One or more shareholders representing the percentage of share capital required by French law (currently 5%), and acting in accordance
with legal requirements and within applicable time limits, may request the inclusion of items or proposed resolutions on the agenda.





136


Table of Contents




Under the By-laws, shareholders’
meetings shall be chaired by the Chairman of the board of directors or, in his or her absence, by the director appointed for this
purpose by the board of directors. Scrutinizing shall be performed by the two members of the meeting who are present and accept
such duties, who represent, either on their own behalf or as proxies, the greatest number of votes.



Ordinary Shareholders’ Meeting.Ordinary shareholders’ meetings are those meetings called to make any and all decisions that do not amend our By-laws.
An ordinary meeting shall be convened at least once a year within six months of the end of each fiscal year in order to approve
the annual and consolidated accounts for the relevant fiscal year or, in case of postponement, within the period established by
court order. Upon first notice, the meeting may validly deliberate only if the shareholders present or represented by proxy or
voting by mail represent at least one-fifth of the shares entitled to vote. Upon second notice, no quorum is required. Decisions
are made by a majority of the votes held by the shareholders present, represented by proxy, or voting by mail.



Extraordinary Shareholders’ Meeting.
Only an extraordinary shareholders’ meeting is authorized to amend our By-laws. It may not, however, increase shareholder
commitments without the approval of each shareholder. Subject to the legal provisions governing share capital increases from reserves,
profits or share premiums, the resolutions of the extraordinary meeting shall be valid only if the shareholders present, represented
by proxy or voting by mail represent at least one-fourth of all shares entitled to vote upon first notice, or one-fifth upon second
notice. If the latter quorum is not reached, the second meeting may be postponed to a date no later than two months after the date
for which it was initially called. Decisions are made by a two-thirds majority of the votes held by the shareholders present, represented
by proxy, or voting by mail.



In addition to the right to obtain certain
information regarding us at any time, any shareholder may, from the date on which a shareholders’ meeting is convened until
the fourth business day preceding the date of the shareholders’ meeting, submit written questions relating to the agenda
for the meeting to our board of directors. Our board of directors is required to respond to these questions during the meeting.



Provisions Having the Effect of Delaying,
Deferring or Preventing a Change in Control of the Company



Provisions contained in our By-laws and
the corporate laws of France, the country in which we are incorporated, could make it more difficult for a third-party to acquire
us, even if doing so might be beneficial to our shareholders. These provisions include the following:



| | · | provisions of French law allowing the owner of 95% of the share capital or voting rights of a public company to force out the
minority shareholders following a tender offer made to all shareholders are only applicable to companies listed on a stock exchange
of the European Union and will therefore not be applicable to us;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | under French law, a cash merger is treated as a share purchase and would require the consent of each participating shareholder;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | under French law, a non-resident of France may have to file an administrative notice with French authorities in connection
with a direct or indirect investment in us, as defined by administrative rulings; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | pursuant to French law, the sections of the By-laws relating to the number of directors and election and removal of a director
from office may only be modified by a resolution adopted by two-third of the votes of our shareholders present, represented by
a proxy or voting by mail at the meeting.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Declaration of Crossing of Ownership
Thresholds



Our By-laws provide that any natural person
or legal entity, acting either alone or in concert, that comes to hold a number of shares representing a proportion of the share
capital or voting rights that is equal to or greater than 1% of the share capital or voting rights, or any multiple of this percentage,
including any in excess of the declaration thresholds provided for by the legislation and regulations in force, must inform the
company of the total number of shares and voting rights that they own, and also inform it of the number of securities giving future
access to the capital, and the number of any voting rights that may be attached to these, by means of a letter sent by recorded
delivery with return receipt, within a timeframe of ten (10) days as from the time crossing the threshold in question.





137


Table of Contents




This obligation to inform the company also
applies whenever a shareholder’s holding in the share capital or the voting rights falls below one of the thresholds mentioned
in the preceding paragraph.



If not declared in accordance with the
provisions of the By-laws, shares exceeding the portion which should have been declared will be deprived of their voting right
at shareholder’s meetings, in accordance with the provisions of the Commercial Code, if, at a meeting, the failure to have
made a declaration is noted and one or more shareholders that together hold at least 5% of the share capital request this at this
meeting.



There are no other declarations of crossing
of ownership thresholds except as described under the section “Form, Holding and Transfer of Shares — Ownership
of Shares by Non-French Persons.”



Changes in Share Capital



Increases in Share Capital.Pursuant
to French law, our share capital may be increased only with shareholders’ approval at an extraordinary general shareholders’
meeting following the recommendation of our board of directors. The shareholders may delegate to our board of directors either
the authority (délégation de compétence) or the power (délégation de pouvoir)
to carry out any increase in share capital.



Increases in our share capital may be effected
by:



| | · | issuing additional shares;
| | - | --------------------------



| | · | increasing the nominal value of existing shares;
| | - | ------------------------------------------------



| | · | creating a new class of equity securities (preference shares); and
| | - | ------------------------------------------------------------------



| | · | exercising the rights attached to securities giving access to the share capital.
| | - | --------------------------------------------------------------------------------



Increases in share capital by issuing additional
securities may be effected through one or a combination of the following:



| | · | in consideration for cash;
| | - | --------------------------



| | · | in consideration for assets contributed in kind;
| | - | ------------------------------------------------



| | · | through an exchange offer or merger;
| | - | ------------------------------------



| | · | by conversion of previously issued debt instruments;
| | - | ----------------------------------------------------



| | · | by exercise of the rights attached to securities giving access to the share capital;
| | - | ------------------------------------------------------------------------------------



| | · | by capitalization of profits, reserves or share premium; and
| | - | ------------------------------------------------------------



| | · | subject to certain conditions, by way of offset against debt incurred by us.
| | - | ----------------------------------------------------------------------------



Decisions to increase the share capital
through the capitalization of reserves, profits and/or share premium require shareholders’ approval at an extraordinary general
shareholders’ meeting, acting under the quorum and majority requirements applicable to ordinary shareholders’ meetings.
Increases effected by an increase in the nominal value of shares require unanimous approval of the shareholders, unless effected
by capitalization of reserves, profits or share premium. All other capital increases require shareholders’ approval at an
extraordinary general shareholders’ meeting acting under the regular quorum and majority requirements for such meetings.



Reduction in Share Capital. Pursuant
to French law, any reduction in our share capital requires shareholders’ approval at an extraordinary general shareholders’
meeting following the recommendation of our board of directors. The extraordinary general meeting may delegate to the board of
directors, as applicable, all powers required to implement it. The share capital may be reduced either by decreasing the nominal
value of the outstanding shares or by reducing the number of outstanding shares. The number of outstanding shares may be reduced
by the repurchase and cancellation of shares. Holders of each class of shares must be treated equally unless each affected shareholder
agrees otherwise, depending on the contemplated operations.



138


Table of Contents




Preferential Subscription Rights.According
to French law, if we issue additional securities for cash, current shareholders will have preferential subscription rights to these
securities on a prorata basis. Preferential subscription rights entitle the individual or entity that holds them to subscribe
pro rata based on the number of shares held by them to the issuance of any securities increasing, or that may result in
an increase of, our share capital by means of a cash payment or a set-off of cash debts. The preferential subscription rights are
transferable during the subscription period relating to a particular offering.



The preferential subscription rights with
respect to any particular offering may be waived at an extraordinary general meeting by a two-thirds vote of our shareholders or
individually by each shareholder. Our board of directors and our independent auditors are required by French law to present reports
to the shareholders’ meeting that specifically address any proposal to waive the preferential subscription rights.



Our current shareholders waived their preferential
subscription rights with respect to this offering at an extraordinary general shareholders’ general meeting held on December 16,
2014.



Form, Holding and Transfer of Shares



Form of Shares. Our By-laws provide
that our shares are registered or bearer shares.



Holding of Shares.In accordance
with French law concerning the “dematerialization” of securities, the ownership rights of shareholders are represented
by book entries instead of share certificates. Registered shares are entered into an account maintained by us or by a representative
appointed by us. We maintain accounts in the name of each shareholder either directly or, at a shareholder’s request, through
such shareholder’s accredited intermediary. Each shareholder’s account shows the name of the relevant shareholder and
number of shares held.



Ownership of Shares by Non-French Persons.Neither French law nor our By-laws limit the right of non-residents of France or non-French persons to own or, where applicable,
to vote our securities. Non-residents of France must file an administrative notice with the French authorities in connection with
a direct or indirect investment in us, including through ownership of ADSs, on the date a binding purchase agreement is executed
or a tender offer is made public. Under existing administrative rulings the following transactions would require the filing of
an administrative notice:



| | · | any transaction carried out on our capital by a non-French resident provided that after the transaction the cumulative amount
of the capital or the voting rights held by non-French residents exceeds 33.33% of our capital or voting rights;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any transaction mentioned above by a corporation incorporated under French law, more than 33.33% of whose capital or voting
rights are held by non-French residents;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any transaction carried out abroad resulting in a change of the controlling shareholder of a corporation incorporated under
a foreign law that holds a shareholding or voting rights in us if more than 33.3% of our capital or voting rights are held by non-French
residents;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | significant loans and guarantees granted or the purchase of patents or licenses, the conclusion of commercial contracts or
the provision of technical assistance, which confer to our counterparty a de facto controlling position.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Violation of this administrative notice
requirement is sanctioned by a fine of not more than €750. This amount may be multiplied by five if the violation is made
by a legal entity.



Assignment and Transfer of Shares.
They are registered in a share account and transferred by means of a transfer from account to account. We must receive notice of
any transfer for it to be validly registered in our accounts.





139


Table of Contents




Limitations Affecting Shareholders of a French Company



Many limitations affect shareholders of
a French company, the rights of such shareholders being subject to the provisions of French company law. The below list highlights
certain of the principal limitations, but is not an exhaustive list.



Availability of Preferential Subscription
Rights



While our current shareholders waived their
preferential subscription rights with respect to this offering at a shareholders’ general meeting held on December 16, 2014,
in the future our shareholders will have the preferential subscription rights described under “Description of Share Capital — Key
Provisions of Our By-laws and French Law Affecting Our Ordinary Shares — Changes in Share Capital—Preferential
Subscription Rights.” Under French law, shareholders have preferential rights to subscribe for cash issues of new shares
or other securities giving rights to acquire additional shares on a pro rata basis. Holders of our securities in the United States
(which may be in the form of shares or ADSs) may not be able to exercise preferential subscription rights for their securities
unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the registration
requirements imposed by the Securities Act is available. We may, from time to time, issue new shares or other securities giving
rights to acquire additional shares (such as warrants) at a time when no registration statement is in effect and no Securities
Act exemption is available. If so, holders of our securities in the United States will be unable to exercise any preferential subscription
rights and their interests will be diluted. We are under no obligation to file any registration statement in connection with any
issuance of new shares or other securities. We intend to evaluate at the time of any rights offering the costs and potential liabilities
associated with registering the rights, as well as the indirect benefits to us of enabling the exercise by holders of shares and
holders of ADSs in the United States of the subscription rights, and any other factors we consider appropriate at the time, and
then to make a decision as to whether to register the rights. We cannot assure you that we will file a registration statement.



For holders of our shares in the form of
ADSs, the Depositary may make these rights or other distributions available to ADS holders. If the depositary does not make the
rights available to ADS holders and determines that it is impractical to sell the rights, it may allow these rights to lapse. In
that case the holders will receive no value for them. See “Item 12. Description of Securities Other than Equity Securities—D.
American Depositary Shares” for a detailed explanation of the Depositary’s responsibility in connection with a rights
offering.



Differences in Corporate Law



The laws applicable to French sociétés
anonymes differ from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of certain differences
between the provisions of the French Commercial Code applicable to us and the Delaware General Corporation Law relating to shareholders’
rights and protections. This summary is not intended to be a complete discussion of the respective rights and it is qualified in
its entirety by reference to Delaware law and French law.





|                        | France                                                                                                                                                                  |  | Delaware                                                                                                                                                                                                                                                                                           
|----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number of Directors     | Under French law, a société anonyme must have at least 3 and may have up to 18 directors. The number of directors is fixed by or in the manner provided in the by-laws. |  | Under Delaware law, a corporation must have at least one director and the number of directors shall be fixed by or in the manner provided in the by-laws.                                                                                                                                          
|Director Qualifications | Under French law, a corporation may prescribe qualifications for directors under its by-laws, subject to applicable regulations.                                        |  | Under Delaware law, a corporation may prescribe qualifications for directors under its certificate of incorporation or by-laws.                                                                                                                                                                    
|Removal of Directors    | Under French law, directors may be removed from office, with or without cause, at any shareholders’ meeting without notice or justification, by a simple majority vote. |  | Under Delaware law, unless otherwise provided in the certificate of incorporation, directors may be removed from office, with or without cause, by a majority shareholder vote, though in the case of a corporation whose board is classified, shareholders may effect such removal only for cause.







140


Table of Contents






|                                    | France                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | Delaware                                                                                                                                                                                                                                                                                                                                                                
|----------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Vacancies on the board of directors | Under French law, vacancies on the board of directors resulting from death or a resignation, provided that at least 3 directors remain in office, may be filled by a majority of the remaining directors pending ratification by the next shareholders’ meeting.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Under Delaware law, vacancies on a corporation’s board of directors, including those caused by an increase in the number of directors, may be filled by a majority of the remaining directors.                                                                                                                                                                          
|Annual General Meeting              | Under French law, the annual general meeting of shareholders shall be held at such place, on such date and at such time as decided each year by the board of directors and notified to the shareholders in the convening notice of the annual meeting, within 6 months after the close of the relevant fiscal year unless such period is extended by court order.                                                                                                                                                                                                                                                                                                                                                      |  | Under Delaware law, the annual meeting of shareholders shall be held at such place, on such date and at such time as may be designated from time to time by the board of directors or as provided in the certificate of incorporation or by the by-laws.                                                                                                                
|General Meeting                     | Under French law, general meetings of the shareholders may be called by the board of directors or, failing that, by the statutory auditors, or by a court appointed agent or liquidator in certain circumstances, or by the majority shareholder in capital or voting rights following a public tender offer or exchange offer or the transfer of a controlling block on the date decided by the board of directors or the relevant person.                                                                                                                                                                                                                                                                            |  | Under Delaware law, special meetings of the shareholders may be called by the board of directors or by such person or persons as may be authorized by the certificate of incorporation or by the by-laws.                                                                                                                                                               
|Notice of General Meetings          | Under French law, for corporations all the shares of which are in registered form, written notice of any meeting of the shareholders must be given at least 15 calendar days before the date of the meeting. When the shareholders’ meeting cannot deliberate due to the lack of the required quorum, the second meeting must be called at least ten calendar days in advance in the same manner as used for the first notice. The notice shall specify the name of the company, its legal form, share capital, registered office address, registration number with the French Registry of commerce and companies, the place, date, hour and agenda of the meeting and its nature (ordinary or extraordinary meeting). |  | Under Delaware law, unless otherwise provided in the certificate of incorporation or by-laws, written notice of any meeting of the shareholders must be given to each shareholder entitled to vote at the meeting not less than 10 nor more than 60 days before the date of the meeting and shall specify the place, date, hour, and purpose or purposes of the meeting.







141


Table of Contents






|                                      | France                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | Delaware                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Proxy                                 | Under French law, any shareholder may vote by mail or grant a proxy to his/her spouse, his/her partner with whom he/she has entered into a civil union or another shareholder for physical persons or to any person for legal entities. General proxies are not valid and a separate proxy must be provided for each shareholders’ meeting, unless it concerns an ordinary and an extraordinary meeting held the same day or within the next 15 days, or a consecutive general meeting with the same agenda (in the event the quorum has not been reached).                                                                         |  | Under Delaware law, at any meeting of shareholders, a shareholder may designate another person to act for such shareholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period.                                                                                                                                                                                                                                                    
|Shareholder action by written consent | Under French law, shareholders’ action by written consent is not permitted in a société anonyme.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Under Delaware law, a corporation’s certificate of incorporation (1) may permit shareholders to act by written consent if such action is signed by all shareholders, (2) may permit shareholders to act by written consent signed by shareholders having the minimum number of votes that would be necessary to take such action at a meeting or (3) may prohibit actions by written consent.                                                                                                                          
|Preemptive Rights                     | Under French law, in case of issuance of additional shares or other securities for cash or set-off against cash debts, the existing shareholders have preferential subscription rights to these securities on a pro rata basis unless such rights are waived by a two-thirds majority of the votes held by the shareholders present, at the extraordinary meeting deciding or authorizing the capital increase, represented by proxy or voting by mail. In case such rights are not waived by the extraordinary general meeting, each shareholder may individually either exercise, assign or not exercise its preferential rights. |  | Under Delaware law, unless otherwise provided in a corporation’s certificate of incorporation, a shareholder does not, by operation of law, possess preemptive rights to subscribe to additional issuances of the corporation’s stock.                                                                                                                                                                                                                                                                                 
|Sources of Dividends                  | Under French law, dividends may only be paid
by a French société anonyme out of  “distributable profits,” plus any distributable
reserves and “distributable premium” that the shareholders decide to make available for distribution, other
than those reserves that are specifically required by law. “Distributable profits” consist of the unconsolidated
net profits of the relevant corporation for each fiscal year, as increased or reduced by any profit or loss carried forward from
prior years.                                                                                                                         |  | Under Delaware law, dividends may be paid by a Delaware corporation either out of  (1) surplus or (2) in case there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year, except when the capital is diminished by depreciation in the value of its property, or by losses, or otherwise, to an amount less than the aggregate amount of capital represented by issued and outstanding stock having a preference on the distribution of assets.







142


Table of Contents








|                     | France                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Delaware                                                                                                                                                                                                                
|-------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                     | “Distributable premium”
refers to the contribution paid by the shareholders in addition to the nominal value of their shares for their subscription that
the shareholders decide to make available for distribution. Except in case of a share capital reduction, no distribution can be
made to the shareholders when the net equity is, or would become, lower than the amount of the share capital plus the reserves
which cannot be distributed in accordance with the law.                                                                                                                                                                                                                                                                                                      |  |                                                                                                                                                                                                                         
|Repurchase of Shares | Under French law, a private corporation (being specified
        that the company will not qualify as a public corporation for French law purposes for so long as it shall be listed in the United
        States only) may acquire its own shares for the following purposes only:
        
        ·to decrease its share capital, provided that such decision is not driven by losses and that a purchase offer is made to
all shareholders on a pro rata basis, with the approval of the shareholders at the extraordinary general meeting deciding
the capital reduction;
        
        ·with
a view to distributing within one year of their repurchase the relevant shares to employees, corporate officers and directors
under a profit-sharing or equity incentive plan; |  | Under Delaware law, a corporation may generally redeem or repurchase shares of its stock unless the capital of the corporation is impaired or such redemption or repurchase would impair the capital of the corporation.
|                     | ·to sell the relevant shares to any shareholders willing to purchase them as part of a process organized by the corporation
within five years of their repurchase; or
        
        ·within
the limit of 5% of its issued share capital, in payment or in exchange for assets acquired by the corporation within two years
of their repurchase.
        
        No such repurchase of shares may result in the company
holding, directly or through a person acting on its behalf, more than 10% of its issued share capital.                                                                                                                                                                                                                                                    |  |                                                                                                                                                                                                                         











143


Table of Contents






|                                         | France                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Delaware                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Liability of Directors and Officers      | Under French law, the by-laws may not include any provisions limiting the liability of directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  | Under Delaware law, a corporation’s certificate
        of incorporation may include a provision eliminating or limiting the personal liability of a director to the corporation and its
        shareholders for damages arising from a breach of fiduciary duty as a director. However, no provision can limit the liability of
        a director for: any breach of the director’s duty of loyalty to the corporation or its shareholders;
        
        ·acts
or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
        
        ·intentional or negligent payment of unlawful dividends or stock purchases or redemptions; or
        
        ·any
transaction from which the director derives an improper personal benefit.
|Voting Rights                            | French law provides that, unless otherwise provided in the by-laws, each shareholder is entitled to one vote for each share of capital stock held by such shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Delaware law provides that, unless otherwise provided in the certificate of incorporation, each shareholder is entitled to one vote for each share of capital stock held by such shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Shareholder Vote on Certain Transactions | Generally, under French law, completion of a merger,
        dissolution, sale, lease or exchange of all or substantially all of a corporation’s assets requires:
        
        ·completion
of a merger requires the approval of the board of directors and the approval by a two-third majority of the votes held by the
shareholders present, represented by proxy or voting by mail at the relevant meeting or, in the case of a merger with a non-EU
company, approval of all shareholders of the corporation may be required, depending on the nationality of the concerned companies
and therefore the applicable laws;
        
        ·dissolution
requires the approval by a two-third majority of the votes held by the shareholders present, represented by proxy or voting by
mail at the relevant meeting; and |  | Generally, under Delaware law, unless the certificate
        of incorporation provides for the vote of a larger portion of the stock, completion of a merger, consolidation, sale, lease or
        exchange of all or substantially all of a corporation’s assets or dissolution requires:
        
        ·the approval of the board of directors; and
        
        ·approval by the vote of the holders of a majority of the outstanding stock or, if the certificate of incorporation provides
for more or less than one vote per share, a majority of the votes of the outstanding stock of a corporation entitled to vote on
the matter.                                                                                                                                     



| | ·sale,
lease or exchange of all or substantially all of a corporation’s assets requires the approval by a two-third majority of
the votes held by the shareholders present, represented by proxy or voting by mail at the relevant meeting if such operation modifies
the corporate purpose set forth in the By-laws. |  | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 



144


Table of Contents




| | France |  | Delaware
| | ------ |  | --------

|Dissent or Dissenters’ Appraisal Rights | French law does not provide for any such right but provides that a merger is subject to shareholders’ approval by a two-thirds majority vote as stated above. |  | Under Delaware law, a holder of shares of any class
        or series has the right, in specified circumstances, to dissent from a merger or consolidation by demanding payment in cash for
        the shareholder’s shares equal to the fair value of those shares, as determined by the Delaware Chancery Court in an action
        timely brought by the corporation or a dissenting shareholder. Delaware law grants these appraisal rights only in the case of mergers
        or consolidations and not in the case of a sale or transfer of assets or a purchase of assets for stock. Further, no appraisal
        rights are available for shares of any class or series that is listed on a national securities exchange or held of record by more
        than 2,000 shareholders, unless the agreement of merger or consolidation requires the holders to accept for their shares anything
        other than:
        
        ·shares of stock of the surviving corporation;
        
        ·shares
of stock of another corporation that are either listed on a national securities exchange or held of record by more than 2,000
shareholders;
        
        ·cash
in lieu of fractional shares of the stock described in the two preceding bullet points; or
        
        ·any combination of the above.
        
        In addition, appraisal rights are not available
to holders of shares of the surviving corporation in specified mergers that do not require the vote of the shareholders of the
surviving corporation.
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Standard of Conduct for Directors | French law does not contain specific provisions setting forth the standard of conduct of a director. However, directors have a duty to act without self-interest, on a well-informed basis and they cannot make any decision against a corporation’s corporate interest (intérêt social). |  | Delaware law does not contain specific provisions setting forth the standard of conduct of a director. The scope of the fiduciary duties of directors is generally determined by the courts of the State of Delaware. In general, directors have a duty to act without self-interest, on a well-informed basis and in a manner they reasonably believe to be in the best interest of the shareholders.
|--------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

145


Table of Contents




| | France |  | Delaware
| | ------ |  | --------



|Shareholder Suits                         | French law provides that a shareholder, or a group of shareholders,
        may initiate a legal action to seek indemnification from the directors of a corporation in the corporation’s interest if
        it fails to bring such legal action itself. If so, any damages awarded by the court are paid to the corporation and any legal fees
        relating to such action are borne by the relevant shareholder or the group of shareholders.
        
        The plaintiff must remain a shareholder through the duration
        of the legal action.
        
        A shareholder may alternatively or cumulatively bring individual
        legal action against the directors, provided he has suffered distinct damages from those suffered by the corporation. In this case,
        any damages awarded by the court are paid to the relevant shareholder. |  | Under Delaware law, a shareholder may initiate a derivative
        action to enforce a right of a corporation if the corporation fails to enforce the right itself. The complaint must:
        
        ·state that the plaintiff was a shareholder at the time of the transaction of which the plaintiff complains or that the
plaintiff’s shares thereafter devolved on the plaintiff by operation of law; and
        
        ·allege with particularity the efforts made by the plaintiff to obtain the action the plaintiff desires from the directors
and the reasons for the plaintiff’s failure to obtain the action; or
        
        ·state
the reasons for not making the effort.
        
        Additionally, the plaintiff must remain a shareholder
through the duration of the derivative suit. The action will not be dismissed or compromised without the approval of the Delaware
Court of Chancery.
|----------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amendment of Certificate of Incorporation | Under French law, there is no certificate of incorporation per se. The equivalent of the certificate of incorporation is called “extrait K-bis” and reflects all the significant information with regards to a French company, such as its name, date of registration, identification number, form, share capital, registered office, governance and administration, etc. Any changes of the By-laws, or in the situation of the company as reflected in the extrait K-bis, shall be registered with the competent Registry of Commerce and Companies on the French territory.                                                                                                                                                                                                                                                                                              |  | Under Delaware law, generally a corporation may amend
        its certificate of incorporation if:
        
        ·its board of directors has adopted a resolution setting forth the amendment proposed and declared its advisability; and
        
        ·the
amendment is adopted by the affirmative votes of a majority (or greater percentage as may be specified by the corporation) of
the outstanding shares entitled to vote on the amendment and a majority (or greater percentage as may be specified by the corporation)
of the outstanding shares of each class or series of stock, if any, entitled to vote on the amendment as a class or series.                                                                                                                                                                                                                                                           



|Amendment of By-laws | Under French law, by-laws may only be adopted or amended at extraordinary shareholders’ meetings. |  | Under Delaware law, the shareholders entitled to vote have the power to adopt, amend or repeal by-laws. A corporation may also confer, in its certificate of incorporation, that power upon the board of directors.
|-------------------- | ------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





146


Table of Contents










C.       Material Contracts



See “Item 4. Information on the Company—B.
Business Overview—Licensing” and “Item 4. Information on the Company—B. Business Overview—Other Contracts.”



D.       Exchange Controls



Under current French foreign exchange control
regulations there are no limitations on the amount of cash payments that we may remit to residents of foreign countries. Laws and
regulations concerning foreign exchange controls do, however, require that all payments or transfers of funds made by a French
resident to a non-resident such as dividend payments be handled by an accredited intermediary. All registered banks and substantially
all credit institutions in France are accredited intermediaries.



E.       Taxation



The following summary contains a description
of the material French and U.S. federal income tax consequences of the acquisition, ownership and disposition of ADSs, but it does
not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to own ADSs. The
summary is based upon the tax laws of France and regulations thereunder and on the tax laws of the United States and regulations
thereunder as of the date hereof, which are subject to change.



French Tax Consequences



The following describes the material French
income tax consequences to U.S. Holders (as defined below) of purchasing, owning and disposing of our ADSs and ordinary shares,
or the Securities



This discussion does not purport to be
a complete analysis or listing of all potential tax effects of the acquisition, ownership or disposition of our securities to any
particular investor, and does not discuss tax considerations that arise from rules of general application or that are generally
assumed to be known by investors. All of the following is subject to change. Such changes could apply retroactively and could affect
the consequences described below.



France has introduced a comprehensive set
of new tax rules applicable to French assets that are held by or in foreign trusts. These rules provide, inter alia, for the inclusion
of trust assets in the settlor’s net assets for purpose of applying the French wealth tax, for the application of French
gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of trusts not already
subject to the French wealth tax and not declared to the French tax authorities, and for a number of French tax reporting and disclosure
obligations. The following discussion does not address the French tax consequences applicable to securities held in trusts. If
securities are held in trust, the grantor, trustee and beneficiary are urged to consult their own tax adviser regarding the specific
tax consequences of acquiring, owning and disposing of our securities.



The description of the French income tax
and wealth tax consequences set forth below is based on the Convention Between the Government of the United States of America and
the Government of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to
Taxes on Income and Capital of August 31, 1994, or the Treaty, which came into force on December 30, 1995 (as amended
by any subsequent protocols, including the protocol of January 13, 2009) (the “U.S. Treaty”), and the tax guidelines
issued by the French tax authorities in force as of the date of this annual report on Form 20-F.





147


Table of Contents




For the purposes of this discussion, the
term “U.S. Holder” means a beneficial owner of securities that is (1) an individual who is a U.S. citizen or resident
for U.S. federal income tax purposes, (2) a U.S. domestic corporation or certain other entities treated as a corporation for U.S.
federal income tax purposes, created or organized in or under the laws of the United States or any state thereof, including the
District of Colombia, or (3) otherwise subject to U.S. federal income taxation on a net income basis in respect of our securities.



If a partnership holds securities, the
tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. If a U.S.
Holder is a partner in a partnership that holds securities, such holder is urged to consult its own tax adviser regarding the specific
tax consequences of acquiring, owning and disposing of securities.



This discussion applies only to U.S. Holders
who meet the following conditions:



| | · | they own, directly or indirectly, less than 10% of the capital and dividend rights of the Company;
| | - | --------------------------------------------------------------------------------------------------



| | · | they hold their ADSs as capital assets that have the U.S. dollar as their functional currency;
| | - | ----------------------------------------------------------------------------------------------



| | · | they are entitled to U.S. Treaty benefits under the “Limitation on Benefits” provision contained in the U.S. Treaty;
| | - | --------------------------------------------------------------------------------------------------------------------



| | · | the ownership of their ADSs is not effectively connected to a permanent establishment or a fixed base they have in France;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | they are not multi resident;
| | - | ----------------------------



| | · | they do not hold their ADSs through a non-U.S.-based pass-through entity; and
| | - | -----------------------------------------------------------------------------



| | · | they do not receive dividends, capital gains or other payments on their ADSs in an account opened in a Non-Cooperative State,
as defined under Article 238-0 A of the French Tax Code, or the FTC, and as mentioned in the list updated and published by the
French tax authorities on January 1 of each year
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



A U.S. Holder who meets all the above conditions
is hereafter defined as an “Eligible U.S. Holder”.



For the purpose of the U.S. Treaty, an
Eligible U.S. Holder of ADSs will be treated as the owner of the Company’s ordinary shares represented by such ADSs.



The description below is relevant only
to U.S. holders who are Eligible U.S. Holders.



Certain U.S. Holders (including, but not
limited to, U.S. expatriates, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, banks,
insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, persons subject to the alternative
minimum tax, persons who acquired the securities pursuant to the exercise of employee share options or otherwise as compensation,
persons that own (directly, indirectly or by attribution) 5% or more of our voting stock or 5% or more of our outstanding share
capital, dealers in securities or currencies, persons that elect to mark their securities to market for U.S. federal income tax
purposes and persons holding securities as a position in a synthetic security, straddle or conversion transaction) may be subject
to special rules not discussed below.



U.S. Holders of our ADSs are urged to consult
their own tax advisers regarding the tax consequences of the purchase, ownership and disposition of our ADSs in light of their
particular circumstances, especially with regard to the “Limitations on Benefits” provision.



Estate and Gift Taxes and Transfer Taxes



In general, a transfer of securities by
gift or by reason of death of a U.S. Holder that would otherwise be subject to French gift or inheritance tax, respectively, will
not be subject to such French tax by reason of the Convention between the Government of the United States of America and the Government
of the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates,
Inheritances and Gifts, dated November 24, 1978, unless the donor or the transferor is domiciled in France at the time of
making the gift or at the time of his or her death, or the securities were used in, or held for use in, the conduct of a business
through a permanent establishment or a fixed base in France.



148


Table of Contents




Pursuant to Article 235 ter ZD of the FTC,
purchases of shares or ADSs of a French company listed on a regulated market of the European Union or an exchange formally acknowledged
by the French Financial Market Authority (AMF) are subject to a 0.2% French tax on financial transactions provided that the issuer’s
market capitalization exceeds 1 billion Euros as of December 1 of the year preceding the taxation year. Nasdaq is not currently
acknowledged by the French AMF but this may change in the future. French companies whose market capitalization exceeds 1 billion
Euros are included on a list published by the French State.



Purchases of AAA’s securities may
be subject to such tax provided that its market capitalization exceeds 1 billion Euros and that Nasdaq is acknowledged by the French
AMF.



In the case where Article 235 ter ZD of
the FTC is not applicable, transfers of shares issued by a listed French company will be subject to uncapped registration duties
at the rate of 0.1% if the transfer is evidenced by a written statement (acte) executed either in France or outside France.



Wealth Tax



The French wealth tax (impôt de
solidarité sur la fortune) applies only to individuals and does not generally apply to securities held by a U.S. resident,
as defined pursuant to the provisions of the Treaty, provided that such U.S. Holder does not own directly or indirectly more than
25% of the issuer’s financial rights.



Taxation of Dividends



Under French domestic law, dividends paid
by a French corporation to non-residents of France are generally subject to French withholding tax at a rate of 30%. Dividends
paid by a French corporation in a Non-Cooperative State or Territory, as defined in Article 238-0 A of the FTC, will generally
be subject to French withholding tax at a rate of 75%, irrespective of the tax residence of the beneficiary of the dividends. Subject
to certain conditions and filing requirements, such withholding tax rates may generally be reduced under applicable double income
tax treaties entered into by France.



Eligible U.S. Holders will not be subject
to this 30% or 75% withholding tax rate, but may be subject to the withholding tax at a reduced rate (as described below).



Under the U.S. Treaty, the rate of French
withholding tax on dividends paid to an Eligible U.S. Holder is generally reduced to 15% and such U.S. Holder may claim a refund
from the French tax authorities of the amount withheld in excess of the Treaty rates of 15%, if any.



