As
filed with the Securities and Exchange Commission on April 16, 2018



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 1934 For the fiscal year ended December
31, 2017
| | - | --------------------------------------------------------------------------------------------------------------------------------



OR

| | ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------



OR

| | ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------



Commission file number: 001-37965



TiGenix(Exact name of Registrant as specified in its charter)



Kingdom
of Belgium(Jurisdiction of incorporation or organization)



Romeinse straat 12, box 23001 LeuvenBelgium(Address of principal executive offices)



An Moonen, General CounselTel: +32 01639 7937Romeinse straat 12, box 23001LeuvenBelgium(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)



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 20 ordinary shares with no nominal value per share | The Nasdaq Stock Market LLC              
|Ordinary Shares, no nominal value per share*                                                     | The Nasdaq Stock Market LLC              

* Not for trading, but only in connection with the registration
of the American Depositary Shares



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



The number of outstanding shares of each class of
capital stock of TiGenix at December 31, 2017 was:

259,956,369 Ordinary Shares



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
☒

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
☐

Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).



Yes ☐		              No
☐

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



| | Large Accelerated Filer ☐ | Accelerated Filer ☐ | Non-accelerated Filer ☒ | Emerging growth company ☒
| | ------------------------- | ------------------- | ----------------------- | -------------------------

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards†
provided pursuant to Section 13(a) of the Exchange Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting
Standards Board to its Accounting Standards Codification after April 5, 2012.
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
☒









table
of contents






Page



|SPECIAL NOTE Regarding Forward-Looking Statements             | 1  
|------------------------------------------------------------- | ---
|Part I                                                        | 3  
|Item 1. Identity of Directors, Senior Management and Advisors | 3  
|A.   Directors and Senior Management                          | 3  
|B.   Advisers                                                 | 3  
|C.   Auditors                                                 | 3  
|Item 2. Offer Statistics and Expected Timetable               | 3  
|Item 3. Key Information                                       | 3  
|Recent Developments – The Tender Offer                        | 3  
|A.   Selected Financial Data                                  | 4  
|B.   Capitalization and Indebtedness                          | 5  
|C.   Reasons for the Offer and Use of Proceeds                | 5  
|D.   Risk Factors                                             | 5  
|Item 4. Information on the Company                            | 35 
|A.   History and Development of the Company                   | 35 
|B.   Business Overview                                        | 39 
|C.   Organizational Structure                                 | 89 
|D.   Property, Plant and Equipment                            | 90 
|Item 4A. Unresolved Staff Comments                            | 90 
|Item 5. Operating and Financial Review and Prospects          | 90 
|A.   Operating Results                                        | 90 
|B.   Liquidity and Capital Resources                          | 108
|C.   Research and Development, Patents and Licenses, etc.     | 113
|D.   Trend Information                                        | 113
|E.   Off-Balance Sheet Arrangements                           | 113
|F.   Tabular Disclosure of Contractual Obligations            | 113
|Item 6. Directors, Senior Management and Employees            | 114
|A.   Directors and Senior Management                          | 114
|B.   Compensation                                             | 117
|C.   Board Practices                                          | 127
|D.   Employees                                                | 128
|E.   Share Ownership                                          | 128
|Item 7. Major Shareholders and Related Party Transactions     | 129
|A.   Major Shareholders                                       | 129
|B.    Related Party Transactions                              | 130
|Item 8. Financial Information Financial Statements            | 130
|Item 9. The Offering and Listing                              | 131
|A.  Listing Details                                           | 131
|B.   Plan of Distribution                                     | 133
|C.   Markets                                                  | 133
|D.   Selling Shareholders                                     | 133
|E.    Dilution                                                | 133
|F.    Expenses of the Issue                                   | 133
|Item 10. Additional Information                               | 133
|A.  Share Capital                                             | 133
|B.   Memorandum and Articles of Association                   | 133
|C.   Material Contracts                                       | 133
|D.   Exchange Controls                                        | 134
|E.   Taxation                                                 | 134
|F.   Dividends and Paying Agents                              | 141
|G.   Statements by Experts                                    | 141
|H.   Documents on Display                                     | 141
|I.    Subsidiary Information                                  | 142



i







|Item 11. Quantitative and Qualitative Disclosures About Market Risk                   | 142
|------------------------------------------------------------------------------------- | ---
|Item 12. Description of Securities Other Than Equity Securities                       | 142
|A.   Debt Securities                                                                  | 142
|B.   Warrants and Rights                                                              | 142
|C.   Other Securities                                                                 | 142
|D.   American Depositary Shares Fees and Expenses                                     | 142
|Part II                                                                               | 143
|Item 13. Defaults, Dividend Arrearages and Delinquencies                              | 143
|A.   Defaults                                                                         | 143
|B.   Arrears and delinquencies                                                        | 144
|Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 144
|Item 15. Controls and Procedures                                                      | 144
|A.  Disclosure controls and procedures                                                | 144
|B.   Management’s annual report on internal control over financial reporting          | 144
|C.   Attestation report of the registered public accounting firm                      | 144
|D.   Changes in internal control over financial reporting                             | 144
|Item 16. [Reserved]                                                                   | 145
|Item 16A. Audit Committee Financial Expert                                            | 145
|Item 16B. Code of Ethics                                                              | 145
|Item 16C. Principal Accountant Fees and Services                                      | 145
|Item 16D. Exemptions from the Listing Standards for Audit Committees                  | 145
|Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers      | 145
|Item 16F. Change in Registrant’s Certifying Accountant                                | 145
|Item 16G. Corporate Governance                                                        | 146
|Part III                                                                              | 148
|Item 17. Financial Statements                                                         | 148
|Item 18. Financial Statements                                                         | 148
|Item 19. Exhibits                                                                     | 148







ii


Table of Contents




SPECIAL
NOTE Regarding Forward-Looking Statements



This Annual Report contains forward-looking
statements and our estimates with respect to our anticipated future performance and the market in which we operate. Certain of
these statements, forecasts and estimates can be recognized by the use of words such as, without limitation, “believes,”
“anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,”
“may,” “will,” “predicts,” “projects” and “continue” and similar expressions.
Such statements, forecasts and estimates are based on various assumptions and assessments of known and unknown risks, uncertainties
and other factors, which may or may not prove to be correct. Actual events are difficult to predict and may depend upon factors
that are beyond our control. Therefore, our actual results, financial condition or performance may turn out to be materially different
from such statements, forecasts and estimates. Factors that might cause such a difference include, but are not limited to, those
discussed in the section “Risk Factors” included elsewhere in this Annual Report.



By their nature, forward-looking statements
involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic
circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we
believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you that
forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other
factors that are in some cases beyond our control. All of our forward-looking statements are subject to risks and uncertainties
that may cause our actual results to differ materially from our expectations.



Actual results could differ materially
from our forward-looking statements due to a number of factors, including, without limitation, the following:



| | · | the consummation or cancellation of the Tender Offer (as defined herein);
| | - | -------------------------------------------------------------------------



| | · | we may experience delays or failure in the preclinical and clinical development of our product pipeline;
| | - | --------------------------------------------------------------------------------------------------------



| | · | regulatory approval of our products may be delayed, not obtained or not maintained;
| | - | -----------------------------------------------------------------------------------



| | · | we work in a strict regulatory environment, and future changes to any pharmaceutical legislation or guidelines or unexpected
events or new scientific insights occurring within the field of cell therapy, could affect our business;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | if we fail to obtain additional financing, we may be unable to complete the development and commercialization of our product
candidates;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | we have a history of operating losses and an accumulated deficit and may never become profitable;
| | - | -------------------------------------------------------------------------------------------------



| | · | we had an accumulated deficit of 189.9 million euros as of December 31, 2017 and our net losses for the period and significant
cash used in operating activities may hinder our ability to continue as a going concern;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the manufacturing facilities at which our product candidates are made are subject to regulatory requirements, which may affect
the development of our product pipeline and the successful commercialization of our products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we may not be able to adequately protect our proprietary technology or enforce any rights related thereto;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | third-party claims of intellectual property infringement may prevent or delay our product discovery and development efforts;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | we may need to rely on distributors and other third parties to commercialize our product candidates, and such distributors
may not succeed in commercializing our product candidates effectively or at all;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual
duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates;
and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






Table of Contents


| | · | the allocation of available resources could affect our ability to carry out our business plan.
| | - | ----------------------------------------------------------------------------------------------



The preceding list is not intended to be
an exhaustive list of all of our forward-looking statements. Except as required by law, we undertake no obligation to update publicly
any forward-looking statements for any reason after the date of this Annual Report or to conform these statements to actual results
or to changes in our expectations.



2


Table of Contents


Part I



Item 1. Identity of Directors, Senior Management and Advisors



| | A. | Directors and Senior Management
| | -- | -------------------------------



Not applicable.



| | B. | Advisers
| | -- | --------



Not applicable.



| | C. | Auditors
| | -- | --------



Not applicable.



Item 2. Offer Statistics and Expected Timetable



Not applicable.



Item 3. Key Information



Recent Developments – The Tender Offer



On January 5, 2018 Takeda Pharmaceutical
Company Limited, a public limited liability company incorporated under the laws of Japan (“Takeda”), announced
its intention to launch a potential voluntary and conditional public tender offer to purchase for cash all shares, warrants, ADSs
and convertible bonds, not already owned by Takeda or its affiliates, of the Company (the “Tender Offer”). The
price to be paid in cash in the Tender Offer is 1.78 euros per share, 35.60 euros per ADS (payable in U.S. dollars) and an amount
per warrant depending on the strike price and maturity of such warrant. Subsequent to such date, all convertible bonds were converted
into shares. The Company expects the Tender Offer to be launched during April 2018.



The Tender Offer shall be comprised of
two separate offers: (i) an offer for all shares and warrants in accordance with the applicable law in Belgium (the “Belgian
Offer”), and (ii) an offer to holders of shares who are resident in the U.S. and to holders of ADSs, wherever located,
in accordance with applicable U.S. law (the “U.S. Offer”). The U.S. Offer will be made pursuant to
and on the terms and subject to the conditions set forth in the Tender Offer Statement on Schedule TO (as amended or supplemented
from time to time, the “Schedule TO”) to be filed by Takeda with the U.S. Securities and Exchange Commission
(the “SEC”). The Belgian Offer will be made pursuant to and on the terms and subject to the conditions
set forth in the prospectus prepared by Takeda (the “Prospectus”) to be approved by the Belgian Financial Services
and Market Authority (the “FSMA”). The U.S. Offer and the Belgian Offer
are expected to be on substantially the same terms. Holders of ADSs and shares subject to the U.S. Offer who wish to participate
in the U.S. Offer, are urged to carefully review the documents relating to the U.S. Offer that will be filed by Takeda and the
Company with the SEC, including the related solicitation/recommendation statement on Schedule 14D-9, since these documents will
contain important information, including the terms and conditions of the U.S. Offer. You may obtain a free copy of these documents
after they have been filed with the SEC, and other documents filed by the Company and Takeda with the SEC, at the SEC’s website
at www.sec.gov. Investors and security holders may also obtain free copies of the solicitation/recommendation statement on Schedule
14D-9 and other documents filed with the SEC by the Company at www.tigenix.com.



The Tender Offer will be made in connection
with, and subject to the terms and conditions of, the Offer and Support Agreement, dated as of January 5, 2018, by and among Takeda
and the Company (as such agreement may be amended from time to time, the “Offer and Support Agreement”) included
as an exhibit to this Annual Report. The Offer and Support Agreement includes certain representations, warranties and undertakings
by both parties customary in transactions of a similar nature, including an obligation of the Company to conduct its business and
operations in the ordinary course and consistent with past practices until the completion of the Tender Offer and cooperation by
the parties in necessary regulatory filings and in completing the Tender Offer in the most expeditious way possible. The Company
has agreed not to solicit or encourage any competing offers or proposals for such offers



3


Table of Contents


or
other transactions competing with the Tender Offer, nor to facilitate or promote any such competing proposals, unless the Company’s
board of directors has determined that, with respect to an unsolicited competing proposal, failure to take such measures would
be inconsistent with the board of directors’ fiduciary duties. Completion of the Tender Offer is subject to the following
conditions precedent, as U.S. antitrust clearance and the marketing authorization for Cx601 (under the tradename “Alofisel”)
in the European Union have already been obtained: (i) the tender into the U.S. Offer and the Belgian Offer, in aggregate, of a
number of shares, warrants and ADSs that, together with all shares, warrants and ADSs owned by Takeda and its affiliates, represents
or gives access to 85% or more of the voting rights represented or given access to by all of the outstanding shares, warrants
and ADSs on a fully diluted basis as of the end of the first acceptance period of the Tender Offer, and (ii) no material adverse
effect occurring at any time after the date of the initial announcement (i.e. January 5, 2018). Only if those conditions are satisfied
(or waived by Takeda, as applicable) by the end of the first acceptance period of the Tender Offer, will the transaction be consummated.
The Company expects that the results of the first acceptance period of the Tender Offer will be announced by Takeda approximately
24 business days after the launch of the Tender Offer.



A.       Selected Financial
Data



The tables below present our summary historical
consolidated financial data. Our summary historical consolidated financial data as of and for the years ended December 31,
2017, 2016 and 2015 has been derived from our audited consolidated financial statements included elsewhere in this Annual Report.
Our summary historical consolidated financial data as of and for the year ended December 31, 2014 has been derived from our
audited consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2016. The
consolidated financial statements have been prepared and presented in accordance with IFRS as issued by the IASB.



The following summary historical consolidated
financial data should be read in conjunction with our historical consolidated financial statements and the related notes thereto
and “Item 5. Operating and Financial Review and Prospects”. The historical results for any prior period are not necessarily
indicative of results to be expected for any future period.



Consolidated Income Statement Data:



|                                                                   |  | Years ended December 31,                      
|------------------------------------------------------------------ |  | ----------------------------------------------
|                                                                   |  | 2017                                          
|                                                                   |  | (in thousands of euros, except per share data)
|CONTINUING OPERATIONS                                              |  |                                               
|Revenues and other operating income                                |  |                                               
|Royalties                                                          |  |                                               
|License revenues                                                   |  |                                               
|Grants and other operating income                                  |  |                                               
|Total revenues and other operating income                          |  |                                               
|Research and development expenses                                  |  |                                               
|General and administrative expenses                                |  |                                               
|Total operating expenses                                           |  |                                               
|Operating loss                                                     |  |                                               
|Financial income                                                   |  |                                               
|Interest on borrowing and other finance costs                      |  |                                               
|Fair value gains                                                   |  |                                               
|Fair value losses                                                  |  |                                               
|Impairment and gains/(losses) on disposal of financial instruments |  |                                               
|Foreign exchange differences, net                                  |  |                                               
|Profit (Loss) before taxes                                         |  |                                               
|Income tax                                                         |  |                                               
|Profit (Loss) for the year from continuing operations              |  |                                               
|DISCONTINUED OPERATIONS                                            |  |                                               



4


Table of Contents






|                                                                            |  | Years ended December 31,                      
|--------------------------------------------------------------------------- |  | ----------------------------------------------
|                                                                            |  | 2017                                          
|                                                                            |  | (in thousands of euros, except per share data)
|Loss for the year from discontinued operations                              |  |                                               
|Profit (Loss) for the year                                                  |  |                                               
|Basic and diluted profit (loss) per share (euro)                            |  |                                               
|Basic and diluted profit (loss) per share (euro) from continuing operations |  |                                               
|Basic and diluted loss per share from discontinued operations (euro)        |  |                                               



Consolidated Statements of Financial Position Data—Summary



|                                      |  | As at December 31,     
|------------------------------------- |  | -----------------------
|                                      |  | 2017                   
|                                      |  | (in thousands of euros)
|ASSETS                                |  |                        
|Non-current assets                    |  |                        
|Current assets                        |  |                        
|TOTAL ASSETS                          |  |                        
|                                      |  |                        
|EQUITY AND LIABILITIES                |  |                        
|Equity attributable to equity holders |  |                        
|Total equity                          |  |                        
|Non-current liabilities               |  |                        
|Current liabilities                   |  |                        
|TOTAL EQUITY AND LIABILITIES          |  |                        



Consolidated Statements of Cash Flows Data—Summary



|                                                      |  | Years ended December 31,
|----------------------------------------------------- |  | ------------------------
|                                                      |  | 2017                    
|                                                      |  | (in thousands of euros) 
|Net cash (used in) /provided by operating activities  |  |                         
|Net cash (used in) / provided by investing activities |  |                         
|Net cash (used in) / provided by financing activities |  |                         
|Cash and cash equivalents at end of year              |  |                         



| | 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, together with other information contained in this Annual Report. Any of the following risks
and uncertainties could have a material adverse effect on



5


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our
business, prospects, results of operations and financial condition. Additional risks and uncertainties not presently known to
us or that we currently deem immaterial may also impair our business operations.



Risks Related to the Tender Offer



There is no assurance that the completion
of the Tender Offer will occur and if the Tender Offer is not completed, our business and stock price could be adversely affected.



The launch of the Tender Offer is conditioned
upon approval of the Prospectus and the relevant response memorandum by the FSMA. Completion of the Tender Offer is subject to
various conditions that, if not satisfied or waived, could give rise to termination of the Offer and Support Agreement. Completion
of the Tender Offer is subject to the following conditions precedent, as U.S. antitrust clearance and the marketing authorization
for Cx601 (under the tradename “Alofisel”) in the European Union have already been obtained: (i) the tender into the
U.S. Offer and the Belgian Offer, in aggregate, of a number of shares, warrants and ADSs that, together with all shares, warrants
and ADSs owned by Takeda and its affiliates, represents or gives access to 85% or more of the voting rights represented or given
access to by all of the outstanding shares, warrants and ADSs on a fully diluted basis as of the end of the first acceptance period,
and (ii) no material adverse effect occurring at any time after the date of the initial announcement (i.e. January 5, 2018). To
the extent that the current market price of our shares and ADSs reflects an assumption that the Tender Offer will be completed,
the market price of our shares and ADSs may decline significantly if the Tender Offer is not completed or if investors perceive
that the Tender Offer may not be completed. If the Tender Offer is not completed we could suffer a number of consequences that
may adversely affect our business, financial condition and results of operations, including the following:



| | · | we have incurred and expect to continue to incur significant
expenses related to the Tender Offer. These expenses include certain investment banking and legal fees, most of which must be
paid even if the Tender Offer is not consummated;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | we could be obligated to pay (or cause to be paid)
to Takeda a break payment of 2.7 or 5.4 million euros in connection with the termination of the Offer and Support Agreement in
certain circumstances;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | failure of the Tender Offer may result in negative
publicity and/or a negative impression of us in the eyes of our customers, prospective customers, the investment community or
the business community generally. The failure to consummate the Tender Offer may be viewed as a poor reflection on our business
or prospects, which could make it more difficult for us to access the capital markets or otherwise obtain financing; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | certain of our employees, suppliers, customers, distributors,
and other business, collaboration and strategic partners may seek to change or terminate their relationships with us.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In certain circumstances (including certain
breaches by Takeda of the Offer and Support Agreement), we could receive a fee from Takeda if the Tender Offer is not completed.
In other circumstances, however, the Tender Offer may not be completed and we may not be entitled to any fee from Takeda.



We can provide no assurance that the Tender
Offer will be completed, and failure to complete the Tender Offer may materially adversely affect our business, financial condition
and results of operations.



The Offer and Support Agreement contains
provisions that limit our ability to pursue alternative transactions to the Tender Offer, which could discourage a potential acquirer
of us from making an alternative transaction proposal and, in certain circumstances, could require us to pay a break payment to
Takeda.



Under the Offer and Support Agreement,
we are restricted from responding to third parties making takeover proposals except under certain circumstances, including (i)
our right, under certain circumstances and subject to certain conditions, to furnish non-public information to, and to participate
in discussions with, third parties in response to certain bona fide written unsolicited proposals relating to alternative
acquisition transactions under articles 37 to 41 of the Belgian Royal Decree on Public Takeover Bids; and (ii) the right of our
board of directors, under certain circumstances and subject to certain conditions, to withdraw or change its recommendation in
favor of the Tender Offer if the failure to do so would be inconsistent with its fiduciary duties and to terminate the Offer and
Support Agreement in order to enter into a written definitive agreement providing for an alternative acquisition



6


Table of Contents


transaction.
These provisions could discourage a third party that may have an interest in acquiring us from considering or proposing such an
acquisition, even if such a third party proposal were superior to the Tender Offer.



While the Tender Offer is pending, we
are subject to restrictions on the conduct of our business that could prevent us from pursuing business opportunities that we would
otherwise pursue.



The Offer and Support Agreement includes
restrictions on the conduct of our business prior to the completion of the Tender Offer, generally requiring us to conduct our
business in the ordinary course and subjecting us to a variety of specific limitations absent Takeda’s prior written consent.
We may find that these and other contractual restrictions in the Offer and Support Agreement may delay or prevent us from responding,
or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities
that may arise during such period, even if our management believes they may be advisable. The pendency of the Tender Offer may
also divert management’s attention and our resources from our ongoing business and operations. If any of these effects were
to occur, it could materially and adversely affect our business, financial condition and results of operations.



Our employees, vendors and other parties
with whom we have a business relationship may experience uncertainties about the effects of the Tender Offer.



In connection with the Tender Offer, it
is possible that some employees, vendors and other parties with whom we have a business relationship may delay or defer certain
business decisions or may seek to terminate, change or renegotiate their relationship with us as a result of the Tender Offer.
Similarly, current and prospective employees may experience uncertainty about their future roles with us following completion of
the Tender Offer, which may adversely affect our ability to attract and retain key employees. If any of these effects were to occur,
it could materially and adversely affect our business, financial condition and results of operations.



If the Tender Offer is completed, our
ordinary shares and ADSs may be delisted and an active public market for our ordinary shares and ADSs may cease to exist.



If the Tender Offer is completed, there
will be a substantial reduction in the number of shareholders of the Company and, consequently, there may no longer be an active
public market for our ordinary shares and ADSs. In addition, if the Tender Offer is completed, Takeda may cause the Company to
delist the Company’s ordinary shares from Euronext Brussels, to delist the ADSs from the Nasdaq Global Select Market, to
terminate registration of the shares and ADSs under the Exchange Act and to suspend the Company’s reporting obligations under
the Exchange Act.



Such de-listing or deregistration by TiGenix
would substantially reduce the information required to be furnished by TiGenix to holders of ordinary shares and ADSs, and certain
provisions of the Exchange Act, Belgian securities laws, Euronext Brussels listing rules and Belgian corporate law would no longer
apply to TiGenix. To the extent that TiGenix de-lists or deregisters the ordinary shares and ADSs after the consummation of the
Tender Offer, the absence of an active trading market in the United States or Belgium would reduce the liquidity and market value
of your ADSs and the underlying ordinary shares. The cash amount that shareholders and ADS holders will receive on completion of
the Tender Offer is based on a fixed amount per share and per ADS, as applicable, and is subject to foreign currency exchange fluctuations.
Therefore, the premium relating to our shares and ADSs may decrease at the moment of their being tendered in connection with the
Tender Offer.



According to the proposed terms of the
Tender Offer, the Company’s shareholders will receive 1.78 euros in cash per share validly tendered and not withdrawn. ADS
holders will receive 35.60 euros per ADS validly tendered and not withdrawn, payable in the equivalent amount of U.S. dollars.
Given that the price per share is fixed, the amount per share that the Company’s shareholders will receive will not change,
even if our share price changes. There will not be an adjustment of the price per share, nor a right to withdraw the Tender Offer,
solely because of fluctuations in the Company’s share price. Furthermore, ADS holders are subject to the risk of a decrease
in the dollar/euro exchange rate before the closing of the Tender Offer. In that case, the value in U.S. dollars received for each
ADS would decrease. Therefore, the price of the Company’s shares and ADSs during and following the closing of the Tender
Offer could be higher than the price at the moment of the closing of the Tender Offer, than their current price or than their price
at the time of their being tendered in connection with the Tender Offer.



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Takeda has announced that if the Tender
Offer is completed, it intends to launch a simplified squeeze-out bid in accordance with articles 42 and 43 of the Royal Decree
of 27 April 2007 on public takeover bids and article 513 of the Company Code, if the conditions for such squeeze-out are met, with
the goal of acquiring any shares or ADSs not tendered during the acceptance period of the Tender Offer. If the conditions for a
squeeze-out are met, you may be forced to sell your shares or ADSs to Takeda.



Our relationship with Takeda could be
adversely affected during the Tender Offer process or if the Tender Offer is not completed.



Irrespective of the outcome of the Tender
Offer, we will depend heavily on our Licensing Agreement (as defined herein) with Takeda for the success of our lead product candidate
outside of the United States. Pursuant to the Licensing Agreement, Takeda currently has the exclusive right to commercialize and
develop Cx601 for complex perianal fistulas in all countries outside the United States. The Licensing Agreement and the Manufacturing
Agreement also govern, among other things, the specific aspects of the manufacturing and supply of Cx601 and the financial terms
of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda. As a result, our relationship with
Takeda (the bidder in the Tender Offer) is key to our business plan and will continue to be so in the event that the Tender Offer
is not completed. To the extent the Tender Offer is not completed as a result of a breach by us or by Takeda of our respective
obligations under the Offer and Support Agreement, or that as a result of the process our relationship with Takeda otherwise deteriorates
(including as a result of potential litigation in connection with disputes arising from the Tender Offer), our working relationship
with Takeda could be negatively affected and our ability to obtain revenues pursuant to the Licensing Agreement could be impaired,
which would have a material adverse effect on our business, financial condition and results of operations.



The completion of the Tender Offer
may have an effect on the Company’s strategy.



Upon successful completion of the Tender
Offer, Takeda may be able to control virtually all decisions with respect to our company made by shareholders. Depending on shareholder
attendance at shareholders' meetings, it may, for example, without the concurrence of the remaining shareholders, elect a majority
of our directors and decide upon their remuneration, approve the non-consolidated financial statements and the distribution of
dividends (if any), effect or prevent a merger or amend our articles of association (including to increase or reduce our share
capital or authorized capital), subject to the applicable legal framework. Its interests may conflict with your interests as a
holder of our shares or ADSs, and it may take actions that might be desirable to Takeda but not to our other shareholders.



Upon successful completion of the Tender
Offer, it will be up to the board of directors of the Company to re-examine its strategic orientation in consultation with management,
particularly in light of possible synergies with Takeda, the general economic situation of its business operations and its strategic
position, which may result in changes to the governance and management structure of the Company.



Any changes resulting from that re-examination
could affect, among others, our product strategy, investigation focus, commercial efforts, management team, manufacturing locations,
agreements with third parties, and financing plans. The Company may not successfully implement any such changes and/or the benefits
of such changes may be lower, or the costs higher, than anticipated, all of which could have a material adverse effect on our business,
financial condition and results of operations.



Risks Related to the Clinical Development and Regulatory
Approval of Our Product Candidates



We may experience delays or failure in
the preclinical and clinical development of our product candidates.



As part of the regulatory approval process,
we conduct preclinical studies and clinical trials for each of our unapproved product candidates to demonstrate safety and efficacy.
The number of required preclinical studies and clinical trials varies depending on the product, the indication being evaluated,
the trial results and the applicable regulations. Clinical testing is expensive and can take several years to be completed, and
its outcome is inherently uncertain. Failure can occur at any time during the clinical development/trial process. The results of
preclinical studies and initial clinical trials do not necessarily predict the results of later stage clinical trials, and products
may fail to show the desired safety, efficacy and quality despite having progressed through initial clinical trials. In addition,
the review of a study by an independent data safety monitoring board or review body does not necessarily indicate that the clinical
trial will ultimately be successfully completed. The data collected from preclinical studies



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and
clinical trials may not be sufficient to support the FDA, the EMA or other regulatory approval or approval by ethics committees
in various jurisdictions.



We cannot accurately predict when our current
preclinical studies and clinical trials or future clinical trials will be completed, if at all, nor when planned preclinical studies
and clinical trials will begin or be completed. Successful and timely completion of clinical trials will require us to recruit
a sufficient number of patient candidates, locate or develop manufacturing facilities with regulatory approval sufficient for production
of the product to be tested and enter into agreements with third-party contract research organizations to conduct the trials. We
may need to engage or further engage in preclinical studies and clinical trials with partners, which may reduce any future revenues
from any future products.



Our products may cause unexpected side
effects or serious adverse events that could interrupt, delay or halt the clinical trials and could result in the FDA, the EMA
or other regulatory authorities denying approval of our products for any or all targeted indications. An institutional review board
or ethics committee, the FDA, the EMA, any other regulatory authorities or we ourselves, based on the recommendation of an independent
data safety review board or otherwise, may suspend or terminate clinical trials at any time, and none of our product candidates
may ultimately prove to be safe and effective for human use.



In addition, even if the data from our
clinical trials is sufficient to support an application for marketing authorization, detailed analysis of such data, including
analysis of secondary endpoints and follow up data from later periods, and the interpretation of such data by the regulatory authorities,
prescribing physicians and others, including potential partners, could have a significant impact on the value of the asset and
our ability to realize its full value.



Regulatory approval of our product candidates
may be delayed, not obtained or not maintained.



In the United States, all of our cell-based
product candidates are subject to a BLA issued by the FDA. In Europe, all of our product candidates require regulatory approval
through the centralized marketing authorization procedure coordinated by the European Commission for advanced therapy medicinal
products.



Besides the marketing authorization, we
also need to obtain and maintain specific national licenses to perform our commercial operations, including manufacturing and distribution
licenses, as well as authorizations to obtain and handle human cells and tissues.



Regulatory approval may be delayed, limited
or denied for a number of reasons, most of which are beyond our control, including the following:



| | · | the requirement to perform additional clinical trials;
| | - | ------------------------------------------------------



| | · | the failure of the product to meet the safety or efficacy requirements;
| | - | -----------------------------------------------------------------------



| | · | our ability to successfully conclude the transfer of our technology to our contract manufacturers;
| | - | --------------------------------------------------------------------------------------------------



| | · | our ability to scale up manufacturing processes to the level required to successfully run the clinical trials for our product
candidates and to commercialize them; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the failure of the relevant manufacturing processes or facilities to meet the applicable requirements.
| | - | ------------------------------------------------------------------------------------------------------



Any delay or denial of regulatory approval
of our product candidates or any failure to comply with post approval regulatory policies is likely to have a significant impact
on our operations and prospects, in particular, on our expected revenues.



Regulatory authorities, including the FDA
and the EMA, may disagree with our interpretations of data from preclinical studies and clinical trials, our interpretation of
applicable regulations, including, without limitations, regulations relating to patent term extensions or restorations. They may
also approve a product for a narrower spectrum of indications than requested or may grant approval subject to the performance of
post marketing studies for a product. Such post approval studies, if required, may not corroborate the results of earlier trials.
Furthermore, the general use of such products may result in either or both of the safety and efficacy profiles differing from those
demonstrated in the trials on which marketing approval was based, which could lead to the withdrawal or suspension



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of
marketing approval for the product. In addition, regulatory authorities may not approve the labelling claims that are necessary
or desirable for the successful commercialization of our products.



In addition, a marketed product continues
to be subject to strict regulation after approval. Changes in applicable legislation or regulatory policies or discovery of problems
with the product, production process, site or manufacturer may result in delays in bringing products to the market, the imposition
of restrictions on the product’s sale or manufacture, including the possible withdrawal of the product from the market, or
may otherwise have an adverse effect on our business.



The failure to comply with applicable regulatory
requirements may, among other things, result in criminal and civil proceedings and lead to imprisonment, fines, injunctions, damages,
total or partial suspension of regulatory approvals, refusal to approve pending applications, recalls or seizures of products and
operating and production restrictions.



We may not receive regulatory clearance
for trials at each stage and approval for our products and product candidates still in development without delay or at all. If
we fail to obtain or maintain regulatory approval for our products, we will be unable to market and sell such products, and such
failure or any delay could prevent us from ever generating meaningful revenues or achieving sustained profitability.



We work in a strict regulatory environment,
and future changes in any pharmaceutical legislation or guidelines, or unexpected events or new scientific insights occurring within
the field of cell therapy, could affect our business.



Regulatory guidelines may change during
the course of a product development and approval process, making the chosen development strategy suboptimal. This may delay development,
necessitate additional clinical trials or result in failure of a future product to obtain marketing authorization or the targeted
price levels and could ultimately adversely impact commercialization of the authorized product. Market conditions may change, resulting
in the emergence of new competitors or new treatment guidelines, which may require alterations in our development strategy. This
may result in significant delays, increased trial costs, significant changes in commercial assumptions or the failure of future
product candidates to obtain marketing authorization.



In the past, the regulatory
environment in Europe and certain EU member states has negatively affected our ChondroCelect business. In accordance with
applicable advanced therapy medicinal product regulations, after January 1, 2013, in principle, all advanced therapy
medicinal products required central marketing authorization from the European Commission. This should have been beneficial
for ChondroCelect, which was the first advanced therapy medicinal product to have obtained such central marketing
authorization. However, the advanced therapy medicinal product regulation provided for an exemption for hospitals, which
allowed EU member states to permit the non-routine production of advanced therapy medicinal product in their markets without
central marketing authorization from the European Commission. The implementation of this exemption by certain EU member states, notably
Spain and Germany, which had well-developed markets for autologous chondrocyte implantation procedures, has allowed such
countries to keep local products in the market without central marketing authorization from the European Commission even after January 1,
2013, thereby significantly reducing the market potential for ChondroCelect.



Although the basic regulatory frameworks
appear to be in place in the United States and in Europe for cell-based products, at present regulators have limited experience
with such products and the interpretation of these frameworks is sometimes difficult to predict. Moreover, the regulatory frameworks
themselves will continue to evolve as the FDA and the EMA issue new guidelines. The interpretation of existing rules or the issuance
of new regulations may impose additional constraints on the research, development, regulatory approval, manufacturing or distribution
processes of future and existing product candidates, and could prevent us from generating revenues or achieving sustained profitability
and force us to withdraw our products from the market.



Unexpected events may occur in the cell
therapy field, in particular, unforeseen safety issues of any cell therapy product. Moreover, scientific progress might yield new
insights on the biology of stem cells, which might in turn impact the requirements of safety and efficacy demonstration for stem
cell or other cell therapies. Such events or new insights might change the regulatory requirements and framework, in particular,
strengthening the required clinical research package and increasing the amount of data required to be provided. This could result
in additional constraints on our product development process and lead to significant delays, which could prevent us from ever generating
meaningful revenues or achieving sustained profitability.



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Expedited pathways for Cx601, if obtained,
may not lead to a faster development process.



We intend to seek expedited pathways for
Cx601 in the United States. This is intended to expedite or facilitate the process for reviewing new drugs and biologics that meet
certain criteria. Specifically, new drugs and biologics are eligible for expedited pathways if they are intended, alone or in combination
with one or more drugs or biologics, to treat a serious or life-threatening disease or condition and demonstrate the potential
to address unmet medical needs for the disease or condition. Expedited pathways apply to the combination of the product candidate
and the specific indication for which it is being studied. The FDA has broad discretion in determining whether to grant review
under any of its expedited development and review programs for a drug or biologic. Obtaining expedited pathways does not change
the standards for product approval, but may expedite the development or approval process. There is no assurance that the FDA will
grant expedited pathways. Even if the FDA does grant expedited pathways for Cx601, it may not actually result in faster clinical
development or regulatory review or approval. Furthermore, expedited pathways does not increase the likelihood that Cx601 will
receive marketing approval in the United States. For further information, see “Business—United States Government
Regulation—Certain U.S. Regulatory Incentives and Other Programs—FDA Expedited Programs for Serious Conditions.”



In addition, we are broadly exploring available
options, which could result in the BLA being filed before the Phase III study (launched in June 2017) is complete. There is no
guarantee, however, that any of these options will be successful.



Although we have entered into a special
protocol assessment, or SPA, agreement with the FDA relating to the U.S. Phase III trial of Cx601 for the treatment of perianal
fistulas, this agreement does not guarantee any particular outcome with respect to regulatory review of the trial or any associated
BLA.



The protocol for our U.S. Phase III trial
of Cx601 for the treatment of perianal fistulas was reviewed and agreed upon by the FDA under an SPA agreement in 2015. The FDA’s
SPA process is designed to facilitate the FDA’s review and approval of drugs by allowing the FDA to evaluate the proposed
design and size of clinical trials that are intended to form the primary basis for determining a drug product’s safety and
efficacy. Upon specific request by a clinical trial sponsor, the FDA will evaluate the protocol and respond to a sponsor’s
questions regarding, among other things, primary efficacy endpoints, trial conduct and data analysis. The FDA ultimately assesses
whether the protocol design and planned analysis of the trial are acceptable to support regulatory approval of the product candidate
with respect to the effectiveness of the indication studied.



Because the SPA provides for the evaluation
of protocols for trials that have not been initiated, the conduct and results of the subsequent trial are not part of the evaluation.
Therefore, the existence of an SPA agreement does not guarantee that the FDA will accept a BLA or that the trial results will be
adequate to support approval. Those issues are addressed during the review of a submitted application.



In rare cases, the FDA may rescind an SPA
agreement. In particular, an SPA agreement is not binding on the FDA if public health concerns emerge that were unrecognized at
the time of the SPA agreement, other new scientific concerns regarding product safety or efficacy arise, the sponsor company fails
to comply with the agreed-upon trial protocols, or the relevant data, assumptions or information provided by the sponsor in a request
for the SPA change or are found to be false or omit relevant facts.



An SPA agreement may be modified, and such
modification will be deemed binding on the FDA review division, except under the circumstances described above, if the FDA and
the sponsor agree in writing to modify the protocol and such modification is intended to improve the study.



In January 2017, we had a Type C meeting
(which is any meeting other than a Type A or Type B meeting between CBER or CDER and a sponsor or applicant regarding the development
and review of a product) with the FDA to discuss changes to our Phase III Cx601 clinical trial protocol relating to sample size
and patient recruitment, among other aspects. Based on feedback from that meeting, we submitted a revised protocol in February
2017, which was accepted by the FDA in March 2017.



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Risks Related to Our Financial Condition and Capital Requirements



If we fail to obtain additional financing,
we may be unable to complete the development and commercialization of our product candidates.



Our operations have consumed substantial
amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical development of our
product candidates. If our product candidates are approved, we will require significant additional funds in order to launch and
commercialize such product candidates in the United States and internationally. We may also need to spend substantial amounts to
expand our manufacturing infrastructure.



As of December 31, 2017, we had cash and
cash equivalents of 34.1 million euros, and we believe that this amount will be sufficient to continue operating through the next
12 months, but we will require significant additional cash resources to launch new development phases of existing projects in our
pipeline. However, changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and
we may need to spend more money than currently expected because of circumstances beyond our control. As a result, we may require
additional capital for the further development and commercialization of our product candidates.



Our future funding requirements, both short-
and long term, will depend on many factors, including, but not limited to, the following:



| | · | the initiation, progress, timing, costs and results of clinical trials for our product candidates;
| | - | --------------------------------------------------------------------------------------------------



| | · | the clinical development plans we establish for these product candidates;
| | - | -------------------------------------------------------------------------



| | · | the number and characteristics of the product candidates that we develop and for which we seek regulatory approval;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | the outcome, timing and cost of regulatory approvals by the FDA, the EMA and any other comparable foreign regulatory authorities,
including the potential for the FDA, the EMA or any other comparable foreign regulatory authorities to require that we perform
more studies than those that we currently expect;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the ability to enter into licensing agreements with appropriate partners and to negotiate favorable terms with such partners;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | the effects of competing technological and market developments;
| | - | ---------------------------------------------------------------



| | · | the cost and timing of completing the technology transfer to contract manufacturing organizations in the United States and
other international markets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the ability to scale up manufacturing activities for our product candidates and approved products to a commercial scale;
| | - | ------------------------------------------------------------------------------------------------------------------------



| | · | the cost and timing of completion of commercial scale manufacturing activities;
| | - | -------------------------------------------------------------------------------



| | · | the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive
regulatory approval in regions where we choose to commercialize our products on our own; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the cost of obtaining favorable pricing, market access, funding or reimbursement terms from public and private payers for our
products.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



Additional funding may not be available
on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to
implement our business strategy. Our ability to borrow may also be affected by the conditions under our financing agreements. If
we are unable to raise additional funds through equity or debt financing, we may need to delay, scale back or eliminate expenditures
for some of our research,



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development
and commercialization plans, or grant rights to develop and market products that we would otherwise prefer to develop and market
ourselves, thereby reducing their ultimate value to us.



We have a history of operating losses
and an accumulated deficit and may never achieve sustained profitability.



Except for the year ended December 31,
2016, we have experienced operating losses since our founding in February 2000. We experienced net losses of 35.1 million euros
for the year ended December 31, 2015, net income of 3.8 million euros for the year ended December 31, 2016 and net losses of 74.8
million euros for the year ended December 31, 2017. Our accumulated deficit amounted to 120.0 million euros as of December 2015,
116.2 million euros as of December 31, 2016 and 189.8 million euros as of December 31, 2017. Our losses resulted mainly from the
following:



| | · | preclinical, clinical, manufacturing and regulatory efforts we undertook to advance the product candidates in our pipeline
and to obtain marketing authorization from the European Commission with respect to ChondroCelect and Cx601;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our commercial efforts in launching ChondroCelect;
| | - | --------------------------------------------------



| | · | general and administrative costs associated with our operations; and
| | - | --------------------------------------------------------------------



| | · | investments made in our AlloCSC platform.
| | - | -----------------------------------------



Except for the year ended December 31,
2016, our costs have always exceeded our revenues, which have been historically generated mainly through grants and income from
the sale of ChondroCelect. In July 2016, we requested the withdrawal of marketing authorization for ChondroCelect for commercial
reasons, which became effective as of November 30, 2016. We no longer generate revenues from ChondroCelect.



Our ability to achieve sustained profitability
depends on our ability to develop and commercialize our product candidates, and we do not know when, or if, we will generate significant
revenues from their sale in the future.



Even if we do generate sales from our product
candidates in the future, we may never achieve sustained profitability. We anticipate substantial operating losses over the next
several years as we execute our plan to expand our research, development and commercialization activities, including the clinical
development and planned commercialization of our product candidates. In addition, if we obtain regulatory approval of our product
candidates, we may incur significant sales and marketing expenses. Because of the numerous risks and uncertainties associated with
developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable,
if ever.



Our net losses and significant cash used
in operating activities may hinder our ability to continue as a going concern.



We have a limited operating history and
have experienced net losses and significant cash used in operating activities in each period since inception except for the year
ended December 31, 2016. We expect to have significant cash outflows until at least December 31, 2018 and had an accumulated deficit
of 189.8 million euros as of December 31, 2017. In addition, we have debt service obligations under the loan facility agreement
with Kreos Capital IV (UK) (“Kreos UK”), which have an impact on our cash flow. These conditions, among others,
may hinder our ability to continue as a going concern. Our ability to continue as a going concern could materially limit our ability
to raise additional funds through the issuance of new debt or equity securities or otherwise. Our independent registered public
accounting firm included an emphasis of matter paragraph with respect to our ability to continue as a going concern in its report
on our financial statements as of and for the year ended December 31, 2017. Future audit reports on our financial statements may
also include an emphasis of matter paragraph with respect to our ability to continue as a going concern. Except for the year 2016,
we have not been profitable since inception, and it is possible that we will never achieve sustained profitability. None of our
product candidates can be marketed until governmental approvals have been obtained. Accordingly, there is no substantial source
of revenues, much less profits, to sustain our present activities, and no substantial revenues will likely be available until,
and unless, our product candidates are approved by the EMA, FDA or comparable regulatory agencies in other countries and successfully
marketed, either by us or a partner, an outcome which may not occur. Based upon our currently expected level of operating expenditures,
we expect to be able to continue operating for at least 12 months, but we



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will
require significant additional cash resources to launch new development phases of existing projects in the pipeline. In addition,
this period could be shortened if there are any significant increases in planned spending on development programs or more rapid
progress of development programs than anticipated. Other financing may not be available when needed to allow us to continue as
a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal
with us due to concerns about our ability to meet our contractual obligations.



Our revenues and operating results may
fluctuate and may not be sufficient to cover our fixed costs.



Our revenues and operating results have
fluctuated in the past and are likely to do so in the future due to a number of factors, many of which are not under our control.
Some of the factors that could cause our operating results to fluctuate include, but are not limited to, those listed below and
identified throughout this Annual Report:



| | · | the (positive or negative) success rate of our development efforts;
| | - | -------------------------------------------------------------------



| | · | our ability to manage future clinical trials, given the regulatory environment;
| | - | -------------------------------------------------------------------------------



| | · | the timing of approval, if any, of our products by the appropriate regulatory bodies;
| | - | -------------------------------------------------------------------------------------



| | · | our ability to commercialize our products whether by ourselves or in conjunction with licensing partners (including our ability
to obtain funding or reimbursement from public and private payers for our products); and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to scale up manufacturing activities for our product candidates and approved products to a commercial scale.
| | - | ------------------------------------------------------------------------------------------------------------------------



There is no direct link between the level
of our expenses in connection with developing our pipeline of expanded adipose derived stem cell based, or eASC based, product
candidates and our revenues, which will primarily consist of royalties from sales of Cx601 under our Licensing Agreement with Takeda,
once the product comes to market until we are able to bring another product to market. Accordingly, if revenues decline or do not
grow as we expect, we may not be able to reduce our operating expenses correspondingly and may suffer losses accordingly.



The allocation of available resources
could affect our ability to carry out our business plan.



We have significant flexibility and broad
discretion to allocate and use our available resources. If such resources are not wisely allocated, our ability to carry out our
business plan could be threatened. Our board of directors and management determine, in their sole discretion and without the need
for approval from the holders of our ordinary shares and ADSs, the amounts and timing of our actual expenditures, which will depend
upon numerous factors, including the status of our product development and commercialization efforts, if any, and the amount of
cash received resulting from partnerships and out licensing activities. In addition, if the Tender Offer is completed, Takeda will
be able to determine the amounts and timing of our expenditures in a way that best fits Takeda’s strategy, which may not
be in line with the interests of other shareholders of the Company.



After our acquisition of Coretherapix in
July 2015, we decided to prioritize the ongoing Phase I/II clinical trial of AlloCSC 01 in acute myocardial infarction, which resulted
in our decision to put our planned Phase IIb trial for Cx611 in early rheumatoid arthritis on hold. Likewise, in prior years, we
did not have sufficient resources to both pursue the clinical development of the products coming from the allogeneic eASC platform
while simultaneously aggressively commercializing ChondroCelect. As a result, our board of directors decided to license ChondroCelect
to Sobi in order to concentrate our existing human and capital resources on the clinical development of product candidates from
the eASC based platform, which we perceived to be of more value than commercializing ChondroCelect. In July 2016, we requested
the withdrawal of marketing authorization for ChondroCelect for commercial reasons, which became effective as of November 30, 2016.
We no longer generate revenues from ChondroCelect.



More generally, before the launch of ChondroCelect,
we were expecting the product to be approved in both Europe and the United States. In order to approve the product in the United
States, the FDA would have required us to perform a second Phase III trial in the United States, and the costs associated with
such a trial made it impossible for us to launch the product into the United States, which we perceive to be our most important
market. In Europe,



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we
had anticipated that funding or reimbursement would be granted more rapidly in Spain and in the United Kingdom, that reimbursement
would be approved on an unrestricted basis in Germany, and that reimbursement would be approved in France (see also “—There
may be uncertainty over funding or reimbursement from third parties for newly approved healthcare products or such funding or
reimbursement may be refused, which could affect our ability to commercialize our product candidates” below). We had
also expected that the advanced therapy medicinal product regulation would be more strictly enforced (see “—We
work in a strict regulatory environment, and future changes in any pharmaceutical legislation or guidelines, or unexpected events
or new scientific insights occurring within the field of cell therapy, could affect our business” above), which would
have forced all existing autologous chondrocyte implantation products that had not been approved through the advanced therapy
medicinal product regulation to exit the market. Therefore, our expectations in respect of the potential market and the uptake
of the product were higher than the results that were effectively obtained.



In addition, we constantly evaluate opportunities
to acquire businesses and technologies that we believe are complementary to our business activities, such as our acquisition of
Coretherapix in July 2015, which has a platform of allogeneic cardiac stem cell products, and we also expend our human and capital
resources on the integration of such acquired businesses and the development of their technologies, which may affect our ability
to develop our own product candidates.



On December 20, 2017, we announced that
we plan to focus our resources and capabilities on our eASC platform technology and its product candidates Cx601 and Cx611. As
a result, we do not plan to invest in further R&D of our allogeneic cardiac stem cell technology. Under these circumstances
the fair value of the assets resulting from the business combination with Coretherapix is close to zero. An impairment (18.1 million
euros) has been recognized at December 31, 2017 and the liability related to it has been consequently reversed (8.4 million euros).
These items and the fair value changes which occurred during the year in the contingent consideration (0.5 million euros) negatively
impacted the Company’s consolidated statement of income, with a negative impact of 10.2 million euros.



Our international operations pose currency
risks, which may adversely affect our operating results and net income.



Our operating results may be affected by
volatility in currency exchange rates and our ability to manage effectively our currency transaction risks. We use the euro as
our currency for financial reporting purposes. In the future, a significant portion of our operating costs may be in U.S. dollars,
because we have entered into an agreement with Lonza, a U.S. based contract manufacturing organization, to manufacture our lead
product candidate in the United States, and will enter into research and development collaborations, trial collaborations, and
professional services contracts in the United States. We also expect a share of our future revenues to be in U.S. dollars. Our
exposure to currency risks could increase over time. We do not currently manage our foreign currency exposure in a manner that
would eliminate the effects of changes in foreign exchange rates. For example, we have not engaged in any active hedging techniques,
and we have not employed any derivative instruments to date. Therefore, unfavorable fluctuations in the exchange rate between the
euro and U.S. dollars could have a negative impact on our financial results.



Risks Related to Our Business



The manufacturing facilities where our
product candidates are made are subject to regulatory requirements that may affect the development of our product candidates and
the successful commercialization of our product candidates.



Our product candidates must be manufactured
to high standards in compliance with regulatory requirements. The manufacture of such product candidates is subject to regulatory
authorization and to the current good manufacturing practice, or cGMP, requirements prescribed in the relevant country or territory
of manufacture or supply.



The cGMP requirements govern quality control
of the manufacturing process and require written documentation of policies and procedures. Compliance with such procedures requires
record keeping and quality control to ensure that the product meets applicable specifications and other requirements, including
audits of vendors, contract laboratories and suppliers. Manufacturing facilities are subject to inspection by regulatory authorities
at any time. If an inspection by a regulatory authority indicates that there are deficiencies, we or our contract manufacturer
could



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be
required to take remedial actions, stop production or close the relevant facility. If we fail to comply with these requirements,
we also may be required to curtail the relevant clinical trials, might not be permitted to sell our product candidates or may
be limited as to the countries or territories in which we are permitted to sell them.



Our eASC based development and clinical
stage product candidates are manufactured at our facilities in Madrid, Spain, which have been certified by the Spanish Medicines
and Medical Devices Agency under cGMP requirements. Cx601 for the United States will be manufactured by Lonza, a U.S. based contract
manufacturing organization, for our expected Phase III trial following the completion of technology transfer. Outside the United
States, we expect to manufacture Cx601 for commercial supply at our facilities in Madrid. Subsequently, under our Licensing Agreement,
we expect Takeda to assume responsibility for manufacturing Cx601 following the completion of technology transfer no later than
January 1, 2021. However, the certification may be interrupted, suspended or discontinued because of a failure to maintain compliance
or for any other reason. In addition, the regulations or policies applied by the relevant authorities may change, and any such
change would require us to undertake additional work, which may not be sufficient for us to comply with the revised standards.



Any failure to comply with applicable cGMP
requirements and other regulations may result in fines and civil penalties, suspension of production, product seizure or recall,
import ban or detention, imposition of a consent decree, or withdrawal of product approval, and may limit the availability of our
product candidates. Any manufacturing defect or error discovered after our product candidates have been produced and distributed
also could result in significant consequences, including adverse health consequences, injury or death to patients, costly recall
procedures, damage to our reputation and potential for product liability claims. An inability to continue manufacturing adequate
supplies of our product candidates at our facilities in Madrid, Spain, or elsewhere could result in a disruption in the supply
of our product candidates.



There may be uncertainty over funding
or reimbursement from third parties for newly approved healthcare products or such funding or reimbursement may be refused, which
could affect our ability to commercialize our product candidates.



Our ability to commercialize future product
candidates will depend, in part, on the availability of reimbursement or funding from government and health administration authorities,
private health insurers, managed care programs and other third-party payers. Significant uncertainty exists as to the pricing,
market access, funding or reimbursement of newly approved healthcare products. In many countries, medicinal products are subject
to a regime of price setting, funding or reimbursement by government health authorities, private health insurers or other organizations.
Such organizations are under significant pressure to limit healthcare costs by restricting the availability and level of reimbursement
or funding. For example, we were not successful in obtaining certain forms of reimbursement or funding with respect to ChondroCelect,
such as the opinion of the French Haute Autorité de la Santéthat ChondroCelect should not be reimbursed in
France, the delays in obtaining funding or reimbursement in Spain and the United Kingdom, the decision to grant limited reimbursement
in Germany, and the reversal of the decision to reimburse ChondroCelect in Belgium. Negative decisions or reversals of reimbursement
or funding decisions by certain authorities or third-party payers may have an unfavorable spillover effect on pending or future
funding or reimbursement applications.



We may not be able to obtain or maintain
prices for products sufficient to realize an appropriate return on investment if adequate public health service or health insurance
coverage is not available. In addition, rules and regulations regarding pricing, market access, funding or reimbursement may change,
in some cases at short notice, especially in light of the global cost pressures on healthcare and pharmaceutical markets. Such
changes could affect whether funding or reimbursement is available at adequate levels or at all.



The regulatory landscape that will govern
our product candidates is evolving, and changes in regulatory requirements could result in delays or discontinuation of development
of our product candidates or unexpected costs in obtaining regulatory approval.



Because we are developing novel stem cell
therapy product candidates that are unique biological entities, the regulatory requirements that we will be subject to may change.
Even with respect to more established products that fit into the categories of cell therapies, the regulatory landscape is still
developing and will likely continue to change in the future. In particular, such products may be subject to increased scrutiny
by regulatory authorities. For example, the EMA established a special committee called the Committee for Advanced Therapies to
assess the quality, safety and efficacy of advanced therapy medicinal products, a category that includes cell therapy products,



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including
our product candidates. This committee advises the CHMP, which is responsible for a final opinion on the granting, variation,
suspension or revocation of an application for marketing authorization in the European Union.



Likewise, in the United States, the FDA
has established the Office of Tissues and Advanced Therapies (OTAT), formerly known as the Office of Cellular, Tissue and Gene
Therapies (OCTGT) within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of cell therapy and
related products, and the Cellular, Tissue and Gene Therapies Advisory Committee to advise CBER on its review. Cell therapy clinical
trials are also subject to review and oversight by an institutional biosafety committee, or IBC, a local institutional committee
that reviews and oversees basic and clinical research conducted at the institution participating in the clinical trial. Although
the FDA decides whether individual cell therapy protocols may proceed, review process and determinations of other reviewing bodies
can impede or delay the initiation of a clinical study, even if the FDA has reviewed the study and approved its initiation. Conversely,
the FDA can place an IND application on clinical hold even if such other entities have provided a favorable review. Furthermore,
each clinical trial must be reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution
at which a clinical trial will be conducted. Similarly, complex regulatory environments exist in other jurisdictions in which we
might consider seeking regulatory approvals for our product candidates, further complicating the regulatory landscape.



As we advance our product candidates, we
will be required to consult with these regulatory and advisory groups and comply with all applicable guidelines, rules and regulations.
If we fail to do so, we may be required to delay or discontinue development of our product candidates. Delay or failure to obtain,
or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability
to generate sufficient product revenue to maintain our business.



These various regulatory review committees
and advisory groups may also promulgate new or revised guidelines from time to time that may lengthen the regulatory review process,
require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations,
delay or prevent approval and commercialization of our product candidates or lead to significant post approval limitations or restrictions.
Because the regulatory landscape for our stem cell therapy product candidates is evolving, we may face even more cumbersome and
complex regulations in the future. Furthermore, even if our product candidates obtain required regulatory approvals, such approvals
may later be withdrawn as a result of changes in regulations or the interpretation of regulations by applicable regulatory agencies.



In addition, adverse developments in clinical
trials of cell therapy products conducted by others may cause the FDA or other regulatory bodies to change the requirements for
approval of any of our product candidates.



Tissue-based products are regulated differently
in different countries. These requirements may be costly and result in delay or otherwise preclude the distribution of our products
in some foreign countries, any of which would adversely affect our ability to generate operating revenues.



Tissue-based products are regulated differently
in different countries. Many foreign jurisdictions have a different and sometimes more difficult regulatory pathway for human tissue-based
products, which may prohibit the distribution of these products until the applicable regulatory agencies grant marketing approval
or licensure. The process of obtaining regulatory approval is lengthy, expensive and uncertain, and we may never seek such approvals,
or if we do, we may never gain those approvals. Any adverse events in our clinical trials for a future product under development
could negatively impact our products.



Safe and efficacious human medical applications
may never be developed using cell therapy products or related technology.



If serious adverse events related to cell
therapy products were to arise in clinical trials or after marketing approval, the EMA, the FDA or other regulatory bodies could
impose more restrictive safety requirements on cell therapy products generally, including in the manner of use and manufacture,
could require safety warnings in product labeling, and could limit, restrict or deny permission for new cell therapy products to
enter clinical trials or to be marketed.



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Our cell therapy product candidates represent
new classes of therapy and may not be accepted by patients or medical practitioners.



Our ability to commercialize Cx601 and
future product candidates will depend, in part, on market acceptance, including the willingness of medical practitioners to invest
in training programs to use the products. Cell therapy products are a novel treatment, and such products may not be immediately
accepted as complementary or alternative treatments to the current standards of care. We may not be able to obtain or maintain
recommendations and endorsements from influential physicians, which are an essential factor for market acceptance of our product
candidates, or our product candidates may not gain sufficient market recognition in spite of favorable opinions from key leaders.



The degree of market acceptance of our
cell therapy product candidates will depend on a number of factors, including the following:



| | · | the clinical safety and effectiveness of our products and their demonstrated advantage over alternative treatment methods;
| | - | --------------------------------------------------------------------------------------------------------------------------



| | · | our ability to demonstrate to healthcare providers that our products provide a therapeutic advancement over standard of care
or other competitive products or methods;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to educate healthcare providers on the use of patient specific human tissue, to avoid potential confusion with
and differentiate ourselves from the ethical controversies associated with human fetal tissue and engineered human tissue;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to educate healthcare providers, patients and payers on the safety and adverse reactions involving our products;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | our ability to meet supply and demand and develop a core group of medical professionals familiar with and committed to the
use of our products; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the cost effectiveness of our products and the pricing, market access and reimbursement policies of government and third-party
payers.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



If the medical community or patients do
not accept the safety and effectiveness of our product candidates or they fail to demonstrate a favorable risk/benefit profile,
this could negatively affect any future sales.



Ethical, legal, social and other concerns
surrounding the use of human tissue in synthetic biologically engineered products may negatively affect public perception of us
or our product candidates, or may result in increased scrutiny of our product candidates from a regulatory perspective.



The public perception of ethical and social
issues surrounding the use of tissue engineered products or stem cells may limit or discourage the use of our product candidates.
The use of human cells, such as differentiated cartilage cells, eASCs, CSCs and other adult stem cells, as starting material for
the development of our product candidates could generate negative public perceptions of our product candidates and public expressions
of concern could result in stricter governmental regulation, which may, in turn, increase the cost of manufacturing and marketing
our product or impede market acceptance of our product candidates.



The manufacture of cell therapy products
is characterized by inherent risks and challenges and may be a more costly endeavor than manufacturing other therapeutic products.



The manufacture of cell therapy products,
such as our product candidates, is highly complex and is characterized by inherent risks and challenges, such as raw material inconsistencies,
logistical challenges, significant quality control and assurance requirements, manufacturing complexity, and significant manual
processing. Unlike products that rely on chemicals for efficacy, such as most pharmaceuticals, cell therapy products are difficult
to characterize due to the inherent variability of biological input materials. As a result, assays of the finished product may
not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we employ multiple steps to control
our manufacturing process to ensure that the process works and that our product candidate is made strictly and consistently in
compliance with the process. Problems with the manufacturing process, even minor deviations from the normal process, could result
in product defects or manufacturing failures that result in lot



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failures,
product recalls, product liability claims or insufficient inventory, which could be costly to us or result in reputational damage.
We have experienced lot failures in the past and we might experience such failures in the future.



We may encounter problems achieving adequate
quantities and quality of clinical grade materials that meet EMA, FDA or other applicable standards or specifications with consistent
and acceptable production yields and costs. In addition, the FDA, the EMA and other foreign regulatory authorities may require
us to submit samples of any lot of any approved product together with the protocols showing the results of applicable tests at
any time. Under some circumstances, the FDA, the EMA or other foreign regulatory authorities may require that we not distribute
a lot until the agency authorizes its release.



Successfully transferring complicated manufacturing
techniques to contract manufacturing organizations and scaling up these techniques for commercial quantities is time consuming
and subject to potential difficulties and delays. We have entered into an agreement with Lonza, a leading U.S. based contract manufacturing
organization active in biological and cell therapy manufacturing, to produce Cx601 in the United States in connection with the
proposed Phase III clinical trial to register Cx601 in the United States. Our technology transfer to Lonza may result in setbacks
in replicating the current manufacturing process at a new facility and in scaling up production. Likewise, we or any other third
parties with which we enter into strategic relationships, including Takeda, might not be successful in streamlining manufacturing
operations or implementing efficient, low cost manufacturing capabilities and processes that will enable us to meet the quality,
price and production standards or production volumes to achieve profitability. Our failure to develop these manufacturing processes
in a timely manner could prevent us from achieving our growth and profitability objectives as projected or at all.



We face competition and technological
change, which could limit or eliminate the market opportunity for our product candidates.



The pharmaceutical industry is characterized
by intense competition and rapid innovation. Our product candidates will compete against a variety of therapies in development
for inflammatory and autoimmune diseases that use therapeutic modalities such as biologics and cell therapy, including products
under development by Anterogen, Delenex Therapeutics, Novartis, Celgene, Bristol Myers Squibb, Sanofi/Regeneron, Johnson &
Johnson, GlaxoSmithKline and others, including various hospitals and research centers.



Our competitors may be able to develop
other products that are able to achieve similar or better results than our product candidates. Our potential competitors include
established and emerging pharmaceutical and biotechnology companies and universities and other research institutions. Many of our
competitors have substantially greater financial, technical and other resources, such as a larger research and development staff
and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may
also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers
and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated in our
competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater
availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing on
an exclusive basis products that are more effective or less costly than our product candidates. We believe that the key competitive
factors that will affect the development and commercial success of our product candidates are efficacy, safety and tolerability
profile, reliability, price and reimbursement.



Our employees may engage in misconduct
or other improper activities, including noncompliance with regulatory standards and requirements.



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, to
provide accurate information to the EMA or FDA, to comply with manufacturing standards we have established, to comply with federal
and state healthcare fraud and abuse laws and regulations, to report financial information or data accurately or to 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 off-label promotion, fraud, kickbacks, self-dealing and other abusive practices in the
United States and in jurisdictions outside of the United States where we conduct our business. 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



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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. If governmental investigations or other actions or lawsuits stemming from a failure to be in compliance
with such laws or regulations 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, including the imposition of significant fines or other sanctions,
up to and including criminal prosecution, fines and imprisonment.



We could face product liability claims,
resulting in damages against which we are uninsured or underinsured.



Our business exposes us to potential product
liability and professional indemnity risks, which are inherent in the research, development, manufacturing, marketing and use of
medical treatments. It is impossible to predict the potential adverse effects that our product candidates may have on humans. The
use of our product candidates in human clinical trials may result in adverse effects, and long-term adverse effects may only be
identified following clinical trials and approval for commercial sale. In addition, physicians and patients may not comply with
any warnings that identify the known potential adverse effects and the types of patients who should not receive our product candidates.
We may not be able to obtain necessary insurance at an acceptable cost or at all. We currently carry 20 million euros of liability
insurance. In the event of any claim, the level of insurance we carry now or in the future may not be adequate, and a product liability
or other claim may materially and adversely affect our business. If we cannot adequately protect ourselves against potential liability
claims, we may find it difficult or impossible to commercialize our product candidates. Moreover, such claims may require significant
financial and managerial resources, may harm our reputation if the market perceives our drugs or drug candidates to be unsafe or
ineffective due to unforeseen side effects, and may limit or prevent the further development or commercialization of our product
candidates and future product candidates.



We use various chemical and biological
products to conduct our research and to manufacture our medicines. Despite the existence of strict internal controls, these chemical
and biological products could be the object of unauthorized use or could be involved in an accident that could cause personal injury
to people or damage to the environment, which could result in a claim against us. Our activities are subject to specific environmental
regulations that impose obligations which, if not complied with, could give rise to third party or administrative claims and could
even result in fines being imposed or, in the worst case scenario, to our operations being suspended or shut down.



Our international operations subject
us to various risks, and our failure to manage these risks could adversely affect our results of operations.



We face significant operational risks as
a result of doing business internationally, such as the following:



| | · | fluctuations in foreign currency exchange rates;
| | - | ------------------------------------------------



| | · | potentially adverse and/or unexpected tax consequences, including penalties due to the failure of tax planning or due to the
challenge by tax authorities on the basis of transfer pricing and liabilities imposed from inconsistent enforcement;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | potential changes to the accounting standards, which may influence our financial situation and results;
| | - | -------------------------------------------------------------------------------------------------------



| | · | becoming subject to the different, complex and changing laws, regulations and court systems of multiple jurisdictions and compliance
with a wide variety of foreign laws, treaties and regulations;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | difficulties in attracting and retaining qualified personnel;
| | - | -------------------------------------------------------------



| | · | rapid changes in global government, economic and political policies and conditions, political or civil unrest or instability,
terrorism or epidemics and other similar outbreaks or events, and potential failure in confidence of our suppliers or customers
due to such changes or events; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | tariffs, trade protection measures, import or export licensing requirements, trade embargoes and other trade barriers.
| | - | ----------------------------------------------------------------------------------------------------------------------



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Our inability to manage our expansion,
both internally and externally, could have a material adverse effect on our business.



We may in the future acquire other businesses,
companies with complementary technologies or products to expand our activities. As a consequence, intangible assets, including
goodwill, may account for a larger part of the balance sheet total than is currently the case. Despite the fact that we carefully
investigate every acquisition, the risk remains, among others, that corporate cultures may not blend well, expected synergies may
not be not fully realized, restructurings may prove to be more costly than initially anticipated and that acquired companies may
prove to be more difficult to integrate than foreseen. We can therefore not guarantee that we will successfully be able to integrate
any acquired companies.



Our ability to manage our growth effectively
will require us to continue to improve our operations, financial and management controls, reporting systems and procedures, and
to train, motivate and manage our employees and, as required, to install new management information and control systems. We may
not be able to implement improvements to our management information and control systems in an efficient and timely manner or such
improvements, if implemented, may not be adequate to support our operations.



The results of the United Kingdom’s
referendum on leaving the European Union may have a negative effect on our business.



On June 23, 2016, a majority of voters
in the United Kingdom voted to leave the European Union in a referendum and on March 29, 2017, the United Kingdom delivered its
official withdrawal notification to the President of the European Council. The terms of the United Kingdom’s withdrawal are
subject to a negotiation period that could last until or beyond March 2019, two years after the government of the United Kingdom
formally initiated the withdrawal process in March 2017. The United Kingdom’s decision has created significant uncertainty
about the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations
that will apply in the future. These developments have had and may continue to have a material adverse effect on global economic
conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the
ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity
and restrict our access to capital. In addition, it is uncertain whether our EMA approvals, if granted, will cover the United Kingdom.
If not, it is not yet known what the new U.K. approval process will involve.



Risks Related to Our Intellectual Property



We may not be able to protect adequately
our proprietary technology or enforce any rights related thereto.



Our ability to compete effectively with
other companies depends, among other things, on the exploitation of our technology. In addition, filing, prosecuting and defending
patents on all of our product candidates throughout the world would be prohibitively expensive. Our competitors may therefore develop
equivalent technologies or otherwise gain access to our technology, particularly in jurisdictions in which we have not obtained
patent protection or in which enforcement of such protection is not as strong as it is in the United States.



Patents might not be issued with respect
to our pending or future applications. The lack of any such patents may have a material adverse effect on our ability to develop
and market our proposed product candidates. We may not be able to develop product candidates that are patentable, or our current
or future patents may not be sufficiently broad in their scope to provide commercially meaningful protection against competition
from third parties. The validity or scope of any of our patents may be insufficient, claims relating to our patents may be asserted
by other parties and, if challenged, our patents may be revoked. Even if competitors do not successfully challenge our patents,
they might be able to design around such patents or develop unique technologies or products providing effects similar to our product
candidates.



If our intellectual property rights, trade
secrets and know-how are infringed, litigation may be necessary to protect our intellectual property rights, trade secrets and
know-how, which could result in substantial costs and diversion of efforts with no guarantee of success. Our attempts to obtain
patent or other protection for certain of our product candidates or technologies may also be subject to opposition. We may need
to incur substantial costs to overcome such opposition with no guarantee of success. From time to time, we engage in opposition
or interference



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proceedings
to prevent third parties from obtaining relevant patent or other protection, which may be expensive and time-consuming again with
no guarantee of success.



Developments in U.S. patent law may prevent
us from obtaining or enforcing patents directed to our stem cell technologies, which could have a material adverse effect on our
business.



U.S. courts have recently issued decisions
limiting the patent eligibility of natural products and natural correlations. On June 13, 2013, in Association for Molecular Pathology
v. Myriad Genetics, the U.S. Supreme Court held that isolated genomic DNA segments are not patentable subject matter, but complementary
DNA molecules are patentable subject matter. On May 8, 2014, the U.S. Court of Appeals for the Federal Circuit held that cloned
animals are not patentable subject matter. Furthermore, on March 20, 2012, in Mayo Collaborative Services v. Prometheus Laboratories,
the U.S. Supreme Court held that certain algorithms for measuring drug metabolite levels from patient samples and correlating them
to drug doses are not patentable subject matter. On June 19, 2014, in Alice Corporation Pty. Ltd. v. CLS Bank International, et
al., a case involving patent claims directed to a method for mitigating settlement risk, the Court held that the patent eligibility
of claims directed to abstract ideas, products of nature, and laws of nature should be determined using the same framework set
forth in Prometheus.



The Patent and Trademark Office (“PTO”)
has issued guidelines setting forth procedures for determining patent eligibility of claims directed to abstract ideas, product
of nature and laws of nature in line with the Prometheus, Myriad, and Alice decisions. The guidelines indicate that a claim reciting
any natural phenomenon or natural product will be treated as ineligible for patenting unless the claim as a whole recites something
significantly different from the natural product. The effect of these decisions on patents for inventions relating to other natural
phenomena and natural products, such as stem cells, is uncertain. Because our patent portfolio is largely directed to stem cells
and their use, as well as to uses of naturally occurring biomarkers, these developments in U.S. patent law could affect our ability
to obtain new U.S. patents or to enforce our existing patents. In some of our pending U.S. patent applications, the PTO has questioned
whether certain of our claims are eligible for patenting. If we are unable to procure additional U.S. patents or to enforce our
existing U.S. patents, we would be vulnerable to competition in the United States.



Third party claims of intellectual property
infringement may prevent or delay our product discovery and development efforts.



Our commercial success depends in part
on avoiding infringement of the patents and proprietary rights of third parties. There is a substantial amount of litigation involving
patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings
for challenging patents, including interference and reexamination proceedings before the PTO or oppositions and other comparable
proceedings in foreign jurisdictions. Under U.S. patent reforms effective September 16, 2012, new procedures including inter partes
review and post grant review have been implemented. This reform, particularly inter partes review, has become a relatively effective
means of challenging U.S. patents in certain technology areas. Inter partes review proceedings are not as well tested for U.S.
patents on biologicals such as stem cells, but the number of petitions is on the rise, which brings uncertainty to the possibility
of challenge to our patents in the future. Numerous U.S. and non-U.S. issued patents and pending patent applications, which are
owned by third parties, exist in the fields in which we are developing our product candidates. As the biotechnology and pharmaceutical
industries expand and more patents are issued, the risk increases that our product candidates may give rise to claims of infringement
of the patent rights of others.



Third parties may assert that we are employing
their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims
to compositions, materials, formulations, methods of manufacture or methods for treatment of which we are currently unaware and
that are related to the use or manufacture of our product candidates. Because patent applications can take many years, there may
be currently pending patent applications that may later result in issued patents that our product candidates may infringe. In addition,
third parties may obtain patents in the future and claim that the use of our technologies infringes upon these patents. If any
third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our product candidates,
any molecules formed during the manufacturing process or any final product itself, the holders of any such patents might be able
to block our ability to commercialize the product candidate, unless we were to obtain a license under the applicable patents, or
until such patents expired or they were finally determined to be invalid or unenforceable. Similarly, if any third-party patent
were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture or methods of use,
the holders of any



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such
patent might be able to block our ability to develop and commercialize our product candidate unless we were to obtain a license
or until such patent expired or was finally determined to be invalid or unenforceable. In either case, such a license might not
be available on commercially reasonable terms or at all. If we are unable to obtain a necessary license to a third-party patent
on commercially reasonable terms, or at all, our ability to commercialize our product candidates might be impaired or delayed,
which could in turn significantly harm our business.



Parties making claims against us may seek
and obtain injunctive or other equitable relief, which could effectively block our ability to develop further and commercialize
our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would
be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against
us, we might have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain
one or more licenses from third parties, pay royalties or redesign our infringing products, which might be impossible or require
substantial time and monetary expenditure. We cannot predict whether any such license would be available at all or whether it would
be available on commercially reasonable terms. Furthermore, even in the absence of litigation, we might need to obtain licenses
from third parties to advance our research or allow commercialization of our product candidates. We may fail to obtain any of these
licenses at a reasonable cost or on reasonable terms, if at all.



Our future development may depend on
our ability to obtain and maintain licenses to certain technologies.



We might further expand our activities
in the future by in licensing certain technologies. Collaboration and integration may have an important impact on the success of
our expansion strategy. In such a case, we might not own the patents or supplementary protection certificates on the basis of which
these licenses may be granted. These licenses may generally be terminated by the licensor if we breach certain of our obligations
under the license and in other specified circumstances. If any of our license agreements were to be terminated, the further development
and commercialization of some of our product candidates could be prevented or delayed, reducing their potential revenues. The scope
of our rights under such licenses may be subject to dispute by licensors or third parties. We might not control the filing or the
prosecution of all the patents to which we hold licenses and may need to rely upon our licensors to enforce the patents and to
prevent or to challenge possible infringement by third parties. We might not be able to obtain licenses for the technologies that
we require in the future.



We may be involved in lawsuits to protect
or enforce our patents, which could be expensive, time consuming and unsuccessful.



Competitors may infringe our patents. To
counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming.
In addition, in an infringement proceeding, a court may decide that one or more of our patents is not valid or is unenforceable,
or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology
in question. An adverse result in any litigation or defense proceedings could expose one or more of our patents to the risk of
being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk of not issuing. Defense
of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of
employee resources from our business. In the event of a successful claim of infringement against us, we may have to pay substantial
damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties,
pay royalties or redesign our infringing products, which may be impossible or require substantial time and monetary expenditure.



Interference proceedings provoked by third
parties or brought by the PTO may be necessary to determine the priority of inventions with respect to our patents or patent applications.
An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing
party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Litigation
or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other
employees. We may not be able to prevent misappropriation of our confidential information, particularly in countries where the
laws may not protect those rights as fully as in the United States and in Europe.



Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential
information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements
of the results of hearings, motions or other



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interim
proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial
adverse effect on the price of our ADSs.



We are currently engaged in proceedings
challenging a patent owned by the University of Pittsburgh and may choose to delay the launch of our eASC-based products in the
United States until the expiration of the patent on March 10, 2020 due to the risk of patent infringement or further litigation.



On April 1, 2011, Cellerix (the predecessor
entity of our subsidiary TiGenix S.A.U.) filed an inter partes re-examination request with the PTO regarding the patent US6777231,
owned by the University of Pittsburgh. The PTO examiner issued a decision concluding that all ten originally issued claims and
all 18 newly submitted claims of the patent granted to the University of Pittsburgh were invalid. The University of Pittsburgh
appealed the examiner’s decision to the Patent Trial and Appeal Board (“PTAB”). The PTAB issued its decision
on July 31, 2017 affirming the examiner’s rejection of the newly submitted claims as indefinite and as anticipated by prior
art. The PTAB’s decision affirming that all ten originally issued claims and all 18 newly submitted claims of the patent
granted to the University of Pittsburgh were invalid on at least one ground became final and appealable on November 30, 2017. The
deadline for filing a notice of appeal was January 30, 2018. TiGenix did not appeal and has not been served with a notice of appeal
by the University of Pittsburgh. At this stage, we expect that the PTO examiner will issue a Notice of Intent to Issue an Inter
Partes Reexamination Certificate that will indicate that all claims have been canceled and the re-examination prosecution is terminated.



If the re-examination is not successful
as a result of an appeal by the University of Pittsburgh (which would be untimely served on TiGenix as of the date of this Annual
Report), we may be required to obtain a license on unfavorable terms, or may not be able to obtain a license at all in order to
commercialize our adipose derived stem cell products in the United States. We would potentially be susceptible to patent infringement
or litigation regarding patent infringement while commercializing our eASC products in the United States. We may, therefore, choose
to delay the launch of our adipose derived stem cell products in the U.S. market until the expiration of the patent US6777231 on
March 10, 2020. To avoid infringing granted patents equivalent to US6777231 in other countries, we may at any given point in time
be forced to develop and utilize alternative technology, to exploit our current technology and products under a royalty-bearing
license with respect to the intellectual property rights of other parties or to delay the launch of our adipose derived stem cell
products in the relevant market until patent expiration.



Risks Related to Our Dependence on Third Parties



In the future, we may rely on third parties
to manufacture our product candidates in Spain, Europe and the United States; a failure of service by such parties could adversely
affect our business and reputation.



We have entered into an agreement with
Lonza, a leading U.S.-based contract manufacturing organization active in biological and cell therapy manufacturing, to produce
Cx601 in the United States in connection with the proposed Phase III clinical trial to register Cx601 in the United States. Outside
the United States, we expect to manufacture Cx601 for commercial supply at our facilities in Madrid. Subsequently, under the Licensing
Agreement (as defined herein), we expect Takeda to assume responsibility for manufacturing Cx601 following the completion of technology
transfer no later than January 1, 2021. We are, therefore, exposed to risks relating to the conduct of business of such parties,
including the following:



| | · | their ability to employ and retain suitably qualified staff and maintain good labor relations with their workforce;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | their ability to meet the required legal, regulatory or quality control standards, including the cGMP requirements prescribed
in the relevant country or territory of manufacture or supply; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | their level of investment in their facilities and equipment and their ability to consistently manufacture our product candidates
to the required standard.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we may face challenges in
communicating with such third parties, which could potentially lead to mistakes and difficulties in coordinating activities. We
could also face unexpected cost increases that are beyond our control.