For Eligible U.S. Holders that are not
individuals but are U.S. residents, as defined in the U.S. Treaty, the requirements for eligibility for Treaty benefits, including
the reduced 15% withholding tax rate, contained in the “Limitation on Benefits” provision of the U.S. Treaty, are complicated,
and certain technical changes were made to these requirements by the protocol of January 13, 2009. These Eligible U.S. Holders
are advised to consult their own tax advisers regarding their eligibility for U.S. Treaty benefits in light of their own particular
circumstances.



Dividends paid to an Eligible U.S. Holder
may immediately be subject to the reduced rate of 15% provided that such holder establishes before the date of payment that it
is a U.S. resident under the U.S. Treaty by completing and providing the depositary with a treaty form (Form 5000) in accordance
with French guidelines (BOI-INT-DG-20-20-20-20). Dividends paid to an Eligible U.S. Holder that has not filed the Form 5000 before
the dividend payment date will be subject to French withholding tax at the rate of 30%, if paid in a Non-Cooperative State or Territory
(as defined in Article 238-0 A of the FTC), and then reduced at a later date to 15%, provided that such holder duly completes and
provides the French tax authorities with the treaty forms Form 5000 and Form 5001 before December 31 of the second calendar
year following the year during which the dividend is paid. Certain qualifying pension funds and certain other tax-exempt entities
are subject to the same general filing requirements as other U.S. Holders except that they may have to supply additional documentation
evidencing their entitlement to these benefits.





149


Table of Contents




Form 5000 and Form 5001, together with
instructions, will be provided by the depositary to all U.S. Holders registered with the depositary. The depositary will arrange
for the filing with the French tax authorities of all such forms properly completed and executed by U.S. Holders of ordinary shares
or ADSs and returned to the depositary in sufficient time so that they may be filed with the French tax authorities before the
distribution in order to obtain immediately a reduced withholding tax rate.



Tax on Sale or Other Disposition



In general, under the Treaty, an Eligible
U.S. Holder will not be subject to French tax on any capital gain from the redemption, sale or exchange of ordinary shares or ADSs.
Special rules apply to U.S. Holders who are residents of more than one country.



U.S. Federal Income Tax Considerations for U.S. Holders



Following is a description of the material
U.S. federal income tax consequences to the U.S. Holders described below of owning and disposing of ordinary shares or ADSs. It
is not a comprehensive description of all tax considerations that may be relevant to a particular person’s decision to hold
ordinary shares or ADSs. This discussion applies only to a U.S. Holder that holds ordinary shares or ADSs as capital assets for
U.S. federal income tax purposes. In addition, it does not describe all of the tax consequences that may be relevant in light of
a U.S. Holder’s particular circumstances, including alternative minimum tax consequences, the potential application of the
provisions of the Code known as the Medicare contribution tax, and tax consequences applicable to U.S. Holders subject to special
rules, such as:



| | · | certain financial institutions;
| | - | -------------------------------



| | · | dealers or traders in securities who use a mark-to-market method of tax accounting;
| | - | -----------------------------------------------------------------------------------



| | · | persons holding ordinary shares or ADSs as part of a hedging transaction, “straddle,” wash sale, conversion transaction
or integrated transaction or persons entering into a constructive sale with respect to the ordinary shares or ADSs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;
| | - | ------------------------------------------------------------------------------------------------



| | · | tax exempt entities, including “individual retirement accounts” and “Roth IRAs”;
| | - | --------------------------------------------------------------------------------



| | · | entities classified as partnerships for U.S. federal income tax purposes;
| | - | -------------------------------------------------------------------------



| | · | persons who acquired our ordinary shares or ADSs pursuant to the exercise of an employee stock option or otherwise as compensation;
| | - | -----------------------------------------------------------------------------------------------------------------------------------



| | · | persons that own or are deemed to own ten percent or more of our voting shares; and
| | - | -----------------------------------------------------------------------------------



| | · | persons holding ordinary shares or ADSs in connection with a trade or business conducted outside the United States.
| | - | -------------------------------------------------------------------------------------------------------------------



If an entity that is classified as a partnership
for U.S. federal income tax purposes holds ordinary shares or ADSs, the U.S. federal income tax treatment of a partner will generally
depend on the status of the partner and the activities of the partnership. Partnerships holding ordinary shares or ADSs and partners
in such partnerships are encouraged to consult their own tax advisers as to the particular U.S. federal income tax consequences
of holding and disposing of ordinary shares or ADSs.



The discussion is based on the Code, administrative
pronouncements, judicial decisions, final, temporary and proposed Treasury regulations, and the income tax treaty between France
and the United States (the “Treaty”) all as of the date hereof, changes to any of which may affect the tax consequences
described herein—possibly with retroactive effect.



A “U.S. Holder” for purposes
of this discussion is a holder who is, for U.S. federal income tax purposes, a beneficial owner of ordinary shares or ADSs, eligible
for the benefits of the Treaty and is:





150


Table of Contents




| | · | a citizen or individual resident of the United States;
| | - | ------------------------------------------------------



| | · | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any
state therein or the District of Columbia; or
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
| | - | -----------------------------------------------------------------------------------------------------------



In general, a U.S. Holder who owns ADSs
will be treated as the owner of the underlying shares represented by those ADSs for U.S. federal income tax purposes. Accordingly,
no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying shares represented by those ADSs.



The U.S. Treasury has expressed concerns
that parties to whom ADSs are released before shares are delivered to the depositary (“pre-release”), or intermediaries
in the chain of ownership between holders and the issuer of the security underlying the ADSs, may be taking actions that are inconsistent
with the claiming of foreign tax credits by holders of ADSs. These actions would also be inconsistent with the claiming of the
reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the creditability
of French taxes, and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each
described below, could be affected by actions taken by such parties or intermediaries.



U.S. Holders are encouraged to consult
their own tax advisers concerning the U.S. federal, state, local and foreign tax consequences of owning and disposing of ordinary
shares or ADSs in their particular circumstances.



Taxation of distributions



Subject to the PFIC rules described below,
distributions paid on ordinary shares or ADSs, other than certain pro rata distributions of ordinary shares, will generally be
treated as dividends to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal
income tax principles). Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles,
we expect that distributions generally will be reported to U.S. Holders as dividends. Subject to applicable limitations and the
discussion above regarding concerns expressed by the U.S. Treasury, dividends paid to certain non-corporate U.S. Holders may be
taxable at preferential rates applicable to long-term capital gain. The amount of a dividend will include any amounts withheld
by us in respect of French withholding taxes. The amount of the dividend will be treated as foreign-source dividend income to U.S.
Holders and will not be eligible for the dividends-received deduction generally available to U.S. corporations under the Code.
Dividends will be included in a U.S. Holder’s income on the date of the U.S. Holder’s, or in the case of ADSs, the
Depositary’s receipt of the dividend. The amount of any dividend income paid in euros will be the U.S. dollar amount calculated
by reference to the exchange rate in effect on the date of actual or constructive receipt, regardless of whether the payment is
in fact converted into U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should
not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency
gain or loss if the dividend is converted into U.S. dollars after the date of receipt.



Subject to applicable limitations, some
of which vary depending upon the U.S. Holder’s particular circumstances and subject to the discussion above regarding concerns
expressed by the U.S. Treasury, French income taxes withheld from dividends on ordinary shares or ADSs at a rate not exceeding
the rate provided by the Treaty will be creditable against the U.S. Holder’s U.S. federal income tax liability. The rules
governing foreign tax credits are complex and U.S. Holders should consult their tax advisers regarding the creditability of foreign
taxes in their particular circumstances. In lieu of claiming a foreign tax credit, U.S. Holders may, at their election, deduct
foreign taxes, including any French income tax, in computing their taxable income, subject to generally applicable limitations
under U.S. law. An election to deduct foreign taxes instead of claiming foreign tax credits applies to all foreign taxes paid or
accrued in the taxable year.



Sale or other taxable disposition of
ordinary shares or ADSs



Subject to the PFIC rules described below,
gain or loss realized on the sale or other taxable disposition of ordinary shares or ADSs will be capital gain or loss, and will
be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year. The amount of the
gain or loss will equal the difference between the U.S. Holder’s adjusted tax basis in the ordinary shares or ADSs disposed
of and the amount realized on the disposition, in each case as determined in U.S. dollars. This gain or loss will generally be
U.S.-source gain or loss for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.





151


Table of Contents




Passive foreign investment company rules



Under the Code, we will be a PFIC for any
taxable year in which, after the application of certain “look-through” rules with respect to subsidiaries, either (i)
75% or more of our gross income consists of “passive income,” or (ii) 50% or more of the average quarterly value of
our assets consist of assets that produce, or are held for the production of, “passive income.” Passive income generally
includes interest, dividends, rents, certain non-active royalties and gains from the disposition of assets that produce passive
income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated
for purposes of the PFIC tests as owning its proportionate share of the assets of the other corporation, and as receiving directly
its proportionate share of the other corporation’s income. Based upon the nature of our business and estimates of the valuation
of our assets, including goodwill, which is based, in part, on the trading price of our ADSs, we do not believe that we were a
PFIC for the year ended at December 31, 2016. However, because PFIC status depends on the composition of our income and assets
and the relative fair market value of our assets from time to time, there can be no assurance that we will not be a PFIC for any
taxable year. If we are a PFIC for any year during which a U.S. Holder holds ordinary shares or ADSs, we generally would continue
to be treated as a PFIC with respect to that U.S. Holder for all succeeding years during which the U.S. Holder holds ordinary shares
or ADSs, even if we ceased to meet the threshold requirements for PFIC status.



If we are a PFIC for any taxable year during
which a U.S. Holder holds ordinary shares or ADSs, the U.S. Holder may be subject to adverse tax consequences. Generally, gain
recognized upon a disposition (including, under certain circumstances, a pledge) of ordinary shares or ADSs by the U.S. Holder
would be allocated ratably over the U.S. Holder’s holding period for such ordinary shares or ADSs. The amounts allocated
to the taxable year of disposition and to years before we became a PFIC would be taxed as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest rate in effect for that taxable year for individuals or corporations,
as appropriate, and would be increased by an additional tax equal to interest on the resulting tax deemed deferred with respect
to each such other taxable year. Further, to the extent that any distribution received by a U.S. Holder on its ordinary shares
or ADSs exceeds 125% of the average of the annual distributions on such ordinary shares or ADSs received during the preceding three
years or the U.S. Holder’s holding period, whichever is shorter, that distribution would be subject to taxation in the same
manner described immediately above with respect to gain on disposition.



Alternatively, if we are a PFIC and if
our ordinary shares or ADSs are “regularly traded” on a “qualified exchange,” a U.S. Holder could make
a mark-to-market election that would result in tax treatment different from the general tax treatment described in the preceding
paragraph. Our ordinary shares or ADSs would be treated as “regularly traded” in any calendar year in which more than
a de minimis quantity of the ordinary shares or ADSs, as the case may be, are traded on a qualified exchange on at least
15 days during each calendar quarter. The Nasdaq market on which the ADSs are listed is a qualified exchange for this purpose.
However, as our ordinary shares are not listed on an exchange, holders of ordinary shares will not be able to make a mark-to-market
election. U.S. Holders should consult their tax advisers regarding the availability and advisability of making a mark-to-market
election in their particular circumstances. If a U.S. Holder makes the mark-to-market election, the U.S. Holder generally will
recognize as ordinary income any excess of the fair market value of the ADSs at the end of each taxable year over their adjusted
tax basis, and will recognize an ordinary loss in respect of any excess of the adjusted tax basis of the ADSs over their fair market
value at the end of the taxable year (but only to the extent of the net amount of income previously included as a result of the
mark-to-market election). If a U.S. Holder makes the election, the U.S. Holder’s tax basis in the ADSs will be adjusted to
reflect these income or loss amounts. Any gain recognized on the sale or other disposition of ADSs in a year when we are a PFIC
will be treated as ordinary income and any loss will be treated as an ordinary loss (but only to the extent of the net amount of
income previously included as a result of the mark-to-market election). The mark-to-market election will be effective for the taxable
year for which the election is made and all subsequent taxable years, unless our ADSs cease to be marketable stock or the IRS consents
to the revocation of the election.



A timely election to treat a PFIC as a
qualified electing fund under Section 1295 of the Code would result in alternative treatment. U.S. Holders should be aware, however,
that we do not intend to satisfy the record-keeping and other requirements that would permit U.S. Holders to make qualified electing
fund elections if we were a PFIC.



In addition, if we are a PFIC or, with
respect to particular U.S. Holders, are treated as a PFIC for the taxable year in which we paid a dividend or for the prior taxable
year, the preferential rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.





152


Table of Contents




If a U.S. Holder owns ordinary shares or
ADSs during any year in which we are a PFIC, the holder generally must file an IRS Form 8621, generally with the holder’s
federal income tax return for that year.



U.S. Holders should consult their tax advisers
regarding whether we are or may become a PFIC and the potential application of the PFIC rules.



Information reporting and backup withholding



Payments of dividends and sales proceeds
that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information
reporting, and may be subject to backup withholding, unless (i) the U.S. Holder is a corporation or other exempt recipient or (ii)
in the case of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that it is not
subject to backup withholding.



The amount of any backup withholding from
a payment to a U.S. Holder will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle
it to a refund, provided that the required information is timely furnished to the IRS.



Foreign Financial Asset Reporting



Certain U.S. Holders may be required to
report information relating to their ownership of an interest in certain foreign financial assets, including stock of a non-U.S.
person, generally on Form 8938, subject to exceptions (including an exception for stock held through a U.S. financial institution).
U.S. Holders should consult their tax advisers regarding their reporting obligations with respect to ordinary shares or ADSs.



F.       Dividends and
Paying Agents



Not applicable.



G.       Statement by
Experts



Not applicable.



H.       Documents on
Display



We are subject to the informational requirements
of the Exchange Act. Accordingly, we are required to submit reports and other information with the SEC, including annual reports
on Form 20-F and reports on Form 6-K. You may inspect and copy reports and other information filed with the SEC at the Public Reference
Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website that contains reports and other information
about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.



As a FPI, we are exempt under the Exchange
Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers,
directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section
16 of the Exchange Act. In addition, we are not be required under the Exchange Act to file periodic reports and financial statements
with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we
file with the SEC, within four months after the end of each fiscal year, or such applicable time as required by the SEC, an annual
report on Form 20-F containing financial statements audited by an independent registered public accounting firm, and submit to
the SEC, on Form 6-K, unaudited quarterly financial information for the first three quarters of each fiscal year.



I.        Subsidiary
Information



Not
applicable.



153


Table of Contents




ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



Risk Management



In the ordinary course of our business
activities, we are exposed to various market risks that are beyond our control, including fluctuations in foreign exchange rates
and the price of our primary supplies, and which may have an adverse effect on the value of our financial assets and liabilities,
future cash flows and profit. As a result of these market risks, we could suffer a loss due to adverse changes in foreign exchange
rates and the price of commodities in the international markets. Our policy with respect to these market risks is to assess the
potential of experiencing losses and the consolidated impact thereof, and to mitigate these market risks. We are not currently
exposed to significant interest rate risk because most of our long-term debt is at fixed interest rates.



Foreign Currency Exchange Rate Risk



Exchange rate variations could affect our
consolidated statement of income. For the year ended December 31, 2016, we realized 76% of our sales in the Euro zone compared
to 74% for the same period in 2015. In fiscal year 2015, we generated 74% of our sales in the euro zone as compared to 77% in fiscal
year 2014. However, we operate internationally and are exposed to foreign exchange risk arising from various exposures, primarily
with respect to the UK Pound Sterling, Swiss Franc, U.S. Dollar, Israeli Shekel and Japanese Yen due to our operations in those
countries.



Foreign exchange risk arises
from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. However,
a significant part of our cash was held in USD at December 31, 2016 (€156.3 million ($165 million) term deposit in USD
and €2.7 million ($2.9 million) in cash, out of a total in cash and cash equivalent of €222.1 million). The
strengthening or the weakening of the USD against the Euro by 5% would respectively lead to a financial income of
€8.0 million or a financial expense of €8.0 million based on the cash and cash equivalents held in USD at December
31, 2016.



In 2016, we hedged about 52% of our initial
public offering proceeds against variations in the U.S. dollars to Euros exchange rate over a period of 3 and 6 months. As of December
31, 2016, we did not have any hedging policies in place to manage exposures but may consider putting them in place going forward.



Interest Rate Risk



We do not consider our exposure to changes
in interest rates to be significant. Some of our lease contracts are partially linked to indices such as Euribor and INSEE. Variations
in these indices could entail increased interest payments. A variation of 1% in these indices would increase (decrease) our interest
rate expenditure by approximately €0.1 million. At December 31, 2016, 2015 and 2014, we had €4.6 million, €6.1
million and €6.9 million, respectively, in financial liabilities that bore interest at a floating rate.



154


Table of Contents




ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES



A.       Debt Securities



Not applicable.



B.       Warrants and
Rights



Not applicable.



C.       Other Securities



Not applicable.



D.       American Depositary
Shares



The Bank of New York Mellon, as depositary,
registers and delivers American Depositary Shares, also referred to as ADSs. Each ADS represents two shares (or a right to receive
two shares) deposited with the principal Paris office of BNP Paribas Securities Services, as custodian for the depositary. Each
ADS also represents any other securities, cash or other property which may be held by the depositary. The depositary’s corporate
trust office at which the ADSs are administered is located at 101 Barclay Street, New York, New York 10286. The principal executive
office is located at 225 Liberty Street, New York, New York 10286.



A deposit agreement among us, the depositary;
ADS holders, and all other persons indirectly or beneficially holding ADSs sets out ADS holder rights as well as the rights and
obligations of the depositary. New York law governs the deposit agreement and the ADSs. A copy of the Agreement is incorporated
by reference as an exhibit to this Annual Report on Form 20-F.



Fees and Expenses



Pursuant to the terms of the deposit agreement,
the holders of ADSs will be required to pay the following fees:



|Persons
        depositing or withdrawing shares or ADS holders must pay:                                                                                 | For:                                                                                                                                                                                                               
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)                                                                                                     | Issuance of ADSs, including issuances resulting from
a distribution of shares or rights or other property
        Cancellation of ADSs for the purpose of withdrawal,
including if the deposit agreement terminates
|$.05 (or less) per ADS                                                                                                                                    | Any cash distribution to ADS holders                                                                                                                                                                               
|A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS holders                                                                                   
|$.05 (or less) per ADS per calendar year                                                                                                                  | Depositary services                                                                                                                                                                                                
|Registration or transfer fees                                                                                                                             | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares                                                                   





155


Table of Contents




|Persons
        depositing or withdrawing shares or ADS holders must pay:                                                                                                            | For:                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------
|Expenses of the depositary                                                                                                                                                           | Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) converting foreign currency to U.S. dollars
|Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | As necessary                                                                                                                           
|Any charges incurred by the depositary or its agents for servicing the deposited securities                                                                                          | As necessary                                                                                                                           



The depositary collects its fees for delivery
and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries
acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed
or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services
by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants
acting for them. The depositary may collect any of its fees by deduction from any cash distribution payable to ADS holders that
are obligated to pay those fees. The depositary may generally refuse to provide fee-attracting services until its fees for those
services are paid.



From time to time, the depositary may make
payments to us to reimburse and/or share revenue from the fees collected from ADS holders, or waive fees and expenses for services
provided, generally relating to costs and expenses arising out of establishment and maintenance of the ADS program. In performing
its duties under the deposit agreement, the depositary may use brokers, dealers or other service providers that are affiliates
of the depositary and that may earn or share fees or commissions.



The Bank of New York Mellon has also agreed
to reimburse us annually for certain expenses (subject to certain limitations) in connection with the ADR facility and to pay us
annually a further amount which is a function of the issuance and cancellation fees and depositary service fees charged by the
depositary to our ADS holders.



For the fiscal year ended December 31,
2016, the Company did not receive any reimbursement from The Bank of New York Mellon.



Payment of Taxes



You will be responsible for any taxes or
other governmental charges payable on your ADSs or on the deposited securities represented by any of your ADSs. The depositary
may refuse to register any transfer of your ADSs or allow you to withdraw the deposited securities represented by your ADSs until
such taxes or other charges are paid. It may apply any dividends or other distributions owed to you or sell deposited securities
represented by your ADSs to pay any taxes owed and you will remain liable for any deficiency. If the depositary sells deposited
securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to ADS holders any proceeds, or send
to ADS holders any property, remaining after it has paid the taxes.



156


Table of Contents




PART II



ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES



A.       Defaults



No
matters to report.



B.       Arrears and
Delinquencies



No matters to report.



ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS



A.       Material modifications
to instruments



Not applicable.



B.       Material modifications
to rights



Not applicable.



C.       Withdrawal
or substitution of assets



Not applicable.



D.       Change in trustees
or paying agents



Not applicable.



E.       Use of proceeds



On November 10, 2015, our registration
statement on Form F-1 (File No. 333-207223), as amended, was declared effective by the SEC for our initial public offering of our
ADS, pursuant to which we offered and sold a total of 5,391,200 ADSs, each representing 2 of our ordinary shares, €0.10 nominal
value per share, at a public offering price of $16.00 per ADS. Citigroup Global Markets Inc. and Jefferies LLC acted as joint book-running
managers for the offering. The offering began on November 2, 2015 and was completed on November 10, 2015. All securities registered
in the registration statement have been sold pursuant to the underwriting agreement for the initial public offering.



We sold 5,391,200 ADSs, including 703,200
ADSs purchased by the underwriters pursuant to their option to purchase additional ADSs for an aggregate price of $86.3 million.
We received net proceeds of approximately $80.4 million, after deducting underwriting discounts and commissions of approximately
$5.8 million and other expenses of approximately $0.05 million.



Our expenses in connection with our initial
public offering from November 10, 2015 through December 31, 2016, other than underwriting discounts and commissions, were
the following



|Expenses                         |  | Amount
    (US$)
|-------------------------------- |  | ----------------
|SEC registration fee             |  |                 
|FINRA filing fee                 |  |                 
|NASDAQ listing fee               |  |                 
|Printing and engraving expenses  |  |                 
|Legal fees and expenses          |  |                 
|Accounting fees and expenses     |  |                 
|Road show expenses               |  |                 
|Miscellaneous costs (IPO Bonus)* |  |                 
|Total                            |  |                 










| | * | IPO Bonus costs paid in cash or accrued for in 2015 for
the Chairman of the Board, senior management and certain employees of the company
| | - | -----------------------------------------------------------------------------------------------------------------------------------------





157


Table of Contents




None of the underwriting discounts and
commissions or other expenses were paid directly or indirectly to any director, officer or general partner of ours or to their
associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.



For the period up until December 31, 2016
AAA made the following uses of the net proceeds from the initial public offering:



| | · | Acquisitions of IDB for €20.2 million and of the PetNet business for €2.2 million;
| | - | ----------------------------------------------------------------------------------



| | · | Investments for the construction of our new production sites in Murcia (Spain) and in Millburn (United States) of €13.9M
approximately;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | Payment of a contingent liability to former owners of the acquired companies Barnatron and Cadisa or €1.0 million;
| | - | ------------------------------------------------------------------------------------------------------------------



| | · | Payment of legal fees related to the work on the initial public offering and also board fees of a combined €1.5 million;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | Payments made on R&D projects, notably SomaKit TOCTM, lutetium Lu 177 dotatate (Lutathera®), Annexin and some
other operating expenses of €13.0 million.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



The investments and expenses described
above amounted to approximately €51.8 million (US$54.7 million)



Other than as described above, there has
been no significant change in the planned use of proceeds from our initial public offering as described in our final prospectus
dated November 10, 2015 filed with the SEC on November 12, 2015.



ITEM 15. CONTROLS AND PROCEDURES



A.        Disclosure
Controls and Procedures



As of December 31, 2016, under the supervision
and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we performed an
evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act). There are inherent limitations to the effectiveness of any disclosure controls and procedures system,
including the possibility of human error and circumventing or overriding them. Even if effective, disclosure controls and procedures
can provide only reasonable assurance of achieving their control objectives.



Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective due to the material
weaknesses in our internal control over financial reporting identified in the preparation of our 2016 annual financial statements.
For more information see “—B. Management’s Annual Report on Internal Control over Financial Reporting”
below.



B.       Management’s
Annual Report on Internal Control over Financial Reporting



Our management is responsible for establishing
and maintaining an adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.



Our internal control over financial reporting
is a process designed by, or under the supervision of, our principal executive and principal financial officers, management and
other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial
statements for external reporting purposes, in accordance with generally accepted accounting principles. These include those policies
and procedures that:



| | · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions
of our assets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements, in
accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance
with authorization of our management and directors; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial statements.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





158


Table of Contents






Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, effective control over financial reporting
cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projections of, and any evaluation
of effectiveness of the internal controls in future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



Our management, including our Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting
as of December 31, 2016 based on the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”). Management has excluded from the scope of its evaluation
of internal control over financial reporting as of December 31, 2016 IDB’s internal control over financial reporting associated
with total assets of €5.7 million, total revenue of €7.9 million and total net income of €0.9 million included in
the consolidated financial statements of AAA as of and for the year ended December 31, 2016. Based on this evaluation, our management,
including our Chief Executive Officer and Chief Financial Officer, has concluded that the Company’s internal control over
financial reporting was ineffective as of December 31, 2016 due to the identified material weaknesses described below.



In connection with the preparation of the
2016 annual financial statements, our management, including our Chief Executive Officer and Chief Financial Officer, identified
material weaknesses in our Internal Controls over Financial reporting:



| | · | The first material weakness is the combination of several significant deficiencies in our internal controls over significant
unusual transactions and calculations of significant estimates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | We also identified two other specific material weaknesses in the controls over the calculation of contingent liabilities as
well as in the controls over the preparation and review of the cash flow statement.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These material weaknesses resulted in misclassifications
in the cash flow statement, a material misstatement of contingent liabilities and other less significant misstatements in the areas
of accruals, deferred income and inventories identified by our external auditors in connection with their audit of the 2016 annual
financial statements. These misstatements were corrected before issuing the financial statements.



These misstatements are explained by a
combination of the following factors: (i) insufficient training of some of our finance & accounting personnel in certain of
our subsidiaries; (ii) insufficient staffing of the finance & accounting departments in certain of our subsidiaries and at
the Group level where the consolidation work is performed; and (iii) difficulties encountered in the hiring of the required qualified
finance & accounting personnel. In addition, we have initiated a company-wide project to eventually transfer all of our accounting
to a single accounting software platform. This started in 2015 and continued in 2016. We encountered difficulties and inefficiencies
compared to the application previously used and identified inefficiencies in the system utilization due to insufficient end-user
training and a lack in the automatization of processes and controls within the system. This forced us to rely extensively on manual
controls which further strained the finance staff resources.



As a result of the material weaknesses
described above, management has concluded that the Company did not maintain effective internal control over financial reporting
as of December 31, 2016 based on criteria established in the 2013 COSO framework. However, management believes that all annual
or interim financial statements issued to date do not contain any uncorrected material misstatement as a result of the aforementioned
weaknesses in our internal control over financial reporting. Our independent registered public accounting firm has issued an attestation
report on management’s assessment of our internal control over financial reporting (see “—C. Attestation Report
of the Registered Public Accounting Firm” below).



Remediation
Efforts to Address Material Weaknesses



We are in the process of remediating
these identified material weaknesses and we have taken and will continue to take actions to eventually eliminate them. We
have strengthened our financial control and our accounting teams at the group consolidation level by hiring additional
experienced professionals and we have reinforced the finance & accounting resources and capabilities in several of our
subsidiaries. Management has developed a group wide training program and conducted initial training sessions for control
owners and accounting staff. Training is expected to be ongoing throughout 2017. We also started to put our process controls
directly within our accounting system to take advantage of automated controls.





159


Table of Contents




Management has also taken steps to improve
documentation of its formal accounting and reporting policies. This effort is also ongoing throughout 2017. During the course of
the re-design of existing processes and controls, the implementation of additional processes and controls and the testing of the
operating effectiveness of such re-designed controls and additional processes and controls, we may identify additional control
deficiencies that could give rise to other material weaknesses, in addition to the material weaknesses described above. As we continue
to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to
address material weaknesses or determine to modify certain of the remediation measures.



| | C. | Attestation Report of the Registered Public Accounting
Firm
| | -- | -----------------------------------------------------------



The effectiveness of internal control
over financial reporting as of December 31, 2016 was audited by KPMG S.A., independent registered public accounting firm, as
stated in their report appearing on page F-4 of this Annual Report. Their report on the effectiveness of internal control
over financial reporting as of December 31, 2016, expresses an opinion that AAA did not maintain effective internal control
over financial reporting as of December 31, 2016 because of the effect of the material weaknesses described above on the
achievement of the objectives of the control criteria and contains  explanatory paragraphs that state that (i) they do not
express an opinion or any other form of assurance on management’s statements referring to remediation efforts to
address the aforementioned material weaknesses in internal control over financial reporting, and (ii) their audit of internal
control over financial reporting also excluded an evaluation of the internal control over financial reporting of IDB.



| | D. | Changes in Internal Control over Financial Reporting
| | -- | ----------------------------------------------------



Management started the process of
improving internal control over financial reporting in 2015 and the Group Internal Audit Director was hired that same year.
In 2016, Management has prepared the supporting processes and controls to perform the evaluation of Internal Control Over
Financial Reporting based on the criteria set forth in the 2013 COSO framework with the assistance of a third-party service
provider. This process involved the identification of key controls, their implementation when missing, their assessment from
a design and effectiveness perspective as well as the remediation if necessary. The project covered Entity Level Controls,
Process Level controls and Information Technology General Controls that could impact directly or indirectly the Financial
Statements and its disclosures. In January 2016, we transferred two additional subsidiaries to our new accounting software
platform so that a total of six of our subsidiaries closed the financial statements for 2016 using this software. We improved
the efficiency of controls by implementing several controls within this software, such as the Suppliers or Customers creation
controls or some of the Research and Development controls during 2016. In addition, we strengthened controls and segregation
of duties in the treasury process and in the financial reporting and consolidation processes.



As stated above, Management has excluded
from the scope of its evaluation of internal control over financial reporting as of December 31, 2016, IDB’s internal control
over financial reporting associated with total assets of €5.7 million, total revenue of €7.9 million and total net income
of €0.9 million included in the consolidated financial statements of AAA as of and for the year ended December 31, 2016.



ITEM 16. [RESERVED]



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT



The audit committee is chaired by Christian
Merle and includes Steven Gannon and Leopoldo Zambeletti, who are non-executive board members. The audit committee reviews our
internal accounting procedures, consults with and reviews the services provided by our independent registered public accountants
and assists our board of directors in its oversight of our corporate accounting and financial reporting. Our board has determined
that each member of our audit committee is independent within the meaning of the independence requirements contemplated by Rule
10A-3 under the Exchange Act and Nasdaq and SEC rules applicable to foreign private issuers. Our board of directors has further
determined that the members of our audit committee members have the professional experience and knowledge to qualify as “audit
committee financial experts” as defined by SEC rules.





160


Table of Contents




ITEM 16B. CODE OF ETHICS



We have adopted a code of conduct applicable
to the board of directors and all employees. Since its effective date on September 17, 2015, we have not waived compliance with
or amended the code of conduct. We have posted a copy of our code of conduct on our website.



ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table describes the amounts
billed to us by KPMG S.A., independent registered public accounting firm, for audit and other services performed in fiscal years
2016 and 2015.



|                   |  | 2016                        |       | 2015
|------------------ |  | --------------------------- | ----- | ----
|                   |  | (in thousands
    of Euros)
|Audit fees         |  | €                           | 1,139 |     
|Audit-related fees |  |                             | 2     |     
|Tax fees           |  |                             | –     |     
|All other fees     |  |                             | –     |     



The Audit Committee is responsible for
the appointment, replacement, compensation, evaluation and oversight of the work of the independent auditors. As part of this responsibility,
the Audit Committee pre- approves all audit and non-audit services performed by the independent auditors in order to assure that
they do not impair the auditor's independence from the Company.



ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
COMMITTEES



Not applicable.



ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER
AND AFFILIATED PURCHASERS



None.



ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT



Not applicable.



ITEM 16G. CORPORATE GOVERNANCE



For a description of the significant ways
in which our corporate governance practices differ from those required for U.S. companies listed on Nasdaq, see “Item 6.
Directors, Senior Management and Employees—C. Board Practices—Corporate Governance Practices.”



ITEM 16H. MINE SAFETY DISCLOSURE



Not applicable.



161


Table of Contents




PART III



ITEM 17. FINANCIAL STATEMENTS



We have responded to Item 18 in lieu of
this item.



ITEM 18. FINANCIAL STATEMENTS



Financial Statements are filed as part
of this annual report. See page F-1.



ITEM 19. EXHIBITS



|Exhibit
        No. | Description                                                                                                                                                                                                                                                                                                                                                     
|------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1                 | English Translation of Articles of Association (entry into force on March 3, 2017).*                                                                                                                                                                                                                                                                            
|2.1                 | Form of Deposit Agreement among Advanced Accelerator Applications S.A., The Bank of New York Mellon, as depositary, and
    owners and holders of American Depositary Shares (incorporated herein by reference to our Registration Statement on Form F-6
    (File No. 333-201502) filed with the SEC on January 14, 2015).                                     
|2.3                 | Form of American Depositary Receipt (included in Exhibit 4.1).                                                                                                                                                                                                                                                                                                  
|2.4                 | Form of Shareholders’ Agreement (incorporated herein by reference to Exhibit 4.3 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).                                                                                                                                                              
|2.5                 | Form of Warrant Subscription (incorporated herein by reference to Exhibit 10.12 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).                                                                                                                                                               
|4.1                 | Advanced Accelerator Applications S.A. 2016 Warrant Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (File No. 333-213733) filed with the SEC on September 21, 2016).                                                                                                                                 
|4.2                 | Advanced Accelerator Applications S.A. 2015 Stock Option Plan (incorporated herein by reference to Exhibit 10.11 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).                                                                                                                              
|4.3                 | Advanced Accelerator Applications S.A. 2013 Free Share Plan (incorporated herein by reference to Exhibit 99.3 to the Company’s Registration Statement on Form S-8 (File No. 333-213733) filed with the SEC on September 21, 2016).                                                                                                                              
|4.4                 | Advanced Accelerator Applications S.A. 2010 Free Share Plan (incorporated herein by reference to Exhibit 99.4 to the Company’s Registration Statement on Form S-8 (File No. 333-213733) filed with the SEC on September 21, 2016).                                                                                                                              
|4.5                 | Service Agreement, dated April 3, 2012, between Advanced Accelerator Applications S.A. and Pierrel Research Italy S.p.A (incorporated herein by reference to Exhibit 10.6 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).                                                                     
|4.6                 | Letter Agreement, dated September 2, 2016, between Advanced Accelerator Applications SA and Accelovance Europe S.r.l.*                                                                                                                                                                                                                                          
|4.7                 | Letter Agreement, dated November 8, 2016, between Accelovance Europe S.r.l. and Advanced Accelerator Applications S.A.*                                                                                                                                                                                                                                         
|4.8                 | Unanimous Shareholders Agreement dated March 27, 2014, among Advanced Accelerator Applications Canada Inc., 4549694 Canada Inc., 7329563 Canada Inc. and Atreus Pharmaceuticals Corporation (incorporated herein by reference to Exhibit 10.7 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).†
|4.9                 | Share Purchase Agreement dated December 18, 2014 between 7329563 Canada Inc. and Advanced Accelerator Applications S.A. (incorporated herein by reference to Exhibit 10.8 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).†                                                                    
|4.10                | Agreement on Special Compensation Allowance by and between Advanced Accelerator Applications S.A. and Claudio Costamagna dated January 19, 2015 (incorporated herein by reference to Exhibit 1.1 to the Company’s Amendment No. 1 to Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on November 2, 2015).                          
|4.11                | License Agreement, dated June 16, 2015 between Advanced Accelerator Applications International and Fujifilm RI Pharma Co., Ltd (incorporated herein by reference to Exhibit 10.10 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).†                                                            





162


Table of Contents




|Exhibit
        No. | Description                                                                                                                                                                             
|------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8.1                 | List of subsidiaries (incorporated herein by reference to Exhibit 21.1 to the Company’s Registration Statement on Form F-1 (File No. 333-207223) filed with the SEC on October 1, 2015).
|12.1                | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                               
|12.2                | Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002.*                                                                                                               
|13.1                | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002.*                                                                
|13.2                | Certification pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes Oxley Act of 2002.*                                                                
|15.1                | Consent of KPMG SA.*                                                                                                                                                                    










| | * | Filed with this Annual Report on Form 20-F.
| | - | -------------------------------------------



| | † | Confidential treatment requested as to portions of the exhibit. Confidential materials omitted and filed separately with the
Securities and Exchange Commission.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



163


Table of Contents




SIGNATURES



The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.



| | ADVANCED ACCELERATOR APPLICATIONS S.A.
| | --------------------------------------
| |                                       
| |                                       
| | By:                                   
| |                                       
| |                                       
| |                                       



Date: March 29, 2017



164


Table of Contents




Index to
Financial Statements



|Audited Consolidated Financial Statements — Advanced Accelerator Applications S.A.                       |     
|-------------------------------------------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm                                                  | F-3 
|Report of Independent Registered Public Accounting Firm on the Internal Control over Financial Reporting | F-4 
|Consolidated Statements of Income for the years ended December 31, 2016, 2015 and 2014                   | F-6 
|Consolidated Statements of Comprehensive Income for the years ended December 31, 2016, 2015 and 2014     | F-7 
|Consolidated Statements of Financial Position at December 31, 2016, 2015 and 2014                        | F-8 
|Consolidated Statements of Changes in Equity for the years ended December 31, 2016, 2015 and 2014        | F-9 
|Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 and 2014               | F-12
|Notes to the Consolidated Financial Statements for the years ended December 31, 2016, 2015 and 2014      | F-15



F-1


Table of Contents




Advanced Accelerator Applications S.A.













|Advanced
        Accelerator Applications S.A.
        
        20
        rue Rudolf Diesel
        
        01630
        Saint Genis Pouilly
        
        
        ____________________________
        
        
        
        
        
        
        IFRS CONSOLIDATED FINANCIAL
        STATEMENTS
        
        Years ended December 31, 2016,
2015 and 2014
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------









December 31, 2016, 2015 and 2014F-2


Table of Contents








| |                                                                                            |                                           |                                                             
| | ------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------------
| | KPMG Audit51,
rue de Saint-Cyr
        CS
60409
        69338
Lyon Cedex 09
        France | Téléphone :Télécopie :Site
    internet : | +33
(0)4 37 64 76 00+33 (0)4 37 64 76 09
        www.kpmg.fr

|
|











Report
of Independent Registered Public Accounting Firm



The
Board of Directors and Stockholders



Advanced
Accelerator Applications S.A.



We
have audited the accompanying consolidated statements of financial position of Advanced Accelerator Applications S.A. and subsidiaries
(“the Company”) as of December 31, 2016, 2015 and 2014, and the related consolidated statements of income, comprehensive
income, changes in equity, and cash flows for each of the years in the three year period ended December 31, 2016. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Advanced Accelerator Applications S.A. and subsidiaries as of December 31, 2016, 2015 and 2014, and the results of their operations
and their cash flows for each of the years in the three year period ended December 31, 2016, in conformity with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.



We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Advanced Accelerator Applications S.A.’s internal control over financial reporting as of December 31, 2016, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 29, 2017 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting.



Lyon,
France

March
29, 2017



KPMG
Audit

A
division of KPMG S.A.





/s/
Stéphane Devin



Stéphane
Devin

Partner





F-3


Table of Contents






| |                                                                                            |                                           |                                                             
| | ------------------------------------------------------------------------------------------ | ----------------------------------------- | ------------------------------------------------------------
| | KPMG Audit51,
rue de Saint-Cyr
        CS
60409
        69338
Lyon Cedex 09
        France | Téléphone :Télécopie :Site
    internet : | +33
(0)4 37 64 76 00+33 (0)4 37 64 76 09
        www.kpmg.fr







Report
of Independent Registered Public Accounting Firm on the Internal Control over Financial Reporting



The
Board of Directors and Stockholders



Advanced
Accelerator Applications S.A.



We
have audited Advanced Accelerator Applications S.A.’s internal control over financial reporting as of December 31, 2016,
based on criteria established in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Advanced Accelerator Applications S.A.'s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting Our responsibility
is to express an opinion on the Company's internal control over financial reporting based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets
that could have a material effect on the financial statements.



F-4


Table of Contents














Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not
be prevented or detected on a timely basis. Material weaknesses related to the controls over significant unusual transactions
and calculation of significant estimates, the controls over the calculation of contingent liabilities and the controls over the
preparation and review of the cash flow statement have been identified and included in management’s assessment. We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
statements of financial position of Advanced Accelerator Applications S.A. and subsidiaries as of December 31, 2016, 2015 and
2014, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the
years in the three year period ended December 31, 2016. These material weaknesses were considered in determining the nature, timing,
and extent of audit tests applied in our audit of the 2016 consolidated financial statements, and this report does not affect
our report dated March 29, 2017, which expressed an unqualified opinion on those consolidated financial statements.



In
our opinion, because of the effect of the aforementioned material weaknesses on the achievement of the objectives of the control
criteria, Advanced Accelerator Applications S.A. has not maintained effective internal control over financial reporting as of
December 31, 2016, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO).



Advanced
Accelerator Applications S.A. acquired IDB during 2016, and management excluded from its assessment of the effectiveness of Advanced
Accelerator Applications S.A’s internal control over financial reporting as of December 31, 2016, IDB’s internal control
over financial reporting associated with total assets of €5.7 million, total revenue of €7.9 million and total net income
of €0.9 million included in the consolidated financial statements of Advanced Accelerator Applications S.A as of and for
the year ended December 31, 2016. Our audit of internal control over financial reporting of Advanced Accelerator Applications
S.A also excluded an evaluation of the internal control over financial reporting of IDB.



We
do not express an opinion or any other form of assurance on management’s statements referring to the remediation efforts
to address the aforementioned material weaknesses in internal control over financial reporting.



Lyon,
France

March
29, 2017



KPMG
Audit

A
division of KPMG S.A.





/s/
Stéphane Devin



Stéphane
Devin

Partner







F-5


Table of Contents




Advanced Accelerator
Applications S.A.





CONSOLIDATED STATEMENTS OF
INCOME



for
the years ended December 31, 2016, 2015 and 2014








|In € thousands                                                               |  | Notes |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|---------------------------------------------------------------------------- |  | ----- |  | ---------- |  | ---------- |  | ----------
|                                                                             |  |       |  |            |  |            |  |           
|Sales                                                                        |  | 4.1   |  | 109,325    |  | 88,615     |  | 69,865    
|Raw materials and consumables used                                           |  |       |  | (25,697)   |  | (18,335)   |  | (14,597)  
|Personnel costs                                                              |  | 4.2   |  | (41,704)   |  | (29,520)   |  | (21,089)  
|Other operating expenses                                                     |  | 4.4   |  | (53,655)   |  | (44,814)   |  | (35,025)  
|Other operating income                                                       |  | 4.5   |  | 4,237      |  | 5,841      |  | 4,240     
|Depreciation and amortization                                                |  | 4.7   |  | (12,002)   |  | (11,321)   |  | (11,993)  
|                                                                             |  |       |  |            |  |            |  |           
|Operating loss                                                               |  |       |  | (19,496)   |  | (9,534)    |  | (8,599)   
|                                                                             |  |       |  |            |  |            |  |           
|Finance income (including changes in fair value of contingent consideration) |  | 4.8   |  | 8,064      |  | 1,156      |  | 582       
|Finance costs (including changes in fair value of contingent consideration)  |  | 4.8   |  | (13,613)   |  | (7,852)    |  | (2,382)   
|                                                                             |  |       |  |            |  |            |  |           
|Net finance loss                                                             |  |       |  | (5,549)    |  | (6,696)    |  | (1,800)   
|                                                                             |  |       |  |            |  |            |  |           
|Loss before income taxes                                                     |  |       |  | (25,045)   |  | (16,230)   |  | (10,399)  
|                                                                             |  |       |  |            |  |            |  |           
|Income taxes                                                                 |  | 4.9   |  | (249)      |  | (771)      |  | (404)     
|                                                                             |  |       |  |            |  |            |  |           
|Loss for the year                                                            |  |       |  | (25,294)   |  | (17,001)   |  | (10,803)  
|                                                                             |  |       |  |            |  |            |  |           
|Attributable to:                                                             |  |       |  |            |  |            |  |           
|Owners of the Company                                                        |  |       |  | (25,294)   |  | (17,001)   |  | (9,499)   
|Non-controlling interests                                                    |  |       |  | -          |  | -          |  | (1,304)   
|                                                                             |  |       |  |            |  |            |  |           
|Loss per share                                                               |  |       |  |            |  |            |  |           
|                                                                             |  |       |  |            |  |            |  |           
|Basic (€ per share)                                                          |  | 5.11  |  | (0.31)     |  | (0.25)     |  | (0.15)    
|Diluted (€ per share)                                                        |  | 5.11  |  | (0.31)     |  | (0.25)     |  | (0.15)    
|                                                                             |  |       |  |            |  |            |  |           



Some figures
in the years December 31, 2015 and December 31, 2014 were reclassified for comparison purpose, without net result impact.



December 31, 2016, 2015 and 2014F-6


Table of Contents


Advanced Accelerator
Applications S.A.





CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME



year
ended december 31, 2016, 2015 and 2014








|In € thousands                                                       |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|-------------------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Loss for the year                                                    |  | (25,294)   |  | (17,001)   |  | (10,803)  
|                                                                     |  |            |  |            |  |           
|Other comprehensive income / (expense):                              |  |            |  |            |  |           
|                                                                     |  |            |  |            |  |           
|Items that may be reclassified subsequently to profit or loss        |  |            |  |            |  |           
|Exchange differences on translating foreign operations               |  | 1,039      |  | 3,239      |  | 2,053     
|                                                                     |  |            |  |            |  |           
|Items that will never be reclassified subsequently to profit or loss |  |            |  |            |  |           
|Remeasurement of defined benefit liability                           |  | (237)      |  | (559)      |  | (61)      
|                                                                     |  |            |  |            |  |           
|Other comprehensive income / (expense) net of tax (1)                |  | 802        |  | 2,680      |  | 1,992     
|Total comprehensive loss for the year                                |  | (24,492)   |  | (14,321)   |  | (8,811)   
|                                                                     |  |            |  |            |  |           
|Total comprehensive loss attributable to:                            |  |            |  |            |  |           
|Owners of the Company                                                |  | (24,492)   |  | (14,321)   |  | (7,776)   
|Non-controlling interests                                            |  | -          |  | -          |  | (1,035)   



| | (1) | Positive
                                         tax effect of €74 thousand at December 31, 2016, €176 thousand at December
                                         31, 2015 and €31 thousand at December 31, 2014.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Some figures in the years December 31, 2015
and December 31, 2014 were reclassified for comparison purpose, without net result impact.



December 31, 2016, 2015 and 2014F-7


Table of Contents


Advanced Accelerator
Applications S.A.





CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION



at
december 31, 2016, 2015 and 2014








|ASSETS (In € thousands)                      |  | Notes |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|-------------------------------------------- |  | ----- |  | ---------- |  | ---------- |  | ----------
|Non-current assets                           |  |       |  | 149,695    |  | 116,985    |  | 107,842   
|Goodwill                                     |  | 5.4   |  | 34,070     |  | 22,662     |  | 21,377    
|Other intangible assets                      |  | 5.4   |  | 45,027     |  | 31,884     |  | 32,410    
|Property, plant and equipment                |  | 5.5   |  | 63,915     |  | 56,332     |  | 51,779    
|Financial assets                             |  | 5.6   |  | 2,187      |  | 1,512      |  | 1,959     
|Other non-current assets                     |  | 5.9   |  | 3,941      |  | 4,298      |  | -         
|Deferred tax assets                          |  | 4.9   |  | 555        |  | 297        |  | 317       
|Current assets                               |  |       |  | 269,048    |  | 157,118    |  | 78,672    
|Inventories                                  |  | 5.8   |  | 8,100      |  | 4,105      |  | 3,363     
|Trade and other receivables                  |  | 5.7   |  | 31,079     |  | 23,625     |  | 20,053    
|Other current assets                         |  | 5.9   |  | 7,789      |  | 10,502     |  | 10,160    
|Cash and cash equivalents                    |  | 5.10  |  | 222,080    |  | 118,886    |  | 45,096    
|TOTAL ASSETS                                 |  |       |  | 418,743    |  | 274,103    |  | 186,514   
|                                             |  |       |  |            |  |            |  |           
|EQUITY AND LIABILITIES (In € thousands)      |  | Notes |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|Equity attributable to owners of the Company |  |       |  | 299,461    |  | 169,754    |  | 85,187    
|Share capital                                |  |       |  | 8,795      |  | 7,856      |  | 6,323     
|Share premium                                |  |       |  | 360,085    |  | 213,982    |  | 118,421   
|Reserves and retained earnings               |  |       |  | (44,125)   |  | (35,083)   |  | (30,058)  
|Net loss for the year                        |  |       |  | (25,294)   |  | (17,001)   |  | (9,499)   
|Total equity                                 |  | 5.11  |  | 299,461    |  | 169,754    |  | 85,187    
|Non-current liabilities                      |  |       |  | 79,540     |  | 68,341     |  | 70,709    
|Non-current provisions                       |  | 5.12  |  | 12,725     |  | 9,968      |  | 8,011     
|Non-current financial liabilities            |  | 5.13  |  | 12,302     |  | 16,205     |  | 20,971    
|Deferred tax liabilities                     |  | 4.9   |  | 4,649      |  | 2,804      |  | 4,460     
|Other non-current liabilities                |  | 5.14  |  | 49,864     |  | 39,364     |  | 37,267    
|Current liabilities                          |  |       |  | 39,742     |  | 36,008     |  | 30,618    
|Current provisions                           |  | 5.12  |  | 1,135      |  | -          |  | 128       
|Current financial liabilities                |  | 5.13  |  | 4,017      |  | 5,560      |  | 5,915     
|Trade and other payables                     |  |       |  | 20,119     |  | 14,710     |  | 12,156    
|Other current liabilities                    |  | 5.14  |  | 14,471     |  | 15,738     |  | 12,419    
|Total liabilities                            |  |       |  | 119,282    |  | 104,349    |  | 101,327   
|TOTAL EQUITY AND LIABILITIES                 |  |       |  | 418,743    |  | 274,103    |  | 186,514   



Some figures
in the years December 31, 2015 and December 31, 2014 were reclassified for comparison purpose, without net result impact.



December 31, 2016, 2015 and 2014F-8


Table of Contents


Advanced Accelerator Applications S.A.





CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY



Year
ended december 31, 2016








|                                                 |  | Attributable to the Company
|------------------------------------------------ |  | ---------------------------
|In € thousands                                   |  | Share capital              
|                                                 |  |                            
|At January 1, 2016                               |  | 7,856                      
|                                                 |  |                            
|Comprehensive income for the year                |  |                            
|Loss for the year                                |  | -                          
|Other comprehensive income / (loss) for the year |  | -                          
|Total comprehensive income                       |  | -                          
|                                                 |  |                            
|Transactions with owners of the Company          |  |                            
|Issue of ordinary shares (1)                     |  | 939                        
|Share issue costs                                |  | -                          
|Contribution received for warrants issuance (2)  |  | -                          
|Appropriation of 2015 net loss                   |  | -                          
|Equity-settled share-based payments (2)          |  | -                          
|Total transactions with owners of the Company    |  | 939                        
|At December 31, 2016                             |  | 8,795                      





| | (1) | See
                                         note 5.11
| | --- | ------------------------------------------------------



| | (2) | See
                                         note 4.3
| | --- | -----------------------------------------------------



December 31, 2016, 2015 and 2014F-9


Table of Contents


Advanced Accelerator Applications S.A.





CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY



Year
ended december 31, 2015








|                                                 |  | Attributable to the Company
|------------------------------------------------ |  | ---------------------------
|In € thousands                                   |  | Share capital              
|                                                 |  |                            
|At January 1, 2015                               |  | 6,323                      
|                                                 |  |                            
|Comprehensive income for the year                |  |                            
|Loss for the year                                |  | -                          
|Other comprehensive income / (loss) for the year |  | -                          
|Total comprehensive income                       |  | -                          
|                                                 |  |                            
|Transactions with owners of the Company          |  |                            
|Issue of ordinary shares (1)                     |  | 1,533                      
|Share issue costs                                |  | -                          
|Contribution received for issue of warrants (2)  |  | -                          
|Appropriation of 2014 net loss                   |  | -                          
|Equity-settled share-based payments (2)          |  | -                          
|Total transactions with owners of the Company    |  | 1,533                      
|At December 31, 2015                             |  | 7,856                      



| | (1) | See
                                         note 5.11
| | --- | ------------------------------------------------------



| | (2) | See
                                         note 4.3
| | --- | -----------------------------------------------------



Some figures were reclassified for comparison
purpose, without net result impact.



December 31, 2016, 2015 and 2014F-10


Table of Contents


Advanced Accelerator
Applications S.A.





CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY



Year
ended december 31, 2014








|                                                     |  | Attributable
    to the Company |  |              
|---------------------------------------------------- |  | ------------------------------- |  | -------------
|In € thousands                                       |  | Share capital                   |  | Share premium
|At
    January 1, 2014                               |  | 5,415                           |  | 76,594       
|                                                     |  |                                 |  |              
|Comprehensive income /(loss) for the year            |  |                                 |  |              
|Loss for the year                                    |  | -                               |  | -            
|Other comprehensive income / (loss)
    for the year |  | -                               |  | -            
|Total comprehensive
    income                       |  | -                               |  | -            
|                                                     |  |                                 |  |              
|Transactions with owners of the Company              |  |                                 |  |              
|Issue of ordinary shares (1)                         |  | 908                             |  | 41,827       
|Appropriation of 2013 net loss                       |  | -                               |  | -            
|Purchases of non controlling interest                |  | -                               |  | -            
|Equity-settled share-based payments (2)              |  | -                               |  | -            
|Other transactions with owners of
    the company    |  | -                               |  | -            
|Total transactions
    with owners of the Company    |  | 908                             |  | 41,827       
|At December 31,
    2014                             |  | 6,323                           |  | 118,421      



| | (1) | See
                                         note 5.11
| | --- | ------------------------------------------------------



| | (2) | See
                                         note 4.3
| | --- | -----------------------------------------------------



December 31, 2016, 2015 and 2014F-11


Table of Contents


Advanced Accelerator Applications S.A.



CONSOLIDATED
STATEMENTS OF CASH FLOWS



years
ended december 31, 2016, 2015 and 2014








|In € thousands                                                                           |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|---------------------------------------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Cash flows from operating activities                                                     |  |            |  |            |  |           
|Net loss for the year                                                                    |  | (25,294)   |  | (17,001)   |  | (10,803)  
|Adjustments:                                                                             |  |            |  |            |  |           
|Depreciation, amortization and impairment of non-current assets                          |  | 12,002     |  | 11,321     |  | 11,993    
|Share based payment expense                                                              |  | 7,157      |  | 1,794      |  | 2,278     
|Loss / (Gain) on disposal of property, plant and equipment                               |  | 253        |  | 367        |  | 10        
|Financial result                                                                         |  | 5,549      |  | 6,696      |  | 1,800     
|Income tax expense                                                                       |  | 249        |  | 771        |  | 404       
|Negative Goodwill recognized in other operating income and earn-out renegotiation        |  | (377)      |  | -          |  | 94        
|Subtotal                                                                                 |  | (461)      |  | 3,948      |  | 5,776     
|                                                                                         |  |            |  |            |  |           
|Increase in inventories                                                                  |  | (3,354)    |  | (742)      |  | (1,085)   
|Increase in trade receivables                                                            |  | (6,549)    |  | (3,572)    |  | (3,910)   
|Increase / (decrease) in trade payables                                                  |  | 6,018      |  | 156        |  | 2,938     
|Change in other receivables and payables                                                 |  | (299)      |  | (1,436)    |  | (58)      
|Increase in provisions                                                                   |  | 2,752      |  | 752        |  | 153       
|Change in working capital                                                                |  | (1,432)    |  | (4,842)    |  | (1,962)   
|                                                                                         |  |            |  |            |  |           
|Income tax paid                                                                          |  | (3,062)    |  | (2,902)    |  | (1,451)   
|Net cash used in operating activities                                                    |  | (4,955)    |  | (3,796)    |  | 2,363     
|Cash flows from investing activities                                                     |  |            |  |            |  |           
|Acquisition of property, plant and equipment                                             |  | (11,351)   |  | (11,286)   |  | (8,860)   
|Acquisition of intangible assets                                                         |  | (1,718)    |  | (910)      |  | (394)     
|Acquisition of financial assets                                                          |  | (1,046)    |  | (99)       |  | (745)     
|Repayment on financial assets                                                            |  | 406        |  | 278        |  | 1,122     
|Interest received                                                                        |  | 569        |  | 200        |  | 265       
|Proceeds from disposal of property, plant and equipment                                  |  | 108        |  | 118        |  | 113       
|Proceeds from government grants                                                          |  | 75         |  | -          |  | 623       
|Acquisition of subsidiaries, net of cash acquired                                        |  | (22,453)   |  | -          |  | (561)     
|Net cash used in investing activities                                                    |  | (35,410)   |  | (11,699)   |  | (8,437)   
|Net cash from financing activities                                                       |  |            |  |            |  |           
|Payment of deferred and contingent liabilities to former owners of acquired subsidiaries |  | (4,684)    |  | (1,494)    |  | (1,884)   
|Issuance of share capital                                                                |  | 146,530    |  | 97,094     |  | 40,666    
|Issuance of warrants                                                                     |  | 638        |  | -          |  | -         
|Transactions with shareholders (1)                                                       |  | -          |  | -          |  | (1,464)   
|Proceeds from borrowings                                                                 |  | -          |  | 210        |  | 8,041     
|Repayment of borrowings                                                                  |  | (5,459)    |  | (4,852)    |  | (7,016)   
|Interests paid                                                                           |  | (527)      |  | (827)      |  | (906)     
|Net cash from financing activities                                                       |  | 136,498    |  | 90,131     |  | 37,437    
|                                                                                         |  |            |  |            |  |           
|Net increase / (decrease) in cash and cash equivalents                                   |  | 96,133     |  | 74,636     |  | 31,363    
|                                                                                         |  |            |  |            |  |           
|Cash and cash equivalents at the beginning of the year                                   |  | 118,886    |  | 45,096     |  | 13,611    
|Effect of exchange rate changes on cash and cash equivalents                             |  | 7,061      |  | (846)      |  | 122       
|Cash and cash equivalents at the end of the year                                         |  | 222,080    |  | 118,886    |  | 45,096    



| | (1) | Transactions
                                         with shareholders are related to the acquisition of non-controlling interest during the
                                         period.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





December 31, 2016, 2015 and 2014F-12


Table of Contents




Advanced Accelerator Applications S.A.



TABLE
OF CONTENTS



NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS

|TABLE OF CONTENTS                                            | F-13
|------------------------------------------------------------ | ----
|1.   Description of the group’s business                     | F-15
|2.   Major events for the year                               | F-16
|2.1.   Acquisitions                                          | F-16
|2.1.1.   Acquisitions for the year 2016                      | F-16
|2.1.2.   Acquisitions for the year 2015                      | F-16
|2.1.3.   Acquisitions for the year 2014                      | F-16
|2.2.   Other significant events                              | F-17
|2.2.1.   Other significant events of the year 2016           | F-17
|2.2.2.   Other significant events of the years 2015 and 2014 | F-19
|2.3.   Events after the reporting date                       | F-21
|3.   Significant accounting policies                         | F-21
|3.1.   Statement of Compliance                               | F-21
|3.2.   Basis of preparation                                  | F-22
|3.3.   IFRS standards                                        | F-22
|3.4.   Reporting date                                        | F-24
|3.5.   Scope and method of consolidation                     | F-24
|3.6.   Changes in scoping and method of consolidation        | F-25
|3.7.   Foreign currency translation                          | F-25
|3.8.   Use of judgements and estimates                       | F-26
|3.9.   Fair value                                            | F-26
|3.10.   Business combinations                                | F-27
|3.11.   Other intangible assets                              | F-28
|3.12.   Government subsidies                                 | F-28
|3.13.   Property, plant and equipment                        | F-29
|3.14.   Impairment                                           | F-29
|3.15.   Other non-current financial assets                   | F-30
|3.16.   Inventories                                          | F-30
|3.17.   Trade and other receivables                          | F-30
|3.18.   Leases                                               | F-30
|3.19.   Cash and cash equivalents                            | F-31
|3.20.   Derivatives                                          | F-31
|3.21.   Share-based payments                                 | F-31
|3.22.   Provisions                                           | F-31
|3.23.   Defined benefit retirement plans                     | F-32
|3.24.   Sales                                                | F-32
|3.25.   Raw materials and other consumables used             | F-33
|3.26.   Research and development expenditure                 | F-33
|3.27.   Operating Result                                     | F-33
|3.28.   Finance income and costs                             | F-33
|3.29.   Income taxes                                         | F-34
|3.30.   Statement of cash flows                              | F-34
|3.31.   Earnings per share                                   | F-34
|4.   Notes to the consolidated statement of income           | F-35
|4.1.   Operating segments and entity-wide disclosures        | F-35
|4.2.   Personnel costs                                       | F-36
|4.3.   Share-based payments                                  | F-37
|4.3.1.   Restricted (free) share plans                       | F-37
|4.3.2.   Options                                             | F-37
|4.3.3.   Warrants                                            | F-38
|4.3.3.1.   2015 Warrants plan                                | F-38
|4.3.3.2.   2016 Warrants plan                                | F-39





December 31, 2016, 2015 and 2014F-13


Table of Contents






|4.4.   Other operating expenses                                                     | F-39
|----------------------------------------------------------------------------------- | ----
|4.5.   Other operating income                                                       | F-40
|4.6.   Research and development expenditures                                        | F-40
|4.7.   Depreciation and amortization                                                | F-40
|4.8.   Finance income and finance costs                                             | F-40
|4.9.   Income taxes                                                                 | F-41
|4.9.1.   Income tax expense                                                         | F-41
|4.9.2.   Explanation of effective tax expense                                       | F-41
|4.9.3.   Deferred tax assets and liabilities                                        | F-41
|5.   Notes to the consolidated statement of financial position                      | F-42
|5.1.   Acquisition of business                                                      | F-42
|5.2.   Acquisition of business the year 2015                                        | F-44
|5.3.   Acquisition of business for the year 2014                                    | F-44
|5.4.   Goodwill and Other intangible assets                                         | F-46
|5.4.1.   Change in the year                                                         | F-46
|5.4.2.   Sensitivity analysis of the goodwill impairment tests at December 31, 2016 | F-49
|5.5.   Property, plant and equipment                                                | F-50
|5.6.   Non-current financial assets                                                 | F-52
|5.7.   Trade and other receivables                                                  | F-52
|5.8.   Inventories                                                                  | F-52
|5.9.   Other current and non current assets                                         | F-53
|5.10.   Cash and cash equivalents                                                   | F-53
|5.11.   Equity                                                                      | F-53
|5.12.   Current and non-current provisions                                          | F-56
|5.13.   Current and non-current financial liabilities                               | F-58
|5.14.   Other current and non-current liabilities                                   | F-59
|5.15.   Financial assets and liabilities                                            | F-62
|6.   RISK MANAGEMENT                                                                | F-64
|6.1.   Business risks                                                               | F-64
|6.2.   Legal risks                                                                  | F-65
|6.3.   Market risks                                                                 | F-65
|7.   Consolidation scope                                                            | F-68
|8.   Related party disclosures                                                      | F-68







December 31, 2016, 2015 and 2014F-14


Table of Contents






Advanced Accelerator Applications S.A.





|Advanced Accelerator Applications
        S.A.
        
        Notes to the Consolidated
        Financial Statements
        
        years ended december
31, 2016, 2015 and 2014
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Advanced Accelerator Applications S.A. (“AAA”
or the “Company”) is incorporated in France. Its registered office is at 20 rue Rudolf Diesel, 01630 Saint Genis Pouilly,
France. The consolidated financial statements include those of the Company and its subsidiaries (“the Group”. Each
company is referred to as a “Group entity”). The consolidated financial statements were authorized for issue by the
Board of Directors on
March 22, 2017. The consolidated financial statements are subject to changes requested by the Shareholders.



| | 1. | Description
                                         of the group’s business
| | -- | ----------------------------------------------------------------------------



AAA is a radiopharmaceutical company founded
in 2002 that develops, produces and commercializes molecular nuclear medicine (“MNM”) diagnostic and therapeutic products.
MNM is a medical specialty that uses trace amounts of radioactive compounds to create functional images of organs and lesions and
to treat diseases such as cancer. The Company has a portfolio of nine diagnostic positron emission tomography (“PET”)
and single-photon emission computed tomography (“SPECT”) products. PET and SPECT are imaging techniques in molecular
nuclear diagnostics (“MND”) with applications in clinical oncology, cardiology, neurology and inflammatory/infectious
diseases. AAA’s leading diagnostic product is Gluscan®, our branded 18-fluorodeoxyglucose (“FDG”) PET imaging
agent. Gluscan® assists in the diagnosis of serious medical conditions, primarily in oncology, by assessing glucose metabolism.
In June 2016, the U.S. Food and Drug Administration (“FDA”) approved NETSPOT® (formerly known as Somakit-TATE),
a kit for the preparation of gallium Ga 68 dotatate injection, for the localization of somatostatin receptor positive neuroendocrine
tumors (“NETs”) in adult and pediatric patients using PET. In December 2016, the European Commission approved SomaKit
TOCTM, a kit for radiopharmaceutical preparation of gallium (Ga 68) edotreotide solution for injection. for localizing primary
tumors and their metastases in adult patients with confirmed or suspected well-differentiated gastroenteropancreatic neuroendocrine
tumors (GEP-NETs). Additional MND product candidates include Annexin V-128, a SPECT product candidate for the imaging of apoptotic
and necrotic lesions with potential applications in a broad range of indications.



AAA’s primary development focus is
on product candidates in the field of molecular nuclear therapy (“MNT”). AAA’s lead investigational therapeutic
candidate, lutetium Lu 177 dotatate (Lutathera®), is a novel compound that it is currently developing for the treatment of
NETs, a significant unmet medical need. lutetium Lu 177 dotatate (Lutathera®) is a Lu-177 labeled somatostatin analogue peptide
that has received orphan drug designation from the European Medicines Agency (“EMA”) and the FDA. lutetium Lu 177 dotatate
(Lutathera®) is currently administered on a compassionate use and named patient basis for the treatment of NETs and other tumors
over-expressing somatostatin receptors in 10 European countries and in the US under an Expanded Access Program (EAP) for midgut
NETs.



Other product candidates being developed
as theragnostic pairs (complementary diagnostics and treatments targeting the same receptor) include PSMA-R2, a selective, second-generation
PSMA-targeted ligand for prostate cancer and NeoBOMB1 a unique, new generation antagonist bombesin analogue targeting GRPR-expressing
malignancies, such as gastrointestinal stromal tumors, prostate cancer and breast cancer.



In addition to its own portfolio of PET,
SPECT and therapy products and product candidates, AAA manufactures several diagnostic products and product candidates for third
parties, including GE Healthcare and Eli Lilly in Europe. AAA manufactures most its own products and product candidates, as well
as those that it manufactures for third parties at 19 production sites. To improve the efficiency of the supply chain for the U.S.
market, AAA opened a distribution and manufacturing facility in Milburn, NJ in 2016. This site is undergoing validation for production
of lutetium Lu 177 dotatate (Lutathera®), after the FDA approval is obtained.