Any failure by such parties to meet the
required standards could have a materially adverse effect on our reputation or expose us to legal liability, with respect to which
we may have limited recourse to the defaulting party.



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If
such a party were to breach its contractual commitments to us, our only option might be to seek a legal remedy, which could be
costly or time consuming and, even if successful, may not fully compensate us for our damages. If we have to terminate our relationship
with such a party due to problems with the timeliness or quality of their work, we may not be able to replace them on commercially
acceptable terms, or at all, which could delay or threaten our ability to generate meaningful revenue from product sales as a
result of which we may have insufficient capital resources to support our operations.



We will depend heavily on our Licensing
Agreement with Takeda for the success of Cx601 for complex perianal fistulas outside of the United States. If Takeda terminates
our Licensing Agreement or is unable to meet its contractual obligations, it could negatively impact our business.



On July 4, 2016, we entered into a licensing
agreement with Takeda, a large pharmaceutical company active in gastroenterology, pursuant to which Takeda currently has the exclusive
right to commercialize and develop Cx601 for complex perianal fistulas in all countries outside of the United States (the “Licensing
Agreement”). On October 25, 2017, as provided under the Licensing Agreement, we entered into a manufacturing and supply
agreement with Takeda, governing, among other things, the specific aspects of the manufacturing and supply of Cx601 and the financial
terms of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda (the “Manufacturing Agreement”).



Under the terms of the Licensing Agreement,
we are entitled to receive specified regulatory and sales milestone payments, as well as royalty payments and an equity investment.
In addition, as part of the Licensing Agreement, we will expand our production facility in Madrid, the cost of which we have agreed
to share equally with Takeda. In addition, Takeda will be solely responsible for all commercialization activities and associated
costs, relating to the licensed product in the licensed territories.



Unless earlier terminated, the Licensing
Agreement will expire on a country-by-country basis upon the expiration of the royalty term in such country for such licensed product.
Either party may, subject to a cure period, terminate the Licensing Agreement in the event of the other party’s uncured material
breach. Takeda may also terminate the Licensing Agreement under specified circumstances relating to regulatory approval, infringement
of intellectual property rights or increases in production costs.



If Takeda were to terminate the Licensing
Agreement or fail to meet its contractual obligations, the assumption by us of all costs related to the development of Cx601 and
the establishment of a commercial infrastructure in the licensed territories would require substantial resources, financial and
otherwise, and could result in us incurring greater expenses than the increase in revenues from our direct sales of the licensed
product in the licensed territories. It could also cause a delay in the development of Cx601. Seeking and obtaining a viable, alternative
collaborator to partner on the development and commercialization of the licensed product may not be available on similar terms
or at all.



We may need to rely on distributors and
other third parties to commercialize our product candidates, and such distributors may not succeed in commercializing our product
candidates effectively or at all or maintain favorable reimbursement decisions by private and public insurers.



For some market opportunities, we may need
to enter into co-development, co-promotion or other licensing arrangements with larger pharmaceutical firms to increase the chances
of commercial success of our product candidates. For example, with respect to Cx601, we have entered into the Licensing Agreement,
under which Takeda currently has the exclusive right to commercialize Cx601 outside the United States. Previously, with respect
to ChondroCelect, we entered into an exclusive distribution agreement with Sobi for the European Union (excluding Finland, where
we had a pre-existing distribution agreement with Finnish Red Cross Blood Service) as well as several other countries. In July
2016, we requested the withdrawal of marketing authorization for ChondroCelect for commercial reasons, which became effective as
of November 30, 2016. We no longer generate revenues from ChondroCelect. In the future, we may enter into additional distribution
agreements in other territories. We may not be able to establish sales, marketing and distribution, pricing, reimbursement and
market access capabilities of our own or to enter into arrangements with contract sales organizations or larger pharmaceutical
firms in a timely manner or on acceptable terms. Additionally, building marketing and distribution capabilities may be more expensive
than we anticipate and may require us to divert funds from other intended purposes or prevent us from building our own marketing
and distribution capabilities to desired levels.



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Therefore, the performance of our product
candidates will depend in part on our ability to attract and retain suitable partners that will be able to market and support our
products effectively. We may lose one or more of our distributors or might not be able to recruit additional or replacement distributors.



Our dependence on third parties may also
reduce our profit margins and delay or limit our ability to develop and commercialize our products on a timely and competitive
basis.



Our distributors may be faced with hurdles
in pricing, reimbursement, market access, market acceptance, distribution and competition that delay or even prevent the commercialization
of our product candidates or result in the early termination of licensing agreements. The ability of our distributors to commercialize
our product candidates also depends, in part, on the extent to which our competition will react.



We rely on third parties to conduct our
clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines or if
we or these third parties do not comply with applicable regulatory requirements, we may not be able to obtain regulatory approval
for, or commercialize, our product candidates.



We rely on third-party contract research
organizations to conduct clinical trials for our product candidates, and we control only certain aspects of their activities. Nevertheless,
we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, regulatory and scientific
standards, and our reliance on our contract research organizations does not relieve us of our regulatory responsibilities. We and
our contract research organizations will be required to comply with GCP requirements, and good tissue practice (“GTP”)
requirements, which are a collection of regulations enforced by the FDA, the EMA and/or comparable foreign regulatory authorities
for product candidates in clinical development. These GCP and GTP requirements are intended to protect the health, safety and welfare
of study subjects through requirements such as informed consent and to ensure data integrity, among other things. Regulatory authorities
enforce these GCP and GTP requirements through periodic inspections of trial sponsors, contract research organizations, principal
investigators and study sites. If we or any of our contract research organizations fail to comply with applicable GCP and GTP regulations,
the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or a comparable foreign regulatory
authority may require us to perform additional clinical trials before approving our marketing applications. Upon inspection, such
regulatory authorities might determine that any of our clinical trials do not comply with GCP and GTP regulations. In addition,
for biological products, our clinical trials must be conducted with products made under cGMP regulations and will require a large
number of test subjects. Our failure or any failure by our contract research organizations to comply with these regulations or
to recruit a sufficient number of patients may disregard the clinical data generated in such trial and require us to repeat clinical
trials, which would delay the regulatory approval process. Moreover, we may be implicated or subject to civil or criminal liability
if any of our contract research organizations violates fraud and abuse or false claims laws and regulations or healthcare privacy
and security laws in any jurisdiction in which we conduct our trials.



For example, as part of the marketing authorization
application process for Cx601, we had routine GCP inspections in September 2016. Following these inspections, we received an inspection
report identifying certain critical and major deviations from GCP. The inspectors initially recommended to the EMA that the data
from the trial should be disregarded as part of the marketing authorization application. In making their recommendation, the inspectors
focused on the infringement of the patient’s right to consent to the presence of a company sponsored healthcare professional.
Due to the nature of this finding, the inspectors deemed the trial not to be conducted in accordance with ethical principles, including
GCP and applicable regulatory requirements. After we submitted our response, we received a second inspection integrated report
in September 2017 from the EMA which concluded that after further GCP actions and inspections, “the data inspected are considered
of acceptable quality and deficiencies have no impact on the inspected trials’ data reliability and validity.” With
respect to the presence of the healthcare professional during the administration of Cx601, the inspection report concludes that
“it is recognized that this breach was not intentional and the sponsor did take into account other factors like education
background in health sciences of the individuals present at the operating room and that this was already covered in the informed
consent.”



We could face similar reports in the future,
which could stop or delay the marketing authorization process for our products.



Contract research organizations are not
employed directly by us and, except for remedies available to us under our agreements with such contract research organizations,
we cannot control whether they devote sufficient time and



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resources
to our ongoing preclinical and clinical programs. These contract research organizations may also have relationships with other
commercial entities, including our competitors, for whom they may also be conducting clinical studies or other product development
activities, which could affect their performance on our behalf. If these contract research organizations do not successfully carry
out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy
of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements
or for other reasons, our clinical trials may be extended, delayed or terminated or be deemed unreliable, and we may not be able
to complete development of, obtain regulatory approval for, or commercialize our product candidates.



Switching or adding contract research organizations
involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when
a new contract research organization commences work. As a result, delays may occur, which could materially affect our ability to
meet our desired clinical development timelines, and the quality of work may be affected. We are not experiencing, nor do we expect
to experience in the foreseeable future, any problems with our contract research organizations that may have a significant effect
on our business. However, there is no assurance that we will not encounter challenges in our relationships with our contract research
organizations or delays in the future.



We may consider or seek strategic transactions
in the future, and we might not realize the benefits of such strategic transactions.



From time to time, we may consider or seek
possible strategic transactions, including investments, combinations, acquisitions, alliances, joint ventures or collaborations
or enter into licensing arrangements with third parties, with the goal of maximizing shareholder value or to complement or augment
our development and commercialization efforts with respect to our product candidates and any future products that we may develop.
We can provide no assurance that we will consummate a new strategic transaction, and in the event that we do consummate a strategic
transaction, implementation of any such transaction may impair shareholder value or otherwise have a material adverse effect on
our business, prospects, results of operations or financial condition. Any such transaction may require us to incur non recurring
and other charges, increase our short- and long term expenditures, issue securities that dilute our existing shareholders or disrupt
our management and business. In addition, we face significant competition in seeking appropriate strategic transactions, and the
negotiation process is time consuming and complex. Moreover, we may not be successful in our efforts to carry out a strategic transaction,
including alternative arrangements for our product candidates, because they may be deemed to be at too early of a stage of development
for collaborative effort, and third parties may not view our product candidates as having the requisite potential to demonstrate
safety and efficacy. If we license products or businesses, we may not be able to realize the benefit of such transactions if we
are unable to integrate them with our existing operations and company culture. Following a strategic transaction or license, we
might not be able to achieve the revenues or specific net income that justifies such transaction. Any delays in entering into new
strategic transaction agreements related to our product candidates could delay the development and commercialization of our product
candidates in certain geographies for certain indications.



Risks Related to Ownership of our ADSs



The ADSs may experience price and volume
fluctuations.



Stock markets have experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies.
Broad market and industry factors may negatively affect the market price of our ordinary shares and ADSs, regardless of our actual
operating performance. The market price and liquidity of the market for the ADSs may be significantly affected by numerous factors,
some of which are beyond our control. These factors include:



| | · | significant volatility in the market price and trading volume of securities of companies in our sector, which is not necessarily
related to the operating performance of these companies;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | delays between our expenditures to develop and market new products and the generation of sales from those products;
| | - | -------------------------------------------------------------------------------------------------------------------



| | · | significant volatility as a result of macroeconomic disruptions and political tensions including separatist movements in Spain
and elsewhere;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



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| | · | changes in the amount that we spend to develop, acquire or license new products, technologies or businesses;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | changes in our expenditures to promote our products and services;
| | - | -----------------------------------------------------------------



| | · | success or failure of research and development projects of us or our competitors;
| | - | ---------------------------------------------------------------------------------



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



| | · | the general tendency towards volatility in the market prices of shares of companies that rely on technology and innovation;
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | changes in regulatory policies or tax guidelines;
| | - | -------------------------------------------------



| | · | changes or perceived changes in earnings or variations in operating results;
| | - | ----------------------------------------------------------------------------



| | · | any shortfall in revenue or net income from levels expected by investors or securities analysts;
| | - | ------------------------------------------------------------------------------------------------



| | · | disputes or other developments relating to proprietary rights, including patents, and our ability to obtain patent protection
for our technologies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | departures of key scientific or management personnel;
| | - | -----------------------------------------------------



| | · | significant lawsuits, including patent litigation; and
| | - | ------------------------------------------------------



| | · | general economic trends and other external factors, many of which are beyond our control.
| | - | -----------------------------------------------------------------------------------------



In addition, the stock market in general,
and the Nasdaq Global Select Market and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of these companies.



In the past, securities class action litigation
has often been instituted against companies following periods of volatility in the market price of a company’s securities.
This risk is especially relevant for us because pharmaceutical companies have experienced significant share price volatility in
recent years. This type of litigation, if instituted, could result in substantial costs and a diversion of management’s attention
and resources.



Raising additional capital may cause
dilution of the percentage ownership of our shareholders, restrict our operations, require us to relinquish rights to our technologies,
products or product candidates and could cause our share price to fall.



We expect that significant additional capital
may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts,
expanded research and development activities and costs associated with operating as a U.S. listed public company. To raise capital,
we may issue new ordinary shares, ADSs, convertible securities or other equity securities in one or more transactions at prices
and in a manner we determine from time to time. If we issue new ordinary shares, ADSs, convertible securities or other equity securities,
investors may be materially diluted by subsequent sales. Such issuances or sales may also result in material dilution to our existing
shareholders, and new investors could gain rights, preferences and privileges senior to the holders of our ordinary shares or ADSs.
The incurrence of indebtedness could result in increased fixed payment obligations and could involve certain restrictive covenants,
such as limitations on our ability to incur additional debt and other operating restrictions that could adversely impact our ability
to conduct our business. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with
third parties, we may have to relinquish valuable rights to our technologies, products or product candidates, or grant licenses
on terms unfavorable to us.



Fluctuations in the exchange rate between
the U.S. dollar and the euro may increase the risk of holding our ADSs and shares.



Our shares currently trade on Euronext
Brussels in euros, and our ADSs trade on the Nasdaq Global Select Market in U.S. dollars. Fluctuations in the exchange rate between
the U.S. dollar and the euro may result in



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temporary
differences between the value of our ADSs and the value of our ordinary shares, which may result in heavy trading by investors
seeking to exploit such differences.



In addition, as a result of fluctuations
in the exchange rate between the U.S. dollar and the euro, the U.S. dollar equivalent of the proceeds that a holder of our ADSs
would receive upon the sale in Belgium of any shares withdrawn from the depositary and the U.S. dollar equivalent of any cash dividends
paid in euros on our shares represented by the ADSs could also decline.



Holders of ADSs are not treated as shareholders
of our Company, do not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in
time to be able to exercise their right to vote.



Holders of ADSs are not treated as shareholders
of our Company, unless they withdraw our ordinary shares underlying the ADSs. The depositary is the holder of the ordinary shares
underlying the ADSs. Holders of ADSs therefore do not have any rights as shareholders of our Company, other than the rights that
they have pursuant to the deposit agreement.



Except as described in this Annual Report
and the deposit agreement, holders of ADSs are not able to exercise voting rights attaching to the ordinary shares evidenced by
the ADSs on an individual basis. Under the terms of the deposit agreement, holders of ADSs may instruct the depositary to vote
the ordinary shares underlying their ADSs, but only if we ask the depositary to ask for their instructions. Otherwise, holders
of ADSs will not be able to exercise their right to vote unless they withdraw ordinary shares underlying their ADSs to vote them
in person or by proxy in accordance with Belgian corporate law and our articles of association. Even so, holders of ADSs may not
know about a meeting far enough in advance to withdraw those ordinary shares. If we ask for the instructions of holders of ADSs,
the depositary, upon timely notice from us, will notify holders of ADSs of the upcoming vote and arrange to deliver our voting
materials to them. Upon our request, the depositary will mail to holders of ADSs a shareholder meeting notice that contains, among
other things, a statement as to the manner in which voting instructions may be given, including an express indication that such
instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions
are received by the depositary from holders of ADSs on or before the response date established by the depositary. No voting instruction
shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary
that (i) substantial opposition exists, or (ii) such matter materially and adversely affects the rights of shareholders. We cannot
guarantee that holders of ADSs will receive the voting materials in time to ensure that they can instruct the depositary to vote
their shares. A shareholder is only entitled to participate in, and vote at, the meeting of shareholders, provided that its shares
are recorded in its name at midnight (Central European Time) at the end of the fourteenth day preceding the date of the meeting
of shareholders. Failure by the depositary to record your shares by the record date, could result in the inability to participate
and vote at the relevant meeting of shareholders. In addition, the depositary’s liability to holders of ADSs for failing
to execute voting instructions or for the manner of executing voting instructions is limited by the deposit agreement. As a result,
holders of ADSs may not be able to exercise their right to give voting instructions or to vote in person or by proxy and they may
not have any recourse against the depositary or our Company if their shares are not voted as they have requested or if their shares
cannot be voted.



We have no present intention to pay dividends
on our ordinary shares in the foreseeable future and, consequently, your only opportunity to achieve a return on your investment
during that time is if the price of the ADSs appreciates.



We have no present intention to pay dividends
in the foreseeable future. In addition, the Offer and Support Agreement restricts our ability to pay any dividend prior to the
completion of the Tender Offer. Any recommendation by our board of directors to pay dividends will depend on many factors, including
our financial condition, results of operations, legal requirements and other factors. Furthermore, pursuant to Belgian law, the
calculation of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of
our non-consolidated statutory accounts prepared in accordance with Belgian accounting rules. In addition, in accordance with Belgian
law and our articles of association, we must allocate each year an amount of at least 5% of our annual net profit under our non-consolidated
statutory accounts to a legal reserve until the reserve equals 10% of our share capital. Therefore, we are unlikely to pay dividends
or other distributions in the foreseeable future. If the price of the ADSs or the underlying ordinary shares declines before we
pay dividends, you will incur a



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loss
on your investment, without the likelihood that this loss will be offset in part or at all by potential future cash dividends.



As a foreign private issuer, 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 U.S. domestic
issuers. This may limit the information available to holders of ADSs.



We are a “foreign private issuer”,
as defined in the SEC rules and regulations, and, consequently, we are not subject to all of the disclosure requirements applicable
to U.S. domestic issuers. 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. In addition, our officers, directors and principal shareholders 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, we are not required to file periodic reports and consolidated financial statements with the
SEC as frequently or as promptly as U.S. domestic issuers. Accordingly, there may be less publicly available information concerning
our Company than there is for U.S. public companies. As a foreign private issuer, we file an annual report on Form 20 F within
four months of the close of each year ended December 31 and furnish reports on Form 6 K relating to certain material events promptly
after we publicly announce these events. However, we are not required to publish quarterly financial information, and, therefore,
our shareholders will not be afforded the same information generally available to investors holding shares in public companies
organized in the United States.



We are an “emerging growth company,”
and we intend to take advantage of reduced disclosure and governance requirements applicable to emerging growth companies, which
could result in the ADSs being less attractive to investors.



We are an “emerging growth company,”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we continue to be an emerging growth
company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies
that are not emerging growth companies, including the following:



| | · | exemption from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002;
| | - | -----------------------------------------------------------------------------------------------------



| | · | exemption from the obligation to disclose in this Annual Report selected financial information for periods not included in
our initial registration statement;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reduced disclosure obligations regarding executive compensation in this Annual Report and our periodic reports and proxy statements;
and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | exemptions from the requirements to hold nonbinding advisory votes on executive compensation and to seek shareholder approval
of any golden parachute payments not previously approved.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We could be an emerging growth company
for up to five years from the date of our initial public offering (December 15, 2016), although circumstances could cause us to
lose that status earlier, including if the market value of our ordinary shares held by non affiliates exceeds $700.0 million as
of any June 30 before that time or if we have total annual gross revenue of $1.07 billion or more during any fiscal year before
that time, in which cases we would no longer be an emerging growth company as of the following December 31 or, if we issue more
than $1.0 billion in non-convertible debt during any three year period before that time, we would cease to be an emerging growth
company immediately. We cannot predict if investors will find our ADSs less attractive because we may rely on these exemptions.
If some investors find our ADSs less attractive as a result, there may be a less active trading market for our ADSs, and our share
price may be more volatile.



If we fail to maintain an effective system
of internal control over financial reporting in the future, we may not be able to report accurately our financial condition, results
of operations or cash flows, which may adversely affect investor confidence in us.



The Sarbanes-Oxley Act requires, among
other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular,
when we cease to be an emerging growth company, we will be required, under Section 404 of the Sarbanes-Oxley Act, to perform system
and process evaluations and



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testing
of our internal controls over financial reporting to allow management and our independent registered public accounting firm to
report on the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure
of any material weaknesses in our internal control over financial reporting identified by our management or our independent registered
public accounting firm. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from our independent registered
public accounting firm on the effectiveness of our internal control over financial reporting. However, for as long as we remain
an emerging growth company as defined in the JOBS Act, we intend to take advantage of the exemption permitting us not to comply
with the independent registered public accounting firm attestation requirement. At the time when we are no longer an emerging
growth company, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied
with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid
a material weakness in the future.



Our compliance with Section 404 requires
that we incur substantial accounting expenses and expend significant management efforts. We currently do not have an internal audit
group, and we have hired a third-party service provider with the appropriate experience, as well as understanding of internal control
processes around supervision and monitoring of our accounting and reporting functions and technical accounting knowledge and application,
to compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404.



During the evaluation and testing process,
if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that
our internal control over financial reporting is effective. If we are unable to conclude that our internal control over financial
reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant
deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness
of our financial reports, the market price of the ADSs could decline, and we could be subject to sanctions or investigations by
the Nasdaq Stock Market, the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control
over financial reporting, or to implement or maintain other effective control systems required of public companies, could also
restrict our future access to the capital markets.



We have incurred and may continue to
incur significant increased costs as a result of operating as a company whose ADSs are publicly traded in the United States, and
our management may continue to be required to devote substantial time to new compliance initiatives.



As a company whose ADSs publicly trade
in the United States, we have incurred and will continue to incur, to the extent our ADSs continue to be publicly traded in the
United States, significant legal, accounting, insurance and other expenses that we did not previously incur. In addition, the Sarbanes-Oxley
Act, the Dodd Frank Wall Street Reform and Consumer Protection Act and related rules implemented by the SEC and the Nasdaq Stock
Market have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure
and financial controls. These costs will increase at the time when we are no longer an emerging growth company eligible to rely
on exemptions under the JOBS Act from certain disclosure and governance requirements. Our management and other personnel will need
to continue to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have
increased and may continue to increase our legal and financial compliance costs and will make some activities more time consuming
and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director
and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. These
laws and regulations could also make it more difficult and expensive for us to attract and retain qualified persons to serve on
our board of directors or its committees. Furthermore, if we are unable to satisfy our obligations as a U.S. listed public company,
we could be subject to delisting of the ADSs, fines, sanctions and other regulatory action and potentially civil litigation.



You may be subject to limitations on
the transfer of your ADSs.



ADSs 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 doing so expedient in connection
with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in
connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number
of ADS holders on its books for a specified period. The depositary may also close its books in emergencies and on weekends and
public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when



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our
share register or the books of the depositary are closed, or at any time if we or the depositary thinks that it is advisable to
do so because of any requirement of law or of any government or governmental body or of any regulatory authority, or under any
provision of the deposit agreement, or for any other reason in accordance with the terms of the deposit agreement.



You may not receive distributions on
our ordinary shares represented by the ADSs or any value for them if it is illegal or impractical to make them available to holders
of ADSs.



While we do not anticipate paying any dividends
on our ordinary shares in the foreseeable future, if any dividends are declared, the depositary for the ADSs has agreed to pay
to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities
after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares
your ADSs represent. However, it may be unlawful or impractical to make a distribution available to holders of ADSs. We have no
obligation to take any other action to permit the distribution of the ADSs, ordinary shares, rights or anything else to holders
of the ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value from them if it
is unlawful or impractical to make them available to you. These restrictions may have a material adverse effect on the value of
your ADSs.



If securities or industry analysts do
not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market
price for the ADSs and trading volume could decline.



The trading market for our ordinary shares
and ADSs will be influenced by research or reports that industry or securities analysts publish about our business. If one or more
analysts who cover us downgrade the ADSs, the market price for the ADSs would likely decline. If one or more of these analysts
cease to cover us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn,
could cause the market price or trading volume for the ADSs to decline.



It may be difficult for investors outside
Belgium to serve process on, or enforce foreign judgments against, us or our directors and senior management.



We are a Belgian public limited liability
company. Only two members of our board of directors and no member of our executive management are residents of the United States.
All or a substantial portion of the assets of such non-resident persons and most of our assets are located outside the United States.
As a result, it may not be possible for investors to effect service of process upon such persons or on us or to enforce against
them or us a judgment obtained in U.S. courts. Original actions or actions for the enforcement of judgments of U.S. courts relating
to the civil liability provisions of the federal or state securities laws of the United States are not directly enforceable in
Belgium. The United States and Belgium do not currently have a multilateral or bilateral treaty providing for reciprocal recognition
and enforcement of judgments, other than arbitral awards, in civil and commercial matters. In order for a final judgment for the
payment of money rendered by U.S. courts based on civil liability to produce any effect on Belgian soil, it is accordingly required
that this judgment be recognized or be declared enforceable by a Belgian court in accordance with Articles 22 to 25 of the 2004
Belgian Code of Private International Law. Recognition or enforcement does not imply a review of the merits of the case and is
irrespective of any reciprocity requirement. A U.S. judgment will, however, not be recognized or declared enforceable in Belgium
if it infringes upon one or more of the grounds for refusal that are exhaustively listed in Article 25 of the Belgian Code of Private
International Law. These grounds mainly require that the recognition or enforcement of the foreign judgment should not be a manifest
violation of public policy, that the foreign courts must have respected the rights of the defense, that the foreign judgment should
be final, and that the assumption of jurisdiction by the foreign court may not have breached certain principles of Belgian law.
In addition to recognition or enforcement, a judgment by a federal or state court in the United States against us may also serve
as evidence in a similar action in a Belgian court if it meets the conditions required for the authenticity of judgments according
to the law of the state where it was rendered. The findings of a federal or state court in the United States will not, however,
be taken into account to the extent they appear incompatible with Belgian public policy.



We believe we were not a passive foreign
investment company, or PFIC, for U.S. federal income tax purposes for the 2017 taxable year. However, because our PFIC status for
any taxable year is a factual determination that is made annually and may depend, in part, on the market value of our shares or
ADSs from time to time,



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there can be no assurance that we will
not be a PFIC for any taxable year. If we were a PFIC for any taxable year, this could result in adverse U.S. federal income tax
consequences to U.S. investors.



Based on the composition of our income
and assets and the estimated market value of our assets, including goodwill, which is based, in part, on the trading price of our
shares and ADSs for 2017, we believe that we were not a PFIC for U.S. federal income tax purposes for the 2017 taxable year, but
this conclusion is a factual determination that is made annually and thus may be subject to change. Because PFIC status must be
determined annually based on factual tests, our PFIC status for any taxable year will depend on the composition of our income and
assets and our activities in those years—for example, the timing of receipt of, or entitlement to, certain royalty or milestone
payments. Furthermore, because we hold a substantial amount of cash and cash equivalents, our PFIC status for any taxable year
may depend on the value of our goodwill, which may be determined by reference to our market capitalization (which may be especially
volatile given the nature of our business). Therefore, a decline in the value of our shares or ADSs could result in us being a
PFIC. In general, we will be a PFIC for any taxable year in which either of the following is true:



| | · | At least 75% of our gross income (looking through certain corporate subsidiaries) for the taxable year is “passive income.”
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | At least 50% of the value, determined on the basis of a quarterly average, of our gross assets (looking through certain corporate
subsidiaries) is attributable to assets that produce or are held for the production of “passive income.”
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Passive income generally includes dividends,
interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities
and gains from assets that produce passive income. Cash is a passive asset for PFIC purposes, even if held as working capital.
If we are a PFIC for any taxable year during which you own our shares or ADSs, and you are a U.S. holder, you will generally be
subject to additional taxes and interest charges on the sale of our shares or ADSs or upon receipt of an “excess distribution”
with respect to the shares or ADSs. In general, a U.S. holder would receive an “excess distribution” if the amount
of any distribution for U.S. federal income tax purposes in respect of the shares or ADSs is more than 125% of the average distributions
made with respect to the shares or ADSs within the three preceding taxable years (or shorter period in which such U.S. holder held
the shares or ADSs). A “market-to-market election,” if available to and made by a U.S. holder generally would result
in alternative treatment. In addition, as a PFIC, dividends on the shares or ADSs would not be eligible for the special tax rate
available to non-corporate U.S. holders applicable to “qualified dividend income.” U.S. owners of shares or ADSs should
consult their own U.S. tax advisors regarding the potential application of the PFIC rules. See “Item 10, Additional Information—E.
“Taxation.”



We are a Belgian public limited liability
company, and shareholders of our Company may have different and in some cases more limited shareholder rights than shareholders
of a U.S.-listed corporation.



We are a public limited liability company
incorporated under the laws of Belgium. Our corporate affairs are governed by Belgian corporate law. The rights provided to our
shareholders under Belgian corporate law and our articles of association differ in certain respects from the rights that you would
typically enjoy as a shareholder of a U.S. corporation under applicable U.S. federal and state laws.



Under Belgian corporate law, other than
certain limited information that we must make public and except in certain limited circumstances, our shareholders may not ask
for an inspection of our corporate records, while under Delaware corporate law any shareholder, irrespective of the size of its
shareholdings, may do so. Shareholders of a Belgian corporation are also unable to initiate a derivative action, a remedy typically
available to shareholders of U.S. companies, in order to enforce a right of our Company, in case we fail to enforce such right
ourselves, other than in certain cases of director liability under limited circumstances. In addition, a majority of our shareholders
present or represented at our meeting of shareholders may release a director from any claim of liability we may have, including
if he or she has acted in bad faith or has breached his or her duty of loyalty, provided, in some cases, that the relevant acts
were specifically mentioned in the convening notice to the meeting of shareholders deliberating on the discharge. In contrast,
most U.S. federal and state laws prohibit a company or its shareholders from releasing a director from liability altogether if
he or she has acted in bad faith or has breached his or her duty of loyalty to the Company. Finally, Belgian corporate law does
not provide any form of appraisal rights in the case of a business combination.



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As a result of these differences between
Belgian corporate law and our articles of association, on the one hand, and the U.S. federal and state laws, on the other hand,
in certain instances, you could receive less protection as a shareholder of our Company than you would as a shareholder of a listed
U.S. company.



Because we are a foreign private issuer
and intend to follow certain home country corporate governance practices, our shareholders may not have the same protections afforded
to shareholders of companies that are subject to all Nasdaq Global Select Market corporate governance requirements.



As a foreign private issuer, we have the
option to follow Belgian corporate law and the Belgian Corporate Governance Code rather than the corporate governance practices
of the Nasdaq Global Select Market, except to the extent that such laws would be contrary to U.S. securities laws, and provided
that we disclose the requirements we are not following and describe the home country practices we follow instead. As a result,
our shareholders may not have the same protections afforded to shareholders of companies that are subject to all the Nasdaq Global
Select Market corporate governance requirements. See “Item 16G. Corporate Governance.”



Holders of ADSs or ordinary shares have
limited rights to call meetings of shareholders or to submit shareholder proposals.



Except under limited circumstances, only
the board of directors or the statutory auditor may call a meeting of shareholders. Shareholders that collectively own at least
20% of the share capital of our Company may require the board of directors or the statutory auditor to convene a special or an
extraordinary general meeting of shareholders. Provided that certain conditions are satisfied, one or more shareholders holding
at least 3% of our share capital may request for items to be added to the agenda of any convened meeting and submit proposed resolutions
in relation to existing agenda items or new items to be added to the agenda. As a result, the ability of holders of the ADSs or
ordinary shares to participate in and influence the governance of our Company is limited.



Holders or beneficial owners of the ADSs
have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement or if they wish
us or the depositary to participate in legal proceedings.



The deposit agreement expressly limits
the obligations and liability of us and the depositary. Neither we nor the depositary will be liable to the extent that liability
results from the fact that we:



| | · | are prevented, forbidden from or delayed in doing or performing any obligation under the terms of the deposit agreement by
reason of any provision of any present or future law or regulation of the United States, any state thereof, Belgium or any other
country, or governmental or regulatory authority or stock exchange, or on account of possible civil or criminal liabilities or
by reason of any provision of our constitutional documents or any other provision governing the ordinary shares or by reason of
any act of God, war or other circumstances beyond our or their control;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | exercise or fail to exercise discretion under the deposit agreement or our constitutional documents or any other provision
governing the ordinary shares;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | perform our obligations without gross negligence or willful misconduct or bad faith
| | - | -----------------------------------------------------------------------------------



| | · | take any action or fail to take any action based upon advice of or information from legal counsel, accountants, any person
presenting shares for deposit, any holder of the ADSs or any other person believed in good faith to be competent to give such advice
or information; or
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | rely on any documents we believe to be genuine and properly executed.
| | - | ---------------------------------------------------------------------



In addition, neither we nor the depositary
has any obligation to participate in any action, suit or other proceeding in respect of the ADSs which may involve it in expense
or liability unless it is indemnified to its satisfaction. Additionally, neither we nor the depositary will incur any liability
for any special, consequential, indirect or punitive damages for any breach of the deposit agreement or otherwise. These provisions
of the deposit agreement will limit the ability of holders or beneficial owners of the ADSs to obtain recourse if we or the depositary
fail to meet our respective obligations under the deposit agreement or if they wish us or the depositary to participate in a legal
proceeding.



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Investors may not be able to participate
in equity offerings, and ADS holders may not receive any value for rights that we may grant.



In accordance with Belgian corporate law,
our articles of association provide for preferential subscription rights to be granted to our existing shareholders to subscribe
on a pro rata basis for any issue for cash of new shares, convertible bonds or warrants that are exercisable for cash, unless such
rights are canceled or limited by resolution of our meeting of shareholders or the board of directors. Our meeting of shareholders
or board of directors may cancel or restrict such rights in future equity offerings. In addition, certain shareholders (including
those in the United States, Australia, Canada or Japan) may not be entitled to exercise such rights even if they are not canceled
unless the rights and related shares are registered or qualified for sale under the relevant legislation or regulatory framework.
As a result, there is the risk that investors may suffer dilution of their shareholding should they not be permitted to participate
in preference right equity or other offerings that we may conduct in the future.



If rights are granted to our shareholders,
as the case may be, but the depositary is unable to sell rights corresponding to shares represented by ADSs that are not exercised
by, or distributed to, ADS holders, or if the sale of such rights is not lawful or reasonably practicable, the depositary may allow
the rights to lapse, in which case ADS holders will receive no value for such rights.



The tax reform in Belgium could have
an adverse impact on us and on holders of our shares and ADSs.



In its budgetary agreement presented on
July 26, 2017, the Belgian federal government announced a major income tax reform (the “Belgian Tax Reform”).
The relevant new tax measures introduced in the framework of the Belgian Tax Reform are contained in three separate piece of legislation:



| | · | Program-law of December 25, 2017;
| | - | ---------------------------------



| | · | Law of December 25, 2017, regarding the reform of the corporate income tax; and
| | - | -------------------------------------------------------------------------------



| | · | Law of February 7, 2018 introducing a tax on custody accounts.
| | - | --------------------------------------------------------------



Among other measures, the standard corporate
income tax rate decreases from 33% to 29.58% as of assessment year 2019 for taxable periods starting at the earliest on January
1, 2018 (including supplementary crisis surcharges of 2%) and ultimately to 25% in 2020 (for enterprises other than small- and
medium-sized enterprises (SMEs)). However, the Belgian Tax Reform broadens the corporate tax base and abolishes a number of existing
tax deductions and specific exemption regimes to reflect the three main aims of the reform: simplification, fairness in taxation
policy and budget neutrality. Measures relating to individuals have also been taken.



The entry into force of the measures taken
in the framework of the Belgian Tax Reform will be phased in a period of three years, with some measures applicable as of January
1, 2018 while other measures will be applicable as of 2019 or 2020. Hence, we can provide no assurance regarding the effect that
the overall Belgian Tax Reform will have on our global tax burden, particularly in light of the offsetting measures being adopted
as of 2019 and/or 2020 to counterbalance the reduction in the standard corporate income tax rate. As such, the Belgian Tax Reform
could have a net negative impact on the value of the ordinary shares represented by ADSs or the return associated with them.



For more details about the impact of the
Belgian Tax Reform, see “Taxation—Belgian Taxation.”



Item 4. Information on the Company



A.       History and
Development of the Company



General



We are an advanced biopharmaceutical company
developing novel therapies for serious medical conditions by exploiting the anti-inflammatory properties of allogeneic, or donor-derived,
stem cells. We have completed, and received positive data in a single pivotal Phase III trial in Europe and Israel of our most
advanced product candidate Cx601, a potential first-in-class locally injectable allogeneic stem cell therapy indicated for the
treatment of complex perianal fistulas in patients suffering from Crohn’s disease. A complex perianal fistula consists of
abnormal tracts between the rectum and the skin surrounding the anus, and is commonly associated with Crohn’s disease. It
is a



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serious
clinical condition affecting the anal sphincter and is potentially associated with a perianal abscess. Cx601 has been granted
orphan drug designation by the FDA for the treatment of patients with fistulizing Crohn’s disease. Over 125,000 adult Crohn’s
patients suffer from perianal fistulas in the United States and Europe for which existing treatment options are inadequate.



Cx601 is our lead product candidate based
on our platform of expanded adipose, or fat tissue, derived stem cells, known as eASCs. Under the Licensing Agreement, Takeda currently
has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas outside the United States. The Licensing
Agreement and the Manufacturing Agreement also govern, among other things, the specific aspects of the manufacturing and supply
of Cx601 and the financial terms of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda.



In the randomized, double-blind, placebo-controlled
Phase III study, Cx601 met the primary endpoint of combined remission of complex perianal fistulas at 24 weeks. The results of
the follow-up analysis after 52 weeks were also positive in terms of efficacy and confirmed the favorable safety and tolerability
profile of Cx601. Tolerability was again confirmed in the long-term extension at week 104.



Based on the data from our pivotal Phase
III trial in Europe, we submitted a marketing authorization application for Cx601 to the EMA in March 2016, and a positive opinion
from the CHMP was issued on December 14, 2017. On December 20, 2017, following the positive opinion from the CHMP, we announced
our plans to focus our resources and capabilities on the eASC platform technology and our product candidates Cx601 and Cx611. On
the basis of the CHMP opinion, marketing authorization was granted by the European Commission on March 23, 2018, following which
Takeda may start to commercialize the approved product in Europe. We have also initiated a global pivotal Phase III clinical trial
for Cx601 for the treatment of complex perianal fistulas in patients with Crohn’s disease, which is designed to support a
future regulatory filing for Cx601 in the United States, and are advancing in the technology transfer process to Lonza, a U.S.-based
contract manufacturing organization. Based on discussions with the FDA, we believe that the U.S. Phase III trial, if successful,
could, together with the European Phase III data, serve as sufficient evidence for filing a BLA for regulatory approval with the
FDA. We reached an agreement with the FDA through a special protocol assessment, or SPA, procedure for our global Phase III trial
protocol. The agreed primary endpoint for the global Phase III trial is the same as the one for the European Phase III trial. For
this Phase III trial we have submitted an IND application to the FDA that has been approved for sites in Europe and Israel and
is on hold in North America until U.S.-approved clinical supplies are available for those sites.



In order to speed the availability of Cx601
in the U.S. market, we intend to apply to the various applicable mechanisms put in place by the FDA to facilitate access to innovative
drugs that target serious conditions and that present advantages over existing treatments. In particular, on September 15, 2017
we applied for RMAT designation for Cx601. On November 8, 2017 we learned that our application could not be accepted until U.S.-approved
clinical supplies are available. We intend to reapply as soon as feasible thereafter.



Our eASC-based platform has generated other
product candidates, including Cx611, for which we have completed a European Phase I trial in a sepsis challenge in healthy volunteers.
We initiated a Phase Ib/IIa clinical trial for the treatment of severe sepsis in Europe in January 2017.



On July 31, 2015, we acquired Coretherapix,
a Spanish biopharmaceutical company focused on developing cost-effective regenerative therapeutics to stimulate the endogenous
repair capacity of the heart and mitigate the negative effects of myocardial infarction, or a heart attack. Coretherapix had developed
an allogeneic platform of expanded cardiac stem cells, or CSCs, and its lead product candidate, AlloCSC-01, employs allogeneic
CSCs as a potential treatment for acute ischemic heart disease. We completed a European Phase I/II trial to evaluate the safety
and efficacy of the intracoronary infusion of AlloCSC-01 in patients with acute myocardial infarction. All safety objectives of
the study were met. No mortality or MACE were found at 30 days, which was the primary endpoint of the study. In follow-ups, neither
mortality nor MACE were found at either 6 months or at 12 months. Of particular relevance to this allogeneic approach, no immune-related
adverse events were recorded at one-year follow-up. On December 20, 2017, following the positive opinion from the CHMP, we announced
our plans to focus our resources and capabilities on the eASC platform technology and our product candidates Cx601 and Cx611. As
a result, we do not plan to invest in further R&D of our CSC-based platform. Under these circumstances the fair value of the
assets resulting from the business combination with Coretherapix is close to zero. An impairment (18.1 million euros) has been
recognized at December 31, 2017 and the liability related to it has been consequently reversed (8.4 million euros). These items
and the fair value changes which occurred during the year in the contingent consideration (0.5



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million
euros) negatively impacted the Company’s consolidated statement of income, with a negative impact of 10.2 million euros.



We also developed and commercialized ChondroCelect,
the first cell-based medicinal product to receive marketing authorization from the European Commission, which was indicated for cartilage repair
in the knee. In July 2016, for commercial reasons, we decided to terminate our distribution agreements with Sobi and the Finnish
Red Cross Blood Service and our manufacturing agreement with PharmaCell and we requested the withdrawal of our marketing authorization
for ChondroCelect which became effective as of November 30, 2016. We no longer generate revenues from ChondroCelect.



Our eASC-based product candidates are manufactured
at our facility in Madrid, which has been approved by the Spanish Medicines and Medical Devices Agency as being compliant with
current Good Manufacturing Practices, or cGMP, requirements, which are the standards prescribed by regulatory agencies that control
and license the manufacture and supply of pharmaceutical products, such as eASCs. Through our expansion process, we can generate
up to 2,400 doses of Cx601 from cells extracted from a single healthy donor. We expect to continue producing Cx601 at our facility
until Takeda assumes responsibility for manufacturing. Other than the Licensing Agreement, under which Takeda has the exclusive
right to commercialize Cx601 outside the United States, we currently hold the worldwide rights for all of the product candidates
we have developed.



Our therapeutic approach is to focus on
the use of living cells, rather than conventional drugs, for the treatment of inflammatory and autoimmune diseases, through our
eASC-based platform. Cells target different pathways from conventional drugs and may be effective in patients who fail to respond
to such drugs, including the biologics currently used to treat inflammatory and autoimmune conditions. Our pipeline is based on
proprietary platforms of allogeneic stem cells, which are extracted from human adipose tissue from healthy adult donors. We have
conducted a full spectrum of studies analyzing various routes of administration—local (perianal), rectovaginal, intravenous,
intralymphatic and, for AlloCSC-01, intra-coronary—and indications to further support the preclinical and clinical development
of our platform. We have also had extensive discussions with the EMA regarding our eASC platform through their established procedures
for scientific advice regarding chemistry, manufacturing and control (CMC) packages and preclinical packages as well as a scientific
advice meeting with respect to Cx601 that has allowed us to pursue an expedited route to clinical development. In addition, we
have had various meetings with the Center for Biologics Evaluation and Research within the FDA on the non-clinical, clinical and
CMC development of Cx601 in the United States, including a pre-IND meeting. We believe that we already have the capacity to scale
up the production of our eASC-based products on a late-stage clinical as well as commercial scale and have successfully obtained
a manufacturing license from the Spanish Medicines and Medical Devices Agency for the commercial production of Cx601.



As of the date of this Annual Report and
to the best of our knowledge, we believe that our pipeline portfolio was the most advanced cell therapy platform in Europe, with
marketing authorization in Europe for our lead product candidate already granted by the European Commission, a global Phase III
underway seeking BLA filing for the same product in the United States and one further product candidate in Phase Ib/IIa development.



Tender Offer



On January
5, 2018 Takeda announced its intention to launch the Tender Offer to purchase all of our issued and outstanding shares, warrants
and ADSs. The Tender Offer will be made pursuant to the Offer and Purchase Agreement, dated as of January 5, 2018, between the
Company and Takeda. The Company expects the Tender Offer to be launched by Takeda in April 2018. See “Item 3. Key Information—Recent
Developments—The Takeda Tender Offer” and “Item 3. Key Information—D. Risk Factors—Risks Related
to the Tender Offer”.



Capital Expenditures



Our actual capital expenditures for the
years ended December 31, 2017, 2016 and 2015 amounted to 13.6 million euros, 2.1 million euros and 0.6 million euros, respectively.
These capital expenditures primarily consisted of intangible assets related to our intellectual property and the acquisitions of
our subsidiaries, property plant and equipment related to our facilities in Madrid and in Leuven. We expect our capital expenditures
to increase in absolute terms in the short term as we continue to advance our research and development programs and grow our operations.
We anticipate our capital expenditure in 2018 to be financed from our cash and cash equivalents on hand.



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The table below shows our capital expenditures
for the years ended December 31, 2017, 2016 and 2015:



|                              |  | Years ended December 31,
|----------------------------- |  | ------------------------
|                              |  | 2017                    
|                              |  | (in thousands of euros) 
|Intangible assets             |  |                         
|Property, plant and equipment |  |                         
|Total                         |  |                         





| | B. | Business Overview
| | -- | -----------------



Please see “Item 4.A. History
and Development of the Company” above for additional information regarding our business. Further, if the Tender Offer
is consummated, our business, product strategy, investigation focus, manufacturing locations, management teams and other aspects
of our business and operations may change from those described below. See “Item 3. Key Information—D. Risk Factors—Risks
Related to the Tender Offer”.



The following chart summarizes our product
candidates:















| | · | Cx601.Cx601, our lead product candidate, is a potential first-in-class local injectable allogeneic stem cell therapy
that has completed a pivotal Phase III trial in Europe and Israel for the treatment of complex perianal fistulas in patients
suffering from Crohn’s disease. We have observed compelling clinical results that suggest that Cx601 has clinical utility
in treating perianal fistulas in one injectable dose with increased efficacy and a more favorable adverse events profile than currently
available therapies in Europe and the United States. Based on the data from our pivotal Phase III trial in Europe, we submitted
a marketing authorization application for Cx601 to the EMA in March 2016, and a positive opinion from the CHMP was issued on December
14, 2017. On the basis of the CHMP opinion, we were granted marketing authorization for Cx601 (under the tradename “Alofisel”)
by the European Commission on March 23,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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2018, for the treatment of complex
perianal fistulas in adult patients with non-active/mildly active luminal Crohn’s disease, when fistulas have shown an inadequate
response to at least one conventional or biologic therapy. Alofisel should be used after conditioning of fistula. This marks the
first allogeneic stem cell therapy to receive marketing authorization in Europe.



On October 18, 2017, the FDA granted
orphan drug designation to Cx601 for the treatment of patients with fistulizing Crohn’s disease, which includes complex perianal
fistula, in accordance with FDA advice.



In June 2017, we, together with
Takeda, announced that Swissmedic had accepted for review the file on Cx601 to treat complex perianal fistulas in patients with
Crohn’s disease. The submission to Swissmedic represented a key milestone in the commercialization of Cx601 in Switzerland.
Also in June 2017, we formally launched the global pivotal Phase III clinical trial for Cx601 for the treatment of complex perianal
fistulas in patients with Crohn’s disease, which is intended to support a future regulatory filing for Cx601 in the United
States. The global pivotal Phase III clinical trial is a randomized, double-blind, placebo-controlled study designed to confirm
the efficacy and safety of a single administration of Cx601 for the treatment of complex perianal fistulas in Crohn's disease patients.
The trial design is similar to the European Phase III ADMIRE-CD trial for Cx601, with an identical primary endpoint. As of March
31, 2018, patients had been recruited into the trial across 37 sites in seven European countries including Spain, Italy, France,
Poland, Belgium, Hungary and the Czech Republic. IND clearance for the start of recruitment in the United States is expected by
the end of 2018. In support of this trial and our strategic goal of commercializing Cx601 in the United States, we opened our U.S.
headquarters in Cambridge, Massachusetts, in June 2017.



| | · | Cx611.Cx611 is an allogeneic cellular suspension of eASCs that is injected intravenously. We have completed a Phase
I sepsis challenge trial in which we studied the effect of Cx611 on volunteers with induced sepsis-like symptoms and we initiated
a Phase Ib/IIa clinical trial for Cx611 (SEPCELL) in the treatment of severe sepsis due to severe community-acquired pneumonia,
both in Europe. The first patient was dosed in January 2017. In the first quarter of 2018, after having reviewed the safety and
efficacy data from the first 20 randomized patients, the independent data monitoring committee recommended to continue the study
with no changes in the protocol.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | AlloCSC-01. Following our acquisition of Coretherapix in 2015, we developed AlloCSC-01, our first product candidate
from the CSC-based platform, is a suspension of allogeneic CSCs administered into the coronary artery of the patient. We completed
a two-stage Phase I/II trial in Europe to evaluate the safety and preliminary efficacy of the intracoronary infusion of AlloCSC-01
in patients with acute myocardial infarction. All safety objectives of the study were met. No mortality or MACE were found at 30
days, which was the primary endpoint of the study. In follow-ups, neither mortality nor MACE were found at either 6 months or at
12 months. Of particular relevance to this allogeneic approach, no immune-related adverse events were recorded at one-year follow-up.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On December 20, 2017, following
the positive opinion from the CHMP, we announced our plans to focus our resources and capabilities on the eASC platform technology
and our product candidates Cx601 and Cx611. As a result, we do not plan to invest in further R&D of our CSC-based platform.



| | · | ChondroCelect. We also developed ChondroCelect, the first cell-based product to receive centralized marketing authorization
from the European Commission in October 2009 as an advanced therapy medicinal product, a new medical product category regulated
by the EMA that includes products based on gene therapy, cell therapy or tissue engineering. In July 2016, we requested the withdrawal
of our marketing authorization for commercial reasons, which became effective as of November 30, 2016. We no longer generate
any revenues from ChondroCelect.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of December 31, 2017, we owned or co-owned
29 patent families and had more than 125 granted patents in more than 20 jurisdictions, including the United States, with expiration
dates starting from 2020, for a patent relating to ChondroCelect.



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Our Strategy



Our objective is to leverage our cell-therapy
experience to develop innovative and safe treatment options for a broad range of inflammatory and autoimmune diseases using our
eASC-based technology platform. Key elements of our strategy for achieving this objective are as follows:



| | · | Advance the clinical development of Cx601 and secure regulatory approval in Europe and the United States.Leveraging
our experience with ChondroCelect, the first cell-based product to be granted centralized marketing authorization in Europe as
an advanced therapy medicinal product, we intend to secure regulatory approval for our eASC-based product candidates, starting
with Cx601.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Europe. Based on the results of our successful pivotal Phase III trial in Europe, we filed for marketing
authorization in Europe in the first quarter of 2016. CHMP issued a positive opinion on December 14, 2017. On the basis of the
CHMP opinion, we were granted marketing authorization by the European Commission on March 23, 2018, following which Takeda may
start to commercialize the approved product in Europe within three months.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | United States. We received positive feedback in our meeting, in December 2013, with the Center for Biologics
Evaluation and Research within the FDA, which agreed to review the results of the European Phase III trial, which we recently
completed, as supportive evidence for filing for regulatory approval in the United States. In addition, the FDA has agreed with
the design of our global Phase III trial to register Cx601 in the United States through the SPA procedure as registration trial.
We have started the process of technology transfer to Lonza, a U.S.-based contract manufacturing organization and have applied
for an IND for the global Phase III trial to register Cx601 in the United States, which was launched in June 2017. We obtained
orphan designation by the FDA in October 2017 and are broadly exploring available options for expedited development and review,
which could result in the BLA being filed before the global Phase III trial to register Cx601 in the United States is completed.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Achieve global commercialization of Cx601.Under the Licensing Agreement, Takeda currently has the exclusive
right to commercialize and develop Cx601 for complex perianal fistulas in all countries outside the United States. The Licensing
Agreement and the Manufacturing Agreement also govern, among other things, the specific aspects of the manufacturing and supply
of Cx601 and the financial terms of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda. We
will follow a commercial strategy to increase the probability of Cx601’s ultimate success and may consider other partnerships
in the United States. Complex perianal fistula in patients with Crohn’s disease, for which Cx601 is being developed, is a
debilitating condition with a well-defined patient population managed by a limited number of medical specialists, which we believe
will allow us to rely on a relatively small and effective commercialization structure to manage the relevant reference centers.
Based on the positive CHMP opinion and a standard regulatory pathway for advanced therapy medicinal products, we were granted marketing
authorization in Europe on March 23, 2018, and we anticipate generating our first royalties from Cx601 within three months of such
authorization.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Advance our product candidate Cx601 for other indications and advance Cx611.We have identified new indications
for Cx601 and a number of areas across fistulizing disease where serious unmet medical needs exist, which share similarities with
complex perianal fistulas in Crohn's disease in terms of disease development and treatment approaches. We are working with our
scientific advisory board on the most appropriate clinical development plan for each of these indications prior to discussing with
regulators in scientific advice meetings. In respect of Cx611, we are focusing on a well-defined patient population and have selected
a subgroup of patients suffering from severe sepsis within the otherwise relatively large indications in inflammatory disease.
We successfully concluded a Phase I safety trial in the first quarter of 2015, and we enrolled the first patient for a Phase Ib/IIa
trial in January 2017. We believe that if Cx611 were approved, it would supplement existing therapies and would have the potential
to reduce mortality in patients with severe sepsis.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Discover, develop and commercialize first-in-class novel therapeutics for areas of high unmet medical needs by leveraging
our proprietary allogeneic stem cell-based technology platform and our experience in bringing stem-cell based products to market.We intend to advance our position through the continuing discovery and development of new product candidates for multiple
indications. We believe that our
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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technology platform as well as our
in-house expertise allow us to achieve candidate selection and proof-of-concept in an efficient manner. Our product candidates
use novel mechanisms of action offering benefits that are expected to be superior to existing treatment options in terms of efficacy
and safety in the selected indications, and we believe that they have the potential to be effective in a broad range of indications.
We will continue to invest in our eASC platform, and identify, develop and manufacture additional product candidates from it. As
our subsequent product candidates advance in their development for more prevalent indications, we aim to achieve substantial growth.



| | · | Strengthen our competitive position by leveraging our experienced management team and reinforcing key opinion leader
support.Our management team is comprised of highly experienced professionals with track records in the biomedical and
pharmaceutical fields. The team has demonstrated its ability to create value by bringing the first cell therapy-based medicinal
product in Europe to market and achieving key value enhancing milestones in all other areas of pharmaceutical development, including
clinical development, regulatory, manufacturing and commercialization. In doing so, our team has acquired a unique expertise in
the field of cell therapy. As a cell therapy pioneer, we have developed and will continue to capitalize on our strong relationships
with key opinion leaders who have collaborated and consulted with us in developing our product candidates. As a result, we have
established strong scientific advisory boards that share our belief in the therapeutic potential of cell therapies. With respect
to Cx601, we have advisory boards in Europe and in the United States. For Cx611, we have an advisory board in Europe for severe
sepsis.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Technology Platforms



Our product candidates are based on our
proprietary allogeneic stem cell-based platforms, which offer significant market opportunities in both inflammatory and autoimmune
diseases and heart disease, based on the following distinguishing factors:



| | · | Our use of allogeneic adult stem cells.Our platforms use allogeneic stem cells because this approach offers
clear advantages over autologous cells, i.e., cells extracted from each individual patient and subsequently processed, which are
summarized below:
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Efficient production of large batches of cells.Economies of scale can be applied with respect to manufacturing
and quality control tests, reducing the cost of manufacturing and leading to a more consistent end product, i.e., individual lots
of a large batch. For eASCs, up to 360 billion cells can be obtained upon expansion of cells extracted from a single donor. At
current scale, this could be used to generate up to 2,400 doses of Cx601.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | No patient biopsy/tissue procurement needed.The use of allogeneic cells also benefits physicians and patients,
because the treatment can be administered readily in a single procedure, taking less clinical time and resources. The process avoids
taking biopsies from patients and allows for the treatment of patients who do not possess sufficient healthy tissue or who for
any other medical reason cannot undergo tissue procurement.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Immediate and consistent availability of cells.The use of allogeneic cells, which are extracted from healthy
donors and processed in large batches and are therefore available to physicians whenever required, enables the use of stem cells
for the immediate treatment of acute conditions such as severe sepsis and acute myocardial infarction, because the additional step
of procuring and processing autologous cells, which need to be extracted from each individual patient, is eliminated. This could
potentially increase patient throughput significantly, creating a more attractive commercial opportunity than would be possible
using autologous cells.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our expertise in optimizing the delivery of
stem cells as required by different indications.This expertise is evidenced by the preclinical and clinical data we have
generated with respect to our product candidates:
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Local administration.For local diseases
or tissue damage, we believe that depositing the cells as close as possible to the affected tissue or organ optimizes the effect
of the cells, which are not diluted and thus achieve the highest concentration at the site of action, and have developed the appropriate
expertise in administering the cells. The cells immediately encounter the affected environment leading to direct
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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activation of the cells
thereby exerting their immunomodulatory and/or repair-supporting actions. Therefore, for a disease like fistulas or
myocardial infarction, we locally administer the cells.



| | · | Systemic administration.For systemic
diseases like sepsis, where the cells need to act at several places in the body, we believe that systemic administration of the
cells, through either the blood or the lymphatic system, is preferred. With this method of administration, which we use for our
eASCs in certain applications, the cells are distributed across the body and are able to reach the affected tissues. We believe
that the capacity of eASCs to detect inflammation and to accumulate at the site of inflammation will result in an efficient mechanism
of action.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Our use of human-derived adipose tissue for our
eASC-based platform.We use eASCs extracted from the human adipose tissue of healthy volunteers. We believe that this
type of cell offers significant advantages over other cell types, such as stem cells sourced from bone marrow. The key advantages
of this approach are the following:
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Ease and amount of supply.The cells
can be collected through standard liposuction.
| | - | ----------------------------------------------------------------------------------



| | · | Rich supply of stem cells.Stem cells
can represent up to 2% of the total cells of the stromal vascular fraction of the fat tissue, a potential yield of 100 to 1,000
times higher than other possible sources of stem cells.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Robust phenotype.The eASCs do not require
overly elaborate growth conditions and can be grown continuously without loss of their immunomodulatory characteristics. They
have also been shown to maintain cell stability during expansion.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Pharmacological profile.The eASCs have
low immunogenicity as defined by the low presence or absence of human leukocyte antigens, co-stimulatory molecules and ligands
for natural killer receptors and are therefore considered to be applicable for allogeneic treatment.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Mechanism of Action of our eASC-based
Product Candidates



Our eASC-based product candidates are derived
from a proprietary technology platform and rely on exploiting their recognized mechanism of action in immune-mediated inflammatory
processes. Our basic preclinical package for eASCs is based on a full spectrum of studies focusing on three indications—inflammatory
bowel disease, sepsis and rheumatoid arthritis—and four possible routes of administration—local (perianal), rectovaginal,
intravenous and intralymphatic. In these preclinical studies, we have found no indications of toxicity; tumorigenicity, which is
the potential of the cells to cause tumors; or ectopic tissue growth, which is the growth of new tissue at a site within the body
where such tissue would not occur naturally. We have extensively characterized our eASC platform to establish the potency, identity
and purity of our eASC-based product candidates and had discussions with the EMA via their established procedures for scientific
advice regarding our chemistry, manufacturing and control package. Based on these discussions, we have validated our manufacturing
process and our platform-associated analytical procedures as per the EMA’s guidelines, including the quality guidelines of
the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use.



There are two main biological pathways
that underlie the efficacy of adipose-derived stem cells, or ASCs, in disease treatment: their anti-inflammatory properties and
their secretion of repair and growth promoting molecules.



In particular, the immunomodulatory properties
of these cells offer potential novel treatments for autoimmune and inflammatory diseases, as evidenced by promising preclinical
and clinical results. The eASCs exhibit broad immunomodulatory properties, including the regulation of immune cells such as B lymphocytes,
T lymphocytes, natural killer cells, monocytes or macrophages and neutrophils. These modulatory effects rely on a direct interaction
between eASCs and immune cells as well as the effect of substances secreted by the eASCs on tissues and cells through a broad panel
of soluble factors. In particular the degradation of the amino acid tryptophan by the enzyme indoleamine 2,3 dioxygenase, is of
key importance because it halts the growth of T cells, and enhances the activity of suppressor cells, such as regulatory T
cells and anti-inflammatory macrophages.



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The following charts illustrate two mechanisms
of action through which eASCs regulate inflammation: inhibition of immune cell proliferation and reduction of pro-inflammatory
cytokines.



Inhibition of Immune Cell Proliferation







The left bar of the chart above depicts
the activation of peripheral blood mononuclear cells, or PBMCs, with specific antibodies that cause the proliferation of T cells,
constituting the majority of the observed effect on the PBMC population.



When ASCs are added or co-cultured with
the PBMCs, the T cells are largely inhibited, as indicated in the middle bars. This effect is due to the ASCs’ expression
of Indoleamine 2,3-dioxygenase, or IDO enzyme, a tryptophan degrading enzyme. The addition of an IDO-inhibitor largely reverses
the inhibitory effect, as shown in the right bars. This inhibitory effect is mediated through the medium as demonstrated by the
fact that separating the two cell types with a transwell, or semi-permeable membrane, as indicated by the black bars, results in
comparable inhibition as when the cells are in contact with each other, as indicated by the white bars.



Reduction of Pro-Inflammatory Cytokines







In non-stimulated conditions, as indicated
by the above bars titled “PBMC,” “ASC” and “PBMC+ASC,” there is no secretion of the pro-inflammatory
cytokines, interferon-γ (IFN-γ), or Tumor Necrosis Factor-α (TNF-α). Upon stimulation, PBMCs secrete these
cytokines, as indicated by the bar “Activated PBMC.” In the presence of ASCs, as indicated by the bar “Activated
PBMC + ASC,” this secretion is strongly reduced. The p-value is below 0.05 for this effect, indicating that it
is statistically significant and unlikely to occur by chance.



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More broadly, the following image depicts
the mechanism of action of mesenchymal stem cells, or MSCs, a category that includes eASCs:







MSCs can interact with the different cells
of the immune system, including T cells; B cells, which secrete the immunoglobulins IgG, IgM and IgA; NK cells; and macrophages
and dendritic cells. The effects of the MSCs on such cells can be decreasing, or inhibitory (-), or increasing, or stimulatory
(+). The overall effect of these interactions aims at dampening the inflammatory intensity of the immune reaction.



Our eASC-based product candidates leverage
this recognized mechanism of action of MSCs in immune-mediated and inflammatory processes, which should enable us to develop rapidly
and bring to market groundbreaking products that have the potential to treat safely a broad range of inflammatory and autoimmune
diseases. We have had extensive discussions with the EMA regarding chemistry, manufacturing and control packages and preclinical
packages in connection with our eASCs platform, which have allowed us to advance rapidly our clinical development with respect
to our pipeline candidates.



Product and Product Candidates



Our pipeline is derived from our proprietary
platforms of allogeneic stem cells. Our stem cells are extracted and cultured from tissue sourced from consenting adult donors
and for administration in our clinical studies targeting autoimmune and inflammatory diseases. Cx601, our lead product candidate,
is being studied for the treatment of complex perianal fistulas in Crohn’s disease patients, and met the primary endpoint
of its single pivotal European Phase III clinical trial in August 2015. We filed for marketing authorization in Europe during
the first quarter of 2016 and the CHMP issued a positive opinion on December 14, 2017. We were granted marketing authorization
by the European Commission on March 23, 2018. The FDA has agreed to review the results of this pivotal Phase III trial as
supportive evidence for filing for future regulatory approval in the United States, and agreed with our proposed design for a global
Phase III trial for registration in the United States through an SPA. Pursuant to the Licensing Agreement, Takeda currently
has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas in all countries outside the United States.
The Manufacturing Agreement also governs, among other things, the specific aspects of the manufacturing and supply of Cx601 and
the financial terms of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda. Cx611, our next
most advanced clinical stage product candidate from our eASC-based technology platform, has completed a Phase I challenge
study in sepsis and a successful Phase Ib/IIa trial for the treatment of refractory rheumatoid arthritis, both in Europe.
On January 1, 2017 we enrolled and treated the first patient in a Phase Ib/IIa clinical trial in severe sepsis in Europe. We



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have
also explored the intra-lymphatic administration of allogeneic eASCs with Cx621 and generated positive safety and feasibility
information in a Phase I trial in Europe.



We also had one commercial product, ChondroCelect,
which was indicated for cartilage repair in the knee and was the first cell-based medicinal product to receive centralized marketing
authorization from the European Commission. In July 2016, we requested the withdrawal of marketing authorization for ChondroCelect for commercial
reasons, which became effective as of November 30, 2016. We no longer generate revenues from ChondroCelect.



Cx601



Cx601, our lead product candidate, is a
suspension of allogeneic eASCs administered locally in the perianal fistula through intra-lesional injection as a single dose administration.
Cx601 has completed a Phase III trial in Europe and Israel for the treatment of complex perianal fistulas in patients suffering
from Crohn’s disease.



In the randomized, double-blind, placebo-controlled
Phase III study, with a single dose administration of Cx601 the rate of combined remission in patients treated with Cx601 compared
with patients who received placebo was statistically significant, meeting the primary endpoint of combined remission of complex
perianal fistulas at 24 weeks. In the ITT population, which was composed of 212 Crohn’s disease patients with inadequate
response to previous therapies, 49.5% of patients treated with Cx601 had combined remission compared to 34.3% in the placebo arm.
The trial’s results indicated that patients receiving Cx601 had a 44.3% greater probability of achieving combined remission
than placebo patients. The efficacy results were consistent and robust across all statistical populations and sensitivity analyses
with a p-value of less than 0.025. Moreover, the trial confirmed a favorable safety and tolerability profile, and treatment-emergent
adverse events (non-serious and serious) and discontinuations due to adverse events were comparable between the Cx601 and placebo
arms.



The results of the follow-up analysis after
52 weeks were also positive. In the ITT population, 54.2% of patients treated with Cx601 had combined remission compared to 37.1%
of patients in the placebo arm. The result had a p-value of 0.012, indicating high statistical significance. In addition, after
52 weeks, 75.0% of patients treated with Cx601 who were in combined remission at week 24 did not relapse, compared to 55.9% for
patients in the placebo arm who were in combined remission at week 24. The results also confirmed the favorable safety and tolerability
profile of Cx601.



Follow-up results at 104 weeks supported
the long-term safety and efficacy profile of Cx601 for the treatment of complex perianal fistulas for Crohn’s disease patients.



We have a clear and potentially rapid pathway
to the market for Cx601. Pursuant to the Licensing Agreement, Takeda currently has the exclusive right to commercialize and develop
Cx601 for complex perianal fistulas in all countries outside the United States. The Manufacturing Agreement governs, among other
things, the specific aspects of the manufacturing and supply of Cx601 and the financial terms of the transfer of the manufacturing
responsibilities for Cx601 from the Company to Takeda. Takeda agreed to make an upfront non-refundable payment of 25 million
euros, a further payment of 15 million euros upon receipt of marketing authorization for Cx601 from the European Commission
(which authorization we obtained on March 23, 2018 and which payment we expect to receive during the second quarter of 2018), an
equity investment of ten million euros within one year of the effective date of the Licensing Agreement (which it made on December
29, 2016), additional sales and reimbursement milestone payments up to a total of 340 million euros and royalty payments ranging
from 10% to 18% on net sales by Takeda. Based on the positive results of our single pivotal Phase III trial in Europe and
Israel, we submitted the marketing authorization application for Cx601 to the EMA in March 2016 and the CHMP issued a positive
opinion on December 14, 2017. We obtained marketing authorization on March 23, 2018. In 2009, the EMA granted Cx601 orphan drug
designation for the treatment of anal fistulas, recognizing the debilitating nature of the disease and the lack of treatment options
for this indication that affects no more than five out of 10,000 people in the European Union. On December 21, 2017, we were formally
notified that the Committee of Orphan Medicinal Products (COMP) had recommended to remove Cx601 from the European Commission register
of orphan drugs. We challenged that determination and the COMP’s plenary meeting on January 16-18, 2018 adopted an opinion
recommending that Cx601 be kept in the European Commission register for orphan drugs.



We have also had a meeting with the FDA
to discuss the adequacy of our clinical and non-clinical data to support an IND application for a global Phase III trial to register
Cx601 in the United States. We received positive feedback regarding our pivotal European Phase III trial design for supporting
a BLA and have reached an agreement



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with
the FDA through an SPA procedure for our proposed protocol for a global Phase III trial to register Cx601 in the United States.
On October 18, 2017, the FDA granted orphan drug designation to Cx601 for the treatment of patients with fistulizing Crohn’s
disease, which includes complex perianal fistula, in accordance with FDA advice.



In September 2017, we announced that we
had obtained a manufacturing license following the inspection by the AEMPS for the commercial production of eASCs at our manufacturing
facility in Madrid, which provides production capacity for the potential initial European commercial roll-out of Cx601 and for
the manufacturing of other pipeline products under development by us, including Cx611, currently undergoing a Phase Ib/IIa trial
in severe sepsis.



In June 2017, we, together with Takeda,
announced that the Swissmedic had accepted for review the file on Cx601 to treat complex perianal fistulas in patients with Crohn’s
disease. Cx601 was previously granted orphan drug status by Swissmedic in September 2016, recognizing the rare and debilitating
nature of the disease. The Swissmedic filing submission included the Phase III ADMIRE-CD trial data for Cx601. The submission to
Swissmedic represented a key milestone in the commercialization of Cx601 in Switzerland.



Also in June 2017, we formally launched
the global pivotal Phase III clinical trial for Cx601 for the treatment of complex perianal fistulas in patients with Crohn’s
disease, which is designed to support a future regulatory filing for Cx601 in the United States. The first investigator meeting
was held on June 8 and June 9 in Rome, Italy and brought together more than 60 leading gastroenterologists, colorectal surgeons
and study coordinators from 30 confirmed clinical trial sites across Belgium, Czech Republic, Italy, Poland and Spain. The second
investigator meeting was held on October 4 and 5, 2017 in Prague, Czech Republic, and brought together more than 70 leading gastroenterologists,
colorectal surgeons and study coordinators from 33 confirmed clinical trial sites across Belgium, Czech Republic, Italy, Poland
and Spain.



The global pivotal Phase III trial is a
randomized, double-blind, placebo-controlled study designed to confirm the efficacy and safety of a single administration of Cx601
for the treatment of complex perianal fistulas in Crohn’s disease patients. The trial design is similar to the European Phase
III ADMIRE-CD trial for Cx601 with an identical primary endpoint. In March 2017, the FDA agreed to the design of the protocol for
the global Phase III trial, and agreed that a future BLA could be filed based on the study results at week 24, instead of week
52, from a broader patient population than the initial SPA formally endorsed in August 2015. With these adjustments, the trial
should benefit from an accelerated recruitment process, leading to shorter timelines, an earlier filing, and the possibility of
an earlier approval in the United States. As of March 31, 2018, patients have been recruited into the global pivotal Phase III
trial across 37 sites in seven European countries including Spain, Italy, France, Poland, Belgium, Hungary and the Czech Republic.
IND clearance for the start of recruitment in the United States for the global pivotal Phase III is expected by the end of 2018.



In parallel, we continue to explore further
expedited pathways to accelerate the submission and review process for our future BLA in the United States.



In June 2017, we opened our U.S. headquarters
in Cambridge, Massachusetts, in support of our strategic goal of developing and commercializing Cx601 in the United States. Our
U.S. operations are based at the Cambridge Innovation Center in Kendall Square, at the epicenter of the Boston-area biotech hub.
We have since strengthened our U.S. operations with two senior appointments: Dr. Gregory Gordon, Head of Medical Department (United
States) and Annette Valles-Sukkar, Associate Director, Clinical Projects.



Throughout the period, we have continued
to communicate the positive results from the ADMIRE-CD Phase III clinical trial. In March 2017, we announced positive follow-up
results at 104 weeks, confirming the long-term safety and efficacy profile of Cx601 for the treatment of complex perianal fistulas
for Crohn’s disease patients.



The 52-week results have also been presented
at a number of important international conferences including the 12th Congress of the European Crohn’s and Colitis Organisation
(ECCO) in February, at the 2017 Digestive Disease Week (DDW) annual meeting, one of the most prestigious congresses in gastroenterology
in May 2017, and at the American College of Gastroenterology & World Congress of Gastroenterology in October 2017.



Alongside the DDW presentation, we hosted
a “key opinion leader” (KOL) event, where leading experts in the gastroenterology field met to discuss the unmet medical
need in treating complex perianal fistulas. The clinical data of Cx601 was reviewed at the meeting and further insight was provided
into why Cx601 has the potential to become



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a
breakthrough therapy in the management of complex perianal fistulas in patients with Crohn’s disease. We hosted a second
similar KOL event with leading experts in gastroenterology and colorectal surgery in October 2017.



Underlining our commitment to the treatment
of this debilitating condition, we have entered into partnerships with the largest patient advocacy groups focused on Crohn’s
disease and ulcerative colitis. In the United States, we have joined the Crohn’s and Colitis Foundation’s President’s
Corporate Circle, and in Europe, we have signed a sponsorship agreement with the European Federation of Crohn’s and Ulcerative
Colitis Associations (EFCCA). We will work with both organizations to broaden the understanding and awareness of complex perianal
fistulas in Crohn’s disease.



Complex Perianal Fistulas in Crohn’s
Disease Patients



Crohn’s disease is a chronic inflammatory
disease of the intestine. It is characterized by focal or segmental transmural inflammation, or inflammation of the intestinal
wall, which may occur in any part of the digestive tract with occasional granuloma formation. The transmural inflammation disrupts
intestinal mucosal integrity, which frequently leads to the development of abscesses and fistulas. A fistula is an abnormal tract
connecting two surfaces; a perianal fistula is defined as a tract between the anal canal and the epithelial skin surface proximal
to the anus.



Although multiple schemes of fistula classification
have been proposed, no scheme has been universally adopted. The American Gastroenterology Association recommends classification
according to complexity as either simple or complex (source: Sandborn WJ, Fazio VW, Feagan BG, et al. American Gastroenterological
Association Clinical Practice C. AGA technical review on perianal Crohn’s disease. Gastroenterology 2003;125:1508–30):



| | · | a simple perianal fistula is a superficial fistula having only a single external opening, without pain or fluctulence to suggest
an abscess; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a complex perianal fistula is a serious condition that typically involves more of the anal sphincters, can have multiple tracts,
is associated with a perianal abscess and may be recurrent. Patients with complex fistulas are at an increased risk for incontinence
following aggressive surgical intervention and have a smaller chance of healing. The American Society of Colorectal Surgeons considers
“complex” any fistula in Crohn’s disease patients.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Individuals who suffer from the condition
are often unable to carry out ordinary daily activities and have significant decrease in their quality of life due to the recurring
nature of the condition. They generally experience severe discomfort, pain and embarrassment and, in many cases, have significant
psychological problems, requiring additional treatment and often causing substantial burdens for the health care systems that cover
the associated treatment costs. Current treatment options, which include antibiotics, immunosuppressants, biologics and surgical
treatment, do not offer a long-term solution and the risk of recurrence is high.



Market Opportunity



Complex perianal fistulas in patients suffering
from Crohn’s disease tend to occur in individuals between the ages of 20 and 40, though 10-15% of patients are diagnosed
before adulthood. We have estimated the worldwide incidence of Crohn’s disease in Europe and the United States on the basis
of collated scientific publications on the following basis:



| | · | known Crohn’s disease epidemiology;
| | - | -----------------------------------



| | · | the cumulative incidence of anal fistulas in Crohn’s disease 20 years after diagnosis is 26%;
| | - | ---------------------------------------------------------------------------------------------



| | · | approximately 11% of adult patients suffering from Crohn’s disease suffer a perianal fistula; and
| | - | -------------------------------------------------------------------------------------------------



| | · | of these fistulas, 75% will be classified as complex.
| | - | -----------------------------------------------------



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The following chart provides an overview
of the estimated population of Crohn’s disease patients suffering from complex perianal fistulas in Europe and the United
States based on the assumptions stated above:



Cx601: Estimated Patient Population
(European Union and United States)







The burden of perianal fistulas in Crohn’s
disease is high, both to the individual patient and to the health care provider. In 2010, we commissioned a study by IMS Health,
an independent provider of market research, that concluded that the total mean cost of treatment of a patient with complex perianal
fistulas due to Crohn’s disease was approximately $38,000 per patient, of which approximately $30,000 was spent on pharmaceutical
treatment alone. A systemic literature review conducted for us in 2016 by Quintiles, a pharmaceutical outsourcing services company,
revealed that the mean annual total direct costs of patients with perianal fistulas may reach up to $43,500 in the United States.



We have conducted market research with
physicians in the five largest Western European markets, which suggests that physicians would consider using Cx601 in 55% to 100%
of patients with complex perianal fistulas who have never been treated with anti-TNFs and 100% of patients who have taken anti-TNFs
but whose fistulas did not respond.



Taking into consideration a target population
of approximately 93,000 patients with complex perianal fistulas (approximately 56,000 patients in the European Union and approximately
37,000 patients in the United States) and assuming a cost per patient range of $30,000 to $50,000, we estimate the market size
range for complex perianal fistulas to be approximately $2.8 billion to $4.7 billion for the European Union and the United
States combined.



Patented biopharmaceuticals in most markets
in the world are subject to pricing decisions from payers representing government authorities or private health insurance. In most
major markets, payers base their pricing decisions on the perceived therapeutic improvement as compared to existing therapies,
the unmet need in the indication and population size. We believe that Cx601 represents a significant improvement as compared to
existing therapies and serves a well-defined patient population with a high unmet need.



Based on the data from our pivotal Phase
III trial in Europe, we submitted a marketing authorization application for Cx601 to the EMA in March 2016, and CHMP issued a positive
opinion on December 14, 2017. On December 20, 2017, following the positive opinion from the CHMP, we announced our plans to focus
our resources and capabilities on the eASC platform technology and our product candidates Cx601 and Cx611. On the basis of the
CHMP opinion, we were granted marketing authorization by the European Commission on March 23, 2018, following which Takeda may
start the first wave of launches in selected European markets within three months following receipt of marketing authorization
in Europe, and a second wave by the end of 2018.



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Current Treatment Options



For Crohn’s patients with complex
perianal fistulas, medical treatments of choice are antibiotics and azathioprine or 6-mercaptopurine, as first-line therapy, and
the biologic Remicade® (Infliximab), as second-line therapy. Both offer limited long-term efficacy and in many instances
have notable side effects, such as the reactivation of tuberculosis and increased risk of bacterial infection with Aspergillus,
Listeria and Cryptococcus.



The table below gives an overview of the
most common drug treatments for complex perianal fistulas in patients suffering from Crohn’s disease:



|Antibiotics                                                                     | Immunosuppressants                                                              | Antibiotics +
        Immunosuppressants                                            | Biologics                                                                                                                                                                                                                                
|------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|First-line or adjuvant therapy to treat infections and abscesses from fistulas. | Azathioprine and 6-mercaptopurine used as first-line after antibiotics therapy. | Antibiotics and immunosuppressants often used in combination as first-line therapy. | Remicade® (Infliximab) is the only approved biologic
        drug for fistulizing Crohn’s disease.
        
        Used as a second-line therapy in Europe.
        
        Recent U.S. guidelines recommend use as first-line therapy.

The standard second-line treatment of complex
perianal fistula in patients suffering from Crohn’s disease involved the prescription of anti-tumor necrosis factors, or
anti-TNFs. As of December 31, 2017, Remicade® (Infliximab), a chimeric monoclonal antibody, is the only biologic
approved for the treatment of fistulizing Crohn’s by the FDA and the EMA. In a pivotal 54 week trial, 306 patients with
Crohn’s disease with some sort of disease-related fistulas were administered Infliximab at weeks zero, two and six. Patients
who had response to the drug (via induction treatment) at week fourteen were randomized and placed on a maintenance regimen administered
every eight weeks thereafter. By the end of the trial, 36% of the patients who went on to receive a maintenance therapy continued
to be in complete remission; complete remission is defined here as the absence of draining fistulas. Remission for the total population
who started treatment with Infliximab at one year is limited to only 23% (i.e., 36% of the 64% of patients who responded to
induction treatment and that therefore received maintenance treatment).



Other biologics used in the treatment of
luminal Crohn’s but not specifically approved for the treatment of fistulizing Crohn’s are the following:



| | · | Humira (adalimumab)—Abbvie.Second generation anti-TNF approved for the treatment of Crohn’s disease (but
not fistulizing Crohn’s). Humira has the advantages of requiring only subcutaneous dosing (instead of intravenous infusion)
and being a fully human antibody. Fistula healing was studied as a secondary endpoint in the Humira maintenance trial. Efficacy
results were a 33% rate of complete closure at 56 weeks.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Cimzia (certolizumab)—UCB.Although not developed for the treatment of fistulizing Crohn’s directly, fistula
healing was a secondary endpoint in two of Cimzia’s maintenance trials. In neither of the two trials did Cimzia outperform
the efficacy of the placebo. The EMA refused the marketing authorization for Cimzia to treat active Crohn’s disease. Nevertheless,
Cimzia received FDA approval for treating adults with moderate to severe Crohn’s disease who have not responded to conventional
therapies.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The results of these other biologics that
have been evaluated for the treatment of perianal fistula in patients suffering from Crohn’s disease confirm the limited
efficacy of the existing approaches.



The following chart summarizes the current
treatment algorithm for complex perianal fistulas in patients suffering from Crohn’s disease:



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Phase III Clinical Results



In our Phase III pivotal trial, we
have demonstrated that Cx601 can be used to treat complex perianal fistulas in patients suffering from Crohn’s disease. Cx601
utilizes eASCs derived from adipose tissue, which we believe have anti-inflammatory and repair and growth-promoting properties
and are an effective treatment for fistulas.



In mid-2012, we initiated a randomized,
double-blind, placebo-controlled European Phase III trial for Cx601 with 289 screened patients in 50 centers in eight countries,
which was the largest study conducted in complex perianal fistulas as of December 31, 2017. Recruitment of 212 randomized patients
for the trial was completed in November 2014, after initial delays due to a change in the third-party contract research organization
in charge of conducting the trial. The protocol of this Phase III study was approved by the ethics committees and regulatory
agencies in all eight participating countries: Austria, Belgium, France, Germany, Israel, Italy, the Netherlands and Spain.



The clinical trial included males and females
who were allowed to maintain their current treatment of their underlying Crohn’s disease as long as the dose was not modified
during the course of the study and who met the following criteria:



| | · | older than 18 years of age;
| | - | ---------------------------



| | · | had been diagnosed with perianal Crohn’s disease with non-active or mildly active luminal disease (with a Crohn’s
disease activity index score of 220 or lower) and had failed at least one previous treatment for the fistulas (antibiotics, immunosuppressants
or biologics). Patients refractory to antibiotics were restricted to fewer than 25% of patients included in the study;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | had fistulas with up to two internal orifices and up to three external orifices;
| | - | --------------------------------------------------------------------------------



| | · | were diagnosed with Crohn’s disease more than six months prior to their inclusion in the trial; and
| | - | ---------------------------------------------------------------------------------------------------



| | · | had their fistulas draining for at least six weeks prior to their inclusion in the trial.
| | - | -----------------------------------------------------------------------------------------



The study was designed as a two-group,
double-blind, placebo-controlled trial, in which patients were randomly assigned to either a placebo control group or an active
treatment group in a 1:1 ratio. The active treatment group received a single treatment of 120 million eASCs.



The patients participating in the trial
had similar demographics and perianal disease activity index scores between the two arms of the study in both the ITT population,
which is comprised of all patients randomized, regardless of their having received the study treatment or having any post-baseline
measurements (212 patients) and the safety population, which includes those patients who were randomized and treated (205 patients).
However, a higher proportion of patients with multiple-tract fistulas were in the group that received Cx601. The total dose of
Cx601 administered was the same regardless of the number of tracts. The following table provides a demographic breakdown of the
patients in the active treatment arm and the placebo arm in the ITT population:



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|                                              |  | Cx601 n=107 |             | Placebo n=105
|--------------------------------------------- |  | ----------- | ----------- | -------------
|Demographics                                  |  |             |             |              
|Age (years) mean (standard deviation)         |  |             | 39.0 (13.1) |              
|Men (%)                                       |  |             | 60 (56.1)   |              
|Caucasian (%)                                 |  |             | 100 (93.5)  |              
|Weight (kg) mean (standard deviation)         |  |             | 73.9 (15.0) |              
|Perianal disease activity index               |  |             |             |              
|Mean (standard deviation)                     |  |             | 6.8 (2.5)   |              
|Topography of internal & external openings(1) |  |             |             |              
|One-tract fistula (%)                         |  |             | 51.4        |              
|Multiple-tract fistula (%)                    |  |             | 44.8        |              








| | (1) | Topography of internal and external openings was not available for seven patients in the ITT population.
| | --- | --------------------------------------------------------------------------------------------------------



The study’s endpoints were as follows:



| | · | Primary endpoint at a follow-up visit 24 weeks post-treatment:
| | - | --------------------------------------------------------------



| | · | Combined remission of the fistulous disease, defined as 100% closure of all treated external openings draining at baseline
despite gentle finger compression and the lack of collections, larger than two centimeters confirmed by central blinded MRI reading.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Secondary endpoints at follow-up visits 24 and 52 weeks post-treatment included:
| | - | --------------------------------------------------------------------------------



| | · | Clinical remission (closure of all treated external openings draining at baseline despite gentle finger compression).
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | Response (closure of at least 50% of all treated external openings draining at baseline despite gentle finger compression).
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | Relapse in patients with primary endpoint of combined remission at 24 weeks (reopening of any of the treated external openings
with active drainage as clinically assessed or the development of a collection larger than two centimeters confirmed by MRI on
the treated fistula).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Time to clinical remission.
| | - | ---------------------------



| | · | Time to response.
| | - | -----------------



| | · | Time to relapse.
| | - | ----------------



| | · | Perianal disease activity index and other scores.
| | - | -------------------------------------------------



| | · | Safety data.
| | - | ------------



| | · | Tolerability data.
| | - | ------------------



The trial has produced safety and efficacy
results from a first analysis of data obtained from a follow-up visit 24 weeks post-treatment. We have also received results from
a second follow-up analysis performed at 52 weeks post-treatment, and top-line data at 104 weeks post-treatment.



On August 24, 2015 we announced that
Cx601 had met the primary endpoint in the pivotal Phase III trial based on the analysis of the data obtained 24 weeks post-treatment.
A single dose of Cx601 was statistically superior to placebo in achieving combined remission of complex perianal fistulas in Crohn’s
disease patients with inadequate response to previous therapies, including anti-TNFs, after 24 weeks.



In the ITT population of 212 patients,
Cx601 achieved statistically significant superiority, with a p-value of 0.024, with 49.5% combined remission at week 24 compared
to 34.3% in the placebo arm. In the safety population,



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which
includes all patients randomized and treated, of 205 treated patients, the combined remission rates at week 24 were 51.5% and
35.3% for Cx601 and placebo, respectively, with a p-value of 0.019. These results translate into an observed relative risk of
1.443, meaning that patients receiving Cx601 had a 44.3% greater probability of achieving combined remission than placebo patients.
Efficacy results were robust and consistent across all statistical populations and sensitivity analyses.



In particular, we observed that results
were comparable in patients with single or multiple tracts and in patients treated with or without biologics or immunosuppresants.



The difference between the ITT population
and the safety population consists of seven patients who did not receive the study treatment, as follows:



| | · | In the active treatment arm, four patients were not treated for the following reasons:
| | - | --------------------------------------------------------------------------------------



| | · | Two patients withdrew due to adverse events (one due to a recurrence of Crohn’s disease and one due to deep vein thrombosis).
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | · | One patient withdrew informed consent.
| | - | --------------------------------------



| | · | Data is missing with respect to one patient.
| | - | --------------------------------------------



| | · | In the placebo arm, three patients were not treated, for the following reasons:
| | - | -------------------------------------------------------------------------------



| | · | Two patients withdrew informed consent.
| | - | ---------------------------------------



| | · | One patient had to be excluded because he or she did not meet the inclusion criteria.
| | - | -------------------------------------------------------------------------------------



The full set of safety and efficacy results
at week 24 was announced at the eleventh Congress of the European Crohn’s and Colitis Organization in March 2016.



The secondary endpoint results were broadly
consistent with the benefit observed on the primary endpoint, with borderline statistical significance. The safety population showed
improvements in both response (with a p-value of 0.039) and clinical remission (with a p-value of 0.052), as demonstrated in the
chart below, which compares the safety population to the ITT population.







The statistical significance of the results
with respect to the key secondary endpoints, clinical remission and response, is lower than that with respect to the primary endpoint
of combined remission. In setting up our Phase III



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clinical
trial, we calculated the sample size to enable us to find a statistically significant difference for the primary endpoint, for
which a larger difference between the Cx601 and placebo arms was expected, compared to the differences anticipated between the
two arms for the key secondary endpoints. Key secondary endpoints are defined to be less stringent efficacy indicators. For example,
a patient could exhibit the closure of all treated external openings, which would indicate that he is in clinical remission, even
though an MRI might still show internal abscesses larger than two centimeters, indicating that he is not in complete combined
remission. For this reason, a fraction of patients in the placebo group, who, under the protocol for the study, continued with
their ongoing treatment of their underlying Crohn’s disease showed sufficient improvement to meet the requirements for these
less stringent secondary endpoints.



In addition, the median time to clinical
remission was 6.7 weeks with Cx601, compared to 14.6 weeks in the placebo group, as shown in the chart below:







The perianal disease activity index score,
which measures the severity of the disease, fell by more than 30% in the Cx601 group and maintained a statistically significant
difference over placebo at six, 12 and 18 weeks.



In the trial, Cx601 had a safety and tolerability
profile comparable to placebo, both as add-on therapy to concomitant immunosuppressants or anti-TNFs. Treatment with immunosuppressants
or anti-TNFs can be related to a range of serious adverse events. Use of immunosuppressants has been connected to bone marrow suppression,
hypersensitivity, lymphoma, liver toxicity or pancreatitis and use of anti-TNFs has been associated with hypersensitivity, serious
infections, and lymphoma among other adverse events.



The favorable safety and tolerability profile
of Cx601 is likely connected to both its mechanism of action and to its local method of administration at the site of the fistula
in a single treatment. This maximizes the action of the cells at the local fistula site, as compared to immunosuppressants or anti-TNFs,
which are administered systemically over a long period of time.



On March 7, 2016, we announced the
positive results of the 52 week follow-up analysis for Cx601. We analyzed combined remission, defined as closure of all treated
external openings draining at baseline despite gentle finger compression and lack of collections larger than two centimeters confirmed
by MRI, which was the study’s primary endpoint at week 24, as a secondary variable after 52 weeks.



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In the ITT population, 54.2% of patients
treated with Cx601 had combined remission compared to 37.1% of patients in the placebo arm. The result had a p-value of 0.012,
indicating high statistical significance.



The chart below shows the rate of combined
remission in the ITT population after 24 and 52 weeks respectively.







In addition, in the ITT population, at
week 52, 75% of patients treated with Cx601 who were in combined remission at week 24 did not relapse, compared to 55.9% of patients
in the placebo arm. In the safety population, the results also confirmed the favorable safety and tolerability profile of Cx601,
with comparable number of patients with treatment-emergent adverse events, both serious and non-serious, and discontinuations due
to adverse events across the two groups.



Treatment emergent adverse events (both
non-serious and serious) and discontinuations due to adverse events were comparable between patients who received Cx601 and placebo
both at 24 weeks and 52 weeks.



|                                                           |  |  | Cx601 n=103 |  |  | Placebo n=102 | 
|---------------------------------------------------------- |  |  | ----------- |  |  | ------------- | 
|                                                           |  |  | W24         |  |  | W52           | 
|Number of patients with (%):                               |  |  |             |  |  |               | 
|Treatment emergent adverse events                          |  |  | 68 (66.0)   |  |  | 79 (76.7)     | 
|Related treatment emergent adverse events                  |  |  | 18 (17.5)   |  |  | 21 (20.4)     | 
|Withdrawn due to treatment emergent adverse events         |  |  | 5 (4.9)     |  |  | 9 (8.7)       | 
|Treatment emergent serious adverse events                  |  |  | 18 (17.5)   |  |  | 25 (24.3)     | 
|Related treatment emergent serious adverse events          |  |  | 5 (4.9)     |  |  | 7 (6.8)       | 
|Withdrawn due to treatment emergent serious adverse events |  |  | 4 (3.9)     |  |  | 6 (5.8)       | 





We evaluated treatment emergent adverse
events both at 24 weeks and at 52 weeks. At the most complete and up-to-date assessment of adverse events at 52 weeks, nine patients
withdrew in each of the Cx601 and placebo arms.



In the Cx601arm, patients withdrew for
the following reasons:



| | · | one withdrew due to proctalgia;
| | - | -------------------------------



| | · | one withdrew due to Crohn’s disease;
| | - | ------------------------------------



| | · | one withdrew due to an anal fistula;
| | - | ------------------------------------



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| | · | one withdrew due to an intestinal obstruction;
| | - | ----------------------------------------------



| | · | one withdrew due to an infected fistula;
| | - | ----------------------------------------



| | · | one withdrew due to pregnancy; and
| | - | ----------------------------------



| | · | three withdrew due to anal abscesses.
| | - | -------------------------------------



In the placebo arm, patients withdrew for
the following reasons:



| | · | one withdrew due to proctalgia;
| | - | -------------------------------



| | · | one withdrew due to Crohn’s disease;
| | - | ------------------------------------



| | · | one withdrew due to a fistula;
| | - | ------------------------------



| | · | one withdrew due to a B-cell lymphoma;
| | - | --------------------------------------



| | · | one withdrew due to a female genital tract fistula; and
| | - | -------------------------------------------------------



| | · | four withdrew due to anal abscesses.
| | - | ------------------------------------



Phase II Clinical Results



Prior to the Phase III trial, we had
conducted a single-arm, non-controlled, Phase II trial in which 24 patients suffering from complex perianal fistulas were
treated. Due to the design of the trial, in which patients were required to stop their existing treatment in order to isolate the
effect of the therapy, four patients dropped out due to the exacerbation of their underlying Crohn’s disease, while others
dropped out due to anal abscesses and significant deviations from the study protocol. The results of the Phase II clinical
trial were as follows:



| | · | efficacy in treating fistula tracts, defined as the complete closure and re-epithelization of the fistula being treated with
absence of drainage, at 24 weeks was 56.3%, which is more than twice as high as the anti-TNF, the prevalent standard of care for
fistulizing Crohn’s disease;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 69.2% of patients experienced a reduction in the number of initially draining tracts; and
| | - | -----------------------------------------------------------------------------------------



| | · | safety of the use of allogeneic stem cells for the treatment of perianal fistula was demonstrated.
| | - | --------------------------------------------------------------------------------------------------



Subjects were followed until 24 weeks after
the initial administration of the cells. The primary objective was to assess the safety (i.e., the incidence of drug-related
adverse events). Secondary endpoints were as follows:



| | · | to assess the efficacy of Cx601 for the closure of complex perianal fistulas in perianal Crohn’s disease patients after
12 and 24 weeks;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | to evaluate the changes over time in the Perianal Disease Activity Index, or PDAI, and in the Crohn’s Disease Activity
Index, or CDAI;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | to evaluate the changes over the time in the MRI Score of Severity, or MSS;
| | - | ---------------------------------------------------------------------------



| | · | to assess the reduction in the number of draining fistulas at 12 and 24 weeks; and
| | - | ----------------------------------------------------------------------------------



| | · | to track the percentage of subjects with MRIs indicating fistula healing at 12 and 24 weeks (i.e., the absence of collections
greater than two centimeters).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------



Clinical and Regulatory Development
in Europe



Based on the data from our pivotal Phase
III trial in Europe, we submitted a marketing authorization application for Cx601 to the EMA in March 2016. In July 2016, the EMA
sent us the Day 120 List of Questions, their initial response to our application for marketing authorization. In this response,
the EMA informed us of certain major



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objections
and, following its standard protocol for review at day 120, stated that our application was not approvable at that time.



The Day 120 List of Questions also included
a number of technical questions and comments that did not rise to the level of major objections.



We submitted our replies to the Day 120
List of Questions in December 2016, and the EMA sent us their Day 180 List of Outstanding Issues in February 2017, and in September
2017 we submitted our responses to the Day 180 List of Outstanding Issues. On December 14, 2017, the CHMP issued a positive opinion.
On the basis of the CHMP opinion, we were granted marketing authorization by the European Commission on March 23, 2018, following
which Takeda may start to commercialize the approved product in Europe within three months.



In addition, as part of the marketing authorization
approval process, we had a GCP inspection in September 2016. The EMA indicated that this was a routine inspection and was
not the result of any specific concerns identified by the reviewers during their ongoing evaluation of our application. The inspectors
identified certain critical and major deviations from GCP. We submitted our initial replies to the report from this inspection,
including the corresponding planned “corrective and preventive actions” on October 21, 2016. We received the inspector’s
report to the EMA’s Committee for Human Medicinal Products, or the Integrated Inspection Report, in November 2016, which
indicated that the inspectors continue to be concerned about potential critical GCP deviations, in particular a potential violation
of patient privacy due to the presence of a company-sponsored healthcare professional during the administration of Cx601. This
healthcare professional was trained or had previous experience in the administration of Advanced Therapy Medicinal Products. This
professional was present at the time of administration of Cx601 or placebo by the surgeon in the initial administrations at each
trial site to ensure proper understanding and therefore compliance with the surgical protocol. This enabled us to standardize the
surgical procedure to administer Cx601 and placebo to help ensure the quality of the safety and efficacy data generated. The presence
of this additional healthcare professional was not disclosed to patients prior to the procedure when they gave informed consent
or included in the clinical protocol that was evaluated by an ethics committee. In their Integrated Inspection Report, the inspectors
recommended that the data from the trial should be disregarded as part of the marketing authorization application for Cx601. In
making their recommendation, the inspectors focused on the infringement of the patient’s right to consent to the presence
of a company-sponsored healthcare professional irrespective of mitigating factors. Due to the nature of this finding, the inspectors
deemed the trial not to be conducted in accordance with ethical principles, including GCP and applicable regulatory requirements.



We provided what we believed were reasonable
replies to the inspectors’ concerns, including an evaluation of the impact of the potential privacy violation on the patients
and our proposed preventive actions, which we submitted as part of our replies to the Day 120 List of Questions. We believe that
any potential violation of patient privacy due to the presence of an additional individual would be limited, since this individual
was a healthcare professional subject to a duty of confidentiality, did not have access to any patient information and was only
present during the surgical procedure, usually entering the room after the patient was anesthetized and covered. In addition, we
believe that given the lack of treatment alternatives and the heavy commitment of the patients for invasive procedures under the
treatment protocol, it is unlikely that the patients would not have given specific consent for the presence of an additional specifically
trained healthcare professional to ensure the safety and efficacy of the intervention. Moreover, it is our view that the presence
of this professional does not affect the integrity of the trial data.



As part of our responses to the Day 180
List of Outstanding Issues we submitted additional information of further actions taken that support the conclusion that data have
not been impacted due to the issues described above.



In September 2017, we received a second
inspection integrated report from the EMA which concluded that after further GCP actions and inspections, “the data inspected
are considered of acceptable quality and deficiencies have no impact on the inspected trials’ data reliability and validity.”
With respect to the presence of the healthcare professional during the administration of Cx601, the inspection report concluded
that “it is recognized that this breach was not intentional and the sponsor did take into account other factors like education
background in health sciences of the individuals present at the operating room and that this was already covered in the informed
consent.”



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Commercialization in Europe and the rest of
the world



Pursuant to the Licensing Agreement, Takeda
currently has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas in all countries outside the
United States. The Manufacturing Agreement also governs, among other things, the specific aspects of the manufacturing and supply
of Cx601 and the financial terms of the transfer of the manufacturing responsibilities for Cx601 from the Company to Takeda. If
TiGenix develops a new indication for Cx601 and wants to license out such new indication, Takeda will also have a right of first
offer to be awarded a license grant for such new indication outside the United States. Takeda agreed to make an upfront non-refundable
payment of 25 million euros, a further payment of 15 million euros upon receipt of marketing authorization for Cx601
from the European Commission (which authorization we obtained on March 23, 2018 and which payment we expect to receive during the
second quarter of 2018), an equity investment of ten million euros within one year of the effective date of the Licensing Agreement
(which it made on December 29, 2016), additional sales and reimbursement milestone payments up to a total of 340 million euros
and royalty payments ranging from 10% to 18% on net sales by Takeda. Based on the positive results of our single pivotal Phase III
trial in Europe and Israel, we submitted the marketing authorization application for Cx601 to the EMA in March 2016 and the CHMP
issued a positive opinion on December 14, 2017. We obtained marketing authorization on March 23, 2018. In 2009, the EMA granted
Cx601 orphan drug designation for the treatment of anal fistulas, recognizing the debilitating nature of the disease and the lack
of treatment options for this indication that affects no more than five out of 10,000 people in the European Union. On December
21, 2017, we were formally notified that the Committee of Orphan Medicinal Products (COMP) had recommended to remove Cx601 from
the European Commission register of orphan drugs. We challenged that determination and the COMP’s plenary meeting on January
16-18, 2018 adopted an opinion recommending that Cx601 be kept in the European Commission register for orphan drugs.



Clinical and Regulatory Development
in the United States



In addition to allowing us to file for
marketing authorization in Europe, the pivotal Phase III study we have completed will serve as a key supportive study in filing
for approval in the United States. We had a Type B meeting with the Center for Biologics Evaluation and Research with the
FDA in December 2013, at which we discussed the following issues:



| | · | the adequacy of the existing non clinical data available from previous trials to support an IND for a pivotal U.S.-based Phase III
study;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | guidance on the design of such pivotal U.S.-based Phase III study; and
| | - | ----------------------------------------------------------------------



| | · | confirmation of the acceptability of using the data from the ongoing European Phase III study to support a BLA filing
in the United States.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



A Type B meeting is a category of
meetings that includes each of the following:



| | · | pre-IND application meetings;
| | - | -----------------------------



| | · | certain end-of-Phase I meetings;
| | - | --------------------------------



| | · | end-of-Phase II and pre-Phase III meetings; and
| | - | -----------------------------------------------



| | · | pre-new drug application or BLA meetings.
| | - | -----------------------------------------



Based on the advice received at this Type B
meeting, in December 2014 we asked the FDA to review our proposed design for a global Phase III registration trial in the
United States by filing an SPA. In August 2015, we reached an agreement with the FDA on our proposed design for a global Phase III
trial to register Cx601 in the United States as part of an SPA.



The agreed trial will be a randomized,
double-blind, parallel group, placebo-controlled multicenter study in complex perianal fistulas in Crohn’s disease patients.
We originally planned to randomize approximately 330 patients to assess the efficacy and safety of Cx601 24 and 52 weeks after
a single dose of the product candidate is administered. The SPA describes the primary endpoint as combined remission, defined as
100% closure of all treated external openings draining at baseline despite gentle finger compression, and the lack of abscesses
greater than two centimeters confirmed by magnetic resonance imaging, or MRI, by 24 weeks after administration. The



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agreed-upon
primary endpoint is the same as the one for the European Phase III trial. In addition, the required p-value for the U.S.
registration trial, the statistical measure that will be used to measure the strength of the trial’s observations, is less
than 0.05, compared to the more stringent threshold of less than 0.025 which Cx601 was successfully able to meet in the European
trial.



In January 2017, we had a Type C meeting
in which changes to the protocol were discussed with the FDA. The FDA agreed that efficacy and safety follow-up of patients assessed
at week 24, instead of week 52, would be sufficient for BLA filing (as was the case for the European ADMIRE-CD trial submission
in Europe). Furthermore, the FDA agreed to accept 326 patients, in line with our plans, and has endorsed a broader target population
that will ultimately facilitate the recruitment process. With these adjustments, the study will benefit from an accelerated recruitment
process that should lead to shorter timelines, an earlier filing, and the possibility of an earlier approval in the United States.
As a result of these modifications, the trial design is even more similar to the European ADMIRE-CD than it was before. Based on
feedback from that meeting, we submitted a revised protocol in February 2017 which was agreed by the FDA in March 2017.



We are currently exploring the options
for expedited pathways that could facilitate and accelerate the development of Cx601 and the review of its future BLA. In order
to further expedite clinical development in the United States, in February 2015 we entered into an agreement with Lonza to manufacture
Cx601 in the United States. The technology transfer with Lonza is now underway to support the IND application for the global pivotal
Phase III study to register Cx601 in the United States. We initiated the global Phase III trial for the registration of Cx601 in
the United States in the first half of 2017, having started with trial sites in Europe, to be followed later with trial sites located
in the United States and Canada. For this Phase III trial we have submitted an IND application to the FDA that has been approved
for sites in Europe and Israel and is on hold in North America until U.S.-approved clinical supplies are available for those sites.



Cx611



Cx611 is an allogeneic cellular suspension
of eASCs that is injected intravenously. We have completed a Phase I sepsis challenge trial in which we studied the effect of Cx611
on volunteers with induced sepsis-like symptoms and we initiated a Phase Ib/IIa clinical trial for Cx611 (SEPCELL) in the treatment
of severe sepsis due to severe community-acquired pneumonia, both in Europe. The first patient was dosed in January 2017. In the
first quarter of 2018, after having reviewed the safety and efficacy data from the first 20 randomized patients, the independent
data monitoring committee recommended to continue the study with no changes in the protocol. We believe that Cx611, if approved,
could supplement existing therapies and would have the potential to reduce mortality in patients with severe sepsis.



Severe Sepsis



Sepsis is a potentially life-threatening
condition that arises when the body’s response to infection injures its own tissues and organs by releasing inflammatory
molecules. This inflammation can lead to a cascade of detrimental changes that damage multiple organ systems, causing them to fail.
Sepsis first produces a pro-inflammatory response and then an anti-inflammatory response. The pro-inflammatory responses lead to
organ failure and coagulation, leading to tissue hypo perfusion and tissue injury; the anti-inflammatory responses produce a susceptibility
to infection. When sepsis is complicated by organ failure, which may include respiratory compromise, cardiovascular compromise,
central nervous system dysfunction or acute kidney injury, it is considered severe. Patients with severe sepsis require close monitoring
and treatment in a hospital intensive care unit. If sepsis progresses to septic shock, the patient’s blood pressure drops
dramatically, potentially leading to death. Mortality increases as the condition progresses, with estimates ranging from 10-20%
in sepsis to 20-50% in severe sepsis to 40-80% in patients who progress to septic shock.



Drug therapy is likely to include broad-spectrum
antibiotics, corticosteroids or vasopressor drugs to increase blood pressure, along with oxygen and large amounts of intravenous
fluids. Supportive therapy may be needed to stabilize breathing and heart function and to replace kidney function.



Market Opportunity



An estimated 15 million to 19 million
cases of sepsis occur worldwide every year, according to an article published in The Lancet, in 2012. The incidence rate has dramatically
increased over the last decade due to an aging



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population,
the increasing use of high-risk interventions in all age groups, and the development of drug-resistant and more virulent varieties
of microbes. The sepsis mortality rate was estimated at 36% in a recent major European study and is the most common cause of death
in non-coronary intensive care units (source: Martin GS Expert Rev Anti Infect Ther. 2012 June; 10(6): 701–706). In the
case of septic shock, mortality can reach up to 80%, with 28 to 50% of patients dying within the first month of diagnosis.



Approximately 70% of patients with sepsis
require treatment in critical care units (incorporating intensive care and high dependency care), with treatment of sepsis accounting
for approximately 40% of total expenditure in intensive care units.



In 2016, GlobalData projects the sepsis
market to be valued at $25.7 million across the six main markets, the United States, Spain, Germany, the United Kingdom, Italy
and France. The United States was expected to account for 80% of the 2016 market share, with sales of $20.3 million. In the
five EU countries, sales are expected to reach $5.4 million. By 2021, GlobalData expects sales to reach a total of $354.0 million
across these six markets, at a compound annual growth rate of 69% over the period. GlobalData believes that this growth will be
driven by the increased uptake of novel therapies in select patients as the critical care community regains confidence in sepsis-specific
products and as more data is generated on their overall efficacy and safety.



Current Treatment Options



Severe sepsis represents a highly unmet
medical need. Current treatments are insufficient and mainly symptomatic, and aim at controlling the infection with antibiotics,
improving some of the symptoms, as with vasopressor treatment, or providing supportive treatment such as hemodialysis or mechanical
ventilation. Biologics are also used but generally have limited effect. There is a clear need for a product that could impact both
the pro-inflammatory and the anti-inflammatory pathways.



Clinical Development



In the fourth quarter of 2014, we began
a randomized placebo-controlled Phase I trial to test the safety and study the mechanism of action of Cx611 in healthy volunteers
challenged with a low dose of bacterial endotoxin (lipopolysaccharide), a potent pro-inflammatory constituent of the outer membrane
of gram-negative bacteria, which elicits a strong inflammatory response inducing sepsis-like symptoms. A total of 32 volunteers
were recruited for the study, and divided into four groups of eight patients each. Patients in the first three groups received
Cx611 in different doses and patients in the final group received placebo.



The endpoints of the study included the
following:



| | · | vital signs including blood pressure, pulse rate, temperature and heart rate; and
| | - | ---------------------------------------------------------------------------------



| | · | laboratory measures and functional assays of innate immunity.
| | - | -------------------------------------------------------------



In May 2015, we reported positive results
from this trial. Cx611 demonstrated a favorable safety and tolerability profile. However, the volunteers’ lipopolysaccharide-induced
symptoms were short-lived and no significant effect of Cx611 could be detected prior to the dissipation of symptoms.



Based on the results of this study, we
have designed a follow-on trial in severe sepsis patients with the help of our Advisory Board. In January 2017, we enrolled and
treated the first patient in a Phase Ib/IIa clinical trial in Europe for Cx611 in the treatment of severe sepsis.



The Phase Ib/IIa trial is designed
to be a randomized, double-blind, placebo controlled, multicenter study with two parallel arms. We expect to recruit 180 patients
in at least 50 centers in Europe, with 90 patients in each group. We will recruit patients with severe community-acquired bacterial
pneumonia, or pneumonia acquired outside a hospital setting, who are admitted into intensive care units requiring either or both
of mechanical ventilation and vasopressors. Patients will receive 160 million cells of eASCs or doses of placebo on each of
the first and third days of the treatment in addition to the standard of care therapy. We will follow up with the patients for
two years, with visits at three, six and 12 months, and telephone calls to the patients and their general practitioners only for
safety purposes and to record any serious adverse events at 18 and 24 months after the first dose is administered.



The endpoints of the study will be as follows:



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| | · | primary endpoint: safety profile—any adverse event and potential immunological host responses against the administered
cells; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | secondary endpoints:
| | - | --------------------



| | · | reduction in the duration of either or both of mechanical ventilation or vasopressors needed;
| | - | ---------------------------------------------------------------------------------------------



| | · | improved survival;
| | - | ------------------



| | · | clinical cure of the community-acquired bacterial pneumonia; and
| | - | ----------------------------------------------------------------



| | · | other infection related endpoints.
| | - | ----------------------------------



We received a grant from the European Commission
Horizon 2020 program for the Phase Ib/IIa trial. Horizon 2020 is the European Union framework program for research and innovation.
As of December 31, 2017 we have received 4.0 million euros, of which 1.3 million euros are grants for us and 2.7 million euros
have been distributed to our consortium partners. A further 1.3 million euros is expected to be received in 2019 to be distributed
amongst our consortium partners.



Preclinical Development



MSCs have been shown in the literature
to reduce mortality in several animal models of sepsis. Our eASCs have also been shown to reduce mortality in animal sepsis models
of acute periponitis, an infection of the intestine, and endotoxemia, a bacterial infection. The effect is due to a combination
of reducing pro-inflammatory and increasing anti-inflammatory mediators, the production of antimicrobial effectors and increased
absorption of pathogens by specially adapted cells known as phagocytes.



Rheumatoid Arthritis



Rheumatoid arthritis is a chronic system
disorder characterized by inflammation of the joint tissues, leading to degeneration of the joint bone and cartilage. It is a common
autoimmune disease, and according to a report by GlobalData, in 2011, approximately four million people in the United States,
France, Germany, Italy, Spain, the United Kingdom and Japan had been diagnosed with rheumatoid arthritis. In 2011, the prevalence
of rheumatoid arthritis in the adult population in the United States was estimated to be 0.6%. The economic burden associated with
the treatment of rheumatoid arthritis is huge for any healthcare system. In the United States, sales of drugs to treat rheumatoid
arthritis were estimated to be approximately $9.5 billion in 2011.



The treatment of rheumatoid arthritis comprises
four general classes of drugs: non-steroidal anti-inflammatory agents, or NSAIDs, corticosteroids, synthetic disease modifying
anti-rheumatic drugs, or DMARDs, and biologics. However, rheumatoid arthritis remains an insufficiently met clinical need due to
the shortcomings of existing treatment options.



Clinical Results



In January 2012, we completed a Phase Ib/IIa
clinical trial in Europe using allogeneic eASCs for the intravenous treatment of refractory rheumatoid arthritis in 23 centers.



The Phase Ib/IIa clinical trial was
a 24-week, single blind dose-escalating study. 53 patients with moderate to high disease activity (disease activity score in 28
joints, or DAS 28, greater than 3.2), who all were under treatment with one synthetic DMARD participated in the study. 46 participants
received eASCs, and seven received placebo. All patients received three intravenous infusions on days one, eight and fifteen of
the trial. Patients in different cohorts received placebo, low (1 million eASCs per kg), medium (2 million eASCs per
kg) and high (4 million eASCs per kg) doses of Cx611.



As follow-up, we conducted a detailed monthly
workup of each patient measuring all the pre-defined parameters. We aimed to evaluate the safety, tolerability and optimal dosing
over the full six months of the trial, as well as to explore therapeutic activity.



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The primary endpoints (safety) of the study
were as follows:



| | · | tolerability; and
| | - | -----------------



| | · | treatment emergent adverse events, including the following:
| | - | -----------------------------------------------------------



| | · | dose limiting toxicities
| | - | ------------------------



| | · | serious adverse events
| | - | ----------------------



| | · | non-serious adverse events.
| | - | ---------------------------



The secondary endpoints (therapeutic activity)
were as follows:



| | · | American College of Rheumatology scores (known as ACR20/50/70, which measures the percentage of patients who experience 20%,
50% and 70% improvement, respectively, in tender or swollen joint counts, as well as, three out of five additional parameters identified
by the American College of Rheumatology);
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the European League against Rheumatism, or EULAR, criteria, which are based on the improvement in the DAS 28; and
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | a short-form health survey measuring patients’ quality of life.
| | - | ---------------------------------------------------------------



We reported the final results of the Phase Ib/IIa
study in April 2013, which included positive safety data as well as a first indication of therapeutic activity on standard outcome
measures and biologic markers of inflammation, the results of which were as follows:



| | · | patient and disease characteristics were comparable for all three dose groups;
| | - | ------------------------------------------------------------------------------



| | · | there was no major safety signal from the repeated intravenous infusion of eASCs, and the dose-limiting safety signal was not
identified;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | three serious adverse event were reported (lacunar infarction, peroneal palsy and fever of unknown origin) of which lacunar
infarction was thought to be possibly related to the treatment and led to the discontinuation of the treatment. The patient subsequently
recovered. A lacunar infarction is a small deep infarction in the subcortical regions of the brain. Peroneal palsy is a lower limb
neuropathy consisting of the loss of motor function and/or sensation in the foot and leg due to the compression of the perineal
nerve in its course around the head of the fibula, or the calf bone; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the most frequent non-serious adverse effects, occurring in more than 10% of patients treated with eASCs, included the following:
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | fever (20%);
| | - | ------------



| | · | headache (13%);
| | - | ---------------



| | · | urinary tract infection (13%);
| | - | ------------------------------



| | · | upper respiratory tract infection (11%); and
| | - | --------------------------------------------



| | · | nausea (11%).
| | - | -------------



With respect to the secondary endpoints,
our findings were as follows:



| | · | a clear dose response effect was not observed;
| | - | ----------------------------------------------



| | · | with respect to the American College of Rheumatology scores, after three months, 20% of patients achieved a 20% improvement
versus no patient in the placebo group; 11% of patients achieved 50%
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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improvement versus no patient in
the placebo group; and 4% of patients achieved 70% improvement versus no patient in the placebo group;



| | · | with respect to the EULAR criteria based on the improvement in the DAS 28 (ESR, or erythrocyte sedimentation rate), three months
after the treatment, 39% of patients had a good to moderate response compared to no patient in the placebo group; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | with respect to the disease activity score, in 28 joints as modified to measure the C-reactive protein value, or DAS 28 (CRP),
11% of patients achieved remission after three months compared to no patient in the placebo group.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These clinical results were the first to
suggest that intravenous infusion of eASCs has a favorable safety profile, is well tolerated along 24 weeks and could be associated
with clinical benefits in the treatment of refractory rheumatoid arthritis. The results of the study were presented at a plenary
session of the American College of Rheumatology meeting in San Diego on October 29, 2013 and were published in May 2016.



Given the increased competition and the
arrival of oral products in the rheumatoid arthritis field, we have decided to keep the program on hold as we believe there were
better opportunities for TiGenix to pursue: Cx611 in severe sepsis and potential new indications for Cx601 although they are still
not decided. We do not anticipate coming back to rheumatoid arthritis with Cx611.



Cx621



Cx621 is an allogeneic cellular suspension
of eASCs for the potential treatment of a variety of autoimmune diseases via a proprietary technique of intra-lymphatic administration,
or the injection of eASCs into the lymphatic system rather than the blood stream or the affected tissue. On December 20, 2017,
following the positive opinion from the CHMP, we announced our plans to focus our resources and capabilities on the eASC platform
technology and our product candidates Cx601 and Cx611. As a result, further investment in Cx621 is currently on hold.



AlloCSC-01



AlloCSC-01 consists of adult allogeneic
cardiac stem cells isolated from donors, and expanded in vitro. The product completed a Phase I/II study in acute myocardial infarction,
the CAREMI study, demonstrating that allogeneic cardiac stem cells can be transplanted safely through the coronary tree and lead
to a reduction in infarct size in patients with a large myocardial infarction. All safety objectives of the study were met. No
mortality or major adverse cardiovascular events (MACE) were found at 30 days, which was the primary endpoint of the study. In
follow-ups, neither mortality nor MACE were found at either six months or at 12 months. Of particular relevance to this allogeneic
approach, no immune-related adverse events were recorded at one-year follow-up. On December 20, 2017, following the positive opinion
from the CHMP, we announced our plans to focus our resources and capabilities on the eASC platform technology and our product candidates
Cx601 and Cx611. As a result, we do not plan to invest in further R&D of our CSC-based platform.



ChondroCelect



We have one discontinued product: ChondroCelect,
a cell-based medicinal product for cartilage repair in the knee. It was the first approved cell-based product in Europe that successfully
completed the entire development track from research through clinical development to European approval. ChondroCelect received
marketing authorization in October 2009 as an advanced therapy medicinal product, a new medical product category regulated by the
EMA that includes products based on gene therapy, cell therapy or tissue engineering.



In July 2016 for commercial reasons, we
decided to terminate our distribution agreements with Sobi and the Finnish Red Cross Blood Service and our manufacturing agreement
with PharmaCell and we requested the withdrawal of marketing authorization which became effective as of November 30, 2016. We no
longer generate revenues from ChondroCelect.



Competition



The biopharmaceutical industry is characterized
by intense and dynamic competition to develop new technologies and proprietary therapies. Any product candidates that we successfully
develop and commercialize will



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have
to compete with existing therapies and new therapies that may become available in the future. While we believe that our eASC platform
and scientific expertise in the field of cell therapy provide us with competitive advantages, we face potential competition from
various sources, including larger and better-funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well
as from academic institutions, hospitals, governmental agencies and public and private research institutions.



Cx601 will compete against a variety of
therapies in development for perianal fistulas in patients suffering from Crohn’s disease, using therapeutic modalities such
as biologics and cell therapy, including products under development by Delenex Therapeutics, Novartis and Celgene as well as various
hospitals and research centers, as well as a product marketed in Korea by Anterogen. In addition, there are products in development
for the treatment of Crohn’s disease that do not focus on the treatment of fistulas.



Likewise, with respect to Cx611, for the
sepsis indication, there is a limited late-stage pipeline of candidates addressing the underlying immune dysfunction, with the
two non-antibiotic front runners being developed by Asahi Kassey and Toray Industries. Other compounds by InflaRX GmbH, Ferring
and Baxter are currently in earlier stages of development



Many of our competitors, either alone or
with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly
greater experience in the discovery and development of product candidates, obtaining FDA, EMA and other regulatory approvals of
treatments and commercializing those treatments.



Accordingly, our competitors may be more
successful in obtaining approval for treatments and achieving widespread market acceptance. Our competitors’ treatments may
be more effective, or more effectively marketed and sold, than any treatment we may commercialize and may render our treatments
obsolete or non-competitive before we can recover the expenses of developing and commercializing any of our treatments.



Mergers and acquisitions in the biotechnology
and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These
competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical
study sites and in recruiting patients for clinical studies. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies.



We anticipate that we will face intense
and increasing competition as new drugs enter the market and advanced technologies become available. We expect any treatments that
we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and
delivery, price, the level of competition and the availability of reimbursement from government and other third-party payers.



Our commercial opportunity could be reduced
or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side
effects, are more convenient or are less expensive than any products that we may develop. Although we believe that our cell therapy
pipeline is the most advanced in Europe as of the date of this Annual Report, our competitors also may obtain FDA, EMA or other
regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors
establishing a strong market position before we are able to enter the market.



Intellectual Property



Our commercial success depends in part
on our ability to obtain and maintain proprietary or intellectual property protection in key markets for certain aspects of our
cell therapy products, processes and related technologies and to operate without infringing on the proprietary rights of others
and to prevent others from infringing our proprietary or intellectual property rights. Our policy is to seek to protect our proprietary
and intellectual property position by, among other methods, filing U.S., international and foreign patent applications related
to multiple aspects of our proprietary products, processes and technologies.



As of December 31, 2017, we owned or co-owned
29 patent families and had more than 125 granted patents in more than 20 jurisdictions, including the United States, with expiration
dates from 2020 onwards. Of these patent families, 20 are related to our eASC-based technology platform, with expiration dates
from 2024 onwards. Some of our pending patent applications are filed under the Patent Cooperation Treaty, or PCT, an international
patent law treaty that provides a unified procedure for filing a single initial patent application to seek patent protection for
an



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invention
simultaneously in each of the 152 jurisdictions, followed by the process of entering into national phases in each of the jurisdictions,
which requires a separate application in each of the jurisdictions when continued protection is sought.



A number of our patent families are the
result of collaborations with academic parties, and are jointly owned. Co-ownership agreements are in place with respect to all
but one of such patent families, and certain types of exploitation of such patents may be subject to the co-owner’s approval.
We exclusively own the patents and patent applications that form the remainder of our patent portfolio.



Our patent portfolio includes the following:



| | · | certain key foreign base patents and U.S. and foreign patent applications related to our eASC platform;
| | - | -------------------------------------------------------------------------------------------------------



| | · | U.S. and foreign patents and patent applications for other cell therapy applications;
| | - | -------------------------------------------------------------------------------------



| | · | U.S. and foreign patents and patent applications with respect to chondrocyte markers;
| | - | -------------------------------------------------------------------------------------



| | · | a U.S. patent and U.S. and foreign patent applications for cell therapy delivery mechanisms; and
| | - | ------------------------------------------------------------------------------------------------



| | · | U.S. and foreign patent applications for technology improvements with respect to our eASC platform.
| | - | ---------------------------------------------------------------------------------------------------



The following patent families are materially
relevant to our eASC pipeline:



| | · | “Identification and isolation of multipotent cells from non osteochondral mesenchymal tissue.” (PCT Application
Publication WO2006037649; TiGenix Reference PCX006): a patent family claiming a non osteochondral derived multipotent adult stem
cell population characterized by a set of biological markers. Additionally the patent family claims methods for identifying and
isolating such cells, as well as pharmaceutical compositions and therapeutic uses in healing and tissue regeneration. This patent
family is of relevance to our eASC platform. The patent family is comprised of eight granted patents (in Spain, Australia, Europe,
Japan, Canada, China, Israel and Singapore) and pending patent applications in the United States, Europe (the European Patent Office,
or EPO), Hong Kong and India derived from the PCT application or its priority documents. An opposition was filed against a granted
patent (first divisional) issued in Europe, and the patent was revoked. We have appealed the decision. The anticipated expiration
date of the granted Spanish patent ES2313805 is October 4, 2024, and the anticipated expiration date of the remaining granted
patents (AU2011253985, EP2292736, JP5732011, CA2583151, CN101056974, IL182441 and SG192459) is October 4, 2025. This is also the
anticipated expiration date of all pending patent applications. We jointly own this patent family with the Universidad Autónoma
de Madrid, with which we have a co-ownership agreement providing us with an exclusive license.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Use of adipose tissue derived stromal stem cells in treating fistula.” (PCT Application Publication WO2006136244;
TiGenix Reference PCX007): a patent family claiming an adipose derived stem cell composition characterized by a panel of cell surface
markers, methods of preparation of such a composition and adipose tissue derived stromal stem cells for use in treating fistula
and wounds. This patent family is relevant to Cx601. The patent family is comprised of granted patents in Australia, Israel, Mexico,
New Zealand, Russia, Singapore, the United States, Canada and Europe and pending patent applications in China, Japan, the United
States, Brazil, Europe (the EPO), Russia and Hong Kong, derived from the PCT application. An opposition was filed against a granted
patent (first divisional) issued in Europe, but the patent was maintained in amended form. The anticipated expiration date of these
patents and patent applications is May 16, 2026 for patents filed by means of the PCT application, and February 14, 2025
or June 24, 2025, without taking into account any patent term adjustment, for U.S. patents derived from US 11/167,061
without the benefit of the PCT application filing. We jointly own this patent family with the Universidad Autónoma de Madrid,
and it is subject to the co-ownership agreement mentioned above with respect to PCX006, which provides us with an exclusive license.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Cell populations having immunoregulatory activity, method for isolation and uses.” (PCT Application
Publication number WO2007039150; TiGenix Reference PCX008): a patent family claiming a stem cell population, methods for the isolation
of such stem cells, their use in the preparation of regulatory T cells and cell therapy of immune and inflammatory diseases.
This patent family is relevant to Cx611 and Cx601.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The patent family is comprised of
eight granted patents in Mexico, South Korea, Japan, Europe (the EPO), Canada, Israel and Australia (MX342474, KR10-1536239, JP5925408,
JP6089004, EP1926813, CA2623353, IL228670 and AU2012268272) and pending patent applications in Canada, China, Europe, Singapore,
Hong Kong, the United States and Australia derived from the PCT. An opposition was filed against the parent patent issued in Europe.
The anticipated expiration date of the granted patent and all these patent applications is September 22, 2026. We jointly
own this patent family with the Consejo Superior de Investigaciones Cientificas, the Spanish National Research Council, with which
we have a co-ownership agreement providing us with an exclusive license.



| | · | “Uses of mesenchymal stem cells.” (PCT Application Publication number WO/2010/015929; TiGenix Reference
PCX011): a patent family claiming the use of mesenchymal stem cells in the treatment of systemic inflammatory response syndrome.
This patent family is relevant to the use of Cx611 for the treatment of sepsis. The patent family is comprised of granted patents
in Australia, Europe (the EPO), South Korea and Japan, and pending patent applications in Australia, Canada, Europe, Japan, the
United States, and South Korea derived from the PCT application. The anticipated expiration date of all these patent applications
is August 3, 2029. We jointly own this patent family with the Consejo Superior de Investigaciones Cientificas, the Spanish
National Research Council, and the University of Seville, with which we have a co-ownership agreement providing us with an exclusive
license.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Methods and compositions for use in cellular therapies.” (PCT Application Publication number WO 2011/004264;
TiGenix Ref. PCX019): a patent family claiming therapeutic uses of cells by administration to lymphatic organs. This patent
family is relevant to Cx621. The patent family is comprised of granted patents in the United States, New Zealand, Australia, Europe,
Japan, Israel, South Korea and Russia and pending patent applications in Brazil, Canada, Mexico, Singapore, China, Hong Kong and
India derived from the PCT application. The anticipated expiration date of these patents and patent applications is July 9,
2030. We are the sole owners of this patent family.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Adipose-derived mesenchymal stem cells for intralymphatic administration in autoimmune and inflammatory diseases.”
(PCT Application Publication number WO/2012/095743; TiGenix Ref. PCX022): a patent family claiming therapeutic uses of cells
by administration to lymphatic organs. This patent family is relevant to Cx621. The patent family is comprised of a granted patent
in Japan and pending applications in the United States, South Korea and Europe (the EPO) derived from the PCT application. The
anticipated expiration date of these patent applications is January 12, 2032. We are the sole owner of this patent family.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Mesenchymal stromal cells for treating systemic inflammatory response syndrome” (PCT Application Publication
WO2016/001846; TiGenix Reference PCX029): a patent family claiming the use of mesenchymal stem cells in the treatment of sepsis,
in particular the use of adipose tissue-derived stem cells for treating sepsis secondary to an inflammatory lung condition such
as pneumonia. This patent family is relevant to the use of Cx611 for the treatment of sepsis. This patent family is comprised of
pending applications in several countries (Australia, Brazil, Canada, China, Europe, Hong Kong, Israel, Japan, Mexico, New Zealand,
Russia, Singapore, South Africa, South Korea, and the United States) derived from the PCT application. The anticipated expiration
date is June, 30, 2035. We are the sole owner of this patent family.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Adipose tissue-derived stromal stem cells for use in treating refractory complex perianal fistulas in Crohn’s
disease” (PCT Application Publication WO2017/158509; TiGenix Reference PCX032): Claims are aimed at compositions relevant
for the use of the Cx601 product: expanded allogeneic adipose tissue-derived stem cells for use in treating refractory complex
perianal fistulas in Crohn’s disease patients wherein the fistula comprises multiple tracts, about 120 million cells are
administered and clinical remission is achieved within a certain time period. This patent family is comprised of a granted patent
in the Netherlands and pending national and regional applications filed in several countries and jurisdictions (Belgium, Germany,
Spain, France, United Kingdom, Europe, Italy, Norway and the United States). A PCT application has also been filed. The anticipated
expiration date of all these applications is March 14, 2037. We are the sole owner of this patent family.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The patent family related to the cardiac
stem cell platform and AlloCSC-01 consists of one application filed under the Patent Cooperation Treaty, or PCT, and a parallel
application filed directly with the PTO. Overall the



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application
has entered national prosecution in eight jurisdictions. A more detailed description of the patent family is as follows:



| | · | “Adult cardiac stem cell population” (PCT Application publication no. WO 2014/141220; TiGenix Reference Ctx-3):
a patent family claiming an isolated multipotent adult cardiac stem cell characterized by the presence and absence of particular
biological markers, and the ability of the cell to differentiate into at least adipocytes, osteocytes, endothelial cells and smooth
muscle cells. The PCT application claims are also directed to a substantially pure population of the claimed cells, methods for
preparing such a population of cells, as well as pharmaceutical compositions and methods of treating cardiovascular disease, ischemic
injury and autoimmune diseases and preventing allogeneic organ transplant rejection. The international application has entered
into the national phase in Australia, Canada, China, Israel, Hong Kong, Japan, Europe, South Korea and the United States. The PCT
application was filed on March 17, 2014 and the anticipated expiration date of any patents stemming from the international
application is therefore March 17, 2034.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | “Adult cardiac stem cell population” (U.S. application Number 14/213868; publication no. US 2014-0271575;
TiGenix Reference Ctx-3): a separate U.S. application claiming a substantially pure population of adult cardiac stem cells
characterized by the presence and absence of a set of biological markers, and pharmaceutical compositions comprising the claimed
population of cells. Claims directed to methods of preparing the population of cells and to methods of treating cardiovascular
disease, ischemic injury, autoimmune disease, inflammatory processes and chronic ulcers and preventing allogeneic organ transplant
rejection can be pursued in a divisional application if required. The U.S. application was filed on March 14, 2014 and the
anticipated expiration date (without taking into account any patent term adjustment) is March 14, 2034.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we have over 50 registered
trademarks and trademark applications.



Finally, several elements of our cell therapy
program involve unpatented proprietary technology, processes, know-how or data, including cell isolation, production and release
processes, which we consider to be part of our intellectual property. With respect to proprietary technology, know-how and data
that are not patentable or potentially patentable, or processes other than production processes for which patents are difficult
to enforce, we have chosen to protect our interests by relying on trade secret protection and confidentiality agreements with our
employees, consultants and certain contractors and collaborators. All our employees are parties to employment agreements that include
such confidentiality provisions.



Partnerships, Licensing and Collaboration



We have entered into partnerships and collaborations
in the past and will consider such opportunities in the future.



Mesoblast patent license and settlement
agreement



On December 14, 2017, we entered into a
patent license and settlement agreement with two subsidiaries of Mesoblast Limited, Mesoblast Inc. and Mesoblast International
Sàrl (together, the “Mesoblast Subsidiaries”), whereby the Mesoblast Subsidiaries granted us exclusive
access to certain of their patents to support global commercialization of Cx601 for the local treatment of fistulae (the “Mesoblast
License”). The Mesoblast License grants us an exclusive, worldwide license to any and all patents (other than those obtained
through a transaction whereby a third party controlling such patents becomes an affiliate of the Mesoblast Subsidiaries after December
14, 2017) that, absent the consent of the Mesoblast Subsidiaries, would be infringed by the manufacture, use, sale, offer for sale,
storage, import, development or other exploitation of Cx601 for the local treatment of fistulae. The Mesoblast License includes
the right for us to grant sub-licenses to affiliates and, subject to consent, third parties, including Takeda (for whose sublicense
consent has been received). Additionally, the Mesoblast License resolves any claims, liabilities or causes of action that the Mesoblast
Subsidiaries, we or any of our respective affiliates, could make against each other as of December 14, 2017 in relation to Cx601
for the local treatment of fistulae worldwide.



As consideration under the Mesoblast License,
we shall pay Mesoblast International Sàrl a total of up to 20 million euros, with five million euros upfront, five million
euros within 12 months, and up to ten million euros in



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product
regulatory milestones. Additionally, we shall pay to Mesoblast International Sàrl single digit royalties on net sales of
Cx601.



The Mesoblast License shall continue in
full force in each country (other than the United States) until the date upon which the last issued claim of any licensed patent
covering Cx601 expires in such country (currently expected to be 2029) or, with respect to the United States, until the later of
(i) the date upon which the last issued claim of any licensed patent covering Cx601 in the United States expires (currently expected
to be around 2031) or (ii) the expiration of the regulatory exclusivity period in the United States with an agreed maximum term.



Either the Mesoblast Subsidiaries or we
may terminate the Mesoblast License for any material breach that is not cured within 90 days after notice thereof. The Mesoblast
Subsidiaries also have the right to terminate the Mesoblast License, with a written notice in the event that we file a petition
in bankruptcy or insolvency or we make an assignment of substantially all of our assets for the benefit of our creditors.



We have the right to terminate our obligation
to pay royalties for net sales in a specific country if we are of the opinion that there is no issued claim of any licensed patent
covering Cx601 in such country, subject to referral of the matter to the joint oversight/cooperation committee established under
the Mesoblast License if the Mesoblast Subsidiaries disagree.



Lonza manufacturing agreement



In February 2015, we entered into an agreement
with Lonza, a U.S.-based contract manufacturing organization and started the process for technology transfer in connection with
a proposed Phase III study to register Cx601 in the United States. Under the agreement, Lonza will manufacture some of the
material for the Phase III trial to register Cx601 in the United States. The agreement will continue until February 9,
2020 unless earlier terminated or extended by the parties. Pursuant to the agreement, the parties will develop certain statements
of work, which describe the process or product to be developed and the related activities to be performed by both parties or the
technology to be transferred to Lonza for the manufacturing of the product. Lonza will be responsible for complying with cGMP requirements
and will maintain any licenses, permits and approvals necessary.



We will make payments to Lonza in the amounts
and dates set forth in the statements of work, and we will also pay a security deposit equal to the lesser of 20% of the budgeted
costs of the statement of work or $100,000.



The agreement includes standard provisions
regarding the protection of each party’s intellectual property and confidential information.



Either party may terminate the agreement
for any material breach that is not cured within 30 days (or 180 days in case of payment default). We also have the right to terminate
the agreement with a written notice of no less than 12 months; Lonza may terminate the agreement with a written notice of 24 months.
In case of suspension or termination of production by a regulatory authority, we may terminate the agreement with a written notice
of no less than two months. Finally, either party may terminate the agreement upon written notice in case of insolvency.



We submitted the first statement of work
on May 18, 2015. This provides a description of the activities, timelines and budgets for the initial set-up and one-year
maintenance for the provision of clinical/GMP grade human adipose tissue to be used for manufacturing allogenic mesenchymal adult
stem cells.



The estimated program set-up fees amount
to $22,400. Other fees (including contingency fees) amount to $6,500.



On October 14, 2015 we executed the
second statement of work. This describes the activities, timelines and budgets for the development/optimization of the GMP manufacturing
process of Cx601.



In 2016, we submitted five additional statements
of work. The aggregate estimated total fees payable by TiGenix for these statements of work amount to $6,303,025. In 2017, we submitted
eight additional statements of work. The aggregate estimated total fees payable by TiGenix for these statements of work amount
to $2,825,160.



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Takeda Licensing Agreement



Under the Licensing Agreement, Takeda currently
has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas in all countries outside the United States.
Under the agreement, Takeda paid an upfront non-refundable licensing fee of 25 million euros and, following the marketing
authorization granted by the European Commission on March 23, 2018, we expect to receive a further payment of 15 million euros
during the second quarter of 2018.



The Licensing Agreement excludes clinical
development and commercialization rights in the United States, where we will continue to develop Cx601 for complex perianal fistulas.
We also retain the right to develop Cx601 in any indications outside the indication of complex perianal fistulas. Furthermore,
if Takeda has not presented us with a plan accepted by the regulatory authorities of either Canada or Japan to access the market
in those countries by the second anniversary of the receipt of marketing authorization from the European Commission, we have the option of unilaterally
excluding those territories from the scope of the Licensing Agreement.



Takeda will pay us 1.5 million euros
upon receipt of regulatory approval for the sale of Cx601 to patients in each of Canada and Japan. In addition, in the event of
a positive pricing and market access decision for Cx601 by a payer in either or both of Canada or Japan at a price equivalent to
30,000 euros per patient or more, Takeda will pay us a further one million euros per country.



In Europe, we expect to transfer the marketing
authorization (which we obtained on March 23, 2018) to Takeda. Takeda will also make milestone payments for positive pricing and
market access decisions from payers in France, Germany, Italy, Spain and the United Kingdom of two million euros per country,
if Cx601 is approved at a price of 30,000 euros or equivalent per patient or more, or one million euros per country, if Cx601
is approved at a price between 26,000 euros and 30,000 euros or equivalent per patient.



Under the Licensing Agreement, we will
receive tiered quarterly royalty payments on net sales of Cx601 on a country-by-country basis, ranging from 10% to 18%, and calculated
based on the price of Cx601 in each country during that quarter. We will also receive one-time sales milestone payments ranging
from 15 million euros, if net sales in the territory reach 150 million euros, to 100 million euros, if net sales
reach one billion euros. The potential sales and reimbursement milestones could total up to 340 million euros, and are
in addition to any royalty payments we receive under the Licensing Agreement.



Takeda also agreed to invest ten million
euros in equity within one year of the effective date of the Licensing Agreement. Takeda made its ten million euro investment on
December 29, 2016. The shares were subject to a one-year lock-up, subject to certain exceptions.



Under the Licensing Agreement, we cooperate
closely with Takeda and have set up a number of joint committees to oversee the overall commercialization process; operational
matters including product development, intellectual property and regulatory matters; and manufacturing. We will initially continue
to manufacture Cx601 at our facility in Madrid, and we and Takeda will share equally the cost of expanding the facility to increase
the manufacturing capacity up to 1,200 doses of Cx601 per year at an estimated cost of approximately 3.5 million euros. We intend
to transfer manufacturing responsibilities to Takeda once the technology transfer process is complete, which is expected to be
by January 1, 2021 at the latest.



Pursuant to the Licensing Agreement, the
technology transfer is to be split into two steps. In a first step, we will transfer certain elements of Cx601 manufacturing to
a third-party transferee of Takeda, and in a second step, we will transfer the remaining technology to Takeda or an affiliate thereof.
The roles, responsibilities and obligations of Takeda and us in relation to the technology transfer will be covered by a manufacturing
transfer plan to be agreed between Takeda and us.



Within the European Economic Area and Switzerland
(and Israel, Japan and Canada, per separate agreement of the relevant joint committee), we will be responsible for manufacturing
and supplying up to 1,200 doses per year of Cx601 to Takeda under the terms and conditions of the Licensing Agreement and until
we transfer the full manufacturing responsibilities to Takeda. Outside such territory, Takeda will be responsible for manufacturing
and supplying Cx601.



The Licensing Agreement will expire on
a country-by-country basis at the occurrence of the latest of any of the following:



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| | · | the twentieth anniversary of the date of the first commercial sale of Cx601 in such country;
| | - | --------------------------------------------------------------------------------------------



| | · | the expiration of the last valid patent claim covering Cx601 or its use in such country;
| | - | ----------------------------------------------------------------------------------------



| | · | the expiration of market exclusivity in such country granted under the marketing authorization of the product as an orphan
drug; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | the expiration of any data exclusivity with respect to Cx601.
| | - | -------------------------------------------------------------



Either party may terminate the Licensing
Agreement with 30 days’ written notice in case of insolvency of the other party. Either party may terminate the Licensing
Agreement upon a change of control of the other party with 60 days’ written notice. Either party may terminate the Licensing
Agreement in case of a material breach or non-performance by the other party with immediate effect or, in case of a curable material
breach, if such breach should not be cured within 60 days after receipt of such notice.



We also have a right to terminate the Licensing
Agreement on a region-by-region basis with 30 days’ written notice if expected royalties from a key market within the region
are at least 25% lower than expected based on the commercialization plan provided by Takeda for at least three consecutive years
and we reasonably determine that Takeda did not use commercially reasonable efforts to meet the established sales target. If we
cannot mutually resolve any dispute related to such a claim either within the established committees or through negotiations between
senior management or the board of directors within 30 days, the dispute shall be referred to a third-party expert for adjudication.
In addition, we can terminate the Licensing Agreement with 30 days’ notice if Takeda or one of its affiliates challenges
or takes any material steps to assist a third party in challenging the validity of our intellectual property rights.



Takeda had a right to terminate the Licensing
Agreement with 30 days’ written notice if we had not obtained marketing authorization from the European Commission within
four years of the entry into the Licensing Agreement. Takeda can also terminate the Licensing Agreement with 30 days’ written
notice on a country-by-country basis if there is a third-party claim of infringement of intellectual property rights provided that
external counsel confirms that there is a greater than 50% probability of a finding of infringement, or in the case of a final
court decision confirming such infringement. Finally, Takeda has the right to terminate the Licensing Agreement with 30 days’
written notice in the event that any changes to the production or quality control process required by regulatory authorities lead
to the production costs increasing by more than 15%.



In addition, we remain solely responsible
for certain third-party obligations arising from sales of the product, including with respect to the rights licensed from the Universidad
Autonóma de Madrid or the Consejo Superior de Investigaciones Científicas. In case we decide to terminate any such
existing license and Takeda disagrees with our decision, they may request that we assign them the license or terminate the Licensing
Agreement on a country-by-country basis.



Other agreements



We also rely on third-party contract research
organizations to conduct our clinical trials.



In addition, a number of our patent families
are the result of collaborations with academic parties, including with Universidad Autónoma de Madrid and Consejo Superior
de Investigaciones Científicas, and are jointly owned. Co-ownership agreements are in place with respect to all but one
of such patent families, and certain types of exploitation of such patents may be subject to the co-owner’s approval.



The patent families referred to as PCX006
and PCX007 are the subject of a co ownership agreement dated November 3, 2004, between our subsidiary TiGenix S.A.U. (formerly
Cellerix), and the Universidad Autónoma de Madrid. Under the terms of this agreement, the Universidad Autónoma de
Madrid assigned all exploitation rights to TiGenix S.A.U., including the right to license or sub-license to third parties. We are
obligated to provide fifteen days’ notice to the Universidad Autónoma de Madrid prior to the execution of any such
license or sub license. The agreement will remain in force throughout the legal life of the patents covered by this agreement,
unless it is terminated by mutual agreement. Under the terms of an amendment dated April 24, 2008, we are obliged to make
the following royalty payments to the Universidad Autónoma de Madrid as consideration for the exclusive assignment:



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| | · | 1.0% on net sales less than 50 million euros;
| | - | ---------------------------------------------



| | · | 1.5% on net sales between 50 million euros and 100 million euros; and
| | - | ---------------------------------------------------------------------



| | · | 2.0% on net sales over 100 million euros.
| | - | -----------------------------------------



The annual royalty rights we owe with respect
to net sales generated in any country where a patent has not been granted will be halved until a patent is granted in such country.



The anticipated expiration date of the
patents and patent applications of the patent family referred to as PCX006 is of October 4, 2024 for the granted Spanish patent
ES2313805 and of October 4, 2025 for the patent applications.



The anticipated expiration date of patents
and patent applications of the patent family referred to as PCX007 is May 16, 2026, with the exception of U.S. patents derived
from US 11/167,061 without the benefit of the PCT filing, for which the anticipated expiration date is February 14, 2025 or
June 24, 2025, without taking into account any patent term adjustment.



The patent family referred to as PCX008
is the subject of a co-ownership agreement dated June 1, 2009 between TiGenix S.A.U. (formerly Cellerix) and the Consejo Superior
de Investigaciones Científicas, under which ownership interests were allocated between TiGenix S.A.U. and the Consejo Superior
de Investigaciones Científicas in a ratio of two-thirds to one-third. We have an exclusive worldwide license, with the right
to sub license all the exploitation rights. The agreement will remain in force until the end of the life of the patent, unless
it is terminated by mutual consent. If we wish to assign our interest in the patent family to a third party the Consejo Superior
de Investigaciones Científicas shall have a first right of refusal. Our payment obligations under the agreement are as follows:



| | · | an initial payment of 30,000 euros on signing the agreement;
| | - | ------------------------------------------------------------



| | · | a payment of 120,000 euros on the date on which any product that incorporates any of the patent’s claims is brought onto
the market; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | royalty payments to be determined on the following basis:
| | - | ---------------------------------------------------------



| | · | 0.1% of net sales equal to or less than 50 million euros;
| | - | ---------------------------------------------------------



| | · | 0.2% of net sales between 50 million euros and 100 million euros; and
| | - | ---------------------------------------------------------------------



| | · | 0.3% of net sales greater than 100 million euros.
| | - | -------------------------------------------------



If we sub-license the rights to exploit
the patent in Europe, the Consejo Superior de Investigaciones Científicas must receive consideration not less than it would
receive if we exploited the patent rights ourselves. If we sub-license the rights to exploit the patent outside Europe, the Consejo
Superior de Investigaciones Científicas must receive consideration equal to 1.5% of the amount of the royalties based on
net sales. If we enter into a cross-license agreement with a third party whereby we authorize the third party to exploit the patent
in exchange for the right to exploit any rights of that third party, net sales shall be deemed to be our sales from the exploitation
of the rights acquired under the cross-license agreement, after first deducting any amount we may owe under the cross-license agreement.
In addition, we will pay the Consejo Superior de Investigaciones Científicas 1.5% of any of the non-percentage-based fixed
amounts, whether payable once or at regular intervals, that we may receive from sub-licensees for the sub-licensing of the rights
to exploit the patent, on the same terms as agreed by us with such sub-licensee. Consequently, if our payment for the sub license
is wholly or partly conditional on market introduction, the Consejo Superior de Investigaciones Científicas will also be
paid all or a pro rata amount of such percentage after the conditions are met.



The anticipated expiration date of all
patent applications of the patent family referred to as PCX008 is September 22, 2026.



PCX011 is subject to a co-ownership agreement
dated January 17, 2011, between TiGenix S.A.U. (formerly Cellerix), the Consejo Superior de Investigaciones Científicas
and the University of Seville determining ownership of the patent family, with 50% belonging to TiGenix S.A.U., 45% to the Consejo
Superior de Investigaciones



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Científicas
and 5% to the University of Seville. Under this agreement, we have an exclusive worldwide license to the rights, without the right
to sub-license. The agreement shall remain in force until the end of the life of the patent, unless it is terminated by mutual
consent. Our payment obligations under the agreement are as follows:



| | · | an initial payment of 5,000 euros on signing the agreement;
| | - | -----------------------------------------------------------



| | · | a payment of 35,000 euros on the first visit by the first patient in a clinical trial for a product we promote that incorporates
the patent rights;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a payment of 35,000 euros on the first visit by the first patient in a pivotal Phase III clinical trial of a product we
promote that incorporates the patent rights;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a payment of 35,000 euros upon submission of a marketing authorization request dossier to a regulatory authority for a product
that incorporates the patent rights;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a payment of 100,000 euros upon approval of the product by the first regulatory agency; and
| | - | -------------------------------------------------------------------------------------------



| | · | a royalty to be determined on the following basis on worldwide sales:
| | - | ---------------------------------------------------------------------



| | · | 0.2% of net sales equal to or less than 50 million euros;
| | - | ---------------------------------------------------------



| | · | 0.3% of net sales between 50 million euros and 100 million euros; and
| | - | ---------------------------------------------------------------------



| | · | 0.4% of net sales more than 100 million euros.
| | - | ----------------------------------------------



All payments shall be distributed between
the Consejo Superior de Investigaciones Científicas, which will receive 90% and the University of Seville, which will receive
10%. If we sub-license exploitation rights to the patent rights to which we provide added value, our counter parties will receive
15% of the total consideration. If such rights are sub-licensed to a third party outside Europe, our counterparties will receive
10% of the total consideration. In the event that we sublicense exploitation rights to the patent rights to which we have not provided
any added value our counterparties will receive consideration no less than what they would have received had we directly exploited
the patent. All parties have the right to terminate the agreement in case of a breach. We are permitted to terminate the agreement
with 90 days’ notice if we terminate development or commercialization of a product falling under the scope of the agreement.



The anticipated expiration date of all
patent applications of the patent family referred to as PCX011 is August 3, 2029.



We may consider partnerships in the United
States and other markets to rapidly bring Cx601, Cx611 or any of our other future products to market and maximize our value.



The Acquisition of Coretherapix



On July 29, 2015, we entered into
a contribution agreement with Genetrix, to acquire 100% of the shares of Coretherapix, as well as certain receivables of Genetrix
on Coretherapix, for 1.2 million euros in cash and 7.7 million new ordinary shares.



Under the contribution agreement, Genetrix
is also entitled to receive contingent payments subject to the achievement of certain milestones, as follows:



| | · | up to 15 million euros, payable in new ordinary shares, subject to the results of the ongoing clinical trial of Coretherapix.
Based on clinical trial results received in March 2017 (for which the study report became available in June 2017), the amount payable
to Genetrix was reduced to five million euros in new ordinary shares, which it received on July 25, 2017;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | up to 245 million euros, subject to obtaining marketing authorization from the European Commission or the FDA for the first product or
indication based on AlloCSCs in acute myocardial infarction, and further subject to obtaining certain future sales milestones,
with the first sales milestone being reached when annual net sales
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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reach 150 million euros and
the last sales milestone being reached when annual net sales are above 750 million euros;



| | · | tiered royalties ranging from 6% to 16% of the direct net sales of the first product or indication based on AlloCSCs in acute
myocardial infarction, if we commercialize the product ourselves, with similar sales milestones as the sales milestones mentioned
immediately above, or certain percentages ranging from 10% to 35% of any third-party royalties and sales milestones that we receive
from a third party, if we license the rights to commercialize the first product or indication to a third-party licensee; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | if Coretherapix obtains marketing authorization from the European Commission or the FDA for any additional product or indication
resulting from its portfolio as of June 29, 2015, Genetrix shall be entitled to a payment of 25.0 million euros upon
receipt of marketing authorization for each such product.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On December 20, 2017, following the positive
opinion from the CHMP, we announced our plans to focus our resources and capabilities on the eASC platform technology and our product
candidates Cx601 and CS611. As a result, we do not plan to invest in further R&D of our CSC-based platform. Under these circumstances
the fair value of the assets resulting from the business combination with Coretherapix is close to zero. An impairment (18.1 million
euros) has been recognized at December 31, 2017 and the liability related to it has been consequently reversed (8.4 million euros).
These items and the fair value changes which occurred during the year in the contingent consideration (0.5 million euros) negatively
impacted the Company’s consolidated statement of income, with a negative impact of 10.2 million euros.



Manufacturing and Logistics



Our eASC-based Product Candidates



Our eASC-based product candidates are considered
medicinal products pursuant to the European regulation governing advanced therapy medicinal products and Spanish Order SCO/3461/2003
and therefore must be manufactured in compliance with cGMP requirements in an authorized pharmaceutical establishment. This also
applies to the medicinal products manufactured for use in clinical trials. We have successfully obtained a manufacturing license
from the Spanish Medicines and Medical Devices Agency for the commercial production of Cx601.



Our product candidates are allogeneic eASCs
that are originally derived from the subcutaneous fat tissue of a healthy donor. The fat biopsy tissue is first enzymatically digested
and stem cells are recovered from it through a series of cell culture steps. In this first series of expansion steps, we create
a master cell stock and extensively test the quality and safety of these first large cell stock. Once the master cell bank is qualified,
it can be used to generate sequentially a large number of so called final drug substances cell stock. These final drug substances
are obtained by expanding the cells of the master cell stock with a new series of cell expansions in cell culture. The final drug
substances are then cryopreserved, or frozen at very low temperatures, until final use. For fresh products like Cx601, when a final
product needs to be provided to the physician, the required amount of frozen cells are thawed and recovered in cell culture. These
cells are then subsequently collected for final formulation in excipient, or inert, medium. For frozen products like Cx611, the
final cryopreserved drug substance product can be delivered frozen to the treating hospital. The amounts of cells and excipient
volume depend on the particular product and their use in the clinics.



During the entire manufacturing process,
there are specific quality controls to guarantee that the product complies with the adequate specifications for use. The controls
applied during the process on raw materials and on the finished product before and after it is packaged are particularly important.
We also conduct microbiological and environmental controls and process controls to ensure that the manufacturing conditions are
compliant for the manufacturing and distribution of the finished product as required by cGMP requirements.



The EMA has established the characterization
of eASCs in terms of identity, purity, potency, morphology, viability and cell growth kinetic according to the Guideline on
Cell Based Medicinal Products (EMA/CHMP/410869/2006) and the Reflection Paper on Stem Cells (EMA/CAT/571134/2009, adopted
on January 14, 2011) in order to set the routine controls that will be applied at final product release as well as those to
be performed at different stages of the manufacturing process to guarantee the batch consistency. We obtained scientific advice
from the EMA to ensure that our manufacturing process is aligned with their requirements.



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Our facilities for the manufacture of eASCs
are located in Madrid, Spain and consist of two separate clean rooms and adjacent support rooms. The facilities have been approved
by the Spanish Medicines and Medical Devices Agency as being compliant with cGMP requirements for the manufacture of cellular medicinal
products for investigational use (i.e., clinical trials) and commercial use of approximately 400 patient lots, or finished
products, per year. In December 2017, we completed the expansion of the facility to increase production capacity to approximately
1,200 finished products per year. The estimated costs of this expansion is approximately 3.5 million euros, which we have agreed
to share equally with Takeda.



The logistics for our eASC-based products
include the transport of the finished product in a special temperature controlled shipping container. The shipping process has
been validated with specialist courier services. Based on our experience with these companies and the proximity of our manufacturing
facility to the Madrid international airport of Barajas, we have demonstrated that we can reliably deliver the finished product
to treatment sites anywhere in Europe within 24 hours and to Israel within 40 hours.



The Manufacturing Agreement governs, among
other things, the specific aspects of the manufacturing and supply of Cx601 and the financial terms of the transfer of the manufacturing
responsibilities for Cx601 from the Company to Takeda. See “Item 4. Information on the Company—B. Business Overview—Partnerships,
Licensing and Collaboration—The Takeda Licensing Agreement.”



United States Government Regulation



Biological products, such as our product
candidates, are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or FD&C Act, and the Public Health Service
Act, or the PHS Act, as well as other federal, state and local statutes and regulations. Both the FD&C Act and the PHS Act
and their corresponding regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, packaging,
storage, record keeping, distribution, reporting, advertising and other promotional practices involving biological products. FDA
approval must be obtained before clinical testing of biological products. FDA approval also must be obtained before marketing of
biological products. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state,
local and foreign statutes and regulations require the expenditure of substantial time and financial resources, and each process
may take several years to complete, although certain expedited programs potentially applicable to our product candidates, such
as FDA fast track approval processes for certain new drugs with the potential to address unmet medical needs for certain serious
or life-threatening conditions, may potentially expedite approval processes. Certain federal incentive programs are also potentially
applicable to our product candidates, such as for “orphan drugs” that treat rare conditions. Data obtained from clinical
activities, including late stage clinical trials, is not always conclusive and may be susceptible to varying interpretations, which
could delay, limit or prevent regulatory approval. The FDA may not grant approval on a timely basis, or at all, and we may encounter
difficulties or unanticipated costs in our efforts to secure necessary governmental approvals, which could delay or preclude us
from marketing our product candidates. In addition, the FDA may limit the indications for use or place other conditions on any
approvals that could restrict the commercial application of the products. After approval, some types of changes to the approved
product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements
and FDA review and approval. In addition, our failure, or the failure of our third-party manufacturers, to comply with applicable
regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays,
suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions
and criminal prosecutions, any of which could adversely affect our ability to commercialize our product candidates.