December 31, 2016, 2015 and 2014F-15


Table of Contents


Advanced Accelerator Applications S.A.



| | 2. | Major
                                         events for the year
| | -- | ------------------------------------------------------------------



| | 2.1. | Acquisitions
| | ---- | ------------



| | 2.1.1. | Acquisitions for the year 2016
| | ------ | ------------------------------



Acquisition of the PetNet business in
Germany



AAA Germany signed an asset purchase agreement
in May 2016, to acquire, out of an insolvency procedure, assets and rights to operate F18 production sites in Munich and in Erlangen
(both in Germany). The contract in Munich requires AAA Germany to provide a regular supply of F18 products to the owner of the
site, the Klinikum of the University of Munich (KUM), for which AAA will be paid a guaranteed revenue stream until July 2028. The
transaction closed in June.



The main objectives of the transaction are
to strengthen the Company’s presence in the German market and to potentially gain access to interesting R&D activities
of the KUM in radiotherapy with prostate-specific membrane antigen (PSMA) and Lutetium.



Please refer to note 5.1 for details on
the acquired business.



Acquisition of the IDB Group



AAA acquired 100% of the shares of the IDB
Group, incorporated in The Netherlands, in January 2016. The IDB Group consists of six entities in The Netherlands and one in Belgium.
Their business activities include the development, production and wholesale of medical products and more specifically radiopharmaceutical
products and medical and industrial radioactive substances. This transaction contributes to AAA’s international expansion
and strengthens AAA’s global supply chain in preparation for the commercial launch of lutetium Lu 177 dotatate (Lutathera®).
Acquiring the IDB Group provides AAA with a reliable supply of Lu-177 for the production of lutetium Lu 177 dotatate (Lutathera®)
and a business for other future product candidates.



Please refer to note 5.1 for details on
the acquired entity.



| | 2.1.2. | Acquisitions for the year 2015
| | ------ | ------------------------------



There were no acquisitions in 2015.



| | 2.1.3. | Acquisitions for the year 2014
| | ------ | ------------------------------



Acquisition of Imaging Equipment Limited
(IEL)



On February 14, 2014, AAA entered into an
agreement to acquire 100% of the shares of Imaging Equipment Ltd (IEL), a privately-owned distributor of nuclear medicine products,
based in England.



Please refer to note 5.3 for details on
the acquired entity.



Acquisition of the SteriPET® business
in Italy



On September 15, 2014, AAA Italy acquired
from GE Healthcare S.r.L. its FDG-PET business. This acquisition includes the SteriPET® (FDG) Marketing Licence. The acquisition,
consisting of certain assets, liabilities and legal relationships, primarily customer relationships, allows AAA Italy to strengthen
its commercial operations and to become the leader in this business in Italy. The transaction consists of cash payments of up to
€697 thousand within 12 months of execution of the contract and of royalty payments on sales to former SteriPET® customers
of GE Healthcare Italy. The royalties will be due on sales between September 2015 and September 2017.



Please refer to note 5.3 for details on
the acquired entity.



December 31, 2016, 2015 and 2014F-16


Table of Contents


Advanced Accelerator Applications S.A.





Acquisition of non-controlling interest
in AAA Germany GmbH



On November 10, 2014, the Group acquired
the remaining 49.9% non-controlling interest in AAA Germany GmbH (the former Umbra AG). As a result of this acquisition, AAA now
owns 100% of AAA Germany GmbH. The consideration paid for this acquisition was €1.2 million in cash.



Acquisition of non-controlling interest
in Atreus Pharmaceuticals Corporation



On December 18, 2014, the Group acquired
the remaining 49.9% non-controlling interest in Atreus Pharmaceuticals Corporation (Atreus). As a result of this acquisition, AAA
now has 100% ownership of Atreus. The complete ownership facilitates the Group’s R&D work and, if the Group is successful
in obtaining marketing authorization for Annexin, would support a more effective exploitation of the commercial potential of the
product.



The consideration to be paid for this acquisition
is composed of fixed anniversary and milestone payments prior to having obtained marketing authorization for Annexin and of a contingent
consideration of a low single-digit percentage royalty on sales of Annexin for a period of 10 years from marketing authorization.



Please refer to note 5.14 for the estimate
of the contingent consideration to be paid.



| | 2.2. | Other significant events
| | ---- | ------------------------



| | 2.2.1. | Other significant events of the year 2016
| | ------ | -----------------------------------------



Financing



In October 2016, AAA closed a follow-on
public offering of 4,539,473 American Depositary Shares (“ADSs”) including the exercise of the 15% Greenshoe. This
represents 9,078,946 ordinary shares. At a price of $38.00 (€34.48) per ADS, the total gross proceeds before underwriting
discounts and offering expenses were US$172.5 million (€156.5 million).



Governance



On May 26, Mr. Francois Nader, M.D., MBA
was elected by the shareholders to join the Company Board of Directors as an Independent Non-Executive Director. He replaces Mrs.
Muriel de Szilbereky.



Product development



Lutathera



Additional NETTER-1 Phase 3 data for lutetium
Lu 177 dotatate (Lutathera®) were presented throughout 2016 at the following congresses: Gastrointestinal Cancer Symposium
(ASCO GI) in San Francisco, California; 13th Annual European Neuroendocrine Tumor Society (ENETS) conference in Barcelona, Spain;
2016 North American Neuroendocrine Tumor Society (NANETS) Symposium in Jackson, Wyoming; the 29th Annual Congress of the European
Association of Nuclear Medicine (EANM) in Barcelona, Spain; and the 2016 European Society for Medical Oncology (ESMO) Congress
in Copenhagen, Denmark.



In March 2016, AAA opened an expanded access
program (EAP) in the U.S. for lutetium Lu 177 dotatate (Lutathera®). Through this program, lutetium Lu 177 dotatate (Lutathera®)
is being made available for eligible patients suffering from inoperable, somatostatin receptor positive, midgut carinoid tumors,
progressive under somatostatin analogue therapy.



At
the end of April 2016, AAA completed a rolling NDA submission and
MAA to the FDA and EMA, respectively, for lutetium Lu 177 dotatate (Lutathera®).



In July 2016, AAA announced the completion
of its first U.S. manufacturing and distribution facility in Millburn, NJ, which is undergoing validation for production of lutetium
Lu 177 dotatate (Lutathera®). In addition to future production of lutetium Lu 177 dotatate (Lutathera®), this site also
serves as a distribution center for NETSPOT® and Oxygen-18 enriched water, an important precursor for the production of fluorodeoxyglucose
used in PET.



December 31, 2016, 2015 and 2014F-17


Table of Contents


Advanced Accelerator Applications S.A.





In late July 2016, AAA announced a clinical
trial agreement with the National Cancer Institute (NCI), part of the National Institutes of Health, whereby NCI will sponsor and
conduct a study of lutetium Lu 177 dotatate (Lutathera®) in patients with inoperable pheochromocytoma and paraganglioma.



In September 2016, AAA announced that the
Accelerated Assessment timeline for the EMA review of the MAA for lutetium Lu 177 dotatate (Lutathera®) has been modified to
a standard review period due to additional clarifications requested by the EMA, as well as their request to inspect one of AAA’s
contract research organizations.



In December 2016, the FDA issued a Complete
Response Letter (CRL) regarding the NDA for lutetium Lu 177 dotatate (Lutathera®). The CRL refers to issues with the format,
traceability, uniformity, and completeness relating to the NETTER-1 and Erasmus clinical datasets, which are precluding FDA reviewers
from performing the required independent analysis of these clinical studies. In addition, the CRL requests subgroup analyses for
gender, age and racial subgroups, as well as other stratification factors and important disease characteristics. A safety update
on clinical and non-clinical studies, which is already in process, was also requested in the CRL. Finally, the CRL noted that any
observations made during inspections of manufacturing facilities supporting the NDA need to be resolved prior to approval of the
NDA. No additional clinical studies were requested in the CRL and there were no comments at that time on other sections of the
NDA submission.



Other development



Netspot®/SomaKit
TOCTM



AAA entered, in January 2016, into a non-exclusive
agreement with Zevacor for the preparation and delivery of NETSPOT® in the US.



On June 1, 2016, the FDA approved NETSPOT®
for the localization of somatostatin receptor positive NETs in adult and pediatric patients using PET. NETSPOT® received approval
following a Priority Review from the FDA. NETSPOT® is the first approved drug in the United States using gallium Ga 68 as a
positron emitter. Gallium Ga 68 dotatate received Orphan Drug Designation from both the FDA and EMA in March 2014.



In June 2016, AAA expanded its U.S. supply
chain network of radiopharmacies for NETSPOT® to include Cardinal Health, Inc., Triad Isotopes, Inc., and Nuclear Diagnostic
Products, Inc.



In December 2016, the Centers for Medicare
& Medicaid Services (CMS) granted NETSPOT® Transitional Pass-Through status under an “A-code” (A9587) for drug
reimbursement, effective January 1, 2017. Additionally, the same Healthcare Common Procedure Coding System “A Code”
will be used on claims to private payers.



In October 2016, the EMA issued a positive
opinion on the Marketing Authorization Application for SomaKit TOCTM. In December 2016, the European Commission approved SomaKit
TOCTM.



PSMA



In January 2016, AAA announced the signing
of an exclusive license agreement with Johns Hopkins University to develop a PSMA receptor ligand in prostate cancer. This agreement
enables AAA to broaden its pipeline with PSMA, which could be used to treat, image, monitor and stage prostate cancer.



NeoBOMB1



In June 2016, AAA announced the expansion
of its pipeline of theragnostic products with the addition of NeoBOMB1, a novel GRPR antagonist. NeoBOMB1 is a unique new generation
antagonist bombesin analogue, which binds selectively and with high affinity to the GRP receptors expressed by several types of
tumors, including prostate, breast and gastro-intestinal stromal tumors. AAA is currently planning three clinical studies in different
indications including gastrointestinal stromal tumors, prostate cancer and breast cancer.



December 31, 2016, 2015 and 2014F-18


Table of Contents


Advanced Accelerator Applications S.A.





Annexin



In September 2016, AAA announced the initiation
of two Phase 2 clinical studies evaluating 99MTc-rhAnnexin V-128 (Annexin) in cardiovascular and cardio-oncology indications at
the University of Ottawa Heart Institute and The Ottawa Hospital.



Other



In November 2016, AAA obtained two Marketing
Authorizations in Switzerland for DOPAVIEW and AAACholine, two PET products.



Share-based payment



2,064,050 stock options were granted to
employees over ordinary shares in the Company in August 2016 and 100,000 stock options in December 2016.



AAA shareholders approved on May 26, 2016
a warrant plan for the seven non-executive board members and delegated authorization for its execution to the Board. The shareholders
approved the issuance of up to 149,800 warrants. The purchase of one warrant entitles to purchase one share. The shareholder resolution
states that the Board has 18 months to use the delegation and the beneficiaries of the plan have 3 years to exercise their right
to buy shares should they decide to do so. The Board made use of the shareholder delegation on May 26 and decided to put in place
the warrant plan. The warrant subscription price and the share exercise price were determined with the support of an external valuation
specialist.



As of December 31, 2016, 112,500 warrants
have been subscribed by five non-executive board members, 37,300 remain for a possible subscription before November 26, 2017.



An additional 192,000 free shares were issued
on August 30, 2016 and 4,500 in November 28, 2016 to Managers of the Group.



| | 2.2.2. | Other significant events of the years 2015
and 2014
| | ------ | ---------------------------------------------------



Financing



In January 2015, AAA filed for a listing
on NASDAQ and subsequently conducted an extensive roadshow in both Europe and the USA. As a result of market feedback regarding
the valuation environment for Biotech IPO’s from thought leading institutional investors, it was decided to not go ahead
with the Initial Public Offering (IPO) at this time. The application with the Securities and Exchange Commission (SEC) was withdrawn
on February 18, 2015. The costs incurred for legal, accounting and audit services have been expensed in the fourth quarter of 2014
(refer to the annual consolidated financial statements for the year ended December 31, 2014).



In two separate capital increases in May
and June 2015, three US-based investment funds acquired 3,789,770 newly issued AAA shares for a total amount of €23.1 million.



AAA completed an Initial Public Offering (IPO)
of 4,688,000 American Depositary Shares (“ADS”) representing 9,376,000 ordinary shares at a price of $16.00 per ADS
(each ADS represents 2 ordinary shares). The ADS have been listed on the Nasdaq Global Select Market on and started trading on
November 11, 2015 under the ticker “AAAP”. The overallotment option (Greenshoe) of 15% was also used immediately by
the Underwriters and an additional 1,406,400 shares or 703,200 ADS were issued at the same price of US$16.00 per ADS. The total
number of shares issued after the IPO is therefore 78,556,211 (equals 39,278,105.5 ADS). Net proceeds is €73,8 million.



AAA completed a capital increase of €41
million in February 2014.



Governance



Dr. Kapil Dhingra, former head of Roche’s
oncology division, joined the AAA Board of Directors as an independent non-executive Director in April 2014.



December 31, 2016, 2015 and 2014F-19


Table of Contents


Advanced Accelerator Applications S.A.





A new Board of Directors was elected in the
course of the annual shareholder meeting on June 27, 2014. Newly elected independent directors are Yvonne Greenstreet, Steven Gannon,
Christian Merle and Leopoldo Zambeletti. The mandates of Claudio Costamagna (Chairman), Stefano Buono, Kapil Dhingra and Muriel
de Szilbereky were renewed in this meeting. The mandates of Eugenio Aringhieri, Gérard Ber, Andrea Ruben Levi, Heinz Mäusli
and Raffaele Petrone arrived at their expiration and were not renewed.



Group structure



The three Canadian entities AAA Canada Inc.,
4549694 Canada Inc. and Atreus Pharmaceuticals Corporation merged into one single entity AAA Canada Inc.



AAA Iberica started the construction of
the Murcia Site, Spain in February 2015.



AAA USA’s plans for a production site
in Millburn, New Jersey, USA have been approved in April by the township’s planning board and the purchase of the related
building has been completed.



Lutetium Lu 177 dotatate (Lutathera®)
development



AAA finalized recruitment for NETTER-1,
its pivotal Phase 3 trial for key drug candidate lutetium Lu 177 dotatate (Lutathera®).



In May 2015, the French National Agency
for Medicines and Health Products Safety (ANSM) granted an "Autorisation Temporaire d’Utilisation de Cohorte”
(ATU de Cohorte) or Cohort Temporary Authorization for Use, for lutetium Lu 177 dotatate (Lutathera®) for the treatment of
midgut Neuro Endocrine Tumors (NETs).



In June 2015, AAA entered into a distribution
agreement for lutetium Lu 177 dotatate (Lutathera®) in Japan with Fujifilm RI Pharma.



AAA filed a New Drug Application (NDA) for
NETSPOT® with the FDA (Food and Drug Administration in the USA) on the first of July, 2015. The FDA approved the application
for a substantive review on August 28, 2015 and granted Priority classification.



In September 2015, the AAA substantially
completed the Phase 3 NETTER-1 trial for lutetium Lu 177 dotatate (Lutathera®) and presented the results of the analysis during
an Oral Presentation at the Presidential Session on September 27, 2015 at the ESMO conference.





Other Products development



In March 2015, AAA deposited the request
for the Marketing Authorization for Cardiogen in France.



AAA enrolled its first patient in a Phase
1/2 clinical trial for its key diagnostic candidate Annexin V-128 in rheumatoid arthritis and ankylosing spondylitis.



AAA obtained two Marketing Authorizations
in France for FCholine and FDopa on September 16, 2015.



AAA received orphan drug designation from the
US Food and Drug Administration (FDA) and the European Medicines Agency (EMA) in March 2014 for Gallium-68 DOTATATE/DOTATOC. The
Ga-68 kit, also known as NETSPOT®/SomaKit TOCTM, helps diagnose NETs with PET imaging.



AAA signed an exclusive license agreement
with Johns Hopkins University to develop PSMA receptor ligand in prostate cancer. This agreement enables AAA to broaden its pipeline
with ligand, which could be used to treat, image, monitor and stage prostate cancer utilizing a clinical development strategy similar
to lutetium Lu 177 dotatate (Lutathera®) and our Somakit products.



Operations



The clinical Phase 3 trial for lutetium Lu
177 dotatate (Lutathera®) is a multi-center, randomized, comparator-controlled, parallel-group study evaluating the efficacy
and safety of lutetium Lu 177 dotatate (Lutathera®) (using total cumulative administered radioactivity of 29.6 GBq) compared
to Novartis’s Sandostatin® LAR 60mg for the treatment of midgut metastatic NETs. lutetium Lu 177 dotatate (Lutathera®)
is the first ever MNT product candidate to enter Phase 3 clinical trials for the treatment of midgut metastatic NETs.



AAA continued the expansion of its European
MNM network with the creation of AAA Polska and the signing of an agreement with the University of Warsaw to operate its production
site in 2014.



December 31, 2016, 2015 and 2014F-20


Table of Contents


Advanced Accelerator Applications S.A.





Umbra Medical AG was renamed Advanced Accelerator
Applications Germany GmbH in March 2014.



BioSynthema Inc. was renamed Advanced Accelerator
Applications USA, Inc. and is now incorporated in Delaware. AAA also opened a new office in New York, NY in the United States in
April 2014.



Advanced Accelerator Applications International
S.A. was created in May 2014 in Geneva, Switzerland.



AAA completed the construction of its facility
in Marseille, France. The Marseille site opened for commercial radiopharmaceutical production on May 12, 2014.



The production sites in Warsaw, Poland, and
in Bonn, Germany, each obtained GMP authorization in July 2014 and both started commercial operations on September 15, 2014.



Advanced Accelerator Applications International
S.A and Advanced Accelerator Applications Switzerland S.A opened their new office in Geneva in October 2014.



Share-based payment



352,500 free shares were issued to Managers
of the Group on August 19, 2015, 235,000 free shares on September 6, 2015 and another 167,500 new shares were issued on September
28, 2015 to Managers of the Group.



In June 2015, the shareholders approved
a warrant plan for the non-executive Board members (excluding the Chairman of the Board). This plan was implemented by the Board
of Directors on August 19, 2015 and 225,000 warrants could be issued at a €0.8 subscription price. This price is based on
an independent expert report. In September 2015, the non-executive Board members have subscribed this plan and paid for the warrants.
As a consequence, 225 000 warrants were issued on September 28, 2015. Each warrant is exercisable from the date of issue until
March 3, 2017 and may be exercised in exchange for one ordinary share at a price of €6.10 per share within the 18 coming months.



On November 10, 2015, the day of the IPO
pricing, the Board of Directors decided to grant 4 million stock options to AAA employees. It was authorized to do so by a shareholder
resolution taken at June 29, 2015. The regular vesting period is 3 years and one option entitles to acquire one share. The exercise
price of the option is US$8 which translates to US$16 per ADS. This is the first use of the stock option plan. A maximum of an
additional 9 million options can be granted to AAA employees before the end of August 2018. Please refer to note 4.3.



| | 2.3. | Events after the reporting date
| | ---- | -------------------------------



lutetium Lu 177 dotatate (Lutathera®)



In January 2017, The New England Journal
of Medicine published the results of the Phase 3 NETTER-1 study evaluating efficacy and safety of lutetium Lu 177 dotatate (Lutathera®)
in patients with advanced, progressive somatostatin receptor-positive midgut NETs.



Additional NETTER-1 data were presented
in January 2017, at Gastrointestinal Cancer Symposium (ASCO GI) in San Francisco, California; and in March 2017, at the 14th Annual
European Neuroendocrine Tumor Society (ENETS) conference in Barcelona, Spain.



New shares issuance:



Five current and one former non-executive
member of the Board of Directors exercised their warrants and as a consequence 225,000 new shares were issued on March 3, 2017.
This brings the total number of shares issued and registered to 88,177,657. Please refer to note 4.3.3.1.



| | 3. | Significant accounting policies
| | -- | -------------------------------



| | 3.1. | 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”).



December 31, 2016, 2015 and 2014F-21


Table of Contents


Advanced Accelerator Applications
S.A.







| | 3.2. | Basis of preparation
| | ---- | --------------------



The consolidated financial statements for
the year ended December 31, 2016 are presented in Euro, the functional currency of the Company, rounded to the nearest thousand
unless otherwise stated.



The consolidated statement of income is
presented on the basis of a classification of income and expenses by nature.



The consolidated statement of cash flows
has been prepared according to the indirect method.



| | 3.3. | IFRS standards
| | ---- | --------------



New currently effective requirements



The 2016 financial statements comprise all
information required under IFRS.



The accounting policies are consistent with
those of the annual financial statements for the year ended December 31, 2015, as described in the consolidated financial statements
for the year ended December 31, 2015, with the exception of the adoption as of January 1, 2016 of the standards and interpretations
described below:



| | a) | Annual Improvements to IFRSs 2012-2014
Cycle
| | -- | --------------------------------------------



| | b) | Amendments to IAS 16 and IAS 38, clarification
of acceptable methods of depreciation and amortization
| | -- | -----------------------------------------------------------------------------------------------------



| | c) | Amendments to IFRS 11, accounting for acquisitions
of interests in joint operations
| | -- | -----------------------------------------------------------------------------------



| | d) | Amendment to IAS 1, disclosure initiative
| | -- | -----------------------------------------



The adoption of the above standards did
not result in any significant impact in these consolidated financial statements.



The nature and effects of the changes are
explained below.



| | a) | Annual Improvements to IFRSs 2012-2014
Cycle. It includes amendments to a number of IFRSs. The application of these amendments has had no material impact on the disclosures
or on the amounts recognized in the consolidated financial statements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Amendments to IAS 16 and IAS 38, clarification
of acceptable methods of depreciation and amortization.
| | -- | ------------------------------------------------------------------------------------------------------



The amendments to IAS 16 Property
Plan and Equipment explicitly states that revenue-based methods of depreciation cannot be used for property plan and equipment.
This ban has no impact in these consolidated financial statements



The amendments to IAS 38 Intangible
Assets introduce a rebuttable presumption that the use of revenue-based amortization methods for intangible assets is inappropriate.
These revenue-based methods were not applied by the Company and accordingly this restriction has no impact in these consolidated
financial statements.



| | c) | Amendments to IFRS 11, accounting for acquisitions
of interests in joint operations. The amendments clarify that the acquirer of an interest in a joint operation in which the activity
constitutes a business, as defined in IFRS 3, is required to apply all of the principles on business combinations accounting in
IFRS 3 and other IFRSs with the exception of those principles that conflict with the guidance in IFRS 11.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | d) | Amendment to IAS 1, disclosure initiative.
The amendment aims at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their
financial reports.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-22


Table of Contents


Advanced Accelerator Applications S.A.





Forthcoming requirements



The Group has not applied the following
new and revised IFRSs that have been issued but are not yet effective:



|Standard/amendment                           | Requirements                                                                          | Effective date                                                                                                                                            
|-------------------------------------------- | ------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|                                             |                                                                                       |                                                                                                                                                           
|Amendment to IAS 7                           | Disclosure initiative                                                                 | Annual period beginning on or after 1 January 2017, with earlier application permitted                                                                    
|                                             |                                                                                       |                                                                                                                                                           
|Amendment to IAS 12                          | Recognition of Deferred Tax Assets for Unrealized Losses                              | Annual period beginning on or after 1 January 2017, with earlier application permitted                                                                    
|                                             |                                                                                       |                                                                                                                                                           
|IFRS 9                                       | Financial Instruments                                                                 | Annual period beginning on or after 1 January 2018, with earlier application permitted                                                                    
|                                             |                                                                                       |                                                                                                                                                           
|IFRS 15                                      | Revenue from contract with customers                                                  | Annual period beginning on or after 1 January 2018, with earlier application permitted                                                                    
|                                             |                                                                                       |                                                                                                                                                           
|Amendments to IFRS 10 and IAS 28             | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | Effective date of this amendment has been postponed indefinitely                                                                                          
|                                             |                                                                                       |                                                                                                                                                           
|IFRS 16                                      | Leases                                                                                | Annual period beginning on or after 1 January 2019, with earlier adoption permitted if IFRS 15 Revenue from Contracts with Customers has also been applied
|                                             |                                                                                       |                                                                                                                                                           
|Annual Improvements to IFRSs 2014-2016
Cycle | IFRSs 2014-2016 Cycle                                                                 | Annual period beginning on or after 1 January 2017 or 2018                                                                                                



These standards are further detailed below:



IAS 7 Statement of Cash Flows requires
an entity to present a statement of cash flows as an integral part of its primary financial statements. Cash flows are classified
and presented into operating activities (either using the ,direct, or ,indirect, method), investing activities or financing activities,
with the latter two categories generally presented on a gross basis.



As of 1 January 2017, the entities shall
provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.



The Amendment to IAS 12 will clarify
whether an unrealized loss on a debt instrument measured at fair value gives rise to a deductible temporary difference when the
holder expects to recover the carrying amount of the asset by holding it to maturity and collecting all the contractual cash flows.



IFRS 9, published in July 2014, replaces
the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on
the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial
assets, and new general hedge accounting requirements. It also carries forward the guidance and recognition and derecognition of
financial instruments from IAS 39.



December 31, 2016, 2015 and 2014F-23


Table of Contents


Advanced Accelerator Applications S.A.





IFRS 9 is effective for annual reporting
periods beginning on or after 1 January 2018, with early adoption permitted.



IFRS 15 provides a single, principles
based five-step model to be applied to all contracts with customers.



The five steps in the model are:



| | · | Step 1: Identify the contract with the
customer;
| | - | ------------------------------------------------



| | · | Step 2: Identify the performance obligations
in the contract;
| | - | -------------------------------------------------------------



| | · | Step 3: Determine the transaction price;
| | - | ----------------------------------------



| | · | Step 4: Allocate the transaction price
to the performance obligations in the contracts;
| | - | ---------------------------------------------------------------------------------------



| | · | Step 5: Recognize revenue when (or as)
the entity satisfies a performance obligation.
| | - | -------------------------------------------------------------------------------------



Under IFRS 15, an entity recognizes revenue
when (or as) a performance obligation is satisfied.



IFRS 15 will supersede the current revenue
recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.



Guidance is provided on topics such as the
point at which revenue is recognized, accounting for variable consideration, costs of fulfilling and obtaining a contract and various
related matters. New disclosures about revenue are also introduced.



IFRS 15 will become effective for annual
periods beginning on or after January 1, 2018 with early adoption permitted.



Most of the Group’s revenue is derived
from the sales of diagnostic products and therapy products that have short shelf lives. For such products, the transfer of control
occurs when the batch/product is delivered to the customer, which is also the date on which the sales revenue is recognized in
the statement of income. The application of IFRS 15 is not expected to have any significant impact on the revenue recognition for
these products. This preliminary assessment is currently under further review by the Group together with the potential impact of
the application of IFRS 15 on the Company’s other sources of revenue.



IFRS 16 establishes principles for
the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide
relevant information that faithfully represents those transactions.



IFRS 16 eliminates the classification of
leases as either operating lease or finance lease for a lessee. Instead, all leases are treated in a similar way to finance leases
in IAS 17. Leases are capitalized recognizing assets (rights of use of the underlying assets) and showing them either as separate
assets (right-of-use assets) or together with property, plant and equipment with disclosure in the notes. If lease payments are
made over time, the Company also recognizes a financial liability representing its obligation to make future lease payments.



IFRS 16 changes the nature of expenses related
to off-balance sheet leases. It replaces the typical straight line operating lease expense with a depreciation charge for rights
of use of assets (included within operating costs) and an interest expense on lease liabilities (included within finance costs).
The application of IFRS 16 is not expected to have any significant impact on expenses. Accounting exemptions apply to short-term
lease and to leases of low-value assets. The potential impact of the application of IFRS 16 is currently under review by the Group.



| | 3.4. | Reporting date
| | ---- | --------------



The reporting date for all Group companies
is December 31.



| | 3.5. | Scope and method of consolidation
| | ---- | ---------------------------------



The Group financial statements include the
financial statements of Advanced Accelerator Applications SA and those of the entities over which it exercises control (its subsidiaries).
The Group controls an entity when it is exposed to, 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. Subsidiaries are fully consolidated from the date on
which control is obtained to the date when control ceases. The financial statements of subsidiaries are prepared for the same period
as that of the Group’s financial statements using consistent accounting policies. All assets and liabilities, unrealized
gains and losses, income and expenses, dividends, and other transactions arising from intra-group transactions are eliminated when
preparing the Group’s financial statements.



December 31, 2016, 2015 and 2014F-24


Table of Contents


Advanced Accelerator Applications S.A.





A change in the ownership interest
of a subsidiary, without loss of control, is accounted for as an equity transaction. 	The carrying amounts of the Group’s
interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid
or received is recognized directly in equity and attributed to the owners of the Company.



In the event that the Group loses
control of a subsidiary, the Group:



| | · | Derecognizes the assets (including goodwill)
and liabilities of the subsidiary;
| | - | -------------------------------------------------------------------------------



| | · | Derecognizes the carrying amount of any
non-controlling interests;
| | - | ------------------------------------------------------------------



| | · | Recognizes the fair value of any interest
retained;
| | - | ---------------------------------------------------



| | · | Recognizes any gain or loss in the statement
of income;
| | - | -------------------------------------------------------



The consolidation scope is presented
in note 7.



| | 3.6. | Changes
                                         in scoping and method of consolidation
| | ---- | ---------------------------------------------------------------------------------------



On January 6, 2016 and May 18, 2016 AAA respectively
acquired the IDB Group and the PetNet business in Germany as explained in notes 2.1.1. and 5.1. These businesses have been consolidated
since their dates of acquisition.



| | 3.7. | Foreign currency translation
| | ---- | ----------------------------



In preparing the financial statements of
the Group, the financial statements of subsidiaries, which report in a currency other than the Euro, the translation to Euro is
done as follows:



| | · | Assets and liabilities, including goodwill
and fair value adjustments arising on a business combination, are translated into Euro at the foreign exchange rates at the reporting
date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Income statement items are translated into
Euro at the exchange rate, which represents the average exchange rate for the period.
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | All resulting translation differences are
recognized directly in other comprehensive income.
| | - | --------------------------------------------------------------------------------------------



The table below shows the exchange rates used
by the Group:



|2016         |  | USD    |  | CAD    |  | ILS    |  | CHF    |  | GBP    |  | PLN   
|------------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------ |  | ------
|Closing Rate |  | 0.9487 |  | 0.7048 |  | 0.2471 |  | 0.9312 |  | 1.168  |  | 0.2267
|Average Rate |  | 0.9023 |  | 0.6851 |  | 0.2356 |  | 0.9178 |  | 1.2128 |  | 0.2294
|2015         |  | USD    |  | CAD    |  | ILS    |  | CHF    |  | GBP    |  | PLN   
|Closing Rate |  | 0.9185 |  | 0.6616 |  | 0.2354 |  | 0.9229 |  | 1.3625 |  | 0.2345
|Average Rate |  | 0.9016 |  | 0.7059 |  | 0.2320 |  | 0.9369 |  | 1.3782 |  | 0.2391
|2014         |  | USD    |  | CAD    |  | ILS    |  | CHF    |  | GBP    |  | PLN   
|Closing Rate |  | 0.8227 |  | 0.7076 |  | 0.2107 |  | 0.8315 |  | 1.2780 |  | 0.2328
|Average Rate |  | 0.7535 |  | 0.6821 |  | 0.2106 |  | 0.8232 |  | 1.2449 |  | 0.2388
|             |  |        |  |        |  |        |  |        |  |        |  |       

Transactions in foreign currencies are translated
to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange
rate of that date.



December 31, 2016, 2015 and 2014F-25


Table of Contents


Advanced Accelerator Applications S.A.





Exchange differences on monetary assets
and liabilities denominated in foreign currencies are recognized in operating income or financial result according to the nature
of the underlying transaction.



Non-monetary items denominated in foreign
currencies that are measured at historical cost are translated using the exchange rate at the date of the transaction.



Non-monetary items denominated in foreign
currencies that are measured at fair value are translated using the exchange rate at the date when the fair value was determined.



| | 3.8. | Use of judgements and estimates
| | ---- | -------------------------------



The preparation of financial statements
in conformity with IFRS requires making judgements, estimates and assumptions, which affect amounts reported in the financial statements.
These estimates may be revised if circumstances require so or if new information is available. The actual results may differ from
the initial estimates.



Significant estimates, judgments and assumptions
made on the basis of information available at the reporting date mainly concern:



| | · | The measurement and impairment of goodwill,
intangible assets acquired or generated as part of a business combination, and their estimated useful life;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the measurement of contingent consideration
(“earn outs”) agreed during a business combination;
| | - | -----------------------------------------------------------------------------------------------



| | · | the measurement of provisions for risks
(including assessment of recoverable R&D tax credits) and decommissioning obligations.
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | 3.9. | Fair value
| | ---- | ----------



A number of accounting policies and disclosures
require the determination of fair value for both financial and non-financial assets and liabilities. Fair values have been determined
for measurement or disclosure purposes based on the following methods (additional information on the assumptions used to determine
fair values are given, if applicable, in the notes specific to the asset or liability):



| | · | Intangible assets: Intangible assets that
are typically acquired by the Group in a business combination are in process Research and Development (R&D) projects and/or
customer relationships. The fair value of these assets is calculated using the excess profits method. This method is based on discounting
excess profits generated by these assets over their estimated useful lives. Excess profits are determined from the operating margin
attributable to customer relationships or estimated sales of products resulting from ongoing projects, less a capital charge for
the assets necessary for their operation.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Loans and receivables are measured at amortized
cost. Due to their short-term nature, the carrying amount of trade receivables and other receivables and of cash approximates fair
value.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Non-derivative financial liabilities are
measured at amortized cost. Due to their short-term nature, the carrying value of bank overdrafts and advances, trade payables
and other payables approximates fair value.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The fair value of borrowings and financial
liabilities other than contingent consideration agreed during a business combination is based on the fair value of future cash
flows generated by the principal and interest repayments, discounted at market interest rates at the reporting date.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Contingent consideration agreed during
a business combination is measured at fair value under the terms of the contract. It is generally based on the present value of
cash flows as defined in the contract, with a weighting for the probability of occurrence of the factors governing their payment.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Decommissioning provisions are measured
on the basis of estimated future decommissioning costs discounted to the reporting date.
| | - | --------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-26


Table of Contents


Advanced Accelerator Applications
S.A.







| | 3.10. | Business combinations
| | ----- | ---------------------



In compliance with IFRS 3, the consideration
transferred in a business combination (i.e. the acquisition cost) is measured at the fair value of the assets transferred, equity
instruments issued and liabilities assumed at the transfer date. The identifiable assets and liabilities of the acquiree are generally
measured at their fair values at the acquisition date. Transaction costs directly attributable to the acquisition are recognized
in “Other operating expenses.”