The BLA Approval Process



The process required by the FDA before
a biological product may be marketed in the United States generally involves the following:



| | · | completion of preclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable
requirements for the humane use of laboratory animals or other applicable regulations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | submission to the FDA of an application for an IND, which must become effective before human clinical trials may begin and
which must include approval by an independent IRB at each clinical site before the trials may be initiated;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | performance of adequate and well controlled human clinical trials according to the FDA’s regulations commonly referred
to as GCPs and any additional requirements for the protection of human research subjects and their health information, to establish
the safety and efficacy of the proposed biological product for its intended use;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | submission to the FDA of a BLA for marketing approval that includes substantive evidence of safety, purity, and potency from
results of preclinical testing and clinical trials, and detailed information about the chemistry, manufacturing and controls for
the product, reports of the outcomes and full data sets of the clinical trials and proposed labeling and packaging for the product;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced
to assess compliance with cGMPs, to assure that the facilities, methods and controls are adequate to preserve the biological product’s
identity, strength, quality and purity and, if applicable, the FDA’s current GTPs for the use of human cells, tissues and
cellular and tissue-based products;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | · | FDA review and approval, or licensure, of the BLA, including agreement on post-marketing commitments, if applicable.
| | - | --------------------------------------------------------------------------------------------------------------------



Before testing any biological product candidate
in humans, the product candidate enters the preclinical study stage. Preclinical studies include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the product candidate.
The conduct of certain preclinical studies must comply with federal regulations and requirements including GLPs.



The clinical trial sponsor must submit
the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or
literature and a proposed clinical protocol, to the FDA as part of the IND. Some preclinical studies may continue even after the
IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical
trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical trial can begin. The FDA may also impose clinical holds on a biological product candidate at any time
before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold, studies may not
recommence without FDA authorization and then only under terms authorized by the FDA. Accordingly, we cannot be sure that submission
of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not arise that suspend or
terminate such studies. On September 15, 2017, we submitted IND no. 17707 for Cx601. The IND submission also included the initial
Pediatric Study Plan (iPSP) for Cx601 and an application for RMAT designation. On October 18, 2017 the FDA granted orphan drug
designation for Cx601 and did not continue with the revision of the iPSP as it is not a requirement for products with orphan drug
designation.



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Clinical trials involve the administration
of the biological product candidate to healthy volunteers or patients under the supervision of qualified investigators. Clinical
trials are conducted under protocols detailing, among other things, the objectives of the clinical trial, dosing procedures, subject
selection and exclusion criteria, and the parameters to be used to monitor subject safety, including stopping rules that assure
a clinical trial will be stopped if certain adverse events, or AEs, should occur. Each protocol and any amendments to the protocol
must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s
regulations comprising the GCP requirements, including the requirement that all research subjects provide informed consent. Further,
each clinical trial must be reviewed and approved by an IRB at or servicing each institution at which the clinical trial will be
conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the
risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits.
The IRB also approves the form and content of the informed consent that must be signed by each clinical trial subject or his or
her legal representative and must monitor the clinical trial until completed. Federal regulations governing the protection of human
subjects in clinical trials have remained generally consistent for many years, subject to certain amendments.



Human clinical trials are typically conducted
in three sequential phases that may overlap or be combined:



| | · | Phase I. The biological product is initially introduced into a small group of healthy human subjects (e.g., ten to 20
volunteers) and tested for safety. In the case of some products for severe or life-threatening diseases, especially when the product
may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase II. The biological product is evaluated in a larger but limited patient population (e.g., a few
hundred patients) to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product
for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Phase III. Clinical studies are undertaken to further evaluate dosage, clinical efficacy, potency and safety in an expanded
patient population (e.g., several hundred to several thousand patients) at geographically dispersed clinical trial sites.
These clinical studies are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for
product labeling.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Post-approval clinical studies, sometimes
referred to as Phase IV clinical studies, may be conducted after initial marketing approval. These clinical studies are used
to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term
safety follow-up.



During all phases of clinical development,
regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data and clinical trial investigators.
Annual progress reports detailing the results of the clinical studies must be submitted to the FDA. Written IND safety reports
must be promptly submitted to the FDA, the NIH and the investigators for serious and unexpected AEs, any findings from other studies,
tests in laboratory animals or in vitro testing and other sources that suggest a significant risk for human subjects, or any clinically
important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
The sponsor must submit an IND safety report within fifteen calendar days after the sponsor determines that the information qualifies
for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction within
seven calendar days after the sponsor’s initial receipt of the information. Phase I, Phase II and Phase III
clinical studies may not be completed successfully within any specified period, if at all. The FDA or the sponsor may suspend a
clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to
an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the
clinical trial is not being conducted in accordance with the IRB’s requirements or if the biological product has been associated
with unexpected serious harm to patients.



Concurrent with clinical studies, companies
usually complete additional animal studies, develop additional information about the physical characteristics of the biological
product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. To
help reduce the risk of the introduction of adventitious agents with use of biological products, the PHS Act emphasizes the importance
of manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of
consistently producing quality batches of the product candidate and, among other things, the sponsor must develop



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methods
for testing the identity, strength, quality, potency and purity of the final biological product. Additionally, appropriate packaging
must be selected and tested and stability studies must be conducted to demonstrate that the biological product candidate does
not undergo unacceptable deterioration over its shelf life.



Review and Approval Processes



After the completion of clinical trials
of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological product. The testing
and approval processes for a BLA require substantial time and effort and there can be no assurance that the FDA will accept the
BLA for filing and, even if filed, that any approval will be granted on a timely basis, if at all. The BLA must include results
of product development, laboratory and animal studies, human studies, information on the manufacture and composition of the product,
proposed labeling and other relevant information.



In addition, under the Pediatric Research
Equity Act, or PREA, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the biological product
for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the product is safe and effective. However, the FDA may grant deferrals for submission of data or full
or partial waivers. Drug products that have been designated as orphan medicinal products for rare disease or conditions do not
need to submit iPSP.



Under the Prescription Drug User Fee Act,
or PDUFA, as amended, each BLA must be accompanied by a significant user fee. PDUFA also imposes an annual product fee for biologics
and an annual establishment fee on facilities used to manufacture prescription biologics. An application for a prescription drug
product that has been granted orphan designation under section 526 of PDUFA, is not subject to an application fee unless the application
includes an indication for other than a rare disease or condition. Fee waivers or reductions are available in certain circumstances,
including a waiver of the application fee for the first application filed by a small business.



Within 60 days following submission
of the application, the FDA reviews the BLA to determine if it is substantially complete before the agency accepts it for filing.
The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission and may request
additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application
also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth
substantive review of the BLA. The FDA reviews the BLA to determine, among other things, whether the proposed product is safe and
potent, or effective, for its intended use, and has an acceptable purity profile, and whether the product is being manufactured
in accordance with cGMP to assure and preserve the product’s identity, safety, strength, quality, potency and purity. The
FDA may refer applications for novel biological products or biological products that present difficult questions of safety or efficacy
to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation
as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory
committee, but it considers such recommendations carefully when making decisions. During the biological product approval process,
the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of
the biological product. If the FDA concludes a REMS is needed, the sponsor of the BLA must submit a proposed REMS; the FDA will
not approve the BLA without a REMS, if required.



Before approving a BLA, the FDA will inspect
the facilities at which the product is manufactured. The FDA will not approve the product unless it determines that the manufacturing
processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within
required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure
that the clinical trials were conducted in compliance with IND study requirements and GCP requirements. To assure cGMP, GTP and
GCP compliance, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping,
production and quality control.



Notwithstanding the submission of relevant
data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria for approval and deny
approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret
the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter
that usually describes all of the specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor,
for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the



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complete
response letter may include recommended actions that the applicant might take to place the application in a condition for approval.
If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the deficiencies identified
in the letter, or withdraw the application.



If a product receives regulatory approval,
the approval may be significantly limited to specific diseases and dosages or the indications for use may otherwise be limited,
which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings
or precautions be included in the product labeling. The FDA may impose restrictions and conditions on product distribution, prescribing,
or dispensing in the form of a risk management plan, or otherwise limit the scope of any approval. In addition, the FDA may require
post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a biological
product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that
have been commercialized.



Post-Approval Requirements



After regulatory approval of a product
is obtained, there may be a number of post-approval requirements. For example, as a condition of approval of a BLA, the FDA may
require post-marketing testing and surveillance to monitor the product’s safety or efficacy. In addition, holders of an approved
BLA are required to keep extensive records, to report certain adverse reactions and production problems to the FDA, to provide
updated safety and efficacy information and to comply with requirements concerning advertising and promotional labeling for their
products. Also, quality control and manufacturing procedures must continue to conform to cGMP regulations and practices, as well
as the manufacturing conditions of approval set forth in the BLA. The FDA periodically inspects manufacturing facilities to assess
compliance with cGMP, which imposes certain procedural, substantive and recordkeeping requirements. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP and
other aspects of regulatory compliance.



Future FDA inspections may identify compliance
issues at manufacturer facilities or at the facilities of third-party suppliers that may disrupt production or distribution, or
require substantial resources to correct and prevent recurrence of any deficiencies, and could result in fines or penalties by
regulatory authorities. In addition, discovery of problems with a product or the failure to comply with applicable requirements
may result in restrictions on a product, manufacturer or holder of an approved BLA, including withdrawal or recall of the product
from the market or other voluntary, FDA-initiated or judicial action, including fines, injunctions, civil penalties, license revocations,
seizure, total or partial suspension of production or criminal penalties, any of which could delay or prohibit further marketing.
Newly discovered or developed safety or efficacy data may require changes to a product’s approved labeling, including the
addition of new warnings and contraindications.



Certain U.S. Regulatory Incentives and
Other Programs



Marketing Exclusivity for Reference Biological
Products



As part of the ongoing efforts of governmental
authorities to lower health care costs by facilitating generic competition to pharmaceutical products, the BPCIA, enacted as part
of the Health Care Reform Law, created a new abbreviated regulatory approval pathway in the United States for biological products
that are found to be biosimilar to or interchange with a biological “reference product” previously licensed under a
BLA. This abbreviated approval pathway is intended to permit a biosimilar to come to market more quickly and less expensively by
relying to some extent on the data generated by the reference product’s sponsor, and the FDA’s previous review and
approval of the reference product. Under the BPCIA, a biosimilar sponsor’s ability to seek or obtain approval through the
abbreviated pathway is limited by periods of exclusivity granted by the FDA to the holder of the reference product’s BLA,
and no biosimilar application may be accepted by the FDA for review until four years after the date the reference product was first
licensed by the FDA, and no biosimilar application, once accepted, may receive final approval until 12 years after the reference
product was first licensed by the FDA.



While we would expect to be granted this
12-year period of exclusivity for our product candidates, if approved, notably, this period of reference product market exclusivity
applies only to the biosimilar pathway and will not, for example, provide protection against any biological product for a similar
indication that achieves FDA approval under a traditional BLA based on the sponsor’s own research data. There is also risk
that the 12-year period of biological reference product exclusivity could be shortened due to congressional action, or that the
FDA will not



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consider
our product candidates, if they are approved, to be reference products for competing products, potentially creating the opportunity
for competition sooner than anticipated.



Once approved, biosimilars likely would
compete with, and in some circumstances may be deemed under the law to be “interchangeable with,” the previously approved
reference product. As of December 13, 2017, the FDA’s “Purple Book” listed nine biosimilars (none designated
as interchangeable) as licensed under the BPCIA framework, including seven monoclonal antibodies, a recombinant human protein,
and a fusion protein. The extent to which a biosimilar, once approved, will be substituted for any one of our product candidates,
if approved, in a way that is similar to traditional generic substitution for non-biological
products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.



Although there is uncertainty regarding
the impact of this new program, it is likely that, if any of our product candidates are approved by the FDA, there is risk that
the approval of a biosimilar competitor to one of our products could have an adverse impact on our business. In particular, a biosimilar
could be significantly less costly to bring to market and priced significantly lower than our product, if approved by the FDA.



Special Protocol Assessment



Under the FD&C Act, the FDA will evaluate
certain protocols, upon sponsor request, to generally determine if the study design is adequate to meet sponsor goals, including,
among others, protocols for certain Phase III clinical trials that will form the primary basis of an efficacy claim for a
marketing authorization, such as a BLA. The procedure, known as a special protocol assessment or SPA, may be used in connection
with sponsors that have been issued an IND, but also may be available prior to the issuance of an IND where the FDA is sufficiently
informed of the overall development plan for the investigational drug. Generally, as part of the SPA process, the FDA will meet
with sponsors for the purpose of reaching agreement on the design, execution and analyses proposed for the clinical trial, such
as clinical endpoints, size and statistical design. If an agreement is reached, the FDA will reduce the agreement to a writing,
which becomes part of the study’s administrative record. When an SPA agreement has been reached, it is possible, but not
certain, that if a study is conducted according to the protocol, and if the study achieves its agreed-upon objectives, then the
FDA will support the approval of a marketing application, such as a BLA. However, this cannot be assured. Although the SPA program
provides that the SPA agreement is not subject to change without the agreement by the FDA and the sponsor, the program also permits
the FDA to rescind an SPA agreement, in particular where the FDA has found that a “substantial scientific issue essential
to determining the safety or effectiveness of the drug has been identified after the testing has begun.” From time to time
the FDA will rescind SPA agreements, and the basis for those rescissions may be the subject of significant dispute. By letter dated
August 3, 2015, the FDA provided a favorable SPA determination for our proposed Phase III study design to register Cx601
in the United States, noting that the study may proceed only when an IND is in effect. In January 2017, we had a Type C meeting
with the FDA in which changes to the protocol were discussed. Based on feedback from that meeting, we submitted a revised protocol
in February 2017, which was accepted by the FDA in March 2017. In December 2017, we submitted an SPA amendment with additional
changes to the SPA, which were accepted by the FDA in January 2018.



FDA Expedited Programs for Serious Conditions



Certain FDA programs are intended to speed
the availability of drugs and biologics that treat serious diseases, which could potentially apply to our product candidates, although
this cannot be assured, and we do not currently have any products with fast track designation or designation under other FDA expedited
development and review programs. The FDA’s expedited programs are generally intended to facilitate and expedite development
and review of new drugs and biologics to address unmet needs in the treatment of a serious or life-threatening condition. The FDA
has created five mechanisms designed to speed the approval of drugs and biologics: Accelerated Approval, Fast Track designation,
Breakthrough Therapy designation, Priority Review and RMAT. A drug development program may qualify for more than one expedited
program.



The table below presents a comparison of
the FDA accelerated approval mechanisms:



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|                     | Accelerated
        approval                                                                                                                                                                                                                        | Fast
        track designation                                                                                                                         | Breakthrough
        therapy designation                                                                                                                           | Priority
        review                                                   | RMAT                                                                                                                                                                                                                                                                                                                                                                                                             
|-------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Eligibility          | (a) Treat
        serious or life-threatening diseases.
        
        (b) Provide
        meaningful therapeutic benefit over existing therapies.
        
        (c) Surrogate
        endpoint reasonably likely to predict clinical benefit. | (a) Intent
        to treat broad range of serious or life-threatening diseases.
        
        (b) Potential
        to fill an unmet medical need. | (a)  Treat
        serious or life-threatening diseases.
        
        (b)  Early
        clinical evidence of substantial improvement over existing therapies. | Offer major advances in treatment over existing therapies.                | (a) Regenerative
        medicine therapy (cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination
        product using such therapies or products).
        
        (b) Treat,
        modify, reverse, or cure a serious or life-threatening diseases.
        
        (c) Preliminary
        clinical evidence of potential to address unmet medical need.
|Designation          | No formal process.                                                                                                                                                                                                                                  | Can be requested by sponsor at any time.                                                                                                               | Can be requested by sponsor at any time after IND.                                                                                                                 | Requested by sponsor at time of NDA/BLA.                                  | Can be requested by sponsor at any time after IND.                                                                                                                                                                                                                                                                                                                                                               
|                     |                                                                                                                                                                                                                                                     |                                                                                                                                                        |                                                                                                                                                                    |                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                  
|FDA review response  | N/A                                                                                                                                                                                                                                                 | 60 days                                                                                                                                                | 60 days                                                                                                                                                            | 45 days                                                                   | 60 days                                                                                                                                                                                                                                                                                                                                                                                                          
|                     |                                                                                                                                                                                                                                                     |                                                                                                                                                        |                                                                                                                                                                    |                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                  
|Clinical development | Conditional approval granted using surrogate endpoint from Phase II trials or interim Phase
    III data; controlled trials hard clinical endpoints required to confirm clinical benefit.                                                           | Earlier and more frequent communication.                                                                                                               | Abbreviated or condensed development; earlier and more frequent communication; delegation
    of senior reviewers and cross-disciplinary review team.              | N/A                                                                       | Abbreviated or condensed
        development; earlier and more frequent communication; delegation of senior reviewers and cross-disciplinary review team.
        
        Early discussions of any
        potential surrogate or intermediate endpoints or others to support accelerated approval.                                                                                                             
|Review process       | NDA/BLA data submitted in one package; standard 10-month review.                                                                                                                                                                                    | Option for rolling NDA/BLA
        submission.
        
        Official review clock
        begins when last module is submitted.                    | Option for rolling NDA/BLA
        submission.
        
        Review time shortened.                                                                             | NDA/BLA data submitted in one package; review time shortened to 6 months. | Option for Rolling NDA/BLA
        submission.
        
        Review time shortened.                                                                                                                                                                                                                                                                                                                           
|                     |                                                                                                                                                                                                                                                     |                                                                                                                                                        |                                                                                                                                                                    |                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                  

Accelerated Approval applies to drugs that
treat serious and life-threatening diseases. The Accelerated Approval mechanism allows earlier approval based on surrogate clinical
endpoints as it shortens the actual research time prior to approval. The FDA requires post-marketing commitment to studying actual
clinical outcomes.



Fast Track designation applies to a combination
of the product candidate and the specific indication or use for which it is being studied. Thus, it is the development program
for a specific product candidate for a specific indication that receives fast track designation. Fast Track designation requires
showing that the product candidate will fill an unmet medical need, generally defined as providing a therapy where none exists,
or providing a therapy which may be potentially better than available therapy.



Breakthrough Therapy designation applies
to product candidates that treat a serious condition and where there is preliminary clinical evidence indicating that the product
candidate may demonstrate substantial improvement over available therapy on one or more clinically significant endpoints, such
as substantial treatment effects observed early in clinical development. As with Fast Track designation, Breakthrough Therapy designation
applies to both the



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product
candidate and the specific use for which it is being studied. A significant feature of both Fast Track designation and Breakthrough
Therapy designation is an opportunity for early and frequent communication with the FDA, as well as eligibility for what is known
as “rolling review,” an opportunity for sponsors to submit completed portions of a marketing application, such as
a BLA, before the entire application is completed.



Priority Review applies to drugs that treat
a serious condition and would provide major advances in treatment over existing therapies. Review time is shortened for Priority
Review.



In January 2017, as part of the recent
21st Century Cures Act, the FDA unveiled the RMAT designation, a new drug designation process which intends to facilitate expedited
pathways and approval of stem cell therapies and other cellular and tissue products for use in serious or life threatening diseases.
The RMAT designation enables sponsors to discuss with the FDA multidisciplinary strategic development plans, including expediting
clinical and manufacturing development plans for commercialization. On September 15, 2017, we applied for the RMAT designation
in connection with Cx601. On November 8, 2017 we learned that our application could not be accepted until U.S.-approved clinical
supplies are available. We intend to reapply as soon as feasible thereafter.



Product candidates granted for expedited
pathways may lose that designation, and be subject to standard FDA development and review requirements, if the FDA finds that the
designation is no longer supported by emerging data, or the designated drug development program is no longer being pursued. For
example, a product candidate granted designation under the fast track program may lose that designation if a newly approved product
meets the unmet medical need for the same indication, and a product candidate granted breakthrough therapy designation may lose
that designation if a product is approved for the same indication and the sponsor fails to demonstrate substantial improvement
over the recently approved product.



We are currently exploring the options
for expedited pathways that could facilitate and accelerate the development of Cx601 and the review of its future BLA.



Pediatric Exclusivity



Under the BPCIA, which was part of the
Health Care Reform Law, biologics, such as our product candidates, may be eligible for pediatric exclusivity, an incentive intended
to encourage medical product research for children. Pediatric exclusivity, if granted, adds six months to existing exclusivity
periods applicable to biological products under the BPCIA—namely, the four-year period during which the FDA will not consider
an application for a biosimilar product, and the 12-year period during which the FDA will not approve a biosimilar application.
This six-month exclusivity, which runs from the end of these exclusivity protection periods, may be granted based on the voluntary
completion of a pediatric trial in accordance with an FDA-issued “written request” for such a trial. It is possible,
but not assured, that certain of our current or future product candidates may be targeted to pediatric populations, and so pursuit
of this incentive may be relevant to us.



Products with orphan drug designation are
exempt from pediatric obligations.



Orphan Drug Designation



The FDA may grant orphan drug designation
to drugs intended to treat a “rare disease or 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 in the United States a drug for such a disease or condition will be recovered from
sales in the United States for that drug. Orphan drug designation must be requested before submitting an application for marketing
approval. Orphan drug designation can provide opportunities for grant funding towards clinical trial costs, tax advantages and
FDA user fee exemptions. In addition, if a product that has an orphan drug designation subsequently receives FDA approval for the
indication for which it has such designation, the product may be entitled to orphan drug exclusivity, which means the FDA would
not approve any other application to market the same drug for the same indication for a period of seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan exclusivity or a meaningfully different mode
of administration. On October 18, 2017, the FDA granted orphan drug designation to Cx601 for the treatment of patients with fistulizing
Crohn’s disease, which includes complex perianal fistula, in accordance with FDA advice.



U.S. Regulations Affecting Certain Federally
Funded Programs, such as Medicare and Medicaid



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Pharmaceutical manufacturers with products
that are reimbursed by U.S. federally funded programs such as Medicare and Medicaid are subject to regulation by CMS and enforcement
by HHS OIG, and in the event our product candidates are approved, regulation by CMS and enforcement by HSS OIG would be relevant
to us. The Anti-Kickback Law prohibits providers and others from directly or indirectly soliciting, receiving, offering or paying
any remuneration with the intent of generating referrals or orders for services or items covered by a government health care program.
Many states have similar laws. Courts have interpreted this law very broadly, including by holding that a violation has occurred
if even one purpose of the remuneration is to generate referrals, even if there are other lawful purposes. There are statutory
and regulatory exceptions, or safe harbors, that outline arrangements that are deemed lawful. However, the fact that an arrangement
does not fall within a safe harbor does not necessarily render the conduct illegal under the Anti-Kickback Law. In sum, even legitimate
business arrangements between the companies and referral sources could lead to scrutiny by government enforcement agencies and
require extensive company resources to respond to government investigations. Violations of the Anti-Kickback Law may be punished
by civil and criminal penalties or exclusion from participation in federal health care programs, including Medicare and Medicaid.



The FCA is violated by any entity that
“presents or causes to be presented” knowingly false claims for payment to the federal government. In addition, the
Health Care Reform Law amended the FCA to create a cause of action against any person who knowingly makes a false statement material
to an obligation to pay money to the government or knowingly conceals or improperly decreases an obligation to pay or transmit
money or property to the government. For the purposes of these recent amendments, an “obligation” includes an identified
overpayment, which is defined broadly to include “any funds that a person receives or retains under Medicare and Medicaid
to which the person, after applicable reconciliation, is not entitled ....”



The FCA is commonly used to sue those who
submit allegedly false Medicare or Medicaid claims, as well as those who induce or assist others to submit a false claim. “False
claims” can result not only from non-compliance with the express requirements of applicable governmental reimbursement programs,
such as Medicaid or Medicare, but also from non-compliance with other laws, such as the Anti-Kickback Law (which was explicitly
confirmed in the Health Care Reform Law), or laws that require quality care in service delivery. The qui tam and whistleblower
provisions of the FCA allow private individuals to bring actions on behalf of the government alleging that the government was defrauded,
with tremendous potential financial gain to private citizens who prevail. When a private party brings a whistleblower action under
the FCA, the defendant is not made aware of the lawsuit until the government starts its own investigation or makes a decision on
whether it will intervene. Many states have enacted similar laws that also apply to claims submitted to commercial insurance companies.
The bringing of any FCA action could require us to devote resources to investigate and defend the action. Violations of the FCA
can result in treble damages, and each false claim submitted can be subject to a penalty of up to $21,916 per claim, although such
penalties might be subject to yearly change.



A provision of the Health Care Reform Law,
generally referred to as the Physician Payment Sunshine Act or Open Payments Program, imposes new reporting and disclosure requirements
for pharmaceutical and medical device manufacturers that have at least one product that is reimbursed by Medicare, Medicaid or
the Children’s Health Insurance Program with regard to payments or other transfers of value made to certain U.S. health care
practitioners, such as physicians and academic medical centers, and with regard to certain ownership interests held by physicians
in reporting entities. Data collection activities under the Physician Payment Sunshine Act began on August 1, 2013, and as
required under the Physician Payment Sunshine Act, CMS published information from these reports on a publicly available website,
including amounts transferred and the physician and teaching hospital identities, on September 30, 2014. Beginning in 2014
and each year thereafter, data collection for each calendar year must be submitted by June 30 of the subsequent year, and
will be published annually. It is difficult to predict how the new requirements, which also preempt similar state law reporting
requirements, may impact our relationships with physicians and teaching hospitals.



U.S. Patent Term Restoration and Marketing
Exclusivity



Depending upon the timing, duration, and
specifics of the FDA approval of the use of our product candidates, some of our U.S. patents may be eligible for limited patent
term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman
Amendments. Patent term restoration can compensate for time lost during product development and the regulatory review process by
returning up to five years of patent life for a patent that covers a new product or its use or manufacture. However, patent term
restoration cannot extend the remaining term of a patent beyond a total of fourteen years from the product’s



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approval
date. The period of patent term restoration is generally one-half the time between the latter of the effective date of an IND
(and the issuance of the applicable patent) and the submission date of a BLA, plus the time between the latter of the submission
date of the BLA and the approval of that application, provided the sponsor acted with diligence. Only one patent applicable to
an approved biological product is eligible for the extension and the application for the extension must be submitted prior to
the expiration of the patent. The application for patent term extension is subject to approval by the PTO in consultation with
the FDA.



A patent term extension is only available
when the FDA approves a biological product for the first time. We believe that our eASC-based platform and the manner in which
it is manufactured and used have not been previously approved by the FDA. However, we cannot be certain that the PTO and the FDA
will agree with our analysis or will grant a patent term extension.



Government Regulation in Europe



The EMA operates in the European Union
and its main responsibility is the protection and promotion of public and animal health, through the evaluation and supervision
of medicines for human and veterinary use. More specifically, it coordinates the evaluation and monitoring of centrally authorized
products and national referrals, developing technical guidance and providing scientific advice to sponsors. Its scope of operations
is medicinal products for human and veterinary use including biologics and advanced therapies, and herbal medicinal products.



Clinical trials in Europe fall under the
remit of National Competent Authorities.



Advanced Therapy Medicinal Products



Advanced therapy medicinal products are
new medical products based on genes (gene therapy), cells (cell therapy) or tissues (tissue engineering). These advanced therapies
herald revolutionary treatments of a number of diseases and have huge potential for patients and industry.



The lack of an EU-wide regulatory framework
in the past led to divergent national approaches which hindered patients’ access to products, hampered the growth of this
emerging industry and ultimately affected the European Union’s competitiveness in a key area of biotechnology.



In 2007, the EU institutions agreed on
Regulation (EC) 1394/2007, a regulation on advanced therapies designed to ensure the free movement of advanced therapy products
within Europe, to facilitate access of such therapies to the European Economic Area market and to foster the competitiveness of
European companies in the field, while guaranteeing the highest level of health protection for patients.



The main elements of the regulation are
the following:



| | · | a centralized marketing authorization procedure, to benefit from the pooling of expertise at European level and direct access
to the European Economic Area market;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a new and multidisciplinary expert committee, the Committee for Advanced Therapies, within the EMA, to assess advanced therapy
products and follow scientific developments in the field;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | technical requirements adapted to the particular characteristics of these products; and
| | - | ---------------------------------------------------------------------------------------



| | · | special incentives for SMEs.
| | - | ----------------------------



ChondroCelect was the first product to
receive centralized authorization as an advanced therapy medicinal product.



Centralized Authorization Procedure



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The EMA is responsible for the centralized
procedure, resulting in centralized marketing authorization, the single marketing authorization that is valid across the European
Economic Area.



The centralized authorization procedure
is required for the following types of products:



| | · | medicines derived from biotechnology processes, such as genetic engineering;
| | - | ----------------------------------------------------------------------------



| | · | advanced therapy medicinal products, such as gene-therapy, somatic cell-therapy, tissue-engineered medicines and combined ATMP;
| | - | -------------------------------------------------------------------------------------------------------------------------------



| | · | medicinal products for human use containing a new active substance that did not receive community marketing authorization when
the community authorization procedure was first implemented, for which the therapeutic indication is the treatment of AIDS, cancer,
neurodegenerative disorders, diabetes, autoimmune diseases and other immune dysfunctions or viral diseases; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | officially designated orphan medicines.
| | - | ---------------------------------------



The Pediatric Regulation places some obligations
for the applicant when developing a new medicinal product, in order to ensure that medicines to treat children are subject to ethical
research of high quality and are appropriately authorized for use in children, and to improve collection of information on the
use of medicines in the various subsets of the pediatric population. The marketing authorization application will have to include
the pediatric investigation plan decision but also the results in accordance with the agreed pediatric investigation plan.



The Pediatric Committee of the EMA issued
a positive opinion on the pediatric investigation plan for Cx601 in September 2014.



Applications through the centralized authorization
procedure are submitted directly to the EMA. The centralized procedure enables applicants to obtain a marketing authorization that
is valid in all European Union member states based on a single application. Under the centralized procedure, the EMA’s Committee
for Human Medicinal Products, or CHMP, is required to adopt an opinion on a valid application within 210 days, excluding clock
stops, when additional written or oral information is to be provided by the applicant in response to questions. For advance therapy
medicinal products (ATMPs) the EMAs Committee for Advanced Therapies (CAT) is also involved during the centralized procedure. More
specifically, on day 120 of the procedure, once the CHMP has received the preliminary assessment reports and opinions from the
rapporteur and co-rapporteur, it prepares a list of potential outstanding issues, referred to as “other concerns” or
“major objections,” as part of its Day 120 List of Questions. These are sent to the applicant together with the CHMP’s
recommendation. The CHMP generally makes one of two recommendations: (1) the marketing authorization application for the product
could be approvable provided that satisfactory answers are given to the “other concerns” identified and that all other
conditions outlined are implemented and complied with; or (2) the marketing authorization application for the product is not
approvable at that time since “major objections” have been identified. Applicants have three months from the date of
receiving the Day 120 List of Questions to respond to the CHMP, and can request a three-month extension if necessary. The rapporteur
and co-rapporteur assess the applicant’s replies, revise the assessment report as necessary and may prepare a list of outstanding
issues. The revised assessment report and list of outstanding issues are sent to the applicant together with the CHMP’s recommendation
by day 180 of the procedure. Applicants then have one month to respond to the CHMP (and can request a one or two-month extension).
The granting of marketing authorization will depend on the recommendations and potential major objections identified by the CHMP
as well as the ability of the applicant to respond adequately to these findings. After the adoption of the CHMP’s opinion,
a decision on the marketing authorization application must be adopted by the European Commission, after consulting the European
Union member states, which in total can take up to 67 days. An applicant for a marketing authorization may request a re-examination
in the event of a negative opinion, at which time the CHMP appoints new rapporteurs. Within 60 days of receipt of the negative
opinion, the applicant must submit a document explaining the basis for its request for re-examination. The CHMP has 60 days to
consider the applicant’s request for re-examination. The applicant may request an oral explanation before the CHMP, which
is routinely granted, following which CHMP will adopt a final opinion. The final opinion, whether positive or negative, is published
by the CHMP shortly following the CHMP meeting at which the oral explanation takes place.



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The CAT is the EMA’s specialized
scientific committee for ATMPs such as gene or cell therapies. The CAT’s main responsibility is to prepare a draft opinion
on each ATMP application submitted to the EMA, before the CHMP adopts a final opinion on the marketing authorization of the medicine
concerned.



Once centralized marketing authorization
has been granted for a medicinal product, the holder of that authorization can make the medicinal product available to patients
and healthcare professionals in all European Economic Area countries.



On December 14, 2017 Cx601 obtained a positive
CHMP opinion. The European Commission granted marketing authorization on March 23, 2018.



Orphan Drug Designation



Applications for designation of orphan
medicines are reviewed by the EMA through the Committee for Orphan Medicinal Products. The criteria for orphan designation are
as follows:



| | · | either (i) the medicinal product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically
debilitating condition affecting no more than five in 10,000 persons in the European Union at the time of submission of the designation
application or (ii) the medicinal product is intended for the diagnosis, prevention or treatment of a life-threatening, seriously
debilitating or serious and chronic condition, and without incentives it is unlikely that the revenue after marketing of the medicinal
product would cover the investment in its development and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | either (i) no satisfactory method of diagnosis, prevention or treatment of the condition concerned is authorized or
(ii) if such method exists, the medicinal product will be of significant benefit to those affected by the condition.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Companies with an orphan designation for
a medicinal product benefit from incentives such as the following:



| | · | protocol assistance (scientific advice for orphan medicines during the product-development phase);
| | - | --------------------------------------------------------------------------------------------------



| | · | direct access to centralized marketing authorization and ten-year marketing exclusivity (although this can be reduced to six
(6) years if the orphan criteria are no longer met after the end of the fifth year and extended to 12 years for medicines that
also have complied with an agreed pediatric investigational plan);
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | financial incentives (fee reductions or exemptions); or
| | - | -------------------------------------------------------



| | · | national incentives detailed in an inventory made available by the European Commission.
| | - | ---------------------------------------------------------------------------------------



| | · | Since December 2011, orphan medicinal products are eligible for the following level of fee reductions:
| | - | ------------------------------------------------------------------------------------------------------



| | · | full (100%) reduction for SMEs, for protocol assistance and follow-up, full reduction for non-SME sponsors for pediatric-related
assistance and 40% reduction for non-SME sponsors for non-pediatric assistance;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | full reduction for pre-authorization inspections and 90% reduction for post-authorization inspections for SMEs;
| | - | ---------------------------------------------------------------------------------------------------------------



| | · | full reduction for SMEs for new applications for centralized marketing authorization; and
| | - | -----------------------------------------------------------------------------------------



| | · | full reduction for post-authorization activities including annual fees only to an SME in the first year after granting a marketing
authorization.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------



To qualify for SME assistance, companies
must be established in the European Economic Area, employ fewer than 250 employees and have an annual revenues of not more than
50 million euros or an annual balance sheet total of not more than 43 million euros.



Cx601, our leading therapeutic product
candidate, was granted orphan drug designation for the treatment of anal fistulas in 2009. On December 21, 2017, we were formally
notified that the COMP had recommended to remove



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Cx601
from the European Commission register of orphan drugs. We challenged that determination and the COMP’s plenary meeting on
January 16-18, 2018 adopted an opinion recommending that Cx601 be kept in the European Commission register for orphan drugs.



While the same product can receive centralized
marketing authorization for both orphan and “non-orphan” indications, orphan and “non-orphan” indications
cannot be covered by the same marketing authorization, and the product would have to go through a second authorization process
to receive marketing authorization for the second indication.



Expedited Development and Review Programs
in Europe



Accelerated Assessment



The maximum timeframe for the evaluation
of a marketing authorization application under the Centralized Procedure is 210 days, excluding clock stops when additional
written or oral information is to be provided by the applicant in response to questions asked by the CHMP. However the applicant
may request an accelerated assessment procedure in order to meet, in particular the legitimate expectations of patients and to
take account of the increasingly rapid progress of science and therapies, for medicinal products of major interest from the point
of view of public health and in particular from the viewpoint of therapeutic innovation. Applicants requesting an accelerated assessment
procedure should justify that the medicinal product is expected to be of major public health interest. Based on the request, the
justifications presented, and the recommendations of the Rapporteurs, the CHMP will formulate a decision. Such a decision will
be taken without prejudice to the CHMP opinion (positive or negative) on the granting of a marketing authorization. If the CHMP
accepts the request, the timeframe for the evaluation will be reduced to 150 days.



Any request for accelerated assessment
should be made as early as possible before the actual submission of the marketing authorization application. The request together
with supporting documentation should be sent electronically to the EMA. In order to allow sufficient time to assess the request
and prepare for the accelerated procedure, it is recommended to submit the request at least two to three months before the actual
submission of the marketing authorization application.



Applicants requesting an accelerated assessment
procedure should duly substantiate the request and in particular, justify their expectation that the medicinal product is of major
public health interest particularly from the point of view of therapeutic innovation. There is no single definition of what constitutes
major public health interest. This should be justified by the applicant on a case-by-case basis. The justification should include
the major benefits expected and present the arguments to support the claim that the medicinal product introduces new methods of
therapy or improves on existing methods, thereby addressing to a significant extent the greater unmet needs for maintaining and
improving public health. The key items to be described in the justification, and the appropriate level of detail, should be evaluated
on a case-by-case basis. The request should be presented as a short but comprehensive document. The following list of key items
would normally be addressed in the justification:



| | · | the unmet needs and the available methods of prevention, diagnosis or treatment;
| | - | --------------------------------------------------------------------------------



| | · | the extent to which the medicinal product is expected to have major impact on medical practice, its major added value, and/or
how it addresses the greater unmet needs; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a brief outline of the main available evidence on which the applicant bases its claim of major public health interest.
| | - | ----------------------------------------------------------------------------------------------------------------------



Conditional Marketing Authorization



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For certain categories of medicinal products,
in order to meet unmet medical needs of patients and in the interest of public health, it may be necessary to grant marketing authorizations
on the basis of less complete data than is normally required. In such cases, it is possible for the CHMP to recommend the granting
of a marketing authorization subject to certain specific obligations to be reviewed annually.



This may apply to medicinal products for
human use that fall under one of the following categories:



| | · | medicinal products that aim at the treatment, the prevention or the medical diagnosis of seriously debilitating diseases or
life-threatening diseases;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | medicinal products to be used in emergency situations, in response to public threats duly recognized either by the World Health
Organization or by the Community in the framework of Decision (EC) No 2119/98; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | medicinal products designated as orphan medicinal products in accordance with Article 3 of Regulation (EC) No 141/2000.
| | - | -----------------------------------------------------------------------------------------------------------------------



A conditional marketing authorization may
be granted where the CHMP finds that, although comprehensive clinical data referring to the safety and efficacy of the medicinal
product have not been supplied, all the following requirements are met:



| | · | the risk-benefit balance of the medicinal product, as defined in Article 1(28a) of Directive 2001/83/EC, is positive;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | it is likely that the applicant will be in a position to provide the comprehensive clinical data;
| | - | -------------------------------------------------------------------------------------------------



| | · | unmet medical needs will be fulfilled; and
| | - | ------------------------------------------



| | · | the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk
inherent in the fact that additional data are still required.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Conditional marketing authorizations are
valid for one year, on a renewable basis. The holder will be required to complete ongoing studies or to conduct new studies with
a view to confirming that the benefits and risks balance is positive. In addition, specific obligations may be imposed in relation
to the collection of pharmacovigilance data.



The granting of a conditional marketing
authorization will allow medicines to reach patients with unmet medical needs earlier than might otherwise be the case, and will
ensure that additional data on a product are generated, submitted, assessed and acted upon.



Marketing Authorization in Exceptional Circumstances



Conditional marketing authorizations are
distinct from marketing authorizations granted in exceptional circumstances in accordance with Article 14(8) of Regulation
(EC) No 726/2004. In the case of the conditional marketing authorization, an authorization is granted before all data are available.
The authorization is not intended, however, to remain conditional indefinitely. Rather, once the missing data are provided, it
should be possible to replace it with a marketing authorization which is not conditional, that is to say, which is not subject
to specific obligations. In contrast, it will normally never be possible to assemble a full dossier in respect of a marketing authorization
granted in exceptional circumstances.



On December 14, 2017 Cx601 obtained a positive
CHMP opinion. The European Commission granted marketing authorization on March 23, 2018.



Pricing and Market Access



Sales of pharmaceutical products depend,
in part, on the extent to which the payments for the products will be covered by third-party payers, such as national health insurance
programs, government health programs or private insurance programs or managed health care organizations. Such third-party payers
in both the United States and Europe are increasingly challenging the prices charged for medical products and services. Additionally,
the containment of health care costs has become a priority, and governments have shown significant interest in implementing cost-containment
programs for medicinal products, including price controls, restrictions on funding or



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reimbursement,
usage restrictions and requirements for substitution of generic or biosimilar products. Adoption of price controls and cost-containment
measures and adoption of more restrictive policies in jurisdictions with existing controls and measures could limit our revenues.
If these third-party payers do not consider our products to be clinically effective or cost-effective compared to other available
therapies, they may not cover, allow usage, fund or reimburse our products or, if they do, the level of payment may not be sufficient
to allow us to sell our products at a profit.



In many countries, the proposed pricing
for a drug must be approved before it may be lawfully marketed. The requirements governing the pricing of medicinal products vary
widely from country to country. For example, European Union member states may restrict the range of medicinal products for which
their national health insurance systems provide reimbursement or funding and to control the prices of medicinal products for human
use. A member state may approve or demand a specific price for the medicinal product or it may instead adopt a system of direct
or indirect controls on the profitability of the company placing the medicinal product on the market. Countries that have price
controls or reimbursement limitations for pharmaceutical products may or may not allow favorable reimbursement, funding and pricing
arrangements for any of our products.



Thus, pricing, market access and reimbursement
is not harmonized across Europe and is within the exclusive discretion of the national authorities. Market access limitations or
usage restrictions for private and public health insurers vary from country to country and occasionally across different regions
of the same country. In public health insurance systems, pricing, market access and reimbursement is determined by procedures established
by the relevant authority of the EU member state. Funding of a product is dependent on many factors, including proof of the product’s
therapeutic value (efficacy, safety, effectiveness, convenience) and economic value as compared to existing alternatives for a
specific disease with a clear medical need. Pricing, market access and reimbursement are subject to considerations of cost, use
and volume that can vary from country to country.



Certain European countries are also establishing
increasingly specific policies for market access, pricing and reimbursement of orphan drugs, including the following:



| | · | France offers tax exemptions for orphan drugs for which the revenue is below 30 million euros in France.
| | - | --------------------------------------------------------------------------------------------------------



| | · | Spain imposes a deduction on the agreed price of drugs paid for by the Spanish Healthcare System, which is 7.5% for non-orphan
drugs. For orphan drugs, the deduction is reduced to 4%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In Germany, the Gemeinsamer Bundesausschuss (Joint Federal Committee) performs an early benefit assessment for all reimbursable
pharmaceuticals used in the outpatient setting to be marketed based on materials submitted by the manufacturer. For orphan drugs,
manufacturers are allowed to submit an abbreviated dossier (without proof of medical benefit and additional medical benefit over
an appropriate comparative product) for the early benefit assessment by the Gemeinsamer Bundesausschuss if sales in Germany
in the previous 12 months are below 50 million euros.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Italy has a national orphan drug center, registry and network, and typically provides more flexibility for orphan drugs in
negotiations with the payer agency, the Agenzia Italiana del Farmaco.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In England, orphan drugs may receive centralized funding from NHS England (as opposed to funding by local entities). There
may be an assessment by the National Institute for Health and Care Excellence (NICE), a public body that publishes binding guidelines
on the use of health technologies in the NHS in England and Wales, based primarily on evaluations of clinical evidence and cost-effectiveness,
which is commonly required for non-orphan drugs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Historically, products launched in the
European Union do not follow price structures of the United States, and generally prices tend to be significantly lower.



Environmental Matters



We use various chemical and biological
products to conduct our research and to manufacture our products and are subject to specific environmental and occupational health
and safety laws and regulations in the jurisdictions in which we operate. These laws and regulations govern, among other things
the generation, storage, handling, use, transportation and disposal of hazardous materials and wastes and the health and safety
of our employees. If we



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violate
or fail to comply with these laws and regulations, we could be subject to third-party or administrative claims or fines or other
sanctions by regulators. We could also be held responsible for costs and damages arising from any contamination at our past or
present facilities or at third-party waste disposal sites.



We have established procedures to ensure
our compliance with environmental laws and regulations, and such compliance has not had a material impact on our capital expenditures,
earnings or competitive position.



Insurance



We maintain business liability insurance
of 20 million euros. In addition, we have obtained liability insurance with respect to our directors and officers, which covers
expenses, capped at a certain amount, that our board members and our senior management may incur in connection with their conduct
as members of our board of directors or senior management. We also maintain insurance policies with respect to our manufacturing
facilities, insurance policies with respect to the clinical trials we conduct as sponsor, group insurance policies for our employees
in connection with occupational accidents and a legal expenses insurance policy. We consider our insurance coverage to be adequate
in light of the risks we face.



| | C. | Organizational Structure
| | -- | ------------------------



The following chart illustrates our corporate
structure as of the date of this Annual Report:







Coretherapix S.L.U.On July 31,
2015, we acquired Coretherapix, a cardiology focused cell therapy company based in Madrid, Spain, from Genetrix. The Coretherapix
team and facilities have been completely integrated into our organization.



TiGenix S.A.U. On May 3, 2011, we
acquired Cellerix, a cell therapy company based in Madrid, Spain. Cellerix, which was later renamed TiGenix S.A.U, had an eASC-based
technology platform for indications of necessary inflammatory and autoimmune origin that are the basis of our pipeline. The Cellerix
team and facilities have been completely integrated into our organization.



TiGenix Inc. On February 7, 2006,
we incorporated TiGenix Inc., a wholly owned U.S. subsidiary. On May 8, 2007, TiGenix Inc. and Cognate BioServices, Inc. created
a 50/50 joint venture asset management company, TC CEF LLC. TC CEF LLC subsequently acquired the assets of a fully equipped cell
expansion facility from Cell Genesys, Inc., for the manufacture of ChondroCelect for clinical trials required by the FDA and to
be able to service the U.S. market after obtaining marketing approval of ChondroCelect in the United States. However, after we



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abandoned
our plans to introduce ChondroCelect into the U.S. market independently due to the associated costs and the required time, TiGenix
Inc. has withdrawn itself from the joint venture as of November 23, 2010 and has terminated its membership interests in TC CEF
LLC. Prior to 2017, TiGenix Inc. was intended to carry out the business activities related to Cx601 in the United States. However,
after a detailed analysis of the market and the strategy, our management team and the board of directors decided to create a new
U.S. entity, TiGenix US, Inc., to carry out these activities. Currently, TiGenix Inc. is a dormant subsidiary.



TiGenix US, Inc. On May 22, 2017,
TiGenix S.A.U. incorporated TiGenix US, Inc. as a wholly-owned U.S. subsidiary of TiGenix S.A.U. with offices in Cambridge, Massachusetts.
TiGenix US, Inc. will support our strategic goal of developing and commercializing its lead product, Cx601, for the treatment of
complex perianal fistulas in Crohn’s disease patients, in the United States.



D.       Property, Plant
and Equipment



Our registered office is in Leuven, Belgium.
We have facilities in Madrid, Spain, where we lease two adjacent buildings. The first building houses our administrative offices,
while the other building hosts our pharmaceutical development laboratories and a facility compliant with cGMP requirements for
the manufacturing of clinical eASC products. In December 2017, we completed the expansion of the facility to increase production
capacity to approximately 1,200 finished products per year. The estimated costs of this expansion is approximately 3.5 million
euros, which we have agreed to share equally with Takeda. The clean rooms have been approved by the Spanish Medicines and Medical
Devices Agency as complying with cGMP requirements for the manufacture of cellular medicinal products for investigational use,
i.e., clinical trials.



Since June 2017, we also lease office space
in Cambridge, Massachusetts.



Item 4A. Unresolved Staff Comments



None.



Item 5. Operating and Financial Review and Prospects



You should read the following discussion
and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Financial
Data” and our consolidated financial statements and accompanying notes included elsewhere in this Annual Report. In addition
to historical consolidated financial information, this section contains forward-looking statements that reflect our plans, estimates
and opinions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could
cause or contribute to these differences, include, without limitation, those discussed in the sections entitled “Special
Note Regarding Forward-Looking Statements,” “Risk Factors,” “Business” and elsewhere in this in this
Annual Report.



A.       Operating Results



Overview



We are an advanced biopharmaceutical company
developing novel therapies for serious medical conditions by exploiting the anti-inflammatory properties of allogeneic, or donor-derived,
stem cells. Our lead product, Cx601 or Alofisel, successfully completed a European Phase III clinical trial and was granted marketing
authorization by the European Commission on March 23, 2018 for the treatment of complex perianal fistulas in adult patients with
non-active/mildly active luminal Crohn’s disease when fistulas have shown an inadequate response to at least one conventional
or biologic therapy. Crohn’s disease is a chronic inflammatory disease of the intestine and complex perianal fistulas are
a severe and debilitating complication for which there is currently no effective treatment. Cx601 has been granted orphan drug
designation by the European Commission and the FDA. Over 125,000 adult Crohn’s patients suffer from perianal fistulas in
the United States and Europe for which existing treatment options are inadequate.



Cx601 is based on our platform of expanded
adipose, or fat tissue, derived stem cells, known as eASCs. Under the Licensing Agreement, Takeda currently has the exclusive right
to commercialize and develop Cx601 for complex perianal fistulas outside the United States.



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TiGenix’ second adipose-derived product,
Cx611, is undergoing a Phase Ib/IIa trial in severe sepsis, a major cause of mortality in the developed world.



Key Income Statement Items



Revenues



Historically, we have generated revenues
from sales of ChondroCelect, our commercialized product, for which we received marketing authorization from the European Commission
in 2009.



Effective June 1, 2014, we entered
into an agreement with Swedish Orphan Biovitrium, or Sobi for the exclusive marketing and distribution rights with respect to ChondroCelect
within the European Union (excluding Finland, where we have a pre-existing distribution agreement with Finnish Red Cross Blood
Service), Switzerland, Norway, Russia, Turkey and the Middle East and North Africa region. We also completed the sale of TiGenix B.V.,
our Dutch subsidiary, which held our manufacturing facility for ChondroCelect, to PharmaCell, a leading European contract manufacturing
organization active in the area of cell therapy, for an upfront payment of 3.5 million euros when the sale became effective
on May 30, 2014. We received a payment of 0.8 million euros in December 2016 for a total consideration of 4.3 million
euros.



In July 2016, we decided to terminate our
distribution agreements with Sobi and the Finnish Red Cross Blood Service and our manufacturing agreement with our former subsidiary.
We also requested the withdrawal of our marketing authorization, which became effective as of November 30, 2016. We no longer generate
any revenues from ChondroCelect.



Royalties



Going forward, we expect to receive ongoing
royalty payments from Takeda and other partners with whom we may enter into distribution agreements or license agreements. Until
November 2016, we received royalty payments generated from the sale of ChondroCelect by Sobi. Such income is presented in our consolidated
financial statements in revenues under the line item “royalties.”



License Revenues



On July 4, 2016, we entered into the Licensing
Agreement with Takeda, pursuant to which we received 25 million euros as an upfront non-refundable payment, and pursuant to which
we expect to receive a further payment of 15 million euros during the second quarter of 2018 as a result of the marketing authorization
for Cx601 granted by the European Commission on March 23, 2018. Moreover, we expect to receive additional revenues of up to a total
of 340 million euros in connection with various sales and reimbursement-related milestones and royalty payments ranging from 10%
to 18% on net sales by Takeda.



License revenues are recognized when all
significant risks and rewards derived from the ownership and right of use of the license in its current state have been transferred
to the customer. For those other milestones not yet reached (because there are some pending performance obligations to be satisfied
or because there are future approvals, which are not exclusively dependent on our performance), revenues are recognized once they
are virtually certain. We have analyzed and separated the different performance obligations and how they will be remunerated. If
substantive contractual obligations are satisfied over time or over the life of the contract, revenue will be recognized over their
performance. Milestone payments are immediately recognized as revenue when the condition is met, when performance obligations related
to that milestone are fulfilled and if the milestone is not a condition to future deliverables and collectability is reasonably
assured. Otherwise, they are recognized over the remaining term of the agreement or the performance period.



Grants and Other Operating Income



We also receive a portion of our revenues
in the form of government grants directly related to our research and development efforts, which are presented in our consolidated
income statement under the line item “grants and other operating income.”



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We do not recognize government grants until
we have reasonable assurance that we will be able to comply with their terms and that the grants will be received. Government grants
are recognized as income on a systematic basis over the periods in which we recognize expenses related to the costs for which the
grants are intended to compensate. Specifically, for grants whose primary condition is the purchase, construction or acquisition
of non-current assets, we recognize the grants as deferred revenue in our consolidated balance sheet and transfer them to the income
statement on a systematic and rational basis over the useful life of the related assets. Grants that are receivable as compensation
for expenses or losses already incurred or for immediate financial support with no related costs are recognized in the period in
which they are received. We also treat the benefit of government loans, which we receive at below-market rates of interest, as
government grants (measured as the difference between the proceeds received and the fair value of the loan based on prevailing
market conditions), only when we have sufficient assurance that we will be able to comply with the terms and conditions of the
loan and will not be required to return the funds prematurely. We recognize these loans as grants in our income statement under
the line item “grants and other operating income.”



Until December 2016, we received “other
operating income” from certain non-recurrent services we performed for Sobi in respect of the ChondroCelect. We no longer
generate any other operating income from these services. We use this heading to register non-recurring items in our income statement.



Research and Development Expenses



Our research and development activities
primarily consist of preclinical research; Phase I, Phase II and Phase III of various clinical studies; the production of eASCs
and CSCs used in our preclinical and clinical studies; regulatory activities and intellectual property activities to protect our
know how. Research and development expenses include, among others, employee compensation, including salary, fringe benefits and
share-based compensation; expenses related to our manufacturing facilities, including operating costs for such facilities; and
regulatory expenses and activities related to the development of our product pipeline, including reimbursement, market access,
general and administrative expenses and amortization of intangible assets related to our research programs.



Our eASC-based product candidates are derived
from the technology platform we acquired as part of our acquisition of Cellerix in May 2011 and our CSC-based product candidates
(currently on hold) were derived from the technology platform we acquired as part of our acquisition of Coretherapix in July 2015.



Since May 2011, and through December 31,
2017, we have spent a total of 126.3 million euros on research and development expenses, of which 41.7 million euros were incurred
in connection with Cx601; 10.6 million euros were incurred in connection with Cx611; 3.6 million euros were incurred in connection
with AlloCSC-01 since July 2015 and the remaining 70.4 million euros were non-allocated research and development expenses. We recognize
expenditure on research activities as an expense in the period in which it is incurred.



An internally-generated intangible asset
arising from development is capitalized to the extent that all the following can be demonstrated:



| | · | the technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
| | - | -----------------------------------------------------------------------------------------------------------------



| | · | the intention to complete and the ability to use or sell the asset;
| | - | -------------------------------------------------------------------



| | · | how the asset will generate future economic benefits;
| | - | -----------------------------------------------------



| | · | the availability of resources to complete the asset; and
| | - | --------------------------------------------------------



| | · | the ability to measure reliably the expenditure during development.
| | - | -------------------------------------------------------------------



Accordingly, during 2010 and 2011 we capitalized
the development costs related to ChondroCelect with a useful life of ten years.



The amount initially recognized for internally-generated
intangible assets is the sum of the various expenses needed to generate the related intangible assets. Amortization starts from
the date that the intangible asset first meets the recognition criteria. These intangible assets are amortized on a straight-line
basis over their estimated useful life of between five to ten years from the moment they are available for use. Where no internally-generated
intangible



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asset
can be recognized, development expenditure is recognized in the income statement in the period in which it is incurred.



Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible
assets that are acquired. In 2015, we recognized an impairment loss of 1.1 million euros in relation to the capitalized development
costs of ChondroCelect. No impairment loss was recognized in 2016. In 2017, due to the decision of the Company to focus on the
eASC platform, we recognized an impairment loss of 18.1 million euros in relation to the CSC-based product candidates’ platform.



General and Administrative Expenses



Our general and administrative expenses
are costs to support our operations and consist of employee compensation, including salary, fringe benefits and share-based compensation
for our core corporate supporting functions including, among others, finance, human resources, legal, information technology, business
development and investor relations. Other significant expenses include external corporate costs consisting of outside legal counsel,
independent auditors and other outside consultants, insurance, facilities and depreciation.



Interest on Borrowings and Other Finance
Costs



Interest on borrowings include both cash
financial expenditures and non-cash financial expenditures resulting from the recording of financial liabilities under our debt
instruments, including government loans (or so-called “soft” loans), our loan facility with Kreos UK and our 9% senior
unsecured convertible bonds due March 2018 issued in March 2015 at amortized cost.



Fair Value Gains and Losses



Our fair value gains and losses are financial
expenditures, resulting from the change in fair value of the warrant component of our 9% senior unsecured convertible bonds due
March 2018 (which as of the date of this Annual Report have been converted into ordinary shares), and the warrants issued for the
Kreos UK loan.



Income Taxes



Income tax expense represents the sum of
the tax currently payable and deferred tax. We calculate our current tax using tax rates that have been enacted or substantively
enacted by the end of the reporting period. We recognize deferred tax liabilities for all taxable temporary differences between
the carrying amount of assets and liabilities in the consolidated financial statements and in the corresponding tax bases used
in the computation of taxable profit.



In the course of 2013, a new Spanish tax
law became applicable retrospectively from January 1, 2013 under which eligible companies could claim certain research and
development investment tax credits instead of deducting them from their taxable base and carrying them forward until the expiration
date. An applicant is required to provide an audit report from an independent third party certifying that research and development
activities were performed and reported as eligible for this purpose. We recognize this income at the time when we receive these
reports.



Critical Accounting Policies



Our financial statements are prepared in
accordance with IFRS as issued by the IASB. The preparation of our financial statements in accordance with IFRS as issued by the
IASB requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, revenue,
cost of sales, operating expenses and related disclosures. We consider an accounting policy to be critical if it is important to
our financial condition or results of operations, and if it requires significant judgment and estimates on the part of management
in its application. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable
under the circumstances, and we evaluate our estimates on an ongoing basis. Our actual results may differ from these estimates
under different assumptions or conditions. If actual results or events differ materially from the judgments and estimates that
we have made in reporting our financial position and results of operations, our financial position and results of operations could
be materially affected.



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The summary of significant accounting policies
and critical accounting judgments and key sources of estimation uncertainty can be found in notes 2 and 3 respectively in the consolidated
financial statements included elsewhere in this Annual Report.



Going Concern



We have experienced net losses and significant
cash used in operating activities since our inception in 2000 except for the year ended December 31, 2016. As of December 31, 2017,
we had an accumulated deficit of 189.8 million euros, and for the year ended December 31, 2017 we had a net loss of 74.8 million
euros and net cash used in operating activities of 30.3 million euros. As of December 31, 2016, we had an accumulated deficit of
116.2 million euros and for the year ended December 31, 2016 we had net income of 3.8 million euros and net cash from operating
activities of 3.5 million euros. Our management expects us to continue to incur net losses and have significant cash outflows for
at least the next twelve months. These conditions, among others, raise substantial doubt about our ability to continue as a going
concern. The consolidated financial statements included elsewhere in this Annual Report have been prepared assuming that we will
continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities
in the normal course of business. A successful transition to attaining profitable operations is dependent upon achieving a level
of positive cash flows adequate to support our cost structure.



As of December 31, 2017, we had cash and
cash equivalents of 34.1 million euros. In addition, after receiving marketing authorization from the European Commission for Cx061
on March 23, 2018, TiGenix expects to receive 15 million euros from Takeda as a milestone payment under the Licensing Agreement
during the second quarter of 2018. Our board of directors is of the opinion that this cash position is sufficient to continue operating
through the next 12 months, but we will require significant additional cash resources to launch new development phases of existing
projects in our pipeline.



In order to be able to launch such new
development phases, we intend to obtain on a timely basis either additional non-dilutive funding, such as from establishing commercial
relationships, dilutive funding or both. In the last quarter of 2017 we started negotiations with the European Investment Bank
in order to obtain a 25 million euro loan from its program “InnovFin” (loans to innovative business with fewer than
3,000 employees to support the growth and investments in research and innovation).



A successful transition to attaining profitable
operations is dependent upon achieving a level of positive cash flows adequate to support the Group’s cost structure.



Business Combinations and Goodwill



We account for business combinations using
the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the date of
acquisition at their respective fair values. Any excess of the fair value of consideration given over the fair values of the identifiable
assets and liabilities acquired is recorded as goodwill. The determination of estimated fair values of acquired intangible assets,
as well as the useful economic life ascribed to finite lived intangible assets, requires the use of significant judgment. The use
of different estimates and assumptions to those we use could result in a materially different valuation of acquired intangible
assets, which could have a material effect on our results of operations.



Several methods may be used to determine
the estimated fair value of intangible assets acquired in a business combination, all of which require multiple assumptions.



We used the relief from royalty method,
which is a variant of the income valuation approach, to determine the fair value of the intangibles related to the acquisition
of TiGenix S.A.U. It is based on the principle that ownership of the intangible asset relieves the owner of the need to pay a royalty
to another party in exchange for rights to use the asset.



We determined the fair value of assets
related to the acquisition of Coretherapix by taking into account the sum of the survival probability discounted present values
of Coretherapix’s projected cash flows in each year of its key product’s development and commercialization life.



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Goodwill is capitalized. Any impairment
in carrying amount is charged to the consolidated income statement. Where the fair value of identifiable assets and liabilities
exceeds the fair value of consideration paid, the excess is credited in full to the consolidated income statement on the acquisition
date.



The fair value of any contingent consideration
at the date of acquisition is computed as the sum of the probability weighted values of the fair values of the purchase prices
associated with each of the potential product development routes. The fair value of each route is in turn computed as the sum of
the survival probability discounted present values of the contingent payments in each such route including the milestone and commercialization
payments.



The nine routes considered in the development
process of Coretherapix are the result of combining multiple variables. The structure of these routes and the probability assigned
to each route are reassessed by management at every reporting period and every time the development process reaches a milestone.



Any contingent consideration included in
the consideration payable for a business combination is recorded at fair value at the date of acquisition. The fair values are
reviewed on a regular basis, and at least at each reporting date, and any changes are reflected in the income statement.



Acquisition costs incurred are expensed
and included in general and administrative expenses.



Revenue and Other Income Recognition



Recognition of Government Grants



We do not recognize government grants until
there is reasonable assurance that we will comply with the conditions attaching to them and that the grants will be received.



The benefit of a government loan at a below-market
rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the
loan based on prevailing market interest rates. Only when there is sufficient assurance that we will comply with the conditions
attached to the grant, the grant is recognized in profit or loss (under “other operating income”). Determination of
the appropriate amount of grant income to recognize involves judgments and estimates that we believe to be reasonable, but it is
possible that actual results may differ from our estimates. When we receive the final written reports confirming that we have satisfied
the requirements of the grantor, to the extent these are not received within a reasonable time frame following the end of the period,
we record any differences between estimated grant income and actual grant income in the next reporting period once we determine
the final amounts. During the period that these benefits cannot be considered as grants due to the insufficient assurance that
all the conditions have been met, these grants are included in the liabilities as financial loans and other payables.



Revenue Recognition in Respect of License
Arrangements



We recognize revenue from licensing arrangements
which may include multiple elements. Revenue arrangements with multiple elements are reviewed in order to determine whether the
multiple elements can be divided into separate units of accounting, if certain criteria are met. If separable, the consideration
receivable is allocated amongst the separate units of accounting based on their respective fair values and the applicable revenue
recognition criteria are applied to each of the separate units. If not separable, the applicable revenue recognition criteria are
applied to combined elements as a single unit of accounting.



We may enter into licensing and collaboration
agreements for supply and distribution for our products. The terms of the agreements may include non-refundable signing and licensing
fees, milestone payments and royalties on any product sales derived from licensing arrangements. These multiple element arrangements
are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single unit of accounting.
License fees are recognized as revenue when persuasive evidence of an arrangement exists, we have transferred to the licensee the
risks and rewards of the product, we retain neither continuing managerial involvement nor effective control over the product sold,
the fee is fixed or determinable, delivery or performance has been substantially completed and collection is reasonably assured.
The delivery of a license is deemed substantially completed when the licensee can use, license, exploit, develop and obtain a profit
from it without further licensor’s involvement.



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We analyze and separate the different performance
obligations and how they will be remunerated. If substantive contractual obligations are satisfied over time or over the life of
the contract, revenue will be recognized over their performance. Milestone payments are immediately recognized as revenue when
the condition is met, when performance obligations related to that milestone are fulfilled and if the milestone is not a condition
to future deliverables and collectability is virtually certain. Otherwise, they are recognized over the remaining term of the agreement
or the performance period.



Management’s assessment related to
the recognition of revenues for arrangements containing multiple elements are based on estimates and assumptions. Judgment is necessary
to identify separate units of accounting and to allocate related consideration to each separate unit of accounting. Where deferral
of upfront payments or license fee is deemed appropriate, subsequent revenue recognition is often determined based on certain assumptions
and estimates, our continuing involvement in the arrangement, the benefits expected to be derived by the customer and expected
patent lives. To the extent that any of the key assumptions or estimates change, future operating results could be affected.



We analyze, at each reporting date, any
executory contract that could be onerous to account for the corresponding provision. This estimation is based on the unavoidable
expected costs and expected incomes derived from the executory contract, its remaining duration and the potential exit compensation
that could be included in those contracts. The above mentioned calculation also considers past performance and future expected
developments based on the most reliable information existing at each reporting period.



Impairment of Assets



We review the carrying value of intangible
assets with indefinite lives for potential impairment on a periodic basis and also whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable. We review the carrying value of tangible assets and intangible
assets with definitive lives for potential impairment whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable. We determine impairment by comparing the recoverable amount to its carrying value. If impairment
is identified, a loss is recorded equal to the excess of the asset’s carrying amount over its recoverable amount.



In the context of the business combination
with TiGenix S.A.U. in 2011, development costs related to product Cx601 were capitalized in an amount of 1.7 million euros. These
costs were not amortized at December 31, 2015 because the product was not yet available for use and was, therefore, subject to
an annual test for impairment. In July 2016, the product Cx601 (1.7 million euros) was considered as available for use and consequently
subject to amortization. As a result of that, we have reclassified it from development to intellectual property. The estimated
useful economic life has been determined to be ten years, which is the remaining period for the patents related to it.



On July 31, 2015, we acquired 100%
of the issued share capital of Coretherapix. The most significant part of the purchase price has been allocated to in-process research
and development (17.4 million euros) as well as certain other intangible assets (277,000 euros). The difference between the
fair values of the assets acquired and liabilities assumed and the purchase price comprises the value of expected synergies arising
from the acquisition and has been recorded as goodwill (717,000 euros).



For impaired assets, we recognize a loss
equal to the difference between the carrying value of the asset and its estimated recoverable amount. The recoverable amount is
based on discounted future cash flows of the asset using a discounted rate commensurate with the risk. Estimates of future costs
savings, based on what we believe to be reasonable and supportable assumptions and projections, require management’s judgment.
Actual results could vary from these estimates. When it is not possible to estimate the recoverable amount of an individual asset,
we estimate the recoverable amount of the cash generating unit to which the asset belongs.



In 2017, due to the decision of the Company
to focus on the eASC platform, we recognized an impairment loss of 18.1 million euros in relation to the CSC-based product candidates’
platform.



Deferred Taxes



Deferred tax assets are recognized for
unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized.
Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the
likely timing and the level of future taxable profits together with future tax planning strategies.



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As of December 31, 2017, we had 261.5 million
euros of tax losses carry forward. This compared to 200.3 million euros in 2016 and 180.7 million euros in 2015.



Our tax losses do not have an expiration
date. Most tax credits expire after ten to 18 years. The notional interest deduction of 0.6 million euros at December 31, 2017
expires within one year. Tax deductions may not be used to offset taxable income elsewhere in our group.



With respect to our net operating losses,
no deferred tax assets have been recognized, given that there is uncertainty as to the extent to which these tax losses will be
used in future years.



Derivative Financial Instruments



Derivatives are initially recognized at
fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end
of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.



Pursuant to the terms and conditions of
the loan facility agreement that we entered into with Kreos UK, on April 22, 2014, an extraordinary meeting of our shareholders
issued and granted 1,994,302 new cash-settled warrants, including a put option to Kreos Capital IV (Expert Fund) (“Kreos
Capital”). These warrants have been designated at fair value through profit or loss. We recognize the warrants, including
the put option, as one instrument, because we believe that the put option is unconditionally linked to the warrant. Because the
issued warrants can be settled in cash, the instrument is considered as a financial derivative liability measured at fair value
with changes in fair value recognized immediately in profit or loss.



The measurement of the warrant (and the
put option) at fair value is based on the Black-Scholes option pricing model taking into account the following variables:



| | · | the share price;
| | - | ----------------



| | · | the strike price;
| | - | -----------------



| | · | the volatility of the share, which has been determined based on historical stock prices of our shares;
| | - | ------------------------------------------------------------------------------------------------------



| | · | the dividend yield, which has been estimated as zero, as we have never paid a dividend due to the past experience of losses;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | · | the duration, which has been estimated as the difference between the valuation date of the warrant plans and final exercise
date; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | the risk free interest rate, which has been calculated based on the discount curve composed based on liquid euro deposit rates
for periods shorter than one year, futures typically for maturities between one and six years and interbank euro swap rates for
periods longer than six years.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In May 2015, Kreos Capital exercised the
above-mentioned put option and executed one third of the warrants (163,333 euros). As of January 2016, the remaining two thirds
of the warrants put option had lapsed due to the increase in the price of the share which makes this amount no longer exercisable
by Kreos Capital.



In December 2017, Kreos Capital exercised
its remaining warrants at 0.75 euros per warrant. The resulting TiGenix shares were issued in January 2018.



Pursuant to the terms and conditions of
the convertible bonds issued on March 6, 2015, the warrant is reflected at any reporting period at its fair value. Measurement
of the fair value is determined using methodologies such as Black-Scholes, binominal lattices or Monte Carlo simulations. The conversion
features of the 9% senior unsecured convertible bonds due 2018 are complex and render Black-Scholes and binominal trees inapplicable.
The measurement of the warrant at fair value is based on a Monte Carlo valuation model.



The resetting and the early redemption
clauses embedded in the instrument result in the conversion price being dependent upon an unknown share price path. The Conversion
Price depends on the evolution of the share price through the Resetting period. The Early Redemption Clause will, for certain share
price paths compel noteholders, to



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accelerate
conversion in order to avoid the loss on the Warrant value that would result from the Instrument being called by Issuer.



Such conversion features cannot be factored
into a fixed conversion price continuous or discrete model, such as Black-Scholes or binomial lattices, respectively. However,
they can be incorporated in a Monte Carlo model.



On the other hand, a Monte Carlo model
can indeed incorporate not only the market parameters such as volatility, risk-free interest rates and share price, but all the
contractual characteristics of the Warrant such as Present Date (31/12/2017), Conversion Date (06/03/18), Present Price (1.70),
Conversion Price (0.8983), Interest rate annual (-0.48%), Reference Period Days (60), No of iterations (10,000), Annual Volatility
(122.97%), Conversion price Reset, Early Redemption, Average Conversion Price (0.8982) and No of anticipated redemptions (9,003).



The final value of the warrant was then
calculated as the probability-weighted values derived from the valuation of the warrant in (i) the non-change of control and (ii)
in the change of control scenarios. The probabilities assigned to the non-change of control and change of control scenarios were
20% and 80%, respectively. We performed a sensitivity analysis, changing probabilities assigned to non-change of control and change
of control scenarios. There is no significant impact in the valuation of the warrant when changing these scenarios.



Share-Based Payment Arrangements



We used the Black-Scholes model to estimate
the fair value of the share-based payment transactions. Using this model requires our management to make assumptions regarding
volatility and expected life of the equity instruments. The assumptions used for estimating fair value for share-based payment
transactions are estimated as follows:



| | · | volatility is estimated based on the average annualized volatility of our share price;
| | - | --------------------------------------------------------------------------------------



| | · | the estimated life of the warrant is until the first exercise period; and
| | - | -------------------------------------------------------------------------



| | · | the dividend return is estimated by reference to our historical dividend payment. Currently, this is estimated to be zero,
because no dividend has been paid since our inception.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



New Accounting Standards



A number of new accounting standards have
recently been issued but are not yet effective. The below changes are expected to affect our financial statements going forward.



IFRS 9 Financial Instruments



In July 2014, the IASB issued the final
version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and
all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project:
classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1
January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing
comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some
limited exceptions. The Group plans to adopt the new standard on the required effective date and will not restate comparative information.
During 2017, the Group has performed a detailed impact assessment of all three aspects of IFRS 9.



This assessment is based on currently available
information and may be subject to changes arising from further reasonable and supportable information being made available to the
Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial
position and equity.



Classification and measurement



The Group does not expect a significant
impact on its balance sheet or equity of applying the classification and measurement requirements of IFRS 9.



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Loans as well as trade receivables are
held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and
interest. The Group analyzed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria
for amortized cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.



Impairment



IFRS 9 requires the Group to record expected
credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will
apply the simplified approach and record lifetime expected losses on all trade receivables. The Group does not expect any impact
on applying the new estimation considering the characteristics of its receivables.



IFRS 15 Revenue from Contracts with Customers



IFRS 15 was issued in May 2014 and establishes
a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount
that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.



The new revenue standard will supersede
all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application
is required for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Group plans to adopt the
new standard on the required effective date using the modified retrospective method. During 2016, the Group performed a preliminary
assessment of IFRS 15, which was continued with a more detailed analysis completed in 2017.



The Group is in the business of development
of cell therapy programs with an advanced clinical stage pipeline of adult stem cell programs. The stem cell programs are based
on proprietary validated platforms of allogeneic expanded stem cells targeting autoimmune, inflammatory and heart diseases. Built
on solid pre-clinical and CMC packages, they are being developed in close consultation with the European Medicines Agency.



As a consequence of this activity, the
Group licenses its intellectual property through right of use licenses. Below is a summary of the Company’s preliminary assessment
of IFRS 15 and the potential impact on the Company’s financial statements upon implementation:



Licenses sales



In the sales of licenses, TiGenix identifies
and separates the different performance obligations embedded in the contract.



As of December 31, 2017, the Company has
one licensing agreement, the Licensing Agreement, which is a right of use license. The Licensing Agreement, in addition to the
right of use of the license, includes some other performance obligations which were dependent on the approval of the use of the
license in the European Union by the European Commission..



The performance obligations identified
in the Licensing Agreement are the following:



| | · | Licensing of the product which permits to sell the product under the TiGenix trade mark in the relevant territory. The Company
is transferring the ownership (risks and rewards) of the license and Takeda can benefit from that license by itself from the signature
date.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Obtaining marketing authorization for Cx601 (which was obtained on March 23, 2018).
| | - | -----------------------------------------------------------------------------------



| | · | Transfer of knowledge.
| | - | ----------------------



| | · | Manufacturing of the product during a certain period of time.
| | - | -------------------------------------------------------------



Variable consideration



The Group recognizes revenue from the sale
of goods measured at the fair value of the consideration received or receivable. If revenue cannot be reliably measured, the Group
defers revenue recognition until the uncertainty is



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resolved.
Such provisions give rise to variable consideration under IFRS 15, and will be required to be estimated at contract inception
and updated thereafter.



IFRS 15 requires the estimated variable
consideration to be constrained to prevent over-recognition of revenue.



The Licensing Agreement provided for milestone
payments to be collected when marketing authorization occurred. Under IAS 18, the Group did not recognize as revenue these milestone
payments, as collection was not guaranteed. Under the new standard, future contingent consideration is treated as variable. This
variable consideration, under the new standard, needs to be estimated but only to the extent that it is highly probable that a
significant reversal will not occur. Considering the amount of the milestone payment pending approval and considering that collection
depends on facts and circumstances that are out of the Company’s control, these milestones were not considered revenue in
2017 (authorization was obtained on March 23, 2018) until the relevant uncertain event (the authorization) actually occurs.



In the Licensing Agreement there are some
other rights of future revenue in the form of royalties on future sales. Recognition is not allowed until the sale occurs, which
does not differ from current accounting treatment.



Presentation and disclosure requirements



The presentation and disclosure requirements
in IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current
practice and significantly increases the volume of disclosures required in the Group's financial statements.



Many of the disclosure requirements in
IFRS 15 are new and the Group has assessed that the impact of some of these disclosures requirements will be significant. In particular,
the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements
made: when determining the transaction price of those contracts that include variable consideration, how the transaction price
has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each
performance obligation. In addition, as required by IFRS 15, the Group will disaggregate revenue recognized from contracts with
customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic factors.



IFRS 16 Leases



IFRS 16 was issued in January 2016 and
it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.



IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance
sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees
– leases of “low-value” assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term
of 12 months or less).



At the commencement date of a lease, a
lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use
the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the
interest expense on the lease liability and the depreciation expense on the right-of-use asset.



Lessees will be also required to re-measure
the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments
resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of
the re-measurement of the lease liability as an adjustment to the right-of-use asset.



Lessor accounting under IFRS 16 is substantially
unchanged from accounting under IAS 17. Lessors will continue to classify all leases using the same classification principle as
in IAS 17 and distinguish between two types of leases: operating and finance leases.



IFRS 16 also requires lessees and lessors
to make more extensive disclosures than under IAS 17.



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IFRS 16 is effective for annual periods
beginning on or after January 1, 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose
to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions
permit certain exemptions.



IFRS 16 will be implemented by the Group
from January 1, 2019 and will require lease liabilities and ‘right of use’ assets to be recognised on the balance sheet
for almost all leases. This is expected to result in a significant increase in both assets and liabilities recognised. The costs
of operating leases currently included within operating costs will be split and the financing element of the charge will be reported
within finance expense.



The Group is assessing the potential impact
of IFRS 16.