Goodwill represents the fair value of the
consideration transferred (including the fair value of any interest previously held in the acquiree) plus the carrying amount of
any non-controlling interest, less the amount recognized (in general at fair value) of the identifiable assets acquired and liabilities
assumed. For each business combination, at the date when control is acquired, the Group may elect to measure any non-controlling
interest in the acquiree either at its proportionate share of the acquiree’s identifiable net assets or using the “full
goodwill method.” Under the latter method, the non-controlling interests are measured at fair value and goodwill is recognized
on the full amount of the identifiable assets and liabilities.



In the case of a business combination achieved
in stages, the equity interest previously held by the Group is remeasured at its fair value at the acquisition date. Any resulting
gain or loss is recognized directly in profit or loss (“Other finance income” or “Other finance costs”)
and related items of other comprehensive income will be reclassified to profit or loss.



The amounts recognized at the acquisition
date may be adjusted retrospectively if new information is obtained about facts and circumstances that existed as of the acquisition
date. Goodwill may not be adjusted after the measurement period. The measurement period is of a maximum length of twelve months
from the acquisition date. The subsequent acquisition of non-controlling interests does not give rise to the recognition of additional
goodwill. See below.



Any contingent consideration is included
in the acquisition cost at fair value at the acquisition date irrespective of the probability of its ultimate occurrence. Subsequent
changes in the fair value of contingent consideration due to facts and circumstances that existed as of the acquisition date are
recorded by adjusting goodwill if they occur during the measurement period or directly in the income statement (“Financial
result”) if they arise subsequently, unless the obligation is settled in equity instruments.



Any excess of the fair value of the acquiree’s
identifiable net assets over the fair value of the consideration transferred plus the amount of any non-controlling interest in
the acquiree (“gain on bargain purchase”) is recognized immediately in the income statement.



The valuation techniques used for measuring
the fair value of material assets acquired is as follows:



|Assets acquired                                                                                                 | Valuation technique                                                                                                                                                                                                                                
|--------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Property,
                                         plant and
                                         equipment | Given the nature of the assets acquired, the valuation model considers mainly the depreciated replacement cost. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.      
|Intangible assets                                                                                               | Multi-period excess earnings method: The multi-period excess earnings method considers the present value of net cash flows expected to be generated by the intangible asset recognized, by excluding any cash flows related to contributory assets.



Goodwill



The goodwill of consolidated companies is
recognized as an asset under the heading “Goodwill.” In conformity with IFRS 3 - Business combinations, goodwill is
not amortized but is subject to an impairment test done at least once a year. For the purpose of impairment testing, goodwill is
allocated to one or more of the Group’s Cash-Generating Units (CGUs) or groups of CGUs that are expected to benefit from
the synergies of the business combination. In the Group, each country generally represents a CGU. More details on impairment testing
of CGUs and its accounting are disclosed in note 3.14.



When the recoverable value of a CGU is less
than its carrying amount, the corresponding impairment loss is first allocated to goodwill and recognized in net operating income
as “Depreciation and amortization” (see note 4.7).



December 31, 2016, 2015 and 2014F-27


Table of Contents


Advanced Accelerator Applications
S.A.





| | 3.11. | Other intangible assets
| | ----- | -----------------------



Internally-generated intangible assets –
Research & development expenditure



Expenditure on research activities is expensed
as incurred.



Expenditure on development activities is
capitalized as an internally-generated intangible asset resulting from a development project if, and only if, all of the following
criteria exist:



| | · | Technical feasibility to complete the development
project;
| | - | ----------------------------------------------------------



| | · | intention of the Group to complete the
project and to use or sell it;
| | - | ---------------------------------------------------------------------



| | · | ability of the Group to use the intangible
asset;
| | - | -------------------------------------------------



| | · | probability that the intangible asset is
likely to generate future economic benefits;
| | - | -------------------------------------------------------------------------------------



| | · | availability of adequate technical, financial
and other resources to complete the development project;
| | - | ------------------------------------------------------------------------------------------------------



| | · | the ability to measure reliably the expenditures
allocated to the development project.
| | - | --------------------------------------------------------------------------------------



A development project is initially recognized
corresponding to the sum of all expenditure incurred after the date on which the development project met all of the above criteria.
When all of the above criteria are not met, development expenditure is expensed as incurred. The Group has determined that the
criteria for capitalization are considered not to have been met until a regulatory filing has been made in a major market and approval
is considered highly probable.



Capitalized development expenditure comprises
all directly attributable costs necessary to create, manufacture, and prepare the asset for use as intended by management.



Subsequent to initial recognition, capitalized
development expenditure is measured at cost less accumulated amortization and impairment losses, similarly to an intangible asset
acquired separately.



The amortization of capitalized development
assets commences when the asset is available for use, which is generally the date on which it receives regulatory market approval.
Capitalized development assets are amortized on a straight-line basis over their estimated useful lives.



Other intangible assets



Other intangible assets are recognized at
cost or at fair value at the date of acquisition of control for those acquired through business combinations, less accumulated
amortization and impairment losses, if any. Amortization is calculated on the straight-line basis over the useful lives of the
assets. The useful lives and amortization methods are reviewed at each reporting date.



The principal useful lives are shown below:



| | · | Patent / License: Over the term of the
contract (10 years for the main license);
| | - | --------------------------------------------------------------------------------



| | · | Customer relationship: 5 to 10 years.
| | - | -------------------------------------



Significant changes in the useful life of
an asset are accounted for on a prospective basis.



An impairment loss is recognized when the
carrying amount of the asset exceeds its recoverable amount. Any impairment losses on intangible assets are presented under “Depreciation
and amortization” in the consolidated statement of income (see note 4.7).



| | 3.12. | Government subsidies
| | ----- | --------------------



Government grants are recognized in income
statement on a systematic basis when the entity recognizes as expenses the related costs that the grants are intended to compensate
to the extend that there is a reasonable assurance that grant is receivable. Government grants mainly related to R&D projects.
When deferred, government subsidies are presented in “Other liabilities” in the consolidated statement of financial
position.



December 31, 2016, 2015 and 2014F-28


Table of Contents




Advanced Accelerator Applications
S.A.





| | 3.13. | Property, plant and equipment
| | ----- | -----------------------------



Property, plant and equipment is recognized
in the consolidated statement of financial position at acquisition cost, comprising purchase price and any costs directly attributable
in bringing the asset to the location and working condition for its use as intended by management.



Depreciation is calculated on a straight-line
basis over the useful lives of the assets.



The principal useful lives are shown below:



| | · | Buildings (offices and laboratories): 20
years;
| | - | -----------------------------------------------



| | · | Laboratory equipment: 5 - 10 years;
| | - | -----------------------------------



| | · | Cyclotrons: 10 years;
| | - | ---------------------



| | · | IT equipment: 3 - 5 years;
| | - | --------------------------



| | · | Office equipment: 5 years.
| | - | --------------------------



Items of property, plant and equipment are
depreciated from the date on which they are ready for use.



The useful lives, residual values and depreciation
methods are reviewed at each reporting date and adjusted if appropriate on a prospective basis.



In accordance with IAS 16 Property, plant
and equipment, components of an item of property, plant and equipment with a different useful life or producing economic benefits
for the enterprise at a different rhythm are accounted for as separate items.



In compliance with IAS 23 Borrowing costs,
interest expenses directly attributable to the acquisition of items of property, plant and equipment are capitalized.



Any impairment losses on property, plant
and equipment are presented under “Depreciation, amortization and provisions” in the consolidated statement of income
(see note 4.7).



| | 3.14. | Impairment
| | ----- | ----------



Goodwill and intangible assets not yet
available for use



In accordance with IAS 36 Impairment
of assets, the carrying amount of goodwill and intangible assets not subject to amortization are tested at least once a year
or whenever events or changes in the internal or external environment indicate a risk of loss of value. For the purposes of this
test, the carrying amounts ​​of assets are allocated to Cash-Generating Units (CGU) or groups of CGUs.



Under IAS 36, an impairment loss is recognized
when the carrying amount exceeds the recoverable amount. The recoverable amount of an asset or CGU is the higher of fair value
less costs to sell and value in use.



Fair value is the price that would be received
to sell an asset or the price paid to transfer a liability in an orderly transaction between market participants at the measurement
date.



Value in use is the present value of estimated
future cash flows expected to be derived from the continuing use of the asset or CGU. It is determined from the estimated cash
flows based on budgets and business plans over periods ranging from 5 to 10 years. Subsequent cash flows are estimated by applying
a constant rate of positive or negative growth. The discount rate reflects current market conditions, the time value of money and
the specific risks associated with the asset (or CGU). The Group calculates the value in use by applying a post-tax discount rate
to discount the post-tax cash-flows. The value in use calculated by discounting pre-tax cash flows and applying a pre-tax discount
rate would not be materially different.



Property, plant and equipment and intangible
assets subject to amortization



When new events or circumstances indicate
that the carrying amount of an item of property, plant and equipment or of an intangible asset may not be recoverable, this amount,
or the amount of the Cash Generating Unit (CGU) the asset belongs to, is compared to its recoverable amount, which is the higher
of its value in use or its fair value less cost of disposal. If the recoverable amount of the asset (or CGU) is less than its carrying
amount, this latter is reduced to the recoverable amount and the impairment charge is recognized in “Depreciation, amortization
and provisions.” The revised carrying value of the asset (or CGU) is subsequently depreciated or amortized on a prospective
basis over the new residual useful life of the asset.



December 31, 2016, 2015 and 2014F-29


Table of Contents


Advanced Accelerator Applications S.A.





Reversal of Impairment losses



Impairment losses assessed on goodwill may
not be reversed.



With respect to other assets, an impairment
loss is reversed if there has been a change in the estimates used to determine the recoverable amount.



An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized.



| | 3.15. | Other non-current financial assets
| | ----- | ----------------------------------



Non-current financial assets principally
include shareholdings in non consolidated entities and other investments, guarantee deposits made in the normal course of business
and loans.



Shareholdings in non consolidated entities
and other investments are classified as available-for-sale financial assets and initially measured at fair value.



These shareholdings are subsequently remeasured
at fair value or at acquisition cost when no reliable fair value measurement is possible, under the terms of IAS 32 and IAS 39
in respect to financial instruments.



Changes in fair value are recognized in
other comprehensive income and reclassified through the income statement on disposal of the related asset or when the decline in
its fair value below its cost is significant or prolonged.



| | 3.16. | Inventories
| | ----- | -----------



In accordance with IAS 2 Inventories,
inventories are measured at the lower of cost or net realizable value. Raw materials and supplies are measured at acquisition cost
using the First In First Out (FIFO) method, including transport costs and after deducting supplier discounts and rebates. Net realizable
value is the estimated sale price at the reporting date, less the estimated costs of completion and selling expenses, and after
taking account of technical or commercial obsolescence and risks from low inventory turn.



| | 3.17. | Trade and other receivables
| | ----- | ---------------------------



Trade and other receivables are measured
at fair value on initial recognition, and subsequently at amortized cost using the effective interest rate method, less impairment
losses. Provisions for impairment of trade receivables are determined on the basis of the age of the receivables and identified
risks of recovery.



| | 3.18. | Leases
| | ----- | ------



Leases are classified as finance leases
when the terms of the lease contract transfer substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.



An asset held under a finance lease contract
is recognized at fair value with a corresponding liability in the consolidated statement of financial position at the inception
of the lease contract or, if lower, at the present value of the minimum lease payments under the contract. The asset is subsequently
depreciated over its expected useful life.



Construction in progress financed using
a finance lease is classified as property, plant and equipment in progress. The corresponding financial liability is recognized
as a liability once the building is available for use.



December 31, 2016, 2015 and 2014F-30


Table of Contents


Advanced Accelerator Applications
S.A.





| | 3.19. | Cash and cash equivalents
| | ----- | -------------------------



Cash and cash equivalents in the consolidated
statement of financial position includes bank balances and short-term liquid investments with an initial maturity of less than
three months and virtually no risk of change in fair value.



| | 3.20. | Derivatives
| | ----- | -----------



The Group uses derivative financial instruments
to hedge its exposure to foreign exchange risks and interest risks arising from operational, financing and investment activities.



Derivative financial instruments are initially
recognised at fair value at the date the derivative contract are entered into and are subsequently re-measured at fair value at
each reporting date. The gains and losses resulting from the fair value re-measurement are recognised in profit or loss. The Group
does not apply hedge accounting.



| | 3.21. | Share-based payments
| | ----- | --------------------



The Group has implemented restricted (free)
share plans and stock option plans for designated categories of employees.



These plans represent equity-settled share-based
payments and are measured at fair value on the grant date under IFRS 2. The cumulative expense recognized is based on the fair
value at the grant date. It is recognized over the vesting period in net operating income directly through equity.



| | 3.22. | Provisions
| | ----- | ----------



In accordance with IAS 37, a provision is
recognized when the Group has a present legal or constructive obligation as a result of a past event, when it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the
amount of the obligation can be made. The part of a provision that becomes due in less than one year is recorded as a current liability,
the remainder as non-current. The Group measures provisions for present obligations using facts and circumstances available at
the reporting date, on the basis of its experience and best knowledge when the financial statements are approved for issue.



Where the effect of the time value of money
is material, the amount of the provision is the present value of the future cash flows expected to be required to settle the obligation,
using a discount rate that reflects current market rates and any specific risks of the obligation.



Provision for the decommissioning of
PET production sites



The manufacture of certain products in the
field of molecular nuclear medicine generates radiation and causes the contamination of parts of the production site (in particular
the cyclotron). AAA Group entities producing PET products have a legal obligation to dismantle and decontaminate their site and
production equipment at the end of their useful lives. The provision is initially recognized through an additional cost of the
related asset which is then amortized over its useful life. The provision is updated at each reporting date. Unwinding of the discounting
of the provision is recognized as a finance cost and any changes in the estimated ultimate costs of decommissioning are recognized
within the cost of the related asset.



December 31, 2016, 2015 and 2014F-31


Table of Contents




Advanced Accelerator Applications
S.A.





| | 3.23. | Defined benefit retirement plans
| | ----- | --------------------------------



In accordance with IAS 19 Employee benefits,
with regard to defined benefit plans, post-employment and other long-term benefits are subject to annual actuarial measurement,
using the projected credit unit method. Under this method, each period of service gives rise to an additional unit of benefit entitlement,
each of which is measured separately to obtain the final obligation. This final obligation is then discounted to present value.



These calculations include essentially:



| | · | An assumption regarding the date of payment
of the benefits;
| | - | ------------------------------------------------------------



| | · | a discount rate specific to the currency
of the country where the post-employment benefit obligations arise;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | a rate of inflation;
| | - | --------------------



| | · | assumptions covering the estimated rates
of future salary increases, employee turnover and mortality.
| | - | -----------------------------------------------------------------------------------------------------



The main actuarial assumptions chosen at
December 31, 2016 are described in note 5.12.



Positive or negative actuarial differences
include the effects on the obligation of changes in the underlying assumptions and experience adjustments. In conformity with IAS
19 revised Employee Benefits, the Group recognizes these actuarial gains and losses directly in other comprehensive income,
classified as remeasurement of defined benefit obligations.



The liability presented in the consolidated
statement of financial position represents the total obligation at the reporting date.



| | 3.24. | Sales
| | ----- | -----



Sales are recognized when the following
conditions are satisfied:



| | · | There is an agreement between the parties;
| | - | ------------------------------------------



| | · | the goods have been delivered or the services
rendered (i.e. the transfer of risks and benefits of ownership has taken place);
| | - | ------------------------------------------------------------------------------------------------------------------------------



| | · | the price is fixed or can be reliably measured;
| | - | -----------------------------------------------



| | · | it is probable that future economic benefits
from the transaction will flow to the Group as required under IAS 18.
| | - | ------------------------------------------------------------------------------------------------------------------



Rebates and discounts granted to customers
are deducted from the corresponding sales revenues.



Sales revenues are presented net of pharmaceutical
taxes and other refunds and paybacks to public agencies.



Certain products and product candidates
sold by AAA have a very short shelf life. In particular, the shelf life of F18 PET products and product candidates does not exceed
10 hours. As a result, these products and product candidates are manufactured in batch processes overnight and delivered to customers,
generally located close to the production site, in the morning. The transfer of ownership occurs when the batch is delivered to
the customer, which is also the date on which the sales revenue is recognized in the statement of income.



The Group entered into an agreement for
the production of AV-45 with the Eli Lilly group in 2013.



For each site where AV-45 is produced, AAA
is committed under the agreement to purchase the specialized production equipment (from Eli Lilly for certain designated sites
or from a third party supplier for other sites) and to manage its installation and commissioning. The cost of all associated equipment
and expenses are charged back under the contract to Eli Lilly when the site is commissioned. The related revenue recognition is
spread over the term of the contract under IFRIC18 as the Group considers that it represents a transfer of assets from a customer
and that the related revenue transfer is an integral part of the AV-45 supply agreement.



The agreement also defines the sale and
invoicing of trial batches as well as the sale and invoicing of doses during the distribution phase. These latter sales are recognized
on product delivery similarly to other products manufactured and sold by the Group.



December 31, 2016, 2015 and 2014F-32


Table of Contents


Advanced Accelerator Applications
S.A.





| | 3.25. | Raw materials and other consumables used
| | ----- | ----------------------------------------



This line item includes raw materials consumed,
transport, sales royalties and licensing fees, and purchases of pharmaceutical products.



| | 3.26. | Research and development expenditure
| | ----- | ------------------------------------



Expenditure incurred during research is
expensed as incurred (see note 4.6).



Expenditure incurred during development
is capitalized as intangible assets under the conditions described in note 3.11.



| | 3.27. | Operating Result
| | ----- | ----------------



Net operating income consists of sales less
the cost of raw materials and other consumables used and other operating expenses. Operating expenses mainly include personnel
costs, other operating income and expenses, depreciation and amortization expense and impairment charges.



Net operating income includes the impact
of:



| | · | gains and losses on disposal of non-current
assets;
| | - | ---------------------------------------------------



| | · | impairment of goodwill;
| | - | -----------------------



| | · | transaction costs incurred in connection
with business combinations;
| | - | --------------------------------------------------------------------



| | · | litigation or non-recurring events.
| | - | -----------------------------------



| | 3.28. | Finance income and costs
| | ----- | ------------------------



Finance costs consist of:



| | · | interest expenses (gross finance cost,
which includes financial expenses, issuance costs and foreign exchange losses on financial liabilities) on Group financial debt
consisting of loans and other financial liabilities (in particular overdrafts and finance lease liabilities);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | unwinding of the discounting of provisions;
| | - | -------------------------------------------



| | · | impact on loss from shareholdings in non-consolidated
investments (impairment, loss on disposal);
| | - | -------------------------------------------------------------------------------------------------



| | · | the loss in the fair value of liabilities
to former owners of subsidiaries (contingent consideration);
| | - | ------------------------------------------------------------------------------------------------------



| | · | exchange rate losses.
| | - | ---------------------



Finance income consists of:



| | · | other financial income;
| | - | -----------------------



| | · | impact on profit from shareholdings in
non-consolidated investments (dividends, profit on disposal) and income from short-term investments;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | exchange rate gains;
| | - | --------------------



| | · | the gain in the fair value of liabilities
to former owners of subsidiaries (contingent consideration);
| | - | ------------------------------------------------------------------------------------------------------



| | · | exchange rate gains on financial liabilities
on Group financial debt consisting of loans and other financial liabilities (in particular overdrafts and finance lease liabilities).
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-33


Table of Contents


Advanced Accelerator Applications
S.A.





| | 3.29. | Income taxes
| | ----- | ------------



Income taxes consist of current
and deferred tax. Income tax is recognized in the statement of income except when it relates to items recognized directly in other
comprehensive income or in equity, in which case it is recognized in other comprehensive income or in equity, respectively.



Current tax is the expected tax
payable on the taxable income of a period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment
to tax payable from previous years.



Deferred tax is determined using
the liability method, for temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: (i) goodwill not
deductible for tax purposes, (ii) differences relating to investments in subsidiaries to the extent that it is probable that they
will not reverse in the foreseeable future and (iii) the initial recognition of assets or liabilities in a transaction that is
not a business combination and that affects neither accounting nor taxable profit. The measurement of deferred tax assets and liabilities
is based on the judgment of the Group as to how it will recover the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the reporting date. Deferred tax is measured at the tax rates that are expected to be applied
to temporary differences when they reverse or are offset.



Deferred tax assets and liabilities
are offset when there is a legally enforceable right to offset current tax assets and liabilities and when they relate to income
tax levied by the same tax jurisdiction and the Group intends to settle its current tax assets and liabilities on a net basis.



A deferred tax asset net of any
deferred tax liabilities that may be offset is recognized only to the extent that it is probable that the Group will have sufficient
future taxable profits to recover it. A deferred tax asset is reduced to the extent that it is no longer probable that sufficient
future taxable profits will be available.



| | 3.30. | Statement of cash flows
| | ----- | -----------------------



The consolidated statement of cash flows
is prepared using the indirect method. It distinguishes between cash flows from operating, investing and financing activities.



Operating activities are the principal activities
that generate the income of the entity and all other activities that do not meet the definition as investing or financing activities.
Cash flows from operating activities are obtained by adjusting net income for changes in working capital, items that do not affect
cash (depreciation and amortization, impairment charges etc.), gains and losses on disposal of non-current assets, calculated expenses,
etc.



Cash flows from investing activities are
the cash flows from the acquisition and disposal of non-current assets and other investments.



Financing activities are operations that
result from changes in the volume and composition of capital contributions and from changes in borrowings. Increases in share capital,
payments of deferred and contingent liabilities to former owner of acquired subsidiairies, transaction with NCI, new borrowings
and related repayments are financing activities.



Increases and decreases in assets and liabilities
without effect on cash are eliminated. It follows that lease payments for assets being financed with a finance lease are not included
in investing activities while the reduction in liabilities under finance leases is included in the loan repayments for the period.



| | 3.31. | Earnings per share
| | ----- | ------------------



The Group presents basic earnings per share
and diluted earnings per share.



Basic and diluted earnings per share are
calculated under IAS 33.



Basic earnings per share are calculated
by dividing the Group share of net income by the average weighted number of shares outstanding during the year.



December 31, 2016, 2015 and 2014F-34


Table of Contents


Advanced Accelerator Applications
S.A.





Diluted earnings per share are calculated
by dividing the adjusted Group share of net income for the year by the average weighted number of ordinary shares outstanding adjusted
for the effect of all dilutive potential ordinary shares.



| | 4. | Notes
                                         to the consolidated statement of income
| | -- | --------------------------------------------------------------------------------------



| | 4.1. | Operating segments and entity-wide disclosures
| | ---- | ----------------------------------------------



Operating segment



In compliance with IFRS 8 Operating Segments,
the segment information is based on internal management reports used by the Board of Directors (the chief operating decision maker
of the Group) to review the performance of the business. There is only one operating segment in the Group and its performance is
shown in the consolidated statement of income.



Entity-wide disclosures



Other required entity-wide disclosures in
accordance with IFRS 8 are presented below.



Sales by product category



|In € thousands |  | 2016    |  | 2015   |  | 2014  
|-------------- |  | ------- |  | ------ |  | ------
|PET            |  | 66,466  |  | 59,831 |  | 48,882
|Therapy (1)    |  | 19,987  |  | 11,049 |  | 5,472 
|SPECT          |  | 9,564   |  | 7,431  |  | 7,348 
|Other products |  | 13,308  |  | 10,304 |  | 8,163 
|Total          |  | 109,325 |  | 88,615 |  | 69,865



| | (1) | Includes
                                         a provision of €1.6 million at December 31, 2016 for probable payback to a public
                                         agency, due to a likely price reduction following marketing authorization for lutetium
                                         Lu 177 dotatate (Lutathera®).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sales are presented net of pharmaceutical
taxes.



Geographical information



The two tables that follow show the Group’s
sales and non-current assets by country. In presenting the following information, sales disclosures are based on the location of
customers and asset disclosures on the location of the sites of Group entities.



Sales by country



|In € thousands |  | 2016    |  | 2015   |  | 2014  
|-------------- |  | ------- |  | ------ |  | ------
|France         |  | 32,595  |  | 28,152 |  | 25,003
|Italy          |  | 22,348  |  | 21,640 |  | 17,775
|United Kingdom |  | 16,405  |  | 15,464 |  | 9,577 
|Spain          |  | 12,001  |  | 9,692  |  | 6,926 
|Netherlands    |  | 7,782   |  | -      |  | -     
|Switzerland    |  | 5,715   |  | 5,017  |  | 3,152 
|Germany        |  | 4,295   |  | 2,056  |  | 979   
|Portugal       |  | 3,755   |  | 3,729  |  | 3,227 
|Israel         |  | 2,318   |  | 2,413  |  | 3,159 
|United States  |  | 1,432   |  | -      |  | -     
|Poland         |  | 525     |  | 452    |  | 61    
|Belgium        |  | 154     |  | -      |  | -     
|Canada         |  | -       |  | -      |  | 6     
|Total          |  | 109,325 |  | 88,615 |  | 69,865





December 31, 2016, 2015 and 2014F-35


Table of Contents


Advanced Accelerator Applications
S.A.





Sales start of NETSPOT® in the United
States in August 2016 following FDA approval in June.



The table of non-current assets by geographic
location excludes financial, other non-current and deferred tax assets.



Non-current assets by country



|In € thousands |  | 2016    |  | 2015    |  | 2014   
|-------------- |  | ------- |  | ------- |  | -------
|United States  |  | 28,966  |  | 23,036  |  | 15,525 
|Netherlands    |  | 26,441  |  | -       |  | -      
|France         |  | 22,155  |  | 24,836  |  | 27,939 
|Spain          |  | 18,816  |  | 18,671  |  | 15,661 
|Italy          |  | 13,982  |  | 15,237  |  | 17,002 
|Israel         |  | 12,841  |  | 12,899  |  | 11,923 
|Germany        |  | 10,614  |  | 8,504   |  | 9,026  
|Canada         |  | 5,824   |  | 5,467   |  | 5,848  
|Portugal       |  | 1,531   |  | 2       |  | 689    
|United Kingdom |  | 891     |  | 1,295   |  | 1,580  
|Switzerland    |  | 853     |  | 785     |  | 192    
|Poland         |  | 98      |  | 146     |  | 181    
|Total          |  | 143,012 |  | 110,878 |  | 105,566



| | 4.2. | Personnel costs
| | ---- | ---------------



Personnel costs are analyzed as follows:



|In € thousands           |  | 2016   |  | 2015   |  | 2014  
|------------------------ |  | ------ |  | ------ |  | ------
|Wages and salaries       |  | 25,850 |  | 20,280 |  | 14,246
|Social charges           |  | 6,786  |  | 5,846  |  | 4,496 
|Share-based payments     |  | 7,157  |  | 1,794  |  | 2,278 
|Other personnel expenses |  | 1,911  |  | 1,600  |  | 69    
|Total                    |  | 41,704 |  | 29,520 |  | 21,089



The table below shows AAA personnel by country
as of December 31, 2016, 2015 and 2014.



|               |  | 2016 |  | 2015 |  | 2014
|-------------- |  | ---- |  | ---- |  | ----
|Italy          |  | 137  |  | 124  |  | 114 
|France         |  | 124  |  | 111  |  | 98  
|Spain          |  | 54   |  | 45   |  | 36  
|United States  |  | 45   |  | 25   |  | 8   
|United Kingdom |  | 37   |  | 27   |  | 16  
|Germany        |  | 31   |  | 13   |  | 12  
|Switzerland    |  | 16   |  | 14   |  | 11  
|Portugal       |  | 15   |  | 15   |  | 15  
|Israel         |  | 15   |  | 15   |  | 14  
|Poland         |  | 14   |  | 14   |  | 8   
|Netherlands    |  | 13   |  | -    |  | -   
|Total          |  | 501  |  | 403  |  | 332 



In the years ended December 31, 2016, 2015
and 2014, the total remuneration of the Group’s senior executives was as follows:



|In € thousands           |  | 2016  |  | 2015  |  | 2014 
|------------------------ |  | ----- |  | ----- |  | -----
|Short-term benefits      |  | 2,233 |  | 2,755 |  | 1,357
|Share-based payments     |  | 975   |  | 86    |  | 315  
|Post employment benefits |  | 193   |  | 329   |  | -    
|Total                    |  | 3,401 |  | 3,170 |  | 1,672





December 31, 2016, 2015 and 2014F-36


Table of Contents


Advanced Accelerator Applications
S.A.





| | 4.3. | Share-based payments
| | ---- | --------------------



| | 4.3.1. | Restricted (free) share plans
| | ------ | -----------------------------



Share-based payments include restricted
(free) share plans for Group management. The fair value of the share grants was determined by reference to the share market price
since the IPO and before, to the subscription price of share capital increases carried out closest to the dates of these free share
grants.



There are no vesting conditions, except
for a service condition.



|Grant date                   |  | 11/2011   |  | 01/2012 |  | 12/2012   |  | 08/2013   |  | 11/2014 |  | 05/2015 |  | 08/2016   |  | 11/2016
|---------------------------- |  | --------- |  | ------- |  | --------- |  | --------- |  | ------- |  | ------- |  | --------- |  | -------
|Number of shares granted     |  | 370,000   |  | 15,000  |  | 562,500   |  | 477,500   |  | 155,000 |  | 160,000 |  | 192,000   |  | 4,500  
|Fair value at grant date (€) |  | 4.0       |  | 4.0     |  | 4.0       |  | 5.0       |  | 5.0     |  | 6.1     |  | 15.40     |  | 14.36  
|Total fair value (€)         |  | 1,480,000 |  | 60,000  |  | 2,250,000 |  | 2,387,500 |  | 775,000 |  | 976,000 |  | 2,956,800 |  | 64,620 
|Vesting period (in years)    |  | 2         |  | 2       |  | 2         |  | 2         |  | 2       |  | 2       |  | 2         |  | 2      



An expense of €1.4 million was recognized
in the consolidated statement of income for the year ended December 31, 2016, €1.2 million for the year ended December 31,
2015 and €2.3 million for the year ended December 31, 2014.



| | 4.3.2. | Options
| | ------ | -------



3,947,625 stock options were granted to
employees in November 2015, 2,064,050 stock options in August 2016 and 100,000 in December 2016. One option can be exercised to
buy one ordinary share of the Company.



Movements in stock options in the year ended
December 31, 2016, were as follows:



|                                |  | Number of options |  | Weighted average exercise price
|------------------------------- |  | ----------------- |  | -------------------------------
|At January 1, 2016              |  | 3,947,625         |  | $8.00                          
|Options granted in the period   |  | 2,164,050         |  | $17.05                         
|Options exercised in the period |  | -                 |  | -                              
|Options lapsed in the period    |  | -                 |  | -                              
|Options forfeited in the period |  | 236,250           |  | $8.55                          
|At December 31, 2016            |  | 5,875,425         |  | $11.31                         



The options granted in November 2015 outstanding
at December 31, 2016 had an exercise price of US$8.00 (€7.45 based on an exchange rate at the grant date) and a weighted average
remaining contractual life of 8.86 years.



The options granted in August 2016 outstanding
at December 31, 2016 had an exercise price of US$17.21 (€15.41 based on an exchange rate at the grant date) and a weighted
average remaining contractual life of 9.66 years.



The options granted on December 22, 2016
outstanding at December 31, 2016 had an exercise price of US$13.89 (€13.30 based on an exchange rate at the grant date) and
a weighted average remaining contractual life of 9.98 years.



No options were exercisable at December
31, 2016.



December 31, 2016, 2015 and 2014F-37


Table of Contents


Advanced Accelerator Applications
S.A.





The fair value of options granted during
years 2016 and 2015 was estimated using the Black-Scholes option pricing model with the following significant assumptions:



|                                           |  | 2016                                                                          |  | 2015         
|------------------------------------------ |  | ----------------------------------------------------------------------------- |  | -------------
|                                           |  | August
                                                                  plan |  | December plan
|Expected life (years)                      |  | 4.5                                                                           |  | 4.5          
|Risk-free interest rate                    |  | 1.2%                                                                          |  | 2.1%         
|Volatility                                 |  | 58%                                                                           |  | 58.7%        
|Expected dividend                          |  | 0%                                                                            |  | 0%           
|Weighted average fair value per option     |  | €7.34                                                                         |  | €5.10        
|Weighted average exercise price            |  | €15.41                                                                        |  | €13.30       
|Weighted average share price at grant date |  | €15.41                                                                        |  | €11.35       
|                                           |  |                                                                               |  |              

Volatility was determined by considering
the volatility of a group of comparable listed companies over the period commensurate with the expected term.



The options are not subject to any performance
conditions and normally vest following the third anniversary of the date of grant provided that the option holder remains a Director
or employee of the Group.