Result of Operations



Comparison of the Years Ended December
31, 2017 and 2016



The following table summarizes our results
of operations for the years ended December 31, 2017 and 2016:



|                                               |  | Year ended December 31, |         |            
|---------------------------------------------- |  | ----------------------- | ------- | -----------
|                                               |  | 2017                    |         | 2016       
|                                               |  | (in thousands of euros) |         | (unaudited)
|                                               |  |                         |         |            
|Revenues and other operating income            |  |                         |         |            
|Royalties                                      |  |                         | –       |            
|License revenues                               |  |                         | –       |            
|Grants and other operating income              |  |                         | 906     |            
|Total revenues and other operating income      |  |                         | 906     |            
|Research and development expenses              |  |                         | (44,213 | )          
|General and administrative expenses            |  |                         | (9,873  | )          
|Total operating charges                        |  |                         | (54,086 | )          
|Operating Loss                                 |  |                         | (53,180 | )          
|Financial income                               |  |                         | 218     |            
|Interest on borrowings and other finance costs |  |                         | (7,067  | )          
|Fair value gains                               |  |                         | –       |            
|Fair value losses                              |  |                         | (14,623 | )          
|Foreign exchange differences                   |  |                         | (60     | )          
|Profit (Loss) before taxes                     |  |                         | (74,712 | )          
|Income taxes                                   |  |                         | (114    | )          
|Profit (Loss) for the year                     |  |                         | (74,826 | )          








| | * | Not meaningful
| | - | --------------



Royalties. Royalties decreased by
100% from 0.4 million euros for the year ended December 31, 2016 to zero euros for the year ended December 31, 2017. In 2016, we
received royalties in connection with the sales of ChondroCelect by Sobi under the license agreement that we entered into in June
2014. The decrease in royalties during 2016 was due to the decision of TiGenix to fully focus on its allogenic stem cell platforms.
As a result, in July 2016 we decided to terminate our distribution agreements with Sobi and the Finnish Red Cross Blood Service
and our manufacturing agreement with our former subsidiary purchased by PharmaCell, and we requested the withdrawal of marketing
authorization for ChondroCelect, which became effective as of November 30, 2016. Going forward, we expect to receive ongoing royalty
payments from Takeda and other partners with whom we may enter into distribution agreements or license agreements.



License Revenues.Pursuant to the
Licensing Agreement, Takeda currently has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas
in all countries outside the United States.



In July 2016, we received an upfront non-refundable
payment of 25 million euros from Takeda in connection with the Licensing Agreement. We recognized this amount as license revenue
in our income statement.



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Grants and Other Operating Income.
Grants and other operating income decreased by 35%, from 1.4 million euros for the year ended December 31, 2016 to 0.9 million
euros for the year ended December 31, 2017. Grant income decreased by 19% from 0.7 million euros to 0.6 million euros as a result
of slightly lower grant income recognized from below-market rate loans by the Ministry of Economy. Other operating income decreased
by 89% from 0.7 million euros for the year ended December 31, 2016 to 0.3 million euros for the year ended December 31, 2017, mainly
as a result of the fact that in 2017 we no longer received reimbursement for certain regulatory and pharmacovigilance activities
that we performed on behalf of Sobi under a license agreement for which we were reimbursed in 2016. Due to the cancelation of Sobi’s
agreement at the end of 2016, no more operating income from Sobi is expected since 2016. During the year ended December 31, 2017,
other operating income mainly represented the sale of certain Chondrocelect data to a third party interested on it for its research
activities:



|                                        |  | Year ended December 31,
|--------------------------------------- |  | -----------------------
|                                        |  | 2017                   
|                                        |  | (in thousands of euros)
|Grant revenues                          |  |                        
|Other operating income                  |  |                        
|Total Grants and other operating income |  |                        





For 2017, grant revenue had the following
components:



| | · | 0.5 million euros due to the recognition of grant income under the Horizon 2020 program, the EU’s framework program for
research and innovation, to conduct a clinical Phase Ib/IIa trial for Cx611 in patients with severe sepsis as a result of severe
community-acquired pneumonia; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 0.1 million euros related to the recognition as grant income of the benefit obtained from a government loan at a below market
rate (two soft loans received by Coretherapix S.L.U. in 2016 granted by the Ministry of Economy of 0.3 million euros and 0.6 million
euros respectively with maturities in February 2025 and 2026).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For 2016, grant revenue had the following
components:



| | · | 0.3 million euros due to the recognition of grant income under the Horizon 2020 program, the EU’s framework program for
research and innovation, to conduct a clinical Phase II trial for Cx611 in patients with severe sepsis as a result of severe community-acquired
pneumonia;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 0.2 million euros related to the recognition as grant income of the benefit obtained from a government loan at a below-market
rate (a 0.4 million “soft” loan received by TiGenix S.A.U. in 2013 from the Ministry of Science with a maturity date
in February 2023); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 0.2 million euros related to the recognition as grant income of the benefit obtained from a government loan at a below market
rate (two “soft” loans received by Coretherapix in 2016 granted by the Ministry of Economy of 0.3 million euros and
0.6 million euros with maturity dates in February 2025 and 2026).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Research and Development Expenses.
Our research and development expenses increased by 106% from 21.5 million euros for the year ended December 31, 2016 to 44.2 million
euros for the year ended December 31, 2017. The increase was mainly driven by the following activities, which we undertook in 2017:



| | · | filing for marketing authorization for Cx601 in Europe;
| | - | -------------------------------------------------------



| | · | launching of the Phase III clinical trial for Cx601 in the United States;
| | - | -------------------------------------------------------------------------



| | · | launching of the Phase II clinical trial for Cx611 in severe sepsis; and
| | - | ------------------------------------------------------------------------



| | · | impairment of Coretherapix acquisition due to the strategic decision of the Company to focus on the eASC platform and put on
hold all activities related to the CSC platform
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Our research and development expenses in
the year ended December 31, 2016 mainly related to costs in connection with the finalization of the European Phase III trial for
Cx601 and other related preparations to file for marketing authorization for Cx601 in Europe. In addition, we started the preparation
activities to launch the Phase II clinical trial for Cx611 in severe sepsis.



The following table provides a breakdown
of our research and development expenses for Cx601, Cx611 and AlloCSC-01, the three product candidates we had in clinical development,
as well as our non-allocated research and development expenses, which primarily include personnel and facility costs that are not
related to specific projects:



|                                                |  | Years ended December 31,
|----------------------------------------------- |  | ------------------------
|                                                |  | 2017                    
|                                                |  | (thousands of euros)    
|Non-allocated research and development expenses |  |                         
|Cx601                                           |  |                         
|Cx611                                           |  |                         
|AlloCSC-01                                      |  |                         
|AlloCSC-01 impairment                           |  |                         
|Total                                           |  |                         



General and Administrative Expenses.
General and administrative costs increased by 18% from 8.4 million euros for the year ended December 31, 2016 to 9.9 million euros
for the year ended December 31, 2017. The increase was mainly attributable to non-recurrent expenses to explore additional funding
in U.S. capital markets, to comply with the U.S. Sarbanes-Oxley Act and U.S. reporting obligations and related to the Mesoblast
licensing transaction.



Financial Income. Financial income
increased by 40% from 156 thousand euros for the year ended December 31, 2016 to 218 thousand euros for the year ended December
31, 2017. Financial income increased mainly as a result of higher interest income on the cash balances in our bank.



Interest on Borrowings and Other Finance
Costs. Interest on borrowings and other finance costs decreased by 3% from 7.3 million euros for the year ended December 31,
2016 to 7.1 million euros for the year ended December 31, 2017, mainly as a result of lower interests on the loan facility with
Kreos UK as maturity approaches. This financial expense had three primary components for the year ended December 31, 2017:



| | · | interest of 0.5 million euros under the loan facility with Kreos UK;
| | - | --------------------------------------------------------------------



| | · | interest of 1.0 million euros on government loans; and
| | - | ------------------------------------------------------



| | · | interest of 5.6 million euros in connection with the issuance of senior unsecured convertible bonds on March 6, 2015, which
constituted the majority of the expense.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fair Value Gains. Fair value gains
decreased by 100% from 11.6 million euros for the year ended December 31, 2016 to zero euros for the year ended December 31, 2017.
This decrease was mainly driven by the evolution of the fair value of the embedded derivative related to our senior, unsecured
convertible bonds and the Kreos UK loan, from December 31, 2016 to December 31, 2017. The fair value gain related to the derivative
of the convertible bonds and Kreos UK loan amounted to 11.0 and 0.6 million euros respectively in 2016 due to a reduction on the
fair value of the embedded derivative of these financial instruments during year 2016. As the fair value was lower at December
31, 2016 when comparing December 2015, the liability was reduced and a fair value gain was generated. The variable with the most
significant effect on the fair value calculation of the warrants linked to the convertible bonds and the Kreos UK loan is our share
price, which decreased from 1.19 euros at December 31, 2015 to 0.71 euros at December 31, 2016. During 2017 the price of our shares
increased from 0.71 to 1.70 (as of January 5, 2018, the first trading day after Takeda announced its intention to acquire TiGenix,
which significantly affected our share price) This results in an increase in the liability linked to the derivatives, generating
fair value losses instead of fair value gains.



Fair Value Losses. Fair value losses
increased significantly from 0 million euros for the year ended December 31, 2016 to 14.6 million euros for the year ended December
31, 2017. As previously explained this is the result of



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the
evolution of the fair value of the embedded derivative related to our senior, unsecured convertible bonds and Kreos UK loans from
December 31, 2016 to December 31, 2017, which have been mainly caused by the evolution of the share price during the year ended
December 31, 2017.



Foreign Exchange Differences. Foreign
exchange differences decreased from 0.2 million euros for the year ended December 31, 2016 to minus 60 thousand euros for the year
ended December 31, 2017. Prior to 2017, the exchange differences associated with the intercompany loan between TiGenix NV and TiGenix
Inc. were recognized in the consolidated income statement, as the loan was expected to be repaid. However, as the loan will no
longer be repaid or settled, the foreign exchange differences for the year ended December 31, 2017 are now recognized together
with the currency translation differences within other comprehensive income.



Income Taxes. Our income tax benefit
decreased from 2.1 million euros for the year ended December 31, 2016 to a tax loss of 114 thousand euros for the year ended December
31, 2017. The benefit registered for the year ended December 31, 2016 resulted from the enactment in September 2013 of a new law
to promote tech start-ups in Spain under which our subsidiary TiGenix S.A.U. recognized a cash tax credit as a result of research
and development activities performed during 2015. The tax credit generated during 2016 amounted 1.8 million euros, but this amount
has not been recognized as income tax in 2017 due to the Company’s accounting policy regarding the timing of recognition
of this asset. The Company’s policy is not to recognize this tax benefit until the certified report confirming the activities
and the amounts issued by a third independent party is obtained. This report was issued on January 8, 2018. We will register this
tax benefit in 2018.



As of December 31, 2016, we had a tax loss
carried forward of 200.3 million euros compared to 261.5 million euros as of December 31, 2017. These tax losses generate a potential
deferred tax asset of 65.4 million euros, and do not have an expiration date. Because we are uncertain whether we will be able
to realize taxable profits in the near future, we did not recognize any deferred tax assets in our balance sheet. In addition to
these tax losses, we have unused tax credits amounting to 25.2 million euros as of December 31, 2017 compared to 20.8 million euros
as of December 31, 2016.



Loss for the Year. For the reasons
described above, we recognized total loss of 74.8 million euros for the year ended December 31, 2017 compared to an income of 3.8
million euros for the year ended December 31, 2016.



Comparison of the Years Ended December
31, 2016 and 2015



The following table summarizes our results
of operations for the years ended December 31, 2016 and 2015:



|                                                                   |  | Years ended December 31, |         |            
|------------------------------------------------------------------ |  | ------------------------ | ------- | -----------
|                                                                   |  | 2016                     |         | 2015       
|                                                                   |  | (in thousands of euros)  |         | (unaudited)
|                                                                   |  |                          |         |            
|Revenues and other operating income                                |  |                          |         |            
|Royalties                                                          |  |                          | 395     |            
|License revenues                                                   |  |                          | 25,000  |            
|Grants and other operating income                                  |  |                          | 1,395   |            
|Total revenues and other operating income                          |  |                          | 26,790  |            
|Research and development expenses                                  |  |                          | (21,454 | )          
|General and administrative expenses                                |  |                          | (8,363  | )          
|Total operating charges                                            |  |                          | (29,817 | )          
|Operating Loss                                                     |  |                          | (3,027  | )          
|Financial income                                                   |  |                          | 156     |            
|Interest on borrowings and other finance costs                     |  |                          | (7,288  | )          
|Impairment and gains/(losses) on disposal of financial instruments |  |                          | —       |            
|Fair value gains                                                   |  |                          | 11,593  |            
|Fair value losses                                                  |  |                          | —       |            
|Foreign exchange differences                                       |  |                          | 232     |            
|Income (Loss) before taxes                                         |  |                          | 1,666   |            

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|                           |  | Year ended December 31, |       |            
|-------------------------- |  | ----------------------- | ----- | -----------
|                           |  | 2016                    |       | 2015       
|                           |  | (in thousands of euros) |       | (unaudited)
|Income taxes               |  |                         | 2,136 |            
|Income (Loss) for the year |  |                         | 3,802 |            










| | * | Not meaningful
| | - | --------------



Royalties. Royalties decreased by
26% to 0.4 million euros for the year ended December 31, 2016, from 0.5 million euros for the year ended December 31, 2015. In
both periods, we received these royalties in connection with the sales of ChondroCelect by Sobi under the license agreement that
we entered into in June 2014. The decrease in royalties was due to our decision to fully focus on our allogenic stem cell platforms.
As a result, in July 2016 we decided to terminate our distribution agreements with Sobi and the Finnish Red Cross Blood Service
and our manufacturing agreement with our former subsidiary purchased by PharmaCell, and we requested the withdrawal of marketing
authorization for ChondroCelect, which became effective as of November 30, 2016. We have received no royalties on sales of ChondroCelect
since November 2016. Going forward, we expect to receive ongoing royalty payments from Takeda and other partners with whom we may
enter into distribution agreements or license agreements.



License Revenues.Pursuant to the
Licensing Agreement, Takeda currently has the exclusive right to commercialize and develop Cx601 for complex perianal fistulas
in all countries outside the United States.



In July 2016, we received an upfront non-refundable
payment of 25 million euros from Takeda in connection with the Licensing Agreement. We recognized this amount as license revenue
in our income statement. We had no license revenue in 2015.



Grants and Other Operating Income.
Grants and other operating income decreased by 18% to 1.4 million euros for the year ended December 31, 2016, from 1.7 million
euros for the year ended December 31, 2015. Grant income decreased by 15% to 0.7 million euros, from 0.9 million euros mostly as
a result of grant income from the EU Seventh Framework Program that we received in 2015 but not in 2016. Other operating income
decreased by 21% to 0.7 million euros for the year ended December 31, 2016, from 0.8 million euros for the year ended December
31, 2015. In both years, other operating income mainly represented reimbursement for certain regulatory and pharmacovigilance activities
that we performed on behalf of Sobi under the license agreement. The amounts of such reimbursement were slightly lower in 2016
than in 2015.



|                                        |  | Year ended December 31,
|--------------------------------------- |  | -----------------------
|                                        |  | 2016                   
|                                        |  | (in thousands of euros)
|Grant revenues                          |  |                        
|Other operating income                  |  |                        
|Total Grants and other operating income |  |                        



For 2016, grant revenue had the following
components:



| | · | 0.3 million euros due to the recognition of grant income under the Horizon 2020 program, the EU’s framework program for
research and innovation, to conduct a clinical Phase Ib/IIa trial for Cx611 in patients with severe sepsis as a result of severe
community-acquired pneumonia;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | 0.2 million euros related to the recognition as grant income of the benefit obtained from a government loan at a below-market
rate (a 0.4 million “soft” loan received by TiGenix S.A.U. in 2013 from the Ministry of Science with a maturity date
in February 2023); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | 0.2 million euros related to the recognition as grant income of the benefit obtained from a government loan at a below market
rate (two “soft” loans received by Coretherapix in 2016 granted by the Ministry of Economy of 0.3 million euros and
0.6 million euros with maturity dates in February 2025 and 2026).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For 2015, grant revenue had the following
components:



| | · | income of 0.5 million euros from a grant from the EU Seventh Framework Program for research in connection with Cx611. The project
lasted from January 2012 to December 2014, and all related activities and expenses were recognized in two reporting periods in
June 30, 2013 and December 31, 2014, when we received the bulk of the grant. As our justified costs in relation to the project
were higher than our initial grant allowance, in 2015 we received an additional part of the grant that was initially allocated
to our partner institutions in the project that did not spend the entire amount of their respective authorized grants to recoup
some of our costs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | income of 0.3 million euros related to a so-called “soft” loan of 0.7 million euros from the Spanish Ministry of
Science. At December 31, 2015, we completed all the activities related to this loan, and, therefore, fully recognized as grant
income the benefit received by borrowing these sums at a below-market rate of interest (measured as the difference between the
proceeds received and the fair value of the loan based on prevailing market interest rates), in an amount of 0.3 million euros.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Research and Development Expenses.
Our research and development expenses increased by 9% to 21.5 million euros for the year ended December 31, 2016, from 19.6 million
euros for the year ended December 31, 2015. The increase was mainly driven by the following activities, which we undertook in 2016:



| | · | filing for marketing authorization for Cx601 in Europe;
| | - | -------------------------------------------------------



| | · | preparation for the Phase III clinical trial for Cx601 in the United States;
| | - | ----------------------------------------------------------------------------



| | · | preparation for the Phase Ib/IIa clinical trial for Cx611 in severe sepsis; and
| | - | -------------------------------------------------------------------------------



| | · | activities in connection with the ongoing Phase I/II clinical trial for AlloCSC-01 in acute myocardial infarction, which
were not reflected in our expenses during the same period in 2015, since the acquisition of Coretherapix was completed in July
2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our research and development expenses in
the year ended December 31, 2015 mainly related to costs in connection with the European Phase III trial for Cx601 and other related
preparations to file for marketing authorization for Cx601 in Europe. In addition, we concluded the Phase I trial for Cx611 in
severe sepsis and launched Phase Ib/IIa activities during this period. The following table provides a breakdown of our research
and development expenses for Cx601, Cx611 and AlloCSC-01, the three product candidates we have in clinical development, as well
as our non-allocated research and development expenses, which primarily include personnel and facility costs that are not related
to specific projects:



|                                                |  | Years ended December 31,
|----------------------------------------------- |  | ------------------------
|                                                |  | 2016                    
|                                                |  | (in thousands of euros) 
|Non-allocated research and development expenses |  |                         
|ChondroCelect impairment                        |  |                         
|Cx601                                           |  |                         
|Cx611                                           |  |                         
|AlloCSC-01                                      |  |                         
|Total                                           |  |                         



General and Administrative Expenses.
General and administrative costs increased by 25% to 8.4 million euros for the year ended December 31, 2016, from 6.7 million
euros for the year ended December 31, 2015. The increase was mainly attributable to non-recurrent expenses including certain costs
in connection with our U.S. initial public



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offering
and the Takeda licensing transaction and general and administrative expenses in connection with Coretherapix, which we acquired
in 2015. General and administrative expenses for the year ended December 31, 2016 included 12 months of expenses for Coretherapix,
whereas general and administrative expenses for the year ended December 31, 2015 included such expenses only for the five months
between the acquisition (completed in July 2015) and the end of the year.



Financial Income.Financial income
increased to 0.2 million euros for the year ended December 31, 2016, from 0.1 million euros for the year ended December 31, 2015.
Financial income mainly consists of interest income on the cash balances in our bank deposits.



Interest on Borrowings and Other Finance
Costs. Interest on borrowings and other finance costs increased by 10% to 7.3 million euros for the year ended December
31, 2016, from 6.7 million euros for the year ended December 31, 2015. This financial expense had three primary components
for the year ended December 31, 2016:



| | · | interest of 1.1 million euros under the loan facility with Kreos UK;
| | - | --------------------------------------------------------------------



| | · | interest of 0.9 million euros on government loans; and
| | - | ------------------------------------------------------



| | · | interest of 5.0 million euros in connection with the issuance of senior unsecured convertible bonds on March 6, 2015,
which constituted the majority of the increase.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



Interest was due for the entire year ended
December 31, 2016, and only part of the year ended December 31, 2015 since the bonds were issued in March 2015.



Fair Value Gains. Fair value gains
significantly increased to 11.6 million euros for the year ended December 31, 2016, from 0 million euros for the year ended
December 31, 2015. This increase was mainly driven by the evolution of the fair value of the embedded derivative related to our
senior, unsecured convertible bonds and the Kreos UK loan, from December 31, 2015 to December 31, 2016. The fair value gain
related to the derivative of the convertible bonds and the Kreos UK loan amounted to 11.0 and 0.6 million euros, respectively.
The variable with the most significant effect on the fair value calculation of the warrants linked to the convertible bonds and
the Kreos UK loan was our share price, which dropped to 0.71 euros at December 31, 2016, from 1.19 euros at December 31,
2015.



Fair Value Losses. Fair value losses
significantly decreased to zero euros for the year ended December 31, 2016, from 6.7 million euros for the year ended December
31, 2015. This decrease was mainly driven by the evolution of the fair value of the embedded derivative related to our senior,
unsecured convertible bonds and the Kreos UK loan from December 31, 2015 to December 31, 2016. During 2015 these derivatives
resulted in an increase of liabilities generating 6.1 million euros of fair value losses. This was mainly caused by the increase
of TiGenix’s share price during that year, which rose to 1.19 euros at December 31, 2015, from 0.56 euros at December 31,
2014.



Foreign Exchange Differences. Foreign
exchange differences decreased to 0.2 million euros for the year ended December 31, 2016, from 1.0 million euros for the year ended
December 31, 2015. The decrease was mainly due to the translation into euros of the U.S. dollar denominated intercompany balance
existing at the time between TiGenix, the parent entity, and TiGenix Inc., our subsidiary. The decrease was due to the appreciation
of the U.S. dollar against the euro during the year ended December 31, 2016 to an average of 1.054 U.S. dollars per euro for the
year ended December 31, 2016, from 1.086 U.S. dollars per euro at December 31, 2015.



Income Taxes.Our income tax benefit
increased to 2.1 million euros for the year ended December 31, 2016 from 1.3 million euros for the year ended December 31,
2015. These benefits resulted from the enactment in September 2013 of a new law to promote tech start-ups in Spain under which
our subsidiary TiGenix S.A.U. recognized a cash tax credit as a result of research and development activities performed during
2014 and 2015.



As of December 31, 2016 we had a tax
loss carried forward of 200.3 million euros compared to 180.7 million euros as of December 31, 2015. In 2016 we
applied the patent box legislation in relation to revenues obtained through the license deal with Takeda. Under this regime, qualified
incomes are exempt from income taxes. This is the reason why our tax losses increased in 2016 even though we recorded a profit
for the year. These tax losses generated a potential deferred tax asset of 61.8 million euros, and do not have an expiration
date. Because we are uncertain whether we will be able to realize taxable profits in the near future, we did not recognize any
deferred tax



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assets
in our balance sheet. In addition to these tax losses, we have unused tax credits amounting to 20.8 million euros as of December 31,
2016 compared to 20.1 million euros as of December 31, 2015.



Profit for the Year.For the reasons
described above, we recognized total profit of 3.8 million euros for the year ended December 31, 2016 compared to a loss of
35.1 million euros for the year ended December 31, 2015.



B.       Liquidity and
Capital Resources



We have historically funded our operations
principally from equity financing, including an initial public offering in the United States in December 2016, borrowings, grants
and subsidies and cash generated from operations. As we continue to grow our business, we expect to fund our operations through
multiple sources, including short- and long-term investments; loans or collaborative agreements with corporate partners, such as
our Licensing Agreement with Takeda; revenues from potential licensing arrangements future earnings and cash flow from operations
and borrowings. This expectation could change depending on how much we spend on our development programs, potential licenses or
acquisitions of complementary technologies, products or companies. We may in the future supplement our funding with further debt
or equity offerings or commercial borrowings.



On December 15, 2017 we received a positive
CHMP opinion for Cx601 to treat complex perianal fistulas in Crohn’s disease. Based on this opinion, the European Commission
granted marketing authorization for Cx601 on March 23, 2018, which triggered Takeda’s obligation to pay 15 million euros
(which we expect to receive during the second quarter of 2018). Commercialization of Cx601 in Europe will result in future royalty
payments to the Company.



On December 15, 2016 we completed our initial
public offering in the United States, totaling gross 35.7 million U.S. dollars (33.8 million euros using the certified foreign
exchange rate published by the Federal Reserve Bank of New York on December 30, 2016) gross proceeds from the sale of 2,300,000
ADSs representing 46,000,000 ordinary shares. On December 29, 2016, Takeda made a ten million euros equity investment in us by
subscribing for 11,651,778 new ordinary shares, pursuant to the terms of the Licensing Agreement.



In July 2016, we received an upfront non-refundable
payment of 25.0 million euros from Takeda in connection with our Licensing Agreement for the right to commercialize and develop
Cx601 outside of the United States.



On March 14, 2016, we raised 23.8 million
euros in gross proceeds through a private placement of 25 million new shares.



On November 27 and December 3, 2015, we
raised a total of 8.7 million euros through a private placement of 9.1 million new shares.



During 2015 we were awarded 1.3 million
euros grant from the European Commission under Horizon 2020, the European Union’s framework program for research and innovation
to conduct a clinical Phase I/II trial of Cx611 in patients with severe sepsis secondary to severe community-acquired pneumonia.
In October 2015 we received 0.6 million euros in advance of the activities needed to initiate the trial.



On March 6, 2015, we issued 9% senior unsecured
bonds due 2018 for 25.0 million euros in total principal amount, convertible into our ordinary shares, of which a total principal
amount of 18.0 million euros was outstanding as of December 31, 2017, all of which have been converted into shares as of the date
of this Annual Report. On March 14, 2016, as a result of the private placement, the conversion price for the 9% senior unsecured
convertible bonds due 2018 was adjusted from its previous level of 0.9414 euros to the new level of 0.9263 euros per share. On
December 20, 2016 the conversion price was adjusted from its previous level of 0.9263 euros per share to a new level of 0.8983
euros per share as a consequence of the initial public offering in the United States.



The bonds were guaranteed by our subsidiary
TiGenix S.A.U. We accounted for the bonds as two instruments: the host contract and the embedded derivative. As of December 31,
2017, the fair value of the embedded derivative amounted to 16.3 million euros and the amortized cost of the host contract amounted
to 17.8 million euros. The financial expense due to the changes in the fair value of the derivative during the year ended December
31, 2017 of 14.6 million euros has been recorded under “fair value losses” in our consolidated financial statements.
The host contract was amortized using the effective interest rate method on a discounted rate of 28.06%.



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On December 20, 2013, we entered into a
loan facility agreement of up to 10.0 million euros with Kreos UK, under which we borrowed 7.5 million euros during the first half
of 2014. On September 30, 2014, we borrowed the final installment of 2.5 million euros under the facility. The outstanding amount
for this facility at December 31, 2017 was 1.2 million euros of which all is short term.



The terms of the loan facility agreement
are as follows:



| | · | Term: four years from the date of each drawdown.
| | - | ------------------------------------------------



| | · | Repayment schedule: repayment of principal amount started at first anniversary.
| | - | -------------------------------------------------------------------------------



| | · | Interest: 12.5% fixed annual interest rate.
| | - | -------------------------------------------



| | · | Structure: security over certain of our assets (including a pledge over certain intellectual property and bank accounts and
a pledge of all of the outstanding capital stock of TiGenix S.A.U.); no financial covenants.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, pursuant to the terms of the
loan facility agreement, on April 22, 2014, an extraordinary meeting of shareholders issued and granted 1,994,302 new warrants
to Kreos Capital. Kreos Capital exercised its put option with respect to one-third of these warrants on May 5, 2015. The put
options with respect to the remaining two-thirds of the warrants lapsed in January 2016 due to the increase in our share price
above the strike price of the warrants.



Our borrowings also include government
loans from public and semipublic entities, such as Madrid Network. These loans have an extended repayment period of ten to fifteen
years, and are interest free or have very low interest rates, if all the terms and conditions are met. In addition, there is a
grace period of three to five years before any repayment is required under such loans.



On September 30, 2011, our subsidiary
TiGenix S.A.U. entered into a loan facility for a total value of 5.0 million euros with Madrid Network. The outstanding amount
for this facility at December 31, 2017 was 2.1 million euros of which 1.6 million euros are long term. During the year ended at
December 31, 2017 0.6 million euros were repaid. The terms of the loan were as follows:



| | · | Term: until December 31, 2026.
| | - | ------------------------------



| | · | Repayment schedule: repayment of interest and principal amount started at June 30, 2015.
| | - | ----------------------------------------------------------------------------------------



| | · | Effective interest: 1.46% fixed annual interest rate.
| | - | -----------------------------------------------------



| | · | Structure: joint and several guarantee from us.
| | - | -----------------------------------------------



The loan was granted to finance in part
our ongoing Phase III trial for Cx601 and also to cover some research and development expenses related to Cx601 from 2012
until the end of 2014. The specific activities covered for this period were agreed with Madrid Network at the time of the grant
of the loan, and any change to this plan requires approval from Madrid Network on a semi-annual basis.



On July 30, 2013, our subsidiary TiGenix
S.A.U. entered into a second loan facility for a total value of 1.0 million euros with Madrid Network. The outstanding amount
for this facility at December 31, 2017 was 0.4 million euros of which 0.3 million euros are long term. During the year ended December
31, 2017 0.1 million euros were repaid. The terms of the loan were as follows:



| | · | Term: until December 31, 2025.
| | - | ------------------------------



| | · | Repayment schedule: repayment of interest and principal amount started at June 30, 2016.
| | - | ----------------------------------------------------------------------------------------



| | · | Effective interest: 1.46% fixed annual interest rate.
| | - | -----------------------------------------------------



| | · | Structure: first demand bank guarantee for the full amount of the loan provided by Bankinter, where we maintain our primary
bank accounts in Spain.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



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This loan was granted to finance our preparatory
work to determine which new indications we should pursue with respect to Cx611, our second product candidate, the development of
the clinical protocol for such new indications and the initial expenses of the clinical trials for such indications from July 2013
until the end of 2014. The specific activities covered for this period were agreed with Madrid Network at the time of the grant
of the loan and any change to this plan requires approval from Madrid Network on a semi-annual basis. We completed the activities
agreed with Madrid Network under both loans by December 31, 2014, and therefore fully recognized as grant income on our income
statement the benefit received by being able to borrow these sums at a below-market rate of interest (measured as the difference
between the proceeds received and the fair value of the loan based on prevailing market interest rates), in an amount of 2.8 million
euros for the first loan and 0.6 million euros for the second loan.



We have experienced net losses and significant
cash used in operating activities over the past years. As of December 31, 2017, we had an accumulated deficit of 189.9 million
euros, and for the year ended December 31, 2017 we had a net loss of 74.8 million euros and net cash used in operating activities
of 30.3 million euros. As of December 31, 2016, we had an accumulated deficit of 116.2 million euros and for the year ended December
31, 2016 we had a net income of 3.8 million euros and net cash from operating activities of 3.5 million euros. We currently have
several product candidates in clinical development but we have no commercial product that generates revenues through royalties.
We, therefore, expect to incur net losses and to have significant cash outflows for at least the next year.



These conditions, among others, raise substantial
doubt about our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming
that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction
of our liabilities in the normal course of business.



As of December 31, 2017, we had cash and cash equivalents of
34.1 million euros. In addition, after receiving marketing authorization from the European Commission for Cx061 on March 23, 2018,
TiGenix expects to receive 15 million euros from Takeda as a milestone payment under the Licensing Agreement during the second
quarter of 2018. Our board of directors is of the opinion that this cash position is sufficient to continue operating through the
next 12 months, but we will require significant additional cash resources to launch new development phases of existing projects
in our pipeline.



In order to be able to launch such new
development phases, we intend to obtain on a timely basis either additional non-dilutive funding, such as from establishing commercial
relationships, dilutive funding or both. In the last quarter of 2017 we started negotiations with the European Investment Bank
in order to obtain a 25 million euro loan from its program “InnovFin” (loans to innovative business with fewer than
3,000 employees to support the growth and investments in research and innovation).



Our future viability is dependent on the
following:



| | · | our ability to generate cash from operating activities;
| | - | -------------------------------------------------------



| | · | our ability to raise additional capital to finance our operations;
| | - | ------------------------------------------------------------------



| | · | our ability successfully to obtain regulatory approval to allow marketing of our products; and
| | - | ----------------------------------------------------------------------------------------------



| | · | our ability to enter into licensing arrangements to distribute our products or product candidates.
| | - | --------------------------------------------------------------------------------------------------



Our failure to raise capital as and when
needed could have a negative impact on our financial condition and ability to pursue our business strategies.



We have based this estimate on assumptions
that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Because of the numerous
risks and uncertainties associated with the development and commercialization of our product candidates, and the extent to which
we may enter into collaborations with third parties for development and commercialization of our product candidates, we are unable
to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our current
product candidates. Our future capital requirements will depend on many factors, including the following:



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| | · | the scope, progress, results and costs of pre-clinical development, laboratory testing and clinical trials for our other product
candidates;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | the extent to which we acquire or in-license other products and technologies;
| | - | -----------------------------------------------------------------------------



| | · | our ability successfully to out-license our products or product candidates in certain markets;
| | - | ----------------------------------------------------------------------------------------------



| | · | the cost, timing and outcome of regulatory review of our product candidates in the United States, Europe or elsewhere;
| | - | ----------------------------------------------------------------------------------------------------------------------



| | · | the cost and timing of completing the technology transfer to contract manufacturing organizations in the United States and
other international markets;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the costs of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any
of our product candidates for which we receive marketing authorization;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | any additional revenue received from commercial sales of our products, should any of our product candidates receive marketing
approval;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



| | · | the cost of preparing, filing, prosecuting, defending and enforcing patent applications, maintaining and enforcing our intellectual
property rights and defending intellectual property-related claims;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the cost of obtaining favorable pricing, market access, funding or reimbursement terms from public and private payers for our
products; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



| | · | our ability to establish any future collaboration arrangements on favorable terms, if at all.
| | - | ---------------------------------------------------------------------------------------------



We have also incurred costs as a U.S.-listed
public company that we did not previously incur, including, but not limited to, costs and expenses for increased personnel costs,
audit and legal fees, expenses related to compliance with the Sarbanes-Oxley Act of 2002 and the rules implemented by the SEC and
Nasdaq and various other costs.



These factors raise uncertainty about our
ability to continue as a going concern. The consolidated financial statements included elsewhere in this Annual Report have been
prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and
the satisfaction of liabilities in the normal course of business.



The consolidated financial statements included
elsewhere in this Annual Report do not include any adjustments due to this uncertainty relating to the recoverability and classification
of recorded asset amounts and classification of liabilities that might be necessary should we be forced to take any actions.



Our liquidity plans are subject to a number
of risks and uncertainties, including those described in the section of this Annual Report entitled “Risk Factors,”
some of which are outside of our control.



Cash Flows



The following table shows the Company’s
cash flows for the years ended December 31, 2017, 2016 and 2015:



|                                                      |  | As at December 31,     
|----------------------------------------------------- |  | -----------------------
|                                                      |  | 2017                   
|                                                      |  | (in thousands of euros)
|Net cash (used in) /provided by operating activities  |  |                        
|Net cash (used in) / provided by investing activities |  |                        
|Net cash provided by financing activities             |  |                        
|Cash and cash equivalents at end of year              |  |                        

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Comparison of the Years Ended December 31,
2017 and 2016



Net cash used in operating activities was
30.3 million euros for the year ended December 31, 2017 compared to cash generated from operating activities of 3.5 million euros
for the year ended December 31, 2016. This variation was mainly due to the Licensing Agreement with Takeda, which increased operating
income in 2016 by 25.0 million euros. In addition, higher operating expenses were incurred during the year ended December 31, 2017
due to the research and development activities related to the filing for marketing authorization for Cx601 in Europe, the launching
of the Phase III trial of Cx601 in the United States, activities in connection with the Cx611 clinical trial in Phase II for severe
sepsis and other general and administrative expenses including certain expenses related to the U.S. Sarbanes-Oxley Act and U.S.
reporting obligations and the license agreement signed with Mesoblast in December 2017 (including a five-million euros upfront
non-refundable payment on December 14, 2017).



Net cash used in investing activities was
7.8 million euros for the year ended December 31, 2017 compared to cash generated of 0.5 million euros for the year ended December
31, 2016. The variation is mainly due to the acquisition of Mesoblast license at year-end 2017 which resulted in a first payment
of 4.7 million euros, the capacity increase works which generated payments of 1.7 million euros more in 2017 than in 2016 and the
0.8 million euros payment done by PharmaCell in 2016 in respect of the last tranche payment of the sale of TiGenix BV in 2014 (no
cash inflows from PharmaCell in 2017).



Net cash used in financing activities was
5.8 million euros for the year ended December 31, 2017 compared to 55.9 million euros of net cash generated from financing activities
for the year ended December 31, 2016. During the year ended December 31, 2017 we received 1.0 million euros from capital increases
and 0.4 million euros of transactions with own shares and we repaid 7.6 million euros in principal and interest on financial loans
and 0.3 million euros in issuance’s costs of equity instruments. During the year ended December 31, 2016, we raised net proceeds
of 22.1 million euros from a private placement in March 2016, 31.7 million euros from our initial public offering in the United
States in December 2016, and 10.0 million euros from the equity investment from Takeda during December 2016. The costs of issuance
of the equity instruments were 5.7 million euros and we repaid 7.3 million euros in principal and interest on financial loans.



Comparison of the Years Ended December 31,
2016 and 2015



Net cash generated from operating activities
was 3.5 million euros for the year ended December 31, 2016 compared to cash used in operating activities of 19.6 million euros
for the year ended December 31, 2015. This variation was mainly due to the Cx601 license deal with Takeda, which increased operating
income by 25.0 million euros. This higher income was partially offset by higher operating expenses incurred during the year ended
December 31, 2016 due to the research and development activities related to the filing for marketing authorization for Cx601 in
Europe, preparation for the Phase III trial of Cx601 in the United States, activities in connection with the Phase I/II for AlloCSC01
for acute myocardial infarction and other general and administrative expenses including certain expenses related to the U.S. initial
public offering process and the license agreement with Takeda.



Net cash generated from investing activities
was 0.5 million euros for the year ended December 31, 2016 compared to an outflow of 4.4 million euros for the year ended December
31, 2015. This cash is derived from the use in 2016 of an escrow account to pay 2.2 million euros interest in connection with the
9% senior unsecured convertible bonds due 2018, and a final payment from PharmaCell of 0.8 million euros for the sale in 2014 of
our Dutch manufacturing facility. These inflows were partially offset by the investment in property, plant and equipment for our
facility in Madrid, with the goal of increasing our manufacturing capacity. The principal outflows during 2015 related to the acquisition
of Coretherapix. Part of the payment was in cash for a total amount of 1.2 million. In addition, we transferred 3.4 million euros
received from our issuance of 9% senior unsecured convertible bonds due 2018 into an escrow account partly classified as “other
non-current assets” and partly as “other current financial assets” for the purposes of the interest payment on
the convertible bonds.



Net cash generated from financing activities
was 55.9 million euros for the year ended December 31, 2016 compared to 28.5 million euros for the year ended December 31, 2015,
an increase of 96%. During the year ended December 31, 2016, we raised net proceeds of 22.1 million euros from a private placement
in March 2016, 31.7 million euros from our initial public offering in the United States in December 2016, 10.0 million euros from
the equity investment from Takeda during December 2016 and 1.1 million euros in government loans and grants. The costs of issuance
of the equity instruments were 5.7 million euros and we repaid 7.3 million euros in principal and interest on financial loans.
Inflows from financing activities in 2015 were derived from the issuance of convertible



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bonds
in March 2015, for an amount of 25.0 million euros, and the private placements in November and December 2015, which raised 8.7
million euros in gross proceeds. These inflows were partially offset by costs of 1.6 million euros relating to the issuance of
the convertible bonds and the private placements, interest expense of 2.2 million euros and 2.7 million euros used to repay principal
on outstanding loans.



| | C. | Research and Development, Patents and Licenses, etc.
| | -- | ----------------------------------------------------



See “Item 4. Information on the
Company—A. History and Development of the Company” and “Item 4. Information on the Company—B. Business
Overview.”



| | D. | Trend Information
| | -- | -----------------



See “Item 5. Operating and Financial
Review and Prospects.”



| | E. | Off-Balance Sheet Arrangements
| | -- | ------------------------------



We do not have any special purpose or limited
purpose entity that provides off-balance sheet financing, liquidity or market or credit risk support, and we have not engaged in
hedging or other relationships that expose us to liability that is not reflected in our consolidated financial statements.



Our wholly owned subsidiary TiGenix Inc.
guarantees the operating lease payments of Cognate BioServices for the building leased in the United States. Cognate BioServices
was the party with whom we entered into a joint venture in 2007, from which we withdrew on November 23, 2010.



| | F. | Tabular Disclosure of Contractual Obligations
| | -- | ---------------------------------------------



The following table details the remaining
contractual maturity for our financial liabilities with agreed repayment periods, including both interest and principal cash flows
as of December 31, 2017:



|                                          |  | Within one year         |        | 1 - 3 years |  | 3 - 5 years |       | After 5 years |  | Total
|----------------------------------------- |  | ----------------------- | ------ | ----------- |  | ----------- | ----- | ------------- |  | -----
|                                          |  | (in thousands of euros)
|Non-interest bearing                      |  |                         | 471    |             |  |             | 942   |               |  |      
|Fixed interest rate borrowings (1.46%)    |  |                         | 675    |             |  |             | 1,350 |               |  |      
|Fixed interest rate borrowings (0.33%)    |  |                         | —      |             |  |             | 188   |               |  |      
|Fixed interest rate borrowings (Kreos UK) |  |                         | 1,324  |             |  |             | —     |               |  |      
|Fixed interest rate borrowings (Bonds)    |  |                         | 18,810 |             |  |             | —     |               |  |      
|Leasings                                  |  |                         | 169    |             |  |             | 48    |               |  |      
|Total                                     |  |                         | 21,449 |             |  |             | 2,528 |               |  |      





On July 31, 2015, we acquired Coretherapix
from Genetrix for an upfront payment of 7.3 million euros, of which 1.2 million euros was paid in cash and 6.1 million euros was
paid in the form of 7.7 million of our ordinary shares. In addition, in July 2017 TiGenix paid to Genetrix five million euros in
new ordinary shares (because of the result of the clinical trial in March 2017).



TiGenix most advanced product is Cx601,
which received a positive CHMP opinion on December 15, 2017. With Cx601 now having received a positive regulatory opinion in Europe,
TiGenix reviewed its pipeline priorities beyond the continued commitment to the development of Cx601 for the U.S. market and Cx611
for sepsis. The Company is of the opinion that Cx601 has great potential in other indications and that it will deliver greater
shareholder value by directing its resources to targeted trials in those areas. Given the focus on Cx601 and the allogeneic adipose-derived
stem cell technology, TiGenix has put on-hold its R&D investing efforts for its allogeneic cardiac stem cell technology.



As a consequence, the contingent consideration
has been cancelled. All future payment commitments included in this consideration were based on the probability of licensing the
product or in its commercial marketing approval. As of the date of this Annual Report, management is of the opinion that none of
these possibilities are feasible.



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Item 6. Directors, Senior Management and Employees



A.       Directors and
Senior Management



Our Board of Directors



The following table sets forth certain
information with respect to the current members of our board of directors as of December 31, 2017:



|Name                                                                            | Position                            | Age | Term(1)
|------------------------------------------------------------------------------- | ----------------------------------- | --- | -------
|Innosté SA, represented by Jean Stéphenne(2)(3)                                 | Chairman / Independent director     | 68  | 2020   
|Eduardo Bravo Fernández de Araoz                                                | Managing Director (executive) / CEO | 52  | 2019   
|Willy Duron(2)                                                                  | Independent director                | 72  | 2019   
|Greig Biotechnology Global Consulting, Inc., represented by Russell Greig(2)(3) | Independent director                | 65  | 2020   
|June Almenoff(3)                                                                | Independent director                | 61  | 2019   








Notes:



| | (1) | The term of the mandates of the directors will expire immediately after the annual meeting of shareholders held in the year
set forth next to the director’s name.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Member of the audit committee.
| | --- | ------------------------------



| | (3) | Member of the nomination and remuneration committee.
| | --- | ----------------------------------------------------



The business address of the members of
the board of directors is the same as our business address: Romeinse straat 12, box 2, 3001 Leuven, Belgium.



Our board of directors has determined that
four out of five of the members of the board are independent under Belgian law and the Nasdaq Stock Market listing requirements.
There are no family relationships between the members of the board.



The following is the biographical information
of the members of our board of directors or in case of legal entities being director, their permanent representatives:



Jean Stéphenne, permanent representative of Innosté SA:
Chairman and Independent Director



Jean Stéphenne was, until April
2012, a member of the corporate executive team of GlaxoSmithKline and Chairman and President of GSK Biologicals in Wavre, Belgium,
which he built into a world leader in vaccines. He currently serves as Chairman of Bone Therapeutics, Vesalius Biocapital, Nanocyl,
Bepharbel and OncoDNA; as board member of Besix, NSide, Curevac, Vaxxilon, Merieux Development, Ronveaux and the Belgian Foundation
against Cancer; and as president of Welbio and Foundation University Louvain. Previously, Mr. Stéphenne served as Chairman
of BioWin and as a board member of Auguria Residential Real Estate Fund, BNP Paribas Fortis, Groupe Bruxelles Lambert, VBO/FEB
and Theravectys.



Eduardo Bravo: Chief Executive Officer and Managing Director
(executive)



Mr. Eduardo Bravo has more than 26 years’
experience in the biopharmaceutical industry. He has been Chief Executive Officer of TiGenix since May 2011. Prior to joining TiGenix
in 2005, he held several senior management positions at Sanofi-Aventis, including Vice President for Latin America. Prior to his
tenure at Sanofi-Aventis, Mr. Bravo spent seven years at SmithKline Beecham in commercial positions. Mr. Bravo holds
a degree in Business Administration and an MBA (INSEAD). He is President of EBE (European Biopharmaceutical Enterprises) and member
of the Executive Committee of ARM (Alliance for Regenerative Medicine).



Willy Duron: Independent Director



Mr. Willy Duron has been an independent
member of our board of directors since February 2007. He served as Chairman from September 2007 to September 2012. He started his
career at ABB Verzekeringen in 1970, becoming



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a
member of the executive committee in 1984. Mr. Duron holds a MSc degree in mathematics from the University of Ghent and a
MSc degree in actuarial sciences from the Katholieke Universiteit Leuven. Currently, he is a member of the board of directors
of Agfa-Gevaert. In addition, he serves as Chairman of the board of Van Lanschot Bankiers and Windvision. Previously, Mr. Duron
was Chief Executive Officer of KBC Groep and KBC Bankverzekeringsholding, Chairman of the board of Argosz, Secura, ADD and W&K,
as well as member of the board of directors of KBC Asset Management, Synes, CSOB, Warta, FBD, Amonis, Universitair Centrum St Jozef
Kortenberg,Vanbreda Risk & Benefits, Ravago NV, Universitaire Ziekenhuizen Leuven, Zorg KU Leuven and Ethias.



Russell Greig, permanent representative of Greig Biotechnology
Global Consulting, Inc.: Independent Director



Dr. Russell Greig worked at GlaxoSmithKline
for three decades, most recently as President of SR One, GlaxoSmithKline’s corporate venture group. Prior to joining SR One,
he served as President of GlaxoSmithKline’s Pharmaceuticals International from 2003 to 2008 as well as on the GlaxoSmithKline
corporate executive team. Currently, Dr. Greig serves as Chairman of: Ablynx in Belgium, AM Pharma and Mint Solutions
in the Netherlands, eTheRNA in Belgium and Sanifit in Spain. He was previously Chairman of Isconova in Sweden (acquired by Novavax,
United States), Novagali in France (acquired by Santen, Japan), Syntaxin in the United Kingdom (acquired by Ipsen, France) and
Bionor in Norway, as well as board member of Oryzon in Spain and Onxeo Pharma (previously BioAlliance Pharma) in France, and a
venture partner at Kurma Life Sciences (Paris, France).



June Almenoff: Independent Director



Dr. June S. Almenoff is an accomplished
executive with 21 years of experience in the pharmaceutical industry. Dr. Almenoff is Chief Operating Officer and Chief Medical
Officer of Innovate Biopharmaceuticals (Nasdaq: INNT) and independent director of BrainStorm Cell Therapeutics (Nasdaq: BCLI),
Ohr Pharmaceuticals (Nasdaq: OHRP) and RDD Pharma. She is also on the investment advisory board of the Harrington Discovery Institute
(Univ. Hospitals Cleveland) and has served as an advisor to private life-sciences companies. She has extensive expertise in clinical
development, translational medicine and business development. Dr. Almenoff recently served as President and CMO of Furiex
Pharmaceuticals which was acquired by Actavis PLC in 2014. From 1997 to 2010, Dr. Almenoff held positions of increasing responsibility
at GlaxoSmithKline, including Vice-President in the clinical safety organization. Dr. Almenoff received her B.A. from Smith College
and graduated from the M.D.-Ph.D. program at the Icahn (Mt. Sinai) School of Medicine with honors. She completed post-graduate
medical training at Stanford University Medical Center and served on the faculty of Duke University School of Medicine. Dr. June
Almenoff is currently a Consulting Professor at Duke and a Fellow of the American College of Physicians.



Our Executive Management



The following table sets forth certain
information with respect to the current members of our executive management as of December 31, 2017:



|Name                             | Position                                      | Age
|-------------------------------- | --------------------------------------------- | ---
|Eduardo Bravo Fernández de Araoz | Managing Director and Chief Executive Officer | 52 
|Claudia D’Augusta                | Chief Financial Officer                       | 48 
|Wilfried Dalemans                | Chief Technical Officer                       | 60 
|Marie Paule Richard              | Chief Medical Officer                         | 63 





The business address of the members of
the executive management is the same as our business address: Romeinse straat 12, box 2, 3001 Leuven, Belgium.



There is no potential conflict of interest
between the private interests or other duties of the members of the executive management listed above and their duties to us. There
is no family relationship between any of our directors and members of our executive management.



Below are the biographies of those members
of our executive management who do not also serve on our board of directors:



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Claudia D’Augusta: Chief Financial Officer



Dr. Claudia D’Augusta has more
than 19 years of experience in the field of corporate finance. After completing her degree in Economics and a Ph.D. in Business
Administration at the University of Bocconi, Italy, she joined the corporate finance department of Deloitte & Touche in
Milan. She later joined Apax Partners in Madrid, where she participated in the origination and execution of M&A transactions.
She was subsequently finance director of Aquanima (Santander Group). Dr. D’Augusta was a member of the board of directors
of Sensia S.L. from April 2005 until April 2008. Currently she is a member of the board of directors of ReNeuron Group plc.



Wilfried Dalemans: Chief Technical Officer



Dr. Wilfried Dalemans holds a Ph.D.
in molecular biology from the Universities of Hasselt and Leuven. Before joining TiGenix, Dr. Dalemans held several senior
management positions at GlaxoSmithKline Biologicals, Belgium. As director of regulatory strategy and development, he was responsible
for the worldwide registration of GlaxoSmithKline’s flu franchise. With this firm, he also served as director of molecular
biology and research, responsible for the development of nucleic acid and tuberculosis vaccines, as well as immunology research
activities. Prior to joining GlaxoSmithKline, Dr. Dalemans worked at Transgène, France, where he was responsible for
the cystic fibrosis research program. Dr. Dalemans also served as a supervisory director of Arcarios B.V. and a director
of Arcarios NV.



Marie Paule Richard: Chief Medical Officer



Dr. Marie Paule Richard has spent
more than 26 years in senior executive positions in pharmaceutical and biotechnology companies. She has held international management
positions at Bristol-Myers Squibb, Sanofi, GlaxoSmithKline, Sanofi Pasteur and Crucell. Prior to joining TiGenix, Dr. Richard
was Chief Medical Officer at AiCuris GmbH, Germany. She has gained global and extensive experience of clinical development
strategy and operations across all phases of development, regulatory affairs and pharmacovigilance, involving numerous anti-infective
and immunomodulatory drugs and biologicals, as well as the life-cycle management of marketed products. She has obtained several
drug approvals and international license renewals in both Europe and the United States. Dr. Richard holds a medical degree
from the University of Nancy, France, and, among other qualifications, a certification in Clinical Immunology. She currently is
a member of the supervisory board of Nosopharm in Lyon, France.



General Information About Our Directors and Our Executive
Management



As of the date of this Annual Report and
except as set out below, none of the directors or members of our executive management or, in case of corporate entities being director,
none of their permanent representatives, for at least the previous five years, meet the following criteria:



| | · | holds any convictions in relation to fraudulent offenses;
| | - | ---------------------------------------------------------



| | · | held an executive function in the form of a senior manager or a member of the administrative, management or supervisory bodies
of any company at the time of or preceding any bankruptcy, receivership or liquidation (except for Jean Stéphenne, who was
a member of the board of directors of Auguria Residential Real Estate Fund, which is currently in liquidation and except for Wilfried
Dalemans who was a supervisory director of Arcarios B.V., which was liquidated in 2016 and ceased to exist as of December 30, 2016,
and a director of Arcarios NV, which was dissolved and liquidated as of December 28, 2015);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | has been subject to any official public incrimination and/or sanction by any statutory or regulatory authority (including any
designated professional body); or
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | has ever been disqualified by a court from acting as member of the administrative, management or supervisory bodies of any
company or from acting in the management or conduct of affairs of any company.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | B. | Compensation
| | -- | ------------



Compensation of our Board of Directors



The nomination and remuneration committee
recommends the level of remuneration for independent directors, including the chairman of the board, subject to approval by our
board of directors and, subsequently, by our shareholders at their annual general meeting.



The directors’ remuneration
was last determined by the meeting of shareholders of May 9, 2017. Currently, each independent director receives a
fixed annual fee of 25,000 euros. The chairman receives 40,000 euros. Each independent director that is also a
member of a committee receives an additional fixed annual fee of 5,000 euros, or 7,500 euros for each independent
director that is also the chairman of a committee. The fixed annual fees are based on the assumption that we will have six
board meetings and two committee meetings per committee each year. Independent directors receive an additional
2,000 euros for each board meeting exceeding six meetings per year and for each committee meeting exceeding two meetings
per year, provided that the board of directors determines that such additional meetings qualify for this additional fee.
Independent directors are also entitled to a reimbursement of out-of-pocket expenses actually incurred to participate in our
board meetings. The level of reimbursement is expected to remain fixed through 2018 and 2019. If, however, the Tender Offer
is successful, and to the extent permitted by applicable law, Takeda may consider implementing a simpler and lighter
governance structure in TiGenix. If following the closing of the Tender Offer Takeda succeeds in causing the Company to
delist its shares from Euronext Brussels and to delist its ADSs from the Nasdaq Global Select Market, it is likely that there
will be changes to the structure and remuneration of the Board of Directors. We have currently no visibility on these
potential changes.



On February 26, 2013, the meeting
of shareholders approved the principle that our independent directors may receive performance related remuneration and approved
the issue and grant of 54,600 warrants (which were effectively issued by the meeting of shareholders on March 20, 2013) to
each of the independent directors. On June 2, 2016, the meeting of shareholders approved the grant of 49,863 warrants to the
chairman of our board of directors and 48,000 warrants to each of the other independent directors as of that date. On May 9, 2017,
the meeting of shareholders approved the grant of 48,000 warrants to June Almenoff, independent director since September 21, 2016.



The nomination and remuneration committee
benchmarks the compensation of our independent directors against peer companies to ensure that it is competitive. Remuneration
is linked to the time committed to the board of directors and its various committees.



The following table sets forth the fees
received by our independent directors for the performance of their mandate as a board member, not as a member of a board committee,
during the year ended December 31, 2017:



|                                                                          | Fee
        (in euros)
|------------------------------------------------------------------------- | ----------------------
|Name:                                                                     |                       
|Willy Duron                                                               | 43,000                
|Greig Biotechnology Global Consulting, Inc., represented by Russell Greig | 39,000                
|Innosté SA, represented by Jean Stéphenne                                 | 56,000                
|June Almenoff                                                             | 37,000                
|Total                                                                     | 175,000               



The following table sets forth the fees
received by our independent directors as members of the audit committee for the performance of their mandate during the year ended
December 31, 2017:



|Name                                                                         | Position                                                                                | Fee
        (in euros)
|---------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ----------------------
|Willy Duron                                                                  | Chairman of the audit committee; Independent Director                                   | 11,500                
|Innosté SA, represented by Jean Stéphenne                                    | Member of the audit committee; Chairman of the Board of Directors; Independent Director | 9,000                 
|Greig Biotechnology Global Consulting, Inc., represented by Russell G. Greig | Member of the audit committee; Independent Director                                     | 9,000                 
|Total                                                                        | 29,500                                                                                 

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The following table sets forth the fees
received by our independent directors as members of the nomination and remuneration committee for the performance of their mandate
during the year ended December 31, 2017:



|Name                                                                      | Position                                                                  | Fee
        (in euros)
|------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------
|Greig Biotechnology Global Consulting, Inc., represented by Russell Greig | Member of the nomination and remuneration committee; Independent Director | 11,500                
|Innosté SA, represented by Jean Stéphenne                                 | Member of the nomination and remuneration committee; Independent Director | 9,000                 
|June Almenoff                                                             | Member of the nomination and remuneration committee; Independent Director | 9,000                 
|Total                                                                     | 29,500                                                                   

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The table below provides an overview as
of December 31, 2017 of the shares and warrants held by the independent and other non-executive directors:



|                                                                          |  | Shares |       | Warrants |  | Total shares and warrants
|------------------------------------------------------------------------- |  | ------ | ----- | -------- |  | -------------------------
|                                                                          |  | Number |       | %(1)     |  | Number                   
|Willy Duron                                                               |  |        | 6,000 |          |  |                          
|Greig Biotechnology Global Consulting, Inc., represented by Russell Greig |  |        | 0     |          |  |                          
|Innosté SA, represented by Jean Stéphenne                                 |  |        | 0     |          |  |                          
|June Almenoff                                                             |  |        | 0     |          |  |                          
|Total                                                                     |  |        | 6,000 |          |  |                          






Notes:



| | (1) | Calculated on the basis of the total number of issued voting financial instruments on December 31, 2017.
| | --- | --------------------------------------------------------------------------------------------------------



| | (2) | Calculated on the basis of the total number of outstanding warrants that can be converted into voting financial instruments
on December 31, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Calculated on the basis of the sum of (i) the total number of issued voting financial instruments on December 31,
2017 and (ii) the total number of outstanding warrants that can be converted into voting financial instruments on December 31,
2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Compensation of our Executive Management



The remuneration of our executive management
is determined by the board of directors based on the recommendation by the nomination and remuneration committee, who receive a
recommendation from our Chief Executive Officer.



The remuneration of the members of the
executive management currently consists of different components:



| | · | Fixed remuneration:A basic fixed fee designed to fit responsibilities, relevant experience and competences, in line
with market rates for equivalent positions. The amount of fixed remuneration is evaluated and determined by the board of directors
every year.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Short-term variable remuneration:A variable fee in cash dependent on the individual, team or company performances in
a certain year. The maximum short-term variable remuneration, or maximum bonus, is set at a percentage of the fixed annual remuneration,
and is not spread in time. The maximum bonus of the Chief Executive Officer is set at 104% of his yearly fixed remuneration. The
maximum bonus of the Chief Financial Officer and the Chief Medical Officer is set at 52% of their fixed annual remuneration. The
maximum bonus of the Chief Technical Officer is set at 45.5% of his fixed annual remuneration. The individual, team or company
objectives that determine the amount of the bonus are determined at the beginning of each year and are set on measurable parameters
that can include sales, corporate development transactions and clinical trials (e.g., numbers of patients included in a
trial, timing of interim or final results). Each member of our executive management has a number of objectives and each objective
represents a pre-identified percentage of the overall potential bonus (with all objectives together representing 100% of the potential
bonus). Every year, typically during the month of January or February, the Board of Directors (upon recommendation by the nomination
and remuneration committee, following a recommendation by the CEO to such committee) evaluates and determines the extent to which
the various objectives have been met and determines the amount of the variable remuneration (as the sum of the percentages allocated
to the objectives that have been met). Based on the performance of our employees during 2017 and the consequent positive evolution
of the Company’s activities, including the positive CHPM opinion obtained in December 2017, the Board of Directors decided
on January 4, 2018 to approve annual bonuses of 100% of the annual target bonuses for all employees of the TiGenix group, including
management and the CEO, for the year 2017.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Long-term incentive plan:Warrants have been granted and may be granted in the future, to the members of the executive
management team.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| | · | Other benefits:Members of the executive management who are salaried employees may be entitled to a number of perquisites,
which may include participating in a defined contribution pension or retirement scheme, disability insurance, a company car, a
mobile telephone, a laptop computer or a lump-sum expense allowance according to general company policy, and other collective benefits
(such as hospitalization insurance and meal vouchers).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The members of the executive management
do not receive any remuneration based on our overall financial results or any long-term variable remuneration in cash.



Pursuant to the Offer and Support Agreement,
if the Tender Offer is successfully completed we intend to award a one-off payment of an incentive bonus with a total cost for
the Company (including any taxes and/or employee social security contributions) of 1% of the total consideration (approximately
5.2 million euros), in cash, offered by Takeda, to certain of our key employees, including the members of the executive management.



Eduardo Bravo, our Chief Executive Officer,
has been appointed chief executive officer of our subsidiary, TiGenix S.A.U., on the basis of his corporate responsibility as a
member of the board of directors of TiGenix S.A.U. and as managing director (consejero delegado) governed by applicable
Spanish Law on capital companies (Ley de Sociedades de Capital). His relationship with TiGenix S.A.U. can be terminated
at any time without notice, subject to the payment, in case TiGenix S.A.U. terminates the relationship, of a termination fee equal
to his annual remuneration at such time. An additional termination fee of a maximum of two years’ annual remuneration is
payable in case the relationship is terminated by TiGenix S.A.U. within one year of a corporate transaction involving the Company
(such as a merger, sale of shares, sale of assets, etc.).



Claudia D’Augusta, our Chief Financial
Officer, has an employment contract with our subsidiary, TiGenix S.A.U. Her employment contract is for an indefinite term and may
be terminated at any time, subject to a three month notice period and, in case TiGenix S.A.U. terminates the agreement, she is
entitled to a severance payment of a minimum of nine months’ remuneration. An additional severance payment of a maximum of
a year’s annual remuneration is payable in certain cases, including unfair or collective dismissal by TiGenix S.A.U., and
termination of the employment agreement by Claudia D’Augusta following certain geographical transfer or substantial modifications
to the working conditions made by TiGenix S.A.U.



Wilfried Dalemans, our Chief Technical
Officer, has an employment contract with the Company. His employment contract is for an indefinite term and may be terminated at
any time by us, subject to a notice period and a severance payment in accordance with applicable law.



Marie Paule Richard, our Chief Medical
Officer, has an employment contract with our subsidiary, TiGenix S.A.U. Her employment contract is for an indefinite term and may
be terminated at any time by us, subject to either a three month notice period, or compensation equal to three months fixed salary,
or a combination of both.



The following table sets forth information
concerning the compensation received during the year ended December 31, 2017, by Eduardo Bravo as our Chief Executive Officer:



|                                   |  | Compensation (in euros)
|---------------------------------- |  | -----------------------
|Fixed remuneration (gross)         |  |                        
|Variable remuneration (short term) |  |                        
|Pension/Life                       |  |                        
|Other benefits                     |  |                        
|Total                              |  |                        





We pre-pay the Belgian salary taxes payable
by our Chief Executive Officer, Eduardo Bravo, on the part of his remuneration that is taxable under Belgian law, until such amounts
are refunded (on an annual basis) by the Spanish tax authorities, at which time he repays the relevant amounts.



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In addition, in 2017 Eduardo Bravo (in
his capacity as CEO) was granted, purchased and exercised 78,810 options under an equity based incentive plan (“EBIP”)
in return for which he received 78,810 TiGenix NV shares. He was further granted and accepted 622,477 warrants. Except for the
exercise of the EBIP options, Eduardo Bravo did not exercise any warrants, options on shares or rights to acquire shares in 2017,
and none of his warrants expired in 2017.



The following table sets forth information
concerning the compensation received during the year ended December 31, 2017 by the other members of the executive management:



|                                   |  | Compensation (in euros)
|---------------------------------- |  | -----------------------
|Fixed remuneration (gross)         |  |                        
|Variable remuneration (short term) |  |                        
|Pension/Life                       |  |                        
|Other benefits                     |  |                        
|Total                              |  |                        



In addition, in 2017, Claudia D’Augusta
and Wilfried Dalemans were granted, purchased and exercised 48,498 and 42,447 EBIP options respectively, in return for which they
received 48,498 and 42,447 TiGenix NV shares respectively. Marie Paule Richard was granted 45,472 EBIP options but did not accept
them. Claudia D’Augusta, Wilfried Dalemans and Marie Paule were further granted and accepted 440,000, 320,000 and 340,000
warrants respectively. Except for the exercise of the EBIP options, the members of executive management did not exercise any warrants,
options on shares or rights to acquire shares in 2017. Except for 80,000 warrants held by Wilfried Dalemans, none of the warrants
of the members of executive management expired in 2017.



The table below provides an overview, as
of December 31, 2017, of the shares and warrants held by the executive management:



|                         |  | Shares |         | Warrants |  | Total shares and warrants
|------------------------ |  | ------ | ------- | -------- |  | -------------------------
|                         |  |        | Number  |          |  |                          
|Eduardo Bravo, CEO       |  |        | 622,621 |          |  |                          
|Claudia D’Augusta, CFO   |  |        | 301,029 |          |  |                          
|Wilfried Dalemans, CTO   |  |        | 32,447  |          |  |                          
|Marie Paule Richard, CMO |  |        | –       |          |  |                          
|Total                    |  |        | 956,097 |          |  |                          








Notes:



| | (1) | Calculated on the basis of the total number of issued voting financial instruments on December 31, 2017.
| | --- | --------------------------------------------------------------------------------------------------------



| | (2) | Calculated on the basis of the total number of granted and outstanding warrants that can be converted into voting financial
instruments on December 31, 2017.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Calculated on the basis of the sum of (i) the total number of issued voting financial instruments on December 31,
2017 and (ii) the total number of granted and outstanding warrants that can be converted into voting financial instruments
on December 31, 2017.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Irrevocable Undertakings



On January 4, 2018 Takeda entered into
irrevocable undertakings with the members of the board of directors and the Chief Financial Officer of the Company pursuant to
which, subject to certain terms and conditions, they agreed to tender into, and not withdraw from, the Tender Offer all equity
interests owned by them within five business days from publication of the Prospectus.



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Stock Options, Warrants and Other Incentive Plans



We created several warrants within the
context of stock option plans as well as equity incentive plans for our directors, managers, employees as well as other external
consultants and collaborators such as scientific advisory board members and clinical advisors.



Our Warrant Plans



We have established a number of warrants
plans, under which we have granted warrants free of charge to the recipients. Each warrant entitles its holder to subscribe to
one of our ordinary shares at a subscription price determined by the board of directors, within the limits decided upon at the
occasion of their issuance.



Generally, unless the board of directors
at the time of the grant of the warrant determines a higher exercise price, the exercise price of a warrant will be equal to the
lower of the following prices:



| | · | the last closing price of our shares on Euronext Brussels prior to the date on which the warrant is offered; and
| | - | ----------------------------------------------------------------------------------------------------------------



| | · | the average closing price of our shares on Euronext Brussels over the 30-day period preceding the date on which the warrant
is offered.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------



For beneficiaries of the warrant plan that
are not employees of our group, the exercise price cannot be lower than the average closing price of our shares on Euronext Brussels
over the 30-day period preceding the date of issuance of the warrants.



For our warrants issued in July 2012 and
in March 2013, however, our board determined a higher exercise price of 1.00 euro per warrant.



For our December 2013 warrant plan, under
which warrants were issued and granted on December 16, 2013, the exercise price was determined as follows:



| | · | for all employees, the exercise price was set at 0.46 euro, the closing price of our ordinary shares on December 13,
2013, the last closing price prior to the grant of the warrants on December 16, 2013, which was lower than the 30-day average
price; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for our CEO, Eduardo Bravo, who is not an employee of TiGenix S.A.U., the exercise price was set at 0.50 euro, the average
closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants on December 16, 2013.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For our December 2015 warrant plan, under
which warrants were issued and granted on December 7, 2015, May 4, 2016, June 2, 2016 and September 6, 2016,
the exercise price was determined as follows:



| | · | for all employees who were granted warrants on December 7, 2015, the exercise price was set at 0.95 euro, the closing
price of our ordinary shares on December 4, 2015, the last closing price prior to the grant of the warrants on December 7,
2015, which was lower than the 30-day average price;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for our CEO, Eduardo Bravo, who is not an employee but was granted warrants on December 7, 2015, the exercise price was
set at 0.97 euro, the average closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants
on December 7, 2015;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for all employees who were granted warrants on May 4, 2016, the exercise price was set at 0.95 euro, the closing
price of our ordinary shares on May 3, 2016, the last closing price prior to the grant of the warrants on May 4, 2016;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for the independent directors who were granted warrants on June 2, 2016 and who are not employees, the exercise price
was set at 0.97 euro, the average closing price of our ordinary shares during the 30 calendar days prior to the issuance of
the warrants on December 7, 2015; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | for all employees who were granted warrants on September 6, 2016, the exercise price was set at 0.97 euro, the closing
price of our ordinary shares on September 5, 2016, the last closing price prior to the grant of the warrants on September 6,
2016, which was lower than the 30-day average price.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For our February 2017 warrant plan, under
which warrants were issued and granted on February 20, 2017, May 9, 2017, July 6, 2017, November 16, 2017 and December 1,
2017, the exercise price was determined as follows:



| | · | for all employees who were granted warrants on February 20, 2017, the exercise price was set at 0.70 euro, the closing
price of our ordinary shares on February 17, 2017, the last closing price prior to the grant of the warrants on February 20, 2017,
which was lower than the 30-day average price;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for our CEO, Eduardo Bravo, who is not an employee but was granted warrants on February 20, 2017, the exercise price was set
at 0.71 euro, the average closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants on
February 20, 2017;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for our independent director June Almenoff, who was granted warrants on May 9, 2017 and who is not an employee, the exercise
price was set at 0.76 euro, the average closing price of our ordinary shares during the 30 calendar days prior to the grant
of the warrants on May 9, 2017;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for all employees who were granted warrants on July 6, 2017, the exercise price was set at 0.91 euro, the average
closing price of our ordinary shares during the 30 calendar days prior to the grant of the warrants on July 6, 2017;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for all employees who were granted warrants on November 16, 2017, the exercise price was set at 0.94 euro, the closing price
of our ordinary shares on November 15, 2017, the last closing price prior to the grant of the warrants on November 15, 2017, which
was lower than the 30-day average price; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | for all employees who were granted warrants on December 1, 2017, the exercise price was set at 0.95 euro, the closing price
of our ordinary shares on November 30, 2017, the last closing price prior to the grant of the warrants on December 1, 2017, which
was lower than the 30-day average price.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Since 2008, we have issued 17,732,779 warrants
in aggregate (subject to the warrants being granted to and accepted by the beneficiaries) of which 400,000 warrants on March 20,
2008; 500,000 warrants on June 19, 2009; 500,000 warrants on March 12, 2010; 4,000,000 warrants on July 6, 2012;
777,000 warrants on March 20, 2013; 1,806,000 warrants on December 16, 2013; 1,994,302 warrants on April 22, 2014;
2,250,000 warrants on December 7, 2015; and 5,505,477 warrants on February 20, 2017.



Of these 17,732,779 warrants, as of December
31, 2017:



| | · | 646,121 warrants expired because they were never granted;
| | - | ---------------------------------------------------------



| | · | 457,183 warrants expired because they were never accepted by their beneficiaries;
| | - | ---------------------------------------------------------------------------------



| | · | 1,258,222 warrants lapsed due to their beneficiaries no longer being employed by the Company;
| | - | ---------------------------------------------------------------------------------------------



| | · | 11,530 warrants have been exercised;
| | - | ------------------------------------



| | · | 664,767 warrants have been cancelled following the exercise by Kreos Capital of its put option with regard to these warrants;
and
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | 160,000 warrants have not yet been granted, but can still be granted until February 19, 2018.
| | - | ---------------------------------------------------------------------------------------------



As a result, as of December 31, 2017, there
were 14,534,956 warrants granted and outstanding, which represents approximately 4.71% of the total number of all our issued and
outstanding voting financial instruments as of December 31, 2017.



The warrants issued on March 20, 2008,
June 19, 2009, March 12, 2010, July 6, 2012, December 16, 2013, December 7, 2015, and February 20, 2017
have a term of ten years. The warrants issued on March 20, 2013 and



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April 22,
2014 have a term of five years. Upon expiration of the ten or five year term, the warrants become null and void.



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The table below gives an overview (as of
December 31, 2017) of the 14,534,956 granted and outstanding warrants:



|Issue
        date | Term                                        | Number
        of warrants issued | Number
        of warrants granted | Exercise
        price (in euros)                                                                                                                                                              | Number
        of warrants no longer exercisable | Number
        of warrants granted and outstanding | Exercise
        periods vested warrants    
|------------------ | ------------------------------------------- | --------------------------------- | ---------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | -------------------------------------------------- | --------------------------------------------
|March 20, 2008     | From March 20, 2008 to March 19, 2018       | 400,000                           | 400,000                            | 4.05 for employees and 4.41 for other individuals (March 20, 2008 grant) 4.84 (June 27, 2008 grant) 3.45 for employees and 3.83 for other individuals (September 15, 2008 grant)               | 116,000                                          | 284,000                                            | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|June 19, 2009      | From June 19, 2009 to June 18, 2019         | 500,000                           | 232,200                            | 3.95                                                                                                                                                                                           | 363,950                                          | 136,050                                            | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|March 12, 2010     | From March 12, 2010 to March 11, 2020       | 500,000                           | 495,500                            | 3.62 (March 12, 2010 grant) 1.65 for employees and 1.83 for other individuals (July 7, 2010 grant) 1.93 (August 24, 2010 grant)                                                                | 249,500                                          | 250,500                                            | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|July 6, 2012       | From July 6, 2012 to July 5, 2022           | 4,000,000                         | 4,000,000                          | 1.00                                                                                                                                                                                           | 664,950                                          | 3,335,050                                          | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|March 20, 2013     | From March 20, 2013 to March 19, 2018       | 777,000                           | 433,000                            | 1.00                                                                                                                                                                                           | 363,717                                          | 413,283                                            | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|December 16, 2013  | From December 16, 2013 to December 15, 2023 | 1,806,000                         | 1,806,000                          | 0.46 for employees and 0.50 for other individuals                                                                                                                                              | 107,420                                          | 1,698,580                                          | From May 1 to 31, and from November 1 to 30.
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|April 22, 2014     | From April 22, 2014 to April 21, 2019       | 1,994,302                         | 1,994,302                          | 0.75                                                                                                                                                                                           | 664,767                                          | 1,329,535                                          | Any time                                    
|                   |                                             |                                   |                                    |                                                                                                                                                                                                |                                                  |                                                    |                                             
|December 7, 2015   | From December 7, 2015 to December 6, 2025   | 2,250,000                         | 2,220,179                          | 0.95 for employees and 0.97 for other individuals (December 7,
        2015 grant)
        
        0.95 (May 4, 2016 grant)
        
        0.97 (June 2, 2016 and September 6, 2016 grants) | 227,519                                          | 2,022,481                                          | From May 1 to 31, and from November 1 to 30.

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|Issue
    date    | Term                                        | Number
    of warrants issued | Number
    of warrants granted | Exercise
    price (in euros)                                                                                                                                                                                                                                           | Number
    of warrants no longer exercisable | Number
    of warrants granted and outstanding | Exercise
    periods vested warrants        
|----------------- | ------------------------------------------- | ----------------------------- | ------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------------------- | --------------------------------------------
|February 20, 2017 | From February 20,
2017 to February 19, 2027 | 5,505,477                     | 5,345,477                      | 0.70 for employees and 0.71 for other individuals (February 20,
        2017 grant)
        
        0.76 (May 9, 2017 grant)
        
        0.91 (July 6, 2017 grant)
        
        0.94 (November 16, 2017 grant)
        
        0.95 (December 1, 2017 grant) | 280,000                                      | 5,065,477                                      | From May 1 to
31, and from November 1 to 30.
|Total             |                                             | 17,732,779                    |                                |                                                                                                                                                                                                                                                                         |                                              | 14,534,956                                     |                                             





TiGenix S.A.U. Equity-Based Incentive
Plans



June 2017 EBIP



On June 15, 2017, TiGenix S.A.U.’s
board of directors and shareholders’ meeting approved an EBIP for all employees of the TiGenix group (the “June
2017 EBIP”).



Pursuant to the June 2017 EBIP, TiGenix
S.A.U. offered a total of 1,247,325 options on existing TiGenix shares (the “June 2017 EBIP Options”) to the
employees of the TiGenix group. TiGenix S.A.U. held such options on existing TiGenix shares pursuant to a management agreement
entered into between TiGenix S.A.U. and CX EBIP Agreement S.L. (“CEA”) in relation to earlier EBIPs (the “CEA
Agreement”) and as a consequence of the expiration of options under one of such earlier EBIPs. The existing TiGenix shares
were held by CEA.



Under the June 2017 EBIP, the beneficiaries
of the plan could purchase a number of June 2017 EBIP Options from TiGenix S.A.U. at a purchase price of 0.433 euros per option.
Subsequently, the beneficiaries could exercise the June 2017 EBIP Options for an exercise price of 0.0044 (rounded) euros per EBIP
option. Each June 2017 EBIP Option entitles its beneficiary to one TiGenix share.



The June 2017 EBIP ended on December 31,
2017. As of December 31, 2017, beneficiaries of the plan exercised 802,386 June 2017 EBIP Options.



October 2017 EBIP



On October 6, 2017, TiGenix S.A.U.’s
board of directors and shareholders’ meeting approved an EBIP for certain employees of the TiGenix group (the “October
2017 EBIP”).



Pursuant to the October 2017 EBIP, TiGenix
S.A.U. offered a total of 445,664 options on existing TiGenix shares (the “October 2017 EBIP Options”) to certain
employees of the TiGenix group. TiGenix S.A.U. held such options on existing TiGenix shares pursuant to the CEA Agreement and as
a consequence of the expiration of options under one of such earlier EBIPs. The existing TiGenix shares were held by CEA.



Under the October 2017 EBIP, the beneficiaries
of the plan could purchase a number of October 2017 EBIP Options from TiGenix S.A.U. at a purchase price of 0.45 euros per option.
Subsequently, the beneficiaries could exercise the October 2017 EBIP Options for an exercise price of 0.0044 (rounded) euros per
EBIP option. Each October 2017 EBIP Option entitles its beneficiary to one TiGenix share.



The October 2017 EBIP will end on June
30, 2018. As of December 31, 2017, beneficiaries of the plan exercised 425,661 June 2017 EBIP Options.



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EBIP options outstanding as of December
31, 2017



As of December 31, 2017, 20,003 EBIP options
were outstanding.



C.       Board Practices



The board of directors can set up specialized
committees to analyze specific issues and advise the board of directors on those issues.



The committees are advisory bodies only
and the decision-making remains within the collegial responsibility of the board of directors. The board of directors determines
the terms of reference of each committee with respect to the organization, procedures, policies and activities of the committee.



Our board of directors has set up and appointed
an audit committee and a nomination and remuneration committee.



Committees



Audit Committee



The audit committee consists of three members:
Willy Duron (Chairman), Innosté SA, represented by Jean Stéphenne, and Greig Biotechnology Global Consulting, Inc.,
represented by Russell Greig.



Our board of directors has determined that
Willy Duron, Jean Stéphenne, the permanent representative of Innosté SA, and Russell Greig, the permanent representative
of Greig Biotechnology Global Consulting, Inc, are independent under Rule 10A-3 of the Exchange Act and the applicable rules
of the Nasdaq Stock Market and that each of Willy Duron, Jean Stéphenne and Russell Greig qualifies as an “audit committee
financial expert” as defined under the Exchange Act.



The role of the audit committee is to monitor
the financial reporting process, the effectiveness of our internal control and risk management systems, the internal audit (if
any) and its effectiveness and the statutory audit of the annual and consolidated accounts, and to review and monitor the independence
of the external auditor, in particular regarding the provision of additional services to the company. The committee reports regularly
to the board of directors on the exercise of its functions. It informs the board of directors about all areas in which action or
improvement is necessary in its opinion and produces recommendations concerning the necessary steps that need to be taken. The
audit review and the reporting on that review cover us and our subsidiaries as a whole. The members of the committee shall at all
times have full and free access to the Chief Financial Officer and to any other employee to whom they may require access in order
to carry out their responsibilities.



The audit committee’s duties and
responsibilities to carry out its purposes include, among others: our financial reporting, internal controls and risk management,
and our internal and external audit process. These tasks are further described in the audit committee’s terms of reference,
as set out in our corporate governance charter and in Article 526bis of the Belgian Company Code.



Nomination and Remuneration Committee



Our nomination and remuneration committee
consists of three members: Greig Biotechnology Global Consulting, represented by Russell G. Greig (Chairman), Innosté
SA, represented by Jean Stéphenne, and June Almenoff.



Our board of directors has determined that
Greig Biotechnology Global Consulting, represented by Russell G. Greig, Innosté SA, represented by Jean Stéphenne,
and June Almenoff are independent under the applicable rules of the Nasdaq Stock Market.



The role of the nomination and remuneration
committee is to make recommendations to the board of directors with regard to the election and re-election of directors and the
appointment of the Chief Executive Officer and the executive managers, and to make proposals to the board on the remuneration policy
for directors, the Chief Executive Officer and the members of the executive management.



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The committee’s tasks are further
described in the nomination and remuneration committee’s terms of reference as set out in the company’s corporate governance
charter and Article 526quater of the Belgian Company Code.



Corporate Governance Practices



Along with our articles of association,
we adopted a corporate governance charter in accordance with the recommendations set out in the Belgian Corporate Governance Code
issued on March 12, 2009 by the Belgian Corporate Governance Committee. Our corporate governance charter was last amended
on May 9, 2017. The Belgian Corporate Governance Code is based on a “comply or explain” system: Belgian listed companies
are expected to follow the Code, but can deviate from specific provisions and guidelines (though not the principles) provided they
disclose the justification for such deviations.



Our board of directors complies with the
Belgian Corporate Governance Code, but believes that certain deviations from its provisions are justified in view of our particular
situation. These deviations include the following:



| | · | as we have only one executive director (the Chief Executive Officer) and there is no executive committee (directiecomité/comité
de direction), in accordance with Article 524bis of the Belgian Company Code, we have not drafted specific terms
of reference for the executive management, except for the terms of reference for the Chief Executive Officer (and for a Chief Business
Officer, although at present we have not appointed a Chief Business Officer); and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | only our independent directors receive a fixed remuneration in consideration of their membership of our board of directors
and their attendance at the meetings of committees of which they are members. In principle, under the Belgian Corporate Governance
Code, such directors should not receive any performance-related remuneration in their capacity as director. However, upon the advice
of the nomination and remuneration committee, our board of directors is permitted to propose at the meeting of our shareholders
a deviation from this principle if, in the board’s reasonable judgment, performance-related remuneration would be necessary
to attract independent directors with the most relevant experience and expertise. On February 26, 2013, our shareholders’
meeting approved such a deviation proposed by the board of directors and authorized the grant of warrants to our independent directors.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our board of directors reviews its corporate
governance charter from time to time and makes such changes as it deems necessary and appropriate.



Additionally, the board of directors adopted
written terms of reference for each of the audit committee and the nomination and remuneration committee, which are part of the
corporate governance charter.



D.       Employees



We rely on a team of experienced professionals
in all areas required to meet our strategic objectives including research and development, medical and regulatory, manufacturing,
business development, product development, infrastructure, intellectual property and finance.



On December 31, 2017, we had a total of
89 employees on a full-time equivalent basis. Approximately 70% of these employees were engaged in research and development activities,
including clinical development and manufacturing, and the remainder were engaged in corporate functions, including finance, human
resources, legal, information technology, business development, investor relations and intellectual property.



E. Share Ownership



See “Item 7.—Major Shareholders
and Related Party Transactions”



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Item 7. Major Shareholders and Related Party Transactions



A.       Major Shareholders



The following table sets forth information
relating to beneficial ownership of our ordinary shares, based on the transparency notifications we received as of April 11, 2018,
for each person who is known by us to hold beneficially 3% or more of our outstanding ordinary shares.



We had 274,287,190 ordinary shares outstanding
as of December 31, 2017. For purposes of the table below, the percentage ownership calculations for beneficial ownership are based
on 296,067,856 ordinary shares outstanding as of April 11, 2018.



Beneficial ownership is determined in accordance
with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage
ownership of that person, shares that the person has the right to acquire within 60 days of April 11, 2018, including through the
exercise of any warrant or EBIP option, have been included. Shares that can be acquired within 60 days of April 11, 2018, however,
are not included in the computation of the percentage ownership of any other person.



Note that as a result of transactions that
do not need to be disclosed to TiGenix, the numbers of shares and the percentages mentioned might not be the actual numbers of
shares or the actual percentages held by the relevant shareholder at the date of this Annual Report. Any such disclosure, however,
will be required each time the threshold of 3%, 5% or a multiple of 5% of the total number of outstanding voting rights is crossed
(upwards or downwards).



|                                                       |  | Ordinary shares beneficially owned
|------------------------------------------------------ |  | ----------------------------------
|Name of beneficial owner                               |  | Number                            
|3% or greater shareholders(1)                          |  |                                   
|Takeda Pharmaceutical Company Limited/Grifols, S.A.(2) |  |                                   
|Bank of America Corporation                            |  |                                   
|Sand Grove Capital Management LLP                      |  |                                   
|Melqart Asset Management LP                            |  |                                   
|Société Générale SA                                    |  |                                   









Notes:



| | (1) | Number of shares as disclosed in most recent Belgian transparency notifications.
| | --- | --------------------------------------------------------------------------------



| | (2) | As disclosed in their joint Belgian transparency notification dated January 9, 2018, Takeda and Grifols, S.A. are treated as
“persons acting in concert” under Belgian law for purposes of disclosing their shareholdings in the Company. Takeda
(through its affiliate Takeda Pharmaceuticals International AG) holds 11,651,778 shares. Grifols, S.A. (through its affiliates
Gri-Cel, S.A. and Grifols Worldwide Operations Ltd) holds 39,427,978 shares. On January 5, 2018, Takeda entered into irrevocable
undertakings with Gri-Cel S.A. and Grifols Worldwide Operations Ltd. pursuant to which these shareholders, subject to certain customary
conditions, agreed to tender into, and not withdraw from, the Tender Offer all equity interests owned by them, within five business
days from publication of the Prospectus. Those shares are included in the table above as beneficially owned by Takeda and Grifols,
S.A. In addition, on January 4, 2018, Takeda entered into irrevocable undertakings with the members of the board of directors and
the Chief Financial Officer of the Company pursuant to which, subject to certain terms and conditions, they agreed to tender into,
and not withdraw from, the Tender Offer all equity interests owned by them (5,614,329 shares based on the Schedule 13D filed by
Takeda with the SEC on January 12, 2018) within five business days from publication of the Prospectus. Those shares are not included
in the table above.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Irrevocable Undertakings with Major Shareholders



On January 5, 2018, Takeda entered into
irrevocable undertakings with two shareholders, Gri-Cel S.A. and its affiliate Grifols Worldwide Operations Ltd., holding 32,238,178
ordinary shares and 359,490 ADSs, respectively, pursuant to which these shareholders, subject to certain customary conditions,
agreed to tender into, and not



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withdraw from, the Tender Offer all equity interests owned by
them, within five business days from publication of the Prospectus.



B.       Related Party
Transactions



Article 524 of the Belgian Company
Code provides for a special procedure that applies to intra-group or related party transactions with affiliates. The procedure
applies to decisions or transactions between us and our affiliates that are not one of our subsidiaries. Prior to any such decision
or transaction, our board of directors must appoint a special committee consisting of three independent directors, assisted by
one or more independent experts. This committee must assess the business advantages and disadvantages of the decision or transaction,
quantify its financial consequences and determine whether the decision or transaction causes a disadvantage to us that is manifestly
illegitimate in view of our policy. If the committee determines that the decision or transaction is not illegitimate but will prejudice
us, it must analyze the advantages and disadvantages of such decision or transaction and set out such considerations as part of
its advice. Our board of directors must then make a decision, taking into account the opinion of the committee. Any deviation from
the committee’s advice must be justified. Directors who have a conflict of interest are not entitled to participate in the
deliberation and vote. The committee’s advice and the decision of the board of directors must be notified to our statutory
auditor, who must render a separate opinion. The conclusion of the committee, an excerpt from the minutes of the board of directors
and the opinion by the statutory auditor must be included in our annual report. This procedure does not apply to decisions or transactions
in the ordinary course of business under customary market conditions and security documents, or to transactions or decisions with
a value of less than 1% of our net assets as shown in our consolidated annual accounts.



Since January 1, 2012, there has not
been, nor is there currently proposed, any material transaction or series of similar material transactions to which we were or
are a party in which any of the members of our board of directors or executive management team, holders of more than 5% of any
class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct
or indirect material interest, other than the compensation and shareholding arrangements we describe in “Item 6. Directors,
Senior Management and “Employees” and in this Item 7.” and the transactions we describe below.



Transactions with Related Companies



Issuance of Convertible Bonds



On March 6, 2015, we issued 9% senior
unsecured bonds due 2018 for 25.0 million euros in total principal amount (of which a total principal amount of 18.0 million
euros was outstanding as of December 31, 2017, all of which have been converted as of the date of this Annual Report), convertible
into our ordinary shares, all of which were subscribed to by an affiliate of Gri-Cel S.A., one of our principal shareholders.
For more information about the terms of the convertible bonds, please see “Item 5. Operating and Financial Review and
B. Liquidity and Capital Resources” elsewhere in this Annual Report.



Other



From time to time in the ordinary course
of our business we may contract for services from companies in which certain of our executive officers or directors may serve as
director or advisor. The cost of these services is negotiated on an arm’s length basis and none of these arrangements is
material to us.



Item 8. Financial Information Financial Statements



See “Item 18—Financial Statements.”



Legal Proceedings



From time to time, we may be party to litigation
that arises in the ordinary course of our business. As of the date of this Annual Report, we and our subsidiaries are not involved
in any material litigation or legal proceedings, except as disclosed below:



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Invalidation of U.S. Patent US6777231



On April 1, 2011, Cellerix (the predecessor
entity of our subsidiary TiGenix S.A.U.) filed an inter partes re-examination request with the PTO regarding the patent US6777231,
owned by the University of Pittsburgh. The PTO examiner issued a decision concluding that all ten originally issued claims and
all eighteen newly submitted claims of the patent granted to the University of Pittsburgh were invalid. The University of Pittsburgh
appealed the examiner’s decision to the PTAB. The PTAB issued its decision on July 31, 2017 affirming the examiner’s
rejection of the newly submitted claims as indefinite and as anticipated by prior art. The PTAB’s decision affirming that
all ten originally issued claims and all 18 newly submitted claims of the patent granted to the University of Pittsburgh were invalid
on at least one ground became final and appealable on November 30, 2017. The deadline for filing a notice of appeal was January
30, 2018. TiGenix did not appeal and has not been served with a notice of appeal by the University of Pittsburgh. At this stage,
we expect that the PTO examiner will issue a Notice of Intent to Issue an Inter Partes Reexamination Certificate that will indicate
that all claims have been canceled and the re-examination prosecution is terminated.



If the re-examination is not successful
as a result of an appeal by the University of Pittsburgh (which would be untimely served on TiGenix as of the date of this Annual
Report), the Company may be required to obtain a license on unfavorable terms, or may not be able to obtain a license at all in
order to commercialize its adipose-derived stem cell products in the United States. The Company would potentially be susceptible
to patent infringement or litigation regarding patent infringement while commercializing its eASC products in the United States.
The Company may, therefore, choose to delay the launch of its adipose-derived stem cell products in the U.S. market until the expiration
of the patent US6777231 on March 10, 2020.



Dividend policy



We do not currently pay dividends, and
we do not anticipate declaring or paying any dividends for the foreseeable future. In addition, the Offer and Support Agreement
restricts our ability to pay any dividend prior to the completion of the Tender Offer.



All of the ordinary shares represented
by ADSs have the same dividend rights as all of our other outstanding ordinary shares. In general, distributions of dividends proposed
by our board of directors require the approval of our shareholders at a meeting of shareholders with a simple majority vote, although
our board of directors may declare interim dividends without shareholder approval, subject to the terms and conditions of the Belgian
Company Code. See “Item 10. Additional Information—B. Memorandum and Articles of Association.”



Pursuant to Belgian law, the calculation
of amounts available for distribution to shareholders, as dividends or otherwise, must be determined on the basis of our non-consolidated
statutory financial accounts. In addition, under the Belgian Company Code, we may declare or pay dividends only if, following the
declaration and issuance of the dividends, the amount of our net assets on the date of the closing of the last financial year according
to our statutory annual accounts (i.e., the amount of the assets as shown in the balance sheet, decreased with provisions and liabilities,
all as prepared in accordance with Belgian accounting rules), decreased with the non-amortized costs of incorporation and expansion
and the non-amortized costs for research and development, does not fall below the amount of the paid-up capital (or, if higher,
the called capital), increased with the amount of non- distributable reserves. Finally, prior to distributing dividends, we must
allocate at least 5% of our annual net profits (under our non-consolidated statutory accounts prepared in accordance with Belgian
accounting rules) to a legal reserve, until the reserve amounts to 10% of our share capital.



For information regarding the Belgian withholding
tax applicable to dividends and related U.S. reimbursement procedures, see “Item 10. Additional Information—E. Taxation—Belgian
Taxation.”



Item 9. The Offering and Listing



A. Listing Details



Our ordinary shares began trading on Euronext
Brussels in 2007. The current trading symbol on Euronext Brussels is “TIG.”



Our ADSs began trading on the Nasdaq Global
Select Market on December 15, 2016 under the symbol “TIG.”



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The following table lists the high and
low sales prices on Euronext Brussels for our ordinary shares on a monthly basis for the last six full months, a quarterly basis
for the last two full fiscal years and the subsequent period and an annual basis for the last five full fiscal years. Prices indicated
below with respect to our ordinary share price include interdealer prices, without retail mark up, mark down or commission and
may not necessarily represent actual transactions. All prices are quoted in euros and U.S. dollars using the Bloomberg Generic
Price on the applicable trading date.



|        |                    | Euros
|------- | ------------------ | -----
|Period  |                    | High 
|Monthly |                    |      
|        | March 31, 2018     |      
|        | February 28, 2018  |      
|        | January 31, 2018   |      
|        | December 31, 2017  |      
|        | November 30, 2017  |      
|        | October 31, 2017   |      
|        | Quarterly          |      
|        | March 31, 2018     |      
|        | December 31, 2017  |      
|        | September 30, 2017 |      
|        | June 30, 2017      |      
|        | March 31, 2017     |      
|        | December 31, 2016  |      
|        | September 30, 2016 |      
|        | June 30, 2016      |      
|        | March 31, 2016     |      
|        | December 31, 2015  |      
|        | September 30, 2015 |      
|        | June 30, 2015      |      
|        | March 31, 2015     |      
|        | Yearly             |      
|        | December 31, 2017  |      
|        | December 31, 2016  |      
|        | December 31, 2015  |      
|        | December 31, 2014  |      





The table below sets forth the reported
high and low sales closing prices for our ADSs on the Nasdaq Global Select Market:



|        |                                           | Euros
|------- | ----------------------------------------- | -----
|Period  |                                           | High 
|Monthly |                                           |      
|        | March 31, 2018                            |      
|        | February 28, 2018                         |      
|        | January 31, 2018                          |      
|        | December 31, 2017                         |      
|        | November 30, 2017                         |      
|        | October 31, 2017                          |      
|        | Quarterly                                 |      
|        | March 31, 2018                            |      
|        | December 31, 2017                         |      
|        | September 30, 2017                        |      
|        | June 30, 2017                             |      
|        | March 31, 2017                            |      
|        | December 31, 2016 (beginning December 15) |      
|        | Yearly                                    |      

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|       |                                           | Euros
|------ | ----------------------------------------- | -----
|Period |                                           | High 
|       | December 31, 2017                         |      
|       | December 31, 2016 (beginning December 15) |      





On April 13, 2018, the last reported sale
price of our ordinary shares on Euronext Brussels was 1.76 euros per share, or $2.17 per share based on the rate of exchange on
that day, and the last reported sale price of the ADSs on the Nasdaq Global Select Market was $43.05 per ADS.



If the Tender Offer is completed, and to
the extent permitted by applicable law, Takeda may cause the Company to delist the Company’s ordinary shares from Euronext
Brussels and to delist the ADSs from the Nasdaq Global Select Market.



| | B. | Plan of Distribution
| | -- | --------------------



Not applicable.



| | C. | Markets
| | -- | -------



See “Item 9. The Offering and
Listing—A. Listing Details.”



| | D. | Selling Shareholders
| | -- | --------------------



Not applicable.



| | E. | Dilution
| | -- | --------



Not applicable.



| | F. | Expenses of the Issue
| | -- | ---------------------



Not applicable.



Item 10. Additional Information



| | A. | Share Capital
| | -- | -------------



Not applicable.



| | B. | Memorandum and Articles of Association
| | -- | --------------------------------------



A summary of our articles of association,
which is similar in nature to the bylaws of a U.S. corporation, was included in our final prospectus that was filed with the SEC
on December 14, 2016 (registration number 333-208693). We incorporate by reference into this Annual Report on Form 20-F the description
of our articles of association contained therein. Since December 14, 2016, our articles of association have been last amended on
February 6, 2018, to reflect the increased amount of our registered capital following the exercise of warrants.



| | C. | Material Contracts
| | -- | ------------------



Except as otherwise disclosed below and
elsewhere in this Annual Report on Form 20-F (including the Licensing Agreement, the Manufacturing Agreement, the Mesoblast License
and the manufacturing agreement with Lonza), we are not currently, and have not been in the last two years, party to any material
contract, other than contracts entered into in the ordinary course of business. For a description of the Licensing Agreement, the
Manufacturing Agreement, the Mesoblast License and the manufacturing agreement with Lonza, see “Item 4. Information on
the Company—B. Business Overview—Partnerships, Licensing and Collaboration”



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Offer and Purchase Agreement with Takeda



On January 5, 2018, Takeda announced its
intention to launch the Tender Offer to purchase all of our issued and outstanding shares, warrants and ADSs. The Tender Offer
will be made pursuant to the Offer and Purchase Agreement, dated as of January 5, 2018, between the Company and Takeda. See “Item
3. Key Information—Recent Developments—The Takeda Tender Offer.”



The Offer and Support Agreement includes
certain representations, warranties and undertakings by both parties customary in transactions of a similar nature, including an
obligation of the Company to conduct its business and operations in the ordinary course and consistent with past practices until
the completion of the Tender Offer and cooperation by the parties in necessary regulatory filings and in completing the Tender
Offer in the most expeditious way possible. The Company has agreed not to solicit or encourage any competing offers or proposals
for such offers or other transactions competing with the Tender Offer, nor to facilitate or promote any such competing proposals,
unless the Company’s board of directors has determined that, with respect to an unsolicited competing proposal, failure to
take such measures would be inconsistent with the board of directors’ fiduciary duties. Completion of the Tender Offer is
subject to the following conditions precedent, as U.S. antitrust clearance and the marketing authorization for Cx601 (under the
tradename “Alofisel”) in the European Union have already been obtained: (i) the tender into the U.S. Offer and the
Belgian Offer, in aggregate, of a number of shares, warrants and ADSs that, together with all shares, warrants and ADSs owned by
Takeda and its affiliates, represents or gives access to 85% or more of the voting rights represented or given access to by all
of the outstanding shares, warrants and ADSs on a fully diluted basis as of the end of the first acceptance period, and (ii) no
material adverse effect occurring at any time after the date of the initial announcement (i.e. January 5, 2018).



A copy of the Offer and Support Agreement
is filed as an exhibit to this Annual Report and is incorporated by reference herein.



| | D. | Exchange Controls
| | -- | -----------------



There are no Belgian exchange control regulations
that impose limitations on our ability to make, or the amount of, cash payments to residents of the United States.



We are in principle under an obligation
to report to the National Bank of Belgium certain cross-border payments, transfers of funds, investments and other transactions
in accordance with applicable balance-of-payments statistical reporting obligations. Where a cross-border transaction is carried
out by a Belgian credit institution on our behalf, the credit institution will in certain circumstances be responsible for the
reporting obligations.



| | E. | Taxation
| | -- | --------



U.S. Taxation



This section describes material U.S. federal
income tax consequences to U.S. Holders (as defined below) of owning and disposing of our shares or ADSs. It applies to you only
if you hold your shares or ADSs as capital assets for U.S. federal income tax purposes. This section does not describe all of the
tax consequences that could be relevant to you in light of your particular circumstances, including any alternative minimum tax
consequences, the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”)
known as the Medicare contribution tax on “net investment income,” or the tax consequences that may apply to you if
you are a member of a class of holders subject to special rules, including the following:



| | · | a dealer in securities;
| | - | -----------------------



| | · | a real estate investment trust or regulated investment company;
| | - | ---------------------------------------------------------------



| | · | a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
| | - | --------------------------------------------------------------------------------------------------------



| | · | a tax-exempt organization, an “individual retirement account” or a “Roth IRA”;
| | - | ------------------------------------------------------------------------------



| | · | a bank or other financial institution, or life insurance company;
| | - | -----------------------------------------------------------------



| | · | a person that actually or constructively owns 10% or more of our stock (including ADSs), by vote or value;
| | - | ----------------------------------------------------------------------------------------------------------



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| | · | a person that holds shares or ADSs as part of a straddle or a hedging, integrated or conversion transaction;
| | - | ------------------------------------------------------------------------------------------------------------



| | · | a former citizen or long-term resident of the United States;
| | - | ------------------------------------------------------------



| | · | a person whose functional currency is not the U.S. dollar; or
| | - | -------------------------------------------------------------



| | · | a person holding our shares or ADSs in connection with a trade or business conducted outside the United States.
| | - | ---------------------------------------------------------------------------------------------------------------



This section is based on the Code, its
legislative history, existing and proposed regulations, published rulings and court decisions, as well as on the Convention Between
the Government of the United States of America and the Government of the Kingdom of Belgium for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion With Respect to Taxes on Income (for purposes of this section, together with the Protocol
thereto, the “Treaty”). These laws are subject to differing interpretations or change, possibly on a retroactive
basis. In addition, this section is based in part upon the representations of the depositary and the assumption that each obligation
in the deposit agreement and any related agreement will be performed in accordance with its terms.



For purposes of this section, you are a
“U.S. Holder” if for U.S. federal income tax purposes you are a beneficial owner of shares or ADSs, you are
eligible for the benefits of the Treaty and you are one of the following:



| | · | an individual who is a citizen or resident of the United States;
| | - | ----------------------------------------------------------------



| | · | a corporation (or other entity that is treated as a corporation for U.S. federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof, or the District of Columbia;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | an estate whose income is subject to U.S. federal income tax regardless of its source; or
| | - | -----------------------------------------------------------------------------------------



| | · | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons
are authorized to control all substantial decisions of the trust or (ii) such trust has a valid election in effect under applicable
U.S. Treasury Regulations to be treated as a U.S. person.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If a partnership (including any entity
treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of shares or ADSs, the tax treatment of a
partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A beneficial
owner of shares or ADSs that is a partnership, and partners in such partnership, should consult their own tax advisors regarding
the tax consequences of owning and disposing of the shares or ADSs.



You should consult your own tax advisors
regarding the U.S. federal, state and local and other tax consequences of owning and disposing of shares or ADSs in your particular
circumstances.



This discussion addresses only U.S. federal
income taxation. Holders should consult their own tax advisors as to potential application of U.S. state and local tax laws, as
well as any other U.S. tax laws (such as the gift, alternative minimum or estate tax) and other U.S. laws, and foreign laws, including
the laws of Belgium.



Treatment of Holders of ADSs. In
general, and taking into account the representations and assumptions described above, for U.S. federal income tax purposes, if
you hold ADRs evidencing ADSs, you will be treated as the beneficial owner of the shares represented by those ADSs. Exchanges of
ADSs for ordinary shares generally will not be subject to U.S. federal income tax.



Taxation of Distributions. Subject
to the PFIC rules discussed below, the gross amount of any distribution we pay out of our current or accumulated earnings and profits
(as determined for U.S. federal income tax purposes) will be treated as a dividend for U.S. federal income tax purposes. Distributions
in excess of our current and accumulated earnings and profits, if any, as determined for U.S. federal income tax purposes, will
be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain;
however, since we do not maintain books and records in accordance with U.S. tax principles, a U.S. Holder will effectively be required
to treat all amounts we distribute as dividends for U.S. federal income tax purposes. If you are a non-corporate U.S. Holder, dividends
paid to you that constitute “qualified dividend income” may qualify for the preferential rates of taxation applicable
to long-term capital gains provided that you hold such shares or ADSs for more than 60 days during the 121- day period beginning
60 days before the ex-dividend date and meet certain other requirements. In



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order
for the dividends paid by us to be treated as qualified dividend income, we must either be eligible for the benefits of the Treaty,
or such dividends must be paid with respect to securities which are readily tradable on an established securities market in the
United States, such as the NASDAQ Global Select Market where our ADSs are listed. U.S. Holders should consult their own tax advisors
as to the qualification of dividends paid by us as qualified dividend income.



With respect to any dividend we pay, you
must include any Belgian tax withheld from the dividend payment in the gross amount of such dividend for U.S. federal income tax
purposes even though you do not in fact receive it. Dividends received with respect to ADSs are taxable to you when the depositary
receives such dividends, actually or constructively. Such dividends will not be eligible for the dividends-received deduction generally
allowed to United States corporations in respect of dividends received from other United States corporations. If you receive a
dividend that is paid in euros, the amount you must include in your income as a U.S. Holder will be the U.S. dollar value of the
euro payments made, determined at the spot euro/U.S. dollar rate on the date the dividend is includible in your income, regardless
of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations
during the period from the date you include a dividend payment in income to the date you convert the payment into U.S. dollars
will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income.
This gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.



Subject to certain limitations, the Belgian
tax withheld at a rate not exceeding the rate applicable under the Treaty and paid over to Belgium will be creditable against your
U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends
that are subject to preferential rates of taxation. Any amount of tax withheld that is refundable under the Treaty will not be
eligible for credit against your U.S. federal income tax liability. Each U.S. holder should consult its own tax advisors regarding
the foreign tax credit rules.



Dividends will be treated as income from
sources outside the United States and, depending on your circumstances, will be “passive” or “general”
income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit
allowable to you.



The rules governing foreign tax credits
are complex and, therefore, U.S. Holders are strongly encouraged to consult their own tax advisors to determine whether they are
subject to any special rules that may limit their ability to make effective use of foreign tax credits and whether or not an election
would be appropriate based on their particular circumstances.



A U.S. Holder may make an election to treat
all foreign taxes paid as deductible expenses in computing taxable income, rather than as a credit against tax, subject to generally
applicable limitations. Such an election, once made, applies to all foreign taxes paid for the taxable year subject to the election.



Taxation of Sale or Other Taxable Disposition.
Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your shares or ADSs, you will recognize capital
gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you
realize and your tax basis (generally, the amount you pay for your shares or ADSs), determined in U.S. dollars, in your shares
or ADSs. Capital gain of a non-corporate U.S. Holder is generally taxed at a preferential rate of taxation where the holder has
a holding period greater than one year. Such gain or loss will generally be income or loss from sources within the United States
for foreign tax credit limitation purposes. The deductibility of capital losses is subject to limitations.



Passive Foreign Investment Company Considerations.
Based on the composition of our income and assets and the estimated market value of our assets, including goodwill, which is based,
in part, on the trading price of our shares and ADSs for 2017, we believe that we were not a PFIC for U.S. federal income tax purposes
for the 2017 taxable year, but this conclusion is a factual determination that is made annually and thus may be subject to change.
Because PFIC status must be determined annually based on factual tests, our PFIC status for any taxable year will depend on the
composition of our income and assets and our activities in those years—for example, the timing of receipt of, or entitlement
to, certain royalty or milestone payments. Furthermore, because we hold a substantial amount of cash and cash equivalents, our
PFIC status for any taxable year may depend on the value of our goodwill, which may be determined by reference to our market capitalization
(which may be especially volatile given the nature of our business). Therefore, a decline in the value of our shares or ADSs could
result in us being a PFIC. In general, we will be a PFIC for any taxable year in which either of the following is true:



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| | · | At least 75% of our gross income (looking through certain corporate subsidiaries) for the taxable year is “passive income.”
| | - | ---------------------------------------------------------------------------------------------------------------------------



| | · | At least 50% of the value, determined on the basis of a quarterly average, of our gross assets (looking through certain corporate
subsidiaries) is attributable to assets that produce or are held for the production of “passive income.”
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Passive income generally includes dividends,
interest, royalties, rents (other than certain rents and royalties derived in the active conduct of a trade or business), annuities
and gains from assets that produce passive income. Cash is a passive asset for PFIC purposes, even if held as working capital.
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.



If we are treated as a PFIC for any taxable
year during which you own our ADSs or shares, and you are a U.S. Holder that does not make a mark-to- market election, as described
below, you will be subject to special tax rules with respect to:



| | · | any gain you realize on the sale or other disposition (including, in certain circumstances, a pledge) of your shares or ADSs;
and
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | · | any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater
than 125% of the average annual distributions received by you in respect of the shares or ADSs during the three preceding taxable
years or, if shorter, your holding period for the shares or ADSs).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under these rules:



| | · | the gain or excess distribution will be allocated ratably over your holding period for the shares or ADSs;
| | - | ----------------------------------------------------------------------------------------------------------



| | · | the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| | · | the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that
year; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| | · | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each
such year.
| | - | --------------------------------------------------------------------------------------------------------------------------------------



Special rules apply for calculating the
amount of the foreign tax credit with respect to excess distributions by a PFIC.



Your shares or ADSs generally will be treated
as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs, even if we cease to be a PFIC
for subsequent taxable years.



If you own shares or ADSs in a PFIC that
are treated as marketable stock, you may make a mark-to-market election. If we are treated as a PFIC and you make this election,
you will not be subject to the general PFIC rules described above. Instead, in general, you will include as ordinary income each
year the excess, if any, of the fair market value of your shares or ADSs at the end of the taxable year over your adjusted basis
in your shares or ADSs. These amounts of ordinary income will not be eligible for the favorable tax rates applicable to qualified
dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any,
of the adjusted basis of your shares or ADSs over their fair market value at the end of the taxable year (but only to the extent
of the net amount of previously included income as a result of the mark-to-market election). Your basis in the shares or ADSs will
be adjusted to reflect any such income or loss amounts. For purposes of this rule, if you make a mark-to-market election with respect
to your shares or ADSs, you will be treated as having a new holding period in your shares or ADSs beginning on the first day of
the first taxable year beginning after the last taxable year for which the mark-to-market election applies.



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Notwithstanding any election you make with
regard to your shares or ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are
a PFIC either in the taxable year of the distribution or the preceding taxable year.



In addition, we may, directly or indirectly,
hold equity interests in other PFICs (collectively with subsidiaries which are PFICs, “Lower-tier PFICs”). Under attribution
rules, if we are a PFIC, U.S. Holders will be deemed to own their proportionate shares of Lower-tier PFICs and will be subject
to U.S. federal income tax according to the rules described above on (i) certain distributions by a Lower-tier PFIC and (ii) a
disposition of shares of a Lower-tier PFIC, in each case as if the U.S. Holder held such shares directly, even though the U.S.
Holder has not received the proceeds of those distributions or dispositions directly.



If you are a U.S. Holder, you must generally
file an IRS Form 8621 with your U.S. federal income tax return for any taxable year in which we are a PFIC with respect to you.



You are urged to consult your own tax advisor
concerning the U.S. federal income tax consequences to you if we are a PFIC for any taxable year.



Backup Withholding and Information Reporting.
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.



Certain U.S. Holders who are individuals
(and certain specified entities) may be required to report information relating to their ownership of securities of a non-U.S.
person, subject to certain exceptions (including an exception for securities held in certain accounts maintained by U.S. financial
institutions). U.S. holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership and
disposition of ADSs or shares.



The above discussion is not intended to
constitute a complete analysis of all the tax consequences relating to the ownership and disposition of our shares or ADSs.



Belgian Taxation



The following paragraphs are a summary
of material Belgian tax consequences of the ownership of ADSs by an investor. The summary is based on laws, treaties and regulatory
interpretations in effect in Belgium on the date of this document, all of which are subject to change, including changes that could
have retroactive effect.



The summary only discusses Belgian tax
aspects which are relevant to U.S. holders of ADSs, or “Holders.” This summary does not address Belgian tax
aspects which are relevant to persons who are fiscally resident in Belgium or who maintain a permanent establishment or a fixed
base in Belgium to which the ADSs are effectively connected.



This summary does not purport to be a description
of all of the tax consequences of the ownership of ADSs, and does not take into account the specific circumstances of any particular
investor, some of which may be subject to special rules, or the tax laws of any country other than Belgium. This summary does not
describe the tax treatment of investors that are subject to special rules, such as banks, insurance companies, collective investment
undertakings, dealers in securities or currencies, persons that hold, or will hold, ADSs in a position in a straddle, share-repurchase
transaction, conversion transactions, synthetic security or other integrated financial transactions. Investors should consult their
own advisors regarding the tax consequences of an investment in ADSs in the light of their particular circumstances, including
the effect of any state, local or other national laws, treaties and regulatory interpretations thereof.



In addition to the assumptions mentioned
above, it is also assumed in this discussion that for purposes of the domestic Belgian tax legislation, the owners of ADSs will
be treated as the owners of the ordinary shares represented by such ADSs. However, the assumption has not been confirmed by or
verified with the Belgian Tax Authorities.



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Dividend Withholding Tax



For Belgian income tax purposes, a withholding
tax of 30% is levied on the gross amount of dividends paid on or attributed to the ordinary shares represented by the ADSs, subject
to such relief as may be available under applicable domestic or tax treaty provisions.



Dividends subject to the dividend withholding
tax of 30% include all benefits attributed to the ordinary shares represented by the ADSs, irrespective of their form, as well
as reimbursements of statutory share capital by us, except – partially and in certain circumstances – reimbursements
of fiscal capital made in accordance with the Belgian Company Code. As of January 1, 2018, a reimbursement of statutory share capital
is considered to be a) partially a reimbursement of statutory share capital, which will remain untaxed in Belgium, and b) a distribution
of dividends allocated on the retained earnings and some incorporated untaxed reserves, as long as the company has such retained
earnings and incorporated untaxed reserves. The dividend withholding tax of 30% is due (if no exemption applies) on the part of
the reimbursement qualified as a distribution of dividends. This part will be determined based on a pro rata with the numerator
as the total amount of the paid-up capital and share premiums (and other elements assimilated to paid-up capital) divided by the
denominator including the total amount of the numerator plus the retained earnings (incorporated or not in the capital) and the
incorporated untaxed reserves.



In case of a redemption by us of our own
shares represented by ADSs, the redemption distribution (after deduction of a portion of fiscal capital represented by the redeemed
shares) will be treated as a dividend subject to the withholding tax (at a rate of 30%), subject to such relief as may be available
under applicable domestic or tax treaty provisions. No withholding tax will be triggered if this redemption is carried out on a
stock exchange and meets certain conditions. In case of a liquidation of our Company, any amounts distributed in excess of the
fiscal capital will also be treated as a dividend that will in principle be subject to a 30% withholding tax, subject to such relief
as may be available under applicable domestic or tax treaty provisions.



For non-resident individuals and companies,
the dividend withholding tax, if any, will be the only Belgian tax imposed on dividends paid with respect to the ADSs, unless the
non-resident maintains a fixed base in Belgium or a Belgian permanent establishment to which the ADSs are effectively connected.



Belgian Dividend Withholding Tax Relief



Under the Belgium-United States Tax Treaty
(for purposes of this section, the “Treaty”), under which we are entitled to benefit according to our Belgian
tax residence, there is a reduced Belgian withholding tax rate of 15% on dividends paid by us to a U.S. resident who is the beneficial
owner of the ADSs and is entitled to claim the benefits of the Treaty under the limitation of benefits article included in the
Treaty (“Qualifying Holders”).



If such Qualifying Holder is a company
that owns directly at least 10% of our voting stock, the Belgian withholding tax rate is further reduced to 5%. No withholding
tax is applicable if the Qualifying Holder is either of the following:



| | · | a company that is a resident of the United States that has directly owned ADSs representing at least 10% of our capital for
a twelve-month period ending on the date the dividend is declared; or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | a pension fund that is a resident of the United States, provided that such dividends are not derived from the carrying on of
a business by the pension fund or through an associated enterprise (as described below).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Under the normal procedure, we or our paying
agent must withhold the full Belgian withholding tax, without taking into account the reduced Treaty rate. Qualifying Holders may
make a claim, if conditions are met, for reimbursement for amounts withheld in excess of the rate defined by the Treaty. The reimbursement
form (Form 276 Div-Aut.) may be obtained from the Centre Etrangers-Gestion Team 6, Boulevard du Jardin Botanique 50 boîte
3429, 1000 Brussels, Belgium or at foreigners.team6@minfin.fed.be or at https://eservices.minfin.fgov.be/mym-api-rest/finform/pdf/2600.
Reimbursement request should be filed as soon as possible and in any case within a term of 5 years starting from 1st of January
of the year the withholding tax was withheld. Qualifying Holders may also, subject to certain conditions, obtain the reduced Treaty
rate at source.



Belgian domestic law provides a withholding
tax reduction or exemption on dividends to certain corporate shareholders provided they meet certain conditions (among others holding
a 10% participation or ADSs with an



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acquisition
value of at least EUR 2,500,000 for an uninterrupted period of at least one year). Belgian domestic law also provides a withholding
tax exemption to pension funds subject to certain conditions.



As of January 1, 2018, a specific tax withholding
exemption is introduced for dividends received by individuals up to a yearly amount of 416.50 euros (subject to annual indexation;
for financial year 2018 the dividend exemption amounts to 640 euros). This exemption is in principle also applicable to Belgian
non-tax residents, including U.S. residents. Private individuals Holders of ADSs could claim this exemption through a Belgian non-resident
personal income tax return for the relevant period. This claim will have to be supported by supporting documents.



Holders should consult their own tax advisors
as to whether they qualify for a reduction/exemption in withholding tax upon payment or attribution of dividends, and as to the
procedural requirements for obtaining a reduced withholding tax or exemption upon the payment of dividends or for making claims
for reimbursement.



Capital Gains and Losses



Pursuant to the Treaty, capital gains and/or
losses realized by a Qualifying Holder from the sale, exchange or other disposition of ADSs are exempt from tax in Belgium.



Capital gains realized on ADSs by a corporate
Holder who is not a Qualifying Holder are generally not subject to taxation in Belgium unless such Holder is acting through a Belgian
permanent establishment or a fixed place in Belgium to which the ADSs are effectively connected.



As of January 1, 2018, the Belgian participation
exemption regime on capital gains realized on shares (including ADSs) by a corporate Holder (that is not a Qualifying Holder) has
been strengthened by the introduction of an additional condition. The additional condition introduces a minimum participation threshold
similar to the thresholds for the dividend received deduction regime (i.e. holding a 10% participation or with an acquisition value
of at least 2,500,000 euros) in addition to the other already existing conditions.



Capital losses are generally not tax deductible
(subject to certain conditions).



Private individual Holders which are not
Qualifying Holders and which are holding ADSs as a private investment will, in principle, not be subject to tax in Belgium on any
capital gains arising out of a disposition of ADSs.



If a capital gain is realized by such private
individual Holder on his ADSs and is deemed to be realized outside the scope of the normal management of such individual’s
private estate and the capital gain is obtained or received in Belgium, the gain will be subject to a final tax of 33% (plus local
surcharges of 7%).



Moreover, capital gains realized by such
private individual Holders on the disposition of ADSs for consideration, outside the exercise of a professional activity, to a
non-resident corporation (or an entity constituted in a similar legal form), to a foreign state (or one of its political subdivisions
or local authorities) or to a non-resident legal entity that is established outside the European Economic Area, are in principle
taxable at a rate of 16.5% (plus local surcharges) if, at any time during the five years preceding the realization event, such
individual Holders own or have owned directly or indirectly, alone or with his/her spouse or with certain other relatives, a substantial
shareholding in us (that is, a shareholding of more than 25% of our shares).



Capital gains realized by a Holder upon
the redemption of ADSs or upon our liquidation will generally be taxable as a dividend. See “Dividend Withholding Tax.”



Tax on securities accounts



The Law of February 7, 2018 introduces
a “subscription” tax of 0.15% that applies to all private individuals , including non-residents of Belgium, holding
Belgian securities accounts on which certain financial securities (including ADS) are held with an average value over a period
of reference of 12 (twelve) months in excess of EUR 500,000. If the latter threshold is met, the tax will apply to the entire average
value. The 12-month period starts on 1 October and lapses on 30 September of the following year. The tax will, in principle, be
collected at source by the Belgian financial institution and will have to be reported in other exceptional cases. This Law entered
into force on March 10, 2018 with a shortened first period of 9 months ending on September 30, 2018.



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Estate and Gift Tax



There is no Belgian estate tax on the transfer
of ADSs on the death of a person who is not a Belgian resident for tax purposes. Donations of ADSs made in Belgium may or may not
be subject to gift tax depending on the modalities under which the donation is carried out.



Belgian Tax on Stock Exchange Transactions



A tax on stock exchange transactions is
normally levied on the purchase and the sale and on any other acquisition and transfer for consideration of ADSs in Belgium through
a professional intermediary established in Belgium on the secondary market, the so-called “secondary market transactions.”
The tax is due from the transferor and the transferee separately. The applicable rate amounts to 0.35% of the consideration paid
but with a cap of 1,600 euros per transaction per party.



Investors who are not Belgian residents
for tax purposes that purchase or otherwise acquire or transfer, for consideration, ADSs in Belgium for their own account through
a professional intermediary may be exempt from the tax on stock exchange transactions if they deliver a sworn affidavit to the
intermediary in Belgium confirming their non-resident status.



No stock exchange tax will thus be due
by Holders on the subscription, purchase or sale of ADSs, if the Holders are acting for their own account. In order to benefit
from this exemption, the Holders must file with the professional intermediary in Belgium a sworn affidavit evidencing that they
are non-residents for Belgian tax purposes.



In addition to the above, no stock exchange
tax is payable by the following parties, acting on their own account: (i) professional intermediaries described in Article 2, 9°
and 10° of the Belgian Law of August 2, 2002, (ii) insurance companies described in Article 2, §1 of the Law of July 9,
1975, (iii) professional retirement institutions referred to in Article 2, 1° of the Law of October 27, 2006 relating to the
control of professional retirement institutions, or (iv) collective investment institutions.



| | F. | Dividends and Paying Agents
| | -- | ---------------------------



Not applicable.



| | G. | Statements by Experts
| | -- | ---------------------



Not applicable.



| | H. | Documents on Display
| | -- | --------------------



We are required to file or furnish reports
and other information with the SEC under the Securities Exchange Act of 1934 and regulations under that Act. As a foreign private
issuer, we are exempt from the rules under the Exchange Act prescribing the form and content of proxy statements and our officers,
directors and principal shareholders are exempt from the reporting and short swing profit recovery provisions contained in Section
16 of the Exchange Act.



You may review a copy of our filings with
the SEC, as well as other information furnished to the SEC, including exhibits and schedules filed with it, at the SEC’s
public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information. In addition, the SEC maintains a website at http://www.sec.gov that contains reports and other information regarding
issuers that file electronically with the SEC. These SEC filings are also available to the public from commercial document retrieval
services.



We have filed our amended and restated
articles of association and all other deeds that are to be published in the annexes to the Belgian State Gazette with the clerk’s
office of the Commercial Court of Leuven (Belgium), where they are available to the public. A copy of our amended and restated
articles of association is also be publicly available as an exhibit to the registration statement we filed with the SEC in connection
with our initial public offering in the United States. In accordance with Belgian law, we must prepare audited annual statutory
and consolidated financial statements. The audited annual statutory and consolidated financial statements and the reports



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of our board and statutory auditor relating
thereto are filed with the Belgian National Bank, where they are available to the public, and are also available on our website.



| | I. | Subsidiary Information
| | -- | ----------------------



Not applicable.



Item 11. Quantitative and Qualitative Disclosures About
Market Risk



For more information about our exposure
to market risk and how we manage this risk, see “Item 18. Financial Statements—Note 5”.



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 Fees and Expenses
| | -- | --------------------------------------------



As an ADS holder, you may be required to
pay the following service fees to the depositary bank and certain taxes and governmental charges (in addition to any applicable
fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your ADSs):



|Service                                                                                                                                                                                                                                                                               | Fees                                                                                          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------
|· To any person to which ADSs are issued or to any person to which a distribution is made in respect of ADS distributions pursuant to stock dividends or other free distributions of stock, bonus distributions, stock splits or other distributions (except where converted to cash) | Up to US$0.05 per ADS issued                                                                  
|· Cancellation of ADSs, including in the case of termination of the deposit agreement                                                                                                                                                                                                 | Up to US$0.05 per ADS cancelled                                                               
|·Distribution of cash dividends                                                                                                                                                                                                                                                       | Up to US$0.05 per ADS held                                                                    
|·Distribution of cash entitlements (other than cash dividends) and/or cash proceeds, including proceeds from the sale of rights, securities and other entitlements                                                                                                                    | Up to US$0.05 per ADS held                                                                    
|· Distribution of ADSs pursuant to exercise of rights.                                                                                                                                                                                                                                | Up to US$0.05 per ADS held                                                                    
|·Distribution of securities other than ADSs or rights to purchase additional ADSs                                                                                                                                                                                                     | Up to US$0.05 per ADS held                                                                    
|· Depositary services                                                                                                                                                                                                                                                                 | Up to US$0.05 per ADS held on the applicable record date(s) established by the depositary bank

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As an ADS holder, you may also be responsible
to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges (in addition to any
applicable fees, expenses, taxes and other governmental charges payable on the deposited securities represented by any of your
ADSs) such as the following:



| | · | Fees for the transfer and registration of ordinary shares charged by the registrar and transfer agent for the ordinary shares
in Belgium (i.e., upon deposit and withdrawal of ordinary shares).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expenses incurred for converting foreign currency into U.S. dollars.
| | - | --------------------------------------------------------------------



| | · | Expenses for cable, telex, fax and electronic transmissions and for delivery of securities.
| | - | -------------------------------------------------------------------------------------------



| | · | Taxes and duties upon the transfer of securities, including any applicable stamp duties, any stock transfer charges or withholding
taxes (i.e., when ordinary shares are deposited or withdrawn from deposit).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Fees and expenses incurred in connection with the delivery or servicing of ordinary shares on deposit.
| | - | ------------------------------------------------------------------------------------------------------



| | · | Fees and expenses incurred in connection with complying with exchange control regulations and other regulatory requirements
applicable to ordinary shares, deposited securities, ADSs and ADRs.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Any applicable fees and penalties thereon.
| | - | ------------------------------------------



The depositary fees payable upon the issuance
and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly
issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank
for cancellation. The brokers in turn charge these fees to their clients. Depositary fees payable in connection with distributions
of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record
of ADSs as of the applicable ADS record date.



The depositary fees payable for cash distributions
are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the
case of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS
record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor (whether certificated
or uncertificated in direct registration), the depositary bank sends invoices to be paid to the applicable record date ADS holders.
In the case of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through
the systems provided by DTC (whose nominee is the registered holder of the ADSs held in DTC) from the brokers and custodians holding
ADSs in their DTC accounts. The brokers and custodians that hold their clients’ ADSs in DTC accounts in turn charge their
clients’ accounts the amount of the fees paid to the depositary bank.



In the event of refusal to pay the depositary
fees, the depositary may, under the terms of the deposit agreement, refuse the requested service until payment is received or may
set off the amount of the depositary fees from any distribution to be made to the ADS holder.



The depositary agreed to pay certain amounts
to us in exchange for its appointment as depositary. We may use these funds towards our expenses relating to the establishment
and maintenance of the ADR program, including investor relations expenses, or otherwise as we see fit. The depositary may pay us
a fixed amount, it may pay us a portion of the fees collected by the depositary from holders of ADSs, and it may pay specific expenses
incurred by us in connection with the ADR program. Neither the depositary nor we may be able to determine the aggregate amount
to be paid to us because (i) the number of ADSs that will be issued and outstanding and the level of dividend and/or servicing
fees to be charged may vary, and (ii) our expenses related to the program may not be known at this time.



Part II



Item 13. Defaults, Dividend Arrearages and Delinquencies



| | A. | Defaults
| | -- | --------



Not applicable



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| | B. | Arrears and delinquencies
| | -- | -------------------------



Not applicable



Item 14. Material Modifications to the Rights of Security
Holders and Use of Proceeds



Not applicable



Item 15. Controls and Procedures



| | A. | Disclosure controls and procedures
| | -- | ----------------------------------



As of December 31, 2017, the Company, under
the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer,
performed an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined
in Rule 13a-15 (e) under the Exchange Act). There are inherent limitations to the effectiveness of any system of disclosure controls
and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly,
even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.



Based on the evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the
period covered by this Annual Report, in providing a reasonable level of assurance that information we are required to disclose
in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods
in SEC rules and forms, including providing a reasonable level of assurance that information required to be disclosed by us in
such reports is accumulated and communicated to our management, including our principal executive officer and our principal financial
officer, as appropriate to allow timely decisions regarding required disclosure.



| | B. | Management’s annual report on internal control
over financial reporting
| | -- | -----------------------------------------------------------------------



The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange
Act. The Company’s internal control system is designed to provide reasonable assurance as to the reliability of financial
reporting and the preparation of the published financial statements under generally accepted accounting principles.



Any internal control system, no matter
how well designed, has inherent limitations, including the possibility of human error and the circumvention or overriding of controls
and procedures, which may not prevent or detect misstatements.



The Company’s management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017. In making this assessment,
it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO” 2013
framework”) in Internal Control - Integrated Framework. Based on its assessment and those criteria, the Company’s
management believes that at December 31, 2017, the Company’s internal control over financial reporting was effective based
on those criteria.



| | C. | Attestation report of the registered public accounting
firm
| | -- | -----------------------------------------------------------



This Annual Report does not include an
attestation report of our registered public accounting firm due to an exemption provided to emerging growth companies under the
JOBS Act.



| | D. | Changes in internal control over financial reporting
| | -- | ----------------------------------------------------



There were no changes in the Company’s
internal control over financial reporting that occurred during the period covered by this Annual Report that have materially affected,
or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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Item 16. [Reserved]



Item 16A. Audit Committee Financial Expert



Our board of directors has determined that
Willy Duron, Jean Stéphenne, the permanent representative of Innosté SA, and Russell Greig, the permanent representative
of Greig Biotechnology Global Consulting, Inc, are independent under Rule 10A-3 of the Exchange Act and the applicable rules of
the NASDAQ Stock Market and that each of Willy Duron, Jean Stéphenne and Russell Greig qualifies as an “audit committee
financial expert” as defined under the Exchange Act.



Item 16B. Code of Ethics



We have adopted a corporate governance
charter based on the Belgian Code of Corporate Governance published by the Belgian Corporate Governance Committee. The Board of
Directors has approved a Dealing Code on private investment transactions to prevent insider trading offenses and market abuse,
particularly during the periods preceding the publication of results or information which could considerably influence the TiGenix
share price. The Dealing Code establishes rules for all employees (directors, management and other employees) and contractors prohibiting
dealing in the Company’s shares or other financial instruments of the Company during certain periods, including a designated
period preceding the announcement of its financial results (closed periods). It also establishes rules to set limitations in transactions
by certain persons, including employees. We are currently working on a more comprehensive code of ethics, which we expect to have
in place before the end of 2018.



Item 16C. Principal Accountant Fees and Services



PricewaterhouseCoopers Auditores, S.L.
(“PwC”) has served as our independent registered public accounting firm for 2017. Audit fees in 2017 amounted
to 479,995 euros. Audit fees are the aggregate fees billed for the audit of our annual financial statements. This category also
includes services that generally the independent accountant provides, such as consents, comfort letters and assistance with and
review of documents filed with the SEC.



There were tax fees paid to PwC during
2017 amounting to 85,000 euros. There were no audit-related fees or other fees paid during 2017.



BDO Bedrijfsrevisoren Burg. Ven. CVBA (“BDO”)
served as our independent registered public accounting firm for 2016 and 2015. Audit fees in 2016 and 2015 amounted to 776,916
euros and 637,882 euros, respectively. Audit fees are the aggregate fees billed for the audit of our annual financial statements.
This category also includes services that generally the independent accountant provides, such as consents, comfort letters and
assistance with and review of documents filed with the SEC.





Audit Committee’s Pre-Approval
Policies and Procedures



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



None.



Item 16E. Purchases of Equity Securities by the Issuer
and Affiliated Purchasers



Not applicable.



Item 16F. Change in Registrant’s Certifying Accountant



According to Article 132/1, paragraph 2
of the Belgian Company Code, the mandate of a statutory auditor can in principle not be renewed if it has reached the maximum term
of nine years. As the mandate of BDO reached the maximum term, we organized a public tendering process. Following the outcome of
the public tendering process, and in accordance with the recommendation and preference of the audit committee, which was followed
by the board of directors, the board of directors proposed to the shareholders’ meeting to appoint PwC Bedrijfsrevisoren



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BCVBA
as statutory auditor of the Company for a term of three years. On June 1, 2017, the Company’s shareholders’ meeting
resolved to appoint PwC Bedrijfsrevisoren BCVBA as the statutory auditor for the Company for the fiscal years ending December
31, 2017, 2018 and 2019 in replacement of BDO. Following the appointment of PwC Bedrijfsrevisoren BCVBA as statutory auditor,
on October 24, 2017 we appointed PricewaterhouseCoopers Auditores, S.L. as our independent registered public accounting firm for
the fiscal years ended December 31, 2017, 2018 and 2019. As a consequence, BDO was dismissed as the independent registered public
accounting firm of the Company.



The report of BDO on the audit related
to the consolidated financial statements of TiGenix for the fiscal year ended December 31, 2016 did not contain any adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.



The report of BDO on the audit related
to the consolidated financial statements of TiGenix for the fiscal year ended December 31, 2015 did not contain any adverse opinion
or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles except that
it contained an explanatory paragraph regarding TiGenix’s ability to continue as a going concern.



There was no disagreement relating to the
fiscal years ended December 31, 2016 and 2015 with BDO on any matter of accounting principles or practices, financial statements
disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of BDO would have caused them
to make reference to the subject matter of the disagreement in connection with their report.



During the fiscal years ended December
31, 2016 and 2015 and the period from January 1, 2017 through October 24, 2017 there have been no reportable events (as defined
in Item 16F(a)(1)(v) of Form 20-F).



During the two most recent fiscal years
and any subsequent interim periods, we did not consult with PricewaterhouseCoopers Auditores, S.L. regarding either (i) the application
of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered
on our financial statements, and neither a written report was provided to us or oral advice was provided that PricewaterhouseCoopers
Auditores, S.L. concluded was an important factor considered by us in reaching a decision as to an accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 16F(a)(1)(iv)
of Form 20-F and the related instructions to Item 16-F of Form 20-F, or a reportable event, as that term is defined in Item 16-F(a)(1)(v)
of Form 20-F.



We have provided a copy of the above statements
to BDO and requested that BDO furnishes us with a letter addressed to the SEC stating whether or not they agree with the above
disclosure. A copy of that letter, dated April 16, 2018 is filed as an exhibit to this Annual Report.



Item 16G. Corporate Governance



Differences between Our Corporate Governance Practices
and the Listing Rules of the Nasdaq Stock Market



The Listing Rules of the Nasdaq Stock Market
include certain accommodations in the corporate governance requirements that allow foreign private issuers to follow “home
country” corporate governance practices in lieu of the otherwise applicable corporate governance standards of the Nasdaq
Stock Market. The application of such exceptions requires that we disclose each instance of noncompliance with the Nasdaq Stock
Market Listing Rules and describe the Belgian corporate governance practices we do follow in lieu of the relevant Nasdaq Stock
Market corporate governance standard.



Even though our ADSs are listed on the
Nasdaq Global Select Market, we intend to continue to follow Belgian corporate governance practices in lieu of the corporate governance
requirements of the Nasdaq Stock Market in respect of the following:



| | · | Quorum at Shareholder Meetings.Nasdaq Stock Market Listing Rule 5620(c) requires that for any meeting of shareholders,
the quorum must be no less than 331/3% of the outstanding ordinary shares. There is no quorum requirement
under Belgian law for our meetings of shareholders, except as provided for by law in relation to decisions regarding certain matters.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | · | Code of Conduct.Nasdaq Stock Market Listing Rule 5610 requires listed companies to adopt a code of conduct applicable
to all directors, officers and employees, which must be publicly available. There is no such requirement under Belgian law. We
have adopted a number of internal corporate user policies for employees and management; however, we do not believe that these policies
amount to a code of conduct satisfying the requirements of Rule 5610.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Audit Committee Charter.Nasdaq Stock Market Listing Rule 5605(c)(1) provides that a company must certify that
it has adopted a formal written audit committee charter and that the audit committee will review and reassess the adequacy of the
formal written charter on an annual basis. There is no corresponding requirement under Belgian law. We have adopted a corporate
governance charter that includes a chapter on the regulation of the audit committee; however, the audit committee does not review
the charter annually and, therefore, we do believe that we satisfy the requirements of Rule 5605(c)(1).
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Compensation Committee Charter.Nasdaq Stock Market Listing Rule 5605(d)(1) provides that a company must certify
that it has adopted a formal written compensation committee charter and that the compensation committee will review and reassess
the adequacy of the formal written charter on an annual basis. There is no corresponding requirement under Belgian law. Our corporate
governance charter includes a chapter on the regulation of our nomination and remuneration committee; however, the committee does
not review the charter annually and, therefore, we do not believe that we satisfy the requirements of Rule 5605(d)(1).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Executive Sessions.Nasdaq Stock Market Listing Rule 5605(b)(2) requires companies to have regularly scheduled
meetings at which only independent directors of the company are present. There is no corresponding requirement under Belgian law.
Our corporate governance charter requires our non-executive directors to meet without the presence of any executive directors at
least once a year; however, these meetings do not exclude our other non-independent directors and, therefore, we do not believe
that we satisfy the requirements of Rule 5605(b)(2).
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Solicitation of Proxies.Nasdaq Stock Market Listing Rule 5620(b) mandates that a company, which is not a
limited partnership, shall solicit proxies and provide proxy statements for all meetings of shareholders and shall provide copies
of such proxy solicitation to Nasdaq. In compliance with Belgian corporate law, we provide proxy forms for all meetings of shareholders
on our website 30 or 17 days in advance of the meetings; the convening notice provides information on how shareholders can vote
and where they can find the proxy form. These proxy forms are for shareholders and not for holders of ADSs. The voting rights of
the holders of the ADSs will be governed by the terms of the deposit agreement, pursuant to which holders of ADSs may instruct
the depositary to vote the ordinary shares underlying their ADSs as long as we request the depositary to ask for their instructions.
Otherwise, holders of ADSs could exercise their right to vote by withdrawing ordinary shares underlying their ADSs to vote them
in person or by proxy in accordance with Belgian corporate law and our articles of association. However, holders of ADSs may not
know about a meeting far enough in advance to withdraw the ordinary shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Shareholder Approval. Under Nasdaq Stock Market Listing Rule 5635, a company requires shareholder approval prior
to an issuance of securities in connection with any of the following: (i) the acquisition of the stock or assets of another
company; (ii) equity-based compensation of officers, directors, employees or consultants; (iii) a change of control;
and (iv) a private placement. We follow Belgian law with respect to the issuance of securities, which has different rules
with respect to shareholder approval. Changes to our share capital are in principle decided by our shareholders. However, our meeting
of shareholders may authorize our board of directors, within certain limits, to increase our share capital without any further
approval of our shareholders, including for purposes of acquiring the shares or assets of other companies or for issuing shares,
options or warrants to certain persons, including non-employees. This authorization can only be granted for a renewable period
of a maximum of five years and may not exceed the amount of the registered share capital at the time of the authorization. Additionally,
the Belgian Company Code includes specific provisions requiring shareholder approval for certain change of control situations
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Part III



Item 17. Financial Statements



We have elected to include financial statements
pursuant to Item 18.



Item 18. Financial Statements



Our annual financial statements are included
at the end of this Annual Report.



Item 19. Exhibits



(a) The following documents are filed as
part of this Annual Report:



|Exhibit
No. | Exhibit                                                                                                                                                                                                                                                                                                      
|----------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1*        | Articles of Association of TiGenix, as amended and currently in effect (English translation)                                                                                                                                                                                                                 
|            |                                                                                                                                                                                                                                                                                                              
|2.1         | Form of Deposit Agreement (incorporated by reference to exhibit (A) of the Amendment No. 1 to the Registration Statement on Form F-6 (333-208703) filed with the SEC on December 5, 2016)                                                                                                                    
|            |                                                                                                                                                                                                                                                                                                              
|2.2         | Form of American Depositary Receipt (included in Exhibit 2.1)                                                                                                                                                                                                                                                
|            |                                                                                                                                                                                                                                                                                                              
|4.1†        | Distribution Agreement dated April 2, 2014 between TiGenix and Swedish Orphan Biovitrium AB as restated on April 23 and on May 28, 2014 (incorporated by reference to exhibit 10.1 of the Amendment No. 3 to the TiGenix Registration Statement on Form F- 1 (333-208693) filed with the SEC on July 6, 2016)
|            |                                                                                                                                                                                                                                                                                                              
|4.2†        | Loan Facility Agreement dated December 20, 2013 between TiGenix and Kreos Capital IV (UK) Limited (incorporated by reference to exhibit 10.2 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                         
|            |                                                                                                                                                                                                                                                                                                              
|4.3†        | Share Purchase Agreement dated January 23, 2014 between TiGenix and PharmaCell B.V. (incorporated by reference to exhibit 10.3 of the Amendment No. 3 to the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on July 6, 2016)                                                     
|            |                                                                                                                                                                                                                                                                                                              
|4.4         | Warrants Plan 2012 (English translation) (incorporated by reference to exhibit 10.4 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                  
|            |                                                                                                                                                                                                                                                                                                              
|4.5         | Warrants Plan 2013 (English translation) (incorporated by reference to exhibit 10.5 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                  
|            |                                                                                                                                                                                                                                                                                                              
|4.6         | Second Warrants Plan 2013 (English translation) (incorporated by reference to exhibit 10.6 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                           
|            |                                                                                                                                                                                                                                                                                                              
|4.7         | Kreos Warrants Plan (English translation) (incorporated by reference to exhibit 10.7 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                 
|            |                                                                                                                                                                                                                                                                                                              
|4.8†        | Agreement for the Manufacturing of ChondroCelect between TiGenix NV, TiGenix B.V. and PharmaCell B.V. dated May 30, 2014 (incorporated by reference to exhibit 10.8 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                  
|            |                                                                                                                                                                                                                                                                                                              
|4.9         | Assignment of Exploitation Rights dated November 3, 2014 between Cellerix, S.L. and the Universidad Autonóma de Madrid (English translation (incorporated by reference to exhibit                                                                                                                            

147


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|Exhibit
No. | Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 10.9 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.10        | Amendment to the Agreement for the Assignment of Rights to Exploit IP between the Universidad Autonóma De Madrid and Cellerix, S.L., of November 3, 2004 (English translation) (incorporated by reference to exhibit 10.10 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                     
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.11        | Agreement for the Joint Ownership and Licensing of Exploitation Rights dated June 1, 2009 between Cellerix S.A. and the Consejo Superior de Investigaciones Científicas (incorporated by reference to exhibit 10.11 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                            
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.12        | Agreement for the Joint Ownership and Licensing of Exploitation Rights dated January 17, 2011 between Cellerix S.A., the Consejo Superior de Investigaciones Científicas and the University of Seville (incorporated by reference to exhibit 10.12 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.13        | Lease Agreement for Offices and Parking Spaces in Calle Marconi 1, Tres Cantos (Madrid) dated July 1, 2013 between TiGenix SAU and Mr. José Luis Gómez Ruiz and Mr. Álvaro García De La Rasilla Gortázar (English translation) (incorporated by reference to exhibit 10.13 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                     
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.14        | English summary of Loan Agreement between TiGenix SAU and Madrid Network dated September 30, 2011(incorporated by reference to exhibit 10.14 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.15        | English summary of Loan Agreement between TiGenix SAU and Madrid Network dated July 30, 2013 (incorporated by reference to exhibit 10.15 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.16        | Terms and conditions of the senior unsecured convertible bonds due 2018 dated June 25, 2015 (incorporated by reference to exhibit 10.16 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.17        | Trust Deed dated March 6, 2015 between TiGenix, TiGenix S.A.U. and BNP Paribas Trust Corporation UK Limited constituting 25 million euros in 9% senior unsecured convertible bonds due 2018 guaranteed by TiGenix S.A.U. convertible into fully paid ordinary shares in the issuer (incorporated by reference to exhibit 10.17 of the TiGenix Registration Statement on Form F-1 (333- 208693) filed with the SEC on December 22, 2015)
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.18†       | Contribution agreement regarding the contribution of shares in, and the contribution and the transfer and assignment of receivables on, Coretherapix S.L. between Genetrix S.L. and TiGenix NV dated July 29, 2015 (incorporated by reference to exhibit 10.18 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                 
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.19        | English summary of Service Agreement between Science to Business Technology Park and Coretherapix dated October 30, 2014 (Lease agreement) (incorporated by reference to exhibit 10.19 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                         
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        
|4.20        | Manufacturing Services Agreement between TiGenix S.A.U. and Lonza Walkersville, Inc. dated February 9, 2015 (Lease agreement) (incorporated by reference to exhibit 10.20 of the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on December 22, 2015)                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|Exhibit
No. | Exhibit                                                                                                                                                                                                                                                                      
|----------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.21        | Warrants Plan 2015 (English translation) (incorporated by reference to exhibit 10.21 of the Amendment No. 1 to the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on February 3, 2016)                                                           
|            |                                                                                                                                                                                                                                                                              
|4.22        | License Agreement between TiGenix S.A.U. and Takeda Pharmaceuticals International AG dated July 4, 2016 (incorporated by reference to exhibit 10.22 of the Amendment No. 3 to the TiGenix Registration Statement on Form F-1 (333-208693) filed with the SEC on July 6, 2016)
|            |                                                                                                                                                                                                                                                                              
|4.23*       | Offer and Support Agreement between TiGenix S.A.U. and Takeda Pharmaceuticals International AG dated January 5, 2018                                                                                                                                                         
|            |                                                                                                                                                                                                                                                                              
|4.24*†      | Patent License and Settlement Agreement between Mesoblast Inc., Mesoblast International Sàrl and TiGenix S.A.U. dated December 14, 2017                                                                                                                                      
|            |                                                                                                                                                                                                                                                                              
|4.25*       | Warrants Plan 2017 (English translation)                                                                                                                                                                                                                                     
|            |                                                                                                                                                                                                                                                                              
|8.1*        | List of subsidiaries                                                                                                                                                                                                                                                         
|            |                                                                                                                                                                                                                                                                              
|12.1*       | Certification of Eduardo Bravo pursuant to 17 CFR 240.13a-14(a)                                                                                                                                                                                                              
|            |                                                                                                                                                                                                                                                                              
|12.2*       | Certification of Claudia D’Augusta pursuant to 17 CFR 240.13a-14(a)                                                                                                                                                                                                          
|            |                                                                                                                                                                                                                                                                              
|13.1*       | Certification of Eduardo Bravo pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                              
|13.2*       | Certification of Claudia D’Augusta pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C.1350                                                                                                                                                                                        
|            |                                                                                                                                                                                                                                                                              
|16.1*       | Letter of BDO Bedrijfsrevisoren Burg. CVBA dated April 16, 2018 regarding change in the Company’s independent registered public accounting firm                                                                                                                              
|            |                                                                                                                                                                                                                                                                              

| | * | Submitted herewith.
| | - | -------------------



| | † | Confidential treatment has been sought with respect to portions of the exhibit, which has been separately submitted to the
SEC.
| | - | -------------------------------------------------------------------------------------------------------------------------------



149


Table of Contents


Signatures



The registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed
on its behalf by the undersigned, thereunto duly authorized, in Madrid, Spain on April 16, 2018.



|TIGENIX
|-------
|       
|       
|By:    
|       
|       





|By: | /s/ Claudia D’Augusta
|--- | ---------------------
|    | Name:                
|    | Title:               

150


Table of Contents






REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders of



Tigenix
NV:



Opinion
on the Financial Statements



We
have audited the accompanying consolidated statement of financial position of TiGenix NV and its subsidiaries as of December 31,
2017, and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of
changes in equity, and consolidated statement of cash flows for the year in the period ended December 31, 2017, including the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017,
and the results of their operations and their cash flows for the year in the period ended December 31, 2017 in conformity with
International Financial Reporting Standards as issued by the International Accounting Standards Board.



Substantial
Doubt About the Company’s Ability to Continue as a Going Concern



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company has incurred losses and negative cash flows from
operations for the year in the period ended December 31, 2017, and, since its inception except for the year in the period ended
December 31, 2016, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.



Basis
for Opinion



These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.



We
conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such opinion.



Our
audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.






Table of Contents


/s/
PricewaterhouseCoopers Auditores, S.L.

Madrid,
Spain



April
16, 2018



We
have served as the Company's auditor since 2017.














Table of Contents








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM



Board of Directors and Shareholders

TiGenix NV



Leuven, Belgium



We have audited the accompanying consolidated statements
of financial position of TiGenix NV as of December 31, 2016 and 2015 and the related consolidated income statements and statements
of comprehensive income, changes in equity, and cash flows for each of the two years in the period ended December 31, 2016. These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
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. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, 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 TiGenix NV at December 31, 2016 and 2015,
and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2016,in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.



Zaventem, Belgium

April 6, 2017



/s/
Veerle Catry



BDO Bedrijfsrevisoren Burg. Ven. CVBA

Auditor



Represented by Veerle Catry








Table of Contents
























TiGenix NV



(Public limited liability company under
Belgian law with registered office at Romeinse straat 12 box 2, 3001 Leuven, Belgium and registered with the register of legal
entities (rechtspersonenregister – RPR) (Leuven) under enterprise number 0471.340.123)















F-1


Table of Contents


| | 1. | consolidated financial statements
| | -- | ---------------------------------



| | 1.1. | Consolidated income statements
| | ---- | ------------------------------



|                                                                   |  |       |  | Years ended December 31,
|------------------------------------------------------------------ |  | ----- |  | ------------------------
|Thousands of euros except per share data                           |  | Notes |  | 2017                    
|                                                                   |  |       |  |                         
|Revenues and other operating income                                |  |       |  |                         
|Royalties                                                          |  | 6     |  |                         
|License revenues                                                   |  | 6     |  |                         
|Grants and other operating income                                  |  | 6     |  |                         
|Total revenues and other operating income                          |  |       |  |                         
|Research and development expenses                                  |  | 7     |  |                         
|General and administrative expenses                                |  | 7     |  |                         
|Total operating expenses                                           |  |       |  |                         
|Operating Loss                                                     |  |       |  |                         
|Financial income                                                   |  | 8     |  |                         
|Interest on borrowings and other finance costs                     |  | 8     |  |                         
|Fair value gains                                                   |  | 8     |  |                         
|Fair value losses                                                  |  | 8     |  |                         
|Impairment and gains/(losses) on disposal of financial instruments |  | 8     |  |                         
|Foreign exchange differences, net                                  |  | 8     |  |                         
|Profit (Loss) before taxes                                         |  |       |  |                         
|Income tax                                                         |  | 9     |  |                         
|Profit (Loss) for the year                                         |  |       |  |                         
|Basic income (loss) per share (euro)                               |  | 10    |  |                         
|Diluted income (loss) per share (euro)                             |  | 10    |  |                         



The accompanying notes form an integral
part of these consolidated financial statements.



F-2


Table of Contents


| | 1.2. | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | ---- | -----------------------------------------------





|                                                                                                  |  | Years ended December 31,
|------------------------------------------------------------------------------------------------- |  | ------------------------
|Thousands of euros                                                                                |  | 2017                    
|Profit (Loss) for the year                                                                        |  |                         
|Items of other comprehensive income that may be reclassified subsequently to the income statement |  |                         
|Currency translation differences                                                                  |  |                         
|Other comprehensive Income (Loss)                                                                 |  |                         
|Total comprehensive Income (Loss)                                                                 |  |                         
|Attributable to equity holders of TiGenix                                                         |  |                         





The accompanying notes form an integral
part of these consolidated financial statements.



F-3


Table of Contents


| | 1.3. | Consolidated statements of financial position
| | ---- | ---------------------------------------------



|                                                         |  |       |  | As at December 31,
|-------------------------------------------------------- |  | ----- |  | ------------------
|Thousands of euros                                       |  | Notes |  | 2017              
|ASSETS                                                   |  |       |  |                   
|Intangible assets                                        |  | 11    |  |                   
|Property, plant and equipment                            |  | 12    |  |                   
|Other non-current assets                                 |  | 13    |  |                   
|Non-current assets                                       |  |       |  |                   
|Inventories                                              |  | 14    |  |                   
|Trade and other receivables                              |  | 15    |  |                   
|Current tax assets                                       |  | 9     |  |                   
|Other current financial assets                           |  | 16    |  |                   
|Cash and cash equivalents                                |  |       |  |                   
|Current assets                                           |  |       |  |                   
|                                                         |  |       |  |                   
|TOTAL ASSETS                                             |  |       |  |                   
|                                                         |  |       |  |                   
|EQUITY AND LIABILITIES                                   |  |       |  |                   
|Share capital                                            |  | 17    |  |                   
|Share premium                                            |  | 17    |  |                   
|Share to be issued                                       |  |       |  |                   
|Accumulated deficit                                      |  |       |  |                   
|Other reserves                                           |  |       |  |                   
|Equity attributable to equity holders                    |  |       |  |                   
|Total equity                                             |  |       |  |                   
|Financial loans and other payables                       |  | 18    |  |                   
|Deferred tax liability                                   |  | 19    |  |                   
|Other non-current liabilities – Contingent consideration |  | 20    |  |                   
|Non-current liabilities                                  |  |       |  |                   
|Current portion of financial loans                       |  | 18    |  |                   
|Other financial liabilities                              |  | 18    |  |                   
|Trade and other payables                                 |  | 21    |  |                   
|Other current liabilities                                |  | 22    |  |                   
|Other current liabilities – Contingent consideration     |  | 20    |  |                   
|Current liabilities                                      |  |       |  |                   
|                                                         |  |       |  |                   
|TOTAL EQUITY AND LIABILITIES                             |  |       |  |                   



The accompanying notes form an integral
part of these consolidated financial statements.



F-4


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| | 1.4. | Consolidated STATEMENTS OF cash flowS
| | ---- | -------------------------------------



|                                                                  |  |       |  | Years ended December 31,
|----------------------------------------------------------------- |  | ----- |  | ------------------------
|Thousands of euros                                                |  | Notes |  | 2017                    
|CASH FLOWS FROM OPERATING ACTIVITIES                              |  |       |  |                         
|Operating loss                                                    |  |       |  |                         
|                                                                  |  |       |  |                         
|Adjustments for:                                                  |  |       |  |                         
|Depreciation, amortisation                                        |  |       |  |                         
|Share-based compensation                                          |  | 17    |  |                         
|Impairment of intangible assets                                   |  | 11    |  |                         
|Grant income                                                      |  | 6     |  |                         
|Deferred revenue                                                  |  |       |  |                         
|Contingent consideration                                          |  | 20    |  |                         
|Other                                                             |  |       |  |                         
|                                                                  |  |       |  |                         
|Movements in working capital:                                     |  |       |  |                         
|Decrease / (increase) in inventories                              |  |       |  |                         
|Decrease / (increase) in trade and other receivables              |  |       |  |                         
|(Decrease) / increase in trade and other payables                 |  |       |  |                         
|Decrease in other financial assets                                |  |       |  |                         
|Increase/(decrease) in other current liabilities                  |  |       |  |                         
|                                                                  |  |       |  |                         
|Cash (used in)/provided by operations                             |  |       |  |                         
|Income taxes received                                             |  |       |  |                         
|                                                                  |  |       |  |                         
|Net cash (used in) / provided by operating activities             |  |       |  |                         
|CASH FLOWS FROM INVESTING ACTIVITIES                              |  |       |  |                         
|Acquisition of property, plant and equipment                      |  |       |  |                         
|Acquisition of intangible assets                                  |  |       |  |                         
|Proceeds from disposal of property, plant and equipment           |  |       |  |                         
|(Increase)/decrease of other non-current assets                   |  |       |  |                         
|(Increase)/decrease of other current financial assets             |  |       |  |                         
|Acquisition of subsidiaries, net of cash acquired                 |  | 4     |  |                         
|Net cash (used in) / provided by investing activities             |  |       |  |                         
|CASH FLOWS FROM FINANCING ACTIVITIES                              |  |       |  |                         
|Gross proceeds from issuance of equity instruments of the Company |  | 17    |  |                         
|Issuance costs equity increase                                    |  | 17    |  |                         
|Net proceeds from financial loans                                 |  |       |  |                         
|Repayments of financial loans                                     |  |       |  |                         
|Transaction with own shares                                       |  |       |  |                         
|Repayments of other financial liabilities                         |  |       |  |                         
|Proceeds from government grants                                   |  |       |  |                         
|Proceeds from issuance of convertible notes                       |  | 18    |  |                         
|Issuance costs convertible notes                                  |  | 18    |  |                         
|Interests paid                                                    |  |       |  |                         
|Net cash (used in) provided by financing activities               |  |       |  |                         
|Net increase/(decrease) in cash and cash equivalents              |  |       |  |                         
|Cash and cash equivalents at beginning of the year                |  |       |  |                         
|Effect of currency translation on cash and cash equivalents       |  |       |  |                         
|Cash and cash equivalents at end of year                          |  |       |  |                         



The accompanying notes form an integral
part of these consolidated financial statements.