The total fair value of the Stock Option
grants for the years 2016 and 2015 was estimated at €29.3 million and €13.7 million, respectively. This expense will
be recorded evenly over the 3-year vesting period in accordance with IFRS 2.



An expense of €5.6 million was recognized
in the consolidated statement of income for the year ended December 31, 2016, including €1.6 million for the 2016 plans and
€4.0 million for the 2015 plan.The expense recognized for the year ended December 31, 2015 was €0.6 million.



| | 4.3.3. | Warrants
| | ------ | --------



Movements in equity-settled warrants over
ordinary shares in the Company in the year were as follows:



|                               |  | Number of warrants |  | Weighted average exercise price
|------------------------------ |  | ------------------ |  | -------------------------------
|At January 1, 2016             |  | 225,000            |  | €6.10                          
|Warrants granted in the period |  | 112,500            |  | €14.58                         
|Warrants lapsed in the year    |  | -                  |  | -                              
|Warrants exercised in the year |  | -                  |  | -                              
|At December 31, 2016           |  | 337,500            |  | €8.93                          

337,500 warrants were exercisable at reporting
date.



| | 4.3.3.1. | 2015 Warrants plan
| | -------- | ------------------



The 225,000 warrants granted in 2015 to
six Board members for a consideration of €0.80 per warrant are exercisable immediately following the grant date and lapse
after a period of 18 months.



As the consideration paid by the grantees
represented the fair value of the warrants at the grant date, no related expense has been recognized in the consolidated statement
of income for the year ended December 31, 2015.



The fair value of the warrants granted in
2015 was valued at €0.25 per warrant by an external valuation specialist using the Black-Scholes pricing model with the following
significant assumptions:



|                        |  | 2015 plan
|----------------------- |  | ---------
|Term of option (years)  |  | 0.75     
|Risk-free interest rate |  | 0%       
|Volatility              |  | 50%      
|                        |  |          





December 31, 2016, 2015 and 2014F-38


Table of Contents


Advanced Accelerator Applications
S.A.





| | 4.3.3.2. | 2016 Warrants plan
| | -------- | ------------------



AAA shareholders approved on May 26, 2016
a warrant plan for the seven non-executive board members and delegated authorization for its execution to the Board. The shareholders
approved of the issuance of up to 149,800 warrants. The purchase of one warrant entitles to purchase one share. The shareholder
resolution states that the Board has 18 months to use the delegation and the beneficiaries of the plan have 3 years to exercise
their right to buy shares should they decide to so. The Board made use of the shareholder delegation on May 26 and decided to put
in place the warrant plan. The warrant subscription price and the share exercise price were determined with the support of an external
valuation specialist.



As of October 7, 2016, 112,500 warrants
have been subscribed by five non-executive board members, 37,300 remain for a possible subscription before November 26, 2017.



The fair value of the warrants granted in
2016 was determined at €5.67. The external valuation specialist used the pricing model with the following significant assumptions:



|                        |  | 2016 
|----------------------- |  | -----
|Term of option (years)  |  | 3    
|Risk-free interest rate |  | 1.09%
|Volatility              |  | 57%  
|                        |  |      



As the consideration paid by the grantees
represented the fair value of the warrants at the grant date, no related expense has been recognized in the consolidated statement
of income for the year ended December 31, 2016.



| | 4.4. | Other operating expenses
| | ---- | ------------------------



Other operating expenses principally concern
non-inventoried purchases, consumable equipment & supplies, travelling expenses, communication costs, consulting and other
external services relating to R&D, and other professional services:



|In € thousands                                                     |  | 2016   |  | 2015   |  | 2014  
|------------------------------------------------------------------ |  | ------ |  | ------ |  | ------
|Transport                                                          |  | 11,156 |  | 10,135 |  | 9,087 
|Consulting and other professional services (1)                     |  | 8,055  |  | 6,825  |  | 5,802 
|External R&D Services (2)                                          |  | 7,626  |  | 10,274 |  | 7,114 
|Lease and other administrative expenses                            |  | 5,777  |  | 3,981  |  | 2,807 
|Repairs and maintenance                                            |  | 4,359  |  | 3,420  |  | 2,962 
|Communications                                                     |  | 3,420  |  | 1,836  |  | 650   
|Travel expenses                                                    |  | 3,261  |  | 2,097  |  | 1,560 
|Energy                                                             |  | 1,492  |  | 1,373  |  | 1,235 
|Royalties and Licensing fees                                       |  | 1,405  |  | 1,439  |  | 1,121 
|Taxes                                                              |  | 745    |  | 1,218  |  | 719   
|Net loss on disposal of non-current assets                         |  | 253    |  | 367    |  | 10    
|Allowance on trade receivables and R&D tax credits receivables (3) |  | 5,131  |  | 193    |  | 144   
|Other                                                              |  | 975    |  | 1,656  |  | 1,814 
|Total                                                              |  | 53,655 |  | 44,814 |  | 35,025



| | (1) | Includes
                                         in the year 2015, the one-time compensation paid to the Chairman of the Board for €1
                                         million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Reduction
                                         of R&D expenses vs 2015 explained mostly due to the end of the phase 3 clinical study
                                         of Lutathera.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Includes
                                         in the year 2016 a provision of €5.1 million for a ongoing tax investigation. AAA
                                         is challenging the findings of the tax administration initial report. The provisioned
                                         amount represents AAA’s best estimate of the probable final ruling. See note 5.9.
                                         for further detail.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The IDB acquisition adds operating expenses
of €1.6 million in the year 2016 mainly in transport and other professional expenses.



December 31, 2016, 2015 and 2014F-39


Table of Contents


Advanced Accelerator Applications
S.A.





| | 4.5. | Other operating income
| | ---- | ----------------------



|In € thousands         |  | 2016  |  | 2015  |  | 2014 
|---------------------- |  | ----- |  | ----- |  | -----
|Government subsidies   |  | 2,521 |  | 4,871 |  | 3,701
|Other operating income |  | 1,716 |  | 970   |  | 539  
|Total                  |  | 4,237 |  | 5,841 |  | 4,240



Government subsidies consist for the most
part of the French research tax credit (CIR).



| | 4.6. | Research and development expenditures
| | ---- | -------------------------------------



|In € thousands                                                     |  | 2016   |  | 2015   |  | 2014  
|------------------------------------------------------------------ |  | ------ |  | ------ |  | ------
|Personnel costs (including share-based payments for R&D personnel) |  | 4,010  |  | 2,238  |  | 2,390 
|Other operating costs (including depreciation and amortization)    |  | 9,761  |  | 12,477 |  | 8,060 
|Total                                                              |  | 13,771 |  | 14,714 |  | 10,450



Total expenditures on R&D projects mainly
include external fees, personnel costs, depreciation and amortization on fixed and intangible assets, transport and consumables
costs.



| | 4.7. | Depreciation and amortization
| | ---- | -----------------------------



|In € thousands                                        |  | 2016    |  | 2015   |  | 2014  
|----------------------------------------------------- |  | ------- |  | ------ |  | ------
|Impairment of goodwill                                |  | -       |  | -      |  | 840   
|Impairment of Property, plant and equipment           |  | -       |  | 461    |  | 1,322 
|Impairment reversals of Property, plant and equipment |  | (1,783) |  | -      |  | -     
|Depreciation and amortization                         |  | 13,785  |  | 10,860 |  | 9,831 
|Total                                                 |  | 12,002  |  | 11,321 |  | 11,993



Impairment
of goodwill, impairment and reversals of impairment relating to property plant and equipment concerns operations in Portugal -
see note 5.4.



| | 4.8. | Finance income and finance costs
| | ---- | --------------------------------



Change in fair value of contingent consideration
is mainly attributed to the change in the fair value of the contingent consideration payable to the former owners of Advanced Accelerator
Applications USA, Inc. Refer to note 5.14 for further details.



|In € thousands                                   |  | 2016  |  | 2015  |  | 2014
|------------------------------------------------ |  | ----- |  | ----- |  | ----
|Net foreign exchange gain                        |  | 6,860 |  | -     |  | 186 
|Unrealized gain on derivatives at fair value (1) |  | -     |  | 897   |  | -   
|Change in fair value of contingent consideration |  | 460   |  | -     |  | -   
|Other                                            |  | 744   |  | 259   |  | 396 
|Total finance income                             |  | 8,064 |  | 1,156 |  | 582 





|In € thousands                                   |  | 2016     |  | 2015    |  | 2014   
|------------------------------------------------ |  | -------- |  | ------- |  | -------
|Net foreign exchange loss                        |  | -        |  | (1,252) |  | -      
|Unrealized loss on derivatives at fair value (2) |  | (39)     |  | -       |  | -      
|Change in fair value of contingent consideration |  | (12,473) |  | (5,323) |  | (1,092)
|Interest expenses                                |  | (563)    |  | (809)   |  | (951)  
|Other                                            |  | (538)    |  | (468)   |  | (339)  
|Total finance costs                              |  | (13,613) |  | (7,852) |  | (2,382)



(1) In 2015,
the €897 thousand gain on derivatives at fair value relates to the change in fair value of the foreign exchange contracts
concluded by the Group to hedge its currency risk exposure.



(2) In 2016,
the €39 thousand loss on derivatives at fair value relates to the change in fair value of interest rate swap concluded by
the Group to hedge its interest rate risk exposure.



December 31, 2016, 2015 and 2014F-40


Table of Contents


Advanced Accelerator Applications
S.A.





| | 4.9. | Income taxes
| | ---- | ------------



| | 4.9.1. | Income tax expense
| | ------ | ------------------



|In € thousands |  | 2016    |  | 2015    |  | 2014   
|-------------- |  | ------- |  | ------- |  | -------
|Current tax    |  | (2,469) |  | (2,533) |  | (1,692)
|Deferred tax   |  | 2,220   |  | 1,762   |  | 1,288  
|Total          |  | (249)   |  | (771)   |  | (404)  



| | 4.9.2. | Explanation of effective tax expense
| | ------ | ------------------------------------



|In € thousands                                                     |  | 2016     |  | 2015     |  | 2014    
|------------------------------------------------------------------ |  | -------- |  | -------- |  | --------
|Net profit / (loss) after tax                                      |  | (25,294) |  | (17,001) |  | (10,803)
|Income tax                                                         |  | (249)    |  | (771)    |  | (404)   
|Net profit / (loss) before tax                                     |  | (25,045) |  | (16,230) |  | (10,399)
|Theoretical tax rate                                               |  | 33.33%   |  | 33.33%   |  | 33.33%  
|Expected tax (charge) / income                                     |  | 8,347    |  | 5,409    |  | 3,466   
|Impact of unrecognized deferred tax asset on tax loss for the year |  | (5,823)  |  | (6,570)  |  | (3,095) 
|Impact of tax rate differences and tax rate changes                |  | 656      |  | (504)    |  | 106     
|Impact of unrecognized deferred tax asset on temporary differences |  | 22       |  | (13)     |  | (482)   
|Impact of permanent differences                                    |  | (3,215)  |  | 1,260    |  | (445)   
|Impact of income tax prior year recovery                           |  | 10       |  | (13)     |  | 348     
|Income tax expense                                                 |  | (3)      |  | (431)    |  | (102)   
|CVAE & IRAP (1)                                                    |  | (246)    |  | (340)    |  | (302)   
|Group tax charge                                                   |  | (249)    |  | (771)    |  | (404)   



(1) The Contribution
sur la Valeur Ajoutée des Entreprises (“CVAE”) and the Imposta Regionale sulle Attivita Produttive (“IRAP”)
are French and Italian local taxes, respectively. They are determined using defined elements of revenues and expenses and are
considered to be income taxes in accordance with IAS 12.



| | 4.9.3. | Deferred tax assets and liabilities
| | ------ | -----------------------------------



Changes in net deferred tax assets and liabilities
during the year are explained as follows:



|In € thousands                                |  | 2016    |  | 2015    |  | 2014   
|--------------------------------------------- |  | ------- |  | ------- |  | -------
|Net deferred tax at the beginning of the year |  | (2,507) |  | (4,143) |  | (4,187)
|Deferred tax income                           |  | 2,220   |  | 1,762   |  | 1,288  
|Other comprehensive income                    |  | 74      |  | 176     |  | 31     
|Change in consolidation scope                 |  | (4,212) |  | -       |  | (715)  
|Translation differences                       |  | 331     |  | (374)   |  | (315)  
|Other changes                                 |  | -       |  | 72      |  | (245)  
|Net deferred tax at the end of the year       |  | (4,094) |  | (2,507) |  | (4,143)



Deferred tax liabilities recognized mainly
concern the remeasurement of assets due to business combinations.



|In € thousands                    |  | 2016     |  | 2015    |  | 2014   
|--------------------------------- |  | -------- |  | ------- |  | -------
|Intangible assets                 |  | (11,777) |  | (7,061) |  | (7,655)
|Property, plant and equipment     |  | (610)    |  | (825)   |  | (822)  
|Carry forward losses (1)          |  | 6,868    |  | 3,891   |  | 2,852  
|Other temporary differences       |  | 1,425    |  | 1,488   |  | 1,482  
|Deferred liabilities, net         |  | (4,094)  |  | (2,507) |  | (4,143)
|Net deferred tax liabilities      |  |          |  |         |  |        
|of which deferred tax assets (2)  |  | 10,221   |  | 6,080   |  | 4,608  
|of which deferred tax liabilities |  | (14,315) |  | (8,587) |  | (8,751)



(1)
Deferred tax assets on carry forward losses have been recognized only to the extent of the available taxable temporary differences
for each taxable entity.



(2) Deferred
tax assets and tax liabilities are offset when they concern the same taxable entity (or group of entities) and the entity has
a legally enforceable right to settle current tax assets and liabilities in the consolidated statement of financial position.



December 31, 2016, 2015 and 2014F-41


Table of Contents


Advanced Accelerator Applications
S.A.





As of 31 December 2016, the Group had available
tax loss carry forwards for which no deferred tax asset was recognized due to the early stage of development of the entities in
these countries, and because these entities are not likely to have taxable income in the foreseeable future:



Carry forward losses



|In € thousands |  | 2016   |  | 2015   |  | 2014  
|-------------- |  | ------ |  | ------ |  | ------
|France         |  | 32,001 |  | 23,034 |  | 15,127
|United States  |  | 10,262 |  | -      |  | -     
|Portugal       |  | 2,124  |  | 2,879  |  | 2,404 
|Germany        |  | 4,260  |  | 2,750  |  | 2,545 
|Canada         |  | 1,273  |  | 917    |  | 749   
|Spain          |  | 3,542  |  | 3,542  |  | 3,542 
|Poland         |  | 2,915  |  | 2,171  |  | 1,316 
|Switzerland    |  | 2,962  |  | 3,053  |  | 490   
|Total          |  | 59,339 |  | 38,346 |  | 26,173



| | 5. | Notes
                                         to the consolidated statement of financial position
| | -- | --------------------------------------------------------------------------------------------------



| | 5.1. | Acquisition of business
| | ---- | -----------------------



Acquisition of IDB Group



AAA acquired 100% of the shares of the IDB
Group, incorporated in The Netherlands, in January 2016. The IDB Group consists of six entities in The Netherlands and one in Belgium.
Their business activities include the development, production and wholesale of medical products and more specifically radiopharmaceutical
products and medical and industrial radioactive substances. This transaction contributes to AAA’s international expansion
and strengthens AAA’s global supply chain in preparation for the commercial launch of lutetium Lu 177 dotatate (Lutathera®).
Acquiring the IDB Group provides AAA with a reliable supply of Lu-177 for the production of lutetium Lu 177 dotatate (Lutathera®)
and a business for other future product candidates.



|Recognized
amounts of identifiable assets acquired and liabilities assumed at acquisition date
        (in
thousands) | €
|--------------------------------------------------------------------------------------------------------------------- | -
|Intangible
    assets                                                                                                 |  
|Property, plant and
    equipment                                                                                     |  
|Inventory                                                                                                             |  
|Trade and other receivables                                                                                           |  
|Other current assets                                                                                                  |  
|Cash and cash equivalent                                                                                              |  
|Deferred tax liabilities                                                                                              |  
|Trade and other payable                                                                                               |  
|Other current liabilities                                                                                             |  
|Total net assets
    acquired                                                                                         |  
|                                                                                                                      |  
|Goodwill                                                                                                              |  
|Total consideration                                                                                                   |  
|                                                                                                                      |  
|Satisfied by:                                                                                                         |  
|Cash                                                                                                                  |  
|Contingent consideration
    arrangement                                                                              |  
|Total consideration
    transferred                                                                                   |  
|                                                                                                                      |  
|Net cash outflow due
    to this acquisition:                                                                         |  
|Cash consideration                                                                                                    |  
|Less: cash and cash
    equivalents acquired                                                                          |  
|                                                                                                                      |  



December 31, 2016, 2015 and 2014F-42


Table of Contents


Advanced Accelerator Applications
S.A.





Intangible assets acquired consist of customer
relationships valued at €6 million and trademarks and licenses valued at €8.3 million using the multi-period excess earning
method.



Under the contingent consideration arrangement,
AAA is obligated to pay the sellers an additional earn-out. AAA has made a first payment of €1.7 million at the end of April
2016 and a second payment of €1.0 million in June 2016. A final payment of €1.75 million was paid in January 2017.



AAA paid, also in April 2016 €0.3 million
based on the net financial position at the acquisition date.



A Goodwill has been recognized in the acquisition
of the IDB Group because the consideration paid included expectations regarding future revenue growth, ease of market development
and increased control of distribution channels. These benefits are not recognized separately from Goodwill because they do not
meet the recognition criteria for identifiable intangible assets. Goodwill resulting from this acquisition is not expected to be
deductible for tax purposes.



The amounts of revenue and profit or loss
of the acquiree since the acquisition date included in the consolidated statement of comprehensive income for the year ended December
31, 2016 are €7.9 million and €0.9 million respectively. If the acquisition of IDB Group had been completed on the first
day of the financial year 2016, the amounts of revenue and profit or loss would have been unchanged.



Acquisition of the PetNet business in
Germany



AAA Germany signed in May 2016 an asset
purchase agreement to acquire, out of an insolvency procedure, assets and rights to operate F18 production sites in Munich and
in Erlangen (both in Germany). The contract in Munich requires AAA Germany to supply F18 products to the owner of the site, the
Klinikum of the University of Munich (KUM). AAA will be paid a guaranteed revenue stream until July 2028 for this supply.



In June 2016, AAA Germany acquired from
PetNet Solutions GmbH, a cooling system, which is installed in the Munich site.



The main objectives of these acquisitions
are to improve the Company’s competitive position in the German market and to potentially gain access to interesting new
product development efforts, which are fully in line with AAA’s own R&D efforts.



The total consideration for the purchase
of all assets is €2.2 million. It is an asset deal, in accordance with IFRS 3. AAA also agreed, with the insolvency administrators,
to pay the salaries of the persons employed at these two sites as of May 2016.



|Recognized
        amounts of identifiable assets acquired and liabilities assumed at acquisition date (June 1st, 2016)
        (in
thousands) | €
|---------------------------------------------------------------------------------------------------------------------------------------------- | -
|Customer
    relationships                                                                                                                     |  
|Property,
    plant and equipment                                                                                                              |  
|Inventory                                                                                                                                      |  
|Other
    current assets                                                                                                                       |  
|Deferred
    tax assets                                                                                                                        |  
|Deferred
    tax liabilities                                                                                                                   |  
|Non-current
    provisions                                                                                                                     |  
|Other
    current liabilities                                                                                                                  |  
|Total net assets
    acquired                                                                                                                  |  
|                                                                                                                                               |  
|Negative
    goodwill  *                                                                                                                       |  
|Total consideration                                                                                                                            |  
|                                                                                                                                               |  
|Satisfied by:                                                                                                                                  |  
|Cash                                                                                                                                           |  
|Total consideration
    transferred                                                                                                            |  
|Net cash outflow
    due to this acquisition:                                                                                                  |  
|Cash
    consideration                                                                                                                         |  
|                                                                                                                                               |  

* Recognized in other income.



December 31, 2016, 2015 and 2014F-43


Table of Contents


Advanced Accelerator Applications
S.A.





The amounts of revenue and loss of the PetNet
business since the acquisition date included in the consolidated statement of comprehensive income for the year ended December
31, 2016 are €1.4 million and €0.1 million respectively.



As of December 31, 2016 the purchase price
allocation is considered preliminary. The initial accounting for this acquisition may be revised within one year following the
acquisition date should new information on facts and circumstances that already existed at the date of acquisition be obtained.



| | 5.2. | Acquisition of business the year 2015
| | ---- | -------------------------------------



None in 2015.



| | 5.3. | Acquisition of business for the year 2014
| | ---- | -----------------------------------------



Acquisition of Imaging Equipment Ltd.
(IEL)



On February 14, 2014, the Group obtained
control of Imaging Equipment Limited (IEL) by acquiring 100% of its issued share capital. IEL is a privately-held UK distributor
of nuclear medicine products. This acquisition contributes to AAA’s international expansion by providing a direct distribution
presence in the UK and Ireland as well as an established sales and marketing platform.



|Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands) |  | £       |  | €      
|----------------------------------------------------------------------------------------- |  | ------- |  | -------
|Customer relationships                                                                    |  | 1,424   |  | 1,742  
|Property, plant and equipment                                                             |  | 57      |  | 70     
|Investments                                                                               |  | 20      |  | 24     
|Inventory                                                                                 |  | 406     |  | 497    
|Trade receivables                                                                         |  | 1,710   |  | 2,091  
|Cash and cash equivalent                                                                  |  | 296     |  | 362    
|Loans                                                                                     |  | (21)    |  | (26)   
|Other debt                                                                                |  | (1,961) |  | (2,398)
|Deferred tax liabilities                                                                  |  | (299)   |  | (366)  
|Total net assets acquired                                                                 |  | 1,632   |  | 1,996  
|                                                                                          |  |         |  |        
|Negative Goodwill                                                                         |  | (77)    |  | (94)   
|Total consideration                                                                       |  | 1,555   |  | 1,902  
|                                                                                          |  |         |  |        
|Satisfied by:                                                                             |  |         |  |        
|Cash                                                                                      |  | 350     |  | 428    
|Equity instruments (294,743 ordinary shares at €5)                                        |  | 1,205   |  | 1,474  
|Total consideration transferred                                                           |  | 1,555   |  | 1,902  
|                                                                                          |  |         |  |        
|Net cash outflow arising on acquisition                                                   |  |         |  |        
|Cash consideration                                                                        |  | 350     |  | 428    
|Less: cash and cash equivalents acquired                                                  |  | (296)   |  | (362)  
|                                                                                          |  | 54      |  | 66     

The valuation technique used for measuring the acquired customer relationship was the multi-period excess earnings method. There
was no other significant tangible or intangible asset.



Following this acquisition, negative Goodwill
of €94 thousand was recognized in other operating income in the consolidated income statement of the Group at December 31,
2014.



The fair value of the 294,743 ordinary shares
issued as part of the consideration paid for IEL (€1,474 thousand) was assessed on the basis of a capital increase of new
shares that were issued on the same day as the IEL acquisition. Shareholders and new investors paid a total of €41 million
for these shares i.e. a price of €5 per share.



December 31, 2016, 2015 and 2014F-44


Table of Contents


Advanced Accelerator Applications
S.A.





IEL contributed €9.6 million to the
Group’s revenue and €0.4 million to the Group’s income for the period between the date of acquisition and the
December 31, 2014.



If the acquisition of IEL had been completed
on the first day of the financial year 2014, group revenues for the year ended December 31, 2014 would have been €71.9 million
(instead of €69.9 million) and the contibution to the Group’s income would have been €(0.6) million.



Acquisition of the SteriPET® business
of GE Healthcare S.r.L. in Italy



On September 15, 2014, AAA Italy acquired
from GE Healthcare S.r.L. its FDG-PET business. This acquisition includes the SteriPET® (FDG) Marketing Licence. This acquisition,
consisting of certain assets, liabilities and legal relationships, for the most part customer relationships, allows AAA Italy to
strengthen its commercial operations and to become the leader in this business in Italy. The transaction consists of cash payments
of up to €697 thousand within 12 months of execution of the contract and royalty payments on sales to former SteriPET®
customers of GE Healthcare Italy. The royalties will be due on sales between September 2015 and September 2017. The costs related
to this acquisition are not significant and were expensed as incurred.



|Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands) |  | €    
|----------------------------------------------------------------------------------------- |  | -----
|Customer relationships                                                                    |  | 1,089
|License                                                                                   |  | 100  
|Property, plant and equipment                                                             |  | 33   
|Inventory                                                                                 |  | 71   
|Trade receivables                                                                         |  | 142  
|Other debt                                                                                |  | (38) 
|Deferred tax liabilities                                                                  |  | (342)
|Goodwill                                                                                  |  | 200  
|Total consideration                                                                       |  | 1,255
|Satisfied by:                                                                             |  |      
|Cash                                                                                      |  | 495  
|Contingent consideration (1)                                                              |  | 760  
|Total consideration transferred                                                           |  | 1,255



(1)
Contingent consideration



The Group has agreed to pay the selling
shareholders a contingent consideration in cash. The amount has been estimated at acquisition date as follows:



| | · | €200 thousand paid on September 15,
2015 provided that one of the suppliers is still regularly supplying. The contribution to the contingent consideration transferred
is €196 thousand which corresponds to the present value of €200 thousand discounted at 3% from the payment date.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | €564 thousand of estimated royalties
to be paid on future net sales to existing customers between September 15, 2015 and September 15, 2017.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



The valuation technique used for measuring
the acquired customer relationship was the multi-period excess earnings method. There was no other significant tangible or intangible
asset.



Following this acquisition, Goodwill of
€200 thousand was recognized at December 31, 2014.



The goodwill is entirely attributable to
AAA Italy, which is considered as a separate CGU (cash generating unit) within the Group.



This acquisition had no significant impact
on the Group’s revenues and income for the year ended December 31, 2014.



December 31, 2016, 2015 and 2014F-45


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.4. | Goodwill and Other intangible assets
| | ---- | ------------------------------------



| | 5.4.1. | Change in the year
| | ------ | ------------------



|Acquisition Costs In € thousands                              |  | Goodwill |  | Acquired In Process R&D |  | Patents, Licenses and other |  | Customer relationships |  | Total   
|------------------------------------------------------------- |  | -------- |  | ----------------------- |  | --------------------------- |  | ---------------------- |  | --------
|At 1 January 2014                                             |  | 22,267   |  | 14,619                  |  | 12,337                      |  | 10,548                 |  | 59,771  
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Additions                                                     |  | -        |  | -                       |  | 394                         |  | -                      |  | 394     
|Business combinations                                         |  | 200      |  | -                       |  | 100                         |  | 2,831                  |  | 3,131   
|Translation differences                                       |  | 765      |  | 1,499                   |  | 69                          |  | 117                    |  | 2,450   
|At 31 December 2014                                           |  | 23,232   |  | 16,118                  |  | 12,900                      |  | 13,496                 |  | 65,746  
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Additions                                                     |  | -        |  | -                       |  | 1,535                       |  | -                      |  | 1,535   
|Disposal                                                      |  | -        |  | -                       |  | (458)                       |  | -                      |  | (458)   
|Reclassification                                              |  | -        |  | -                       |  | 134                         |  | -                      |  | 134     
|Translation differences                                       |  | 1,285    |  | 922                     |  | 85                          |  | 646                    |  | 2,938   
|At 31 December 2015                                           |  | 24,517   |  | 17,040                  |  | 14,196                      |  | 14,142                 |  | 69,895  
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Additions                                                     |  | -        |  | -                       |  | 1,410                       |  | -                      |  | 1,410   
|Business combinations                                         |  | 10,814   |  | -                       |  | 8,337                       |  | 8,082                  |  | 27,233  
|Disposal                                                      |  | -        |  | (198)                   |  | (532)                       |  | (177)                  |  | (907)   
|Reclassification                                              |  | -        |  | 206                     |  | (1,609)                     |  | -                      |  | (1,403) 
|Translation differences                                       |  | 594      |  | 712                     |  | 14                          |  | (24)                   |  | 1,296   
|At 31 December 2016                                           |  | 35,925   |  | 17,760                  |  | 21,816                      |  | 22,023                 |  | 97,524  
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Accumulated
amortization and impairment losses In
€ thousands |  |          |  |                         |  |                             |  |                        |  |         
|At 1 January 2014                                             |  | (1,015)  |  | -                       |  | (4,028)                     |  | (2,894)                |  | (7,937) 
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Amortization expense                                          |  | -        |  | -                       |  | (1,712)                     |  | (1,442)                |  | (3,154) 
|Impairment                                                    |  | (840)    |  | -                       |  | -                           |  | -                      |  | (840)   
|Translation differences                                       |  | -        |  | -                       |  | (10)                        |  | (18)                   |  | (28)    
|At 31 December 2014                                           |  | (1,855)  |  | -                       |  | (5,750)                     |  | (4,354)                |  | (11,959)
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Amortization expense                                          |  | -        |  | -                       |  | (1,521)                     |  | (1,788)                |  | (3,309) 
|Impairment                                                    |  | -        |  | -                       |  | -                           |  | -                      |  | -       
|Disposal                                                      |  | -        |  | -                       |  | 132                         |  | -                      |  | 132     
|Reclassification                                              |  | -        |  | -                       |  | (17)                        |  | 17                     |  | -       
|Translation differences                                       |  | -        |  | -                       |  | (9)                         |  | (204)                  |  | (213)   
|At 31 December 2015                                           |  | (1,855)  |  | -                       |  | (7,165)                     |  | (6,329)                |  | (15,349)
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Amortization expense                                          |  | -        |  | -                       |  | (2,157)                     |  | (2,772)                |  | (4,929) 
|Impairment                                                    |  | -        |  | -                       |  | -                           |  | -                      |  | -       
|Disposal                                                      |  | -        |  | -                       |  | 514                         |  | 177                    |  | 691     
|Reclassification                                              |  | -        |  | -                       |  | 1,180                       |  | -                      |  | 1,180   
|Translation differences                                       |  | -        |  | -                       |  | (1)                         |  | (19)                   |  | (20)    
|At 31 December 2016                                           |  | (1,855)  |  | -                       |  | (7,629)                     |  | (8,943)                |  | (18,427)
|                                                              |  |          |  |                         |  |                             |  |                        |  |         
|Carrying amount                                               |  |          |  |                         |  |                             |  |                        |  |         
|At 31 December 2014                                           |  | 21,377   |  | 16,118                  |  | 7,150                       |  | 9,142                  |  | 53,787  
|At 31 December 2015                                           |  | 22,662   |  | 17,040                  |  | 7,031                       |  | 7,813                  |  | 54,546  
|At 31 December 2016                                           |  | 34,070   |  | 17,760                  |  | 14,187                      |  | 13,080                 |  | 79,097  



Patents/Licenses primarily consist of IDB
Group trademark acquired for €8.3 million in January 2016 and of intellectual property relating to the therapy product candidate
FabOvar which was acquired in 2011 for an amount of €8 million with a carrying amount of €4 million at December 31, 2016
(€4.8 million at December 31, 2015 and €5.6 million at December 31, 2014). The purchase agreement also provides for a
variable payment based on a percentage of future sales until the legal protection of the patent expires in 2028. Acquired IPR&D
for €17.8 million as of December 31, 2016 (€17.1 million as of December 31, 2015 and €16.1 million as of December
31, 2014) results from the acquisitions of Atreus Pharmaceuticals Corporation and Advanced Accelerator Applications USA, Inc. in
2010.



December 31, 2016, 2015 and 2014F-46


Table of Contents


Advanced Accelerator Applications
S.A.







| | 1. | Allocation of goodwill and Other intangible
assets to Cash-Generating Units (CGUs)
| | -- | ----------------------------------------------------------------------------------



The Group has allocated goodwill and other
intangible assets to its CGUs. The CGUs correspond to each of the countries in which the Group operates. The carrying amount of
goodwill and other non-amortized intangible assets allocated is as follows:



|               |  | 12.31.2016
|-------------- |  | ----------
|In € thousands |  | Goodwill  
|Gipharma       |  | 1,947     
|Italy          |  | 200       
|Canada         |  | 587       
|USA            |  | 4,290     
|Germany        |  | 1,065     
|Spain          |  | 6,261     
|Israel         |  | 8,906     
|Netherlands    |  | 10,814    
|Portugal       |  | 1,855     
|Total          |  | 35,925    





|               |  | 12.31.2015
|-------------- |  | ----------
|In € thousands |  | Goodwill  
|               |  |           
|Gipharma       |  | 1,947     
|Italy          |  | 200       
|Canada         |  | 551       
|USA            |  | 4,154     
|Germany        |  | 1,065     
|Spain          |  | 6,261     
|Israel         |  | 8,484     
|Portugal       |  | 1,855     
|Total          |  | 24,517    





|               |  | 12.31.2014
|-------------- |  | ----------
|In € thousands |  | Goodwill  
|               |  |           
|Gipharma       |  | 1,947     
|Italy          |  | 200       
|Canada         |  | 589       
|USA            |  | 3,720     
|Germany        |  | 1,065     
|Spain          |  | 6,261     
|Israel         |  | 7,595     
|Portugal       |  | 1,855     
|Total          |  | 23,232    



Goodwill increased from €22.7 million
at December 31, 2015 to €34.1 million at December 31, 2016. The increase in 2016 is due to the acquisition of the IDB Group
for €10.8 million and to the translation differences on the goodwill of the CGUs in Israel, Canada and in the USA.



The variation in 2015 resulted from an increase
of goodwill due to the translation differences on the USD/ILS denominated goodwill for €1.3 million.



The recoverable amount of CGUs was calculated
on the basis of their value in use. The value in use is the present value of the estimated future cash flows from the continued
use of the asset. The value in use is determined on the basis of estimated cash flows using budgets and business plans over periods
from 5 to 10 years; subsequent cash flows are extrapolated by applying a constant rate of positive or negative growth, and discounted
to present value. The discount rate used reflects current market assessments of the time value of money and the risks specific
to the asset (or CGU).



December 31, 2016, 2015 and 2014F-47


Table of Contents


Advanced Accelerator Applications
S.A.





| | 2. | Principal assumptions used in impairment
testing:
| | -- | -------------------------------------------------



|             |  | 12.31.2016                                                             
|------------ |  | -----------------------------------------------------------------------
|CGU          |  | Budgeted EBITDA average increase per year (of forecast period) 
    (1)
|             |  |                                                                        
|Italy        |  | 13.7%                                                                  
|Gipharma     |  | 31.1%                                                                  
|Canada (2)   |  | 35.7%                                                                  
|USA          |  | 28.9%                                                                  
|Germany      |  | 21.2%                                                                  
|Spain        |  | 10.7%                                                                  
|Israel       |  | 0.7%                                                                   
|Netherlands  |  | 18.4%                                                                  
|UK           |  | 41.1%                                                                  
|Portugal (3) |  | 16.2%                                                                  





|             |  | 12.31.2015                                                             
|------------ |  | -----------------------------------------------------------------------
|CGU          |  | Budgeted EBITDA average increase per year (of forecast period) 
    (1)
|             |  |                                                                        
|Italy        |  | 11.9%                                                                  
|Gipharma     |  | 20.3%                                                                  
|Canada (2)   |  | 68.7%                                                                  
|USA          |  | 173.4%                                                                 
|Germany      |  | 46.5%                                                                  
|Spain        |  | 22.8%                                                                  
|Israel       |  | 5.3%                                                                   
|UK           |  | 22.1%                                                                  
|Portugal (3) |  | -2.3%                                                                  





|             |  | 12.31.2014                                                            
|------------ |  | ----------------------------------------------------------------------
|CGU          |  | Budgeted EBITDA average increase per year (of forecast period)
    (1)
|             |  |                                                                       
|Italy        |  | 17.7%                                                                 
|Gipharma     |  | 18.6%                                                                 
|Canada (2)   |  | 111.8%                                                                
|USA          |  | 58.3%                                                                 
|Germany      |  | 79.2%                                                                 
|Spain        |  | 18.0%                                                                 
|Israel       |  | 5.9%                                                                  
|UK           |  | 28.4%                                                                 
|Portugal (3) |  | 105.3%                                                                



| | (1) | The
                                         budgeted EBITDA increase mainly results from the forecasted sales of lutetium Lu 177
                                         dotatate (Lutathera®), which is expected to obtain FDA approval and EMA marketing
                                         authorization in 2017.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Concerning
                                         Canada, the future EBITDA growth is also based on the sale of Annexin V-128, a product
                                         candidate currently under development and currently in Phase 1/2 trials.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Following
                                         these tests, an additional impairment loss of €0.8 million was recognized on the
                                         goodwill of Portugal CGU in 2014. An additional impairment loss of €1.3 million
                                         has been attributed to tangible assets of Portugal in 2014, and of €0.5 million
                                         in 2015. The loss mainly resulted from the downward revision of forecasted sales and
                                         EBITDA as a result of a new competitor who entered the market.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-48


Table of Contents




Advanced Accelerator Applications
S.A.





In 2016, the Company revised
the business plan of future sales to take into account some modified assumptions. In previous year we were expecting the loss of
third party distribution business and focusing on our own production business. With recent development in Portugal we have increased
our probability to keep a distribution activity. The revised forecast for 2016 showed a recovery in sales and EBITDA and resulted
in the reversal of impairment loss on Property, plant and equipment (see note 5.5).



| | 5.4.2. | Sensitivity analysis of the goodwill impairment tests at December 31, 2016
| | ------ | --------------------------------------------------------------------------



|               |  | 12.31.2016                                                      |  | 12.13.2015                                                      |  | 12.13.2014                                                     
|-------------- |  | --------------------------------------------------------------- |  | --------------------------------------------------------------- |  | ---------------------------------------------------------------
|               |  | Change required for carrying amount to equal recoverable amount |  | Change required for carrying amount to equal recoverable amount |  | Change required for carrying amount to equal recoverable amount
|CGU            |  | Increase in Discount rate (in basis point)                      |  | Decrease in Budgeted EBITDA per year                            |  | Increase
in Discount rate (in
basis point)                     
|Italy          |  | 25                                                              |  | (66%)                                                           |  | 31                                                             
|Gipharma       |  | 23                                                              |  | (60%)                                                           |  | 20                                                             
|Canada         |  | 3                                                               |  | (19%)                                                           |  | -                                                              
|USA            |  | 70                                                              |  | (91%)                                                           |  | 54                                                             
|Germany        |  | 8                                                               |  | (34%)                                                           |  | 2                                                              
|Spain          |  | 13                                                              |  | (52%)                                                           |  | 16                                                             
|Israel         |  | 18                                                              |  | (55%)                                                           |  | 15                                                             
|Netherlands    |  | 24                                                              |  | (73%)                                                           |  | -                                                              
|United Kingdom |  | 100                                                             |  | (91%)                                                           |  | 30                                                             
|Portugal (1)   |  | 28                                                              |  | (69%)                                                           |  | -                                                              



| | (1) | As
                                         of December 31, 2015 and December 31, 2014, the recoverable amount of Portugal CGUs was
                                         equal to is carrying amount after recognition of impairment loss. Therefore any adverse
                                         movement in a key assumption would lead to further impairment.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2016 impairment
loss has been reversed on Property, plant and equipment (see note 5.4.1. and 5.5).



December 31, 2016, 2015 and 2014F-49


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.5. | Property, plant and equipment
| | ---- | -----------------------------



|Acquisition
                                         cost In
                                         € thousands |  | Land |  | Construction
    and  development |  | Equipment and
    laboratory material |  | Sub total financed
    under lease |  | Land  |  | Construction
    and in progress |  | Equipment and
    laboratory material and in progress |  | Other tangible
    assets and in progress |  | Sub total |  | TOTAL  
|----------------------------------------------------------------------------------------------------------------- |  | ---- |  | --------------------------------- |  | ------------------------------------- |  | ---------------------------------- |  | ----- |  | -------------------------------- |  | ----------------------------------------------------- |  | ----------------------------------------- |  | --------- |  | -------
|At 1 January
    2014                                                                                             |  | 200  |  | 7,001                             |  | 12,215                                |  | 19,416                             |  | 1,320 |  | 17,889                           |  | 39,719                                                |  | 2,310                                     |  | 61,238    |  | 80,654 
|                                                                                                                  |  |      |  |                                   |  |                                       |  |                                    |  |       |  |                                  |  |                                                       |  |                                           |  |           |  |        
|Additions                                                                                                         |  | -    |  | -                                 |  | 3,435                                 |  | 3,435                              |  | -     |  | 1,385                            |  | 5,274                                                 |  | 251                                       |  | 6,910     |  | 10,345 
|Business combinations                                                                                             |  | -    |  | -                                 |  | 27                                    |  | 27                                 |  | -     |  | -                                |  | 55                                                    |  | 21                                        |  | 76        |  | 103    
|Disposals                                                                                                         |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -                                |  | (78)                                                  |  | (33)                                      |  | (111)     |  | (111)  
|Reclassifications                                                                                                 |  | (48) |  | (1,800)                           |  | 1,355                                 |  | (493)                              |  | (570) |  | 570                              |  | -                                                     |  | -                                         |  | -         |  | (493)  
|Translation differences                                                                                           |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | 14                               |  | 147                                                   |  | 21                                        |  | 182       |  | 182    
|At 31 December
    2014                                                                                           |  | 152  |  | 5,201                             |  | 17,032                                |  | 22,385                             |  | 750   |  | 19,858                           |  | 45,117                                                |  | 2,570                                     |  | 68,295    |  | 90,680 
|                                                                                                                  |  |      |  |                                   |  |                                       |  |                                    |  |       |  |                                  |  |                                                       |  |                                           |  |           |  |        
|Additions                                                                                                         |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | 10,247                           |  | 2,599                                                 |  | 300                                       |  | 13,146    |  | 13,146 
|Disposals                                                                                                         |  | (45) |  | (700)                             |  | -                                     |  | (745)                              |  | -     |  | (5)                              |  | (503)                                                 |  | (40)                                      |  | (548)     |  | (1,293)
|Reclassifications                                                                                                 |  | -    |  | -                                 |  | -                                     |  | -                                  |  | 45    |  | 253                              |  | (547)                                                 |  | 115                                       |  | (134)     |  | (134)  
|Translation differences                                                                                           |  | -    |  | -                                 |  | 2                                     |  | 2                                  |  | -     |  | 138                              |  | 416                                                   |  | 83                                        |  | 637       |  | 639    
|At 31 December
    2015                                                                                           |  | 107  |  | 4,501                             |  | 17,034                                |  | 21,642                             |  | 795   |  | 30,491                           |  | 47,082                                                |  | 3,028                                     |  | 81,396    |  | 103,038
|                                                                                                                  |  |      |  |                                   |  |                                       |  |                                    |  |       |  |                                  |  |                                                       |  |                                           |  |           |  |        
|Additions                                                                                                         |  | -    |  | -                                 |  | 24                                    |  | 24                                 |  | -     |  | 875                              |  | 2,766                                                 |  | 6,406                                     |  | 10,047    |  | 10,071 
|Business combinations                                                                                             |  | -    |  | -                                 |  | -                                     |  | -                                  |  | 182   |  | 758                              |  | 2,519                                                 |  | 527                                       |  | 3,986     |  | 3,986  
|Disposals                                                                                                         |  | -    |  | -                                 |  | (100)                                 |  | (100)                              |  | -     |  | (6)                              |  | (85)                                                  |  | (210)                                     |  | (301)     |  | (401)  
|Reclassifications                                                                                                 |  | -    |  | -                                 |  | (1,605)                               |  | (1,605)                            |  | 459   |  | (3,934)                          |  | (3,042)                                               |  | 9,524                                     |  | 3,007     |  | 1,402  
|Translation differences                                                                                           |  | -    |  | -                                 |  | (5)                                   |  | (5)                                |  | 24    |  | 466                              |  | 287                                                   |  | (93)                                      |  | 684       |  | 679    
|At 31 December
    2016                                                                                           |  | 107  |  | 4,501                             |  | 15,348                                |  | 19,956                             |  | 1,460 |  | 28,650                           |  | 49,527                                                |  | 19,182                                    |  | 98,819    |  | 118,775





December 31, 2016, 2015 and 2014F-50


Table of Contents




Advanced Accelerator Applications
S.A.





|Accumulated
                                         depreciation and impairment losses  In
                                         € thousands |  | Land |  | Construction
    and  development |  | Equipment and
    laboratory material |  | Sub total financed
    under lease |  | Land  |  | Construction |  | Equipment and
    laboratory material |  | Other tangible
    assets |  | Sub total |  | TOTAL   
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- |  | --------------------------------- |  | ------------------------------------- |  | ---------------------------------- |  | ----- |  | ------------ |  | ------------------------------------- |  | ------------------------- |  | --------- |  | --------
|At
    1 January 2014                                                                                                                            |  | -    |  | (1,713)                           |  | (6,057)                               |  | (7,770)                            |  | -     |  | (6,159)      |  | (16,444)                              |  | (1,001)                   |  | (23,604)  |  | (31,374)
|                                                                                                                                                 |  |      |  |                                   |  |                                       |  |                                    |  |       |  |              |  |                                       |  |                           |  |           |  |         
|Depreciation expense                                                                                                                             |  | -    |  | (341)                             |  | (1,612)                               |  | (1,953)                            |  | -     |  | (338)        |  | (4,067)                               |  | (319)                     |  | (4,724)   |  | (6,677) 
|Impairment                                                                                                                                       |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -            |  | (1,321)                               |  | -                         |  | (1,321)   |  | (1,321) 
|Disposals                                                                                                                                        |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -            |  | 28                                    |  | 18                        |  | 46        |  | 46      
|Other Changes                                                                                                                                    |  | -    |  | 430                               |  | 48                                    |  | 478                                |  | -     |  | -            |  | 15                                    |  | -                         |  | 15        |  | 493     
|Translation differences                                                                                                                          |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -            |  | (59)                                  |  | (9)                       |  | (68)      |  | (68)    
|At 31 December
    2014                                                                                                                          |  | -    |  | (1,624)                           |  | (7,621)                               |  | (9,245)                            |  | -     |  | (6,497)      |  | (21,848)                              |  | (1,311)                   |  | (29,656)  |  | (38,901)
|                                                                                                                                                 |  |      |  |                                   |  |                                       |  |                                    |  |       |  |              |  |                                       |  |                           |  |           |  |         
|Depreciation expense                                                                                                                             |  | -    |  | (226)                             |  | (1,816)                               |  | (2,042)                            |  | -     |  | (866)        |  | (4,287)                               |  | (356)                     |  | (5,509)   |  | (7,551) 
|Impairment                                                                                                                                       |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | (54)         |  | (382)                                 |  | (25)                      |  | (461)     |  | (461)   
|Disposals                                                                                                                                        |  | -    |  | 219                               |  | -                                     |  | 219                                |  | -     |  | -            |  | 274                                   |  | 32                        |  | 306       |  | 525     
|Reclassifications                                                                                                                                |  | -    |  | -                                 |  | 15                                    |  | 15                                 |  | -     |  | (14)         |  | (15)                                  |  | 14                        |  | (15)      |  | -       
|Translation differences                                                                                                                          |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -            |  | (309)                                 |  | (9)                       |  | (318)     |  | (318)   
|At 31 December
    2015                                                                                                                          |  | -    |  | (1,631)                           |  | (9,422)                               |  | (11,053)                           |  | -     |  | (7,431)      |  | (26,567)                              |  | (1,655)                   |  | (35,653)  |  | (46,706)
|                                                                                                                                                 |  |      |  |                                   |  |                                       |  |                                    |  |       |  |              |  |                                       |  |                           |  |           |  |         
|Depreciation expense                                                                                                                             |  | -    |  | (225)                             |  | (1,773)                               |  | (1,998)                            |  | -     |  | (1,200)      |  | (1,595)                               |  | (4,063)                   |  | (6,858)   |  | (8,856) 
|Impairment                                                                                                                                       |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | -            |  | -                                     |  | -                         |  | -         |  | -       
|Reversals of impairment losses (1)                                                                                                               |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | 54           |  | 1,729                                 |  | -                         |  | 1,783     |  | 1,783   
|Disposals                                                                                                                                        |  | -    |  | -                                 |  | 40                                    |  | 40                                 |  | -     |  | 4            |  | 86                                    |  | 125                       |  | 215       |  | 255     
|Reclassifications                                                                                                                                |  | -    |  | -                                 |  | 1,033                                 |  | 1,033                              |  | -     |  | 2,214        |  | 833                                   |  | (5,260)                   |  | (2,213)   |  | (1,180) 
|Translation differences                                                                                                                          |  | -    |  | -                                 |  | -                                     |  | -                                  |  | -     |  | (34)         |  | (121)                                 |  | (1)                       |  | (156)     |  | (156)   
|At 31 December
    2016                                                                                                                          |  | -    |  | (1,856)                           |  | (10,122)                              |  | (11,978)                           |  | -     |  | (6,393)      |  | (25,635)                              |  | (10,854)                  |  | (42,882)  |  | (54,860)
|                                                                                                                                                 |  |      |  |                                   |  |                                       |  |                                    |  |       |  |              |  |                                       |  |                           |  |           |  |         
|Carrying amount                                                                                                                                  |  |      |  |                                   |  |                                       |  |                                    |  |       |  |              |  |                                       |  |                           |  |           |  |         
|At 31 December 2014                                                                                                                              |  | 152  |  | 3,577                             |  | 9,411                                 |  | 13,140                             |  | 750   |  | 13,361       |  | 23,269                                |  | 1,259                     |  | 38,639    |  | 51,779  
|At 31 December 2015                                                                                                                              |  | 107  |  | 2,870                             |  | 7,612                                 |  | 10,589                             |  | 795   |  | 23,060       |  | 20,515                                |  | 1,373                     |  | 45,743    |  | 56,332  
|At 31 December
    2016                                                                                                                          |  | 107  |  | 2,645                             |  | 5,226                                 |  | 7,978                              |  | 1,460 |  | 22,257       |  | 23,892                                |  | 8,328                     |  | 55,937    |  | 63,915  

| | (1) | See
                                         note 5.4.1.2.
| | --- | ----------------------------------------------------------



December 31, 2016, 2015 and 2014F-51


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.6. | Non-current financial assets
| | ---- | ----------------------------



Non-current financial assets correspond
mainly to a guarantee deposit of €0.75 million for a leasing contract in Germany, and a guarantee deposit of €0.4 million
related to the remaining liabilities due on the acquisition of Cadisa and Barnatron in December 2012 .



| | 5.7. | Trade and other receivables
| | ---- | ---------------------------



Trade and other receivables are as follows:



|In € thousands                  |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------- |  | ---------- |  | ---------- |  | ----------
|Gross value                     |  | 31,887     |  | 24,397     |  | 20,557    
|Allowance for doubtful accounts |  | (808)      |  | (772)      |  | (504)     
|Total                           |  | 31,079     |  | 23,625     |  | 20,053    



Change in allowance for doubtful accounts



|In € thousands                                         |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------------------------------ |  | ---------- |  | ---------- |  | ----------
|Allowance for doubtful accounts, beginning of the year |  | 772        |  | 504        |  | 381       
|Increase                                               |  | 88         |  | 313        |  | 139       
|Utilized                                               |  | (8)        |  | -          |  | -         
|Reversed                                               |  | (44)       |  | (45)       |  | (18)      
|Translation adjustment                                 |  | -          |  | -          |  | 2         
|Allowance for doubtful accounts, end of the year       |  | 808        |  | 772        |  | 504       



Aging of trade and other receivables



|In € thousands                  |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------- |  | ---------- |  | ---------- |  | ----------
|Not overdue                     |  | 18,629     |  | 15,631     |  | 12,941    
|Past due up to 30 days          |  | 4,761      |  | 3,041      |  | 3,150     
|Past due for 30-60 days         |  | 2,414      |  | 1,219      |  | 1,492     
|Past due for 60-90 days         |  | 1,396      |  | 1,108      |  | 290       
|Past due for 90-180 days        |  | 1,730      |  | 1,575      |  | 1,593     
|Past due for more than 180 days |  | 2,957      |  | 1,823      |  | 1,091     
|Allowance for doubtful accounts |  | (808)      |  | (772)      |  | (504)     
|Total                           |  | 31,079     |  | 23,625     |  | 20,053    



AAA is not significantly exposed to credit
risk. A large portion of the customers are public hospitals which, based on our experience, so far represented a relatively low
risk.



| | 5.8. | Inventories
| | ---- | -----------



|In € thousands    |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|----------------- |  | ---------- |  | ---------- |  | ----------
|Raw materials     |  | 4,932      |  | 2,266      |  | 1,959     
|Finished goods    |  | 1,311      |  | 872        |  | 100       
|Generators (1)    |  | 347        |  | -          |  | -         
|Other             |  | 1,510      |  | 967        |  | 1,320     
|Total gross value |  | 8,100      |  | 4,105      |  | 3,379     
|Write-downs       |  | -          |  | -          |  | (16)      
|Total             |  | 8,100      |  | 4,105      |  | 3,363     



| | (1) | Generators
                                         are assets used in the production process and held at hospitals. The useful lives of
                                         those assets are less than one year.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-52


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.9. | Other current and non current assets
| | ---- | ------------------------------------



Other current and non current assets are
as follows:



|In € thousands                                    |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|R&D tax credit receivable                         |  | 3,328      |  | 3,328      |  | 3,328     
|Tax receivables (incl. VAT) and other receivables |  | 5,002      |  | 4,881      |  | 5,476     
|Derivative assets (1)                             |  | -          |  | 897        |  | -         
|Prepaid expenses                                  |  | 2,068      |  | 1,396      |  | 1,356     
|Other                                             |  | 54         |  | -          |  | -         
|Allowance on R&D tax credits (2)                  |  | (2,663)    |  | -          |  | -         
|Other current assets                              |  | 7,789      |  | 10,502     |  | 10,160    
|R&D tax credit receivable                         |  | 6,116      |  | 4,185      |  | -         
|Tax receivables (incl. VAT) and other receivables |  | 242        |  | 113        |  | -         
|Allowance on R&D tax credits (2)                  |  | (2,417)    |  | -          |  | -         
|Other non current assets                          |  | 3,941      |  | 4,298      |  | -         



| | (1) | In
                                         2015, derivative assets primarily correspond to the fair value of the foreign exchange
                                         contracts concluded by the Group to hedge its exposure to foreign exchange risks arising
                                         from the cash received in dollars following the IPO. These derivatives assets are measured
                                         at fair value subsequent to their initial recognition and any change in the fair value
                                         is recorded through the income statement.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We
                                         are currently being audited for the fiscal years 2013, 2014 and 2015 by the French tax
                                         authorities. The preliminary report established by the assigned CIR expert challenges
                                         the eligibility of several of our R&D projects and expenses. The claims include,
                                         but are not limited to, not recognizing the required innovativeness of our projects and
                                         missing or insufficient documentation. The financial consequences of this audit 
                                         remain uncertain. With the support of qualified external experts from a company specializing
                                         in CIR matters we have reviewed all of our projects and expenses for the period from
                                         2013 to 2016. As a consequence of this review and on the recommendation of these experts
                                         we have taken a provision of €5.1 million in our financial statements closed at
                                         December 31, 2016. This provision corresponds to our current best estimate of the CIR
                                         amount we may eventually not be able to claim.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5.10. | Cash and cash equivalents
| | ----- | -------------------------



Cash and cash equivalents are as follows:



|In € thousands               |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|---------------------------- |  | ---------- |  | ---------- |  | ----------
|Term saving deposits (1) (2) |  | 175,532    |  | 951        |  | 21,000    
|Cash (2)                     |  | 46,548     |  | 117,935    |  | 24,096    
|Total                        |  | 222,080    |  | 118,886    |  | 45,096    



| | (1) | Include
                                         very insignificant risk of a negative change in value and have maturity dates of typically
                                         less than three months. The Group holds term deposits for the purpose of meeting short-term
                                         cash commitments.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Include cash
                                         held in USD for €156.3 million ($165 million) in term deposit and €2.7 million
                                         ($2.9 million) in cash at December 31, 2016, €73.2 million at December 31, 2015
                                         and €0.02 million at December 31, 2014.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5.11. | Equity
| | ----- | ------



The Group’s policy is to manage its
capital to ensure to be able to continue as a going concern while maximizing the return to shareholders through the optimization
of the debt and equity balance. The capital structure consists of financial liabilities as detailed in Notes 5.13 offset by cash
and bank balances and equity (comprising issued capital, reserves and retained earnings). The Group is not subject to any externally
imposed capital requirements.



At December 31, 2016, the share capital
consists of 87,952,657 fully paid-up ordinary shares, with a nominal value of €0.10 per share.



December 31, 2016, 2015 and 2014F-53


Table of Contents


Advanced
Accelerator Applications S.A.





Increase of share capital in 2016



The increases in share capital which occurred
from January 1, 2016 through December 31, 2016 are as follows:



|Date             | Nature
    of operation                                            | Note | Number
    of shares | Price
    per share / warrant | Raised
        capital
        (in
K€) | Nominal
    value | Share
        capital
        (in
K€)
|---------------- | ------------------------------------------------------------------ | ---- | -------------------- | ----------------------------- | -------------------------------------- | ----------------- | -------------------------------------
|Dec
    31, 2015 | Outstanding
    shares                                             |      | 78,556,211           |                               |                                        | 0.10              | 7,856                                
|Oct
    7,  2016 | Issuance
    of 112,500 warrants at a €5.67 price                  |      |                      | 5.67                          | 638                                    |                   |                                      
|Oct
    12, 2016 | Issuance
    of common shares                                      | (1)  | 9,078,946            | 17.24                         | 156,534                                | 0.10              | 908                                  
|                 | Share
    issuance costs                                           |      |                      |                               | (10,129)                               |                   |                                      
|Nov
    28, 2016 | Issuance
    of common shares (free shares allocated to employees) |      | 317,500              | 0.00                          | 0                                      | 0.10              | 31                                   
|Total            |                                                                    |      | 87,952,657           |                               | 147,043                                | 0.10              | 8,795                                



| | (1) | In
                                         October 2016, AAA closed a follow-on public offering of 4,539,473 American Depositary
                                         Shares (“ADSs”) including the exercise of the 15% Greenshoe (total ADS number
                                         composed of initial issue of 3,947,369 ADS and Greenshoe of 592,104 ADS). This represents
                                         9,078,946 ordinary shares. At a price of $38.00 (€34.48) per ADS (each ADS represents
                                         2 ordinary shares), the total gross proceeds before underwriting discounts and offering
                                         expenses were US$172.5 million (€156.5 million). The ADS have been listed on the
                                         Nasdaq Global Select Market.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Increase of share capital in 2015



The increases in share capital which occurred
from January 1, 2015 through December 31, 2015 are as follows:



|Date              | Nature
    of operation                                            | Note | Number
    of shares | Price
    per share / warrant | Raised
        capital
        (in
K€) | Nominal
    value | Share
        capital
        (in
K€)
|----------------- | ------------------------------------------------------------------ | ---- | -------------------- | ----------------------------- | -------------------------------------- | ----------------- | -------------------------------------
|Dec
    31, 2014  | Outstanding
    shares                                             |      | 63,229,041           |                               |                                        | 0.10              | 6,323                                
|May
    28, 2015  | Issuance
    of common shares                                      | (1)  | 1,459,660            | 6.10                          | 8,904                                  | 0.10              | 146                                  
|June
    17, 2015 | Issuance
    of common shares                                      | (2)  | 2,330,110            | 6.10                          | 14,214                                 | 0.10              | 233                                  
|Aug
    19, 2015  | Issuance
    of common shares (free shares allocated to employees) |      | 352,500              | 0.00                          | 0                                      | 0.10              | 35                                   
|Sept
    6, 2015  | Issuance
    of common shares (free shares allocated to employees) |      | 235,000              | 0.00                          | 0                                      | 0.10              | 24                                   
|Sept
    28, 2015 | Issuance
    of common shares (free shares allocated to employees) |      | 167,500              | 0.00                          | 0                                      | 0.10              | 17                                   
|Sept
    28, 2015 | Issuance
    of 225,000 warrants at a €0.8 price                   |      |                      | 0.80                          | 180                                    |                   |                                      
|Nov
    11, 2015  | Issuance
    of common shares                                      | (3)  | 10,782,400           | 7.5                           | 80,444                                 | 0.10              | 1,078                                
|                  | Share
    issuance costs                                           |      |                      |                               | (6,648)                                |                   |                                      
|Total             |                                                                    |      | 78,556,211           |                               | 97,094                                 | 0.10              | 7,856                                



| | (1) | On
                                         May 28, 2015, 1,459,660 shares have been issued at a price of €6.10 per share following
                                         the extraordinary general meeting held on December 16, 2014.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | On
                                         June 17, 2015, 2,330,110 shares have been issued at a price of €6.10 per share following
                                         the extraordinary general meeting held on December 16, 2014.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Initial
                                         Public Offering (IPO)
| | --- | ----------------------------------------------------------------------



AAA completed an Initial Public Offering
(IPO) of 4,688,000 American Depositary Shares (“ADS”) representing 9,376,000 ordinary shares at a price of $16.00 (€14.9)
per ADS (each ADS represents 2 ordinary shares). The ADS have been listed on the Nasdaq Global Select Market on and started trading
on November 11, 2015 under the ticker “AAAP”. The overallotment option (Greenshoe) of 15% was also used immediately
by the Underwriters and an additional 1,406,400 shares or 703,200 ADS were issued at the same price of US$16.00 (€14.9) per
ADS.



December 31, 2016, 2015 and 2014F-54


Table of Contents


Advanced Accelerator Applications
S.A.





At December 31, 2015, the share capital
consisted of 78,556,211 fully paid-up ordinary shares, with a nominal value of €0.10 per share.



Increase of share capital in 2014



The increase in share capital which occurred
from January 1, 2014 through December 31, 2014 are described follows:



|Date               | Nature
    of operation                                            | Note | Number
    of shares | Price
    per share | Raised
capital
        (in
K€) | Nominal
    value | Share
capital
        (in
K€)
|------------------ | ------------------------------------------------------------------ | ---- | -------------------- | ------------------- | ------------------------------ | ----------------- | -----------------------------
|Dec
    31, 2013   | Outstanding
    shares                                             |      | 54,145,889           |                     |                                | 0.10              | 5,415                        
|Feb
    14, 2014   | Issuance
    of common shares                                      | (1)  | 8,212,295            | 5.00                | 41,061                         | 0.10              | 821                          
|Feb
    14, 2014   | Share
    issuance costs                                           |      |                      |                     | (395)                          |                   |                              
|Feb
    14, 2014   | Issuance
    of common shares                                      | (1)  | 294,743              | 0.00                | 0                              | 0.10              | 29                           
|Feb
    14, 2014   | Issuance
    of common shares (free shares allocated to employees) |      | 40,000               | 0.00                | 0                              | 0.10              | 4                            
|March
    27, 2014 | Issuance
    of common shares                                      | (2)  | 241,114              | 0.00                | 0                              | 0.10              | 24                           
|Oct
    16, 2014   | Issuance
    of common shares (free shares allocated to employees) |      | 295,000              | 0.00                | 0                              | 0.10              | 30                           
|Total              |                                                                    |      | 63,229,041           |                     | 40,666                         | 0.10              | 6,323                        



| | (1) | On
                                         February 14, 2014, 8,212,295 shares have been issued at a price of €5 per share
                                         following the extraordinary general meeting held on April 11, 2013 and 294,743 shares
                                         were issued in relation with the acquisition of IEL.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | On
                                         March 27, 2014, the Board of Directors decided to issue 241,114 ordinary shares, were
                                         issued in relation with the acquisition of Atreus.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At December 31, 2014, the share capital
consisted of 63,229,041 fully paid-up ordinary shares, with a nominal value of €0.10 per share.



Basic and diluted earnings per share



|                             |  | Net profit  (loss) (thousands of Euros) |  | Average number of shares outstanding |  | Earnings per share (EUR)
|---------------------------- |  | --------------------------------------- |  | ------------------------------------ |  | ------------------------
|                             |  |                                         |  |                                     
|Year ended December 31, 2016 |  | (25,294)                                |  |                                     
|Basic earnings per share     |  |                                         |  | 80,594,980                           |  | (0.31)                  
|Diluted earnings per share   |  |                                         |  | 80,594,980                           |  | (0.31)                  
|                             |  |                                         |  |                                     
|Year ended December 31, 2015 |  | (17,001)                                |  |                                     
|Basic earnings per share     |  |                                         |  | 66,943,481                           |  | (0.25)                  
|Diluted earnings per share   |  |                                         |  | 66,943,481                           |  | (0.25)                  
|                             |  |                                         |  |                                     
|Year ended December 31, 2014 |  | (9,499)                                 |  |                                     
|Basic earnings per share     |  |                                         |  | 61,884,911                           |  | (0.15)                  
|Diluted earnings per share   |  |                                         |  | 61,884,911                           |  | (0.15)                  



For the year ended December 31, 2016, 2015,
and 2014 there are no free shares vested but not yet issued included in the average number of shares outstanding.



Free shares and options granted to employees
and warrants to six Board members but not yet vested and/or exercised at December 31, 2016, December 31, 2015 and December 31,
2014 are not considered for diluted earnings per share calculation as they would reduce loss per share.



December 31, 2016, 2015 and 2014F-55


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.12. | Current and non-current provisions
| | ----- | ----------------------------------



The provisions are analyzed as follows:



|In € thousands                                     |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|-------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Decommissioning obligations                        |  | 7,884      |  | 7,170      |  | 6,871     
|Retirement indemnities and other employee benefits |  | 2,909      |  | 2,370      |  | 1,046     
|Other (1)                                          |  | 1,932      |  | 428        |  | 94        
|Total non-current provisions                       |  | 12,725     |  | 9,968      |  | 8,011     
|                                                   |  |            |  |            |  |           
|Others (2)                                         |  | 1,135      |  | -          |  | 128       
|Total current provisions                           |  | 1,135      |  | -          |  | 128       
|Total                                              |  | 13,860     |  | 9,968      |  | 8,139     



| | (1) | Includes
                                         a provision of €1.6 million for potential payback to a public agency, due to a probable
                                         price reduction following marketing authorization and €0.05 million for closing
                                         of the production site in Poland in the course of the year 2017.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes
                                         a provision of €0.7 million relating to a payment request made by a public agency.
                                         AAA is disputing the legal base for this request. The provisioned amount represents AAA’s
                                         best estimate of the probable outcome of this matter.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Provisions for decommissioning PET production
sites



At December 31, 2016, these provisions amounted
to €7.9 million compared with €7.2 million at December 31, 2015 and €6.9 million in 2014. The increase of €0.7
million between 2016 and 2015 relates to the unwinding of the discounting of the obligation for €0.3 million and the acquisition
of a new site for €0.4 million in Germany. The increase of €0.3 million between 2014 and 2015 is due to the unwinding
of the discounting of the obligation.



Decommissioning costs for a typical site
have been estimated by an independent expert. From this base cost and with annual inflation assumed to be 2%, the Group has estimated
the expected decommissioning costs at the forecast date for each site concerned. These costs have then been discounted to the reporting
date using a discount rate of 4.33% (4.57% at December 31, 2015 and 2014). A decrease or an increase of 1 percentage point in this
rate would lead to a respective increase or decrease in the provision of €0.3 million and €0.2 million.