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| | 1.5. | Consolidated statementS of changes in equity
| | ---- | --------------------------------------------





|                                              |  |                       |             |                   |  |                   |        |                         |  |                          |         | Other
    reserves                           |  |                         
|--------------------------------------------- |  | --------------------- | ----------- | ----------------- |  | ----------------- | ------ | ----------------------- |  | ------------------------ | ------- | -------------------------------------------- |  | ------------------------
|Thousands
    of euros except share data      |  | Numbers
    of shares |             | Share
    capital |  | Share
    premium |        | Shares
    to be issued |  | Accumulated
    deficits |         | Equity-settled
    employee benefits reserve |  | Translation
    reserves
|At
    January 1, 2015                        |  |                       | 160,476,620 |                   |  |                   | 16,048 |                         |  |                          | 100,118 |                                              |  |                         
|Loss
    for the year                         |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Other
    comprehensive loss                  |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Total
    comprehensive loss                  |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Issuance of shares                            |  |                       | 16,827,967  |                   |  |                   | 1,682  |                         |  |                          | 13,073  |                                              |  |                         
|Transaction
    costs                         |  |                       | —           |                   |  |                   | —      |                         |  |                          | (441    | )                                            |  |                         
|Share-based
    compensation                  |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Other                                         |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|At
    December 31, 2015                      |  |                       | 177,304,587 |                   |  |                   | 17,730 |                         |  |                          | 112,750 |                                              |  |                         
|Profit for the year                           |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Other
    comprehensive loss (Note17.3)       |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Total
    comprehensive income                |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Issuance of shares (Note 17.1)                |  |                       | 82,651,778  |                   |  |                   | 8,265  |                         |  |                          | 59,596  |                                              |  |                         
|Transaction
    costs (Note 17.1)             |  |                       | —           |                   |  |                   | —      |                         |  |                          | (5,716  | )                                            |  |                         
|Share-based
    compensation (Notes 17.2, 23) |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|At
    December 31, 2016                      |  |                       | 259,956,365 |                   |  |                   | 25,996 |                         |  |                          | 166,630 |                                              |  |                         
|Profit for the year                           |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Total
    comprehensive income                |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Issuance of shares (Note 17.1)                |  |                       | 14,330,825  |                   |  |                   | 1,433  |                         |  |                          | 11,180  |                                              |  |                         
|Transaction
    costs (Note 17.1)             |  |                       | —           |                   |  |                   | —      |                         |  |                          | (268    | )                                            |  |                         
|Transaction
    with own shares (Note 23)     |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Share-based
    compensation (Notes 17.2, 23) |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|Shares
    pending to be issued (Note 23)     |  |                       | —           |                   |  |                   | —      |                         |  |                          | —       |                                              |  |                         
|At
    December 31, 2017                      |  |                       | 274,287,190 |                   |  |                   | 27,429 |                         |  |                          | 177,542 |                                              |  |                         







The accompanying
notes form an integral part of these consolidated financial statements.



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| | 1.6. | NOTES TO THE CONSOLIDATED Financial STATEMENTS
| | ---- | ----------------------------------------------



1. General information



TiGenix NV, the parent company,
(hereafter “TiGenix”, the “Company”, the “Group”, “we” or “us”)
is a limited liability company incorporated and domiciled in Belgium. The registered office is located at Romeinse straat
12, bus 2, 3001 Leuven, Belgium. These consolidated financial statements of the Company with respect to the
financial years ended December 31, 2015, December 31, 2016 and December 31, 2017 comprise the financial statements of TiGenix
NV (Belgium legal entity) and its subsidiaries TiGenix SAU. (Spanish legal entity), Coretherapix, SLU (Spanish legal entity),
TiGenix Inc. (United States legal entity) and TiGenix US, Inc. (United States legal entity).



TiGenix is a leading European cell therapy
company with an advanced clinical stage pipeline of adult stem cell programs. The stem cell programs are based on proprietary validated
platforms of allogeneic expanded stem cells targeting autoimmune, inflammatory and heart diseases. Built on solid pre-clinical
and CMC packages, they are being developed in close consultation with the European Medicines Agency.



As a result of this activity, the Group
has developed different products which are in different stages of approval and/or potential sale.



TiGenix’s most advanced product is
Cx601 which received positive Committee for Medicinal Products for Human Use (“CHMP”) opinion in Europe on December
14, 2017, based on the data from a European Phase III clinical trial (ADMIRE-CD), which was completed in August 2015. Cx601 has
been developed to treat complex perianal fistulas in patients with Crohn’s disease.



TiGenix US Inc. is fully participated by
TiGenix SAU and was incorporated in May 2017 in the state of Delaware, with the strategic goal of filing and commercializing TiGenix’s
lead product, Cx601, for the treatment of complex perianal fistulas in Crohn’s disease patients in the United States.



On July 4, 2016, TiGenix entered into a
licensing agreement with Takeda, a public limited liability pharmaceutical company incorporated under the laws of Japan (“Takeda”)
leader in gastroenterology, whereby Takeda acquired an exclusive right to commercialize Cx601 for complex perianal fistulas in
Crohn’s patients outside of the U.S.



On January 5, 2018 Takeda, announced its
intention to launch a potential voluntary and conditional public tender offer to purchase up to 100% of the issued and outstanding
shares of the Company. (See note 27)



Another developed product is Cx611 which
has successfully concluded a Phase IIa trial in rheumatoid arthritis, and is now in development for a Phase Ib/IIa study in severe
sepsis secondary to severe community-acquired pneumonia.



Effective as of July 31, 2015, TiGenix acquired
Coretherapix, SLU (“Coretherapix”), whose lead cellular product, AlloCSC-01, is currently in a Phase II clinical trial
in acute myocardial infarction (AMI). With Cx601 now having received a positive regulatory opinion in Europe, TiGenix reviewed
its pipeline priorities beyond the continued commitment to the development of Cx601 for the US market and Cx611 for sepsis. The
Company is of the opinion that Cx601 has great potential in other indications and that it will deliver greater shareholder value
by directing its resources to targeted trials in those areas. Given the focus on Cx601 and the allogeneic adipose-derived stem
cell technology, TiGenix will not dedicate investing efforts to R&D of its allogeneic cardiac stem cell technology.



ChondroCelect®, for cartilage repair
in the knee, was the first cell-based product approved in Europe. Due to the regulatory environment TiGenix withdrew the marketing
authorization for ChondroCelect on



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July 2016 and came to an agreement with
Sobi, Finnish Red Cross and Pharmacell for the early termination of their existing commercial relationships.



The consolidated financial statements of
the Group for the years ended December 31, 2017, 2016 and 2015 were approved and authorised for issue on April 11, 2018 in accordance
with a resolution of the Company’s board of directors (“BoD”) on April 11, 2018.



2. Summary of significant accounting
policies



Basis
of preparation



The Group’s consolidated financial
statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB).



The principal accounting policies applied
in the preparation of the consolidated financial statements are set out below. These policies have been consistently applied to
all of the years presented, unless otherwise stated.



These consolidated financial statements
do not include any information or disclosures that, not requiring presentation due to their qualitative significance, have been
determined as immaterial or of no relevance pursuant to the concepts of materialityor relevancedefined in the IFRS
conceptual framework, insofar as the Group’s consolidated financial statements, taken as a whole, are concerned. All amounts
are presented in thousands of euros, unless otherwise indicated, rounded to the nearest 1,000 euro.



The financial statements have been prepared
on the basis of the historical cost method. Any exceptions to the historical cost method are disclosed in the valuation rules described
hereafter.



The preparation of financial statements
in compliance with IFRS requires the use of certain critical accounting estimates. It also requires the Group’s management
to exercise judgment in applying the Group’s accounting policies. The areas where significant judgments and estimates have
been made in preparing the financial statements and their effect are disclosed in note 3.



Liquidity



The Group is subject to a number of risks
similar to those of other pre-commercial stage companies, including uncertainty of product development and generation of revenues,
dependence on outside sources of capital, risks associated with research, development, testing, and obtaining related regulatory
approvals of its pipeline products, dependence on price reimbursement decisions from national authorities or insurance providers,
dependence on third party manufacturers, suppliers and collaborators, successful protection of intellectual property, competition
with larger, better-capitalized companies, successful completion of the Group’s development programs. Ultimately, the attainment
of profitable operations is dependent on future events, including obtaining adequate financing to fulfill its development activities
and generating a level of revenues adequate to support the Group’s cost structure.



The Group has experienced net losses and
significant cash outflows from cash used in operating activities since its inception except for year 2016, and as at December 31,
2017 had an accumulated deficit of 189.8 million euros (2016: 116.2 million euros; 2015: 120.0 million euros), a loss for
the year of 74.8 million euros (2016: income of 3.8 million euros; 2015: loss of 35.1 million euros) and net cash used in
operating activities of 30.3 million euros (2016: net cash provided: 3.5 million euros; 2015: net cash used in: 19.6 million
euros).



The accompanying consolidated financial
statements have been prepared assuming that the Group will continue as a going concern. This basis of accounting contemplates the
recovery of the Group’s assets and the satisfaction of liabilities in the normal course of business.



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As of December 31, 2017, we had cash and
cash equivalents of 34.1 million euros. In addition, after receiving marketing authorization from the European Commission for Cx061
on March 23, 2018, TiGenix expects to receive 15 million euros from Takeda as a milestone payment under its licensing agreement
with Takeda during the second quarter of 2018. Our board of directors is of the opinion that this cash position is sufficient to
continue operating through the next 12 months, but we will require significant additional cash resources to launch new development
phases of existing projects in our pipeline.



In order to be able to launch
such new development phases, we intend to obtain on a timely basis either additional non-dilutive funding, such as from establishing
commercial relationships, dilutive funding or both. On the last quarter of the 2017, we started negotiations with the European
Investment Bank in order to obtain a 25 million euros loan from its program “InnovFin” (loans to innovative business
with fewer than 3,000 employees to support the growth and investments in research and innovation).



A successful transition to attaining profitable
operations is dependent upon achieving a level of positive cash flows adequate to support the Group’s cost structure.



On January 19, 2018, the Company issued
20,037,848 new shares resulting from the conversion of 18 million of senior unsecured convertible bonds of TiGenix NV due on March
6, 2018.



On November 6, 2017, TiGenix announced the
partial conversion of its senior, unsecured convertible bonds. Through this converstion, the total convertible debt was reduced
from EUR 25 million to EUR 18 million. (See note 18 for further information on our convertible bonds).



The Group will continue to consider additional
business opportunities to allow us to develop our pipeline and generate additional revenues. We expect to use any capital obtained
from such fund raisings or other arrangements to further develop our product candidates.



The future viability of the Group is dependent
on its ability to generate cash from operating activities, to raise additional capital to finance its operations or to successfully
obtain regulatory approval to allow marketing of the Group’s products. The Group’s failure to raise capital as and
when needed could have a negative impact on its financial condition and ability to pursue its business strategies.



The consolidated financial statements do
not include any adjustments due to this uncertainty relating to the recoverability and classification of recorded asset amounts
and classification of liabilities.



New and amended standards and interpretations



The Group applied for the first time certain
amendments to the standards, which are effective for annual periods beginning on or after January 1, 2017. The Group has not early
adopted any standards, interpretations or amendments that have been issued but are not yet effective.



The nature and the impact of each amendment
is described below:



Amendments to IAS 7 Statement of Cash
Flows: Disclosure Initiative



The amendments require entities to provide
disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and
non-cash changes (such as foreign exchange gains or losses). The Group has provided the information for both the current and the
comparative period in note 5. (See the reconciliation of the net cash flow to the movement in net debt in note 18)



Amendments to IAS 12 Income Taxes:
Recognition of Deferred Tax Assets for Unrealised Losses



The amendments clarify that an entity needs
to consider whether tax law restricts the sources of taxable profits against which it may make deductions on the reversal of deductible
temporary difference related to unrealized losses. Furthermore, the amendments provide guidance on how an entity should determine



F-9


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future taxable profits and explain the circumstances
in which taxable profit may include the recovery of some assets for more than their carrying amount.



Their application has no effect on the Group’s
financial position and performance as the Group has no deductible temporary differences or assets that are in the scope of the
amendments.



Standards issued but not yet effective



The standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group
intends to adopt these standards, if applicable, when they become effective.



|Standard                                                                                  | Brief explanation of the requirement                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Amendments to IFRS 2 - Classification and measurement of share-based payment transactions | The amendment affects the classification
        and quantification of share-based payments in three areas:
        
        • Accounting for cash-settled share-based
        payment transactions that include a performance condition,
        
        • The classification of share-based
        payments settled net of tax withholdings, and
        
        • Accounting in case of modification
        of share-based payment transactions from cash-settled to equity-settled.
|Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration          | This interpretation deals with the accounting record of advance consideration provided in a currency other than the functional currency for the purchase of goods and how the differences in exchange for such advance compensation should be recognised.                                                                                                                                                                                                                                  
|Improvements to IFRS, 2015-2017 cycle                                                     | It includes changes to IAS 12 (Income Taxes), IAS 23 (Borrowing Costs) and IAS 28 (Investments in Associates and Joint Ventures).                                                                                                                                                                                                                                                                                                                                                          
|Interpretation IFRIC 23, Uncertainty over Income Tax Treatments                           | This Interpretation clarifies how to apply the recognition and measurement requirements of IAS 12 when there is uncertainty over income tax treatments.                                                                                                                                                                                                                                                                                                                                    



Based on the analyses carried out to date,
the Group initially has concluded that the application of these standards and amendments will not have a significant impact on
the consolidated financial statements in the initial period of application. However, for the most relevant standards (IFRS 9, 15
and 16) the Group has carried out the analyses shown below:



| | · | IFRS 9 Financial Instruments
| | - | ----------------------------



In July 2014, the IASB issued the final
version of IFRS 9 Financial Instrumentsthat replaces IAS 39 Financial Instruments: Recognition and Measurementand
all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project:
classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1
January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing
comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some
limited exceptions.



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The Group plans to adopt the new standard
on the required effective date and will not restate comparative information. During 2017, the Group has performed a detailed impact
assessment of all three aspects of IFRS 9.



This assessment is based on currently available
information and may be subject to changes arising from further reasonable and supportable information being made available to the
Group in 2018 when the Group will adopt IFRS 9. Overall, the Group expects no significant impact on its statement of financial
position and equity.



(a) Classification and measurement



The Group does not expect a significant
impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9.



Loans as well as trade receivables are held
to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest.
The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for
amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.



(b) Impairment



IFRS 9 requires the Group to record expected
credit losses on all of its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group will
apply the simplified approach and record lifetime expected losses on all trade receivables. The Group does not expect any impact
on applying the new estimation considering the characteristics of its receivables.



| | · | IFRS 15 Revenue from Contracts with Customers
| | - | ---------------------------------------------



IFRS 15 was issued in May 2014 and establishes
a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount
that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.



The new revenue standard will supersede
all current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application
is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. The Group plans to adopt the
new standard on the required effective date using the modified retrospective method. During 2016, the Group performed a preliminary
assessment of IFRS 15, which was continued with a more detailed analysis completed in 2017.



The Group is in the business of the development
of cell therapy programs with an advanced clinical stage pipeline of adult stem cell programs. The stem cell programs are based
on proprietary validated platforms of allogeneic expanded stem cells targeting autoimmune, inflammatory and heart diseases. Built
on solid pre-clinical and CMC packages, they are being developed in close consultation with the European Medicines Agency.



As a consequence of this activity, the Group
licenses its intellectual property. The license is a right of use license. Below is a summary of the Company’s preliminary
assessment of IFRS 15 and the potential impact(s) to the Company’s financial statements upon implementation:



| | (a) | Licenses sales
| | --- | --------------



In the license of its intellectual property,
TiGenix identifes and separates the different performance obligations embedded in the contract.



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As of December 31, 2017, the Company has
one licensing agreement. The license is a right of use license. This licensing agreement, in addition to the right of use of the
license, includes some other performance obligations which has not been satisfied at December 31, 2017 because they are dependent
on the approval of the use of the license in the European Union.



The performance obligations identified in
the agreement are the following:



| | - | License of the product which permits to sell the product using the “TiGenix” trademark
in the relevant territory. The Company is transferring the ownership (risks and rewards) of the license and Takeda can benefit
from that license by itself from the signature date.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | Obtaining the marketing authorization for Cx601.
| | - | ------------------------------------------------



| | - | Transfer of knowledge.
| | - | ----------------------



| | - | Manufacturing of the product during a certain period of time.
| | - | -------------------------------------------------------------



(b) Variable consideration



The Group recognises revenue from the sale
of goods measured at the fair value of the consideration received or receivable. If revenue cannot be reliably measured, the Group
defers revenue recognition until the uncertainty is resolved. Such provisions give rise to variable consideration under IFRS 15,
and will be required to be estimated at contract inception and updated thereafter. However, IFRS 15 requires the estimated variable
consideration to be constrained to prevent over-recognition of revenue.



The right of use license discussed above
involves a future potential milestone payment to be collected when marketing authorization occurs. Under IAS 18, the Group did
not recognize as revenue these milestone payments, as the collection was not guaranteed. Under the new standard, future contingent
consideration is treated as variable. This variable consideration, under the new standard, needs to be estimated although only
to the extent that it is highly probable that a significant reversal will not occur. Considering the amount of the milestone that
was conditioned upon obtaining marketing approval and considering that collection depends on facts and circumstances that are out
the entity’s control, these milestone payments should not be recognized as revenue until the marketing authorization
occurs (the relevant marketing authorization was obtained on March 23, 2018). At this point it is highly probable that a significant
reversal will not occur.



In the contract, there are some other rights
of future revenue in the form of royalties on future sales. A sales-based royalty is recognized at the later of the subsequent
sales or the performance obligation to which the royalties relate has been satisfied, which does not differ from current accounting
treatment.



(c) Presentation and disclosure requirements



The presentation and disclosure requirements
under IFRS 15 are more detailed than under current IFRS. The presentation requirements represent a significant change from current
practice and significantly increases the volume of disclosures required in the Group’s financial statements.



Many of the disclosure requirements in IFRS
15 are new and the Group has assessed that the impact of some of these disclosures requirements will be significant. In particular,
the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgements
made: when determining the transaction price of those contracts that include variable consideration, how the transaction price
has been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling prices of each
performance obligation. In addition, as required by IFRS 15, the Group will disaggregate revenue recognised from contracts with
customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by
economic factors.



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| | · | IFRS 16 Leases
| | - | --------------



IFRS 16 was issued in January 2016 and it
replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives
and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.



IFRS 16 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance
sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees
– leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term
of 12 months or less).



At the commencement date of a lease, a lessee
will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying
asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense
on the lease liability and the depreciation expense on the right-of-use asset.



Lessees will be also required to remeasure
the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments
resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of
the remeasurement of the lease liability as an adjustment to the right-of-use asset.



Lessor accounting under IFRS 16 is substantially
unchanged from today’s accounting under IAS 17. Lessors will continue to classify all leases using the same classification
principle as in IAS 17 and distinguish between two types of leases: operating and finance leases.



IFRS 16 also requires lessees and lessors
to make more extensive disclosures than under IAS 17.



IFRS 16 is effective for annual periods
beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose
to apply the standard using either a full retrospective or a modified retrospective approach. The standard’s transition provisions
permit certain reliefs.



IFRS 16 ‘Leases’ was issued
in January 2016 and will be implemented by the Group from 1 January 2019. The Standard will replace IAS 17 ‘Leases’
and will require lease liabilities and ‘right of use’ assets to be recognised on the balance sheet for almost all leases.
This is expected to result in a significant increase in both assets and liabilities recognised. The costs of operating leases currently
included within operating costs will be split and the financing element of the charge will be reported within finance expense.
Finance lease obligations at December 31, 2017 are set out in Note 26.



The Group is still assessing the potential
impact of IFRS 16.



Basis
of consolidation



The consolidated financial statements incorporate
the financial statements of the Company and entities controlled by the Company. Control is achieved when the Company:



| | • | has power over the investee;
| | - | ----------------------------



| | • | is exposed, or has rights, to variable returns from its involvement with the investee; and
| | - | ------------------------------------------------------------------------------------------



| | • | has the ability to use its power to affect its returns.
| | - | -------------------------------------------------------



The Company reassesses whether or not it
controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control
listed above.



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Consolidation of a subsidiary begins when
the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income
and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss
and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.



Profit or loss and each component of other
comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income
of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling
interests having a deficit balance.



When necessary, adjustments are made to
the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.



All intragroup assets and liabilities, equity,
income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.



Changes in the Group’s ownership interests
in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions.
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 owners of the Company.



When the Company loses control of a subsidiary,
a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value
of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in
other comprehensive income in relation to that subsidiary are accounted for as if the Company had directly disposed of the related
assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity
as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when
control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable,
the cost on initial recognition of an investment in an associate or a joint venture.



Changes in Accounting estimates and judgements



Prior to 2017, it was intended for TiGenix
Inc to carry out the business activities related to Cx601 in the United States. As such, management concluded that the entity would
be able to settle the intercompany loan in the foreseeable future. However, after a detailed analysis of the market and the strategy,
management and the BoD decided to create a new US entity (TiGenix US, Inc.) for these activities and not use the historical entity
TiGenix Inc. Therefore, management concluded that the intercompany loan would not be repaid.



Prior to 2017, the exchange differences
associated with this loan were recognized in the consolidated income statement, as it was expected for the loan to be repaid.



However, during 2017 it was determined that
the loan will not be repaid/settled. Therefore, the foreign exchange and conversion differences are now recognized in other comprehensive
income.



The foreign exchange differences associated
to this loan recognized during the year ended December 31, 2017, amounting to Euros 1,331 thousand have been recorded in other
comprehensive income.



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Foreign
currency translation



In preparing the financial statements of
each group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized
at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated
in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a foreign currency are not retranslated.



Exchange differences arising on the settlement
of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition
during the period or in previous financial statements are recognized in profit or loss in the period in which they arise.



IAS 21.15 states that an entity may have
a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor
likely to occur in the foreseeable future is, in substance, a part of the entity's net investment in that foreign operation. Such
monetary items may include long-term receivables or loans. Financial statements that include the foreign operation and the reporting
entity, such exchange differences shall be recognized initially in other comprehensive income instead of profit or loss in financial
results.



For the purposes of presenting consolidated
financial statements, the assets and liabilities of the Group’s foreign operations are translated into euros using exchange
rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for
the period. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (translation
reserves).



On the disposal of a foreign operation (i.e., a
disposal of the Group’s entire interest in a foreign operation), or a disposal involving loss of control over a subsidiary
that includes a foreign operation, all of the exchange differences accumulated in equity in respect of that operation attributable
to the owners of the Company are reclassified to profit or loss.



Segment
information



The Group’s activities are carried
out through one segment: biopharmaceuticals. The Group is managed and operated as one business unit, which is reflected in the
organizational structure and internal reporting. No separate line of business or separate business entity has been identified with
respect to any of the product candidates or geographical markets. Accordingly, it has been concluded that it is not relevant to
include segment disclosures as the group business activities are not organized on the basis of differences in related product.



The CEO has been identified as the Chief
Operating Decision Maker, since he reviews the operating results and operating plans and makes resource allocation decisions on
a company-wide basis.



Geographical information is further disclosed
in note 25.



Business
combinations



Acquisitions of businesses are accounted
for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated
as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the
former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related
costs are recognized in profit or loss as incurred, except for costs to issue debt or equity securities, which are recognized in
accordance with IAS 32 and IAS 39.



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At the acquisition date, the identifiable
assets acquired and the liabilities assumed are recognized at their fair value, except for deferred tax assets and liabilities
arising from the assets acquired and liabilities assumed (which are recognized and measured in accordance with IAS 12), assets
and liabilities relating to employee benefit arrangements (which are recognized and measured in accordance with IAS 19), liabilities
or equity-instruments related to the replacement of the acquiree’s share-based payment arrangements (which are recognized
and measured in accordance with IFRS 2) and assets that are classified as held for sale (which are recognized and measured
in accordance with IFRS 5).



Goodwill is measured as the excess of the
sum of the consideration transferred (including the fair value of the contingent consideration), the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any)
over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment,
the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration
transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously
held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.



Any contingent consideration included in
the consideration payable for a business combination is recorded at fair value at the date of acquisition. These fair values are
generally based on risk-adjusted future cash flows discounted using appropriate interest rates. The fair values are reviewed on
a regular basis, at least annually, and any changes are reflected in the income statement.



At year-end 2015, the change in the fair
value of the contingent consideration was solely driven by the time value of money and therefore presented in Fair value changes
recognized in profit or loss (Financial expenses).
At year-end 2017 and 2016, management reassessed the fair value of the contingent consideration, including the changes in assumptions
regarding the future inflows/(outflows) and the unwind of the discount to reflect the time value of money, and therefore presented
in Fair value changes recognized in profit or loss (Operating expenses). The 2015 fair value change presentation was not revised
as management deemed the revision immaterial for 2015.



Revenue
and other income recognition



Revenue from sale of products is recognized
when:



| | • | the ownership of the products is transferred to the buyer;
| | - | ----------------------------------------------------------



| | • | the amount of revenue can be measured reliably;
| | - | -----------------------------------------------



| | • | it is probable that the economic benefits associated with the transaction will flow to the entity;
and
| | - | ------------------------------------------------------------------------------------------------------



| | • | the costs incurred or to be incurred in respect of the transaction can be measured reliably.
| | - | --------------------------------------------------------------------------------------------



Revenue from the royalties related to the
sale of the ChondroCelect were recognized when implantation occurred. Provisions for rebates, product returns and discounts to
customers were provided for as reductions to revenue in the same period as the related royalties were recorded.



Revenue recognition in respect of license
arrangements



The Company recognizes revenue from licensing
arrangements which may include multiple elements. Revenue arrangements with multiple elements are reviewed in order to determine
whether the multiple elements can be divided into separate units of accounting, if certain criteria are met. If separable, the
consideration receivable is allocated amongst the separate units of accounting based on their respective fair values and the applicable
revenue recognition criteria are applied to each of the separate units. If not



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separable, the applicable revenue recognition
criteria are applied to combined elements as a single unit of accounting.



The Company may enter into licensing and
collaboration agreements for supply and distribution for its product. The terms of the agreements may include non-refundable signing
and licensing fees, milestone payments and royalties on any product sales derived from licensing arrangements. These multiple element
arrangements are analyzed to determine whether the deliverables can be separated or whether they must be accounted for as a single
unit of accounting. License fees are recognized as revenue when persuasive evidence of an arrangement exists, the Company has transferred
to the licensee the risks and rewards of the product, the Company retains neither continuing managerial involvement nor effective
control over the product sold, the fee is fixed or determinable, delivery or performance has substantially completed and collection
is reasonably assured. The delivery of a license is to be deemed substantially completed when the licensee can use, license, exploit,
develop and obtain a profit from it without further licensor's involvement.



The Company analyses and separates the different
performance obligations and how they will be remunerated. If substantive contractual obligations are satisfied over time or over
the life of the contract, revenue will be recognized over their performance. Milestone payments are immediately recognized as revenue
when the condition is met, when performance obligations related to that milestone are fulfilled and if the milestone is not a condition
to future deliverables and collectability is reasonably assured. Otherwise, they are recognized over the remaining term of the
agreement or the performance period.



Government grants and government loans



Government grants are not recognized until
there is reasonable assurance that the Group will comply with the conditions attached to them and that the grants will be received.



| | • | Government grants are recognized in profit or loss on a systematic basis over the periods in which
the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants
whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as
deferred revenue in the consolidated statement of financial position and transferred to profit or loss (under “other operating
income”) on a systematic and rational basis over the useful lives of the related assets.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Government grants that are receivable as compensation for expenses or losses already incurred or
for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss
(under “grants and other operating income”) in the period in which they become receivable.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The benefit of a government loan at a below-market
rate of interest is treated as a government grant, (measured as the difference between proceeds received and the fair value of
the loan based on prevailing market interest rates). Only when there is sufficient assurance that the Group will comply with the
conditions attached to it, the grants will be recognized in profit or loss (under “other operating income”). Determination
of the appropriate amount of grant income to recognize involves judgments and estimates that the Company believes are reasonable,
but it is possible that actual results may differ from the Company’s estimates. When the Company receives the final written
reports, identifying satisfaction of the requirements of the grantor, to the extent not received within a reasonable time frame
following the end of the period, the Company records any differences between estimated grant income and actual grant income in
the next reporting period once the Company determines the final amounts. During the period that these benefits cannot be considered
as grants due to the insufficient assurance that all the conditions have been met, these grants will be included in the liabilities
as financial loans and other payables.



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Research and Development Costs



Research and development costs are charged
to expense as incurred and are typically made up of salaries and benefits, clinical and preclinical activities, drug development
and manufacturing costs, and third-party service fees, including for clinical research organizations and investigative sites. Costs
for certain development activities, such as clinical trials, are recognized at every reporting period in the income statement based
on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations,
or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the
individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as
prepaid or accrued expenses.



As an exception to this accounting treatment
the Company capitalized development costs for Chrondrocelect during 2010 and 2011. (See note 11)



Intangible
assets



Acquisition of intangibles



Expenditure on research activities is recognized
as an expense in the period in which it is incurred.



An internally-generated intangible asset
arising from development is recognized to the extent that all of the factors for capitalization have been satisfied as specified
in IAS 38:



| | • | The technical feasibility of completing the intangible asset so that it will be available for use
or sale.
| | - | ----------------------------------------------------------------------------------------------------------



| | • | The intention to complete the intangible asset and use or sell it.
| | - | ------------------------------------------------------------------



| | • | The ability to use or sell the intangible asset.
| | - | ------------------------------------------------



| | • | How the intangible asset will generate probable future economic benefits.
| | - | -------------------------------------------------------------------------



| | • | The availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| | • | The ability to measure reliably the expenditure attributable to the intangible asset during its
development.
| | - | ------------------------------------------------------------------------------------------------------------



The amount initially recognized for internally-generated
intangible assets is the sum of the various expenses needed to generate the related intangible assets. Amortization starts from
the date when the intangible asset first meets the recognition criteria listed above. These intangible assets are amortized on
a straight-line basis over their estimated useful life (ten years). Where no internally-generated intangible asset can be recognized,
development expenditure is recognized in profit or loss in the period in which it is incurred.



Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible
assets that are acquired separately. As of December 31, 2017 the amounts capitalized we associated with the registration of the
Company’s patents.



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Intangible assets acquired through a
business combination



Intangible assets, including in-process
research and development projects, acquired in a business combination and recognized separately from goodwill are initially
recognized at their fair value at the acquisition date (which is regarded as their cost).



Subsequent to initial recognition, intangible
assets (except for in-process research and development projects) acquired in a business combination are reported at cost less
accumulated amortization and impairment losses. Such intangible assets are amortized over their useful economic lives, which will
depend on their related patent life (up to fifteen years). Goodwill arising from business combinations is not amortized but reviewed
annually for impairment.



Subsequent to initial recognition, in-process
research and development projects acquired in a business combination are reported at cost and are subject to annual impairment
tests until the date the projects are available for use, at this moment the in-process research and development projects will
be amortized over their remaining useful economic lives, which will depend on their related remaining patent life.



Patents, licenses and other similar intangible
assets acquired separately



Costs related to the registration of internally-generated
intangible assets (patents) are recognized as intangible assets.



Licences, patents, or rights separately
acquired are amortised over their estimated useful lives, generally not exceeding 20 years, using the straight-line basis, from
the time they are available for use. The estimated useful lives for determining the amortisation charge take into account patent
lives, where applicable, as well as the value obtained from periods of non-exclusivity. Asset lives are reviewed, and where appropriate
adjusted, annually.



Computer software



Software licenses and software development
costs are measured at purchase cost and are amortized on a straight-line basis over the economic useful life (three years). They
are acquired from external providers.



Impairment
of tangible and indefinite-lived intangible assets



At each balance sheet date and at each interim
reporting date, the Group analyses whether there is any indication that any of its assets may be impaired. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where
the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually
and also whenever there is an indication that the asset might be impaired. The recoverable amount is the higher of fair value less
costs to sell and value in use. The estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset.



If the recoverable amount of an asset or
cash generating unit is estimated to be less than the carrying amount, the carrying amount of the asset is reduced to its recoverable
amount. An impairment loss is immediately recognized as an expense. Where an impairment loss subsequently reverses, the carrying
amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior periods.
A reversal of an impairment loss is recognized as income. (See note 11)



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Goodwill is stated at cost less impairments.
Goodwill is deemed to have an indefinite useful life and is tested for impairment at least annually.



Financial
assets



Financial assets are classified into the
following specified categories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity’
investments, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables.’ The classification
depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.



Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including
trade and other receivables, receivables from reverse repurchase agreements, bank balances and cash) are measured at amortized
cost using the effective interest method, less any impairment. For the purposes of the cash flow statements, cash and cash equivalents
comprise cash on hand and deposits held on call with banks. In the balance sheet, bank overdrafts, if any, are included in other
current financial liabilities.



The effective interest method is a method
of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received
that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected
life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.



Financial assets are assessed for indicators
of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence
that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future
cash flows of the investment have been affected.



Objective evidence of impairment could include:



| | • | significant financial difficulty of the issuer or counterparty; or
| | - | ------------------------------------------------------------------



| | • | breach of contract, such as a default or delinquency in interest or principal payments; or
| | - | ------------------------------------------------------------------------------------------



| | • | it becoming probable that the borrower will enter bankruptcy or financial re-organization; or
| | - | ---------------------------------------------------------------------------------------------



| | • | the disappearance of an active market for that financial asset because of financial difficulties.
| | - | -------------------------------------------------------------------------------------------------



For certain categories of financial assets,
such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired
individually. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of
collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as
observable changes in national or local economic conditions that correlate with default on receivables.



For financial assets carried at amortized
cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.



The carrying amount of the financial asset
is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying
amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off
against the allowance account. Subsequent recoveries of amounts previously written off are credited against the



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allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss.



For financial assets measured at amortized
cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss
to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized
cost would have been had the impairment not been recognized.



The Group derecognizes a financial asset
when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially
all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest
in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards
of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized
borrowing for the proceeds received.



| | Inventories | 
| | ----------- | 



Raw materials, consumables and goods purchased
for resale are valued at the lower of their cost determined according to the FIFO-method (first-in-first-out) or their net realizable
value.



The cost of finished goods comprises all
costs of purchase, costs of conversion and other costs incurred in bringing the inventories to the present location and condition.



Income
taxes



Income tax expense represents the sum of
the tax currently payable and deferred tax.



The tax currently payable is based on taxable
profit for the year. Taxable result differs from “profit/(loss) before tax” as reported in the consolidated income
statement because of items of income or expense that are taxable or deductible in other periods and items that are never taxable
or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the
end of the reporting period. In 2016, TiGenix SAU applied the patent box legislation in relation to revenues obtained through the
license deal with Takeda. Under this regime, qualified incomes are exempt from income taxes.



Deferred taxes are recognized using the
“balance sheet liability method” for temporary differences between the carrying amount of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.



Deferred tax liabilities are recognized
for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences to the extent
that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.
Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other
than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting
profit.



Deferred tax assets and liabilities are
measured based on the expected manner of realization or settlement of assets and liabilities, using tax rates that have been enacted
or substantively enacted at the balance sheet date.



A Spanish tax law allows that eligible companies
could claim certain research and development investment tax credits instead of deducting them from their taxable base and carrying
them forward until the expiration date. The same law provides that the applicant must obtain an audit report from an



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independent third party certifying that
R&D activities were performed and were reported as eligible for this purpose and certifying to the accuracy of the cost incurred
and reported as elegible for this purpose. The Company recognizes this income at the time in which it receives these reports in
connection with this activity.



Financial
liabilities



The Group classifies its financial liabilities
into one of two categories, depending on the purpose for which the liability was acquired. The Group’s accounting policy
for each category is as follows:



Fair value through profit or loss



This category comprises derivatives with
a negative fair value (see “Financial assets” for derivatives with a positive fair value) and financial liabilities
designated at fair value through profit or loss.



They are carried in the consolidated statement
of financial position at fair value with changes in fair value recognized in the consolidated income statement. Other than these
derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any financial
liabilities as being at fair value through profit or loss. The Group currently has no non-derivative financial liabilities that
are accounted for at fair value through profit or loss.



On March 6, 2015 the Company issued senior,
unsecured convertible bonds.



As a result of the possible modifications
that may result from the application of the conversion features, the undetermined conversion price at launch (and thus
the undetermined value of the ordinary note at launch) fails to meet the fixed-for-fixed requirement for the recognition of the
conversion features as equity and thus the convertible bonds are recorded as a liability. At the issuance date it was not possible
to determine a fixed number of ordinary shares of TiGenix in case the bondholders convert their bonds into shares. This is due
to the fact that the conversion price is not fixed. Consequently, the embedded derivative cannot be considered as equity. Therefore,
the bonds meet the definition of a hybrid instrument under IAS 39, so the bonds are accounted for as two instruments, the host
contract (the “Ordinary Note”) and an embedded derivative (the “Warrant”).



The Ordinary Note is measured at amortized
cost in accordance with IAS 39 using its effective interest rate and the Warrant is considered as a financial derivative liability
measured at fair value with changes in fair value recognized immediately in profit or loss. (See note 3 Derivative financial
instruments)



The Group issued in 2014 warrants related
to one of the Group loans which meet the definition of a derivative financial liability. These warrants were issued in connection
with the loan facility agreement with Kreos Capital IV (UK), and contain an option for the holders to put the warrants back to
the Company for cash. The warrants are options over the shares of the Company, but are derivatives that must be measured at fair
value through profit or loss, and not own equity instruments of the Company, because of the cash settlement alternative. The Group
determined the initial fair value of the warrants using a Black-Scholes valuation model. A portion of the issue amount of the loan
corresponding to this initial fair value of the warrants was allocated to the warrants and the remaining balance of the proceeds
received were allocated to the loan, which is then measured at amortized cost. The effective interest rate method was applied to
determine the effective interest rate on the loan on the basis of the initial carrying amount and the contractual cash flows of
the loan (interest payments and repayment of principal). This effective interest rate is 20% compared to the contractual interest
rate of 12.5%. The effective interest rate is used to accrue interest in the loan, and to amortize the difference between the initial
carrying amounts of the loan to its repayment amount.



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Other financial liabilities



Financial liabilities measured at amortized
cost, including borrowings and ordinary notes, are initially measured at fair value, net of transaction costs. They are subsequently
measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis.



The effective interest method is a method
of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability,
or, where appropriate, a shorter period, to the net carrying amount on initial recognition.



The Group’s financial liabilities
measured at amortized cost comprise financial loans, other current financial liabilities and trade payables.



Share
capital



Financial instruments issued by the Group
are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. Ordinary
shares are classified as equity.



Incremental costs directly attributable
to the issue of new ordinary shares are presented in equity as a deduction, net of tax, from the proceeds.



Share-based
payments



The Group has offered equity-settled share-based
payments to employees, directors and business associates. These share-based payments are measured at the fair value of the equity
instruments at the grant date.



The fair value determined at the grant date
of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s
estimate of equity instruments that will eventually vest, with a corresponding increase in equity.



The estimate of the number of compensation
plans which will be vested is revised at each reporting date. The change in estimates will be recorded as expense with a corresponding
correction in equity. If a modification of a share-based payment transaction occurs and this modification increases the fair value
of the equity instruments granted, measured immediately before and after the modification, the incremental fair value granted shall
be included in the measurement of the amount recognized for services received as consideration for the equity instruments granted.
The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original
equity instrument, both estimated as at the date of the modification. If the modification occurs during the vesting period, the
incremental fair value granted is included in the measurement of the amount recognized for services received over the period from
the modification date until the date when the modified equity instruments vest, in addition to the amount based on the grant date
fair value of the original equity instruments, which is recognized over the remainder of the original vesting period. If the modification
occurs after vesting date, the incremental fair value granted is recognized immediately, or over the vesting period if the employee
is required to complete an additional period of service before becoming unconditionally entitled to those modified equity instruments.



If the terms or conditions of the equity
instruments granted are modified in a manner that reduces the total fair value of the share-based payment arrangement, or is not
otherwise beneficial to the employee, the services received shall continue to be accounted for as consideration for the equity
instruments granted as if that modification had not occurred.



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3. Critical accounting judgments and
key sources of estimation uncertainty



In the application of the Group’s
accounting policies, the directors are required to use certain critical accounting estimates, assumptions and judgment about the
carrying amounts of certain assets and liabilities. The areas involving a high degree of judgment or complexity or areas where
assumptions and estimates are significant to the consolidated financial statements are the following:



Going concern



The Group has experienced net losses and
significant cash used in operating activities since our inception in 2000 except for year 2016. As of December 31, 2017, the Group
had an accumulated deficit of 189.8 million euros, a loss for the year of 74.8 million euros and net cash used in operating
activities of 30.3 million euros. As of December 31, 2016, the Group had an accumulated deficit of 116.2 million
euros, a profit for the year of 3.8 million euros and net cash provided by operating activities of 3.5 million euros.
Management expects the Group to continue to incure net losses and have significant cash outflows for at least the next twelve months.
These conditions, among others, raise substantial doubt about our ability to continue as a going concern. These consolidated financial
statements have been prepared assuming that the Group will continue as a going concern. This basis of accounting contemplates the
recovery of our assets and the satisfaction of liabilities in the normal course of business. A successful transition to attaining
profitable operations is dependent upon achieving a level of positive cash flows adequate to support our cost structure.



As of December 31, 2017, we had cash and
cash equivalents of 34.1 million euros. In addition, after receiving marketing authorization from the European Commission for Cx061
on March 23, 2018, TiGenix expects to receive 15 million euros from Takeda as a milestone payment under its licensing agreement
with Takeda during the second quarter of 2018. Our board of directors is of the opinion that this cash position is sufficient to
continue operating through the next 12 months, but we will require significant additional cash resources to launch new development
phases of existing projects in our pipeline.



In order to be able to
launch such new development phases, we intend to obtain on a timely basis either additional non-dilutive funding, such as from
establishing commercial relationships, dilutive funding or both. On the last quarter of the 2017 we started negotiations with the
European Investment Bank in order to obtain a 25 million euros loan from its program “InnovFin” (loans to innovative
business with fewer than 3,000 employees to support the growth and investments in research and innovation)



In addition, a successful
transition to attaining profitable operations is dependent upon achieving a level of positive cash flows adequate to support our
cost structure.



For more information related to the expected
cash flows see Note 2. section, Liquidity.



Business combinations and goodwill



The Group accounts for business combinations
using the acquisition method of accounting, which requires that the assets acquired and liabilities assumed be recorded at the
date of acquisition at their respective fair values. Any excess of the fair value of consideration given over the fair values of
the identifiable assets and liabilities acquired is recorded as goodwill. The determination of estimated fair values of acquired
intangible assets and contingent considerations, as well as the useful economic life ascribed to finite lived intangible assets,
requires the use of significant judgment. The use of different estimates and assumptions to those used by the Group could result
in a materially different valuation of acquired intangible assets, which could have a material effect on the Group’s results
of operations.



Several methods may be used to determine
the estimated fair value of intangible assets acquired in a business combination, all of which require multiple assumptions.



The Group used the relief from royalty method,
which is a variant of the income valuation approach to determine the fair value of the intangibles related to the acquisition of
TiGenix SAU. It is based on the



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principle that ownership of the intangible
asset relieves the owner of the need to pay a royalty to another party in exchange for rights to use the asset.



The fair value of assets related to the
acquisition of Coretherapix was determined taking into account the sum of the survival probability discounted present values of
Coretherapix’s projected cash flows in each year of its key product’s development and commercialization life. See note
4.



The fair value of the contingent consideration
related to the acquisition of Coretherapix at the date of acquisition was computed as the sum of the probability weighted values
of the fair values of the purchase prices associated with each of the potential product development routes. The fair value of each
route is in turn computed as the sum of the survival probability discounted present values of the contingent payments in each such
route including the Milestone and Commercialisation Payments.



The nine routes considered in the development
process of Coretherapix are the result of combining multiple variables. The structure of these routes and the probability assigned
to each route are reassesed by management at every reporting period and every time the development process reaches a milestone.



Any contingent consideration included in
the consideration payable for a business combination is recorded at fair value at the date of acquisition. The fair values are
reviewed on a regular basis, at each reporting date, and any changes are reflected in the income statement.



Acquisition costs incurred are expensed
and included in general and administrative expenses.



Impairment of assets



We review the carrying value of intangible
assets with indefinitive lives for potential impairment on a periodic basis (annually) and also whenever events or changes in circumstances
indicate the carrying value of an asset may not be recoverable. We review the carrying value of tangible assets and intangible
assets with definitive lives for potential impairment whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable. We determine impairment by comparing the recoverable amount to its carrying value. If impairment
is identified, a loss is recorded equal to the excess of the asset’s carrying amount over its recoverable amount.



In the context of the business combination
with TiGenix SAU in 2011, development costs related to product Cx601 were capitalized in an amount of 1.7 million euros. These
costs were not amortized at December 31, 2015 because the product was not yet available for use and was, therefore, subject to
an annual test for impairment. In July 2016, the product Cx601 (1.7 million euros) was considered as available for use and consequently
subject to amortization. As a result of that, we reclassified it from development to intellectual property. The estimated useful
economic life was determined to be 10 years, which was the remaining period for the patents related to it.



On July 31, 2015 the Group acquired 100%
of the issued share capital of Coretherapix. The most significant part of the purchase price was allocated to in-process research
and development (17.4 million euros) as well as certain other intangible assets (277 thousand euros). The difference between
the fair values of the assets acquired and liabilities assumed and the purchase price comprised the value of expected synergies
arising from the acquisition and was recorded as goodwill (717 thousand euros).



As explained in note 4, at December 31,
2017 the Company fully impaired the assets related to the Coretherapix acqusition and derecognized the contingent consideration
associated with the business combination.



For impaired assets, we recognize a loss
equal to the difference between the carrying value of the asset and its recoverable amount. The recoverable amount, being the higher
of the fair value less costs of disposal and value in use, is based on discounted future cash flows of the asset using a discounted
rate commensurate with the risk. Estimates of future cash flows, based on what we believe to be reasonable



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and supportable assumptions and projections,
require management’s judgment. Actual results could vary from these estimates. When it is not possible to estimate the recoverable
amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The results of the impairment tests conducted during 2017 are described in note 11.



Deferred taxes



Deferred tax assets are recognized for unused
tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant
management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing
and the level of future taxable profits together with future tax planning strategies.



Tax losses carried forward and other tax
credits relate to the parent and subsidiaries that all have a history of losses and do not expire, except for other tax credits
of 25.8 million euros related to TiGenix SAU, TiGenix NV and Coretherapix (see note 21). Both, the tax losses carried forward and
the tax credits, may not be used to offset taxable income elsewhere in the Group.



With respect to the net operating losses
of the Group, no deferred tax assets have been recognized, given that there is uncertainty as to the extent to which these tax
losses will be used in future years.



Derivative financial instruments



Derivatives are initially recognized at
fair value at the date the derivative contracts are entered into and are subsequently re-measured to their fair value at the end
of each reporting period. The resulting gain or loss is recognized in profit or loss immediately.



Pursuant to the terms and conditions of
the loan facility agreement that we entered into with Kreos, on April 22, 2014, an extraordinary meeting of our shareholders
issued and granted 1,994,302 new cash settled warrants, including a put option to Kreos Capital IV (Export Fund). These warrants
have been designated at fair value through profit or loss. The Company recognizes the warrants, including the put option, as one
instrument, because the Company believes that the put option is unconditionally linked to the warrant. Because the issued warrants
can be settled in cash, the instrument is considered as a financial derivative liability measured at fair value with changes in
fair value recognized immediately in profit or loss.



In May 2015, Kreos Capital exercised the
above mentioned put option and executed one third of the warrants (EUR 163,333). As from January 2016, the remaining two thirds
of the warrants put option have lapsed due to the increase in the price of the share which makes this amount no longer exercisable
by Kreos Capital.



In December 2017, Kreos Capital converted
its remaining warrants into TiGenix shares at 0.75€ per warrant.



The measurement of the warrant at fair value
is based on the Black-Scholes option pricing model taking into account the following variables:



| | • | The share price.
| | - | ----------------



| | • | The strike price.
| | - | -----------------



| | • | The volatility of the share has been determined based on historical stock prices of our shares.
| | - | -----------------------------------------------------------------------------------------------



| | • | The dividend yield, which has been estimated as zero, as we have never paid a dividend due to the
past experience of losses.
| | - | ----------------------------------------------------------------------------------------------------------------------------



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| | • | The duration, which has been estimated as the difference between the valuation date of the warrant
plans and final exercise date.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| | • | The risk-free interest rate, which has been calculated based on the discount curve composed based
on liquid euro deposit rates (for periods shorter than one year) and futures (typically for maturities between one and six years).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company uses judgment in evaluating
the risk-free interest rate, dividend yield, duration and volatility related to our cash-settled warrant plan on a prospective
basis and incorporating these factors into the Black-Scholes option pricing model.



Pursuant to the terms and conditions of
the convertible bonds issued on March 6, 2015, the warrant will be reflected at any reporting period at its fair value. Measurement
of the fair value will be determined using methodologies such as Black-Scholes, binominal lattices or Monte Carlo simulations.
In this particular case, the conversion features are complex and render Black-Scholes and binominal trees inapplicable. The measurement
of the warrant at fair value is based on a Monte Carlo valuation model.



The Resetting and the Early Redemption clauses
embedded in the Instrument result in the Conversion Price being dependent upon an unknown share price path.



| | - | The Conversion Price depends on the evolution of the share price through the Resetting period.
| | - | ----------------------------------------------------------------------------------------------



| | - | The Early Redemption Clause will, for certain share price paths compel noteholders, to accelerate
conversion in order to avoid the loss on the Warrant value that would result from the Instrument being called by Issuer.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Such Conversion Features cannot be factored
into a fixed Conversion Price continuous or discrete model, such as Black-Scholes or binomial lattices, respectively.



On the other hand, a Monte Carlo model can
indeed incorporate not only the market parameters such as volatility, risk-free interest rates and share price, but all the contractual
characteristics of the Warrant such as Present Date (31/12/2017), Conversion Date (06/03/18), Present Price (1.70), Conversion
Price (0.8983), Interest rate annual (-0.48%), Reference Period Days (60), Number of iterations (10,000), Annual Volatility (122.97%),
Conversion price Reset, Early Redemption, Average Conversion Price (0.8982) and Number of anticipated redemptions (9,003).



Share-based payment arrangements



The Group used the Black-Scholes model to
estimate the fair value of the share-based payment transactions. Using this model requires management to make assumptions with
regard to volatility and expected life of the equity instruments. The assumptions used for estimating fair value for share-based
payment transactions are further disclosed in note 25 and are estimated as follows:



| | • | Volatility is estimated based on the average annualized volatility of the TiGenix share price;
| | - | ----------------------------------------------------------------------------------------------



| | • | Estimated life of the warrant is estimated to be until the first exercise period;
| | - | ---------------------------------------------------------------------------------



| | • | The dividend return is estimated by reference to the historical dividend payment of the Group.
Currently, this is estimated to be zero, because no dividend has been paid since inception.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4. Business Combination - Acquisition
of Coretherapix



On July 31, 2015, the Group acquired 100%
of the issued share capital of Coretherapix as well as certain Coretherapix receivables with a nominal value of 3.3 million euros
from its sole shareholder, Genetrix, SL



Coretherapix is a Spanish privately-owned
early-stage pharmaceutical company engaged in the



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development of myocardial regeneration therapies
for the prevention of the effects of cardiovascular disease during the acute and chronic stages of the acute myocardial infarction
and congestive heart failure.



The BoD believed that the acquisition of
Coretherapix allowed TiGenix to expand its clinical programs and broadened the potential of both platforms of allogeneic cell therapy
products, which significantly helps TiGenix towards its goal of leading the cell therapy space in the world. TiGenix expands its
pipeline of clinical stage assets, enters the cardiovascular indications and gets access to a new platform of allogeneic stem cells
of different origin, which significantly strengthens its competitive position in the cell therapy sector.



All of the shares of Coretherapix and part
of the receivables Genetrix had with Coretherapix on July 31, 2015 were contributed in return for the issuance of 7.7 million of
ordinary shares of TiGenix (6.1 million euros, being the market value of TiGenix shares as listed on Euronext on that date). Part
of the receivables Genetrix had with Coretherapix on July 31, 2015 (for a nominal value of 1.2 million euros) were transferred
and assigned by Genetrix to TiGenix. Pursuant to the terms of the Contribution Agreement, TiGenix made a cash payment of 1.2 million
euros.



The following table summarizes the fair
values of the assets acquired and liabilities assumed on July 31, 2015 (in thousands of euros):



|In process research and development          |  |  | 17,374 |  
|-------------------------------------------- |  |  | ------ | -
|Accounts receivable (received from Genetrix) |  |  | 3,306  |  
|Other net asset acquired:                    |  |  |        |  
|Other intangible assets                      |  |  | 277    |  
|Property, plant and equipment                |  |  | 109    |  
|Other current assets                         |  |  | 1,310  |  
|Cash                                         |  |  | 3      |  
|Financial Loans                              |  |  | (3,870 | )
|Trade & other payables                       |  |  | (635   | )
|Total Net Asset Acquired                     |  |  | 17,874 |  
|Total Consideration                          |  |  | 18,591 |  
|Goodwill on acquisition                      |  |  | 717    |  



Total consideration of the business combination
is broken down as follows (in thousand of euros):



|Cash consideration payable                                                           |  |  | 1,154  | 
|------------------------------------------------------------------------------------ |  |  | ------ | 
|Issuance of ordinary shares of TiGenix, N.V. according to the Contribution Agreement |  |  | 6,093  | 
|Estimated fair value of contingent consideration                                     |  |  | 11,344 | 
|Total Purchase Price                                                                 |  |  | 18,591 | 



The value of the 7.7 million of ordinary
shares issued as part of the consideration paid for 100% of Coretherapix shares and certain receivables from Genetrix was based
on a share price of 0.79 euro, the Company's share price at the date of the acquisition.



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Other current assets in the net asset acquired
(1.3 million euros) mainly consist of contribution to be received from the European Union and the National Cardiovascular Research
Centre Foundation (CNIC) to implement the ‘Cardio Repair European Multidisciplinary Initiative (CARE - MI)’ project
for EUR 0.6 million and pending amounts to be received from Spanish Tax authorities amounting EUR 0.5 million in relation to investments
in R&D activities during 2013 and 2014.



Under the terms of the Contribution Agreement,
assuming successful development of the lead product AlloCSC01, as per the initial agreement Genetrix could receive up to 15 million
euros in new ordinary shares depending on the results of the ongoing clinical trial (after the results of the clinical trial in
March 2017, this amount has been reduced to 5 million euros in new ordinary shares). Based on and subject to future sales milestones,
Genetrix would be entitled to receive in addition up to 245 million euros plus certain percentages of the direct net sales of the
first product, or certain percentages of any third-party royalties and sales milestones for the first product.



Sales milestones would start when annual
net sales reached 150 million euros and the last one would be payable once annual net sales were above 750 million euros. Also,
Genetrix would receive a 25 million euros milestone payment per additional product reaching the market.



Under the acquisition method, acquisition-related
transaction costs (e.g. advisory, legal, valuation and other professional fees) are not included as consideration transferred
but are accounted for as expenses in the periods in which the costs are incurred. Total acquisition-related transaction costs amounted
to 0.3 million euros in 2015.



The fair value of the contingent deferred
elements of the purchase price of EUR 11.3 million was computed as the sum of the probability weighted values of the fair values
of the purchase prices associated with each of the nine product development routes.



Management modelled these routes as a succession
of decision points at which the Company decides to pursue internal development or licensing at different times, and in different
circumstances such as whether the product enters into a pivotal trial or otherwise. In addition to the license/not to license decision,
the decision tree was subject to results of the ongoing phase I/IIa trial. Two different options were considered: i) a fast development
process under which the current Phase I/IIa phase ends at year-end (YE) 2017 with a significant success and is followed by a three-year
Phase II Pivotal trial that ends at YE 2020 and a two-year market approval process that ends at YE 2022, with commercialisation
commencing in 2023 and ii) slow development process in which the current Phase I/IIa phase ends at YE 2017 and is followed by a
three-year Phase IIb trial that ends at YE 2020, a three-year Phase III trial that ends at YE 2023 and a two-year market approval
process that ends at YE 2025, commercialisation commences in 2026. In March 2017 TiGenix announced Top-Line Phase I/II results
of AlloCSC-01 clinical trial. These preliminary results increase the possibilities of a slow development process and reduce the
probabilities of a fast development process option.



The fair value of each route was in turn
computed as the sum of the survival probability discounted present values of the contingent payments in each such route including
the Milestone and Commercialisation Payments.



Significant unobservable valuation inputs
considered in the model were the market penetration, the price of the product and the discount rate (15%). For the market penetration,
we evaluated a range of 20%-40% of the reperfused AMI patients with large infarcts treatable with cell therapy and falling within
the indication. The price was yet unknown since there were no products out there, and based on our research we used figures in
the range of 8 to 16 thousand euros. This range could only be a very rough estimation given the early stage of development of the
project.



Factors ultimately affecting the price include:



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| | - | the product’s final efficacy and safety profile;
| | - | ------------------------------------------------



| | - | the definition of the final clinical indication that is approved; and
| | - | ---------------------------------------------------------------------



| | - | the evolution of several factors that may influence the willingness to pay of the health systems.
| | - | -------------------------------------------------------------------------------------------------



The final efficacy and safety profile will
be a result of the clinical trial results in the chosen indication. Currently we have completed a Phase IIa focused on safety and
a better approximation will only be available after a subsequent efficacy trial.



The final indication itself will depend
on the ability to focus the clinical trials on populations representing a high-unmet clinical need for which clinical benefit is
demonstrable in the aforementioned efficacy trials.



Finally, the willingness to pay will be
affected first by budget impact considerations driven by the evolution of target population epidemiology (affected by factors such
as the impact of non-smoking regulations, diet habits, improved primary and secondary prevention and new standards of care) and
secondly by regulatory and economic drivers (e.g. different health technology assessment requirements, public funding availability
etc).



Significant increase (decrease) in the market
penetration and price of the product would result in higher (lower) fair value of the contingent consideration liability, while
significant increase (decrease) in the discount rate would result in lower (higher) fair value of the liability.



As at December 31, 2015, 2016 and 2017,
a reconciliation of fair value measurement of the contingent consideration liability is provided below (in thousand of euros):





|As at July 31, 2015                                                  | -      
|-------------------------------------------------------------------- | -------
|Liability arising on business combination                            | 11,344 
|Fair value changes recognized in profit or loss (Financial expenses) | 685    
|                                                                     |        
|As at December 31, 2015                                              | 12,029 
|Fair value changes recognized in profit or loss (Operating expenses) | 829    
|As at December 31, 2016                                              | 12,858 
|Milestone payment in TiGenix shares                                  | (5,000)
|Fair value changes recognized in profit or loss (Operating expenses) | 550    
|As at December 31, 2017 (pre-impaired value)                         | 8,408  









At year-end 2015, the change in the fair
value of the contingent consideration was solely driven by the time value of money and therefore presented in Fair value changes
recognized in profit or loss (Financial expenses).
At year-end 2016, management reassessed the fair value of the contingent consideration by updating the underlying assumptions such
as increasing the probabilities of the slow track route and updating the milestone payments. Unlike the change in fair value as
at December 31, 2015 which was solely driven by the time value of money and therefore presented in the financial result, we considered
that the main triggers for the change in fair value of the contingent consideration for the year 2016 were due to the new



F-30


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information on the development process of
AlloCSC001. As a result, these fair value changes (0.8 million euros) were presented as research and development expenses.



At year-end 2017 and 2016, management reassessed
the fair value of the contingent consideration, including the changes in assumptions regarding the future inflows/(outflows) and
the unwind of the discount to reflect the time value of money, and therefore presented in Fair value changes recognized in profit
or loss (Operating expenses). The 2015 fair value change presentation was not revised as management deemed the revision immaterial
for 2015.



Significant unobservable valuation inputs
when updating fair value at year end 2016 were discount rate, market penetration and price of the product. These are those to which
the fair value of the liability is most sensitive. The potential effect of changes in these inputs were the following: i) discount
rate (10% increase/decrease would have an impact of -0.8/1.0 million euros); ii) market penetration (10% increase/decrease would
have an impact of 1.1/-0.4 million euros); iii) price of the product (10% increase/decrease would have an impact of 1.1/-0.4 million
euros).



In accordance with IFRS standards, TiGenix
allocated the purchase price, and calculated the fair values of the assets acquired and liabilities assumed, in accordance with
generally applied valuation rules in the sector.



The measurements of fair value attributed
to the underlying acquired intangible assets were 17.4 million euros. The fair value of the underlying acquired intangible assets
was computed as the sum of the probability weighted values of the fair values corresponding to nine possible product development
routes. The fair value of each such route was in turn computed as the sum of the survival probability discounted present values
of Coretherapix’s projected cash flows in each year of its key product’s development and commercialisation life.



The discount and probability of survival
rates used were the same for the valuation of the underlying intangible assets and contingent deferred elements of the purchase
price.



On December 14, 2017, TiGenix’s most
advanced product, Cx601, received positive CHMP opinion in Europe. Upon Cx601 receiving a positive regulatory opinion in Europe,
TiGenix reviewed its pipeline priorities beyond the continued commitment to the development of Cx601 for the US market and Cx611
for sepsis. The Company has decided to apply its resources to targeted trials in those areas. Given the focus on Cx601 and the
allogeneic adipose-derived stem cell technology, TiGenix will not dedicate any additional investing efforts to R&D of its allogeneic
cardiac stem cell technology. Due to this reason the Company has determined that the assets acquired from the business combination
with Coretherapix should be fully impaired as of December 31, 2017. Putting on hold this project in such early stage situation,
makes the value in use to be close to zero.



In addition, the contingent consideration
associated with the acquisition should be derecognized as all future payment commitments included in this consideration were based
on the probability of licensing the product or in its commercial marketing authorization. As of the financial statements date,
the Company has concluded that none of these milestones are probable of being achieved.



No indemnities or liabilities resulted from
this decision. The Company has not any payment obligation to the former Coretherapix’s shareholders (Genetrix). The acquisition
agreement of Coretherapix states that in the case the Company decides to stop AlloCSCs programmes, Genetrix shall have the option
to acquire the AlloCSCs programmes, at TiGenix discretion, by i) acquiring all of the shares that TiGenix holds in the Company
for a total consideration of one euro or ii) acquiring the assets and liabilities of the Company relating to the AlloCSCs programmes
from the Company for a total consideration of one euro.



As a result of the change in strategic focus,
the Company considers that both fair value less cost to sell and value in use are close to zero and consequently has impaired the
asset (18.1 million euros) and derecognsised the liability (8.4 million euros). These items and the fair value changes occurred
during the



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year in the contingent consideration (0.5
million euros) negatively impacted the Company’s consolidated statement of income within research and development costs (in
10.2 million euros).



A deferred tax liability of 1.5 million
euro was recorded as of December 31, 2015 on the fair value of the in-process research and development acquired. Coretherapix had
sufficient unused tax losses carried forward to absorb the impact of this deferred tax liability. Due to the impairment on this
asset, at December 31, 2017 amount of the the deferred tax liability related to it has been reversed. (See note 21)



As per December 31, 2015, the contribution
of Coretherapix to the Company’s consolidated statement of income amounted to 1.4 million euros losses and 2 thousand euros
of revenues. If Coretherapix would have consolidated from January 1, 2015, the consolidated statement of income would have included
revenues of 0.7 million euros and losses of 2.5 million euros.



5. Financial instruments and financial
risk management



The principal financial instruments used
by the Group, from which financial risk arises, are as follows:



| | • | Other non-current assets
| | - | ------------------------



| | • | Trade receivables
| | - | -----------------



| | • | Other current financial assets
| | - | ------------------------------



| | • | Derivative financial instruments
| | - | --------------------------------



| | • | Cash and cash equivalents
| | - | -------------------------



| | • | Financial Loans and other payables.
| | - | -----------------------------------



| | • | Other financial liabilities
| | - | ---------------------------



| | • | Trade payables
| | - | --------------



Capital
risk management



The Group policy with respect to managing
capital is to safeguard the Group’s ability to continue as a going concern and to obtain an optimal capital structure over
time. With this objective, the cash position is monitorized in a monthly basis.



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Categories
of financial instruments



|                                                                                    |  |       |    | As at December 31,
|----------------------------------------------------------------------------------- |  | ----- | -- | ------------------
|Thousands of euros                                                                  |  | Notes |    | 2017              
|Financial assets                                                                    |  |       |    |                   
|Loans, receivables and cash and cash equivalents                                    |  |       |    |                   
|Cash and cash equivalents (including cash balances in disposal group held for sale) |  |       |    |                   
|Other non-current assets                                                            |  |       | 16 |                   
|Trade receivables                                                                   |  |       | 18 |                   
|Other current financial assets                                                      |  |       | 19 |                   
|Financial liabilities                                                               |  |       |    |                   
|Amortized cost                                                                      |  |       |    |                   
|Financial loans                                                                     |  |       | 20 |                   
|Convertible notes (ordinary note)                                                   |  |       | 20 |                   
|Trade payables                                                                      |  |       | 23 |                   
|Fair value through profit or loss                                                   |  |       |    |                   
|Convertible notes (warrant)                                                         |  |       | 20 |                   
|Other financial liabilities                                                         |  |       | 20 |                   
|Other liabilities contingent consideration                                          |  |       | 23 |                   



Fair
value of financial instruments



|                                  |  |       |    | As at December 31, 2017
|--------------------------------- |  | ----- | -- | -----------------------
|Thousands of euros                |  | Notes |    | Carrying amount        
|Financial assets                  |  |       |    |                        
|Loans and receivables             |  |       |    |                        
|Other non-current assets          |  |       |    |                        
|Financial liabilities             |  |       |    |                        
|Amortized cost                    |  |       |    |                        
|Financial loans                   |  |       | 21 |                        
|Convertible notes (ordinary note) |  |       | 21 |                        
|Fair value through profit or loss |  |       |    |                        
|Convertible notes (warrant)       |  |       | 21 |                        

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Table of Contents


|                                           |  |       |    | As at December 31, 2016
|------------------------------------------ |  | ----- | -- | -----------------------
|Thousands of euros                         |  | Notes |    | Carrying amount        
|Financial assets                           |  |       |    |                        
|Loans and receivables                      |  |       |    |                        
|Other non-current assets                   |  |       |    |                        
|Financial liabilities                      |  |       |    |                        
|Amortized cost                             |  |       |    |                        
|Financial loans                            |  |       | 21 |                        
|Convertible notes (ordinary note)          |  |       | 21 |                        
|Fair value through profit or loss          |  |       |    |                        
|Convertible notes (warrant)                |  |       | 21 |                        
|Other financial liabilities                |  |       | 21 |                        
|Other liabilities contingent consideration |  |       | 23 |                        
|                                           |  |       |    |                        

|                                           |  |       |    | As at December 31, 2015
|------------------------------------------ |  | ----- | -- | -----------------------
|Thousands of euros                         |  | Notes |    | Carrying amount        
|Financial assets                           |  |       |    |                        
|Loans and receivables                      |  |       |    |                        
|Other non-current assets                   |  |       |    |                        
|Financial liabilities                      |  |       |    |                        
|Amortized cost                             |  |       |    |                        
|Financial loans                            |  |       | 21 |                        
|Convertible notes (ordinary note)          |  |       | 21 |                        
|Fair value through profit or loss          |  |       |    |                        
|Convertible notes (warrant)                |  |       | 21 |                        
|Other financial liabilities                |  |       | 21 |                        
|Other liabilities contingent consideration |  |       | 23 |                        
|                                           |  |       |    |                        

The fair values of the financial assets
and financial liabilities measured at amortized cost in the statement of financial position have been determined in accordance
with generally accepted pricing models based on discounted cash flow analysis, with the most significant inputs being the discount
rate that reflects the credit risk.



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At December 31, 2017 the market credit risk
for a company such as TiGenix has been determined at 2.70% (3.03% at December 31, 2016 and 4.97% at December 31, 2015). This discount
rate has been used to determine the fair values of the financial liabilities at amortized cost as of December 31, 2017.



The fair value of other liabilities contingent
consideration is explained in note 4.



The current financial assets and liabilities
are not included in the table above as their carrying amounts approximate their fair values.



Financial
risk management objectives



The Group coordinates access to financial
markets, monitors and manages the financial risks relating to the operations through internal risk reports that analyze exposures
by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price
risk), credit risk and liquidity risk.



The Group does not use any derivative financial
instruments to hedge risk exposures.



Currency risk



The Group may be subject to limited currency
risk. The Group’s presentation currency is the euro, in addition to which we are exposed to the U.S. dollar. The Company
tries to match foreign currency cash inflows with foreign currency cash outflows. The Company has not engaged in hedging of its
foreign currency risk using derivative instruments. The Group’s financial assets and financial liabilities were denominated
in the following currencies:







|                                           |  | EUR             |        | USD             |  | GBP             |        | CHF             |  | Total          
|------------------------------------------ |  | --------------- | ------ | --------------- |  | --------------- | ------ | --------------- |  | ---------------
|                                           |  | As at           |        | As at           |  | As at           |        | As at           |  | As at          
|                                           |  | December
    31 |        | December
    31 |  | December
    31 |        | December
    31 |  | December
    31
|Thousands of euros                         |  | 2017            |        | 2016            |  | 2015            |        | 2017            |  | 2016           
|Financial assets                           |  |                 |        |                 |  |                 |        |                 |  |                
|Cash and cash equivalents                  |  |                 | 33,811 |                 |  |                 | 77,320 |                 |  |                
|Trade receivables                          |  |                 | 78     |                 |  |                 | 1,728  |                 |  |                
|Total Financial assets                     |  |                 | 33,889 |                 |  |                 | 79,048 |                 |  |                
|Financial liabilities                      |  |                 |        |                 |  |                 |        |                 |  |                
|Trade payables                             |  |                 | 1,944  |                 |  |                 | 2,184  |                 |  |                
|Other liabilities contingent consideration |  |                 | —      |                 |  |                 | 12,858 |                 |  |                
|Borrowings                                 |  |                 | 41,752 |                 |  |                 | 34,846 |                 |  |                
|Total financial liabilities                |  |                 | 43,696 |                 |  |                 | 49,888 |                 |  |                













The Group’s exposure is only limited
to pounds sterling, U.S. dollars and Swiss-francs.



Except for the currency effect, mentioned
in Note 2, in relation to the intercompany loan with TiGenix Inc, there is limited external currency exposure, and therefore no
sensitivity analysis has been performed.



Interest rate risk



The Group is not exposed to interest rate
risk, because the Group’s external borrowings are at fixed interest rates.



Liquidity risk



The Group manages liquidity risk by maintaining
adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecasted and actual cash flows,
and by matching the maturity profiles of financial assets and liabilities.



The following table details the Group’s
remaining contractual maturity for its financial liabilities with agreed repayment periods. The table has been drawn up based on
the undiscounted cash flows of



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financial liabilities based on the earliest
date on which the Group can be required to pay. The table includes both interest and principal cash flows.















|Thousands of euros                     |  | Interest rate |  | Within     |        |             |  |             |        |             |  |             |        |             |  | After       |       | Total
|-------------------------------------- |  | ------------- |  | ---------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ----------- | ----- | -----
|                                       |  |               |  | 1
    year |        | 2
    years |  | 3
    years |        | 4
    years |  | 5
    years |        | 6
    years |  | 6
    years |       |      
|                                       |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|As at December 31, 2017                |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|Non-interest bearing                   |  | N/A           |  |            | 471    |             |  |             | 471    |             |  |             | 471    |             |  |             | 471   |      
|Fixed interest rate borrowings         |  | 1.46%         |  |            | 675    |             |  |             | 675    |             |  |             | 675    |             |  |             | 675   |      
|Fixed interest rate borrowings         |  | 0.33%         |  |            | —      |             |  |             | 49     |             |  |             | 139    |             |  |             | 230   |      
|Fixed interest rate borrowings (Kreos) |  | 12.5%         |  |            | 1,324  |             |  |             | —      |             |  |             | —      |             |  |             | —     |      
|Fixed interest rate borrowings (Bonds) |  | 9.0%          |  |            | 18,810 |             |  |             | —      |             |  |             | —      |             |  |             | —     |      
|Leasings                               |  | N/A           |  |            | 169    |             |  |             | 48     |             |  |             | —      |             |  |             | —     |      
|Total                                  |  |               |  |            | 21,449 |             |  |             | 1,243  |             |  |             | 1,285  |             |  |             | 1,376 |      
|                                       |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|As at December 31, 2016                |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|Non-interest bearing                   |  | N/A           |  |            | 471    |             |  |             | 471    |             |  |             | 471    |             |  |             | 471   |      
|Fixed interest rate borrowings         |  | 1.46%         |  |            | 675    |             |  |             | 675    |             |  |             | 675    |             |  |             | 675   |      
|Fixed interest rate borrowings         |  | 0.33%         |  |            | —      |             |  |             | —      |             |  |             | 49     |             |  |             | 139   |      
|Floating interest rate borrowings      |  | Euribor       |  |            | 20     |             |  |             | —      |             |  |             | —      |             |  |             | —     |      
|Fixed interest rate borrowings (Kreos) |  | 12.5%         |  |            | 3,973  |             |  |             | 1,324  |             |  |             | —      |             |  |             | —     |      
|Fixed interest rate borrowings (Bonds) |  | 9.0%          |  |            | 2,250  |             |  |             | 26,125 |             |  |             | —      |             |  |             | —     |      
|Leasings                               |  | N/A           |  |            | 63     |             |  |             | 74     |             |  |             | —      |             |  |             | —     |      
|Other financial liabilities            |  | N/A           |  |            | 350    |             |  |             | —      |             |  |             | —      |             |  |             | —     |      
|Total                                  |  |               |  |            | 7,803  |             |  |             | 28,669 |             |  |             | 1,196  |             |  |             | 1,285 |      
|                                       |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|As at December 31, 2015                |  |               |  |            |        |             |  |             |        |             |  |             |        |             |  |             |       |      
|Non-interest bearing                   |  | N/A           |  |            | 468    |             |  |             | 471    |             |  |             | 471    |             |  |             | 471   |      
|Fixed interest rate borrowings         |  | 1.46%         |  |            | 563    |             |  |             | 675    |             |  |             | 675    |             |  |             | 675   |      
|Floating interest rate borrowings      |  | Euribor       |  |            | 40     |             |  |             | 20     |             |  |             | —      |             |  |             | —     |      
|Fixed interest rate borrowings (Kreos) |  | 12.5%         |  |            | 3,973  |             |  |             | 3,973  |             |  |             | 1,117  |             |  |             | —     |      
|Fixed interest rate borrowings (Bonds) |  | 9.0%          |  |            | 2,250  |             |  |             | 2,250  |             |  |             | 26,125 |             |  |             | —     |      
|Other financial liabilities            |  | N/A           |  |            | 985    |             |  |             | —      |             |  |             | —      |             |  |             | —     |      
|Total                                  |  |               |  |            | 8,279  |             |  |             | 7,389  |             |  |             | 28,388 |             |  |             | 1,146 |      



On March 6, 2015, the Company issued senior,
unsecured convertible bonds due 2018 for a total principal amount of 25 million euros. The bonds are issued and will be redeemed
at 100% of their principal amount and have a coupon of 9% per annum, payable semi-annually in arrear in equal instalments on March
6 and September 6 of each year. The first interest payment date was on September 6, 2015. On November 10, 2017, 7 million euros
of the Company ́s senior unsecured convertible bonds were converted into 7,792,496 shares. Final maturity date for the rest
of the EUR 18 million convertible bonds is March 6, 2018. More information can be found in note 18.



Following the acquisition of Coretherapix,
the Group has an additional interest-free loan from the Innpacto Program. It has a term of 10 years, with a grace period of three
years. In January 2012, the Group received the first annual instalment of the Innpacto loan amounting to 0.5 million euros. In
2013, the Group received two annual payments of the Innpacto loan, one of 0.5 million euros and another of 0.1 million euros. Final
maturity date is 2022, 2023 and 2024 per tranche.



Additionally, on December 20, 2013,
the Group entered into a loan facility agreement of up to 10.0 million euros with Kreos. The loan was drawn in three tranches
(5.0 million euros by February 3, 2014; 2.5 million euros by May 31, 2014; and 2.5 million euros by September 30,
2014).



As part of the consideration for this debt
financing agreement, in April 2014 the Group issued a warrant plan to Kreos Capital IV (Expert Fund). The warrant plan consisted
of 1,994,302 warrants that were



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issued with an exercise price of 0.75 euros
exercisable immediately and which expire in April 2019. The warrants also include a put option that authorizes Kreos Capital IV
(Expert Fund) to return the warrants to the Company and to settle the warrants in cash at any time during the repayment term of
the Kreos loan, provided that (i) the put option can only be exercised in three equal tranches of each one third of the total number
of warrants; (ii) no more than one tranche can be exercised in a twelve month period; (iii) the put option cannot be exercised
if, at the time of the proposed exercise, the price of a share of the Company is higher than 0.9957 euros; and (iv) the put option
shall lapse and can no longer be exercised if the average stock price per share in the Company on each trading day included in
any period of thirty (30) consecutive calendar days during the duration of the warrant plan exceeds 0.9957 euros. In May 2015,
Kreos Capital IV (Expert Fund) exercised the first tranche of the put option of the Kreos Warrant Plan, equivalent to 664,767 warrants.
In the meantime, the put option has lapsed in accordance with the afore-mentioned item (iv).



The loan is measured at amortized cost in
accordance with IAS 39. At initial recognition of the loan, the nominal amount of the loan is decreased with the transactions
costs related to the loan which also includes the amount of the warrants allocated to the tranches. The interest rate is the effective
interest rate (20.16%).



The warrants, including the put
option, are accounted for as one instrument (not separating the put option from the warrants) and at issuance had a fair
value of 0.7 million euros. Since Kreos Capital IV (Expert Fund) has the option to settle the warrants in cash, the
instrument is considered as a financial derivative liability measured at fair value with changes in fair value recognized
immediately in profit or loss. The measurement of the warrant at every reporting date at fair value is based on a
Black-Scholes valuation model taking into account following inputs: share price, strike price, volatility of the share,
duration and risk-free interest rate.



On December 19, 2017, Kreos Capital IV exercised
the right to convert 1,329,535 warrants into TiGenix shares.



The measurement of the warrant (including
the put option) at December 31, 2016 at fair value was based on a Black-Scholes valuation model taking into account following inputs:
share price (0.71 euros), strike price (0.7449 euros), volatility of the share (66.6%), duration (2.31 years) and
risk-free interest rate (-0.16%).



The measurement of the warrant (including
the put option) at December 31, 2015 at fair value was based on a Black-Scholes valuation model taking into account following inputs:
share price (1.19 euros), strike price (0.74 euros), volatility of the share (66.7%), duration (3.31 years) and
risk-free interest rate (0.10%).