Retirement Indemnities and other employee
benefits



The Group has three main employee defined benefit
obligations in France, Italy and Switzerland which are subject to annual actuarial measurement, using the projected credit unit
method. The assets and liabilities recognised in the balance sheet at 31 December for these defined benefit obligations are as
follows:



|In € thousands                  |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------- |  | ---------- |  | ---------- |  | ----------
|Fair value of plan assets       |  | 2,955      |  | 1,962      |  | 1,273     
|Post-employment benefit plans : |  |            |  |            |  |           
|Defined benefit obligation      |  | (5,864)    |  | (4,332)    |  | (2,319)   
|Net Liability                   |  | (2,909)    |  | (2,370)    |  | (1,046)   



The plan assets concern only the Swiss defined
benefit plan. The plan assets are primarily held within instruments with quoted market prices in an active market such as Equity
securities and Debt securities, with the exception of the property that includes some direct investment in real estate.



December 31, 2016, 2015 and 2014F-56


Table of Contents


Advanced Accelerator Applications
S.A.





Movements in the net asset/(liability) during
the period:



|In € thousands                                              |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|----------------------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Net asset / (liability) at the beginning of the year        |  | (2,370)    |  | (1,046)    |  | (843)     
|Expense recognised in the income statement (1)              |  | (381)      |  | (764)      |  | (111)     
|Remeasurements recognised in other comprehensive income (2) |  | (324)      |  | (736)      |  | (92)      
|Contributions paid by the Group                             |  | 158        |  | 157        |  | -         
|Exchange differences                                        |  | (2)        |  | 19         |  | -         
|Reclassification                                            |  | 10         |  | -          |  | -         
|Net liability at the end of the year                        |  | (2,909)    |  | (2,370)    |  | (1,046)   



| | (1) | This mainly includes service costs for the
period.
| | --- | --------------------------------------------------



| | (2) | This mainly results from actuarial gain /
(loss) due to experience and change in financial assumptions.
| | --- | -------------------------------------------------------------------------------------------------------



In France



AAA France employees receive, on retirement,
severance pay as defined under the pharmaceutical industry collective wage agreement.



The principal assumptions underlying the measurement
of the provision concerning the French employees are as follows:



|                                |  | 12.31.2016                               |  | 12.31.2015                               |  | 12.31.2014                              
|------------------------------- |  | ---------------------------------------- |  | ---------------------------------------- |  | ----------------------------------------
|Discount rate                   |  | 1.34%                                    |  | 1.70%                                    |  | 1.57%                                   
|Future increase in remuneration |  | 1.5%                                     |  | 2%                                       |  | 2%                                      
|Rate of social charges          |  | 43%                                      |  | 43%                                      |  | 47%                                     
|Retirement age                  |  | Managers:
65 years Other
staff: 62 years |  | Managers:
65 years Other
staff: 62 years |  | Managers:
65 years Other
staff: 62 years
|Mortality table                 |  | INSEE 2012-2014                          |  | INSEE 2011-2013                          |  | INSEE 2010-2012                         



In Italy



Employees of AAA Italy and Gipharma receive
indemnity payments (TFR) when leaving the company.



The principal assumptions underlying the measurement
of the provision concerning the Italian employees are as follows:



|                                       |  | 12.31.2016                                                                                                                                                                  |  | 12.31.2015                                                                                                                                                                  |  | 12.31.2014                                                                                                                                                                
|-------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Discount rate                          |  | 1.80%                                                                                                                                                                       |  | 1.50%                                                                                                                                                                       |  | 1.50%                                                                                                                                                                     
|Future increase in remuneration        |  | 1.50%                                                                                                                                                                       |  | 2.50%                                                                                                                                                                       |  | 2.48%                                                                                                                                                                     
|Rate of social charges  Retirement age |  | 39.35%: other staff
                                                                                          44.45%:managers Man 66 years+7 months Woman 65 years+7 months |  | 39.35%: other staff
                                                                                          44.45%:managers Man 66 years+7 months Woman 65 years+7 months |  | 39.35%: other staff
                                                                                          44.45%:managers Man 66 years+3 months Woman 63years+9 months
|Mortality table                        |  | Istat 2015                                                                                                                                                                  |  | Istat 2014                                                                                                                                                                  |  | Istat 2013                                                                                                                                                                
|                                       |  |                                                                                                                                                                             |  |                                                                                                                                                                             |  |                                                                                                                                                                           



In Switzerland



The Group jointly operates with the employees
a retirement foundation in Switzerland. The assets and liabilities of the retirement foundation are held separately from the Group.
This foundation covers all the employees in Switzerland and provides benefits on a defined contribution basis.



Each employee has a retirement account to which
the employee and the Group contribute at a rate set out in the foundation rules based on a percentage of salary. Every year, the
foundation decides the level of interest, if any, to apply to retirement accounts based on the agreed policy. At retirement, employees
can elect to withdraw all or part of their balances of their retirement account, failing which the retirement account is converted
into annuities at pre-defined convertion rates.



Because the foundation Board is expected to
eventually pay out all of the foundation’s assets as benefits to employees and former employees, no surplus is deemed to
be recoverable by the Group. Similarly, unless the assets are insufficient to cover minimum benefits, the Group does not expect
to make any deficit contribution to the foundation.



However, according to IFRS, the foundation
has to be classified as a defined benefit plan due to underlying benefit guarantees and has to be accounted for on this basis.



The weighted average duration of the expected
benefit payment is approximately 19.45 years (2015: 16.99).



The Group expects to contribute CHF 164 thousand
to this plan in 2017.



The principal assumptions underlying the measurement
of the provision concerning the Swiss employees are as follows:



December 31, 2016, 2015 and 2014F-57


Table of Contents


Advanced Accelerator Applications
S.A.





|                                         |  | 12.31.2016                    |  | 12.31.2015                    |  | 12.31.2014                   
|---------------------------------------- |  | ----------------------------- |  | ----------------------------- |  | -----------------------------
|Discount rate                            |  | 0.7%                          |  | 0.8%                          |  | 1.10%                        
|Inflation rate                           |  | 1%                            |  | 1%                            |  | 1%                           
|Future increase in remuneration          |  | 1.5%                          |  | 2%                            |  | 2%                           
|Pension increase rate                    |  | 0%                            |  | 0%                            |  | 0%                           
|Interest credited on pension savings     |  | 1 %                           |  | 1.25%                         |  | 1.75%                        
|Conversion rate                          |  | 6.8%                          |  | 6.8%                          |  | 6.8%                         
|Proportion opting for withdrawal Benefit |  | 25%                           |  | 25%                           |  | 25%                          
|Retirement age                           |  | Men: 65 years Women: 64 years |  | Men: 65 years Women: 64 years |  | Men: 65 years Women: 64 years
|Mortality table                          |  | LPP2015gen                    |  | LPP2015gen                    |  | LPP2010gen                   



There are no reimbursement rights included
in plan assets. The actual return on plan assets was a gain of €13.8 thousand (CHF15 thousand) in 2016, and €57 thousand
(CHF 61 thousand) in 2015.





| | 5.13. | Current
                                         and non-current financial liabilities
| | ----- | --------------------------------------------------------------------------------------



Financial liabilities by category



|In € thousands            |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------- |  | ---------- |  | ---------- |  | ----------
|Finance lease obligations |  | 4,357      |  | 6,062      |  | 8,440     
|Loans                     |  | 11,962     |  | 15,703     |  | 18,446    
|Total                     |  | 16,319     |  | 21,765     |  | 26,886    



Financial liabilities include, as of December
31, 2016, €5.1 million guaranteed by equipment, business goodwill or land, and by a mortgage for a building (€8.9 million
as of December 31, 2015 and €10.9 million as of December 31, 2014); the loans amounting to €2.5 million have an OSEO-issued
guarantee (€3.5 million as of December 31, 2015 and €4.5 million as of December 31, 2014). OSEO is now part of the Banque
Publique d,Investissement (BPI).



Financial liabilities by date of maturity



|                          |  | 12.31.2016  
|------------------------- |  | ------------
|In €
    thousands        |  | <
    1 year
|Finance lease obligations |  | 1,002       
|Loans                     |  | 3,015       
|Total                     |  | 4,017       
|                          |  |             





|                          |  | 12.31.2015  
|------------------------- |  | ------------
|In €
    thousands        |  | <
    1 year
|Finance lease obligations |  | 1,705       
|Loans                     |  | 3,855       
|Total                     |  | 5,560       





|                          |  | 12.31.2014  
|------------------------- |  | ------------
|In €
    thousands        |  | <
    1 year
|Finance lease obligations |  | 1,941       
|Loans                     |  | 3,974       
|Total                     |  | 5,915       





December 31, 2016, 2015 and 2014F-58


Table of Contents


Advanced Accelerator Applications
S.A.





Financial liabilities by type of interest
rate



|In € thousands |  | Average interest rate 2016 |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|-------------- |  | -------------------------- |  | ---------- |  | ---------- |  | ----------
|Fixed rates    |  | 2.36%                      |  | 11,674     |  | 15,618     |  | 19,943    
|Floating rates |  | 1.96%                      |  | 4,645      |  | 6,147      |  | 6,943     
|Total          |  |                            |  | 16,319     |  | 21,765     |  | 26,886    



| | 5.14. | Other current and non-current liabilities
| | ----- | -----------------------------------------



|In € thousands                                 |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|---------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Due to former owners of acquired companies (1) |  | 49,342     |  | 38,155     |  | 36,125    
|Government subsidies                           |  | 484        |  | 1,209      |  | 1,142     
|Derivatives liabilities                        |  | 38         |  | -          |  | -         
|Other non-current liabilities                  |  | 49,864     |  | 39,364     |  | 37,267    
|                                               |  |            |  |            |  |           
|Due to former owners of acquired companies (1) |  | 4,731      |  | 4,223      |  | 2,425     
|Tax, personnel and social charges              |  | 7,870      |  | 8,938      |  | 7,224     
|Other (2)                                      |  | 1,870      |  | 2,577      |  | 2,770     
|Other current liabilities                      |  | 14,471     |  | 15,738     |  | 12,419    



| | (1) | The Group is obligated to pay contingent considerations to the former owners of acquired companies,
as defined under each acquisition agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The other current liabilities include mainly deferred income.
| | --- | -------------------------------------------------------------



Debt due to former owners of acquired
companies



|In € million                                |  | 12.31.2016 |  | 12.31.2015 |  | 12.31.2014
|------------------------------------------- |  | ---------- |  | ---------- |  | ----------
|Advanced Accelerator Applications USA, Inc. |  | 46.2       |  | 33.8       |  | 29.8      
|Atreus Pharmaceuticals Corporation          |  | 5.5        |  | 6.3        |  | 6.0       
|SteriPET® business of GE Healthcare S.r.L   |  | 0.6        |  | 1.3        |  | 0.7       
|IDB Group                                   |  | 1.8        |  | -          |  | -         
|Catalana De Dispensacion and Barnatron SA   |  | -          |  | 1.0        |  | 2.0       
|Due to former owners of acquired companies  |  | 54.1       |  | 42.4       |  | 38.5      



|12.31.2016 In
€ million                         |  | Resulting net charge /  (income) |  | Payments made during the year
|----------------------------------------------- |  | -------------------------------- |  | -----------------------------
|Advanced Accelerator Applications USA, Inc. (1) |  | 12.4                             |  | -                            
|Atreus Pharmaceuticals Corporation (2)          |  | (0.5)                            |  | 0.3                          
|SteriPET® business of GE Healthcare S.r.L       |  | 0.01                             |  | 0.7                          
|IDB Group                                       |  | (0.19)                           |  | 2.7                          
|Catalana De Dispensacion and Barnatron SA       |  | -                                |  | 1.0                          
|Total                                           |  | 11.7                             |  | 4.7                          

| | (1) | The resulting
                                         finance charge is mainly due to the updating of the business plan on future sales including
                                         payments schedule, the unwinding of the discounting and the foreign exchange rate variations.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The resulting
                                         finance income is mainly due to the updating of the business plan on future sales of
                                         Annexin, updating the probability of occurrence of anniversary and milestone payments
                                         and the foreign exchange rate variations.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-59


Table of Contents


Advanced Accelerator Applications
S.A.





Advanced Accelerator Applications USA,
Inc.



The principal contingent consideration concerns
Advanced Accelerator Applications USA, Inc. Contingent consideration included four fixed tranches payable in cash and shares of
the Company on reaching certain milestones defined in the contract. These milestones are based on different stages of the development
of lutetium Lu 177 dotatate (Lutathera®). As of December 31, 2016, the first two milestones defined in the contract have been
met and paid.



The contingent consideration also includes
a variable tranche based on a percentage of future lutetium Lu 177 dotatate (Lutathera®) worldwide sales. At December 31, 2016,
2015 and 2014, the main assumptions used in calculating the amount of this fixed and variable contingent consideration are the
following:



| | · | Future sales of lutetium
Lu 177 dotatate (Lutathera®): determined using the most recent Group business plans; and
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | Probability of occurrence:
The 80% probability has been applied by the Company since September 2015 when the clinical phase 3 results were published (67%
at December 31, 2014); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Discount rate of 10%:
this reflects the time value of money and the estimated risks of not realizing the future cash flows.
| | - | ---------------------------------------------------------------------------------------------------------------------------



The Company revised the business plan of
future sales of lutetium Lu 177 dotatate (Lutathera®) to take into account some modified assumptions. These consist primarily
of a revised sales price in the US combined with a change in launch schedule for some countries in Europe compared to the previously
assumed launch date for all the major European countries.



Sensitivity analysis



|In € million                                                   |  | Amount |  | Variation
|-------------------------------------------------------------- |  | ------ |  | ---------
|Sensitivity on probability                                     |  |        |  |          
|Probability of occurrence at 100%                              |  | 57.7   |  | 11.5     
|Sensitivity on discount rate                                   |  |        |  |          
|Plus one percentage point                                      |  | 43.8   |  | (2.3)    
|Less one percentage point                                      |  | 48.7   |  | 2.5      
|Sensitivity on exchange rate - Euro against foreign currencies |  |        |  |          
|Plus five percent                                              |  | 44.6   |  | (1.5)    
|Less five percent                                              |  | 47.8   |  | 1.7      



Other items could have an impact on the
contingent consideration such as the timing of market authorization in the various jurisdictions, the expected volumes to be sold
or the future selling prices.



Atreus Pharmaceuticals Corporation



On December 18, 2014, the group acquired
the remaining 49.9% non-controlling interest in Atreus Pharmaceuticals Corporation. As a result of this acquisition, AAA holds
100% of Atreus Pharmaceuticals Corporation. The consideration to be paid for this acquisition is composed of fixed anniversary
and milestone payments prior to having obtained marketing authorization for Annexin and of a contingent consideration based on
a low single-digit percentage royalties on sales of Annexin for a duration of 10 years following marketing authorization.



At December 31, 2016, the main assumptions
used in calculating the amount of this fixed and variable contingent consideration are the following:



| | · | First regulatory approval
obtained in 2022; and
| | - | -----------------------------------------------



| | · | Future sales of Annexin
determined using the most recent Group business plans; and
| | - | ----------------------------------------------------------------------------------



| | · | Probability of occurrence:
| | - | --------------------------







December 31, 2016, 2015 and 2014F-60


Table of Contents




Advanced Accelerator Applications
S.A.





|                          |  | 12.31.2016 |  | 12.31.2015
|------------------------- |  | ---------- |  | ----------
|2016 anniversary payments |  | N/A        |  | 100%      
|2017 anniversary payments |  | 70%        |  | 60%       
|2018 anniversary payments |  | 50%        |  | 60%       
|2019 anniversary payments |  | 50%        |  | 30%       
|2020 anniversary payments |  | 20%        |  | 30%       
|2021 anniversary payments |  | 20%        |  | 30%       
|Milestone payments        |  | 30%        |  | 30%       
|Royalty payments          |  | 30%        |  | 30%       



| | · | These percentages were estimated by the Company based
on the current stage of product development; and
| | - | ------------------------------------------------------------------------------------------------------



| | · | Discount rate of 10% to
reflect the time value of money and the estimated risk of not realizing future cash flows.
| | - | ------------------------------------------------------------------------------------------------------------------



The Company revised the business plan on
future sales of AnnexinAs the Company progresses in its clinical trial, it has a better visibility of potential applications for
Annexin. The Company has updated its epidemiology data and competitive set to better align with its recent analysis leading to
minimal changes compared to previous version.



Sensitivity analysis



|In € million                                                   |  | Amount |  | Variation
|-------------------------------------------------------------- |  | ------ |  | ---------
|Sensitivity on probability                                     |  |        |  |          
|Probability of occurrence at 100%                              |  | 17.8   |  | 12.3     
|Sensitivity on discount rate                                   |  |        |  |          
|Plus one percentage point                                      |  | 5.1    |  | (0.5)    
|Less one percentage point                                      |  | 6.0    |  | 0.5      
|Sensitivity on exchange rate - Euro against foreign currencies |  |        |  |          
|Plus five percent                                              |  | 5.4    |  | (0.1)    
|Less five percent                                              |  | 5.7    |  | 0.2      



Other items could have an impact on the
contingent consideration such as the timing of market authorization in the various jurisdictions, the expected volumes to be sold
or the future selling prices.



December 31, 2016, 2015 and 2014F-61


Table of Contents


Advanced Accelerator Applications
S.A.





| | 5.15. | Financial assets and liabilities
| | ----- | --------------------------------



The fair values and the carrying amounts
of financial assets and liabilities are summarized as follows:



|12.31.2016                                     
|-----------------------------------------------
|In € thousands                                 
|                                               
|Financial assets                               
|Total measured at fair value                   
|Trade
receivables and other Receivables        
|Guarantee deposits                             
|Cash and cash equivalents                      
|Loans to related parties                       
|Total not measured at fair value               
|Total financial assets                         
|Financial liabilities                          
|Debt
due to former owners of acquired companies
|Derivatives liabilities                        
|Total measured at fair value                   
|Financial liabilities                          
|Trade payables                                 
|Total not measured at fair value               
|Total financial liabilities                    



| | (1) | Level
                                         1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
                                         that the entity can access at the measurement date;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Level
                                         2 inputs are inputs, other than quoted prices included within level 1, that are observable
                                         for the asset or liability, either directly or indirectly; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Level
                                         3 inputs are unobservable inputs for the asset or liability.
| | --- | -----------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-62


Table of Contents


Advanced Accelerator Applications
S.A.





|12.31.2015                                     
|-----------------------------------------------
|In € thousands                                 
|                                               
|Financial assets                               
|Available-for-sale financial assets            
|Derivatives assets                             
|Total measured at fair value                   
|Trade
receivables and other receivables        
|Guarantee deposits                             
|Cash and cash equivalents                      
|Loan to related party                          
|Total not measured at fair value               
|Total financial assets                         
|Financial liabilities                          
|Debt
due to former owners of acquired companies
|Total measured at fair value                   
|Financial liabilities                          
|Trade payables                                 
|Total not measured at fair value               
|Total financial liabilities                    



| | (1) | Level
                                         1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
                                         that the entity can access at the measurement date;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Level
                                         2 inputs are inputs, other than quoted prices included within level 1, that are observable
                                         for the asset or liability, either directly or indirectly; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Level
                                         3 inputs are unobservable inputs for the asset or liability.
| | --- | -----------------------------------------------------------------------------------------------------------



December 31, 2016, 2015 and 2014F-63


Table of Contents


Advanced Accelerator Applications
S.A.





|12.31.2014                                     
|-----------------------------------------------
|In € thousands                                 
|                                               
|Financial assets                               
|Available-for-sale financial assets            
|Total measured at fair value                   
|Trade
receivables and other receivables        
|Guarantee deposits                             
|Cash and cash equivalents                      
|Loan to related party                          
|Total not measured at fair value               
|Total financial assets                         
|Financial liabilities                          
|Debt
due to former owners of acquired
companies
|Total measured at fair value                   
|Financial liabilities                          
|Trade payables                                 
|Total not measured at fair value               
|Total financial liabilities                    



| | (1) | Level
                                         1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
                                         that the entity can access at the measurement date;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Level
                                         2 inputs are inputs, other than quoted prices included within level 1, that are observable
                                         for the asset or liability, either directly or indirectly; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Level
                                         3 inputs are unobservable inputs for the asset or liability.
| | --- | -----------------------------------------------------------------------------------------------------------





| | 6. | Risk
                                         Management
| | -- | --------------------------------------------------------



The Group’s organization allows for
risks to be identified, assessed and managed at the level of responsibility (subsidiaries, parent company) that best reflects the
magnitude of the risk.



Information on the principal risks and their
management is communicated to Group management under Group procedures.



Group management has reviewed all risks
that could have a significant negative impact on its business, its financial situation and its results, or on its ability to meet
its objectives. No specific significant risks were identified other than those outlined below.



The Group is however operating in a rapidly
developing environment that gives rise to many risks for the Group, not all of which it can control. The risks and uncertainties
outlined below are not all that the Group may face. Other risks and uncertainties of which the Group is currently unaware or which
it currently considers negligible, or which could be of a nature to affect all economic players, might also have a negative impact
on its business, its financial situation, or its ability to meet its objectives.



| | 6.1. | Business risks
| | ---- | --------------



Risk of unsuccessful R&D projects



The Group may be unable to benefit from
its R&D expenditure in the event of technical or industrial failure, if developed products do not receive regulatory authorizations,
or if the expected commercial success is not achieved. The Group invests heavily in product R&D. Any technical, industrial,
regulatory, or commercial difficulties encountered by these products could affect the Group’s growth and profitability. The
Group therefore takes great care in choosing and implementing its R&D projects.



December 31, 2016, 2015 and 2014F-64


Table of Contents


Advanced Accelerator Applications
S.A.





Risk of emerging competitive technologies



The Group may also be confronted by the
emergence of new diagnostic techniques, possibly impacting the continued use of certain of its products.



Risks from competition



The Group may not face up to competition
effectively. It therefore pays particular attention to market trends, to its knowledge of its competitors, and to the expressed
needs of its customers.



Risks from international operations



The Group operates in a number of countries.
Many of the risks which the Group faces are specific to the international business environment. These include risks related to
unexpected changes or to different legal regimes and regulations in different countries, including commercial, environmental and
tax laws and regulations.



Risks from dependence on key personnel



The Group’s success depends to a large
extent on contributions from certain key personnel, especially executives and scientific managers. The loss of their services could
harm the Group’s competitiveness. The Group therefore attaches special importance to the recruitment, retention and motivation
of its personnel.



| | 6.2. | Legal risks
| | ---- | -----------



Product liability risk



In general, the manufacture and distribution
of diagnostic products presents product liability risks for the Group.



Intellectual property risk



Should the Group be unable to protect its
industrial property rights, it could find itself in an uncompetitive position and be unable to maintain its profitability.



| | 6.3. | Market risks
| | ---- | ------------



Foreign exchange risk



Changes in exchange rates may affect cash
and cash equivalents, sales, results and the Group’s equity.



Its business is generated principally
in the "Euro zone” (76% of 2016 sales and 74% of 2015 sales). Each Group entity’s market is local in nature,
which means that revenues and costs are generally in the same currency. The Group is exposed to the US Dollar, the British
Pound Sterling, the Swiss Franc and the Israeli Shekel. At December 31, 2016 our main exposure to foreign exchange risk
results from the cash which is currently held in USD (€156.3 million ($165 million) term deposit in USD and €2.7
million ($2.9 million) in cash, out of a total in cash and cash equivalent of €222.1 million). The
cash held in USD amounted to €73.2 million at December 31, 2015 and €0.02 million at December 31, 2014 and the
increase in 2016 is mainly driven by the $162 million cash received following the secondary public offering. The
strengthening or the weakening of the USD against the Euro by 5% would respectively lead to a financial income of €8.0
million or a financial expense of €8.0 million based on the cash and cash equivalents held in USD at December 31,
2016.



Loans and other financial liabilities are
almost exclusively denominated in Euros and are not subject to foreign exchange risk except for debt to former shareholders of
acquired companies (accounted for as contingent consideration).



December 31, 2016, 2015 and 2014F-65


Table of Contents


Advanced Accelerator Applications
S.A.





In 2015, we entered into some contracts
with our banks to so limit potential losses on our cash held in currencies other than the Euro.



All these contracts were terminated in the
course of 2016.



There is no active contract at December
31, 2016.



Interest rate risk



AAA’s exposure to changes in interest
rates is not considered significant. A number of the finance lease contracts are linked to indices such as Euribor and INSEE. Variations
in these indices could increase finance costs. TheGroup’s exposuretointerest
rate risks is presented in 5.13.



The table below summarises the contracts
outstanding at year-end:



|2016 (in € thousands)                        |  | Notional amount in Euros |  | Book value in Euros |  | Fair value in Euros
|-------------------------------------------- |  | ------------------------ |  | ------------------- |  | -------------------
|Interest rate SWAP :                         |  |                          |  |                     |  |                    
|EUR loan                                     |  | 1'281                    |  | (38)                |  | (38)               
|Total Over-the-Counter interest rate options |  | 1'281                    |  | (38)                |  | (38)               
|Total derivative financial instruments       |  | 1'281                    |  | (38)                |  | (38)               



Liquidity risk



After comparing its available cash resources
at December 31, 2016 to its estimated cash requirements, the Group believes that there is currently no liquidity risk.



The table below presents the carrying amount
and the undiscounted repayments (principal and interest) of financial liabilities (which exclude current and non-current provisions
and deferred tax liabilities) based on outstanding contractual maturities:



|2016 (in € thousands)                            |  | Carrying amount |  | Outstanding contractual outflows |  | Less than 1 year |  | From 1 to 5 years |  | More than 5 years
|------------------------------------------------ |  | --------------- |  | -------------------------------- |  | ---------------- |  | ----------------- |  | -----------------
|Finance lease obligations                        |  | 4,357           |  | 4,920                            |  | 1,162            |  | 3,408             |  | 350              
|Other loans and financial liabilities            |  | 11,962          |  | 12,391                           |  | 3,193            |  | 5,716             |  | 3,482            
|Trade and other payables                         |  | 20,119          |  | 20,119                           |  | 20,119           |  | -                 |  | -                
|Tax, personnel and social charges                |  | 7,870           |  | 7,870                            |  | 7,870            |  | -                 |  | -                
|Debt due to former owners of  acquired companies |  | 54,073          |  | 100,335                          |  | 4,859            |  | 27,540            |  | 67,936           
|Total                                            |  | 98,381          |  | 145,635                          |  | 37,203           |  | 36,663            |  | 71,769           
|                                                 |  |                 |  |                                  |  |                  |  |                   |  |                  
|2015 (in € thousands)                            |  | Carrying amount |  | Outstanding contractual outflows |  | Less than 1 year |  | From 1 to 5 years |  | More than 5 years
|Finance lease obligations                        |  | 6,062           |  | 6,833                            |  | 1,913            |  | 3,900             |  | 1,020            
|Other loans and financial liabilities            |  | 15,703          |  | 16 923                           |  | 4,084            |  | 8,025             |  | 4,814            
|Trade and other payables                         |  | 14,710          |  | 14,710                           |  | 14,710           |  | -                 |  | -                
|Tax, personnel and social charges                |  | 8,938           |  | 8,938                            |  | 8,938            |  | -                 |  | -                
|Debt due to former owners of acquired companies  |  | 42,378          |  | 83,716                           |  | 4,341            |  | 13,946            |  | 65,429           
|Total                                            |  | 87,791          |  | 131,120                          |  | 33,986           |  | 25,871            |  | 71,263           
|                                                 |  |                 |  |                                  |  |                  |  |                   |  |                  
|2014 (in € thousands)                            |  | Carrying amount |  | Outstanding contractual outflows |  | Less than 1 year |  | From 1 to 5 years |  | More than 5 years
|Financial lease obligations                      |  | 8,440           |  | 9,585                            |  | 2,254            |  | 5,579             |  | 1,752            
|Other loans and financial liabilities            |  | 18,446          |  | 20,108                           |  | 4,365            |  | 10,539            |  | 5,204            
|Trade and other payables                         |  | 12,156          |  | 12,156                           |  | 12,156           |  | -                 |  | -                
|Tax, personnel and social charges                |  | 7,224           |  | 7,224                            |  | 7,224            |  | -                 |  | -                
|Debt due to former owners of acquired companies  |  | 38,548          |  | 78,183                           |  | 1,490            |  | 13,514            |  | 63,179           
|Total                                            |  | 84,814          |  | 127,256                          |  | 27,489           |  | 29,632            |  | 70,135           





December 31, 2016, 2015 and 2014F-66


Table of Contents


Advanced Accelerator Applications
S.A.





The Group does not expect that the cash
flows included in the maturity analysis will take place significantly earlier or for significantly different amounts (excluding
contingent consideration liabilities, see section 5.14 above).



Credit risk



AAA is not significantly exposed to credit
risk. A significant part of AAA’s sales are to public hospitals, which represent a very low risk.



Definition of credit risk



Credit risk is the risk of financial loss
to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally
from the Group’s trade receivables from customers and short-term investments of its surplus cash.



Trade receivables



The Group’s exposure to credit risk
is influenced mainly by the individual characteristics of each customer. The Group’s customer portfolio consists primarily
of several hundred public hospitals and private clinics and some few major international companies in the health care sector with
significant financial resources. Given this large total number of customer, none of our customers individually exposes us to a
significant credit risk.



Customer credit risk is managed by each
Group entity’s finance department. The Group’s finance department examines overdue trade receivables when reviewing
the monthly results. Each significant payment delay is monitored and, if necessary, an action plan is developed.



A credit review is performed for every new
customer depending on its size.



The Group assesses its credit risk at each
reporting date. This assessment is based on an individual analysis of each receivable with a risk of non-collection and a provision
is recognized representing the best estimate of the probable loss which will be suffered by the Group.



Due to the continuing difficult economic
conditions, the Group maintains rigorous monitoring of its trade receivables. However, due to the quality of its customer portfolio,
the Group has found no significant increase in overdue receivables.



Investment of surplus cash



The Group limits its exposure to credit
risk by investing its funds solely in bank deposits with guaranteed capital repayment and with first-rate banking counterparties.



Given the high quality of its counterparties,
the Group does not expect that any counterparty will be unable to meet its obligations.



Equity risk



The Group’s capital management objectives
are to maintain the Group’s ability to ensure the continuity of its operations in order to provide returns to shareholders
and to maintain an optimal capital structure to minimize the cost of capital.



The total potential dilution from new shares
issues as of December 31, 2016 is 7.67% of the share capital (6.59% in 2015).



December 31, 2016, 2015 and 2014F-67


Table of Contents


Advanced Accelerator Applications
S.A.





| | 7. | Consolidation scope
| | -- | -------------------



Fully consolidated Group companies are as
follows:



|Entity                                                                                        |  | Registered
                                                                                office in |  | % Interest 2016 |  | % Interest 2015 |  | % Interest 2014
|--------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------- |  | --------------- |  | ---------------
|Advanced Accelerator Applications SA                                                          |  | France                                                                                               |  | Parent Company  |  | Parent Company  |  | Parent Company 
|Advanced Accelerator Applications Unipessoal  Lda                                             |  | Portugal                                                                                             |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications Polska sp zoo                                               |  | Poland                                                                                               |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications (Italy) Srl                                                 |  | Italy                                                                                                |  | 100%            |  | 100%            |  | 100%           
|G.I. Pharma Srl                                                                               |  | Italy                                                                                                |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications International SA                                            |  | Switzerland                                                                                          |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications (Switzerland) SA                                            |  | Switzerland                                                                                          |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications GmbH (Ex -  Umbra Medical AG)                               |  | Germany                                                                                              |  | 100%            |  | 100%            |  | 100%           
|Eifel Property GmbH                                                                           |  | Germany                                                                                              |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications Ibérica S.L.                                                |  | Spain                                                                                                |  | 100%            |  | 100%            |  | 100%           
|Catalana De Dispensacion                                                                      |  | Spain                                                                                                |  | 100%            |  | 100%            |  | 100%           
|Barnatron SA                                                                                  |  | Spain                                                                                                |  | 100%            |  | 100%            |  | 100%           
|Marshall Isotopes Ltd                                                                         |  | Israel                                                                                               |  | 100%            |  | 100%            |  | 100%           
|Marshel (R.R) Investments Ltd                                                                 |  | Israel                                                                                               |  | 100%            |  | 100%            |  | 100%           
|Advanced Accelerator Applications Canada Inc.                                                 |  | Canada                                                                                               |  | 100%            |  | 100%            |  | 100%           
|Atreus Pharmaceuticals Corporaton (Merged with Advanced Accelerator Applications Canada Inc.) |  | Canada                                                                                               |  | N/A             |  | N/A             |  | 100%           
|Advanced Accelerator Applications USA, Inc (Ex - BioSynthema Inc.)                            |  | USA                                                                                                  |  | 100%            |  | 100%            |  | 100%           
|IDB Radiopharmacy BV                                                                          |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|IDB Holding BV                                                                                |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|IDB Holland                                                                                   |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|Beheermaatschappij Weelde BV                                                                  |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|Meerdonk Holding BV                                                                           |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|Renswoude Holding BV                                                                          |  | Netherlands                                                                                          |  | 100%            |  | N/A             |  | N/A            
|IDB België BVBA                                                                               |  | Belgium                                                                                              |  | 100%            |  | N/A             |  | N/A            
|Imaging Equipment Ltd                                                                         |  | UK                                                                                                   |  | 100%            |  | 100%            |  | 100%           



| | 8. | Related party disclosures
| | -- | -------------------------



In conformity with IAS 24, the total remuneration
of Group senior executives is disclosed in note 4.2.



The Board of Directors decided in April
2016 to increase the Group senior executive salaries as of February 2016 by 1.5%, the same as the average salary increase used
throughout the Company. Furthermore, the Shareholders decided in their meeting in May 2016 to increase the non-executive Directors,
remuneration for the year 2016 by 32% from €525 thousands in 2015 to €695 thousands in 2016.





December 31, 2016, 2015 and 2014F-68