Credit risk management



Credit risk refers to the risk that a counterparty
will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing
with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial
loss from defaults. The Group’s exposure is continuously monitored, and the aggregate value of transactions concluded is
spread among approved counterparties.



The maximum exposure to credit risk at the
reporting date is the carrying amount of each class of financial assets. The Group does not hold any collateral as security.



More information on the trade receivables
can be found in note 15 to the consolidated financial statements.



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Market risk



The Group is exposed to market risk. Market
risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk, such as equity price
risk and commodity risk. Financial instruments affected by market risk include the derivate instruments linked to the convertible
bonds issued on March 6, 2015.



Pursuant to the terms and conditions of
the convertible bonds issued on March 6, 2015, the measurement of the warrant at fair value shall be reflected at any time at its
fair value as determined by direct observation.



At December 31, 2017 the inputs with the
most significant effect on the fair value calculation are the value and volatility of TiGenix’s shares. The potential effect
of using reasonable assumptions (Black-Scholes formula) for changes in these inputs are the following: i) share price (10% increase/decrease
would have an impact of 2,779 thousand euros/-2,632 thousand euros) ii) volatility of the shares (10% increase/decrease would have
an impact of 485 thousand euros/ -461 thousand euros).



At December 31, 2016 the inputs with the
most significant effect on the fair value calculation are the value and volatility of TiGenix’s shares. The potential effect
of using reasonable assumptions (Black-Scholes formula) for changes in these inputs are the following: i) share price (10% increase/decrease
would have an impact of 238 thousand euros/-38 thousand euros) ii) volatility of the shares (10% increase/decrease would have an
impact of 238 thousand euros/ -238 thousand euros).



6. Revenues and other operating income



|                                          |  | Years ended December 31,
|----------------------------------------- |  | ------------------------
|Thousands of euros                        |  | 2017                    
|Royalties                                 |  |                         
|License revenues                          |  |                         
|Grant income                              |  |                         
|Other operating income                    |  |                         
|Total revenues and other operating income |  |                         

License revenues



No license revenues were received in 2017.



On July 4, 2016 the Group entered into
a licensing agreement with Takeda under which Takeda now has the exclusive right to commercialize and develop Cx601 for
complex perianal fistulas in all countries outside the United States.



The agreement provides for the right to
TiGenix to receive certain payments, including an upfront payment that was collected on the date of the contract, as well as other
future milestone payments that will be enforceable once the market authorizations are obtained.



Under the agreement, TiGenix is also entitled
to receive royalty payments based on net sales of Cx601 on a country-by-country basis, and in addition has the right to some other
milestone payments when achieving certain level of sales.



In the overall negotiation, and linked with
the licensing agreement, is a manufacturing agreement which obliges TiGenix to manufacture Cx601 at cost for Takeda until Takeda
is able to manufacture Cx601



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independently. The transfer of the manufacturing
responsibilities to Takeda is expected to be prior to January 1, 2021.



Based in the agreement, the following separate
performance obligations were identified:



| | - | Initial upfront fee (25 million euros)
was matched with the single obligation existing at that time, the transmission of the property right to the Cx601 license, so it
was fully recognized as income on the agreement date.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | This agreement includes a second payment
(15 million euros) to be received after marketing authorization for Cx601 is obtained, Market authorization was obtained on March
23, 2018 and we expect to receive the payment during the second quarter of 2018.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | On October 25, 2017 Takeda and TiGenix
signed a manufacturing and supply agreement complementary to the licensing agreement.
| | - | ----------------------------------------------------------------------------------------------------------------------------



| | - | Included in the licensing agreement is
a commitment from Takeda to contribute half of the cost (1.7 million euros) to be incurred in the construction of additional premises
to produce Cx601 for the benefit of Takeda. This contribution has been considered as part of the remuneration for the manufacturing
services (“at cost” in the licensing deal). In addition the manufacturing service will be remunerated with a portion
of the second milestone (marketing authorization in EU amounting to 15 million euros). To calculate what portion of the milestone
should be deferred and allocated as margin for manufacturing services, TiGenix will estimate a reasonable margin, as stated acceptable
method of estimation of stand-alone selling price in the revenue recognition standard.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The remaining milestones are not recognized
as revenue until the triggering event occur (regulatory approvals) considering that TiGenix cannot influence in the trigger decision.



Royalties are linked with future sales and
will be considered revenues when future sales take place.



Initial upfront fee, paid in the agreement
date, amounted to 25 million euros and second milestone of 15 million euros (UE regulatory approval) is expected to be obtained
during the first half of 2018.



To produce Cx601 for the benefit of Takeda
there is a plan in progress to increase the manufacturing capacity at TiGenix. The estimated investment for this purpose amounts
approximately to 3.5 million euros. Takeda will contribute half of this expenditure (1.7 million euros). As of December 31, 2017
there are 1.3 million euros recognized as deferred revenue corresponding to the 50% of the work performed until that date (2.6
million euros).



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7. Operating charges



The operating charges consist of the following
elements:



Research and development expenses



|                                      |  | Years ended December 31,
|------------------------------------- |  | ------------------------
|Thousands of euros                    |  | 2017                    
|Employee benefits expenses            |  |                         
|Depreciation and amortization         |  |                         
|Impairment losses                     |  |                         
|Lab fees and other operating expenses |  |                         
|Other expenses                        |  |                         
|Total                                 |  |                         



General and administrative expenses



|                                      |  | Years ended December 31,
|------------------------------------- |  | ------------------------
|Thousands of euros                    |  | 2017                    
|Employee benefits expenses            |  |                         
|Depreciation and amortization expense |  |                         
|Services and other sundry expenses    |  |                         
|Other expenses                        |  |                         
|Total                                 |  |                         

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Table of Contents


Employee benefits expenses and mandate
contractors



The employee benefits expenses included
in the Research and development expenses and the General and administrative expenses lines of the income statements are detailed
as follows:



|                                  |  | Years ended December 31,
|--------------------------------- |  | ------------------------
|Thousands of euros                |  | 2017                    
|Wages, salaries, fees and bonuses |  |                         
|Social security cost              |  |                         
|Group & Hospitalization insurance |  |                         
|Share-based compensation          |  |                         
|Other expenses                    |  |                         
|Total                             |  |                         



At year-end, the number of employees (full-time
equivalents) was as follows:



|                                            |  | As at December 31,
|------------------------------------------- |  | ------------------
|Number of employees and mandate contractors |  | 2017              
|Research and development staff              |  |                   
|General and administrative staff            |  |                   
|Total                                       |  |                   



For further details about the share-based
compensation plans, see note 24.



8. Financial result



|                                                           |  | Years ended December 31,
|---------------------------------------------------------- |  | ------------------------
|Thousands of euros                                         |  | 2017                    
|Interest income on bank deposits                           |  |                         
|Fair value gains                                           |  |                         
|Other interest income                                      |  |                         
|Total financial income                                     |  |                         
|Interest on borrowings                                     |  |                         
|Fair value losses                                          |  |                         
|Impairment and losses on disposal of financial instruments |  |                         
|Other finance costs                                        |  |                         
|Total financial expenses                                   |  |                         
|Net foreign exchange differences                           |  |                         
|Financial result                                           |  |                         

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9. Income tax



The income tax in 2017 is negative by 114
thousand euros compared to positive 2.1 million euros in 2016. The amount in 2016 corresponds to a tax incentive related to the
tax Law for entrepreneurs in Spain that allows TiGenix SAU to receive in cash the tax deductions obtained from R&D activities.
These incentives need to be revised and approved by the tax authorities and TiGenix management does not recognize the profit until
it receives the certifying reports from an independent third party (see note 2). As the Company received the approval reports for
2014 and 2015 before the year-end, the Company applied for the reimbursement and recognized receivables (current and non-current)
of 3.8 million euros of its tax credits reported in 2014 and 2015. During 2017, the approval for the research and development activities
performed in 2016 in TiGenix SAU was received the January 8, 2018 for a total amount of 1.9 million euros, as such at December
31, 2017 no amount was recognized. This amount will be recognized in the Income Statements of financial year 2018. The negative
amount of 114 thousand euros relates to a change in the interpretation of the described tax law of the 2015 research and development
activities related to Coretherapix.



The income tax expense for the year can
be reconciled to the accounting profit as follows:



|                                                                                  |  | Years ended December 31,
|--------------------------------------------------------------------------------- |  | ------------------------
|Thousands of euros                                                                |  | 2017                    
|Profit/(Loss) before taxes                                                        |  |                         
|Income tax expense calculated at 33%                                              |  |                         
|Effect of income that is exempt from taxation                                     |  |                         
|Effect of expenses that are not deductible                                        |  |                         
|Effect of unused tax losses and tax offsets not recognized as deferred tax assets |  |                         
|Effect of different tax rates in foreign jurisdictions                            |  |                         
|Effect of the incentives of Spanish Tax Law 14/2013                               |  |                         
|Other                                                                             |  |                         
|Total                                                                             |  |                         



The deferred taxes are further detailed
in note 19.



10. Earnings per share



The calculation of the basic earnings per
share is based on the loss/profit attributable to the holders of ordinary shares and the weighted average number of ordinary shares
outstanding during the period.



The Group offers its employee’s share-based
compensation benefits (see note 25), which may have a dilutive effect on the basic earning per share. For the purpose of calculating
diluted earning per share, the number of ordinary shares shall be the weighted average number of ordinary shares plus the weighted
average number of ordinary shares that would be issued in case of conversion into ordinary shares of all instruments that can be
converted into ordinary shares.



On February 20, 2017, 5,505,477 warrants
were issued of which 5,345,477 warrants were granted and 160,000 warrants could still be granted as of December 31, 2017. These
warrants expired on February 20, 2018 because they were not granted.



During 2015 due to the losses incurred by
the Group, these instruments had an anti-dilutive effect on the loss per share. Instruments that can be converted into ordinary
shares shall only be treated as dilutive



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when their conversion into ordinary shares
would decrease earnings per share or increase loss per share from continuing operations.



|                                                                                |  | Years ended December 31,
|------------------------------------------------------------------------------- |  | ------------------------
|Thousands of euros except share and per share data                              |  | 2017                    
|                                                                                |  |                         
|Profit/(Loss) for the period for the purpose of basic earnings per share        |  |                         
|Weighted average number of shares for the purpose of basic earnings per share   |  |                         
|Basic income (loss) per share (in euros)                                        |  |                         
|POTENTIAL DILUTIVE INSTRUMENTS                                                  |  |                         
|Number of share-based options (out-of-the-money)                                |  |                         
|Number of shared-based options (in-the-money) with dilutive effect              |  |                         
|Weighted average number of shares for the purpose of diluted earnings per share |  |                         
|                                                                                |  |                         
|Diluted income (loss) per share (in euros)                                      |  |                         

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11. Intangible assets





|Thousands of euros                      |  | Development |         | Goodwill |  | Intellectual property |      | Patents and licences |  | Software |         | Total
|--------------------------------------- |  | ----------- | ------- | -------- |  | --------------------- | ---- | -------------------- |  | -------- | ------- | -----
|COST                                    |  |             |         |          |  |                       |      |                      |  |          |         |      
|Balance at December 31, 2014            |  |             | 5,071   |          |  |                       | —    |                      |  |          | 38,504  |      
|Additions—separately acquired           |  |             | —       |          |  |                       | —    |                      |  |          | 13      |      
|Coretherapix acquisition                |  |             | 17,374  |          |  |                       | 717  |                      |  |          | —       |      
|Balance at December 31, 2015            |  |             | 22,445  |          |  |                       | 717  |                      |  |          | 38,517  |      
|Additions—separately acquired           |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Disposals                               |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Reclassification                        |  |             | (1,714  | )        |  |                       | —    |                      |  |          | 1,714   |      
|Balance at December 31, 2016            |  |             | 20,731  |          |  |                       | 717  |                      |  |          | 40,231  |      
|Additions—separately acquired           |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Disposals                               |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Effect of foreign exchange differences  |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Balance at December 31, 2017            |  |             | 20,731  |          |  |                       | 717  |                      |  |          | 40,231  |      
|                                        |  |             |         |          |  |                       |      |                      |  |          |         |      
|ACCUMULATED AMORTISATION AND IMPAIRMENT |  |             |         |          |  |                       |      |                      |  |          |         |      
|Balance at December 31, 2014            |  |             | (1,097  | )        |  |                       | —    |                      |  |          | (9,412  | )    
|Amortisation expense                    |  |             | (240    | )        |  |                       | —    |                      |  |          | (2,565  | )    
|Impairment loss                         |  |             | (1,121  | )        |  |                       | —    |                      |  |          | —       |      
|Balance at December 31, 2015            |  |             | (2,458  | )        |  |                       | —    |                      |  |          | (11,977 | )    
|Amortisation expense                    |  |             | —       |          |  |                       | —    |                      |  |          | (2,653  | )    
|Eliminated on disposals                 |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Balance at December 31, 2016            |  |             | (2,458  | )        |  |                       | —    |                      |  |          | (14,630 | )    
|Amortisation expense                    |  |             | —       |          |  |                       | —    |                      |  |          | (2,738  | )    
|Reclassification                        |  |             | (17,374 | )        |  |                       | (717 | )                    |  |          | —       |      
|Eliminated on disposals                 |  |             | —       |          |  |                       | —    |                      |  |          | —       |      
|Balance at December 31, 2017            |  |             | (19,832 | )        |  |                       | (717 | )                    |  |          | (17,368 | )    
|                                        |  |             |         |          |  |                       |      |                      |  |          |         |      
|Carrying amount at December 31, 2015    |  |             | 19,987  |          |  |                       | 717  |                      |  |          | 26,540  |      
|Carrying amount at December 31, 2016    |  |             | 18,273  |          |  |                       | 717  |                      |  |          | 25,601  |      
|Carrying amount at December 31, 2017    |  |             | 899     |          |  |                       | —    |                      |  |          | 22,863  |      





The Company recognized during 2011 and 2010
development costs for ChondroCelect. They were amortized over their useful life of 10 years. No additional development costs for
ChondroCelect were capitalized after 2011. The Company registered in 2015 an impairment on this asset amounting to 1.1 million
euros (corresponding to its net carrying amount prior to its impairment).



On July 31, 2015 the Group acquired 100%
of the issued share capital of Coretherapix, SLU. The most significant part of the purchase price has been allocated to in-process
research & development (17.4 million euros) as well as certain other intangible assets (277 thousand euros). The difference
between the fair values of the assets acquired and liabilities assumed and the purchase price comprises the value of expected synergies
arising from the acquisition and was recorded as goodwill (717 thousand euros). See note 4.



The asset recognized as a consequence of
this business combination was not amortized, because it was not yet available for use and was, therefore, subject to an annual
test for impairment. Group management has implemented an annual procedure to identify any possible impairment on net assets and
goodwill allocated by CGU with respect to the recoverable amount thereof. The recoverable amount of the Coretherapix unit was calculated
as the present value of the cash flows resulting from the financial projections discounted at a rate that takes into account the
assets' specific risks, the average cost of the liabilities and the Group's target financial structure covering a fifteen-year
period. The period considered in the model exceeded five years because the first year of sales was estimated to be 2023 and the
peak year of sales to be 2029. The estimate on the post tax discount rate was updated at December 31, 2016. As a result, a range
between 13% and 15% was obtained. The post tax discount rate applied to cash flow projections when estimating fair values was 15%
(same as December 31, 2015).



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The main variables affecting the calculation
of the aforementioned projections were as follows:



| | - | Discount rate (15%)
| | - | -------------------



| | - | Market Penetration
| | - | ------------------



| | - | Price of the product
| | - | --------------------



| | - | Development tree and possible scenarios (9 possible scenarios depending on Licensing/no Licensing;
Pivotal /Not into Pivotal)
| | - | -----------------------------------------------------------------------------------------------------------------------------



| | - | Licensing Milestone incomes
| | - | ---------------------------



| | - | Trial and running costs
| | - | -----------------------



| | - | Year of sales (Pick year sales)
| | - | -------------------------------



| | - | POS (Probability of success)
| | - | ----------------------------



The main assumptions were based on past
experience and were reviewed as part of management strategic planning cycle for changes in market conditions and sales erosion
through competition.



As explained in Note 4, TiGenix most advanced
product is Cx601 which received positive CHMP opinion in Europe on December 14, 2017.With Cx601 now having received a positive
regulatory opinion in Europe, TiGenix reviewed its pipeline priorities beyond the continued commitment to the development of Cx601
for the US market and Cx611 for sepsis. The Company is of the opinion that Cx601 has great potential in other indications and that
it will deliver greater shareholder value by directing its resources to targeted trials in those areas. Given the focus on Cx601
and the allogeneic adipose-derived stem cell technology, TiGenix will not dedicate investing efforts to R&D of its allogeneic
cardiac stem cell technology.



Due to this reason the Company has decided
to impair the asset obtained from the business combination with Coretherapix including the goodwill related to it. Putting on hold
this project in such early stage situation, makes the recoverable amount to be close to zero.



In addition to that those patents belgonging
to Coretherapix also has been impaired during the period.



In addition, intellectual property and development
relate to the acquisition of TiGenix SAU in May 2011 and consist of the technology platform, included in ‘Intellectual property’
and, in-process research & development, included in ‘Development’. These intangible assets were recognized
at fair value in accordance with IFRS 3—Business Combinations. The technology platform’s carrying value
of EUR 21.4 million at December 31, 2017 (2016: EUR 24.0 million; 2015: EUR 26.5 million) is amortized over
its useful life of fifteen years. The remaining useful life is nine years at the end of 2017. In-process research & development
at the end of 2015 amounted to EUR 2.6 million and was not amortized, because it was not yet available for use. In July 2016,
the part of this intangible asset related to the product Cx601 (EUR 1.7 million) was considered as available for use and consequently
subject to amortization. As a result of that, we reclassified it from development to intellectual property. The estimated useful
economic life has been determined to be 10 years, which is the remaining period for the patents related to it. At the end of 2017,
Cx601 carrying value was EUR 1.5 million.



In December 2017, TiGenix obtained exclusive
access to certain patents from Mesoblast Limited a global leader in developing innovative cell-based medicines, to support global
commercialization of the adipose-derived mesenchymal stem cell product Cx601 for the local treatment of fistulae. The agreement
includes the right for TiGenix to grant sub-licenses to affiliates and third parties, including TiGenix's current development and
commercialization partner ex-United States.



As consideration, TiGenix will pay up to
20 million euros, with 5 million euros upfront, 5 million euros within 12 months, and up to 10 million euros in product regulatory
milestones. Additionally, TiGenix will pay royalties on net sales of Cx601. The Company recognized this license in intangible assets
for an



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amount of 10 million euros and will amortize
during the expected usefull life of the patents embeeded in the agreement.



At December 31, 2017, 2016 and 2015
no commitments were signed to acquire intangible assets.



12. Property, plant and equipment





|Thousands of euros                      |  | IT & machinery |        | Furniture |  | Laboratory equipment |      | Leasehold improvements |  | TOTAL
|--------------------------------------- |  | -------------- | ------ | --------- |  | -------------------- | ---- | ---------------------- |  | -----
|COST                                    |  |                |        |           |  |                      |      |                        |  |      
|Balance at December 31, 2014            |  |                | 1,763  |           |  |                      | 402  |                        |  |      
|Additions                               |  |                | 9      |           |  |                      | 4    |                        |  |      
|Acquisition Coretherapix (Note 4)       |  |                | 5      |           |  |                      | 14   |                        |  |      
|Balance at December 31, 2015            |  |                | 1,777  |           |  |                      | 421  |                        |  |      
|Additions                               |  |                | 46     |           |  |                      | 154  |                        |  |      
|Disposals                               |  |                | (2     | )         |  |                      | —    |                        |  |      
|Balance at December 31, 2016            |  |                | 1,822  |           |  |                      | 575  |                        |  |      
|Additions                               |  |                | 19     |           |  |                      | 155  |                        |  |      
|Disposals                               |  |                | —      |           |  |                      | —    |                        |  |      
|Balance at December 31, 2017            |  |                | 1,841  |           |  |                      | 730  |                        |  |      
|ACCUMULATED DEPRECIATION AND IMPAIRMENT |  |                |        |           |  |                      |      |                        |  |      
|Balance at December 31, 2014            |  |                | (1,422 | )         |  |                      | (394 | )                      |  |      
|Depreciation expense                    |  |                | (12    | )         |  |                      | (24  | )                      |  |      
|Balance at December 31, 2015            |  |                | (1,434 | )         |  |                      | (419 | )                      |  |      
|Depreciation expense                    |  |                | (11    | )         |  |                      | (38  | )                      |  |      
|Eliminated on disposals                 |  |                | —      |           |  |                      | —    |                        |  |      
|Balance at December 31, 2016            |  |                | (1,445 | )         |  |                      | (456 | )                      |  |      
|Depreciation expense                    |  |                | (20    | )         |  |                      | (47  | )                      |  |      
|Eliminated on disposals                 |  |                | —      |           |  |                      | —    |                        |  |      
|Balance at December 31, 2017            |  |                | (1,465 | )         |  |                      | (503 | )                      |  |      
|                                        |  |                |        |           |  |                      |      |                        |  |      
|Carrying amount at December 31, 2015    |  |                | 343    |           |  |                      | 4    |                        |  |      
|Carrying amount at December 31, 2016    |  |                | 377    |           |  |                      | 118  |                        |  |      
|Carrying amount at December 31, 2017    |  |                | 376    |           |  |                      | 227  |                        |  |      



In the licence agreement signed with Takeda,
TiGenix and Takeda agreed that an expansion of the capacity of the current manufacturing plant of TiGenix was necessary in order
to achieve a minimum volume of production of doses, and Takeda committed to contribute to that expansion assuming 50% of the capital
investment. On October 25, 2017 we signed a manufacturing agreement with Takeda governing, among other things, the specific aspects
of this contribution.This explains the additions in laboratory equipment and leashold improvements.



Since TiGenix will be the owner of the resulting
expansion of the manufacturing facilities, this contribution received from Takeda is considered to remunerate the initial production
of doses to be delivered to Takeda from the moment Cx601 is approved for commercialization until Takeda is in a position to manufacture
Cx601 itself. As of December 31, 2017 an amount of EUR 1.3 million has been recorded as deferred income in connection with this
contribution from Takeda, of which EUR 0.8 million relates to cash already received and EUR 0.5 million has been recorded as an
account receivable based on the level of capital investment already incurred.



During 2016, TiGenix SAU increased its leased
offices in Madrid and started working to increase the capacity of its manufacturing plant (at December 31, 2016, 0.6 million euros
were under construction). At December 31, 2016 there were commitments with corresponding suppliers for a total amount of 0.4 million
euros.



On July 31, 2015 the Group acquired Coretherapix
as well as certain Coretherapix property, plant and equipment with a fair value of 109 thousand euros. (See note 4).



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13. Other non-current assets



The other non-current assets include guaranteed
deposits (1.4 million euros) in relation to soft loans obtained from Madrid Network, the Ministry of Economy and Competitivity
and other guarantees (0.4 million euros) for the rental of the buildings in Madrid and Leuven.



On May 30, 2014, the Group completed
the sale of TiGenix B.V., our Dutch subsidiary, which held our manufacturing facility, to PharmaCell, a leading European contract
manufacturing organization active in the area of cell therapy, for a total consideration of 4.3 million euros. Under the terms
of the share purchase agreement with PharmaCell, we received an upfront payment of 3.5 million euros when the sale became
effective on May 30, 2014 and we expected to receive a final payment of 0.8 million in 2017. As a consequence of the
early termination of the agreement with Pharmacell signed in July 2016 we collected this pending amount (0.8 million euros) in
December 2016. In 2015, other non-current assets also included the deferred consideration from the sale of the Dutch manufacturing
facility.



On March 6, 2015, the Company issued senior,
unsecured convertible bonds due 2018 for a total principal amount of 25 million euros and with a nominal value of 100,000 euros
per convertible bond. These convertible bonds must have a coupon escrow that is an amount sufficient to pay the aggregate amount
of interest due on the bonds on the first four interest payment dates up to and including March 6, 2017. The corresponding amount
was transferred to an escrow account for the purpose of paying those four interest payments. As of year-end 2016 the remaining
amount of 1.13 million euros of interest payments was classified as other current financial assets.



In accordance with Law 14/2013 of September
27, 2013 on supporting entrepreneurs and their internationalisation (published in the Official State Gazette of September 28, 2013),
TiGenix SAU and Coretherapix SLU annually request the monetization of the tax incentives related to the R&D expenses already
approved by the tax authorities. The amount approved (2.1 million euros) during 2016 was recognized as other non-current assets
as it was not expected to be collected before 2018. During 2017 it has been transferred to current tax assets. As explained in
Note 9, amounts corresponding to fiscal year 2016 have not been certified until January 2018.



14. Inventories



The carrying amounts of the different components
of the inventory are as follows:



|                              |  | As at December 31,
|----------------------------- |  | ------------------
|Thousands of euros            |  | 2017              
|Raw materials and consumables |  |                   
|Total                         |  |                   



All the raw materials and consumables are
related to the eASC platform ́s activities.



15. Trade and other receivables





|                   |  | As
at December 31,
|------------------ |  | ------------------
|Thousands
of euros |  | 2017              
|Trade receivables  |  |                   
|Other receivables  |  |                   
|Recoverable taxes  |  |                   
|Other              |  |                   
|Total              |  |                   





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The Company during the periods ended December
31, 2015, 2016 and 2017 had not doubtfull debts and consequently it did not recognized allowance for that purpose. The aging analysis
of the Group’s trade receivables at year-end is as follows:



|                   |  | As at December 31,
|------------------ |  | ------------------
|Thousands of euros |  | 2017              
|Not past due       |  |                   
|Up to three months |  |                   
|Three to 6 months  |  |                   
|More than one year |  |                   
|Total              |  |                   



The movement in the allowance for doubtful
debts is detailed below:



|                           |  | As at December 31,
|-------------------------- |  | ------------------
|Thousands of euros         |  | 2017              
|Balance at January 1       |  |                   
|Impairment losses reversed |  |                   
|Balance at December 31     |  |                   



How credit risk is managed is described
in Note 5 of the consolidated financial statements.



16. Other current financial assets



At December 31, 2017, Other current financial
assets mainly include prepaid expenses.



At December 31, 2016, Othe current financial
assets mainly included 1.13 million euros of restricted cash in relation to interest payments to be executed in the short term
with respect to the Convertible Bonds issued on March 6, 2015. (See note 15).



17. Equity



17.1.
Share Capital



The share capital of TiGenix amounts to
EUR 27.4 million at December 31, 2017 (2016: EUR 26.0 million; 2015: EUR 17.7 million), represented by 274,287,190
shares (2016: 259,956,365 shares; 2015: 177,304,587 shares). The Company’s shares have no par value. The holders of TiGenix
shares are entitled to receive dividends as declared and to one vote per share at the shareholders’ meeting of the Company.
All shares issued are fully paid.



The Company has never declared or paid any
dividend on its shares. In the future, the Company’s dividend policy will be determined by its BoD and may change from time
to time. Any declaration of dividends will be based upon the Company’s earnings, financial condition, capital requirements
and other factors considered important by the BoD. Belgian law and the Company’s articles of association do not require the
Company to declare dividends. Currently, the BoD expects to retain all earnings, if any, generated by the Company’s operations
for the development and growth of its business and does not anticipate paying any dividend in the near future.



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The change in the number of shares during
the year is as follows:



|Number of shares                                                                              |  | 2017 |             | 2016 |  | 2015
|--------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- |  | ----
|Balance at January 1,                                                                         |  |      | 259,956,365 |      |  |     
|Capital increase—payment of the contingent consideration of Coretherapix business combination |  |      | 6,538,329   |      |  |     
|Capital increase—conversion of 7.0 millions euro bonds                                        |  |      | 7,792,496   |      |  |     
|Capital increase—contribution in cash                                                         |  |      | —           |      |  |     
|Capital increase—contribution in kind                                                         |  |      | —           |      |  |     
|Balance at December 31,                                                                       |  |      | 274,287,190 |      |  |     



During 2017, the share capital of the Company
has been increase twice:



|Share Capital                           |  | No of shares |            | Nominal value |  | Thousand of euros
|--------------------------------------- |  | ------------ | ---------- | ------------- |  | -----------------
|                                        |  |              |            |               |  |                  
|Capital increase July 25, 2017          |  |              | 6,538,329  |               |  |                  
|Capital increase November 10, 2017      |  |              | 7,792,496  |               |  |                  
|Total Increase of share capital in 2017 |  |              | 14,330,825 |               |  |                  
|                                        |  |              |            |               |  |                  



|Share premium                        |  | No of shares |            | Nominal value |  | Thousand of euros
|------------------------------------ |  | ------------ | ---------- | ------------- |  | -----------------
|                                     |  |              |            |               |  |                  
|Capital increase July 25, 2017       |  |              | 6,538,329  |               |  |                  
|Capital increase November 10, 2017   |  |              | 7,792,496  |               |  |                  
|Total Increase                       |  |              | 14,330,825 |               |  |                  
|Transaction costs                    |  |              |            |               |  |                  
|Total increase share premium in 2017 |  |              |            |               |  |                  
|                                     |  |              |            |               |  |                  

| | • | 6,538,329 shares were issued on July 25, 2017, pursuant to the completion of the contribution in
kind by Genetrix SL in relation to the acquisition of Coretherapix in July 2015.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | 7,792,496 shares were issued on November 10, 2017, pursuant to the partial convertion of 7 million
euros of the Company ́s senior unsecured convertible bonds due in 2018.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As indicated in Note 5.4 on December 20,
2013, the Group entered into a loan facility agreement of up to 10.0 million euros with Kreos. As part of the consideration
for this debt financing agreement, in April 2014 the Group issued a warrant plan to Kreos Capital IV (Expert Fund). The warrant
plan consisted of 1,994,302 warrants that were issued with an exercise price of 0.75 euros exercisable immediately and which
expire in April 2019. The warrants also include a put option that authorizes Kreos Capital IV (Expert Fund) to return the
warrants to the Company and to settle the warrants in cash at any time during the repayment term of the Kreos loan. In May 2015,
Kreos Capital IV (Expert Fund) exercised the first tranche of the put option of the Kreos Warrant Plan, equivalent to 664,767 warrants.



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On December 19, 2017 Kreos exercised its
right to convert the remaining warrants (1,329,535). The capital increase for issuing the corresponding shares was executed in
January 5, 2018. On December 29, 2017, the Company received 997 thousand euros corresponding to the exercise of these warrants.
At December 31, 2017 the Company has registered the impact of this capital increase in Equity using the “Shares to be issued”
heading for an amount of 1.4 million euros (market value at the exercising date).



During 2016, the share capital of the Company
had been increased three times:



|Share Capital                               |  | No of shares |            | Nominal value |  | Thousand of euros
|------------------------------------------- |  | ------------ | ---------- | ------------- |  | -----------------
|                                            |  |              |            |               |  |                  
|Capital increase March 10, 2016..................       |  |              | 25,000,000 |               |  |                  
|Capital increase December 15, 2016....................  |  |              | 46,000,000 |               |  |                  
|Capital Increase December 29, 2016....................... |  |              | 11,651,778 |               |  |                  
|Total Increase of share capital in 2016...    |  |              | 82,651,778 |               |  |                  
|                                            |  |              |            |               |  |                  



|Share premium                        |  | No of shares |            | Nominal value |  | Thousand of euros
|------------------------------------ |  | ------------ | ---------- | ------------- |  | -----------------
|                                     |  |              |            |               |  |                  
|Capital increase March 10, 2016      |  |              | 25,000,000 |               |  |                  
|Capital increase December 15, 2016   |  |              | 46,000,000 |               |  |                  
|Capital Increase December 29, 2016   |  |              | 11,651,778 |               |  |                  
|Total Increase                       |  |              | 82,651,778 |               |  |                  
|Transaction costs                    |  |              |            |               |  |                  
|Total increase share premium in 2016 |  |              |            |               |  |                  
|                                     |  |              |            |               |  |                  

| | • | 25,000,000 shares were issued pursuant to a capital increase on March 10, 2016 (23.75 million
euros gross proceeds).
| | - | --------------------------------------------------------------------------------------------------------------------



| | • | 46,000,000 shares were issued pursuant to a Nasdaq IPO on December 15, 2016 (34.1 million
euros gross proceeds).
| | - | ----------------------------------------------------------------------------------------------------------------



| | • | 11,651,778 shares were issued pursuant to the capital increase of 10.0 million euros from Takeda
on December 29, 2016.
| | - | ----------------------------------------------------------------------------------------------------------------------



During 2015, the share capital of the Company
had been increased four times:



| | • | 7,712,757 shares were issued pursuant to the acquisition of Coretherapix, SLU on July 31,
2015 (See note 4).
| | - | ------------------------------------------------------------------------------------------------------------



| | • | 4,149,286 shares were issued pursuant to a contribution in cash on November 27, 2015 (3.9 million
euros).
| | - | ---------------------------------------------------------------------------------------------------------



| | • | 4,956,894 shares were issued pursuant to a contribution in cash on December 3, 2015 (4.7 million
euros).
| | - | --------------------------------------------------------------------------------------------------------



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Table of Contents


| | • | The capital increase of 903 euros on December 14, 2015 following the exercise of 9,030 warrants.
| | - | ------------------------------------------------------------------------------------------------



Transaction costs related to these capital
increases amounted to 441 thousand euros.



17.2.
Equity-settled employee benefits reserve



The equity-settled employee benefits reserve
relates to share options granted by the Group to its employees under its employee share option plan. Further information about
share-based payments to employees is set out in note 23.



17.3.
Translation reserves



Exchange differences relating to the translation
of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation
currency (the euro) are recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve.
Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating the net assets
of foreign operations) are reclassified to profit or loss on the disposal of the foreign operation (see note 8).



The financial statements of TiGenix Inc
are not expressed in euros. At December 31, 2017, the negative equity (11.9 million dollars) of TiGenix Inc is translated into
euros at the historical exchange rate (euro/U.S. dollar) while the rest of the financial statement line items within the statement
of financial position is translated at the closing rate as of December 31, 2017. TiGenix Inc has a significant intercompany liability
in U.S. dollars (9.9 million euros) with TiGenix NV. As the U.S. dollar depreciated during last year against the euro, liabilities
in euros have significantly decreased while the past year results (equity) remain constant. This resulted in 2.4 million euros
recognized in translation reserves. TiGenix US Inc was incorporated in May 2017 in the state of Delaware, and its reporting currency
is the US dollar. At December 31, 2017, the equity (398 thousand dollars) is translated into euros at the historical exchange rate
(euro/U.S. dollar) while the rest of the financial statement line items within the statement of financial position is translated
at the closing rate as of December 31, 2017. This resulted in 1 thousand euros recognized in translation reserves.



18. Financial loans and other payables



|                                   |  | As at December 31,
|---------------------------------- |  | ------------------
|Thousands of euros                 |  | 2017              
|Non-current                        |  |                   
|Financial loans                    |  |                   
|Convertible notes (Ordinary note)  |  |                   
|Convertible notes (Warrant)        |  |                   
|Other payables                     |  |                   
|Non-current borrowings             |  |                   
|Current                            |  |                   
|Current portion of financial loans |  |                   
|Convertible notes (Ordinary note)  |  |                   
|Other financial liabilities        |  |                   
|Current borrowings                 |  |                   
|Total                              |  |                   

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The Company’s current and non-current
borrowings can mainly be detailed as follows:



| | • | Two loans received in different tranches over 2011 and 2013 from Madrid Network, presented within
Financial loans, for an original amount of 5.9 million euros to finance the TiGenix SAU Phase III study for complex perianal
fistulas in Crohn’s disease patients and to develop the potential of stem cells in autoimmune inflammatory diseases. The
loans are scheduled to be repaid over a period of ten years starting in 2015 with an annual fixed interest rate of 1.46%. The outstanding
amount for this facility at December 31, 2017 was 2.6 million euros of which 1.9 million euros are long term. These loans have
been registered at an amortized cost using an annual interest rate of 21%.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Interest-free loans, presented within Financial loans, maturing in 2025 received from the Spanish
government. These loans have an original amount of 3.2 million euros. The outstanding amount for this facility at December
31, 2017 was 1.2 million euros of which 0.9 million euros are long term. These loans have been registered at an amortized cost
using an annual interest rate of 21%.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Kreos loan, presented within Financial loans, received in 3 tranches over 2014 of 5.0 million
euros, 2.5 million euros and 2.5 million euros respectively. The loan will be repaid as from the first anniversary over
a period of four years and has a fixed interest rate of 12.5%. The outstanding amount for this facility at December 31, 2017 was
1.2 million euros all of which are short term.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Interest-free loan from the Innpacto Program, presented within Financial loans. It has a term of
10 years, with a grace period of three years. In January 2012, the Company received the first annual instalment of the Innpacto
loan amounting to 548 thousand euros. In 2013, the Company received two annual payments of the Innpacto loan, the first payment
amounting to 457 thousand euros and second payment amounting to of 142 thousand euros. Outstanding amount for these facilities
at December 31, 2017 was 0.5 million euros of which 0.4 million euros are long term. These loans have been registered at an amortized
cost using an annual effective interest rates of 20.35% and 19.91%.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Three loans received in January 2016, December 2016 and December 2017 from the Ministry of Science,
for an original amount of 0.3 million euros, 0.6 million euros and 0.6 million euros respectively to finance the Coretherapix
chronic heart failure preclinical investigations. The loans will be repaid over a period of ten years starting in 2019, 2020 and
2021 respectively with an annual fixed interest rate of 0.329%. The outstanding amount for these facilities at December 31, 2017
was 1.3 million euros all of which are long term. These loans have been registered at an amortized cost using an annual interest
rates of 4.97%, 3.03% and 2.70% respectively.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Some of these borrowings, were granted subject
to the condition of maintaining specific covenants. As of December 31, 2017, 2016 and 2015 the Group was not in breach of
any of its loan covenants. On March 6, 2015, the Company issued senior, unsecured convertible bonds due 2018 for a total principal
amount of 25 million euros and with a nominal value of 100,000 euros per convertible bond. The bonds are convertible into fully
paid ordinary shares of the Company and are guaranteed by the Company’s subsidiary, TiGenix SAU.



Unsecured. The bonds are unsecured,
meaning that the holders of the bonds will not benefit from any security interests to secure the performance of the Company’s
obligations under the bonds, except for the guarantee provided by TiGenix SAU, the coupon escrow and the negative pledge as further
described.



Senior. The bonds will constitute
senior obligations of the Company, meaning that the obligations of the Company will not be subordinated to the repayment of any
other unsecured financial indebtedness of the Company. The bonds will rank at all times pari passu and rateably, without any preference
among



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themselves, and equally with all other existing
and future unsecured (subject to the coupon escrow and the negative pledge) and unsubordinated obligations of the Company.



Coupon escrow. An amount sufficient
to pay the aggregate amount of interest to be paid on the bonds on the first four interest payment dates up to and including March
6, 2017 was transferred to an escrow account for the purpose of paying those four interest payments. This was a restricted account
(this amount cannot be used for any other different purpose).



Negative pledge. The Company and
its subsidiaries cannot issue debt instruments on the capital market.



Issue price / Redemption price / Coupon
/ Maturity. The bonds are issued and will be redeemed at 100% of their principal amount and have a coupon of 9% per annum,
payable semi-annually in arrear in equal instalments on March 6 and September 6 of each year. The first interest payment date was
on September 6, 2015. Maturity date is March 6, 2018.



Initial conversion price. The initial
conversion price has been set at 0.9414 euros. At this initial conversion price, the bonds were convertible into 26,556,192 fully
paid ordinary shares of the Company. Following the private placement by the Company of 25,000,000 new shares at an issue price
of 0.95 euros per new share announced on March 10, 2016, the calculation agent appointed for the bonds has determined that the
conversion price had to be adjusted from its previous level of 0.9414 euros to the new level of 0.9263 euros per TiGenix share.
At this adjusted conversion price, the bonds were convertible into 26,989,096 fully paid ordinary shares of the Company. This conversion
price adjustment became effective on March 14, 2016.



Following the announcement by the Company
on December 15, 2016 of the pricing of its initial public offering in the United States (the “Offering”), totalling
US$ 35.65 million from the sale of 2,300,000 American Depositary Shares (“ADSs”) representing 46,000,000 new Ordinary
Shares at an issue price of US$ 15.50 per ADS, and, in connection with the Offering, the granting by the Company to the underwriters
of a 30-day option to purchase up to an additional 345,000 ADSs representing 6,900,000 new Ordinary Shares, with cancellation of
the preferential subscription rights for the existing shareholders of the Company, the Calculation Agent determined that the Conversion
Price had to be adjusted from its previous level of € 0.9263 to the new level of € 0.8983 per Ordinary Share (after rounding
in accordance with Condition 6.6 of the Terms and Conditions of the Bonds). The Conversion Price adjustment became effective on
December 20, 2016.



Conversion period. The bonds are convertible into shares of the Company during the period from April
16, 2015 until approximately 10 dealing days prior to the final maturity date or, in the case of an earlier redemption, the date
falling 10 dealing days prior to the relevant redemption date.



Conversion price reset. As from March
7, 2016, the conversion price shall be adjusted so as to equal the greater of (i) the arithmetic average of the daily volume weighted
average price (“VWAP”) of the Company’s share on each dealing day in the “reset period”, and (ii)
80% of the arithmetic average of the conversion price in effect on each dealing day in the “reset period”, whereby
“reset period” means the 20 consecutive dealing days ending on the fifth dealing day prior to March 7, 2016, provided
that no adjustment will be made if such adjustment would result in an increase to the conversion price. At March 7, 2016 the conversion
price was maintained at its original value as an adjustment based on the conversion price reset formula would have resulted in
an increase of the conversion price. On March 14, 2016, as a result of the private placement, the conversion price for the
9% senior unsecured convertible bonds due 2018 was adjusted from its previous level of 0.9414 euros to the level of 0.9263 euros
per share. On December 20, 2016 the conversion price was adjusted from its previous level of 0.9263 euros per share to the new
level of 0.8983 euros per share as a consequence of the initial public offering of the Company in the United States.



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Issuer call option. If at any time
after March 27, 2017, the share price on each of at least 20 dealing days within a period of 30 consecutive dealing days ending
not earlier than 7 dealing days prior to the giving of a notice of redemption shall have been at least 130% of the applicable conversion
price in effect on each such dealing day, by giving a notice, the Company may redeem all, but not some only, of the bonds at their
principal amount (plus accrued interest) within not less than 30 and not more than 60 days of the date of the notice of redemption.



Clean-up call. The Company may redeem
all, but not some only, of the outstanding bonds at their principal amount (plus accrued interest) at any time if less than 15%
of the aggregate principal amount of the bonds originally issued remains outstanding, by giving not less than 30 and not more than
60 days’ notice.



Anti-dilution protection. The bonds
are issued subject to standard anti-dilution protection dealing with, inter alia, share consolidations, share splits, rights issues,
capital distributions and bonus issues.



Dividend protection. The bonds benefit
from full dividend protection through adjustment of the conversion price for any distribution in cash or shares.



Change of control protection. Upon
the occurrence of a change of control (i.e. when one or several individuals or legal entities acting alone or in concert acquire,
directly or indirectly, more than 30% of the share capital or voting shares of the Company), bondholders may require the Company
to redeem their bonds at the principal amount, plus accrued interest. In addition, the conversion price of the bonds shall be temporarily
adjusted downwards in accordance with a market standard formula for a period of 60 days.



Transferability. The bonds are freely
transferable.



Lock-up. The Company agreed, subject
to certain customary exceptions, not to issue or dispose of ordinary shares, convertible bonds, warrants or related securities
during a period of 90 days after March 6, 2015.



Governing law. The bonds are governed
by English law, except for the provisions relating to meetings of bondholders and any matter relating to the dematerialized form
of the bonds, which are governed by Belgian law.



Issuance costs amounted to 1.1 million euros
and have been allocated to the ordinary note and the warrant in proportion to their values (0.7 million euros and 0.4 million euros,
respectively). In the case of the warrant, issuance costs have been recognized in profit or loss on initial recognition, following
IAS 39.



At issuance, the Instrument had a nominal
value of 25 million euros, being the fair value of the warrant 7.9 million euros and the amortized cost of the ordinary note 16.4
million euros.



On November 10, 2017 the Company converted
7 million euros of the senior unsecured convertible bonds into 7,792,496 shares.



As at December 31, 2017 the fair value of
the warrant (18 million euros of loan) amounts to 16.3 million euros (in other financial liabilities) and the amortized cost (with
an effective interest rate of 28.06%) of the ordinary note to 17.8 million euros.



As at December 31, 2016 the fair value of
the warrant (25 million euros of loan) amounted to 2.4 million euros (13.3 million euros at December 31, 2015) and the amortized
cost (with an effective interest rate of 28.06%) of the ordinary note to 21.5 million euros.



The fair value of the government loans at
below market rate interest represented in the table above for the periods 2015-2014, has been calculated based on a discount rate
of 21% reflecting the market credit risk for a company such as TiGenix in a similar development stage. This market credit risk
was



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determined considering the effective interest
from the Kreos loan, which was signed at the end of December 2013 but only into force since February 2014, and the market yields
of similar companies.



Other financial liabilities in 2016 and
2015 relate to the warrants issued as a consideration for the Kreos loan for an amount of 350 thousand euros in 2016. The warrant
plan consisted of 1,994,302 warrants that were issued with an exercise price of 0.75 euros exercisable immediately and which
expire in April 2019. The warrants also include a put option that authorizes Kreos Capital IV (Expert Fund) to return the
warrants to the Company and to settle the warrants in cash under certain circumstances. In May 2015, Kreos Capital exercised this
option and executed one third of the warrants (€163,333), the remaining put options lapsed in January 2016. The amount in
other financial liabilities at December 31, 2016 recognizes the fair value of remaining warrants at that date. As explained in
note 17.1, on December 19, 2017 Kreos exercised its right to convert the remaining warrants (1,329,535). The impact was recognized
in equity and consequently the fair value of the warrans are not recognized at December 31, 2017.



The evolution of the net debt during the
year 2017 is as follows:





|                                      |  | December 31, 2017 |         | December 31, 2016
|------------------------------------- |  | ----------------- | ------- | -----------------
|Cash and cash equivalents             |  |                   | 34,063  |                  
|Borrowings- repayable within one year |  |                   | (36,695 | )                
|Borrowings- repayable after one year  |  |                   | (4,551  | )                
|Net Debt                              |  |                   | (7,183  | )                
|                                      |  |                   |         |                  
|Cash and liquid investments           |  |                   | 34,063  |                  
|Gross Debt - Fixed Interest Rates     |  |                   | (41,246 | )                
|Net Debt                              |  |                   | (7,183  | )                





The reconciliation of the net cash flow
to the movement in net debt is as follows:





|                                                      |  | December 31, 2017
|----------------------------------------------------- |  | -----------------
|Net (decrease)/increase in cash and cash equivalents  |  |                  
|Net (increase)/decrease in debt and lease financing   |  |                  
|Non-cash movements:                                   |  |                  
|— Financial liabilities/interests accrued             |  |                  
|— Fair value changes                                  |  |                  
|— Reclassification to Equity                          |  |                  
|Net (increase)/decrease in liabilities from financing |  |                  
|Movement in net (debt)/cash in the period             |  |                  
|Opening net cash/(debt)                               |  |                  
|Closing net (debt)/cash                               |  |                  





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19. Deferred taxes



Deferred tax liabilities



|                         |  | As at December 31,
|------------------------ |  | ------------------
|Thousands of euros       |  | 2017              
|Deferred tax liabilities |  |                   
|Total                    |  |                   

The variation in the deferred tax balances
presented in the consolidated statement of financial position is as follows:



|Thousands of euros                                   |  | Intangible assets |         | Tax losses |  | Other |        | Total
|---------------------------------------------------- |  | ----------------- | ------- | ---------- |  | ----- | ------ | -----
|Balance at January 1, 2015                           |  |                   | (9,512  | )          |  |       | 9,512  |      
|Coretherapix acquisition                             |  |                   | (1,532  | )          |  |       | 1,532  |      
|Recognized in income statement—continuing operations |  |                   | 2,362   |            |  |       | (2,362 | )    
|Balance at December 31, 2015                         |  |                   | (8,682  | )          |  |       | 8,682  |      
|Recognized in income statement—continuing operations |  |                   | (2,283  | )          |  |       | 2,283  |      
|Balance at December 31, 2016                         |  |                   | (10,965 | )          |  |       | 10,965 |      
|Recognized in income statement—continuing operations |  |                   | 5,028   |            |  |       | (5,028 | )    
|Balance at December 31, 2017                         |  |                   | (5,937  | )          |  |       | 5,937  |      



In the context of the business combination
with TiGenix SAU, the Group recognized a deferred tax liability of 12.3 million euros relating to the recognition of the intangible
assets of TiGenix SAU at the acquisition date. At the same time (i.e., the acquisition date), a deferred tax asset
was recognized for the tax losses carried forward of TiGenix SAU to the extent of the deferred tax liabilities recognized.



In the case of Coretherapix acquisition,
the Group has recognized a deferred tax liability of 1.5 million euros relating to the recognition of the intangible assets of
Coretherapix at the acquisition date. At the same time (i.e., the acquisition date), a deferred tax asset was recognized
for the tax losses carried forward of Coretherapix to the extent of the deferred tax liabilities recognized. As a consequence of
a change in accounting policy at statutory level (Coretherapix used to capitalized research and development cost related to its
cardiac stem cell platform. TiGenix SAU did not capitalize these cost. To homogenize the accounting policies under Spanish GAAP,
Coretherapix adapted this principle to the TiGenix’s one), there was an increase in the amount of tax losses; in 2016, the
mentioned deferred tax liability raised to 4.3 million euros. This mainly explains the 2.3 million euros evolution of deferred
tax assets during that period. At the end of 2017 and as a consequence of the impairment registered in this asset (see note 4),
the deferred tax liability related to it has been reversed in an amount of 4.3 million euros.



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Deductible temporary differences, unused
tax losses and unused tax credits for which no deferred tax assets have been recognized, are attributable to the following:



|                             |  | As at December 31,
|---------------------------- |  | ------------------
|Thousands of euros           |  | 2017              
|Unused tax losses            |  |                   
|Unused tax credits           |  |                   
|Notional interest deductions |  |                   
|Total                        |  |                   



The tax losses do not have an expiration
date. 35% of the unused tax credits will expire within a period of ten years. 62% of unused tax credits have an expiration date
between ten and eighteen years. The remaining 3% do not have an expiration date. The notional interest deductions will expire within
a period of one year.



Due to the losses of the Group, no income
taxes were payable. On December 31, 2017 the Group had losses carried forward amounting to 261.5 million euros (2016:
200.3 million euros; 2015: 180.7 million euros), including a potential deferred tax asset of 65.4 million euros. On 22
December 2017, the Belgian Parliament has approved the Belgian tax reform bill. This bill has been published in the Belgian Official
Gazette on 29 December 2017 and was signed by the Belgian King on 25 December 2017. As such, that the Belgian tax reform has been
substantively enacted for IFRS (IAS 12) on 22 December 2017. Consequently, the deferred tax impact of the Belgian tax reform, which
reduces the corporate income tax rate from 33.99% in 2017 to 29.58% in 2019 and 25% in 2020, must be recognized in the consolidated
financial statements for the year ended 31 December 2017 for IFRS reporters. Because of this circumstance, the tax losses generated
by TiGenix NV are considered at 25% for its inclusion in the potential deferred tax asset of the group previously described. In
addition due to the uncertainty surrounding TiGenix’s ability to realize taxable profits in the near future, the Company
did not recognize any deferred tax assets, except for the ones used to offset the deferred tax liabilities recognized as part of
a past business combination, on its balance sheet.



In addition to tax losses, the Group has
unused tax credits (2017: 25.2 million euros; 2016: 20.8 million euros; 2015: 20.1 million euros) and notional interest
deductions (2017: 0.6 million euros; 2016: 1.7 million euros; 2015: 3.0 million euros) for which no deferred tax
assets have been recognized.



20. Other non-current liabilities –
contingent consideration



Other non-current liabilities included the
fair value at December 31, 2016 of the contingent deferred elements of the purchase price of Coretherapix (7.3 million euros).



The fair value upon acquisition date of
the contingent deferred elements of the purchase price of 9.0 million euros was computed as the sum of the probability-weighted
values of the fair values of the purchase prices associated with each of the nine product development routes. The fair value of
each route was in turn computed as the sum of the survival probability-discounted present values of the contingent payments in
each such route including the Milestone and Commercialization Payments. The annual discount rate used in the model was 15%. (See
note 4).



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The fair values are reviewed on a regular
basis, at least at each reporting period, and any changes are reflected in the income statement. The fair value of contingent consideration
decreased from 12.9 million euros at the December 31, 2016 to 0 million euros at December 31, 2017 (of which, 7.3 million euros
were presented as non-current liabilities and 5.5 million euros as current liabilities in 2016). The decrease is due to the repayment
in July 25, 2017, of 5 million euros through a contribution in kind and the impairment of the Coretherapix activities that have
been strategically put on hold by the company (see note 4).



In the line item Other current liabilities
– contingent consideration it is included the fair value at December 31, 2016 of the short term contingent deferred elements
of the purchase price of Coretherapix (5.5 million euros) at that date.



21. Trade and other payables



|                               |  | As at December 31,
|------------------------------ |  | ------------------
|Thousands of euros             |  | 2017              
|Trade payables                 |  |                   
|Other payables                 |  |                   
|Payables relating to personnel |  |                   
|Other                          |  |                   
|Total                          |  |                   



22. Other current liabilities



The other current liabilities consist of
grant income and other accruals.



|                   |  | As at December 31,
|------------------ |  | ------------------
|Thousands of euros |  | 2017              
|Accrued charges    |  |                   
|Deferred income    |  |                   
|Total              |  |                   

23. Share-based payments



TiGenix—Stock options granted
to employees, consultants and directors



On, March 20, 2008 (400,000),
June 19, 2009 (500,000), March 12, 2010 (500,000), July 6, 2012 (4,000,000), March 20, 2013 (777,000),
December 16, 2013 (1,806,000) and December 7, 2015 (2,250,000) and February 20, 2017 (5,505,477) in the aggregate
15,738,477 warrants were issued for the benefit of employees, consultants and directors, subject to the warrants being
granted to and accepted by the beneficiaries. Of these 15,738,477 warrants, (i)  646,121 warrants expired as they
have not been granted, (ii) 457,183warrants have expired as they have not been accepted by their beneficiaries, (iii)
1,258,222 warrants have lapsed due to their beneficiaries leaving the Company, (iv) 11,530 warrants have been exercised,
and (v) 160,000 warrants were not yet granted but could still be granted until February 19, 2018. As a result, as at
December 31, 2017, there are 13,205,421 warrants granted and outstanding (2016: 8,618,630; 2015: 8,344,086).



The warrants are granted to employees, consultants
and directors of the Company and its subsidiaries, as well as to other persons who in the scope of their professional activity
have made themselves useful to the Group, including but not limited to the members of the scientific advisory board and the clinical
advisors. The warrants have been granted free of charge. Each warrant entitles its holder to subscribe to



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one common share of the Company at a subscription
price determined by the BoD, within the limits decided upon at the occasion of their issuance.



The warrants issued on March 20, 2008,
June 19, 2009, March 12, 2010, July 6, 2012, December 16, 2013 and December 7, 2015 have a term of ten years.
The warrants issued on March 20, 2013 have a term of five years. Upon expiration of the ten or five year term, the warrants
become null and void.



The warrants issued on February 26,
2007, March 20, 2008, June 19, 2009, March 12, 2010 vest, in principle, in cumulative tranches of 25% per year,
i.e., 25% as of the first anniversary date of their granting, 50% as of the second anniversary date of their granting, 75%
as of the third anniversary date of their granting, 100% as of the fourth anniversary date of their granting provided that the
warrant holder has satisfied the vesting conditions, unless the BoD approved a deviation from this vesting schedule. As to the
warrants issued on July 6, 2012, March 20, 2013 and December 7, 2015 and February 20, 2017, in principle, (i) one-third
of the warrants granted will vest on the first anniversary of the granting of the warrants and (ii) one-twenty-fourth of the
remaining two-thirds of the warrants granted will vest on the last day of each of the twenty-four months following the month of
the first anniversary of the granting of the warrants. As to the warrants issued on December 16, 2013, in principle, (i) 10%
of the warrants granted will vest on the date of acceptance of the warrants, (ii) 25% of the warrants granted will vest on
the first anniversary of the granting of the warrants and (iii) 65% of the warrants granted will only vest (one-twenty-fourth
on the last day of each of the months included in the period January 2015 to December 2016) if the Company effectively enters into
certain business transactions. The warrants can only be exercised by the warrant holder if they have effectively vested.



In accordance with IFRS 2, the table below
provides an overview as at December 31, 2017 of all outstanding warrant pools offered to employees, consultants and directors
of the Company and its subsidiaries together with the activities under the different pools of warrants during 2017.





|Number of options                       | Weighted
    average exercise price | Total | February
    02, 2017 | December
    07, 2015 | December 16,
    2013 | March 20,
    2013 | March 20,
    2013 | July 6,
     2012 | March 12,
    2010 | June
    19, 2009 | March 20,
    2008 | February
    26,  2007
|--------------------------------------- | ----------------------------------- | ----- | --------------------- | --------------------- | --------------------- | ------------------ | ------------------ | ----------------- | ------------------ | ----------------- | ------------------ | ----------------------
|Number of options created               |                                     | —     |                       |                       | —                     |                    |                    | 5,505,477         |                    |                   | 2,250,000          |                       
|Weighted average exercise price (euros) |                                     | —     |                       |                       | —                     |                    |                    | 0.73              |                    |                   | 0.95               |                       
|Fair value at grant date (euros)        |                                     | —     |                       |                       | —                     |                    |                    | 0.49              |                    |                   | 0.68               |                       
|Expiration date                         |                                     | —     |                       |                       | —                     |                    |                    | 02/19/2027        |                    |                   | 11/30/2025         |                       
|Balance at January 1, 2015              |                                     | 1.53  |                       |                       | 6,594,676             |                    |                    | —                 |                    |                   | —                  |                       
|Granted                                 |                                     | 0.96  |                       |                       | 1,766,218             |                    |                    | —                 |                    |                   | 1,766,218          |                       
|Forfeited                               |                                     | 1.00  |                       |                       | (7,778                | )                  |                    | —                 |                    |                   | —                  |                       
|Exercised                               |                                     | 0.46  |                       |                       | (9,030                | )                  |                    | —                 |                    |                   | —                  |                       
|Balance at December 31, 2015            |                                     | 1.41  |                       |                       | 8,344,086             |                    |                    | —                 |                    |                   | 1,766,218          |                       
|Granted                                 |                                     | 0.97  |                       |                       | 453,961               |                    |                    | —                 |                    |                   | 453,961            |                       
|Forfeited                               |                                     | 0.83  |                       |                       | (179,417              | )                  |                    | —                 |                    |                   | (142,581           | )                     
|Balance at December 31, 2016            |                                     | 1.40  |                       |                       | 8,618,630             |                    |                    | —                 |                    |                   | 2,077,598          |                       
|Granted                                 |                                     | 0.72  |                       |                       | 5,345,477             |                    |                    | 5,345,477         |                    |                   | —                  |                       
|Forfeited                               |                                     | 0.81  |                       |                       | (335,116              | )                  |                    | (280,000          | )                  |                   | (55,116            | )                     
|Correction                              |                                     | 2.74  |                       |                       | 92,500                |                    |                    | —                 |                    |                   | —                  |                       
|Expired                                 |                                     | 6.54  |                       |                       | (516,063              | )                  |                    | —                 |                    |                   | —                  |                       
|Balance at December 31, 2017            |                                     | 0.95  |                       |                       | 13,205,428            |                    |                    | 5,065,477         |                    |                   | 2,022,482          |                       











On December 7, 2015, 2,250,000 warrants
were issued of which 2,220,179 warrants were granted in total and 29,821 warrants expired because they were not granted.



On December 7, 2015, 1,766,218 warrants
were granted. The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.95 euro, the closing price of our ordinary shares
on December 4, 2015, the last closing price prior to the grant of the warrants on December 7, 2015, which was lower than the 30
day average price.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | For our CEO, Eduardo Bravo, who is not an employee of TiGenix SAU, the exercise price was set at
0.97 euro, the average closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants on December
7, 2015.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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On May 4, 2016, 96,637 warrants were granted.
The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.95 euro, the closing price of our ordinary shares
on May 3, 2016, the last closing price prior to the grant of the warrants on May 4, 2016, which was higher than the 30 days average
price.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On June 2, 2016, 193,863 warrants were granted.
The exercise price was determined as follows:



| | - | For our independent directors, who are not employees of TiGenix, the exercise price was set at
0.97 euro, the average closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants on December
7, 2015.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On September 6, 2016, 163,461 warrants were
granted. The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.97 euro, the closing price of our ordinary shares
on September 5, 2016, the last closing price prior to the grant of the warrants on September 6, 2016, which was lower than the
30 day average price.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The warrants issued on December 7, 2015
have a term of ten years. Upon expiration of the ten year term, the warrants become null and void. The issuance of these warrants
has no impact on the accompanying consolidated financial statements.



On February 20, 2017, 5,505,477 warrants
were issued of which 5,345,477 warrants were granted in total and 160,000 warrants expired because they were not granted.



On February 20, 2017, 4,802,477 warrants
were granted. The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.70 euro, the closing price of our ordinary shares
on February 17, 2017, the last closing price prior to the grant of the warrants on February 20, 2017, which was lower than the
30 day average price.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | - | For our CEO, Eduardo Bravo, who is not an employee of TiGenix SAU, the exercise price was set at
0.71 euro, the average closing price of our ordinary shares during 30 calendar days prior to the issuance of the warrants on February
20, 2017.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On May 9, 2017, 48,000 warrants were granted.
The exercise price was determined as follows:



| | - | For our independent director June Almenoff, who is not an employee of TiGenix, the exercise price
was set at 0.76 euro, the average closing price of our ordinary shares during the 30 calendar days prior to the grant of the warrants
on May 9, 2017.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On July 6, 2017, 250,000 warrants were granted.
The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.91 euro, the average closing price of our ordinary
shares during the 30 calendar days prior to the grant of the warrants on July 6, 2017.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On November 16, 2017, 150,000 warrants were
granted. The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.94 euro, the closing price of our ordinary shares
on November 15, 2017, the last closing price prior to the grant of the warrants on November 16, 2017, which was lower than the
30 day average price.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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On December 1, 2017, 95,000 warrants were
granted. The exercise price was determined as follows:



| | - | For all employees, the exercise price was set at 0.95 euro, the closing price of our ordinary shares
on November 30, 2017, the last closing price prior to the grant of the warrants on December 1, 2017, which was lower than the 30
day average price.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The fair value of each warrant was estimated
on the date of grant using the Black-Scholes model with the following assumptions:



| | • | The historic volatility of the Company (ranged between 48.9% and 56.0% for the 2017 warrants plan
granted in five different tranches, between 66.9% and 69.7% for the 2015 warrant plan granted in four different tranches, 67% for
the 2013 warrant plans, 52.8% for the 2012 warrant plan and 60% for the previous plans), which was determined based on past (three
years) volatility of the TiGenix share;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | The expected dividends are assumed to be zero in the model;
| | - | -----------------------------------------------------------



| | • | Weighted average risk-free interest rates based on Belgian Sovereign Strips at the date of grant
with a term equal to the expected life of the warrants, ranging between 0% and 4.6%;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | Weighted average share price (determined at 0.73 euros for the latest warrant plan); and
| | - | ----------------------------------------------------------------------------------------



| | • | The expected lifetime of the warrants, which on average is about five years for the warrants with
a maximum duration of ten years.
| | - | ----------------------------------------------------------------------------------------------------------------------------------



The remaining weighted average life of these
options was 6.59 years at December 31, 2017 (2016: 5.86 years; 2015: 6.8 years).



The total expense recognized for the year
arising from share-based payment transactions amounts to 1.6 million euro at December 31, 2017 (2016: 0.9 million euro; 2015: 0.1
million euro).



TiGenix SAU—Stock options granted
to employees, executives and independent board members



Prior to the business combination, TiGenix
SAU (formerly Cellerix) had created two equity based incentive plans, or EBIPs. The completion of the business combination triggered
certain consequences outlined below which affect both EBIPs. A summary overview of some of the conditions of both EBIPs is given
below.



Options under the EBIP 2008 were granted
to employees, executives and independent members of the board of directors of TiGenix SAU prior to the business combination. Options
under the EBIP 2008 were granted to each beneficiary through individual letters. As a result of the business combination, all EBIP
2008 options vested except for 32,832 options of employees who terminated their employment with TiGenix SAU before the business
combination and that were not re-allocated. The exercise prices of the EBIP 2008 were set at 11.0 euros, 7.0 euros and
5.291 euros depending on the date of grant and beneficiary. TiGenix SAU granted 453,550 options under the EBIP 2008 of which
420,718 were vested. As a result of the business combination, all TiGenix SAU options were exchanged into TiGenix stock options.



The options under the EBIP 2008 had to be
exercised prior to August 6, 2015. As no beneficiary exercised its options, they have now expired. This resulted in a movement
of 2,108 euro in accumulated deficits during year 2015.



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On June 15, 2017, TiGenix SAU’s board
of directors and shareholders’ meeting approved an EBIP for all employees of the TiGenix group (the “June 2017 EBIP”).
The June 2017 EBIP was based on the existing TiGenix NV shares underlying the expired EBIP 2008 options.



Pursuant to the June 2017 EBIP, TiGenix
SAU offered a total of 1,247,325 options on existing TiGenix NV shares (the “June 2017 EBIP Options”) to the employees
of the TiGenix group. TiGenix SAU held such options on existing TiGenix NV shares pursuant to a management agreement entered into
between TiGenix SAU and CX EBIP Agreement SL (“CEA”) in relation to the EBIP 2008 and the EBIP 2010 (the “CEA
Agreement”) and as a consequence of the expiration of options under the 2008 EBIP. The existing TiGenix NV shares were held
by CEA.



Under the June 2017 EBIP, the beneficiaries
of the plan could purchase a number of June 2017 EBIP Options from TiGenix SAU at a purchase price of 0.433 euros per option. Subsequently,
the beneficiaries could exercise the June 2017 EBIP Options for an exercise price of 0.0044 (rounded) euros per EBIP option. Each
June 2017 EBIP Option entitles its beneficiary to one TiGenix share.



The June 2017 EBIP ended on December 31,
2017.



As of December 31, 2017, beneficiaries of
the June 2017 EBIP purchased and exercised 802,386 June 2017 EBIP Options. The June 2017 EBIP Options not purchased under the June
2017 EBIP were used in the subsequent October 2017 EBIP.



On October 6, 2017, TiGenix SAU’s
board of directors and shareholders’ meeting approved an EBIP for certain employees of the TiGenix group (the “October
2017 EBIP”). The October 2017 EBIP was based on the remaining existing TiGenix NV shares underlying the expired EBIP 2008
options and on the June 2017 EBIP Options not purchased under the June 2017 EBIP.



Pursuant to the October 2017 EBIP, TiGenix
SAU offered a total of 445,664 options on existing TiGenix NV shares (the “October 2017 EBIP Options”) to certain employees
of the TiGenix group. TiGenix SAU held such options on existing TiGenix NV shares pursuant to the CEA Agreement and as a consequence
of the expiration of options under the 2008 EBIP. The existing TiGenix NV shares were held by CEA.



Under the October 2017 EBIP, the beneficiaries
of the plan could purchase a number of October 2017 EBIP Options from TiGenix SAU at a purchase price of 0.45 euros per option.
Subsequently, the beneficiaries could exercise the October 2017 EBIP Options for an exercise price of 0.0044 (rounded) euros per
EBIP option. Each October 2017 EBIP Option entitles its beneficiary to one TiGenix share.



The October 2017 EBIP will end on June 30,
2018.



As of December 31, 2017, beneficiaries of
the October 2017 EBIP purchased and exercised 425,661 October 2017 EBIP options. No other EBIP options, under any plan, were outstanding
as of December 31, 2017.



As of December 31, 2017, a total of EUR
1.2 million has been recorded within equity, of which EUR 0.6 million relates to the cash received from employees acquiring the
EBIP options, and EUR 0.6 million relates to the differential between the fair value of the option and the price of the option.
The fair value of the option is considered at the date in which the employee accepts the offer. These values varied from EUR 0.90
to EUR 1.08. This differential has been recorded as a personnel expense.



Options under the EBIP 2010 were only granted
to senior management of TiGenix SAU. The EBIP provides that the normal exercise price of the options is set at 5.291 euros.
However, as a result of the business combination the exercise price for all EBIP 2010 options has been reduced to 0.013 euros.



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TiGenix SAU has granted 221,508 options
under the EBIP 2010. As a result of the business combination, all EBIP 2010 options have vested. Pursuant to the terms of the EBIP
2010 the board of directors of TiGenix SAU has opted to exchange all existing options for new options over existing TiGenix shares.
Pursuant to the initial terms of the EBIP 2010, beneficiaries had to exercise their options before September 30, 2016. However,
the exercise period of the EBIP 2010 was extended until December 31, 2016, and all remaining options under the EBIP 2010 were exercised
in October 2016.



As of December 31, 2017, no more options
were outstanding under the EBIPs.



24. Related party transactions



Transactions between the Group and its employees,
consultants or directors are disclosed below.



Compensation of key management personnel



Key management personnel are identified
as being the CEO, CFO, CTO and CMO.



The combined remuneration package of key
management was as follows:



|                         |  | Years ended December 31,
|------------------------ |  | ------------------------
|Thousands of euros       |  | 2017                    
|Short-term benefits      |  |                         
|Post-employment benefits |  |                         
|Share-based payments     |  |                         
|Total                    |  |                         



No loan, quasi-loan or other guarantee is
outstanding with members of the management team.



Transactions with non-executive directors



Non-executive directors that represent shareholders
of the Company receive no compensation for their position as directors.



|The independent directors receive a fee for attending and preparing the meetings of the BoD and they receive reimbursement for expenses directly related to the board meetings. |  | As at December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Thousands of euros                                                                                                                                                              |  | 2017              
|Short-term benefits                                                                                                                                                             |  |                   
|Share-based payments                                                                                                                                                            |  |                   
|Total                                                                                                                                                                           |  |                   



No advances or credits have been granted
to any member of the BoD. None of the members of the BoD has received any non-monetary remuneration other than warrants.



25. Segment information



The Group’s activities are managed
and operated in one segment, biopharmaceuticals. There is no other significant class of business, either individual or in aggregate.
As such, the chief operating decision maker



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(i.e., the CEO) reviews the
operating results and operating plans and makes resource allocation decisions on a company-wide basis.



Geographical information



Revenue of 2017 from continuing operations
are mainly related to grants and other operating income 0.6 million euros Spain and 0.3 million euros Belgium.



The Group’s non-current assets by
location are presented below:



|                   |  | As at December 31,
|------------------ |  | ------------------
|Thousands of euros |  | 2017              
|Belgium            |  |                   
|Spain              |  |                   
|Total              |  |                   



26. Commitments and contingencies



Operating lease commitments



The operating lease commitments of the Group
relate to leases of buildings between one and nine years and leases of cars and IT equipment for four years. The Group does not
have an option to purchase the leased assets.



The operating lease commitments for future
periods are presented in the table below:



|                            |  | As at December 31,
|--------------------------- |  | ------------------
|Thousands of euros          |  | 2017              
|Within one year             |  |                   
|In the second to fifth year |  |                   
|After five years            |  |                   
|Total                       |  |                   

Other commitments



TiGenix Inc guarantees the operating
lease payments of Cognate for the building leased in the United States. Total remaining operating lease commitments at December 31,
2017 for which TiGenix Inc was a guarantor were 0.2 million euros (0.3 million euros in 2016). Cognate was the party with
whom TiGenix had a joint venture, TC CEF LLC, in the past.



Legal proceedings



TiGenix SAU is involved in the following
legal proceedings.



Invalidation of U.S. patent US6777231



On April 1, 2011, Cellerix (the predecessor
entity of our subsidiary TiGenix SAU) filed an inter partes re-examination request with the US Patent and Trademark Office
regarding the patent US6777231, owned by the University of Pittsburgh. The US Patent and Trademark Office examiner issued a decision
concluding that all ten originally issued and all eighteen newly submitted claims of the patent granted to the University of Pittsburgh
were invalid. The University of Pittsburgh appealed the examiner’s decision to the Patent Trial and Appeal Board (“PTAB”).
The PTAB issued its decision on July 31, 2017 affirming the



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examiner’s rejection of the newly
submitted claims as indefinite and as anticipated. The PTAB’s decision affirming that all ten originally issued claims and
all 18 newly submitted claims of the patent granted to the University of Pittsburgh were invalid on at least one ground became
final and appealable on November 30, 2017. The deadline for filing a notice of appeal was January 30, 2018. TiGenix did not appeal
and has not been served with a notice of appeal by the University of Pittsburgh. At this stage, we expect that the PTO examiner
will issue a Notice of Intent to Issue an Inter PartesReexamination Certificate that will indicate that all claims have
been canceled and the re-examination prosecution is terminated.



In the unlikely event that the re-examination
is not successful as a result of an appeal by the University of Pitsburg (which as of the date hereof would be untimely), the Company
may be required to obtain a license on unfavorable terms, or may not be able to obtain a license at all in order to commercialize
its adipose-derived stem cell products in the United States. The Company would potentially be susceptible to patent infringement
or litigation regarding patent infringement while commercializing its eASC products in the United States. The Company may, therefore,
choose to delay the launch of its adipose-derived stem cell products in the U.S. market until the expiration of the patent US6777231
on March 10, 2020.



27. Subsequent events



On January 5, 2018 Takeda
, announced its intention to launch a potential voluntary and conditional public tender offer to purchase (i) up to 100%
of the issued and outstanding shares of the Company that are held by residents in the United States, including holders who are
“U.S. Holders” (as that term is defined under instruction 2 to paragraphs (c) and (d) of Rule 14d-1 under the U.S.
Securities Exchange Act of 1934, as amended (the “Exchange Act”) for €1.78 per share and (ii) up to 100% of the
outstanding ADSs of the Company from all holders, wherever located, for €35.60 (payable in the equivalent amount of U.S. dollars)
per ADS, in each case, in cash, without interest, and in each case less the amount of any fees, expenses and withholding taxes
that may be applicable, upon the terms and subject to the conditions set forth in the Tender Offer Statement on Schedule TO (as
amended or supplemented from time to time, the “Schedule TO”) to be filed by Takeda with the U.S. Securities and Exchange
Commission (the “SEC”) and the Schedule 14D-9 to be filed by the Company with the SEC (the “U.S. Offer”).
The Schedule TO and Schedule 14D-9 will be available at the SEC’s website (www.sec.gov).



Simultaneously with the
U.S. Offer, Takeda announced its intention to launch an offer in accordance with the laws of Belgium to purchase (i) up to 100%
of the issued and outstanding shares from all holders of shares, wherever located, subject to certain restrictions for €1.78
per share and (ii) up to 100% of the issued and outstanding warrants of the Company to acquire shares from all holders of Warrants,
wherever located, subject to certain restrictions and subject to the conditions set forth in the prospectus prepared by Takeda
(the “Prospectus”) to be approved by the Belgian Financial Services and Market authority (the “FSMA”) (the
“Belgian Offer” and, together with the U.S. Offer, the “Tender Offer”), and on substantially the same terms
as the shares offered to be purchased pursuant to the U.S. Offer. The U.S. Offer will be open to all holders of ADSs, wherever
located, including Belgian-resident holders, and to all holders of shares who are U.S. Holders. Holders of shares who are not U.S.
Holders will only be allowed to tender their shares into the Belgian Offer.



The Tender Offer will
be made in connection with, and subject to the terms and conditions of, the Offer and Support Agreement, dated as of January 5,
2018, by and among Takeda and the Company (as such agreement may be amended from time to time, the “Offer and Support Agreement”).
The Offer and Support Agreement includes certain representations, warranties and undertakings by both parties customary in transactions
of a similar nature, including an obligation of the Company to conduct its business and operations in the ordinary course and consistent
with past practices until the completion of the Tender Offer and cooperation by the parties in necessary regulatory filings and
in completing the Tender Offer in the most expeditious way possible. The Company has agreed not to solicit or encourage any competing
offers or proposals for such offers or other transactions competing with the Tender Offer, nor to facilitate or promote any such
competing proposals, unless the Company’s board of directors has determined that, with respect to an unsolicited competing
proposal, failure to take such measures would be inconsistent with the board of directors’ fiduciary duties. The Tender Offer
will be subject to (i) the



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tender into the U.S. Offer
and the Belgian Offer, in aggregate, of a number of shares, warrants and ADSs that, together with all shares, warrants and ADSs
owned by Takeda and its affiliates, represents or gives access to 85% or more of the voting rights represented or given access
to by all of the outstanding shares, warrants and ADSs on a fully diluted basis as of the end of the first acceptance period, (ii)
no material adverse effect since the execution of and as defined in the Offer and Support Agreement, (iii) the receipt of U.S.
anti-trust clearance (which has been obtained) and (iv) Cx601 obtaining marketing authorization in the European Union by the European
Commission (which was obtained on March 23, 2018).



On January 19, 2018
the Company issued 20,037,848 new shares resulting from the conversion of 18 million of senior unsecured convertible bonds of TiGenix
NV due on March 6, 2018.



On March 23, 2018 the
European Commission approved Alofisel (darvadstrocel), previously Cx601, for the treatment of complex perianal fistulas in adult
patients with nonactive/mildly active luminal Crohn's disease, when fistulas have shown an inadequate response to at least one
conventional or biologic therapy. Alofisel should be used after conditioning of fistula. This marks the first allogeneic stem cell
therapy to receive central marketing authorization (MA) approval in Europe.



28. Consolidation scope



|                                                                                        |                            |                               | Ownership
        interest
|--------------------------------------------------------------------------------------- | -------------------------- | ----------------------------- | --------------------------
|                                                                                        |                            |                               | As at
        December 31,
|Legal
        Entity                                                                    | Principal
        activity | Place
        ofincorporation | 2017                      
|TiGenix
Romeinse straat 12, Box 2
3001 Leuven                                           | Biopharmaceutical company  | Belgium                       | 100%                      
|                                                                                        |                            |                               |                           
|TiGenix SAU
Calle Marconi 1, Parque Tecnológico de Madrid
Tres Cantos
28760 Madrid      | Biopharmaceutical company  | Spain                         | 100%                      
|                                                                                        |                            |                               |                           
|Coretherapix SLU
Calle Marconi 1, Parque Tecnológico de Madrid
Tres Cantos
28760 Madrid | Biopharmaceutical company  | Spain                         | 100%                      
|                                                                                        |                            |                               |                           
|TiGenix Inc
1209 Orange Street
Wilmington, Delaware                                     | Biopharmaceutical company  | U.S.A.                        | 100%                      
|                                                                                        |                            |                               |                           
|TiGenix US, Inc
1209 Orange Street
Wilmington, Delaware                                 | Biopharmaceutical company  | U.S.A.                        | 100%                      

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